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KMPR Kemper

Filed: 10 Feb 21, 4:02pm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-18298
Kemper    Corporation
(Exact name of registrant as specified in its charter)
DE95-4255452
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
200 E. Randolph Street
Suite 3300
ChicagoIL60601
(Address of principal executive offices)(Zip Code)

(312) 661-4600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 par value per shareKMPRNYSE

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer  
Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  

As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $4.7 billion based on the closing sale price as reported on the New York Stock Exchange. Solely for purposes of this calculation, all executive officers and directors of the registrant are considered affiliates.

Registrant had 65,454,685 shares of common stock outstanding as of January 31, 2021.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into Part III.



Table of Contents
 
Caution Regarding Forward-Looking Statements
Part I
Item 1.Business
Item 1A.Risk Factors
Item 1B.Unresolved Staff Comments
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Mine Safety Disclosures
Part II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.Selected Financial Data
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8.Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B.Other Information
Part III
Item 10.Directors, Executive Officers and Corporate Governance
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions, and Director Independence
Item 14.Principal Accounting Fees and Services
Part IV
Item 15.Exhibits, Financial Statement Schedules
Item 16.Form 10-K Summary
Exhibit Index
Power of Attorney
Signatures
Financial Statement Schedules:
Schedule 1 - Investments Other than Investments in Related Parties
SCH I-1
Schedule 2 - Parent Company Financial Statements
SCH II-1
Schedule 3 - Supplementary Insurance Information
SCH III-1
Schedule 4 - Reinsurance Schedule
SCH IV-1



Caution Regarding Forward-Looking Statements
This 2020 Annual Report on Form 10-K (the “2020 Annual Report”), including, but not limited to, the accompanying consolidated financial statements of Kemper Corporation (“Kemper” or the “Registrant”) and its subsidiaries (individually and collectively referred to herein as the “Company”) and the notes thereto appearing in Item 8 herein (the “Consolidated Financial Statements”), the Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 7 herein (the “MD&A”) and the other Exhibits and Financial Statement Schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements give expectations or forecasts of future events. The reader can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “believe(s),” “goal(s),” “target(s),”
“estimate(s),” “anticipate(s),” “forecast(s),” “project(s),” “plan(s),” “intend(s),” “expect(s),” “might,” “may,” “could” and other terms of similar meaning. Forward-looking statements, in particular, include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong, and, accordingly, Kemper cautions readers not to place undue reliance on such statements. Kemper bases these statements on current expectations and the current economic environment as of the date of this 2020 Annual Report. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties that may be important in determining the Company’s actual future results and financial condition.
In addition to the factors discussed below under Item 1A., “Risk Factors,” in this 2020 Annual Report, the reader should consider the following list of general factors that, among others, could cause the Company’s actual results and financial condition to differ materially from estimated results and financial condition.
Factors related to the legal and regulatory environment in which Kemper and its subsidiaries operate
Evolving policies, practices and interpretations by regulators and courts that increase operating costs and potential liabilities, particularly any that involve retroactive application of new requirements, including, but not limited to, initiatives related to unclaimed property laws or claims handling practices with respect to life insurance policies and the proactive use of death verification databases, and developments related to the novel coronavirus COVID-19 (“COVID-19”);
Adverse outcomes in litigation or other legal or regulatory proceedings involving Kemper or its subsidiaries or affiliates;
Governmental actions, including, but not limited to, implementation of new laws and regulations, and court decisions interpreting existing and future laws and regulations or policy provisions;
Uncertainties related to regulatory approval of insurance rates, policy forms, insurance products, license applications, dividends from insurance subsidiaries, acquisitions of businesses and other matters within the purview of state insurance regulators;
Increased costs and initiatives required to address new legal and regulatory requirements;
Liabilities, costs and other impacts arising from developments related to cybersecurity, privacy and data governance, including, without limitation, cyber incidents that have occurred or could occur;

Factors relating to insurance claims and related reserves in the Company’s insurance businesses

The incidence, frequency and severity of catastrophes occurring in any particular reporting period or geographic area, including natural disasters, pandemics (including COVID-19) and terrorist attacks or other man-made events;
The frequency and severity of insurance claims (including those associated with catastrophe losses and pandemics);
Changes in facts and circumstances affecting assumptions used in determining loss and loss adjustment expenses (“LAE”) reserves, including, but not limited to, the frequency and severity of insurance claims, changes in claims handling procedures and closure patterns, development patterns and the impacts of COVID-19;
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The impact of inflation on insurance claims, including, but not limited to, the effects on personal injury claims of increasing medical costs and the effects on property claims attributed to scarcity of resources available to rebuild damaged structures, including labor and materials and the amount of salvage value recovered for damaged property, and the rising costs of insurance claims from increased litigation, higher jury awards, broader definitions of liability, and other effects of societal trends referred to as social inflation;
Developments related to insurance policy claims and coverage issues, including, but not limited to, interpretations, pronouncements or decisions by courts or regulators that may govern or influence losses incurred in connection with hurricanes and other catastrophes, including COVID-19;
Orders, interpretations or other actions by regulators that impact the reporting, adjustment and payment of claims;
Changes in the pricing or availability of reinsurance, or in the financial condition of reinsurers and amounts recoverable therefrom;
Factors related to the Company’s ability to compete
Changes in the ratings of Kemper and/or its insurance company subsidiaries by rating agencies with regard to credit, financial strength, claims paying ability and other areas on which the Company is rated;
The level of success and costs incurred in realizing or maintaining economies of scale, integrating acquired businesses and implementing significant business initiatives and the timing of the occurrence or completion of such events, including, but not limited to, those related to expense and claims savings, consolidations, reorganizations and technology;
Absolute and relative performance of the Company’s products and services, including, but not limited to, the level of success achieved in designing and introducing new insurance products and services;
Difficulties with technology, data and network security (including as a result of cyber attacks that have occurred or could occur), outsourcing relationships or cloud-based technology that could negatively impact the Company’s ability to conduct business, a heightened risk when substantial numbers of employees shift to work from home arrangements, such as the arrangements implemented for a vast majority of the Company’s employees and some business partners during the COVID-19 pandemic;
The ability of the Company to maintain the availability and required performance of critical systems and manage technology initiatives cost-effectively to address insurance industry developments and regulatory requirements;
Heightened competition, including, with respect to pricing, consolidations of existing competitors or entry of new competitors and alternate distribution channels, introduction of new technologies, use and enhancements of telematics, refinements of existing products and development of new products by current or future competitors;
Expected benefits and synergies from mergers, acquisitions and/or divestitures that may not be realized to the extent anticipated, within expected time frames or at all, due to a number of factors including, but not limited to, the loss of key agents/brokers, customers or employees, increased costs, fees, expenses and related charges and delays caused by unanticipated developments or factors outside of the Company’s control;
The successful formulation and execution of the Company’s plan with regard to corporate strategy and significant operational changes;
Factors relating to the business environment in which Kemper and its subsidiaries operate

Changes in general economic conditions, including those related to, without limitation, performance of financial markets, interest rates, inflation, unemployment rates, significant global events such as the pandemic related to COVID-19, and fluctuating values of particular investments held by the Company;
Absolute and relative performance of investments held by the Company;
Changes in insurance industry trends and significant industry developments;
Changes in consumer trends, including changes in number of miles driven by automobile insurance policyholders, and significant consumer or product developments;
Changes in capital requirements, including the calculations thereof, used by regulators and rating agencies;
Changes related to the phase out of the London Interbank Offered Rate (“LIBOR”) reference rates beginning after 2021;
Regulatory, accounting or tax changes that may affect the cost of, or demand for, the Company’s products or services or after-tax returns from the Company’s investments;
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The impact of required participation in state windpools and joint underwriting associations, residual market assessments and assessments for insurance industry insolvencies including the impact of COVID-19;
Changes in distribution channels, methods or costs resulting from changes in laws or regulations, legal proceedings or market forces;
Increased costs and risks related to cybersecurity that could materially affect the Company’s operations including, but not limited to, data breaches, cyber attacks, virus or malware attacks, or other infiltrations or incidents affecting system integrity, availability and performance, and actions taken to minimize and remediate the risks of such events that have occurred or could occur;
Other risks and uncertainties described from time to time in Kemper’s filings with the U.S. Securities and Exchange Commission (“SEC”).
Kemper cannot provide any assurances that the results and outcomes contemplated in any forward-looking statements will be achieved or will be achieved in any particular timetable or that future events or developments will not cause such statements to be inaccurate including impacts related to COVID-19. Kemper assumes no obligation to correct or update any forward-looking statements publicly for any changes in events or developments or in the Company’s expectations or results subsequent to the date of this 2020 Annual Report. Kemper advises the reader, however, to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.
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PART I
Item 1.    Business
Kemper is a diversified insurance holding company, with subsidiaries that provide automobile, homeowners, life, health, and other insurance products to individuals and businesses. Kemper’s annual reports on Form 10-K, quarterly reports on Form 10‑Q, current reports on Form 8-K and amendments thereto are accessible free of charge through Kemper’s website, kemper.com, and as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, which also maintains an Internet site at sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Registrant is a holding company incorporated under the laws of the State of Delaware in 1990, with equity securities traded on the New York Stock Exchange (the “NYSE”). On August 25, 2011, Registrant adopted its current name, Kemper Corporation, and changed its NYSE ticker symbol to KMPR. Prior to the name change, the Registrant was known as Unitrin, Inc. and traded under the NYSE ticker symbol UTR.
The Kemper family of companies is one of the nation’s leading specialized insurers. With over $14.3 billion in assets, Kemper is improving the world of insurance by providing affordable and easy-to-use personalized solutions to individuals, families and businesses through its Auto, Personal Insurance, Life and Health brands. Kemper serves over 6.2 million policies, is represented by more than 30,000 agents and brokers, and has approximately 9,500 associates dedicated to meeting the ever-changing needs of its customers.
The Company is engaged, through its subsidiaries, in the property and casualty insurance and life and health insurance businesses. The Company conducts its operations through three operating segments: Specialty Property & Casualty Insurance, Preferred Property & Casualty Insurance and Life & Health Insurance. The Company conducts its operations solely in the United States.
Kemper’s subsidiaries employ approximately 9,500 associates supporting their operations, of which approximately 4,800 are employed in the Specialty Property & Casualty Insurance Segment, approximately 100 are employed in the Preferred Property & Casualty Insurance segment, approximately 3,400 are employed in the Life & Health Insurance segment and the remainder are employed in various corporate and other staff and shared functions.
Property and Casualty Insurance Business
General
The Company’s property & casualty insurance business operations are conducted primarily through the Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segments. The Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segments distribute their products primarily through independent agents and brokers who are paid commissions for their services. In addition, the Life and Health Insurance segment’s career agents also sell contents coverage for personal property to its customers. Collectively, these segments provide preferred automobile, specialty automobile, homeowners, renters, fire, umbrella, general liability as an endorsement to commercial automobile and other types of property and casualty insurance to individuals and commercial automobile insurance to businesses.
Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation arising out of events covered by the policy.

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Specialty Property & Casualty Insurance
The Specialty Property & Casualty Insurance segment, based in Chicago, Illinois, conducts business in 34 states under the Kemper Auto brand. As shown in the following table, three states provided 91% of the segment’s premium revenues in 2020.
StatePercentage of Total Premiums
California63 %
Florida17 
Texas11 
The Specialty Property & Casualty Insurance segment provides personal and commercial automobile insurance to consumers who have had difficulty obtaining standard or preferred risk insurance, usually because of their driving records, claims experience or premium payment history. The segment also meets the insurance needs of other specialty markets such as urban and Hispanic consumers. The segment’s insurance products accounted for 71%, 69% and 60% of the Company’s consolidated insurance premiums in 2020, 2019 and 2018, respectively. The segment’s insurance products are marketed through approximately 18,150 independent agents and brokers.
Preferred Property & Casualty Insurance
The Preferred Property & Casualty Insurance segment, based in Chicago, Illinois, conducts business in 45 states and the District of Columbia. As shown in the following table, five states provided 64% of the segment’s premium revenues in 2020.
StatePercentage of Total Premiums
California19 %
New York19 
Texas12 
North Carolina9 
Connecticut5 
The Preferred Property & Casualty Insurance segment primarily sells preferred automobile insurance, homeowners insurance and other personal insurance. The segment’s insurance products accounted for 15%, 17% and 22% of the Company’s consolidated insurance premiums in 2020, 2019 and 2018, respectively. The segment’s insurance products are marketed through approximately 5,200 independent insurance agents and brokers to individuals who have demonstrated favorable risk characteristics and loss history.
Property and Casualty Loss and Loss Adjustment Expense Reserves
The Company’s reserves for losses and LAE for property and casualty insurance (“Property and Casualty Insurance Reserves”) are reported using the Company’s estimate of its ultimate liability for losses and LAE for claims that occurred prior to the end of any given accounting period but have not yet been paid.
Property and Casualty Insurance Reserves by business segment at December 31, 2020 and 2019 were:
DOLLARS IN MILLIONS20202019
Business Segments:
Specialty Property & Casualty Insurance$1,544.8 $1,551.0 
Preferred Property & Casualty Insurance411.6 388.5 
Life & Health Insurance4.6 3.3 
Total Business Segments1,961.0 1,942.8 
Unallocated Reserves21.5 27.0 
Total Property & Casualty Insurance Reserves$1,982.5 $1,969.8 
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In estimating the Company’s Property and Casualty Insurance Reserves, the Company’s actuaries exercise professional judgment and must consider, and are influenced by, many variables that are difficult to quantify. Accordingly, the process of estimating and establishing the Company’s Property and Casualty Insurance Reserves is inherently uncertain and the actual ultimate net cost of claims may vary materially from the estimated amounts reserved. See MD&A, “Critical Accounting Estimates,” under the caption “Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses” beginning on page 63 for a discussion of the Company’s reserving process and the factors considered by the Company’s actuaries in estimating the Company’s Property and Casualty Insurance Reserves.
The Company’s goal is to ensure that its total reserves for property and casualty insurance losses and LAE are adequate to cover all costs, while minimizing variation from the time reserves for losses and LAE are initially estimated until losses and LAE are fully paid. Changes in the Company’s estimates of these losses and LAE, also referred to as “development,” will occur over time and may be material. Favorable development is recognized and reported in the Consolidated Financial Statements when the Company decreases its previous estimate of ultimate losses and LAE and results in an increase in net income in the period recognized, whereas adverse development is recognized and reported in the Consolidated Financial Statements when the Company increases its previous estimate of ultimate losses and LAE and results in a decrease in net income.
See Note 6, “Property and Casualty Insurance Reserves,” to the Consolidated Financial Statements for information about incurred and paid claims development for the 2016-2019 accident years as of December 31, 2020, net of reinsurance and indemnification, as well as cumulative claim frequency and the total of incurred but not reported (“IBNR”) liabilities, including expected development on reported claims included within the net incurred losses and allocated LAE amounts as of December 31, 2020. See Note 6, “Property and Casualty Insurance Reserves,” to the Consolidated Financial Statements for a tabular reconciliation of the three most recent annual periods setting forth the Company’s Property and Casualty Insurance Reserves as of the beginning of each year, incurred losses and LAE for insured events of the current year, changes in incurred losses and LAE for insured events of prior years, payments of losses and LAE for insured events of the current year, payments of losses and LAE for insured events of prior years and the Company’s Property and Casualty Insurance Reserves at the end of the year and additional information regarding the nature of adjustments to incurred losses and LAE for insured events of prior years.
Catastrophe Losses
Catastrophes and natural disasters are inherent risks of the property and casualty insurance business. These catastrophic events and natural disasters include, without limitation, hurricanes, tornadoes, earthquakes, hailstorms, wildfires, high winds and winter storms. Such events result in insured losses that are, and are expected to be, a material factor in the results of operations and financial position of Kemper’s property and casualty insurance companies. Further, because the level of insured losses that could occur in any one year cannot be accurately predicted, these losses contribute to material year-to-year fluctuations in the results of operations and financial position of these companies. Specific types of catastrophic events are more likely to occur at certain times within the year than others. This factor adds an element of seasonality to property and casualty insurance claims. The occurrence and severity of catastrophic events cannot be accurately predicted in any year. However, some geographic locations are more susceptible to these events than others. The Company has endeavored to manage its direct insurance exposures in certain regions that are prone to naturally occurring catastrophic events through a combination of geographic diversification, restrictions on the amount and location of new business production in such regions, modifications of, and/or limitations to coverages and deductibles for certain perils in such regions and reinsurance. The Company has adopted the industry-wide catastrophe classifications of storms and other events promulgated by Insurance Services Office, Inc. (“ISO”) to track and report losses related to catastrophes. ISO classifies a disaster as a catastrophe when the event causes $25 million or more in direct insured losses to property and affects a significant number of policyholders and insurers. ISO-classified catastrophes are assigned a unique serial number recognized throughout the insurance industry. The discussions throughout this 2020 Annual Report utilize ISO’s definition of catastrophes.
The process of estimating and establishing reserves for catastrophe losses is inherently uncertain and the actual ultimate cost of a claim, net of reinsurance recoveries, may vary materially from the estimated amount reserved. See Item 1A., “Risk Factors,” under the caption “Catastrophe losses could materially and adversely affect the Company’s results of operations, liquidity and/or financial condition” for a discussion of catastrophe risk. See Note 20, “Catastrophe Reinsurance,” to the Consolidated Financial Statements for a discussion of the factors that influence the process of estimating and establishing reserves for catastrophes.

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Reinsurance
The Company manages its exposure to catastrophes and other natural disasters through a combination of geographical diversification, restrictions on the amount and location of new business production in such regions, modifications of, and/or limitations to coverages and deductibles for certain perils in such regions and reinsurance. To limit its exposures to catastrophic events, the Company maintains a catastrophe reinsurance program for the property and casualty insurance companies. Coverage for the catastrophe reinsurance program is provided in various layers through multiple excess of loss reinsurance contracts and an aggregate excess property catastrophe reinsurance contract. The Company’s insurance subsidiaries also purchase reinsurance from the Florida Hurricane Catastrophe Fund (the “FHCF”) for hurricane losses in Florida at retentions lower than those described below for the Company’s catastrophe reinsurance program.
The 2021 catastrophe reinsurance program covering the property and casualty insurance companies is provided by (i) three multi-year excess of loss reinsurance contracts, (ii) an annual excess of loss reinsurance contract (the “2021 Annual Excess of Loss Contract”) and (iii) an annual aggregate excess property catastrophe reinsurance contract (the “2021 Aggregate Property Catastrophe Reinsurance Contract”).
Multi-year Excess of Loss Reinsurance Contracts
The first multi-year excess of loss reinsurance contract provides coverage over the three-year period of January 1, 2019 through December 31, 2021 (the “2019 Reinsurance Contract”). The 2019 Reinsurance Contract provides coverage in two layers, which together provide coverage for losses on individual catastrophes of $200 million in excess of $50 million. Under the 2019 Reinsurance Contract, the percentage of coverage is 31.66% for each year in the three-year period, and participation of each reinsurer remains the same over the entire three-year period. Accordingly, the 2019 Reinsurance Contract provides coverage for 31.66% of losses on individual catastrophes of $200 million in excess of $50 million in 2021.
The second multi-year excess of loss reinsurance contract provides coverage over the three-year period of January 1, 2020 through December 31, 2022 (the “2020 Reinsurance Contract”). The 2020 Reinsurance Contract provides coverage in two layers, which together provide coverage for losses on individual catastrophes of $200 million in excess of $50 million, which is consistent with the coverage provided under the 2019 Reinsurance Contract. Under the 2020 Reinsurance Contract, the percentage of coverage is 31.66% for each year in the three-year period, and participation of each reinsurer remains the same over the entire three-year period. Accordingly, the 2020 Reinsurance Contract provides coverage for 31.66% of losses on individual catastrophes of $200 million in excess of $50 million in 2021.
The third multi-year excess of loss reinsurance contract provides coverage over the three-year period of January 1, 2021 through December 31, 2023 (the “2021 Reinsurance Contract”). The 2021 Reinsurance Contract provides coverage in two layers, which together provide coverage for losses on individual catastrophes of $200 million in excess of $50 million, which is consistent with the coverage provided under the 2019 Reinsurance Contract and 2020 Reinsurance Contract. Under the 2021 Reinsurance Contract, the percentage of coverage is 27.66% for each year in the three-year period, and participation of each reinsurer remains the same over the entire three-year period. 4% of the 2021 coverage was placed through Reinsurance Facilities on an annual basis. Accordingly, the 2021 Reinsurance Contract provides coverage for 31.66% of losses on individual catastrophes of $200 million in excess of $50 million in 2021.

Annual Excess of Loss Reinsurance Contract

The 2021 Annual Excess of Loss Contract provides coverage for the annual period of January 1, 2021 through December 31, 2021. The 2021 Annual Excess of Loss Contract provides coverage for losses on individual catastrophes of $25 million in excess of $250 million.

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Summary of Excess of Loss Reinsurance Contracts
Coverage on individual catastrophes provided under the three multi-year excess of loss reinsurance contracts for 2021 (January 1, 2021 to December 31, 2021) and the 2021 Annual Excess of Loss Contract is provided in various layers as summarized below.
Catastrophe Losses
and LAE
Combined Percentage
of Coverage
DOLLARS IN MILLIONSIn Excess ofUp to
Retained$— $50.0 — %
1st Layer of Coverage50.0 150.0 95.0 
2nd Layer of Coverage150.0 250.0 95.0 
3rd Layer of Coverage250.0 275.0 95.0 
The estimated annual premium in 2021 for the three multi-year excess of loss reinsurance contracts and the 2021 Annual Excess of Loss Contract presented in the preceding table is $12.8 million. In the event that the Company’s incurred catastrophe losses and LAE covered by its catastrophe reinsurance program exceed the retention for a particular layer, the program allows for one reinstatement of such coverage. In such an instance, the Company is required to pay a reinstatement premium to the reinsurers to reinstate the full amount of the limit available under such layer. The reinstatement premium for the first layer of coverage is a percentage of the full original premium based on the ratio of the losses in excess of the Company’s retention to the reinsurers’ coverage limit. The reinstatement premium for the second layer of coverage is a percentage of half the original premium based on the ratio of the losses in excess of the Company’s retention to the reinsurers’ coverage limit. The reinstatement premium for the third layer of coverage is a percentage of half the original premium based on the ratio of the losses in excess of the Company’s retention to the reinsurers’ coverage limit.
Aggregate Property Catastrophe Reinsurance Contract
The 2021 Aggregate Property Catastrophe Reinsurance Contract is effective for the period of January 1, 2021 through December 31, 2021 and provides coverage for accumulated catastrophe losses of $50 million in excess of $60 million on property losses arising out of one or more of the following perils from storms or storm systems that are not named storms: (1) windstorm; (2) hail; (3) tornado and (4) fire; including ensuing collapse and water damage.
Coverage provided under the 2021 Aggregate Property Catastrophe Reinsurance Contract (January 1, 2021 to December 31, 2021) is summarized below.
Aggregate Catastrophe
Losses and LAE
DOLLARS IN MILLIONSIn Excess ofUp to
Retained$— $60.0 
Coverage60.0 110.0 
The estimated annual premium for the 2021 Aggregate Property Catastrophe Reinsurance Contract is $14.4 million. To maintain the same level and percentage of coverage in subsequent years as provided by the catastrophe reinsurance program in 2021, the Company’s property and casualty insurance companies will need to purchase additional reinsurance in the future for the portion of coverage expiring at the end of 2021, 2021 and 2022.
Other
In addition to the catastrophe loss exposures caused by natural events described above, Kemper’s property and casualty insurance companies are exposed to losses from catastrophic events that are not the result of acts of nature, such as acts of terrorism, the nature, occurrence and severity of which in any period cannot be accurately predicted. The companies have reinsurance coverage to address certain exposures to potential future terrorist attacks. The reinsurance coverage for certified events, as designated by the federal government, is from the Terrorist Risk Insurance Act and the coverage for non-certified events is available in the catastrophe reinsurance program for the property and casualty insurance companies. However, certain perils, such as biological, chemical, nuclear pollution or contamination, are excluded from the reinsurance coverage for non-certified events.
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Under the various reinsurance arrangements, Kemper’s property and casualty insurance companies are indemnified by reinsurers for certain losses incurred under insurance policies issued by the reinsurers. As indemnity reinsurance does not discharge an insurer from its direct obligations to policyholders on risks insured, Kemper’s property and casualty insurance companies remain directly liable. However, provided that the reinsurers meet their obligations, the net liability for Kemper’s property and casualty insurance companies is limited to the amount of risk that they retain. Kemper’s property and casualty insurance companies purchase their reinsurance only from reinsurers rated “A-” or better by A. M. Best Co., Inc. (“A.M. Best”), at the time of purchase. A.M. Best is an organization that specializes in rating insurance and reinsurance companies.
For further discussion of the reinsurance programs, see Note 20, “Catastrophe Reinsurance,” and Note 21, “Other Reinsurance,” to the Consolidated Financial Statements.
Pricing
Pricing levels for property and casualty insurance products are influenced by many factors, including the frequency and severity of claims, state regulation and legislation, competition, general business and economic conditions, including market rates of interest, inflation, expense levels, and judicial decisions. In addition, many state regulators require consideration of investment income when approving or setting rates, which could reduce underwriting margins. Further, some states have regulations that limit the after-tax return on underwriting profit allowed for an insurer and may impact the price charged for premiums or result in premium refunds. The Company derives a significant portion of its earned premiums in two such states, California and Florida. See MD&A under the caption “Specialty Property & Casualty Insurance” and “Preferred Property & Casualty Insurance.”
Competition
Based on the most recent annual data published by A.M. Best, as of the end of 2019, there were 1,107 property and casualty insurance groups in the United States. Kemper’s property and casualty group was among the top 6% of property and casualty insurance groups in the United States as measured by net written premiums, policyholders’ surplus and net admitted assets in 2019. Among all personal lines automobile insurance writers, Kemper’s property and casualty group was the 12th largest writer as measured by net written premiums in 2019.
Rankings by net admitted assets, net premiums written and capital and surplus were:
OrdinalPercentile
MeasurementRankRank
Net Admitted Assets5095 %
Net Written Premiums2897 
Capital and Surplus6694 
In 2019, the U.S. property and casualty insurance industry’s estimated net premiums written were $643 billion, of which nearly 80% were accounted for by the top 50 groups of property and casualty insurance companies. Kemper’s property and casualty insurance companies wrote less than 1% of the industry’s 2019 premium volume.
The property and casualty insurance industry is highly competitive, particularly with respect to personal automobile insurance. Kemper’s property and casualty insurance companies compete on the basis of, among other measures, (i) using suitable pricing segmentation, (ii) maintaining underwriting discipline, (iii) settling claims timely and efficiently, (iv) offering products in selected markets or geographies, (v) utilizing technological innovations for the marketing and sale of insurance, (vi) controlling expenses, (vii) maintaining adequate ratings from A.M. Best and other ratings agencies and (viii) providing quality services to independent agents and policyholders. See Item 1A., “Risk Factors,” under the caption “The insurance industry is highly competitive, making it difficult to grow profitability and within expectations of investors.
Life and Health Insurance Business
The Company’s Life & Health Insurance segment consists of Kemper’s wholly-owned subsidiaries, United Insurance Company of America (“United Insurance”), The Reliable Life Insurance Company (“Reliable”), Union National Life Insurance Company (“Union National Life”), Mutual Savings Life Insurance Company (“Mutual Savings Life”), United Casualty Insurance Company of America (“United Casualty”), Union National Fire Insurance Company (“Union National Fire”), Mutual Savings Fire Insurance Company (“Mutual Savings Fire”) and Reserve National Insurance Company (“Reserve National”). As discussed below, United Insurance, Reliable, Union National Life, Mutual Savings Life, United Casualty, Union National Fire and Mutual Savings Fire (the “Kemper Home Service Companies”) distribute their products through a network of employee, or
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“career” agents. Reserve National distributes its products through a network of independent agents and brokers. These career agents, independent agents and brokers are paid commissions for their services. Earned premiums from life insurance accounted for 8%, 9% and 11% of the Company’s consolidated insurance premiums earned in 2020, 2019 and 2018, respectively.
As shown in the following table, five states provided 49% of the premium revenues in this segment in 2020.
StatePercentage of Total Premiums
Texas21 %
Louisiana11 
Alabama7 
Mississippi5 
Georgia5 
Kemper Home Service Companies
The Kemper Home Service Companies, based in St. Louis, Missouri, focus on providing individual life and supplemental accident and health insurance products to customers of modest incomes who desire basic protection for themselves and their families. Their leading product is ordinary life insurance, including permanent and term insurance. Face amounts of these policies are lower than those of policies typically sold to higher income customers by other companies in the life insurance industry. Approximately 71% of the Life & Health Insurance segment’s premium revenues are generated by the Kemper Home Service Companies.
The Kemper Home Service Companies employ nearly 2,100 career agents to distribute insurance products in 26 states and the District of Columbia. These career agents are full-time employees who call on customers in their homes to sell insurance products, provide services related to policies in force and collect premiums, typically monthly. Premiums average approximately $24 per policy per month with an average face value of $5,800. Permanent and term policies are offered primarily on a non-participating, guaranteed-cost basis. These career agents also distribute and/or service certain property insurance products for the Kemper Home Service Companies.
Reserve National
Reserve National, based in Oklahoma City, Oklahoma, is licensed in 49 states and the District of Columbia. The Company specializes in the sale of supplemental accident & health and life insurance products such as: Medicare Supplement, fixed hospital indemnity, home health care, specified disease, and accident-only plans.
Reserve National distributes products through two channels - Kemper Traditional and Kemper Benefits. The Traditional channel has historically served individuals in rural areas who often do not have access to a broad array of accident and health insurance products, though has more recently broadened to include suburban and urban areas. Insurance products can be tailored to meet individual and family needs and are distributed through approximately 600 independent agents. Kemper Benefits sells voluntary worksite products in the employer market place through Employee Benefit brokers and enrollers. In total, Reserve National currently has approximately 3,500 independent agents appointed.
Reinsurance
Consistent with insurance industry practice, the Company’s life and health insurance subsidiaries utilize reinsurance arrangements to limit their maximum loss, provide greater diversification of risk and minimize exposures on larger risks. As the face amounts of the Company’s issued policies are relatively small, the ceded risks and corresponding premiums are also relatively small, particularly when compared to other companies in the industry. The segment is also exposed to losses from catastrophes arising from insurance policies distributed by career agents of the Kemper Home Service Companies. Over the last several years, the Kemper Home Service Companies have been intentionally reducing their exposure to catastrophic events through the run-off of their dwelling insurance business. The Kemper Home Services Companies are parties to the FHCF, the Property & Casualty catastrophe excess of loss reinsurance contracts, and the aggregate property catastrophe reinsurance contract.

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Lapse Ratio
The lapse ratio is a measure of a life insurer’s loss of in-force policies. For a given year, this ratio is commonly computed as the total face amount of individual life insurance policies lapsed, surrendered, expired and decreased during such year, less policies increased and revived during such year, divided by the total face amount of policies at the beginning of the year plus the face amount of policies issued and reinsurance assumed in the prior year. The Life & Health Insurance segment’s lapse ratio for individual life insurance was 4%, 6%, and 6% in 2020, 2019 and 2018, respectively.
The customer base served by the Kemper Home Service Companies and competing life insurance companies tends to have a higher incidence of lapse than other demographic segments of the population. Thus, to maintain or increase the level of its business, the Kemper Home Service Companies must write a higher volume of new policies than competitors serving other demographic segments of the population.
Pricing
Premiums for life and health insurance products are based on assumptions with respect to mortality, morbidity, investment yields, expenses, and lapses and are also affected by state laws and regulations, as well as competition. Pricing assumptions are based on the experience of Kemper’s life and health insurance subsidiaries, as well as the industry in general, depending on the factor being considered. The actual profit or loss produced by a product will vary from the anticipated profit if the actual experience differs from the assumptions used in pricing the product.
Premiums for policies sold by the Kemper Home Service Companies are set at levels designed to cover the relatively high cost of “in-home” servicing of such policies. As a result, Kemper Home Service Companies’ premiums have a higher expense load than the life insurance industry average.
Premiums for Medicare supplement and other accident and health policies must take into account the rising costs of medical care. The annual rate of medical cost inflation has historically been higher than the general rate of inflation, necessitating frequent rate increases, most of which are subject to approval by state regulators.
Competition
Based on the most recent data published by A.M. Best, as of the end of 2019, there were 413 life and health insurance company groups in the United States. The Company’s Life & Health Insurance segment ranked in the top 24% of life and health insurance company groups, as measured by net admitted assets, net premiums written and capital and surplus. Rankings by net admitted assets, net premiums written and capital and surplus were:
OrdinalPercentile
MeasurementRankRank
Net Admitted Assets9178 %
Net Written Premiums9078 
Capital and Surplus9876 
Kemper’s life and health insurance subsidiaries generally compete by using appropriate pricing, offering products to selected markets or geographies, controlling expenses, maintaining adequate ratings from A.M. Best and providing competitive services to agents and policyholders.
Investments
The quality, nature and amount of the various types of investments that can be made by insurance companies are regulated by state laws. Depending on the state, these laws permit investments in qualified assets, including, but not limited to, municipal, state and federal government obligations, corporate bonds, real estate, preferred and common stocks, investment partnerships, limited liability investment companies and limited partnerships. In addition, the quality, nature, amount and concentration of the various types of investments held by Kemper’s insurance subsidiaries affect the amount of asset risk calculated by regulators and rating agencies in determining required capital. See “Regulation” immediately following this subsection and Item 1A., “Risk Factors,” under the caption “The Company’s investment portfolio is exposed to a variety of risks that may negatively impact net investment income, the change in fair value of equity and convertible securities and cause realized and unrealized losses.
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The Company employs a total return investment strategy, with an emphasis on yield, while maintaining liquidity to meet both its short- and medium-term insurance obligations. See the discussions of the Company’s investments under the headings “Investment Results,” “Investment Quality and Concentrations,” “Investments in Limited Liability Companies and Limited Partnerships,” “Liquidity and Capital Resources” and “Critical Accounting Estimates,” in the MD&A, “Quantitative and Qualitative Disclosures about Market Risk,” in Item 7A and Note 4, “Investments,” Note 14, “Income from Investments,” and Note 22, “Fair Value Measurements,” to the Consolidated Financial Statements.
Regulation
Overview of State Regulation
Kemper’s insurance subsidiaries are subject to extensive regulation, primarily, but not exclusively, at the state level. Such regulation pertains to a variety of matters, including, but not limited to, policy forms, rate setting, licensing to transact business, market conduct, trade practices, underwriting standards, claims handling practices, transactions with affiliates, payment of dividends, nature and amount of investments, solvency, reserve adequacy, statutory accounting methods, risk management and corporate governance. In addition, insurance regulatory authorities perform periodic examinations of an insurer’s financial condition, market conduct activities and other affairs. Some of these matters are discussed in more detail below.
Approval of Policy Rates and Forms

The majority of Kemper’s insurance operations are in states requiring prior approval by regulators before proposed policy or coverage forms and rates for insurance policies may be implemented and used. The Company’s ability to take actions to address market developments or increased costs can be adversely impacted by lengthy delays in the approval process or the failure to receive the required approval of state regulators.
Restrictions on Withdrawal, Cancellation and Nonrenewal
Many states have laws restricting an insurer’s ability to withdraw from particular markets. Laws that limit an insurer’s ability to cancel or non-renew a block of policies by line of business, or that subject its withdrawal to prior approval requirements, may restrict the ability of our insurance subsidiaries to exit unprofitable markets.
Financial Reports and Standards
Insurance companies are required to report their financial condition and results of operations in accordance with statutory accounting principles prescribed or permitted by state insurance regulators in conjunction with the National Association of Insurance Commissioners (“NAIC”). State insurance regulators also prescribe the form and content of statutory financial statements, set minimum reserve and loss ratio requirements and establish standards for the types and amounts of investments. In addition, state laws and regulations require minimum capital and surplus levels and incorporate risk-based capital (“RBC”) standards developed by the NAIC. These RBC standards are intended to enable regulators to assess the level of risk inherent in an insurance company’s business based on asset risk, credit risk, underwriting risk and other business risks relevant to its operations. A company’s requirements are calculated based on an RBC formula and compared to its total adjusted capital to determine whether regulatory intervention is warranted. At December 31, 2020, the total amount of capital held by each of Kemper’s insurance subsidiaries exceeded the minimum levels required under applicable RBC requirements.
Guaranty Funds and Risk Pools
Kemper’s insurance subsidiaries are required to pay assessments up to prescribed levels to fund policyholder losses or liabilities of insolvent insurance companies under the guaranty fund laws of most states in which they transact business. Kemper’s insurance subsidiaries are also required to participate in various involuntary pools or assigned risk pools, principally involving windstorms and high risk drivers. In most states, the involuntary pool participation of Kemper’s insurance subsidiaries is determined in proportion to their voluntary writings of related lines of business in such states.
Privacy and Cybersecurity Regulation
The Company is subject to numerous federal and state laws and state insurance regulations that impose significant requirements and standards for protecting personally identifiable information of insurance company policyholders and other individuals.


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Gramm-Leach-Bliley Act and HIPAA
The federal Gramm-Leach-Bliley Act requires financial institutions, including insurers, to protect the privacy of non-public information, to restrict use of such information and disclosure to non-affiliated third parties, and to provide notices to customers regarding use of their non-public personal information and an opportunity to “opt out” of certain disclosures. State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.
The federal Health Insurance Portability and Accountability Act of 1996, as amended in 2009 by the HITECH Act (“HIPAA”), and implementing regulations, impose extensive obligations regarding the privacy and security of protected health information. Covered entities subject to HIPAA, which include issuers of health insurance coverage and health benefit plan sponsors, must implement policies and procedures governing the use, storage and disclosure of such information and related employee training, breach notification procedures and other requirements.
State Laws and Regulations
In recent years, state insurance regulators have focused increasing attention on cybersecurity. For example, insurance companies are required to maintain a cybersecurity program, incident response plan and information technology system safeguards that protect customer information under extensive cybersecurity regulations implemented by the New York Department of Financial Services and statutes adopted by a number of states based on a model data security law adopted by the NAIC. In addition, state insurance regulators focus significant attention on data security during financial exams, and the NAIC has strengthened and enhanced the cybersecurity guidance included in its handbook for state insurance examiners. Additional state laws outside of the insurance industry impose notification requirements in the event of cybersecurity breaches affecting their residents. On the privacy front, the California Consumer Privacy Act, which took effect in 2020, requires companies to provide privacy notices and respond to any request made to the company by a California resident regarding his or her personal information used or maintained by the company outside the scope of the GLBA and HIPAA privacy laws. The Company anticipates a continuing focus on new regulatory and legislative proposals at the state and federal levels that further regulate practices regarding privacy and security of personal information.

Holding Company Regulation, Including Enterprise Risk Management and Governance
The Company is regulated as an insurance holding company system and is subject to the insurance holding company acts of the states in which its insurance subsidiaries are domiciled and, in some case, additional states in which the insurance subsidiary is deemed commercially domiciled. These laws and related regulations contain certain reporting requirements as well as restrictions on transactions between an insurer and its affiliates. They also generally require insurance companies within an insurance holding company system to register with the insurance department of each state where they are domiciled and to file certain reports with those insurance departments describing capital structure, ownership, financial condition, certain intercompany transactions, an enterprise risk report and general business operations. In addition, various notice and reporting requirements generally apply to transactions between insurance companies and their affiliates within the insurance holding company system, depending on the size and nature of the transactions. Some insurance holding company laws and regulations require prior regulatory approval or, in certain circumstances, prior notice of certain material intercompany transfers of assets as well as certain transactions between insurance companies, their parent holding companies and affiliates.
Dividends
As a holding company with no significant business operations of its own, Kemper relies on dividends from its insurance subsidiaries to meet its obligations. Certain dividends and distributions by an insurance subsidiary are subject to prior approval by the insurance regulators of the state in which it is domiciled or commercially domiciled. See Item 1A., “Risk Factors,” under the caption, “The ability of Kemper to service its debt, to pay dividends to its shareholders and/or make repurchases of its stock may be materially impacted by lack of timely and/or sufficient dividends received from its subsidiaries.”
Change in Control Requirements
State insurance laws also impose requirements that must be met prior to a change of control of an insurance company or insurance holding company based on the insurer’s state of domicile and, in some cases, additional states in which the insurance subsidiary is deemed commercially domiciled. These requirements may include the advance filing of specific information with the state insurance regulators, a public hearing on the matter, and the review and approval of the change of control by such regulators. The Company has insurance subsidiaries domiciled or deemed commercially domiciled in Alabama, California, Florida, Illinois, Indiana, Louisiana, Missouri, New York, Ohio, Oregon, Texas and Wisconsin. In these states, except Alabama, “control” generally is presumed to exist through the direct or indirect ownership of 10% or more of the voting securities of an
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insurance company. Control is presumed to exist in Alabama with a 5% or more ownership interest in such securities. Any purchase of Kemper’s shares that would result in the purchaser owning Kemper’s voting securities in the foregoing percentages for the states indicated would be presumed to result in the acquisition of control of the Company’s insurance subsidiaries in those states. Therefore, acquisitions subject to the 10% threshold generally would require the prior approval of insurance regulators in each state in which the Company’s insurance subsidiaries are domiciled or deemed commercially domiciled, including those in Alabama, while acquisitions subject to the 5% threshold generally would require the prior approval of only Alabama regulators. Similarly, consistent with the Model Holding Company Act, several of the states in which the Company’s insurance subsidiaries are domiciled have enacted legislation that requires either the divesting and/or acquiring company to notify regulators of, and in some cases to receive regulatory approval for, a change in control.
Many state statutes also require pre-acquisition notification to state insurance regulators of a change of control of an insurance company licensed in the state if specific market concentration thresholds would be triggered by the acquisition. Such statutes authorize the issuance of a cease and desist order with respect to the insurance company if certain conditions, such as undue market concentration, would result from the acquisition. These regulatory requirements may deter, delay or prevent transactions effecting control of Kemper or its insurance subsidiaries, or the ownership of Kemper’s voting securities, including transactions that could be advantageous to Kemper’s shareholders.
Many states have made, or are in the process of making, modifications to their holding company laws. These modifications impose new reporting requirements and substantially expand the oversight and examination powers of state insurance regulators to assess enterprise risks within the entire holding company system that may arise from both insurance and non-insurance subsidiaries. They also impose new reporting requirements on affiliated transactions and divestiture of a controlling interest in an insurance subsidiary.
Other Federal Government Regulation
Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Financial Reform Efforts
As part of an effort to strengthen the regulation of the financial services market, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted in 2010. The Dodd-Frank Act also created the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury (“Treasury”). The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system. The Dodd-Frank Act includes a number of financial reforms and regulations that may affect our business and financial reporting. However, there remains uncertainty regarding the future of the Dodd-Frank Act and how it may impact our business.
Additional regulations or new requirements may emerge from activities of various regulatory entities, including the Federal Reserve Board, FIO, FSOC, NAIC and the International Association of Insurance Supervisors (“IAIS”), that are evaluating solvency and capital standards for insurance company groups. The outcome of these actions is uncertain; however, these actions may result in an increase in the level of capital and liquidity required by insurance holding companies.
Affordable Care Act
In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act”) became law, causing significant changes to the U.S. health care system. Since then, significant regulations have been enacted by the U.S. Department of Health and Human Services, the Department of Labor and the Department of Treasury. The legislation and regulations are far-reaching efforts to expand access to health insurance coverage over time by mandating that certain health benefit plans offered to individuals and small employers meet prescribed minimum benefit requirements and establish minimum loss ratios, rating restrictions, mandates for coverage of defined essential health benefits, restrictions or prohibitions on pre-existing condition exclusions and annual and lifetime policy limits. These requirements do not apply to specified limited or ancillary benefits referred to as “excepted benefits.” The complexity of the Affordable Care Act, its impact on health care in the United States, its continuing modification and interpretation by statute, rule and/or executive order, and the numerous legal challenges and ongoing legislative efforts to repeal or replace the Affordable Care Act, continues to make the impact to the Company’s business uncertain. Changes to the Affordable Care Act would directly affect the market in which the Company offers products and may make it more difficult to do business or impact the underlying economies of the business.
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Item 1A.    Risk Factors
Kemper is exposed to numerous risk factors that could cause actual results to differ materially from recent results or anticipated future results. The following discussion details the significant risk factors that are specific to the Company. In addition to those described below, the Company’s business, financial condition and results of operations could be materially affected by other factors not presently known or considered material by the Company. Readers are advised to consider all these factors along with the other information included in this 2020 Annual Report, including the factors set forth under the caption “Caution Regarding Forward-Looking Statements” beginning on page 1, and to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.
Risks Relating to Catastrophes and Estimating Property and Casualty Insurance Losses and Loss Adjustment Expenses
Estimating losses and LAE for determining property and casualty insurance reserves, or determining premium rates, is inherently uncertain, and the Company’s results of operations may be materially impacted if the Company’s insurance reserves or premium rates are insufficient.
The Company establishes loss and LAE reserves to cover estimated liabilities, which remain unpaid as of the end of each accounting period, and to investigate and settle all claims incurred under the property and casualty insurance policies that it has issued. Loss and LAE reserves are established for claims that have been reported to the Company as of the end of the accounting period, as well as for estimated claims that have occurred but have not yet been reported to the Company. The estimates of loss and LAE reserves are based on the Company’s assessment of the facts and circumstances known to it at the time, as well as estimates of the impact of future trends in the severity of claims, the frequency of claims and other factors. These estimates can be inaccurate or may change over time due to many variables, including changes driven by the evolving legal and regulatory landscape and economic conditions in which the Company operates and the rising costs of insurance claims from increased litigation, higher jury awards, broader definitions of liability and other effects of societal trends referred to as social inflation.
The process of estimating property and casualty insurance reserves is complex and imprecise. The reserves established by the Company are inherently uncertain estimates and could prove to be inadequate to cover its ultimate losses and expenses. The estimate of the ultimate cost of claims for insured events that have occurred must take into consideration many factors that are dependent on the outcome of future events associated with the reporting, investigation and settlement of claims. The impacts on the Company’s estimates of property and casualty insurance reserves from these factors are difficult to assess accurately. A change in any one or more of the factors is likely to result in a projected ultimate loss that is different than the previous projected ultimate loss and may have a material impact on the Company’s estimate of the projected ultimate loss. Increases in the estimates of ultimate losses and LAE will decrease earnings, while decreases in such estimates will increase earnings, as reported by the Company in the results of its operations for the periods in which the changes to the estimates are made by the Company. See MD&A, “Critical Accounting Estimates,” under the caption “Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses” beginning on page 63 for a discussion of the Company’s reserving process and the factors considered by the Company’s actuaries in estimating the Company’s Property and Casualty Insurance Reserves.
The Company’s actuaries also consider trends in the severity and frequency of claims and other factors when determining the premium rates to charge for its property and casualty insurance products. An unanticipated change in any one or more of these factors or trends, as well as a change in competitive conditions, may also result in inadequate premium rates charged for insurance policies issued by Kemper’s property and casualty insurance subsidiaries in the future. Such pricing inadequacies could have a material impact on the Company’s operating results. If the Company’s pricing actuaries overestimate the severity or frequency of claims and other factors in determining the rates to charge for insurance products, the rates for the Company’s products could be uncompetitive and result in loss of revenue and market share.
Catastrophe losses could materially and adversely affect the Company’s results of operations, liquidity and/or financial condition.
Kemper’s property and casualty insurance subsidiaries are subject to claims arising out of catastrophes that may have a significant effect on their results of operations, liquidity and financial condition. Catastrophes can be caused by various events, including, but not limited to, hurricanes, tornadoes, windstorms, earthquakes, hailstorms, explosions, severe winter weather, wildfires and pandemics, and may also include man-made events, such as terrorist attacks and hazardous material spills. The incidence, frequency and severity of catastrophes are inherently unpredictable and may be impacted by the uncertain effects of climate change. The extent of the Company’s losses from a catastrophe is a function of both the total amount of its insured exposure in the geographic area affected by the event and the severity of the event. The Company could experience more than one severe catastrophic event in any given period.
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Kemper’s life and health insurance subsidiaries are particularly exposed to risks of catastrophic mortality, such as pandemic or other events that result in large numbers of deaths. In addition, the occurrence of such an event in a concentrated geographic area could have a severe disruptive effect on the Company’s workforce and business operations. The likelihood and severity of such events cannot be predicted and are difficult to estimate.
The property and casualty insurance subsidiaries use catastrophe modeling tools developed by third parties to project their potential exposure to property damage resulting from catastrophic events under various scenarios. Such models are based on various assumptions and judgments which may turn out to be wrong. The actual impact of one or more catastrophic events could adversely and materially differ from these projections.
Changes in the availability and cost of catastrophe reinsurance and in the ability of reinsurers to meet their obligations could result in Kemper’s insurance subsidiaries retaining more risk and could adversely and materially affect the Company’s results of operations, financial condition and/or liquidity.
Kemper’s property and casualty insurance subsidiaries seek to reduce their exposure to catastrophe losses through the purchase of catastrophe reinsurance. Catastrophe reinsurance does not relieve such subsidiaries of their direct liability to their policyholders. As long as the reinsurers meet their obligations, the net liability for such subsidiaries is limited to the amount of risk that they retain. While such subsidiaries’ principal reinsurers are each rated “A-” or better by A.M. Best at the time reinsurance is purchased, the Company cannot be certain that reinsurers will pay the amounts due from them either now, in the future, or on a timely basis. A reinsurer’s insolvency or inability to make payments under the terms of its reinsurance agreement could materially and adversely affect the Company’s financial position, results of operations and liquidity.
In addition, market conditions beyond the Company’s control determine the availability and cost of the reinsurance protection that Kemper’s property and casualty insurance subsidiaries may purchase. A decrease in the amount of reinsurance coverage that such subsidiaries purchase generally should increase their risk of a more severe loss. If the amount of available reinsurance is reduced, such subsidiaries incur additional expenses to obtain reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms, which could adversely affect the ability of such subsidiaries to write future insurance policies or result in their retaining more risk with respect to such policies.
The extent to which Kemper’s insurance subsidiaries can manage their catastrophe exposure through underwriting strategies may be limited by law or regulatory action and could adversely and materially affect the Company’s results of operations, financial condition and/or liquidity.

Kemper’s property and casualty insurance subsidiaries also manage their exposure to catastrophe losses through underwriting strategies such as reducing exposures in, or withdrawing from, catastrophe-prone areas, establishing appropriate guidelines for insurable structures, and setting appropriate rates, deductibles, exclusions and policy limits. The extent to which such subsidiaries can manage their exposure through such strategies may be limited by law or regulatory action. For example, laws and regulations may limit the rate or timing at which insurers may non-renew insurance policies in catastrophe-prone areas or require insurers to participate in wind pools and joint underwriting associations. Generally, participation in such pools and associations is based on an insurer’s market share determined on a state-wide basis. Accordingly, even though Kemper’s property and casualty insurance subsidiaries may not incur a direct insured loss as a result of managing direct catastrophe exposures, they may incur indirect losses from required participation in pools and associations. In addition, laws and regulations requiring prior approval of policy forms and premium rates may limit the ability of Kemper’s property and casualty insurance subsidiaries to increase rates or deductibles on a timely basis, which may result in additional losses or lower returns than otherwise would have occurred in an unregulated market.
Risks Relating to Competition
A downgrade in the ratings of Kemper or its insurance subsidiaries below A- could materially and adversely affect the Company.
Third-party rating agencies assess the financial strength and rate the claims-paying ability of insurance companies based on criteria established by the rating agencies. Third-party ratings are important competitive factors in the insurance industry. Financial strength ratings are used to assess the financial strength and quality of insurers. Ratings agencies may downgrade the ratings of Kemper and/or its insurance subsidiaries or require Kemper to retain more capital in its insurance businesses to maintain existing ratings following developments that they deem negative. This can include factors directly related to the Company, such as an increase in the catastrophic risk retained by Kemper’s insurance subsidiaries, or developments in industry or general economic conditions. A downgrade by A.M. Best in the ratings of Kemper’s insurance subsidiaries below A-, particularly those operating in the preferred and standard market or offering homeowners insurance, could result in a substantial
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loss of business if independent agents and brokers or policyholders of such subsidiaries move to other companies with higher claims-paying and financial strength ratings. Any substantial loss of business could materially and adversely affect the financial condition and results of operations of such subsidiaries. A downgrade in Kemper’s credit rating by Standard & Poor’s (“S&P”), Moody’s Investors Services (“Moody’s”) or Fitch Ratings (“Fitch”) may reduce Kemper’s ability to cost-effectively access the capital markets or may increase the cost to refinance existing debt.
The insurance industry is highly competitive, making it difficult to grow profitability and within expectations of investors.
The Company’s insurance businesses face significant competition, and their ability to compete is affected by a variety of issues relative to others in the industry, such as management effectiveness, product pricing, service quality, ease of doing business, innovation, financial strength and name recognition. Competitive success is based on many factors, including, but not limited to, the following:
Competitiveness of prices charged for insurance policies;
Sophistication of pricing segmentation;
Design and introduction of insurance products to meet emerging consumer trends;
Selection and retention of agents and other business partners;
Compensation paid to agents;
Underwriting discipline;
Selectiveness of sales markets;
Effectiveness of marketing materials and name recognition;
Product and technological innovation;
Effectiveness of online servicing platforms;
Ability to settle claims timely and efficiently;
Ability to detect and prevent fraudulent insurance claims;
Effectiveness of deployment and use of information technology across all aspects of operations;
Ability to control operating expenses;
Financial strength ratings; and
Quality of services provided to, and ease of doing business with, independent agents and brokers or policyholders.
The inability to compete effectively in any of the Company’s insurance businesses could materially reduce the Company’s customer base and revenues and could materially and adversely affect the future results and financial condition of the Company.
See “Competition” in Item 1 of Part I beginning on page 9 and page 11 for more information on the competitive rankings in the property and casualty insurance markets and the life and health insurance markets, respectively, in the United States.
Risks Relating to Legal and Regulatory Environment
Kemper’s insurance subsidiaries are subject to significant regulation, and the evolving legal and regulatory landscape in which they operate could result in increased operating costs, reduced profitability and limited growth.
Kemper’s insurance subsidiaries operate under an extensive insurance regulatory system. Current laws and regulations affect a wide variety of matters, including policy forms, premium rates, licensing, market conduct, trade practices, claims handling practices, reserve and loss ratio requirements, investment standards, statutory capital and surplus requirements, restrictions on the payment of dividends, approvals of transactions involving a change in control of one or more insurance companies, restrictions on transactions among affiliates and consumer privacy and data security. They also require the filing of annual and quarterly financial reports and holding company reports. Pre-approval requirements often restrict or delay actions by the companies to implement premium rate changes for insurance policies, or to introduce new, or make changes to existing, policy forms and many other actions. Insurance regulators conduct periodic examinations of Kemper’s insurance subsidiaries and can suspend or delay operations or licenses, require corrective actions, and impose penalties or other remedies available for compliance failures. For a more detailed discussion of the regulations applicable to Kemper’s subsidiaries and related emerging developments, see “Regulation” in Item 1, beginning on page 12.
These laws and regulations, and their interpretation by regulators and courts, are subject to continuous interpretation and revision. The legal and regulatory landscape within which Kemper’s insurance subsidiaries conduct their businesses is often unpredictable. As industry practices and regulatory, judicial, political, social and other conditions change, new issues may emerge. These changes and emerging issues could adversely affect Kemper’s insurance subsidiaries in a variety of ways, including, for example, by expanding coverages beyond the underwriting intent, increasing the number or size of claims, accelerating the payment of claims or otherwise adding to operational costs or adversely affecting the Company’s competitive advantages. Practices in the industry or within the Company that were once considered approved, compliant and reasonable
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may suddenly be deemed unacceptable by virtue of a court or regulatory ruling or changes in regulatory enforcement policies and practices. It is not possible for the Company to predict such shifts in legal or regulatory enforcement or to accurately estimate the impact they may have on the Company and its operations.
One area where the legal and regulatory landscape has experienced significant change is in connection with the mandated use of death verification databases by life insurance companies in their policy administration and claims handling practices. Many states have adopted laws requiring insurers to proactively use such databases, including the Social Security Administration’s Death Master File (the “DMF”), to varying degrees in order to ascertain if an insured may be deceased. Kemper cannot predict whether additional states will enact similar legislation or, if enacted, what form such legislation may take. These laws require the insurer to initiate the claims process even though the insureds’ beneficiaries have not submitted a claim and the insurer was otherwise unaware of the insured’s death. In a related development, many states have expanded the application of their unclaimed property laws, particularly as they relate to life insurance proceeds, and have engaged audit firms to examine the practices of life insurance companies with respect to the reporting and remittance of such proceeds under unclaimed property laws. The push to alter practices that were previously considered lawful and appropriate relative to both claims handling and remittance of life insurance policy proceeds has led to the Company’s involvement in compliance audits, market conduct examinations and litigation. The Company has initiated a voluntary, comprehensive process in place to compare life insurance records against the DMF and other databases to determine if any of its insured may be deceased. See Note 2, “Summary of Accounting Policies and Accounting Changes,” and Note 23, “Contingencies,” to the Consolidated Financial Statements for further details.
The financial services industry, including insurance companies and their holding company systems, remains under regulatory scrutiny. While it is not possible to predict how new laws or regulations or new interpretations of existing laws and regulations may impact the operations of Kemper’s insurance subsidiaries, several developments have the potential to significantly impact such operations. This includes increased legislative and regulatory focus on cybersecurity and adoption of modifications to state holding company laws that expand the oversight and examination powers of insurance regulators beyond licensed insurance companies to include non-insurance affiliates and their organizations as a whole, particularly with respect to enterprise risk. In addition, the Affordable Care Act resulted in regulations affecting health insurers such as Reserve National, and potential changes to the state insurance regulatory system may result from the Dodd-Frank Act. See the discussion of these matters under “Regulation” in Item 1, beginning on page 12.
These developments and significant changes in, or new interpretations of, existing laws and regulations could make it more expensive for Kemper’s insurance subsidiaries to conduct and grow their businesses which could materially impact the Company’s operating results.
Kemper has a significant concentration of personal automobile insurance business in California and Florida, and negative developments in the regulatory, legal or economic conditions in these states may adversely affect the Company’s profitability.
California and Florida represented 70% of the Company’s total personal automobile insurance gross written premiums in 2020. Consequently, the dynamic nature of regulatory, legal, competitive and economic conditions in these states affects Kemper’s revenues and profitability. Further, both California and Florida have regulations that limit the after-tax return on underwriting profit allowed for an insurer. Changes in any of these conditions could negatively impact the Company's results of operations.
Legal and regulatory proceedings are unpredictable and could produce one or more unexpected outcomes that could materially and adversely affect the Company’s financial results for any given period.
Kemper and its subsidiaries are from time to time involved in lawsuits, regulatory inquiries and other legal proceedings arising out of the ordinary course of their businesses. Some of these proceedings may involve matters particular to Kemper or one or more of its subsidiaries, while others may pertain to business practices in the industry in which Kemper and its subsidiaries operate. Some lawsuits may seek class action status that, if granted, could expose the Company to potentially significant liability by virtue of the size of the putative classes. These matters often raise difficult factual and legal issues and are subject to uncertainties and complexities. The outcomes of these matters are difficult to predict, and the amounts or ranges of potential loss at particular stages in the proceedings are in most cases difficult or impossible to ascertain. A further complication is that even where the possibility of an adverse outcome is remote under traditional legal analysis, juries sometimes substitute their subjective views in place of facts and established legal principles. Given the unpredictability of the legal and regulatory landscape in which the Company operates, there can be no assurance that one or more of these matters will not produce a result that could materially and adversely affect the Company’s financial results for any given period.
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For information about the Company’s pending legal proceedings, see Note 23, “Contingencies,” to the Consolidated Financial Statements.
Risks Relating to Security of Personal Data, Availability of Critical Systems, and Technology Initiatives
Failure to protect against system security breaches that compromise personal data held by the Company or its business partners could result in business interruption, legal and consulting fees, regulatory penalties, litigation, lost business, reputational harm, and other liabilities and expenses.
Kemper’s insurance subsidiaries obtain, process and store vast amounts of personal data that can present significant risks to the Company and its customers, employees and other affected individuals. An increasing array of laws and regulations govern the use, transfer and storage of such data, including, for example, social security numbers, credit card data, driver’s license numbers and protected health information. The Company uses an array of sophisticated security measures and policies and procedures designed to enhance security of the Company’s data systems. Notwithstanding these efforts, the Company’s data systems, as well as those of third party administrators and other business partners working on behalf of the Company, are vulnerable to security breaches due to the increasing sophistication and frequency of cyber attacks, viruses, ransomware, spyware and other malware and infiltration methods, hackers and other external hazards, as well as equipment and system failures and inadvertent errors, negligence or intentional misconduct of employees and/or contractors. The Company also relies on the ability of its business partners to maintain secure systems and processes that comply with legal requirements and protect personal data. The Company and its third party administrators and other business partners regularly defend against and respond to data security threats and investigate and remediate breaches that have occurred.

System security breaches can result in data loss, business interruption, ransom demands, investigations and litigation, and together with expanding regulatory requirements related to personal data privacy and security, expose the Company to potential damages, regulatory penalties and other liabilities, reputational risk and significant increases in compliance and litigation costs. There is no guarantee that the cyber risk insurance coverage Kemper maintains will be sufficient to cover all of the costs of one or more cyber incidents that have occurred or could occur.

The Company relies increasingly on electronic payments from policyholders, including, but not limited to, payment by credit and debit cards. Failure to maintain compliance with laws and industry regulations governing such transactions could result in additional costs and damages. For example, in the event of non-compliance with the Payment Card Industry Data Security Standard, an information security framework for organizations that handle cardholder information for the major debit, credit, prepaid, and other payment card methods, such organizations could prevent Kemper’s insurance subsidiaries from collecting premium payments from customers by way of such methods and impose significant fines on Kemper’s insurance subsidiaries.
Failure to maintain the availability of critical systems could result in business interruption, lost business, reputational harm, penalties and other costs.

The Company’s business operations rely on the continuous availability of its own computer systems, systems and software hosted by vendors, and computer systems used by third party administrators and contractors working on behalf of the Company. From time to time such systems have been, and may again be, adversely affected or disrupted by cyber attacks or other data breaches, natural and man-made catastrophes or other significant events. The failure of the Company, or its third party administrators or other business partners, to maintain business continuity in the wake of such events may prevent the timely performance of critical processes across its operations, including, for example, insurance policy administration, claims processing, billing, payment processing, treasury and investment operations and payroll and other employer-related functions. These failures could result in significant loss of business, increased costs, fines and other adverse consequences.

Technology initiatives could present significant economic and competitive challenges to the Company. Failure to complete and implement such initiatives in a timely manner could result in the loss of business and incurrence of internal use software development costs that may not be recoverable.
Data and analytics play an increasingly important role in the insurance industry. The Company may periodically initiate multi-year technology projects to enhance operations or replace systems. While technology developments can facilitate the use and enhance the value of data and analytics, streamline business processes and ultimately reduce the cost of operations, technology initiatives can present significant economic and organizational challenges to the Company and potential short-term cost and implementation risks. In addition, projections of expenses and implementation schedules could change materially and costs could escalate over time, while the ultimate utility of a technology initiative could deteriorate over time.
Due to the highly-regulated nature of the financial services industry, the Company also faces rising costs and competing time constraints in adapting technology to meet compliance requirements of new and proposed regulations. The costs to develop and implement systems to replace the Company’s existing systems and to comply with new regulatory requirements as needed are
19


expected to be material. Due to the complexities involved, there can be no assurances that new system development and implementation projects will be successful, that the costs for such projects will not exceed estimates and that the incurred costs will be recoverable. Furthermore, failure to implement replacement systems in a timely manner could result in loss of business from the Company’s delay or inability to design and introduce new insurance products that meet emerging consumer needs and competitive trends.
Risks Relating to Investments
The Company’s investment portfolio is exposed to a variety of risks that may negatively impact net investment income, the change in fair value of equity and convertible securities and cause realized and unrealized losses.
The Company maintains a diversified investment portfolio that is exposed to significant financial and capital market risks, including interest rate (risk-free and spread), equity price, and liquidity, as well as risks from changes in tax laws and regulations and other risks from changes in general economic conditions.
The interest rate environment has a significant impact on the Company’s financial results and position. In recent years, rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure on net investment income, particularly related to fixed income securities, short-term investments and limited liability investment companies and limited partnerships accounted for under the equity method of accounting (“Equity Method Limited Liability Investments”) that invest in distressed and mezzanine debt of other companies. A decline in interest rates would generally increase the carrying value of the Company’s fixed income securities and its Equity Method Limited Liability Investments that exhibit debt-like characteristics, but it may adversely affect the Company’s investment income as it invests cash in new investments that may yield less than the portfolio’s average rate. In a declining interest rate environment, borrowers may seek to refinance their borrowings at lower rates and, accordingly, prepay or redeem securities the Company holds as investments more quickly than the Company initially expected. Such prepayment or redemption action may cause the Company to reinvest the redeemed proceeds in lower yielding investments. An increase in interest rates would generally reduce the carrying value of a substantial portion of the Company’s investment portfolio, particularly fixed income securities and Equity Method Limited Liability Investments.
Kemper’s Life and Health business writes long duration insurance contracts which are priced in consideration of the interest rate environment. If the Company is not able to purchase investments that match that duration of the liabilities and there is a decline in interest rates, the Company could experience a significant deterioration in results.
The Company invests a portion of its investment portfolio in equity securities, which generally have more volatile returns than fixed income securities and may experience sustained periods of depressed values. There are multiple factors that could negatively impact the performance of the Company’s equity portfolio, including general economic conditions, industry or sector deterioration and issuer-specific concerns. A decline in equity values may result in a decrease in dividend income and significant losses recognized by the Company in the period such changes in fair values occur.
Interest rates and equity returns also have a significant impact on the Company’s pension and other postretirement employee benefit plans. In addition to the impact on carrying values and yields of the underlying assets of the funded plans, interest rates also impact the discounting of the projected and accumulated benefit obligations of the plans. A decrease in interest rates may have a negative impact on the funded status of the plans. The nature and cash flow needs of the Company and the insurance industry in general present certain liquidity risks that may impact the return of the investment portfolio. If the Company were to experience several significant catastrophic events over a relatively short period of time, investments may have to be sold in advance of their maturity dates to fund payments to claimants, which could result in realized losses. Additionally, increases in illiquidity in the financial markets may increase uncertainty in the valuations of the Company’s investments. This increases the risk that the fair values reported in the Company’s consolidated financial statements may differ from the actual price that may be obtained in an orderly sales transaction.

The Company has also benefited from certain tax laws related to its investment portfolio, including dividends received deductions and tax-exempt investment income. Changes in tax laws may have a detrimental effect on the after-tax return of the Company’s investment portfolio. A reduction in income tax rates could also reduce the demand for tax-preferenced securities and result in a decline in the value of the Company’s investment portfolio of such securities.

The Company’s entire investment portfolio is subject to broad risks inherent in the financial markets, including, but not limited to, inflation, regulatory changes, inactive capital markets, governmental and social stability, economic outlooks, unemployment and recession. Changes to these risks and how the market perceives them may impact the financial performance of the Company’s investments.
20


Kemper and its insurance subsidiaries are subject to various capital adequacy measurements that are significantly impacted by various characteristics of their invested assets, including, but not limited to, asset type, class, duration and credit rating. The Company’s insurance subsidiaries are also subject to various limitations on the amounts at which they can invest in individual assets or certain asset classes in the aggregate. Asset risk is one factor used by insurance regulators and rating agencies to determine required capital for Kemper’s insurance subsidiaries. Accordingly, a deterioration in the quality of the investments held by Kemper’s insurance subsidiaries or an increase in the investment risk inherent in their investment portfolios could increase capital requirements. See the risk factor below titled “The ability of Kemper to service its debt, pay dividends to its shareholders and/or fund targeted transactions may be materially impacted by lack of timely and/or sufficient dividends received from its subsidiaries.” These factors may inhibit the Company from shifting its investment mix to produce higher returns. The Company is also subject to concentration of investment risk to the extent that the portfolio is heavily invested, at any particular time, in specific asset types, classes, industries, sectors or collateral types, among other defining features. Developments and the market’s perception thereof in any of these concentrations may exacerbate the negative effects on the Company’s investment portfolio compared to other companies.
The determination of the fair values of the Company’s investments and whether a decline in the fair value of an investment is other-than-temporary are based on management’s judgment and may prove to be materially different than the actual economic outcome.
The Company holds a significant amount of assets without readily available, active, quoted market prices or for which fair value cannot be measured from actively quoted prices. These assets are generally deemed to require a higher degree of judgment in measuring fair value. The assumptions used by management to measure fair values could turn out to be different than the actual amounts that may be realized in an orderly transaction with a willing market participant could be either lower or higher than the Company’s estimates of fair value.
The Company reviews its investment portfolio for factors that may indicate that a decline in the fair value of an investment is other-than-temporary. This evaluation is based on subjective factors, assumptions and estimates and may be materially different than the actual economic outcome, which may result in the Company recognizing additional losses in the future as new information emerges or recognizing losses currently that may never materialize in the future in an orderly transaction with a willing market participant.
Risks Relating to Servicing Debt, Paying Dividends and/or Fund Targeted Transactions
The ability of Kemper to service its debt, pay dividends to its shareholders and/or fund targeted transactions may be materially impacted by lack of timely and/or sufficient dividends received from its subsidiaries.
As a holding company, Kemper depends on the dividend income that it receives from its subsidiaries as a primary source of funds to meet its payment obligations. Kemper’s insurance subsidiaries are subject to regulatory restrictions under state insurance laws and regulations that limit their ability to declare and pay dividends. These laws and regulations impose minimum solvency and liquidity requirements on dividends between affiliated companies and require prior notice to, and may require approval from, state insurance regulators before dividends can be paid. In addition, third-party rating agencies monitor statutory capital and surplus levels for capital adequacy. Even though a dividend may be payable without regulatory approval, an insurance subsidiary may forgo paying a dividend to Kemper and retain the capital to maintain or improve ratings or to offset increases in required capital from increases in premium volume or investment risk. The inability of one or more of Kemper’s insurance subsidiaries to pay sufficient dividends to Kemper may materially affect Kemper’s ability to pay its debt obligations on time, pay dividends to its shareholders or undertake funding for targeted transactions.
General Risks Relating to Mergers, Acquisitions and/or Divestitures

The expected benefits and synergies from mergers, acquisitions and/or divestitures may not be realized to the extent anticipated or within the anticipated time frames.
The Company routinely evaluates opportunities for transactions such as mergers, acquisitions and/or divestitures that would enhance its business and align with the Company’s strategic plans. Kemper’s ability to achieve the anticipated financial benefits from transactions may not be realized due to any number of factors, including, but not limited to, integration difficulties or failures, the loss of key agents/brokers, customers or employees, unexpected or underestimated liabilities, increased costs, fees, expenses and charges related to transactions, or may be delayed by factors outside of the Company’s control. Furthermore, such adverse events could result in a decrease in the estimated fair value of goodwill or other intangible assets established as a result of such transactions, triggering an impairment. These and other factors could have a negative impact on Kemper’s financial condition, profitability and results from operations.
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Risks Relating to COVID-19
The impact of COVID-19 and related economic conditions could materially affect Kemper’s results of operations, financial position and/or liquidity.
Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to adversely impact the global economy and has resulted in an enormous global economic downturn, including in the United States where the Company conducts its operations. Given the ongoing COVID-19 pandemic and its effects upon the economy, and the dynamic nature of the circumstances, all direct and indirect consequences of COVID-19 remain highly uncertain and it is not possible for Kemper to estimate the scope and extent of its future effects on the Company with any degree of certainty.

As the result of the COVID-19 pandemic and the related economic consequences, the Company could be subject to any of the following risks, any of which could individually or collectively have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

Decrease in overall premium volumes due to the economic downturn and rising unemployment rates
Adverse impact on investment portfolio as a result of ratings downgrades, increased bankruptcies and credit spread widening in distressed industries, such as energy, gaming, lodging and leisure, autos, airlines and retail
Increase in estimated credit losses on fixed maturity investments held at fair value as well as other investments and receivables from policyholders
Higher incurred losses and LAE in Life and Health lines of business related to an increase in frequency and/or severity of claims
Regulatory actions imposing new requirements that could result in increased costs, reduced revenues, expansion of coverage and other effects, and additional restrictions that could affect the Company’s pricing, risk selection and particular rights and obligations under its insurance policies and with regard to its insureds, including the ability to cancel policies and collect premiums
Disruptions in business operations and availability of critical systems due to illness, social distancing requirements, travel restrictions and other effects on the workforce of the Company and its business partners and key vendors
Increased cybersecurity risks due to remote working arrangements and resulting changes in certain operational controls

Risks Relating to General Economic and Market Factors

Changes in the global economy and capital markets could adversely impact the Company’s results of operations and financial condition.

Significant changes in the economic and capital market environment could adversely affect consumer demands for the Company’s products, results of operations, investment returns and financial condition. The following are examples of economic market conditions that could adversely affect the Company’s financial liquidity and results of operations:

Volatility in debt and equity markets
Changes in interest rates
Reduced availability of credit
Economic downturns
Increased unemployment and reduced consumer spending

Stressed conditions, volatility and disruptions in global capital markets or financial asset classes could adversely affect our investment portfolio.

The proposed replacement of the London Interbank Offered Rate (“LIBOR”) with an alternative reference rate index may impact the Company’s financial results, including the value of certain of its investments, net investment income, and other assets or liabilities with value or cash flows tied to LIBOR.

LIBOR is a common benchmark rate widely utilized by market participants to set and adjust the interest rate on floating rate securities and loans, as well as other financial instruments.



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In July 2017, the UK Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR reference rates after 2021. Subsequently, in November 2020 guidance was revised to cessation for one-week and two-month tenor LIBOR-based securities after December 31, 2021 and for all other tenor LIBOR-based securities after June 30, 2023. Current expectations are that these LIBOR reference rates will no longer be available after their respective submissions have ceased. While alternative reference rates have been developed, including The Federal Reserve Bank of New York’s Secured Overnight Financing Rate (“SOFR”), the broad acceptance and the timing of transition to such alternative rates in the pricing of existing and new financial contracts by market participants remains uncertain. Discontinuance of, or potential changes to, LIBOR and the extent of any such changes, or the establishment of alternative reference rates, may adversely affect the market for LIBOR-based securities and could adversely impact the value of the Company’s investments, net investment income, the cost of borrowing under Kemper’s unsecured revolving credit facility, and other assets or liabilities with values tied to LIBOR.

Item 1B.    Unresolved Staff Comments
The Company has no unresolved staff comments issued more than 180 days before December 31, 2020, the date of this Annual Report on Form 10-K.
Item 2.    Properties
Owned Properties
Kemper’s subsidiaries together own and occupy eleven buildings located in seven states consisting of approximately 400,000 square feet in the aggregate. Kemper’s subsidiaries hold, solely for investment purposes, additional properties that are not occupied by Kemper or its subsidiaries.
Leased Facilities
The Company leases four floors, or approximately 92,000 square feet, in an 83-story office building in Chicago, Illinois, for its corporate headquarters. The lease expires on December 31, 2033. Kemper’s property and casualty insurance subsidiaries lease facilities with an aggregate square footage of approximately 523,000 at 25 locations in nine states. The latest expiration date of the existing leases is in May 2026. Kemper’s life and health insurance subsidiaries lease facilities with aggregate square footage of approximately 470,000 at 124 locations in 28 states. The latest expiration date of the existing leases is in December 2025. Kemper’s corporate data processing operation leases a facility with aggregate square footage of approximately 30,000 square feet at one location in one state. The expiration date of the existing lease is in June 2021.
The properties described above are in good condition. The properties utilized in the Company’s operations consist of facilities suitable for general office space, call centers and data processing operations.
Item 3.    Legal Proceedings
Proceedings
Information concerning pending legal proceedings is incorporated herein by reference to Note 23, “Contingencies,” to the Consolidated Financial Statements.
Item 4.    Mine Safety Disclosures
Not applicable.
23


PART II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Kemper’s common stock is traded on the NYSE under the symbol of “KMPR.”
Holders
As of January 31, 2021, the number of record holders of Kemper’s common stock was 3,007.
Dividends
Quarterly information pertaining to payment of dividends on Kemper’s common stock is presented below.
DOLLARS PER SHAREThree Months EndedYear Ended
Mar 31,
2020
Jun 30,
2020
Sep 30,
2020
Dec 31,
2020
Dec 31,
2020
Cash Dividends Paid to Shareholders (per share)$0.30 $0.30 $0.30 $0.30 $1.20 
Three Months EndedYear Ended
DOLLARS PER SHAREMar 31,
2019
Jun 30,
2019
Sep 30,
2019
Dec 31,
2019
Dec 31,
2019
Cash Dividends Paid to Shareholders (per share)$0.25 $0.25 $0.25 $0.28 $1.03 
Kemper’s insurance subsidiaries are subject to various state insurance laws that may restrict the ability of these insurance subsidiaries to pay dividends without prior regulatory approval. See MD&A, “Liquidity and Capital Resources” and Note 10, “Shareholders’ Equity,” to the Consolidated Financial Statements for information on Kemper’s ability and intent to pay dividends.
Issuer Purchases of Equity Securities
On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of up to an additional $200 million of Kemper common stock, in addition to the $243.7 million remaining under the previous authorization as of December 31, 2019. As of December 31, 2020, the remaining share repurchase authorization was $333.3 million under the repurchase program. During the year ended December 31, 2020, Kemper repurchased and retired 1.6 million shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $110.4 million and average cost per share of $68.29.

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Kemper Common Stock Performance Graph
The following graph assumes $100 invested on December 31, 2015 in (i) Kemper common stock, (ii) the S&P MidCap 400 Index and (iii) the S&P Supercomposite Insurance Index, in each case with dividends reinvested. Kemper is a constituent of each of these two indices.
The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of Kemper common stock.
kmpr-20201231_g1.jpg
Company / Index201520162017201820192020
Kemper Corporation$100.00 $122.61 $194.62 $190.14 $224.92 $226.82 
S&P MidCap 400 Index100.00 120.74 140.35 124.80 157.49 179.00 
S&P Supercomposite Insurance Index100.00 118.87 137.87 124.55 160.08 158.01 
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Item 6.     Selected Financial Data
Selected financial information as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 is presented below. See Note 2, “Summary of Accounting Policies and Accounting Changes”, and Note 3, “Acquisition of Business,” to the Consolidated Financial Statements for items which may affect comparability of selected financial information across the periods presented.
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS20202019201820172016
FOR THE YEAR
Earned Premiums$4,672.2 $4,472.4 $3,384.4 $2,350.0 $2,220.0 
Net Investment Income348.2 364.3 340.9 327.2 298.3 
Other Income94.6 35.5 42.2 4.0 3.2 
Income (Loss) from Change in Fair value of Equity and Convertible Securities72.1 138.9 (64.3)— — 
Net Realized Gains on Sales of Investments38.1 41.9 26.4 56.5 33.1 
Impairment Losses(19.5)(13.8)(4.5)(14.3)(32.7)
Total Revenues$5,205.7 $5,039.2 $3,725.1 $2,723.4 $2,521.9 
Income from Continuing Operations$409.9 $531.1 $188.4 $119.9 $12.7 
Income from Discontinued Operations — 1.7 1.0 4.1 
Net Income$409.9 $531.1 $190.1 $120.9 $16.8 
Per Unrestricted Share:
Income from Continuing Operations$6.24 $8.04 $3.22 $2.32 $0.25 
Income from Discontinued Operations — 0.03 0.02 0.08 
Net Income$6.24 $8.04 $3.25 $2.34 $0.33 
Per Unrestricted Share Assuming Dilution:
Income from Continuing Operations$6.14 $7.96 $3.19 $2.31 $0.25 
Income from Discontinued Operations — 0.03 0.02 0.08 
Net Income$6.14 $7.96 $3.22 $2.33 $0.33 
Dividends Paid to Shareholders Per Share$1.20 $1.03 $0.96 $0.96 $0.96 
AT YEAR END
Total Assets$14,341.9 $12,989.1 $11,544.9 $8,376.2 $8,210.5 
Insurance Reserves$5,510.0 $5,471.8 $5,366.8 $4,470.8 $4,339.9 
Unearned Premiums1,615.1 1,545.5 1,424.3 653.9 618.7 
Policyholder Obligations467.0 309.8 76.8 67.0 66.8 
Long-term Debt, Current and Non-current1,172.8 778.4 909.0 592.3 751.6 
All Other Liabilities1,013.6 911.3 717.9 476.6 458.3 
Total Liabilities9,778.5 9,016.8 8,494.8 6,260.6 6,235.3 
Shareholders’ Equity4,563.4 3,972.3 3,050.1 2,115.6 1,975.2 
Total Liabilities and Shareholders’ Equity$14,341.9 $12,989.1 $11,544.9 $8,376.2 $8,210.5 
Book Value Per Share$69.74 $59.59 $47.10 $41.11 $38.52 

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Summary of Results
Catastrophes
Loss and LAE Reserve Development
Non-GAAP Financial Measures
Specialty Property & Casualty Insurance
Preferred Property & Casualty Insurance
Life & Health Insurance
Investment Results
Investment Quality and Concentrations
Investments in Limited Liability Companies and Limited Partnerships
Expenses
Income Taxes
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Estimates
Off-Balance Sheet Arrangements
Recently Issued Accounting Pronouncements

27

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations




SUMMARY OF RESULTS
Net Income was $409.9 million ($6.24 per unrestricted common share) for the year ended December 31, 2020, compared to $531.1 million ($8.04 per unrestricted common share) for the year ended December 31, 2019.
Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company's results of operations. The Company incurred additional expenses associated with COVID-19 and related economic conditions. The Company’s investment results were also negatively impacted by the recent disruption in global financial markets. For further discussion regarding the potential impacts of COVID-19 and related economic conditions on the Company, see “Caution Regarding Forward-Looking Statements” beginning on page 1 and Item 1A., Risk Factors, of Part I of this Annual Report on Form 10-K.
As part of the Company’s response to the COVID-19 pandemic, the Company recognized approximately $100 million of premium credits as a reduction to earned premiums in the second quarter of 2020. See MD&A, “Specialty Property & Casualty Insurance” and “Preferred Property & Casualty Insurance”, for additional information. The credits were applied directly to the policyholder's account statement. If a policyholder had paid in full, the policyholder received a refund of the credited amounts.
A reconciliation of Net Income to Adjusted Consolidated Net Operating Income (a non-GAAP financial measure) for the years ended December 31, 2020, 2019 and 2018 is presented below.
DOLLARS IN MILLIONS20202019Increase
(Decrease)
in Income
from 2019
to 2020
2018Increase
(Decrease)
in Income
from 2018
to 2019
Net Income$409.9 $531.1 $(121.2)$190.1 $341.0 
Income from Discontinued Operations — — 1.7 (1.7)
Income from Continuing Operations409.9 531.1 (121.2)188.4 342.7 
Less:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities57.0 109.7 (52.7)(50.8)160.5 
Net Realized Gains on Sales of Investments30.1 33.1 (3.0)20.9 12.2 
Impairment Losses(15.4)(10.9)(4.5)(3.6)(7.3)
Acquisition Related Transaction, Integration and Other Costs(50.0)(14.5)(35.5)(36.5)22.0 
Debt Extinguishment, Pension and Other Charges(50.6)(4.6)(46.0)— (4.6)
Adjusted Consolidated Net Operating Income$438.8 $418.3 $20.5 $258.4 $159.9 
Components of Adjusted Consolidated Net Operating Income:
Segment Net Operating Income:
Specialty Property & Casualty Insurance$337.9 $283.1 $54.8 $115.8 $167.3 
Preferred Property & Casualty Insurance3.5 41.9 (38.4)25.7 16.2 
Life & Health Insurance60.0 98.7 (38.7)91.5 7.2 
Segment Net Operating Income401.4 423.7 (22.3)233.0 190.7 
Corporate and Other Net Operating Income (Loss) From:
Effects of Tax Law Changes — — 26.4 (26.4)
Partial Satisfaction of Judgment70.6 15.9 54.7 28.2 (12.3)
Other(33.2)(21.3)(11.9)(29.2)7.9 
Corporate and Other Net Operating Income (Loss)37.4 (5.4)42.8 25.4 (30.8)
Adjusted Consolidated Net Operating Income$438.8 $418.3 $20.5 $258.4 $159.9 


28

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SUMMARY OF RESULTS (Continued)
Net Income
2020 Compared with 2019
Net Income decreased by $121.2 million in 2020, compared to 2019, due primarily to lower investment results, higher acquisition related transaction, integration and other costs and a pension noncash settlement charge, partially offset by higher Adjusted Consolidated Net Operating Income. Adjusted Consolidated Net Operating Income increased by $20.5 million in 2020, compared to 2019, due primarily to higher Specialty Property & Casualty Insurance Segment Net Operating Income and Corporate and Other Net Operating Income, partially offset by lower Preferred Property & Casualty Segment Insurance Net Operating Income and Life & Health Segment Insurance Net Operating Income.
In the Specialty Property & Casualty Insurance segment, segment net operating income increased by $54.8 million due primarily to an improvement in underlying losses and LAE as a percentage of earned premiums and higher investment income, partially offset by the impact of adverse loss reserve development. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. See MD&A, “Specialty Property & Casualty Insurance,” beginning on page 35 for additional discussion of the segment’s results.
In the Preferred Property & Casualty Insurance segment, segment net operating income decreased by $38.4 million due primarily to higher catastrophe losses and LAE (excluding loss reserve development), the impact of adverse loss and LAE reserve development and lower net investment income, partially offset by an improvement in underlying losses and LAE as a percentage of earned premiums. See MD&A, “Preferred Property & Casualty Insurance,” beginning on page 40 for additional discussion of the segment’s results.
In the Life & Health Insurance segment, segment net operating income decreased by $38.7 million due primarily to higher mortality for life insurance claims due primarily to COVID-19. See MD&A, “Life & Health Insurance,” beginning on page 46 for additional discussion of the segment’s results.
Corporate and Other net operating income increased due primarily to a gain recognized for the satisfaction of the remaining balance of a final judgment against Computer Sciences Corporation (“CSC”) in connection with an arbitration award (the “CSC Judgment”), partially offset by higher acquisition related transaction, integration, and other costs and a pension noncash settlement charge.
The Company’s investment results were adversely impacted in 2020, compared to 2019, by a $52.7 million after-tax decrease from the change in fair value of the equity and convertible securities and a $3.0 million after-tax decrease from net realized gains on sales of investments, partially offset by $4.5 million after-tax of lower impairment losses. See MD&A, “Investment Results,” beginning on page 50 and MD&A, “Income Taxes,” beginning on page 57 and Note 23, “Contingencies.” to the Consolidated Financial Statements for additional discussion.
2019 Compared with 2018
The Company’s net income increased by $341.0 million in 2019, compared to 2018, due primarily to higher Adjusted Consolidated Net Operating Income, higher investment results and lower acquisition related transaction, integration and other costs. Adjusted Consolidated Net Operating Income increased by $159.9 million in 2019, compared to 2018, due primarily to higher Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segment net operating income, partially offset by a reduction in Corporate and Other Net Operating Income.
In the Specialty Property & Casualty Insurance segment, segment net operating income increased by $167.3 million due primarily to the inclusion of Infinity for twelve months of 2019 versus six months in 2018 and favorable underlying loss and prior year development. See MD&A, “Specialty Property & Casualty Insurance,” beginning on page 35 for additional discussion of the segment’s results.
In the Preferred Property & Casualty Insurance segment, segment net operating results increased by $16.2 million due primarily to lower incurred catastrophe losses and LAE (excluding loss and LAE reserve development) and favorable prior year loss and LAE development (including a one-time recovery on prior year catastrophes), partially offset by lower net investment income and higher underlying losses and LAE as a percentage of earned premiums. See MD&A, “Preferred Property & Casualty Insurance,” beginning on page 40 for additional discussion of the segment’s results.

29

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SUMMARY OF RESULTS (Continued)
In the Life & Health Insurance segment, segment net operating income increased by $7.2 million due primarily from a decrease in policyholders’ benefits and release in accrued reserves. See MD&A, “Life & Health Insurance,” beginning on page 46 for additional discussion of the segment’s results.
Corporate and Other net operating income decreased due primarily to a tax benefit as a result of the finalization of certain effects of Public Law 115-97, more commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), on deferred income taxes recognized in the third quarter of 2018 as well as lower gain recognized for the partial satisfaction of a final judgment against Computer Sciences Corporation (“CSC”). The Company’s investment results were favorably impacted in 2019, compared to 2018, by a $160.5 million after-tax increase from the change in fair value of the equity and convertible securities and a $12.2 million after-tax increase from net realized gains on sales of investments, partially offset by $7.3 million after-tax of higher impairment losses. See MD&A, “Investment Results,” beginning on page 50 and MD&A, “Income Taxes,” beginning on page 57 and Note 23, “Contingencies.” to the Consolidated Financial Statements for additional discussion.
Revenues
2020 Compared with 2019
Earned Premiums were $4,672.2 million in 2020, compared to $4,472.4 million in 2019, an increase of $199.8 million. Earned Premiums for the year ended December 31, 2020 included premium credits of $99.8 million related to COVID-19. Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $256.9 million for the year ended December 31, 2020. Specialty Property & Casualty Insurance segment Earned Premiums for the year ended December 31, 2020 included premium credits of $87.1 million related to COVID-19. Earned Premiums in the Preferred Property & Casualty Insurance segment decreased by $62.1 million for the year ended December 31, 2020. Preferred Property & Casualty Insurance segment Earned Premiums for the year ended December 31, 2020 included premium credits of $12.7 million related to COVID-19. See MD&A, “Specialty Property & Casualty Insurance” and “Preferred Property & Casualty Insurance” for discussion of the changes in each segment’s earned premiums.
Net Investment Income decreased by $16.1 million in 2020 due primarily to lower yields on fixed income securities and higher investment expenses, partially offset by higher rate of return from Alternative Investments and higher levels of investments in fixed income securities. Net Investment Income from Alternative Investments related to Equity Method Limited Liability investments increased by $3.9 million. Net Investment Income from Alternative Investments related to limited liability investments included in either Equity Securities at Fair Value or Equity Securities at Modified Cost increased by $4.1 million.
Other Income increased by $59.1 million for the year ended December 31, 2020, compared to the same period in 2019. Other Income for the year ended December 31, 2020 includes a gain of $89.4 million, compared to a gain of $20.1 million for the same period in 2019 related to the partial satisfaction of a final judgment against CSC. See Note 23, “Contingencies.” to the Consolidated Financial Statements for additional discussion. In July 2019, the Company entered into a marketing agreement with Hagerty to transfer the Company’s Classic Collectors book of business to Hagerty. Other Income for the year ended December 31, 2019 includes a gain of $3.8 million related to this agreement. Beginning in 2020, the Company changed its presentation of COLI income by presenting such income in Net Investment Income. Prior to the change, COLI income was presented in Other Income. Other Income for the year ended December 31, 2019 includes $7.8 million related to COLI income.
Net Realized Gains on Sales of Investments were $38.1 million in 2020, compared to $41.9 million in 2019. See MD&A, “Investment Results,” under the sub-caption “Net Realized Gains on Sales of Investments” beginning on page 51 for additional discussion. Impairment Losses were $19.5 million in 2020, compared to $13.8 million for the same period in 2019. See MD&A, “Investment Results,” under the sub-caption “Impairment Losses” beginning on page 52 for additional discussion. The Company cannot predict when or if similar investment gains or losses may occur in the future.
2019 Compared with 2018
Earned Premiums were $4,472.4 million in 2019, compared to $3,384.4 million in 2018, an increase of $1,088.0 million. Earned Premiums increased by $1,051.0 million, $19.6 million and $17.4 million in the Specialty Property & Casualty Insurance segment, Preferred Property & Casualty Insurance Segment and Life & Health Insurance segment, respectively. See MD&A, “Specialty Property & Casualty Insurance,” beginning on page 35, MD&A, “Preferred Property & Casualty Insurance,” beginning on page 40 and MD&A, “Life & Health Insurance,” beginning on page 46 for discussion of the changes in each segment’s earned premiums.

30

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SUMMARY OF RESULTS (Continued)
Net Investment Income increased by $23.4 million in 2019 due primarily to higher levels of investments, largely due to the inclusion of the Infinity portfolio beginning in July 2018, partially offset by a lower rate of return from Alternative Investments. Net Investment Income from Alternative Investments, which consist of Equity Method Limited Liability Investments, and other limited liability investments included in Equity Securities at Fair Value or Equity Securities at Modified Cost, increased by $18.4 million. Alternative investment income from Equity Method Limited Liability Investments decreased by $10.0 million. Alternative investment income from limited liability investments included in either Equity Securities at Fair Value or Equity Securities at Modified Cost decreased by $8.4 million for the year ended December 31, 2019, compared to the same period in 2018. See MD&A, “Investment Results,” under the sub-caption “Net Investment Income” beginning on page 50 for additional discussion.
Other Income decreased by $6.7 million for the year ended December 31, 2019, compared to the same period in 2018. Other Income for the year ended December 31, 2019 includes a gain of $20.1 million, compared to a gain of $35.7 million for the same period in 2018 related to the partial satisfaction of a final judgment against CSC. See Note 23, “Contingencies.” to the Consolidated Financial Statements for additional discussion. In July 2019, the Company entered into a marketing agreement with Hagerty to transfer the Company’s Classic Collectors book of business to Hagerty. Other Income for the year ended December 31, 2019 includes a gain of $3.8 million related to this agreement. Other Income for the year ended December 31, 2019 includes income of $7.8 million, compared to income of $3.6 million for the same period in 2018 from the Company’s corporate-owned life insurance (“COLI”) policies. Other Income from COLI increased due in part to the purchase of additional life insurance in the second and fourth quarters of 2019.
Net Realized Gains on Sales of Investments were $41.9 million in 2019, compared to $26.4 million in 2018. See MD&A, “Investment Results,” under the sub-caption “Net Realized Gains on Sales of Investments” beginning on page 51 for additional discussion. Impairment Losses in 2019 and 2018 were $13.8 million and $4.5 million, respectively. See MD&A, “Investment Results,” under the sub-caption “Impairment Losses” beginning on page 52 for additional discussion. The Company cannot predict when or if similar investment gains or losses may occur in the future.
CATASTROPHES
Catastrophes and natural disasters are inherent risks of the property and casualty insurance business. These catastrophic events and natural disasters include, without limitation, hurricanes, tornadoes, earthquakes, hailstorms, wildfires, high winds and winter storms. Such events result in insured losses that are, and will continue to be, a material factor in the results of operations and financial position of the Company’s property and casualty insurance companies. Further, because the level of these insured losses occurring in any one year cannot be accurately predicted, these losses may contribute to material year-to-year fluctuations in the results of operations and financial position of these companies. Specific types of catastrophic events are more likely to occur at certain times within the year than others. This factor adds an element of seasonality to property and casualty insurance claims. The Company has adopted the industry-wide catastrophe classifications of storms and other events promulgated by ISO to track and report losses related to catastrophes. ISO classifies a disaster as a catastrophe when the event causes $25.0 million or more in direct insured losses to property and affects a significant number of policyholders and insurers. ISO-classified catastrophes are assigned a unique serial number recognized throughout the insurance industry.










31

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

CATASTROPHES (Continued)
The number of ISO-classified catastrophic events and catastrophe losses and LAE, net of reinsurance recoveries, (excluding loss and LAE reserve development) by range of loss and business segment for the years ended December 31, 2020, 2019 and 2018 are presented below.
Year Ended
Dec 31, 2020Dec 31, 2019Dec 31, 2018
DOLLARS IN MILLIONSNumber of EventsLosses and LAENumber of EventsLosses and LAENumber of EventsLosses and LAE
Range of Losses and LAE Per Event:
Below $560 $51.2 56 $42.4 45 $34.7 
$5 - $105 40.2 20.8 27.6 
$10 - $15  14.0 — — 
$15 - $201 15.3 — — — — 
$20 - $25  — — — — 
Greater Than $25  — — 33.7 
Total66 $106.7 60 $77.2 50 $96.0 
Specialty Property & Casualty Insurance$12.3 $11.1 $4.7 
Preferred Property & Casualty Insurance82.0 63.0 87.3 
Life & Health Insurance12.4 3.1 4.0 
Total Catastrophe Losses and LAE$106.7 $77.2 $96.0 
Catastrophe Reinsurance
The Company primarily manages its exposure to catastrophes and other natural disasters through a combination of geographical diversification, restrictions on the amount and location of new business production in such regions, modifications of, and/or limitations to coverages and deductibles for certain perils in such regions and a catastrophe reinsurance program for the Company’s Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segments. Coverage under the catastrophe reinsurance program is provided in various contracts and layers. The Company’s Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segments also purchase reinsurance from the FHCF for hurricane losses in Florida at retentions lower than its catastrophe reinsurance program. The Life & Health Insurance segment also purchases reinsurance from the FHCF for hurricane losses in Florida and is party to the Property & Casualty catastrophe reinsurance program for its Kemper Home Service companies.
In 2018, the Company had reinsurance recoveries of $31.8 million under its catastrophe reinsurance programs primarily driven by the 2017 and 2018 California wildfires. In 2019, the Company entered into a sale of subrogation rights resulting in a reduction of the reinsurance recoveries of $15.5 million. In 2020, the reinsurance recoveries were further reduced by $1.5 million. Catastrophe recoveries under the FHCF were not material in 2020, 2019, or 2018. In 2020, 2019 and 2018 the Company paid $0.0 million, $0.0 million and $0.4 million in reinstatement premium, respectively. See the “Reinsurance” subsection of the “Property and Casualty Insurance Business” and “Life and Health Insurance Business” sections of Item 1(c), “Description of Business,” and Note 20, “Catastrophe Reinsurance,” to the Consolidated Financial Statements for additional information on the Company’s reinsurance programs.













32

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LOSS AND LAE RESERVE DEVELOPMENT
Increases (decreases) in the Company’s property and casualty loss and LAE reserves for the years ended December 31, 2020, 2019 and 2018 to recognize adverse (favorable) loss and LAE reserve development from prior accident years in continuing operations, hereinafter also referred to as “reserve development” in the discussion of segment results, are presented below.
DOLLARS IN MILLIONS202020192018
Increase (Decrease) in Total Loss and LAE Reserves Related to Prior Years:
Non-catastrophe$36.2 $(54.0)$1.0 
Catastrophe0.2 (17.1)(8.4)
Increase (Decrease) in Total Loss and LAE Reserves Related to Prior Years$36.4 $(71.1)$(7.4)
See MD&A, “Specialty Property & Casualty Insurance,” MD&A, “Preferred Property & Casualty Insurance,” MD&A, “Life & Health Insurance,” and Note 6, “Property and Casualty Insurance Reserves,” to the Consolidated Financial Statements for additional information on the Company’s reserve development. See MD&A, “Critical Accounting Estimates,” of this 2020 Annual Report for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, and the estimated variability thereof, development of property and casualty insurance losses and LAE, and a discussion of some of the variables that may impact them.
NON-GAAP FINANCIAL MEASURES
Pursuant to the rules and regulations of the SEC, the Company is required to file consolidated financial statements prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”). The Company is permitted to include non-GAAP financial measures in its filings provided that they are defined along with an explanation of their usefulness to investors, are no more prominent than the comparable GAAP financial measures and are reconciled to such GAAP financial measures.
These non-GAAP financial measures should not be considered a substitute for the comparable GAAP financial measures, as they do not fully recognize the overall profitability of the Company’s businesses.
Underlying Losses and LAE and Underlying Combined Ratio
The following discussion of segment results uses the non-GAAP financial measures of (i) Underlying Losses and LAE and (ii) Underlying Combined Ratio. Underlying Losses and LAE (also referred to in the discussion as “Current Year Non-catastrophe Losses and LAE”) exclude the impact of catastrophe losses and loss and LAE reserve development from prior years from the Company’s Incurred Losses and LAE, which is the most directly comparable GAAP financial measure. The
Underlying Combined Ratio is computed by adding the Current Year Non-catastrophe Losses and LAE Ratio with the Insurance Expense Ratio. The most directly comparable GAAP financial measure is the Combined Ratio, which is computed by adding Total Incurred Losses and LAE Ratio, including the impact of catastrophe losses and loss and LAE reserve development from prior years, with the Insurance Expense Ratio.
The Company believes Underlying Losses and LAE and the Underlying Combined Ratio are useful to investors and uses these financial measures to reveal the trends in the Company’s Property & Casualty Insurance segment that may be obscured by catastrophe losses and prior-year reserve development. These catastrophe losses may cause the Company’s loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on incurred losses and LAE and the Combined Ratio. Prior-year reserve developments are caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses from earlier periods, it has no bearing on the performance of the Company’s insurance products in the current period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company’s underwriting performance.
Adjusted Consolidated Net Operating Income
Adjusted Consolidated Net Operating Income is an after-tax, non-GAAP financial measure and is computed by excluding from Income from Continuing Operations the after-tax impact of:
(i) Income (Loss) from Change in Fair Value of Equity and Convertible Securities;
(ii) Net Realized Gains on Sales of Investments;

33

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

NON-GAAP FINANCIAL MEASURES (Continued)
(iii) Impairment Losses;
(iv) Acquisition Related Transaction, Integration and Other Costs;
(v) Debt Extinguishment, Pension and Other Charges; and
(vi) Significant non-recurring or infrequent items that may not be indicative of ongoing operations
Significant non-recurring items are excluded when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, and (b) there has been no similar charge or gain within the prior two years. The most directly comparable GAAP financial measure is Income from Continuing Operations. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating Income for the years ended December 31, 2020, 2019 or 2018.
The Company believes that Adjusted Consolidated Net Operating Income provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded. Income (Loss) from Change in Fair Value of Equity and Convertible Securities, Net Realized Gains on Sales of Investments and Impairment Losses related to investments included in the Company’s results may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions that impact the values of the Company’s investments, the timing of which is unrelated to the insurance underwriting process. Acquisition Related Transaction and Integration Costs may vary significantly between periods and are generally driven by the timing of acquisitions and business decisions which are unrelated to the insurance underwriting process. Debt Extinguishment, Pension and Other Charges relate to (i) loss from early extinguishment of debt, which is driven by the Company’s financing and refinancing decisions and capital needs, as well as external economic developments such as debt market conditions, the timing of which is unrelated to the insurance underwriting process; (ii) settlement of pension plan obligations which are business decisions are made by the Company, the timing of which is unrelated to the underwriting process; and (iii) other charges that are non-standard, not part of the ordinary course of business, and unrelated to the insurance underwriting process. Significant non-recurring items are excluded because, by their nature, they are not indicative of the Company’s business or economic trends.

The preceding non-GAAP financial measures should not be considered a substitute for the comparable GAAP financial measures, as they do not fully recognize the overall profitability of the Company’s businesses.
34

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SPECIALTY PROPERTY & CASUALTY INSURANCE
Selected financial information for the Specialty Property & Casualty Insurance segment is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$3,435.5$3,211.3$2,067.4
Earned Premiums$3,335.3$3,078.4$2,027.4
Net Investment Income114.1107.563.4
Other Income1.87.02.4
Total Revenues3,451.23,192.92,093.2
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE2,350.82,302.41,517.4
Catastrophe Losses and LAE12.311.14.7
Prior Years:
Non-catastrophe Losses and LAE15.1(35.1)2.0
Catastrophe Losses and LAE0.20.5(0.3)
Total Incurred Losses and LAE2,378.42,278.91,523.8
Insurance Expenses651.9555.6421.7
Other Expenses2.52.1
Operating Profit420.9355.9145.6
Income Tax Expense(83.0)(72.8)(29.8)
Segment Net Operating Income$337.9$283.1$115.8
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio70.4 %74.7 %74.9 %
Current Year Catastrophe Losses and LAE Ratio0.4 0.4 0.2 
Prior Years Non-catastrophe Losses and LAE Ratio0.5 (1.1)0.1 
Prior Years Catastrophe Losses and LAE Ratio — — 
Total Incurred Loss and LAE Ratio71.3 74.0 75.2 
Insurance Expense Ratio19.5 18.0 20.8 
Combined Ratio90.8 %92.0 %96.0 %
Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio70.4 %74.7 %74.9 %
Insurance Expense Ratio19.5 18.0 20.8 
Underlying Combined Ratio89.9 %92.7 %95.7 %
Non-GAAP Measure Reconciliation
Combined Ratio90.8 %92.0 %96.0 %
Less:
Current Year Catastrophe Losses and LAE Ratio0.4 0.4 0.2 
Prior Years Non-catastrophe Losses and LAE Ratio0.5 (1.1)0.1 
Prior Years Catastrophe Losses and LAE Ratio — — 
Underlying Combined Ratio89.9 %92.7 %95.7 %
35

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
INSURANCE RESERVES
DOLLARS IN MILLIONSDec 31,
2020
Dec 31,
2019
Insurance Reserves:
Non-Standard Automobile$1,308.3$1,321.9
Commercial Automobile236.5229.1
Total Insurance Reserves$1,544.8$1,551.0
Insurance Reserves:
Loss and Allocated LAE Reserves:
Case and Allocated LAE$744.6$730.0
Incurred But Not Reported653.6672.2
Total Loss and LAE Reserves1,398.21,402.2
Unallocated LAE Reserves146.6148.8
Total Insurance Reserves$1,544.8$1,551.0
See MD&A, “Critical Accounting Estimates,” under the caption “Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses” beginning on page 63 for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE from prior accident years, also referred to as “reserve development” in the discussion of segment results, estimated variability of property and casualty insurance reserves for losses and LAE, and a discussion of some of the variables that may impact development of property and casualty insurance losses and LAE and the estimated variability of property and casualty insurance reserves for losses and LAE.
Overall
2020 Compared with 2019
The Specialty Property & Casualty Insurance segment reported Segment Net Operating Income of $337.9 million for the year ended December 31, 2020, compared to $283.1 million in 2019. Segment Net Operating Income increased by $54.8 million due primarily to an improvement in underlying losses and LAE as a percentage of earned premiums and higher investment income, partially offset by the impact of adverse loss reserve development. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development.
Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $256.9 million in 2020, compared to 2019, driven primarily by higher volume, partially offset by the impact of premium credits of $87.1 million issued to policyholders during the second quarter of 2020. Both of the segment’s product lines had higher volume, although the overall impact on earned premiums was driven primarily by specialty personal automobile insurance.
Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $6.6 million in 2020, compared to 2019, due primarily to a higher return on Alternative Investments and higher levels of fixed income securities, partially offset by lower yields on fixed income securities.
Other Income in the Specialty Property & Casualty Insurance segment decreased by $5.2 million in 2020, compared to 2019. In July 2019, the Company entered into a marketing agreement with Hagerty to transfer the Company’s Classic Collectors book of business to Hagerty. Other Income in 2019 includes the $3.8 million gain related to the agreement with Hagerty.
Underlying losses and LAE as a percentage of earned premiums were 70.4% in 2020, an improvement of 4.3 percentage points, compared to 2019, due primarily to improvements in claim frequency. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Catastrophe losses and LAE (excluding reserve development) were $12.3 million in 2020, compared to $11.1 million in 2019, an increase of $1.2 million. Unfavorable loss and LAE reserve development (including catastrophe reserve development) was $15.3 million in 2020, compared to favorable development of $34.6 million in 2019.
36

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
Insurance expenses were $651.9 million, or 19.5% of earned premiums, in 2020, a deterioration of 1.5% percentage points, compared to 2019. Excluding the impact of premium credits, insurance expenses were 19.0% of earned premium in 2020.
The Specialty Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to tax-exempt investment income and dividends received deductions.
2019 Compared with 2018
The Specialty Property & Casualty Insurance segment reported Segment Net Operating Income of $283.1 million for the year ended December 31, 2019, compared to $115.8 million in 2018. Segment net operating results improved by $167.3 million due primarily to the acquisition of Infinity in 2018 and favorable loss and LAE reserve development.
Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $1,051.0 million in 2019, compared to 2018. Infinity accounted for $803.2 million of the increase in earned premiums, while higher volume and higher average earned premium accounted for the remaining increase. Both of the segment’s product lines had higher volume and higher average earned premium, although the overall impact on earned premiums was driven primarily by specialty personal automobile insurance.

Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $44.1 million in 2019, compared to 2018, due primarily to a higher investment base, largely due to the inclusion of the Infinity investment portfolio for the entire year in 2019 versus only a six month period in 2018, partially offset by lower rate of return on alternative investments.
Underlying losses and LAE as a percentage of earned premiums were 74.7% in 2019, an improvement of 0.2 percentage points, compared to 2018, due primarily to lower underlying losses as a percentage of earned premiums in commercial automobile insurance. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Catastrophe losses and LAE (excluding reserve development) were $11.1 million in 2019, compared to $4.7 million in 2018, an increase of $6.4 million. Favorable loss and LAE reserve development (including catastrophe reserve development) was $34.6 million in 2019, compared to adverse development of $1.7 million in 2018.
Insurance expenses were $555.6 million, or 18.0% of earned premiums, in 2019, an improvement of 2.8% percentage points, compared to 2018, due primarily to lower amortization of Infinity purchase accounting adjustments in 2019, versus 2018.
Acquisition of Infinity
As discussed in Note 3, “Acquisition of Business,” to the Consolidated Financial Statements, the Company completed its acquisition of Infinity on July 2, 2018. The results of Infinity’s operations have been included in the Company’s consolidated financial results from the date of its acquisition and forward.

37

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
Specialty Personal Automobile Insurance
Selected financial information for the specialty personal automobile insurance product line for the years ended December 31, 2020, 2019 and 2018 is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$3,086.5$2,941.1$1,927.9
Earned Premiums$3,031.3$2,825.6$1,889.5
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE$2,160.9$2,131.5$1,418.2
Catastrophe Losses and LAE11.69.93.9
Prior Years:
Non-catastrophe Losses and LAE28.0(24.3)5.7
Catastrophe Losses and LAE0.20.5(0.2)
Total Incurred Losses and LAE$2,200.7$2,117.6$1,427.6
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio71.3 %75.4 %75.1 %
Current Year Catastrophe Losses and LAE Ratio0.4 0.4 0.2 
Prior Years Non-catastrophe Losses and LAE Ratio0.9 (0.9)0.3 
Prior Years Catastrophe Losses and LAE Ratio — — 
Total Incurred Loss and LAE Ratio72.6 %74.9 %75.6 %
2020 Compared with 2019
Earned Premiums on specialty personal automobile insurance increased by $205.7 million in 2020, compared to 2019, due primarily to higher volume, partially offset by premium credits of $83.5 million issued to policyholders during the second quarter of 2020. Incurred losses and LAE were $2,200.7 million, or 72.6% of earned premiums, in 2020, compared to $2,117.6 million, or 74.9% of earned premiums, in 2019. Incurred losses and LAE as a percentage of earned premiums improved primarily due to an improvement in underlying losses and LAE as a percentage of earned premiums, partially offset by adverse loss reserve development. Underlying losses and LAE as a percentage of related earned premiums were 71.3% in 2020, compared to 75.4% in 2019, an improvement of 4.1 percentage points due primarily to improvements in claim frequency. Catastrophe losses and LAE (excluding reserve development) were $11.6 million in 2020, compared to $9.9 million in 2019. Unfavorable loss and LAE reserve development was $28.2 million in 2020, compared to favorable development of $23.8 million in 2019.
2019 Compared with 2018
Earned Premiums on specialty personal automobile insurance increased by $936.1 million in 2019, compared to 2018. Infinity accounted for $701.2 million of the increase in earned premiums, while higher volume and higher average earned premium accounted for the remaining increase. Incurred losses and LAE were $2,117.6 million, or 74.9% of earned premiums, in 2019, compared to $1,427.6 million, or 75.6% of earned premiums, in 2018. Incurred losses and LAE as a percentage of earned premiums improved due primarily to favorable change in loss and LAE reserve development. Underlying losses and LAE as a percentage of related earned premiums were 75.4% in 2019, compared to 75.1% in 2018. Catastrophe losses and LAE (excluding reserve development) were $9.9 million in 2019, compared to $3.9 million in 2018. Favorable loss and LAE reserve development was $23.8 million in 2019, compared to adverse development of $5.5 million in 2018.

38

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
Commercial Automobile Insurance
Selected financial information for the commercial automobile insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$349.0 $270.2 $139.5 
Earned Premiums$304.0 $252.8 $137.9 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE$189.9 $170.9 $99.2 
Catastrophe Losses and LAE0.7 1.2 0.8 
Prior Years:
Non-catastrophe Losses and LAE(12.9)(10.8)(3.7)
Catastrophe Losses and LAE — (0.1)
Total Incurred Losses and LAE$177.7 $161.3 $96.2 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio62.5 %67.6 %72.0 %
Current Year Catastrophe Losses and LAE Ratio0.2 0.5 0.6 
Prior Years Non-catastrophe Losses and LAE Ratio(4.2)(4.3)(2.7)
Prior Years Catastrophe Losses and LAE Ratio — (0.1)
Total Incurred Loss and LAE Ratio58.5 %63.8 %69.8 %
2020 Compared with 2019
Earned premiums in commercial automobile insurance increased by $51.2 million in 2020, compared to 2019, due primarily to higher volume, partially offset by premium credits of $3.6 million issued to policyholders during the second quarter of 2020. Incurred losses and LAE were $177.7 million, or 58.5% of earned premiums, in 2020, compared to $161.3 million, or 63.8% of earned premiums, in 2019. Incurred losses and LAE as a percentage of earned premiums improved due primarily to an improvement in underlying losses and LAE as a percentage of earned premiums. Underlying losses and LAE as a percentage of earned premiums were 62.5% in 2020, compared to 67.6% in 2019, an improvement of 5.1 percentage points due primarily to improvements in claim frequency. Favorable loss and LAE reserve development was $12.9 million in 2020, compared to $10.8 million in 2019.
2019 Compared with 2018
Earned premiums in commercial automobile insurance increased by $114.9 million in 2019, compared to 2018. Infinity accounted for $101.8 million of the increase in earned premiums, while higher volume and higher average earned premium accounted for the remaining portion. Incurred losses and LAE were $161.3 million, or 63.8% of earned premiums, in 2019, compared to $96.2 million, or 69.8% of earned premiums, in 2018. Incurred losses and LAE as a percentage of earned premiums improved due primarily to lower underlying losses and LAE as a percentage of earned premiums as well as higher levels of favorable loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums were 67.6% in 2019, compared to 72.0% in 2018, an improvement of 4.4 percentage points due primarily to lower frequency of claims in 2019 relative to the prior year. Favorable loss and LAE reserve development was $10.8 million in 2019, compared to $3.8 million in 2018.

39

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE
Selected financial information for the Preferred Property & Casualty Insurance segment is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$653.0 $739.3 $748.8 
Earned Premiums$688.2 $750.3 $730.7 
Net Investment Income37.7 44.1 61.8 
Other Income0.1 — — 
Total Revenues726.0 794.4 792.5 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE400.9 481.8 459.4 
Catastrophe Losses and LAE82.0 63.0 87.3 
Prior Years:
Non-catastrophe Losses and LAE20.7 (17.6)(0.1)
Catastrophe Losses and LAE(0.5)(18.4)(8.2)
Total Incurred Losses and LAE503.1 508.8 538.4 
Insurance Expenses221.1 233.3 225.5 
Operating Profit (Loss)1.8 52.3 28.6 
Income Tax Benefit (Expense)1.7 (10.4)(2.9)
Segment Net Operating Income (Loss)$3.5 $41.9 $25.7 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio58.3 %64.2 %62.9 %
Current Year Catastrophe Losses and LAE Ratio11.9 8.4 11.9 
Prior Years Non-catastrophe Losses and LAE Ratio3.0 (2.3)— 
Prior Years Catastrophe Losses and LAE Ratio(0.1)(2.5)(1.1)
Total Incurred Loss and LAE Ratio73.1 67.8 73.7 
Insurance Expense Ratio32.1 31.1 30.9 
Combined Ratio105.2 %98.9 %104.6 %
Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio58.3 %64.2 %62.9 %
Insurance Expense Ratio32.1 31.1 30.9 
Underlying Combined Ratio90.4 %95.3 %93.8 %
Non-GAAP Measure Reconciliation
Combined Ratio105.2 %98.9 %104.6 %
Less:
Current Year Catastrophe Losses and LAE Ratio11.9 8.4 11.9 
Prior Years Non-catastrophe Losses and LAE Ratio3.0 (2.3)— 
Prior Years Catastrophe Losses and LAE Ratio(0.1)(2.5)(1.1)
Underlying Combined Ratio90.4 %95.3 %93.8 %
40

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE (Continued)
CATASTROPHE FREQUENCY AND SEVERITY
Dec 31, 2020Dec 31, 2019
DOLLARS IN MILLIONSNumber of EventsLosses and LAENumber of EventsLosses and LAE
Range of Losses and LAE Per Event:
Below $548 $42.0 53 $30.9 
$5 - $105 40.0 19.0 
$10 - $15  13.1 
$15 - $20  — — 
$20 - $25  — — 
Greater Than $25  — — 
Total53 $82.0 57 $63.0 
INSURANCE RESERVES
DOLLARS IN MILLIONSDec 31,
2020
Dec 31,
2019
Insurance Reserves:
Preferred Automobile$281.3$262.3
Homeowners104.095.3
Other26.330.9
Total Insurance Reserves$411.6$388.5
Insurance Reserves:
Loss and Allocated LAE Reserves:
Case and Allocated LAE$262.2$241.3
Incurred But Not Reported122.0118.8
Total Loss and LAE Reserves384.2360.1
Unallocated LAE Reserves27.428.4
Total Insurance Reserves$411.6$388.5
See MD&A, “Critical Accounting Estimates,” under the caption “Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses” beginning on page 63 for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE from prior accident years, also referred to as “reserve development” in the discussion of segment results, estimated variability of property and casualty insurance reserves for losses and LAE, and a discussion of some of the variables that may impact development of property and casualty insurance losses and LAE and the estimated variability of property and casualty insurance reserves for losses and LAE.
Overall
2020 Compared with 2019
The Preferred Property & Casualty Insurance segment reported Segment Net Operating Income of $3.5 million for the year ended December 31, 2020, compared to $41.9 million in 2019. Segment Net Operating Income decreased by $38.4 million due primarily to higher catastrophe losses and LAE (excluding loss reserve development), the impact of adverse loss and LAE reserve development and lower net investment income, partially offset by an improvement in underlying losses and LAE as a percentage of earned premiums.
Earned Premiums in the Preferred Property & Casualty Insurance segment decreased by $62.1 million in 2020, compared to 2019, due primarily to lower volume and the impact of premium credits of $12.7 million issued to automobile policyholders
41

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE (Continued)
during the second quarter of 2020. All lines experienced an overall decline in volume, although the overall impact was driven primarily by preferred personal automobile insurance.
Net Investment Income in the Preferred Property & Casualty Insurance segment decreased by $6.4 million in 2020, compared to 2019, due primarily to lower yields on fixed income securities, partially offset by higher levels of investments in fixed income securities and a higher rate of return on Alternative Investments.
Underlying losses and LAE as a percentage of earned premiums were 58.3% and 64.2% in 2020 and 2019, respectively. Catastrophe losses and LAE (excluding reserve development) were $82.0 million in 2020, compared to $63.0 million in 2019, which is a increase of $19.0 million. Catastrophe losses and LAE (excluding reserve development) increased due primarily to an increase in both frequency and severity of catastrophic events in 2020, compared to 2019. There were five catastrophic events above $5 million in 2020, compared to four catastrophic events above $5 million in 2019. Adverse loss and LAE reserve development (including catastrophe reserve development) was $20.2 million in 2020, compared to favorable development of $36.0 million in 2019. Favorable catastrophe reserve development in 2019 included the impact of the recognition and sale in the third quarter of 2019 of the Company’s subrogation rights related to certain California wildfires that had occurred in 2017 and 2018.
Insurance expenses were $221.1 million, or 32.1% of earned premiums, in 2020, a deterioration of 1.0 percentage points compared to 2019. Excluding the impact of premium credits, insurance expenses were 31.5% of earned premiums.
The Preferred Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to tax-exempt investment income and dividends received deductions.
2019 Compared with 2018
The Preferred Property & Casualty Insurance segment reported Segment Net Operating Income of $41.9 million for the year ended December 31, 2019, compared to Segment Net Operating Loss of $25.7 million in 2018. Segment Net Operating Income improved by $16.2 million due primarily to lower incurred catastrophe losses and LAE (excluding loss and LAE reserve development) and favorable prior year loss and LAE development (including a recovery on prior year catastrophes) partially offset by higher underlying losses and LAE as a percentage of earned premiums and lower net investment income.
Earned Premiums in the Preferred Property & Casualty Insurance segment increased by $19.6 million in 2019, compared to 2018, due primarily to higher average earned premium in Preferred Automobile Insurance and Other Personal Insurance partially offset a decrease in volume for Preferred Automobile, Homeowners, and Other Insurance.

Net Investment Income in the Preferred Property & Casualty Insurance segment decreased by $17.7 million in 2019, compared to 2018, due primarily to a lower rate of return on alternative investments.
Underlying losses and LAE as a percentage of earned premiums were 64.2% and 62.9% in 2019 and 2018. Underlying losses and LAE exclude the impact of catastrophe and loss and LAE reserve development. Catastrophe losses and LAE (excluding reserve development) were $63.0 million in 2019, compared to $87.3 million in 2018, which is a decrease of $24.3 million due primarily to fewer catastrophic events in the greater than $25 million per event range in 2019, compared to 2018, and lower severity of other catastrophic events in 2019, compared to 2018. Favorable loss and LAE reserve development (including catastrophe reserve development) was $36.0 million in 2019, compared to $8.3 million in 2018. Favorable catastrophe reserve development in 2019 included the impact of the recognition and sale in the third quarter of 2019 of the Company’s subrogation rights related to certain California wildfires that had occurred in 2017 and 2018.
Insurance expenses were $233.3 million, or 31.1% of earned premiums, in 2019, a deterioration of 0.2 percentage points compared to 2018.
42

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE (Continued)
Preferred Personal Automobile Insurance
Selected financial information for the preferred personal automobile insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$407.5 $468.9 $462.1 
Earned Premiums$431.7 $470.2 $440.2 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE279.9 332.5 308.8 
Catastrophe Losses and LAE4.4 7.8 7.2 
Prior Years:
Non-catastrophe Losses and LAE27.7 (8.2)(5.7)
Catastrophe Losses and LAE(1.0)— (0.1)
Total Incurred Losses and LAE$311.0 $332.1 $310.2 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio64.8 %70.6 %70.2 %
Current Year Catastrophe Losses and LAE Ratio1.0 1.7 1.6 
Prior Years Non-catastrophe Losses and LAE Ratio6.4 (1.7)(1.3)
Prior Years Catastrophe Losses and LAE Ratio(0.2)— — 
Total Incurred Loss and LAE Ratio72.0 %70.6 %70.5 %
2020 Compared with 2019
Earned premiums on preferred personal automobile insurance decreased by $38.5 million in 2020, compared to 2019, due primarily to lower volume and the impact of premium credits of $12.7 million issued to policyholders during the second quarter of 2020. Incurred losses and LAE were $311.0 million, or 72.0% of earned premiums, in 2020, compared to $332.1 million, or 70.6% of earned premiums, in 2019. Incurred losses and LAE as a percentage of earned premiums increased due primarily to adverse loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums were 64.8% in 2020, compared to 70.6% in 2019, which was an improvement of 5.8 percentage points due primarily to improvements in claim frequency in 2020. Adverse loss and LAE reserve development (including catastrophe loss reserve development) was $26.7 million in 2020, compared to favorable development of $8.2 million in 2019. Catastrophe losses and LAE (excluding reserve development) were $4.4 million in 2020, compared to $7.8 million in 2019.
2019 Compared with 2018
Earned premiums in preferred personal automobile insurance increased by $30.0 million in 2019, compared to 2018, due primarily to higher average earned premiums. Incurred losses and LAE were $332.1 million, or 70.6% of earned premiums, in 2019, compared to $310.2 million, or 70.5% of earned premiums, in 2018. Incurred losses and LAE as a percentage of earned premiums increased due primarily to a deterioration in the underlying loss and LAE ratio, partially offset by a favorable change in loss and LAE reserve development. Underlying losses and LAE as a percentage of related earned premiums were 70.6% in 2019, compared to 70.2% in 2018, which was a deterioration of 0.4 percentage points due primarily to the impact of business mix in 2019. Catastrophe losses and LAE (excluding reserve development) were $7.8 million in 2019, compared to $7.2 million in 2018. Favorable loss and LAE reserve development was $8.2 million in 2019, compared to $5.8 million in 2018.

43

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE (Continued)
Homeowners Insurance
Selected financial information for the homeowners insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$211.1 $233.1 $247.3 
Earned Premiums$220.7 $241.3 $250.1 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE108.7 131.6 131.5 
Catastrophe Losses and LAE71.2 54.0 75.2 
Prior Years:
Non-catastrophe Losses and LAE(2.8)(2.7)10.4 
Catastrophe Losses and LAE0.7 (17.0)(7.2)
Total Incurred Losses and LAE$177.8 $165.9 $209.9 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio49.3 %54.5 %52.5 %
Current Year Catastrophe Losses and LAE Ratio32.3 22.4 30.1 
Prior Years Non-catastrophe Losses and LAE Ratio(1.3)(1.1)4.2 
Prior Years Catastrophe Losses and LAE Ratio0.3 (7.0)(2.9)
Total Incurred Loss and LAE Ratio80.6 %68.8 %83.9 %
2020 Compared with 2019
Earned premiums in homeowners insurance decreased by $20.6 million in 2020, compared to 2019, due primarily to lower volume. Incurred losses and LAE were $177.8 million, or 80.6% of earned premiums, in 2020, compared to $165.9 million, or 68.8% of earned premiums, in 2019. Incurred losses and LAE as a percentage of earned premiums increased due primarily to higher incurred catastrophe losses and LAE (excluding loss reserve development) and lower favorable catastrophe loss reserve development, partially offset by lower underlying losses and LAE as a percentage of earned premiums. Underlying losses and LAE as a percentage of earned premiums were 49.3% in 2020, compared to 54.5% in 2019, a improvement of 5.2 percentage points. Catastrophe losses and LAE (excluding reserve development) were $71.2 million in 2020, compared to $54.0 million in 2019. Favorable loss and LAE reserve development (including catastrophe loss reserve development) was $2.1 million in 2020, compared to favorable development of $19.7 million in 2019. Favorable catastrophe reserve development in 2019 included the impact of the recognition and sale of the Company’s subrogation rights related to certain California wildfires that had occurred in 2017 and 2018.
2019 Compared with 2018
Earned premiums in homeowners insurance decreased by $8.8 million in 2019, compared to 2018, due primarily to lower volume. Incurred losses and LAE were $165.9 million, or 68.8% of earned premiums, in 2019, compared to $209.9 million, or 83.9% of earned premiums, in 2018. Incurred losses and LAE as a percentage of earned premiums increased due primarily to lower incurred catastrophe losses and LAE (excluding loss and LAE reserve development) and higher favorable loss and LAE reserve development, partially offset by higher underlying losses and LAE as a percentage of earned premiums. Underlying losses and LAE as a percentage of earned premiums were 54.5% in 2019, compared to 52.5% in 2018, a deterioration of 2.0 percentage points due primarily to higher severity of non-catastrophe large losses in 2019 compared to 2018. Catastrophe losses and LAE (excluding reserve development) were $54.0 million in 2019, compared to $75.2 million in 2018. Favorable loss and LAE reserve development was $19.7 million in 2019, compared to adverse development of $3.2 million in 2018. Favorable loss and LAE reserve development in 2019 included the impact of the recognition and sale of the Company’s subrogation rights related to certain California wildfires that had occurred in 2017 and 2018.

44

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

PREFERRED PROPERTY & CASUALTY INSURANCE (Continued)
Other Personal Insurance
Other personal insurance products include umbrella, dwelling fire, inland marine, earthquake, boat owners and other liability coverages. Selected financial information for other personal insurance product lines is presented below.
DOLLARS IN MILLIONS202020192018
Net Premiums Written$34.4 $37.3 $39.4 
Earned Premiums$35.8 $38.8 $40.4 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE12.3 17.7 19.1 
Catastrophe Losses and LAE6.4 1.2 4.9 
Prior Years:
Non-catastrophe Losses and LAE(4.2)(6.7)(4.8)
Catastrophe Losses and LAE(0.2)(1.4)(0.9)
Total Incurred Losses and LAE$14.3 $10.8 $18.3 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio34.3 %45.6 %47.3 %
Current Year Catastrophe Losses and LAE Ratio17.9 3.1 12.1 
Prior Years Non-catastrophe Losses and LAE Ratio(11.7)(17.3)(11.9)
Prior Years Catastrophe Losses and LAE Ratio(0.6)(3.6)(2.2)
Total Incurred Loss and LAE Ratio39.9 %27.8 %45.3 %
2020 Compared with 2019
Earned premiums in other personal insurance decreased by $3.0 million in 2020, compared to 2019. Incurred losses and LAE were $14.3 million, or 39.9% of earned premiums, in 2020, compared to $10.8 million, or 27.8% of earned premiums, in 2019. Underlying losses and LAE as a percentage of earned premiums were 34.3% in 2020, compared to 45.6% in 2019, an improvement of 11.3 percentage points. Catastrophe losses and LAE (excluding reserve development) were $6.4 million in 2020, compared to $1.2 million in 2019. Favorable loss and LAE reserve development (including catastrophe loss reserve development) was $4.4 million in 2020, compared to $8.1 million in 2019.
2019 Compared with 2018
Earned premiums in other personal insurance decreased by $1.6 million in 2019, compared to 2018, primarily due to a decrease in volume. Incurred losses and LAE were $10.8 million, or 27.8% of earned premiums, in 2019, compared to $18.3 million, or 45.3% of earned premiums, in 2018. Incurred losses and LAE as a percentage of earned premiums increased due primarily to higher favorable loss and LAE reserve development in 2019 compared to 2018. Underlying losses and LAE as a percentage of earned premiums were 45.6% in 2019, compared to 47.3% in 2018, an improvement of 1.7 percentage points. Catastrophe losses and LAE (excluding reserve development) were $1.2 million in 2019, compared to $4.9 million in 2018. Favorable loss and LAE reserve development was $8.1 million in 2019, compared to $5.7 million in 2018.
45

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIFE & HEALTH INSURANCE
Selected financial information for the Life & Health Insurance segment is presented below.
DOLLARS IN MILLIONS202020192018
Earned Premiums$648.7 $643.7 $626.3 
Net Investment Income198.8 206.4 210.9 
Other Income0.6 8.5 4.0 
Total Revenues848.1 858.6 841.2 
Policyholders’ Benefits and Incurred Losses and LAE442.0 402.7 404.2 
Insurance Expenses334.9 334.0 321.1 
Operating Profit71.2 121.9 115.9 
Income Tax Expense(11.2)(23.2)(24.4)
Segment Net Operating Income$60.0 $98.7 $91.5 
INSURANCE RESERVES
DOLLARS IN MILLIONSDec 31,
2020
Dec 31,
2019
Insurance Reserves:
Future Policyholder Benefits$3,440.5 $3,385.3 
Incurred Losses and LAE Reserves:
Life61.1 89.2 
Accident and Health25.9 27.5 
Property4.6 3.3 
Total Incurred Losses and LAE Reserves91.6 120.0 
Total Insurance Reserves$3,532.1 $3,505.3 
Use of Death Verification Databases
In the third quarter of 2016, the Company’s Life & Health segment voluntarily began implementing a comprehensive process under which it cross-references its life insurance policies against the Death Master File and other death verification databases to identify potential situations where the beneficiaries may not have filed a claim following the death of an insured and initiate an outreach process to identify and contact beneficiaries and settle claims. Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses for the year ended December 31, 2016 included a pre-tax charge of $77.8 million to recognize the initial impact of using death verification databases in the Company’s operations, including to determine its IBNR liability for unpaid claims and claims adjustment expenses for life insurance products. Subsequently, the Company has reduced its estimate of the initial impact of using death verification databases by $30.3 million, of which $9.3 million was recognized during 2020 and $21.0 million was recognized during 2019.
See Note 2, “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements under the sub-caption “Insurance Reserves” for additional discussion.
2020 Compared with 2019
Earned Premiums in the Life & Health Insurance segment increased by $5.0 million for the year ended December 31, 2020, compared to 2019, due primarily to higher persistency on life insurance products, higher volume on accident and health insurance products and a reduction in the estimated return premium reserve for insurance products subject to minimum loss ratio (“MLR”), partially offset by lower property insurance earned premiums due primarily to a lower volume of insurance sold.

Net Investment Income decreased by $7.6 million in 2020, compared to 2019, due primarily to lower yields on fixed income securities, partially offset by higher levels of investments in fixed income securities and a change in the Company’s presentation of COLI income.

46

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIFE & HEALTH INSURANCE (Continued)
Other income decreased by $7.9 million in 2020, compared to 2019, due primarily to the change in presentation of COLI income.
Policyholders’ Benefits and Incurred Losses and LAE increased by $39.3 million in 2020, compared to 2019, due primarily to higher mortality for life insurance claims due primarily to COVID-19, and the impact of a lower reduction of the Company’s estimate of the ultimate cost of using death verification databases in 2020, compared to 2019, partially offset by lower frequency of accident and health insurance claims due to COVID-19. The Company reduced its estimate of the ultimate cost of using death verification databases in its operations by $9.3 million and $21.0 million, respectively during 2020 and 2019.
Insurance Expenses in the Life & Health Insurance segment increased by $0.9 million in 2020, compared to 2019.
Segment Net Operating Income in the Life & Health Insurance segment was $60.0 million for the year ended December 31, 2020, compared to $98.7 million in 2019.
2019 Compared with 2018
Earned Premiums in the Life & Health Insurance segment increased by $17.4 millions for the year ended December 31, 2019, compared to 2018, due primarily to higher volume from accident and health insurance products offered by Reserve National, and sales volume on life insurance products.
Net Investment Income decreased by $4.5 million in 2019, compared to 2018, due primarily to lower investment yields on fixed income securities and a lower rate of return from alternative investments, partially offset by a higher investment base. The weighted-average book yield on the Company’s life and health insurance subsidiaries’ investments in fixed maturities was approximately 5.1% and 5.3% at December 31, 2019 and 2018, respectively.
Other income increased by $4.5 million in 2019, compared to 2018, due primarily to a higher level of COLI.
Policyholders’ Benefits and Incurred Losses and LAE decreased by $1.5 million in 2019, compared to 2018, due primarily to decrease of $21.0 million in the company’s estimate of the ultimate cost of using death verification databases in the Company’s operations, partially offset by higher severity on accident and health insurance claims.
Insurance Expenses in the Life & Health Insurance segment increased by $12.9 million due primarily to higher commissions on increased volume within the business and investments to enhance the capabilities of the business.
Segment Net Operating Income in the Life & Health Insurance segment was $98.7 million for the year ended December 31, 2019, compared to $91.5 million in 2018.
Life Insurance
Selected financial information for the life insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Earned Premiums$385.7 $384.6 $378.4 
Net Investment Income193.3 198.8 202.6 
Other Income 8.1 3.5 
Total Revenues579.0 591.5 584.5 
Policyholders’ Benefits and Incurred Losses and LAE318.2 270.1 279.4 
Insurance Expenses218.8 215.3 207.7 
Operating Profit42.0 106.1 97.4 
Income Tax Expense(5.2)(20.0)(20.7)
Total Product Line Net Operating Income$36.8 $86.1 $76.7 
47

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIFE & HEALTH INSURANCE (Continued)
2020 Compared with 2019
Earned premiums on life insurance increased by $1.1 million in 2020, compared to 2019, due primarily to higher persistency. Policyholders’ benefits and incurred losses and LAE on life insurance were $318.2 million in 2020, compared to $270.1 million in 2019, an increase of $48.1 million, due primarily to higher mortality for life insurance claims primarily due to COVID-19, and the impact of a lower reduction of the Company’s estimate of the ultimate cost of using death verification databases in 2020 compared to 2019. The Company reduced its estimate of the ultimate cost of using death verification databases in its operations by $9.3 million and $21.0 million, respectively during 2020 and 2019. Insurance expenses increased by $3.5 million in 2020, compared to 2019 due primarily to investments made to modernize and strengthen the distribution channel and enhance the capabilities of the business.
2019 Compared with 2018
Earned premiums on life insurance increased by $6.2 million in 2019, compared to 2018, due primarily to a higher volume of new business sales. Policyholders’ benefits and incurred losses and LAE on life insurance were $270.1 million in 2019, compared to $279.4 million in 2018, a decrease of $9.3 million due primarily to adjustment of the company’s estimate of the ultimate cost of using death verification databases in the company’s operations. Insurance expenses increased by $7.6 million in 2019, compared to 2018 due primarily to higher commissions on increased volume and investments to enhance the capabilities of the business.
Accident and Health Insurance
Selected financial information for the accident and health insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Earned Premiums$199.3 $190.9 $177.5 
Net Investment Income5.0 6.0 6.1 
Other Income0.6 0.4 0.5 
Total Revenues204.9 197.3 184.1 
Policyholders’ Benefits and Incurred Losses and LAE95.3 109.8 98.9 
Insurance Expenses91.9 88.7 82.2 
Operating Profit (Loss)17.7 (1.2)3.0 
Income Tax Expense (Benefit)(3.6)0.3 (0.6)
Total Product Line Net Operating Income (Loss)$14.1 $(0.9)$2.4 
2020 Compared with 2019
Earned premiums on accident and health insurance increased by $8.4 million in 2020, compared to 2019, due primarily to higher volume on accident and health insurance products and a reduction in the estimated return premium reserve for certain insurance products subject to MLR. Incurred accident and health insurance losses were $95.3 million, or 47.8% of accident and health insurance earned premiums, in 2020, compared to $109.8 million, or 57.5% of accident and health insurance earned premiums, in 2019. The decrease of 9.7 percentage points was due primarily to lower frequency of claims due to COVID-19. Insurance expenses increased by $3.2 million in 2020, compared to 2019, due primarily to premium growth and investments to enhance the capabilities of the business.
2019 Compared with 2018
Earned premiums on accident and health insurance increased by $13.4 million in 2019, compared to 2018, due primarily to higher volume of in force business. Policyholders’ benefits and incurred losses and LAE on accident and health insurance were $109.8 million, or 57.5% of accident and health insurance earned premiums, in 2019, compared to $98.9 million, or 55.7% of accident and health insurance earned premiums, in 2018. The increase of 1.8% percentage points was due primarily to higher severity of claims for certain health products. Insurance expenses increased by $6.5 million in 2019, compared to 2018, due primarily to premium growth.

48

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIFE & HEALTH INSURANCE (Continued)
Property Insurance
Selected financial information for the property insurance product line is presented below.
DOLLARS IN MILLIONS202020192018
Earned Premiums$63.7 $68.2 $70.4 
Net Investment Income0.5 1.6 2.2 
Total Revenues64.2 69.8 72.6 
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE15.2 18.1 20.5 
Catastrophe Losses and LAE12.4 3.1 4.0 
Prior Years:
Non-catastrophe Losses and LAE0.4 0.8 1.3 
Catastrophe Losses and LAE0.5 0.8 0.1 
Total Incurred Losses and LAE28.5 22.8 25.9 
Insurance Expenses24.2 30.0 31.2 
Operating Profit11.5 17.0 15.5 
Income Tax Expense(2.4)(3.5)(3.1)
Total Product Line Net Operating Income$9.1 $13.5 $12.4 
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio23.8 %26.5 %29.2 %
Current Year Catastrophe Losses and LAE Ratio19.5 4.5 5.7 
Prior Years Non-catastrophe Losses and LAE Ratio0.6 1.2 1.8 
Prior Years Catastrophe Losses and LAE Ratio0.8 1.2 0.1 
Total Incurred Loss and LAE Ratio44.7 %33.4 %36.8 %
2020 Compared with 2019
Earned premiums from property insurance decreased by $4.5 million in 2020, compared to 2019, due primarily to a lower volume of insurance sold. Incurred losses and LAE on property insurance were $28.5 million, or 44.7% of earned premiums, in 2020, compared to $22.8 million, or 33.4% of earned premiums, in 2019. Current year non-catastrophe losses and LAE on property insurance were $15.2 million, or 23.8% of property insurance earned premiums, in 2020, compared to $18.1 million, or 26.5% of property insurance earned premiums, in 2019, a decrease of 2.7 percentage points due primarily to lower frequency of claims. Catastrophe losses and LAE (excluding loss reserve development) were $12.4 million in 2020, compared to $3.1 million in 2019, an increase of $9.3 million due primarily to a higher frequency of claims and severity of losses in connection with catastrophic events. Adverse loss and LAE reserve development was $0.9 million in 2020, compared to $1.6 million in 2019. Insurance expenses decreased $5.8 million in 2020, compared to 2019, due primarily to lower volume of policies issued.
2019 Compared with 2018
Earned premiums on property insurance decreased by $2.2 million in 2019, compared to 2018, due primarily to a lower volume of insurance sold. Incurred losses and LAE on property insurance were $22.8 million, or 33.4% of property insurance earned premiums, in 2019, compared to $25.9 million, or 36.8% of property insurance earned premiums, in 2018. Current year non-catastrophe losses and LAE on property insurance were $18.1 million, or 26.5% of property insurance earned premiums, in 2019, compared to $20.5 million, or 29.2% of property insurance earned premiums, in 2018, a decrease of 2.7 percentage points due to lower frequency of claims. Catastrophe losses and LAE (excluding development) were $3.1 million in 2019, compared to $4.0 million in 2018, due primarily to a lower frequency of claims and severity of losses in connection with catastrophic events. Adverse loss and LAE reserve development was $1.6 million in 2019, compared to $1.4 million in 2018. Insurance expenses decreased $1.2 million in 2019, compared to 2018, due primarily to lower volume of policies issued.
49

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENT RESULTS
Net Investment Income
Net Investment Income for the years ended December 31, 2020, 2019 and 2018 is presented below.
DOLLARS IN MILLIONS202020192018
Investment Income:
Interest on Fixed Income Securities$289.8 $299.4 $268.9 
Dividends on Equity Securities Excluding Alternative Investments15.4 22.9 13.6 
Alternative Investments:
Equity Method Limited Liability Investments4.9 1.0 11.0 
Limited Liability Investments Included in Equity Securities22.1 18.0 26.4 
Total Alternative Investments27.0 19.0 37.4 
Short-term Investments5.5 8.2 7.0 
Loans to Policyholders22.1 22.6 22.5 
Real Estate9.6 9.8 9.6 
Other13.2 1.5 0.9 
Total Investment Income382.6 383.4 359.9 
Investment Expenses:
Real Estate8.8 9.6 9.7 
Other Investment Expenses25.6 9.5 9.3 
Total Investment Expenses34.4 19.1 19.0 
Net Investment Income$348.2 $364.3 $340.9 
2020 Compared with 2019
Net Investment Income decreased by $16.1 million for the year ended December 31, 2020, compared to 2019, due primarily to lower yields on fixed income securities, lower dividend income on equity securities and higher investment expenses partially offset by higher return from Alternative Investments and higher invested assets in fixed income securities.
2019 Compared with 2018
Net Investment Income increased by $23.4 million for the year ended December 31, 2019, compared to 2018, due primarily to the inclusion of the Infinity investment portfolio for the entire year in 2019 versus only six months in 2018, partially offset by a lower rate of return from Alternative Investments.
Total Comprehensive Investment Gains (Losses)
The components of Total Comprehensive Investment Gains (Losses) for the years ended December 31, 2020, 2019 and 2018 are presented below.
DOLLARS IN MILLIONS202020192018
Recognized in Consolidated Statements of Income:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities$72.1 $138.9 $(64.3)
Gains on Sales48.3 46.9 37.6 
Losses on Sales(10.2)(5.0)(11.2)
Impairment Losses(19.5)(13.8)(4.5)
Net Gain (Loss) Recognized in Consolidated Statements of Income90.7 167.0 (42.4)
Recognized in Other Comprehensive Income (Loss)367.4 405.3 (235.8)
Total Comprehensive Investment Gains (Losses)$458.1 $572.3 $(278.2)
50

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENT RESULTS (Continued)
Income (Loss) From Change in Fair Value of Equity and Convertible Securities
The components of Income (Loss) from Change in Fair Value of Equity and Convertible Securities for the years ended December 31, 2020 and 2019 are presented below.
DOLLARS IN MILLIONS20202019
Preferred Stocks$(0.7)$6.2 
Common Stocks(0.3)1.9 
Other Equity Interests:
Exchange Traded Funds68.0 121.0 
Limited Liability Companies and Limited Partnerships1.7 4.2 
Total Other Equity Interests69.7 125.2 
Income (Loss) from Change in Fair Value of Equity Securities68.7 133.3 
Income (Loss) from Change in Fair Value of Convertible Securities3.4 5.6 
Income (Loss) from Change in Fair Value of Equity and Convertible Securities$72.1 $138.9 
Net Realized Gains on Sales of Investments
The components of Net Realized Gains on Sales of Investments for the year ended December 31, 2020, 2019 and 2018 are presented below.
DOLLARS IN MILLIONS202020192018
Fixed Maturities:
Gains on Sales$40.6 $41.1 $25.3 
Losses on Sales(7.9)(4.8)(11.1)
Equity Securities:
Gains on Sales5.9 5.8 12.3 
Losses on Sales(1.9)(0.2)— 
Equity Method Limited Liability Investments:
Losses on Sales(0.4)— — 
Real Estate:
Gains on Sales1.8 — — 
Other Investments:
Losses on Sales— — (0.1)
Net Realized Gains on Sales of Investments$38.1 $41.9 $26.4 
Gross Gains on Sales$48.3 $46.9 $37.6 
Gross Losses on Sales(10.2)(5.0)(11.2)
Net Realized Gains on Sales of Investments$38.1 $41.9 $26.4 
Fixed Maturities
Net Realized Gains on Sales of Fixed Maturities for the year ended December 31, 2020 primarily relate to a repositioning of the portfolio for duration extension purposes.
During the fourth quarter of 2019, the Company began repositioning the fixed maturity investment portfolio in in its Life and Health Insurance segment and recognized Realized Gains on Sales of Fixed Maturities of $13.3 million and Realized Losses on Sales of Fixed Maturities of $4.4 million in connection with the repositioning.

51

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENT RESULTS (Continued)
Equity Securities
Net Realized Gains on Sales of Equity Securities for the year ended December 31, 2020 primarily relate to transactions whereby the Company’s investments were acquired by other companies.
Net Realized Gains on Sales of Equity Securities for the year ended December 31, 2019 primarily relate to transactions whereby the Company’s investments were acquired by other companies.
Net Realized Gains on Sales of Equity Securities for the year ended December 31, 2018 primarily relate to gains on dispositions of certain Investments in Equity Securities at Modified Cost resulting from transactions whereby the Company’s investments were acquired by other companies.
Other sales activity in 2020, 2019 and 2018 was due to normal portfolio management.
Impairment Losses
The Company regularly reviews its investment portfolio for factors that may indicate that a decline in the fair value of an investment has occurred from credit loss or other factors (non-credit related). Losses arising from declines in fair values are reported in the Consolidated Statements of Income in the period that the declines are evaluated. The components of Impairment Losses in the Consolidated Statements of Income for the year ended December 31, 2020, 2019 and 2018 were:
202020192018
DOLLARS IN MILLIONSAmountNumber of IssuersAmountNumber of IssuersAmountNumber of Issuers
Fixed Maturities$(16.7)14$(13.3)14$(2.0)24
Equity Securities(2.8)2(0.5)1(2.5)5
Impairment Losses$(19.5)$(13.8)$(4.5)
Fixed Maturities
Impairment Losses recognized in the Consolidated Statements of Income for the year ended December 31, 2020 or 2019 or 2018 related primarily to investments in Fixed Maturities where the Company had the intent to sell or requirement to sell.
Real Estate
The Company did not recognize any impairment losses related to Investments in Real Estate in the Consolidated Statements of Income for the year ended December 31, 2020 or 2019 or 2018.
INVESTMENT QUALITY AND CONCENTRATIONS
The Company’s fixed maturity investment portfolio is comprised primarily of corporate, high-grade municipal and agency bonds. At December 31, 2020, approximately 94% of the Company’s fixed maturity investment portfolio was rated investment-grade, which the Company defines as a security issued by a high quality obligor with at least a relatively stable credit profile and where it is highly likely that all contractual payments of principal and interest will timely occur and carry a rating from the NAIC of 1 or 2. Securities with a rating of 1 or 2 from the NAIC typically are rated by one of more Nationally Recognized Statistical Rating Organizations and either have a rating of AAA, AA, A or BBB from S&P; a rating of Aaa, Aa, A or Baa from Moody’s; or a rating of AAA, AA, A or BBB from Fitch.

52

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENT QUALITY AND CONCENTRATIONS (Continued)
The following table summarizes the credit quality of the Company’s fixed maturity investment portfolio at December 31, 2020 and 2019.
NAIC
Rating
RatingDec 31, 2020Dec 31, 2019
Fair Value
in Millions
Percentage
of Fixed Maturities
Fair Value
in Millions
Percentage
of Fixed Maturities
1AAA, AA, A$4,759.9 62.6 %$4,387.1 63.4 %
2BBB2,355.6 31.0 2,044.1 29.5 
3-4BB, B353.1 4.6 319.2 4.6 
5-6CCC or Lower137.3 1.8 171.7 2.5 
Total Investments in Fixed Maturities$7,605.9 100.0 %$6,922.1 100.0 %
Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $23.7 million and $11.7 million at December 31, 2020 and 2019, respectively.
The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at December 31, 2020 and 2019.
Dec 31, 2020Dec 31, 2019
DOLLARS IN MILLIONSFair ValuePercentage
of Total
Investments
Fair ValuePercentage
of Total
Investments
U.S. Government and Government Agencies and Authorities$585.3 5.6 %$815.9 8.8 %
States and Political Subdivisions:
Revenue Bonds1,153.3 11.1 958.6 10.4 
States333.5 3.2 427.5 4.6 
Political Subdivisions102.6 1.0 129.7 1.4 
Foreign Governments5.2  16.8 0.2 
Total Investments in Governmental Fixed Maturities$2,179.9 20.9 %$2,348.5 25.4 %
The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by industry at December 31, 2020 and 2019.
Dec 31, 2020Dec 31, 2019
DOLLARS IN MILLIONSFair ValuePercentage
of Total
Investments
Fair ValuePercentage
of Total
Investments
Finance, Insurance and Real Estate$1,916.3 18.4 %$1,522.8 16.4 %
Manufacturing1,633.5 15.7 1,356.4 14.6 
Transportation, Communication and Utilities825.5 7.9 650.2 7.0 
Services581.3 5.6 604.4 6.5 
Retail Trade172.6 1.7 183.3 2.0 
Mining285.7 2.7 154.5 1.7 
Wholesale Trade0.5  72.9 0.8 
Agriculture, Forestry and Fishing  12.4 0.1 
Other10.5 0.1 16.6 0.2 
Total Investments in Non-governmental Fixed Maturities$5,425.9 52.1 %$4,573.5 49.3 %
53

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENT QUALITY AND CONCENTRATIONS (Continued)
The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amount invested at December 31, 2020.
DOLLARS IN MILLIONSNumber of IssuersAggregate Fair Value
Below $5524 $1,195.3 
$5 -$10217 1,535.2 
$10 - $20124 1,682.1 
$20 - $3028 671.8 
Greater Than $3010 341.5 
Total903 $5,425.9 
The Company’s short-term investments primarily consist of U.S. treasury bills, money market funds and overnight interest bearing accounts. At December 31, 2020, the Company had $620.5 million invested in U.S. treasury bills, $242.1 million invested in money market funds which primarily invest in U.S. Treasury securities and $4.3 million invested in overnight interest bearing accounts with one of the Company’s custodial banks.
The following table summarizes the fair value of the Company’s ten largest investment exposures, excluding investments in U.S. Government and Government Agencies and Authorities and Short-term Investments, at December 31, 2020.
DOLLARS IN MILLIONSFair
Value
Percentage
of Total
Investments
Fixed Maturities:
States including their Political Subdivisions:
Texas$140.6 1.3 %
Georgia107.9 1.0 
Colorado85.6 0.8 
New York76.1 0.7 
Michigan73.1 0.7 
Louisiana71.7 0.7 
California70.4 0.7 
Pennsylvania58.1 0.6 
Equity Securities at Fair Value—Other Equity Interests:
Vanguard Total World Stock ETF195.5 1.9 
iShares® Core MSCI Total International Stock ETF76.3 0.7 
Total$955.3 9.1 %
54

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INVESTMENTS IN LIMITED LIABILITY COMPANIES AND LIMITED PARTNERSHIPS
The Company owns investments in various limited liability investment companies and limited partnerships that primarily invest in mezzanine debt, distressed debt, real estate and senior debt. Beginning January 1, 2018, the Company’s investments in these limited liability investment companies and limited partnerships are reported either as Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings, Other Equity Interests and included in Equity Securities at Fair Value, or Equity Securities at Modified Cost depending on the accounting method used to report the investment. Additional information pertaining to these investments at December 31, 2020 and 2019 is presented below.
 Unfunded
Commitment
in Millions
Reported Value in Millions
Asset ClassDec 31,
2020
Dec 31,
2020
Dec 31,
2019
Reported as Equity Method Limited Liability Investments:
Mezzanine Debt$57.4 $102.5 $129.3 
Senior Debt22.3 28.6 16.0 
Alternative Energy Partnerships80.0 21.3 — 
Distressed Debt 14.5 22.7 
Secondary Transactions13.0 11.2 11.5 
Leveraged Buyout0.1 3.5 0.1 
Growth Equity 0.7 5.3 
Real Estate 29.9 29.9 
Other 13.1 5.6 
Total Equity Method Limited Liability Investments$172.8 $225.3 $220.4 
Reported as Other Equity Interests at Fair Value:
Mezzanine Debt72.9 118.3 126.1 
Senior Debt18.9 33.9 39.5 
Distressed Debt24.1 31.8 16.8 
Secondary Transactions6.2 4.2 4.9 
Hedge Funds 71.6 48.2 
Leveraged Buyout7.6 30.7 4.4 
Other1.1 1.5 8.2 
Total Reported as Other Equity Interests at Fair Value$130.8 $292.0 $248.1 
Reported as Equity Securities at Modified Cost:
Mezzanine Debt$ $ $1.6 
Other0.2 15.7 18.9 
Total Reported as Equity Securities at Modified Cost0.2 15.7 20.5 
Total Investments in Limited Liability Companies and Limited Partnerships$303.8 $533.0 $489.0 
The Company expects that it will be required to fund its commitments over the next several years. The Company expects that the proceeds from distributions from these investments will be the primary source of funding of such commitments.

55

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

EXPENSES
Expenses for the year ended December 31, 2020, 2019 and 2018 were:
DOLLARS IN MILLIONS202020192018
Insurance Expenses:
Commissions$745.8 $708.8 $558.7 
General Expenses307.4 278.0 231.9 
Premium Tax Expense94.2 93.5 71.0 
Total Costs Incurred1,147.4 1,080.3 861.6 
Net Policy Acquisition Costs Amortized (Deferred)(51.6)(66.9)(104.4)
Amortization of Value of Business Acquired (“VOBA”)4.7 6.3 143.3 
Insurance Expenses1,100.5 1,019.7 900.5 
Loss from Early Extinguishment of Debt 5.8 — 
Interest Expense36.0 42.5 43.4 
Other Expenses:
Acquisition Related Transaction, Integration and Other Costs63.3 18.4 44.7 
Pension Settlement Expense64.1 — — 
Other108.1 102.9 70.9 
Other Expenses235.5 121.3 115.6 
Interest and Other Expenses271.5 163.8 159.0 
Total Expenses$1,372.0 $1,189.3 $1,059.5 
Insurance Expenses
Insurance Expenses increased by $80.8 million for the year ended December 31, 2020, compared to 2019, due primarily to growth in business. Insurance Expenses increased by $119.2 million for the year ended December 31, 2019, compared to 2018, due primarily to the inclusion of Infinity for the full twelve months in 2019 as compared to only six months in 2018, partially offset by a reduction in the amortization of VOBA.
Loss on Early Extinguishment of Debt
On June 7, 2019, Kemper issued a notice of redemption for the entire $150.0 million aggregate principal outstanding of its 7.375% Subordinated Debentures due 2054 (the “7.375% Subordinated Debentures”) at a redemption price equal to 100% of their principal, plus accrued and unpaid interest on the redemption date. On July 8, 2019, Kemper completed the redemption, and the 7.375% Subordinated Debentures were repaid in full. The Company recognized a loss on early extinguishment of debt of $5.8 million in the Consolidated Statements of Income for the year ended December 31, 2019
Interest and Other Expenses
Interest expense decreased by $6.5 million for the year ended December 31, 2020, compared to 2019, due primarily to the early extinguishment of the subordinated debenture in June 2019. Interest expense decreased by $0.9 million for the year ended December 31, 2019, compared to 2018, due primarily to lower levels of debt outstanding. See MD&A, “Liquidity and Capital Resources,” and Note 8, “Debt,” to the Consolidated Financial Statements for additional discussion of debt activity.
Other Expenses increased by $114.2 million for the year ended December 31, 2020, compared to 2019, due primarily to Pension Settlement Expenses related to purchasing annuities on behalf of certain plan participants and lump-sum payments made to certain terminated vested participants and higher Acquisition Related Transaction, Integration and Other Costs. Other Expenses increased by $5.7 million for the year ended December 31, 2019, compared to 2018, due primarily to higher employee compensation, bonuses and legal fees, partially offset by a reduction in costs associated with the acquisition of Infinity and the related transaction and integration cost.



56

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

INCOME TAXES
The Company’s effective income tax rate from continuing operations differs from the Federal statutory income tax rate due primarily to (1) the effects of tax-exempt investment income and dividends received deductions, (2) nontaxable income associated with the change in cash surrender value on COLI, (3) Alternative Energy investment tax credits, (4) a permanent difference between the amount of long-term equity-based compensation expense recognized under GAAP and the amount deductible in the computation of Federal taxable income, (5) a permanent difference associated with nondeductible executive compensation, and (6) the Tax Act.
Tax-exempt investment income and dividends received deductions were $19.0 million, $20.4 million and $22.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The nontaxable increase in cash surrender value on COLI was $12.9 million, $7.6 million and $3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company realized net investment tax credits of $3.2 million for the year ended December 31, 2020. The amount of expense recognized for long-term equity-based compensation expense under U.S. GAAP was $10.5 million, $21.0 million, and $6.7 million lower than the amount that would be deductible under the Internal Revenue Code (the “IRC”) for the years ended December 31, 2020, 2019 and 2018, respectively. The amount of nondeductible executive compensation was $13.0 million, $11.9 million, and $6.7 million for years ended December 31, 2020, 2019 and 2018, respectively. The tax benefit recorded pursuant to the Tax Act was $26.4 million for the year ended December 31, 2018. See Note 16, “Income Taxes,” to the Consolidated Financial Statements for additional discussion of income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Common Stock Offering
On June 7, 2019, the Company completed a public offering of its common stock and issued 1,552,500 shares of common stock, at $83.00 per share. Gross proceeds from the offering were $128.9 million. Transaction costs, including the underwriting discount, were $1.7 million. In July 2019, the Company used the net proceeds of $127.2 million, together with a portion of the proceeds from delayed-draw term loan facility entered into by the Company on June 4, 2019 (the “2023 Term Loan”) to redeem all $150.0 million in aggregate outstanding principal of its 7.375% Subordinated Debentures due 2054.
Amended and Extended Credit Agreement and Term Loan Facility
On June 8, 2018, the Company entered into an amended and extended credit agreement and term loan facility. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $300.0 million and extended the maturity date to June 8, 2023. The term loan facility included a delayed draw feature with borrowing capacity of $250.0 million and a maturity date two years from the borrowing date (see discussion below under the heading, “Repayment of Term Loan Due 2020,”for additional information regarding the initial borrowing and subsequent repayment of this delayed-draw term loan). On June 4, 2019, the Company utilized the the accordion feature under the credit agreement to increase its credit borrowing capacity by $100.0 million, resulting in the available credit commitments increasing from $300.0 million to $400.0 million. The Company incurred $0.1 million in additional debt issuance costs in connection with the utilization of the accordion feature, which in addition to the $0.9 million of remaining unamortized costs under the credit agreement, will be amortized under the remaining term of the credit agreement. There were no outstanding borrowings under the credit agreement at either December 31, 2020 or December 31, 2019.
Long-term Debt
The Company designates debt obligations as either short-term or long-term based on maturity date at issuance. Total amortized cost of Long-term Debt outstanding at December 31, 2020 and December 31, 2019 was:
(Dollars in Millions)Dec 31,
2020
Dec 31,
2019
Term Loan due July 5, 2023$49.9 $49.9 
5.000% Senior Notes due September 19, 2022278.3 279.9 
4.350% Senior Notes due February 15, 2025448.8 448.6 
2.400% Senior Notes due September 30, 2030395.8 — 
Total Long-term Debt Outstanding$1,172.8 $778.4 
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LIQUIDITY AND CAPITAL RESOURCES (Continued)
Term Loan Due 2023
On June 4, 2019, the Company entered into the 2023 Term Loan with a borrowing capacity of $50.0 million and a maturity date four years from the borrowing date. On July 5, 2019, the Company borrowed $49.9 million, net of debt issuance costs, under the 2023 Term Loan, with a final maturity date of July 5, 2023. The agreement includes a mutual option to extend the maturity date by one year.
5.000% Senior Notes Due 2022
Infinity’s liabilities at the acquisition date included $275.0 million principal amount, 5.000% Senior Notes due September 19, 2022 (the “2022 Senior Notes”). The 2022 Senior Notes were recorded at fair value as of the acquisition date, $282.1 million, with the $7.1 million premium being amortized as a reduction to interest expense over the remaining term, resulting in an effective interest rate of 4.36%. On November 30, 2018, Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 2022 Senior Notes.
4.350% Senior Notes Due 2025
Kemper has $450.0 million aggregate principal of 4.350% senior notes due February 15, 2025 (the “2025 Senior Notes”) outstanding as of December 31, 2020. Kemper initially issued $250.0 million of the notes in February of 2015 and issued an additional $200.0 million of the notes in June of 2018. The additional notes are fungible with the initial notes issued in 2015, and together are treated as part of a single series for all purposes under the indenture governing the 2025 Senior Notes. The 2025 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices.
2.400% Senior Notes Due 2030
On September 22, 2020, Kemper offered and sold $400.0 million aggregate principal of 2.400% senior notes due September 30, 2030 (“2030 Senior Notes”). The net proceeds of issuance were $395.6 million, net of discount and transaction costs for an effective yield of 2.52%. The 2030 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices. Kemper is using the net proceeds from the issuance for general corporate purposes.
Redemption of 7.375% Subordinated Debentures Due 2054
On June 7, 2019, Kemper issued a notice of redemption for the entire $150.0 million aggregate principal outstanding of its 7.375% Subordinated Debentures due 2054 (the “7.375% Subordinated Debentures”) at a redemption price equal to 100% of their principal, plus accrued and unpaid interest on the redemption date. On July 8, 2019, Kemper completed the redemption, and the 7.375% Subordinated Debentures were repaid in full. The Company recognized a loss on early extinguishment of debt of $5.8 million in the Consolidated Statement of Income for the year ended December 31, 2019.
The Company used the proceeds received from Kemper’s common stock offering on June 7, 2019, as well as a portion of the proceeds from its July 5, 2019 borrowing under the 2023 Term Loan, to repay the 7.375% Subordinated Debentures. See Note 8, “Debt,” and Note 10, “Shareholders’ Equity,” to the Consolidated Financial Statements for additional information.
Federal Home Loan Bank Agreements
Kemper’s subsidiaries, United Insurance, Trinity Universal Insurance Company (“Trinity”) and Alliance United Insurance Company (“Alliance”) are members of the FHLB of Chicago, Dallas and San Francisco, respectively. Alliance became a member of the FHLB of San Francisco in August 2020. United Insurance became a member of the FHLB of Chicago in March 2014. Trinity became a member of the FHLB of Dallas in December 2013. Under their memberships, United, Trinity and Alliance may borrow through the advance program of their respective FHLB. As a requirement of membership in the FHLB, United Insurance, Trinity and Alliance must maintain certain levels of investment in FHLB common stock and additional amounts based on the level of outstanding borrowings. The Company’s investments in FHLB common stock are reported at cost and included in Equity Securities at Modified Cost.  The carrying value of FHLB of Chicago common stock was $11.8 million and $4.9 million at December 31, 2020 and December 31, 2019, respectively. The carrying value of FHLB of Dallas common stock was $3.4 million and $3.3 million at December 31, 2020 and December 31, 2019, respectively. The carrying value of FHLB of San Francisco common stock was $1.7 million at December 31, 2020. The Company periodically uses short-term FHLB borrowings for a combination of cash management and risk management purposes, in addition to long-term FHLB
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIQUIDITY AND CAPITAL RESOURCES (Continued)
borrowings for spread lending purposes.
During 2020, United Insurance received advances of $466.4 million from the FHLB of Chicago and made repayments of $302.0 million under the spread lending program. United Insurance had outstanding advances from the FHLB of Chicago totaling $407.8 million at December 31, 2020. These advances were made in connection with the Company’s spread lending program. The proceeds related to these advances were used to purchase fixed maturity securities to earn incremental net investment income. With respect to these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $530.5 million at December 31, 2020. The fair value of the collateral pledged must be maintained at certain specified levels above the borrowed amount, which can vary depending on the assets pledged. If the fair value of the collateral declines below these specified levels of the amount borrowed, United Insurance would be required to pledge additional collateral or repay outstanding borrowings. See Note 7, “Policyholder Obligations,” to the Consolidated Financial Statements for additional information about the United Insurance advances and related funding agreements.
Common Stock Repurchases
On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of up to an additional $200 million of Kemper common stock, in addition to the $243.7 million remaining under the previous authorization as of December 31, 2019. As of December 31, 2020, the remaining share repurchase authorization was $333.3 million under the repurchase program. During the year ended December 31, 2020, Kemper repurchased and retired 1.6 million shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $110.4 million and average cost per share of $68.29.
Kemper did not repurchase any of its common stock in open market transactions in 2019 or 2018.
Dividends to Shareholders
Kemper paid a quarterly dividend of $0.30 per common share for each quarter of 2020 and $0.25 per common share for the first three quarters of 2019 and $0.28 for the fourth quarter of 2019, respectively. Dividends and dividend equivalents paid were $78.9 million and $67.8 million for the years ended December 31, 2020 and 2019, respectively.
Subsidiary Dividends and Capital Contributions
Various state insurance laws restrict the ability of Kemper’s insurance subsidiaries to pay dividends without regulatory approval. Such insurance laws generally restrict the amount of dividends paid in an annual period to the greater of statutory net income from the previous year or 10% of statutory capital and surplus. Kemper’s direct insurance subsidiaries collectively paid $322.0 million, $239.0 million and $130.4 million in dividends to Kemper in 2020, 2019 and 2018, respectively. In 2021, Kemper estimates that its direct insurance subsidiaries would be able to pay approximately $402.8 million in dividends to Kemper without prior regulatory approval.
Kemper made capital contributions to insurance subsidiaries of $62 million and $83 million during 2020 and 2019, respectively.
Sources and Uses of Funds
Kemper directly held cash and investments totaling $733.2 million at December 31, 2020, compared to $206.8 million at December 31, 2019.
The primary sources of funds available for repayment of Kemper’s indebtedness, repurchases of common stock, future shareholder dividend payments and the payment of interest on Kemper’s senior notes and term loan, include cash and investments directly held by Kemper, receipt of dividends from Kemper’s insurance subsidiaries and borrowings under the credit agreement and from subsidiaries.
The primary sources of funds for Kemper’s insurance subsidiaries are premiums, investment income, proceeds from the sales and maturity of investments, advances from the FHLBs of Chicago, Dallas and San Francisco, and capital contributions from Kemper. The primary uses of funds are the payment of policyholder benefits under life insurance contracts, claims under property and casualty insurance contracts and accident and health insurance contracts, the payment of commissions and general expenses, the purchase of investments and repayments of advances from the FHLBs of Chicago, Dallas and San Francisco.


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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

LIQUIDITY AND CAPITAL RESOURCES (Continued)

Generally, there is a time lag between when premiums are collected and when policyholder benefits and insurance claims are paid. During periods of growth, property and casualty insurance companies typically experience positive operating cash flows
and are able to invest a portion of their operating cash flows to fund future policyholder benefits and claims. During periods in which premium revenues decline, insurance companies may experience negative cash flows from operations and may need to sell investments to fund payments to policyholders and claimants. In addition, if the Company’s property and casualty insurance subsidiaries experience several significant catastrophic events over a relatively short period of time, investments may have to be sold in advance of their maturity dates to fund payments, which could result in either investment gains or losses. Management believes that its property and casualty insurance subsidiaries maintain adequate levels of liquidity in the event that they were to experience several future catastrophic events over a relatively short period of time.

Net Cash Provided by Operating Activities decreased by $86.3 million for the year ended December 31, 2020, compared to 2019. Net Cash Provided by Operating Activities decreased by $4.9 million for the year ended December 31, 2019, compared to 2018.
Net Cash Provided by Financing Activities was $378.3 million for the year ended December 31, 2020, compared to net cash provided of $160.8 million for the same period in 2019. Net proceeds from Policyholder Obligations provided $162.2 million of cash for the year ended December 31, 2020 compared to $232.2 million for the year ended December 31, 2019. Kemper issued no common stock during the year ended December 31, 2020. Net proceeds from borrowing under the term loan facilities provided $395.6 million of cash for the year ended December 31, 2020, compared to $49.9 million for the year ended December 31, 2019. Kemper used $185.0 million of cash to repay long-term debt for the year ended December 31, 2019. Kemper did not repay long-term debt during 2020. Kemper used $110.4 million of cash to repurchase shares of its common stock during 2020. Kemper did not use any cash to repurchase shares of its common stock during 2019. Kemper used $78.9 million of cash to pay dividends for the year ended December 31, 2020, compared to $67.8 million of cash used to pay dividends in the same period of 2019. The quarterly dividend rate was $0.30 for each quarter of 2020. The quarterly dividend rate was $0.25 per common share for the first three quarters of 2019 and $0.28 for the fourth quarter of 2019.
Net Cash Provided by Financing Activities was $160.8 million for the year ended December 31, 2019, compared to net cash used of $12.2 million for the same period in 2018. Net proceeds from the issuance of long-term debt, which was used to fund the acquisition of Infinity, provided $49.9 million of cash for the year ended December 31, 2019. Kemper used $185.0 million of cash to repay long-term debt for the year ended December 31, 2019. Kemper did not use any cash during 2019 or 2018 to repurchase shares of its common stock. Kemper used $67.8 million of cash to pay dividends for the year ended December 31, 2019, compared to $56.4 million of cash used to pay dividends in the same period of 2018. The quarterly dividend rate was $0.25 per common share for the first three quarters of 2019 and $0.28 for the fourth quarter of 2019. The quarterly dividend rate was $0.24 for each quarter of 2018.
Cash available for investment activities in total is dependent on cash flow from Operating Activities and Financing Activities and the level of cash the Company elects to maintain. Net Cash Used by Investing Activities was $757.0 million for the year ended December 31, 2020, compared to $633.4 million in 2019. Net cash used to acquire short-term investments was $390.8 million for the year ended December 31, 2020, compared to net cash used to acquire short-term investments of $176.0 million in 2019. Fixed Maturities investing activities used net cash of $320.9 million for the year ended December 31, 2020, compared to net cash used of $55.8 million in 2019. Equity Securities investing activities provided net cash of $115.3 million for the year ended December 31, 2020, compared to net cash used of $89.7 million in 2019. Equity Method Limited Liability Investments investing activities used net cash of $0.8 million for the year ended December 31, 2020, compared to $44.2 million in 2019.
Net Cash Used by Investing Activities was $633.4 million for the year ended December 31, 2019, compared to $497.6 million in 2018. Net cash provided by dispositions of short-term investments was $176.0 million for the year ended December 31, 2019, compared to $52.7 million in 2018. Fixed Maturities investing activities provided net cash of $55.8 million for the year ended December 31, 2019, compared to net cash used of $230.1 million in 2018. Equity Securities investing activities used net cash of $89.7 million for the year ended December 31, 2019, compared to $126.6 million in 2018. Equity Method Limited Liability Investments investing activities used net cash of $44.2 million for the year ended December 31, 2019, compared to providing net cash of $29.0 million in 2018.



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Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

CONTRACTUAL OBLIGATIONS
Estimated cash disbursements pertaining to the Company’s contractual obligations at December 31, 2020 are presented below.
DOLLARS IN MILLIONSJan 1, 2021 to Dec 31, 2021Jan 1, 2022 to Dec 31, 2023Jan 1, 2024 to Dec 31, 2025After Dec 31, 2025Total
Long Term Debt Obligations$ $325.0 $450.0 $400.0 $1,175.0 
Finance Lease Obligations0.2    0.2 
Operating Lease Obligations20.8 37.3 21.5 24.2 103.8 
Purchase Obligations14.0 7.7 4.6  26.3 
Life and Health Insurance Policy Benefits311.3 501.9 479.1 6,924.6 8,216.9 
Property and Casualty Insurance Reserves1,397.5 460.6 89.3 35.1 1,982.5 
Other Contractual Obligations Reflected in Long Term Liabilities on the Consolidated Balance Sheet under GAAP50.0 79.0 44.6 48.3 221.9 
Total Contractual Obligations$1,793.8 $1,411.5 $1,089.1 $7,432.2 $11,726.6 
Amounts included in Life and Health Insurance Policy Benefits within the contractual obligations table above represent the estimated cash payments to be made to policyholders and beneficiaries. Such cash outflows are based on the Company’s current assumptions for mortality, morbidity and policy lapse, but are undiscounted with respect to interest. Policies must remain in force for the policyholder or beneficiary to receive the benefit under the policy. Depending on the terms of a particular policy, future premiums from the policyholder may be required for the policy to remain in force. The Company estimates that future cash inflows would total $4.2 billion using the same assumptions used to estimate the cash outflows. The Company’s Life Insurance Reserves in the Company’s Consolidated Balance Sheets are generally based on the historical assumptions for mortality and policy lapse rates and are on a discounted basis. Accordingly, the sum of the amounts presented above for Life and Health Insurance Policy Benefits significantly exceeds the amount of Life and Health Insurance Reserves reported on the Company’s Consolidated Balance Sheet at December 31, 2020.
In addition to the purchase obligations included above, the Company had certain investment commitments totaling $303.8 million at December 31, 2020. The funding of such investment commitments is dependent on a number of factors, the timing of which is indeterminate. The Company cannot make a reasonably reliable estimate of the amount and period of related future payments, if any, for such liability. Other Contractual Obligations Reflected in Long Term Liabilities on the Consolidated Balance Sheets under GAAP primarily consist of interest obligations related to Long Term Debt Obligations.
CRITICAL ACCOUNTING ESTIMATES
Kemper’s subsidiaries conduct their operations in two industries: property and casualty insurance and life and health insurance. Accordingly, the Company is subject to several industry-specific accounting principles under GAAP. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The process of estimation is inherently uncertain. Accordingly, actual results could ultimately differ materially from the estimated amounts reported in a company’s financial statements.
Different assumptions are likely to result in different estimates of reported amounts. The Company’s critical accounting policies most sensitive to estimates include the valuation of investments, the valuation of reserves for property and casualty insurance incurred losses and LAE, the assessment of recoverability of goodwill and the valuation of pension benefit obligations.
Valuation of Investments
The reported value of the Company’s investments was $10,424.1 million at December 31, 2020, of which $8,504.3 million, or 82%, was reported at fair value, $225.3 million, or 2%, was reported under the equity method of accounting, $297.9 million or 3%, was reported at unpaid principal balance and $1,396.6 million, or 13%, was reported at cost, modified cost or depreciated cost. Investments, in general, are exposed to various risks, such as interest rate risk, credit risk and overall market volatility risk. Accordingly, it is reasonably possible that changes in the fair values of the Company’s investments reported at fair value will occur in the near term and such changes could materially affect the amounts reported in the financial statements. Also, it is reasonably possible that changes in the carrying values of the Company’s Equity Method Limited Liability Investments will occur in the near term and such changes could materially affect the amounts reported in the financial statements because these issuers follow specialized industry accounting rules which require that they report all of their investments at fair value (See Item
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CRITICAL ACCOUNTING ESTIMATES (Continued)
1A., “Risk Factors” under the title “The Company’s investment portfolio is exposed to a variety of risks that may negatively impact net investment income and cause realized and unrealized losses”).
As more fully described under the heading, “Fair Value Measurements,” in Note 2, “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements, the Company uses a hierarchical framework which prioritizes and ranks the market observability used in fair value measurements.
The fair value of the Company’s investments measured and reported at fair value was $8,504.3 million at December 31, 2020, of which $7,762.9 million, or 91%, were investments that were based on quoted market prices or significant value drivers that are observable, $449.2 million, or 5%, were investments where at least one significant value driver was unobservable and $292.2 million or 3% were investments for which fair value is measured using the net asset value per share practical expedient. Fair value measurements based on readily available, active, quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment, compared to fair value measurements based on significant unobservable inputs used in measuring fair value. The prices that the Company might realize from actual sales of investments are likely to vary from their respective estimated fair values at December 31, 2020 due to changing market conditions and limitations inherent in the estimation process.
The classification of a company’s investment in a financial instrument may affect its reported results. Under GAAP, a company may elect to use the fair value option method of accounting for some or all of its investments in financial instruments. Under the fair value option method of accounting, a company is required to recognize changes in fair values into income for the period reported. The Company has elected the fair value option for investments in fixed maturities with equity conversion features which are recorded on the Consolidated Balance Sheets as Convertible Securities. Accordingly, both the reported and fair values of the Company’s investments in Convertible Securities accounted for under the fair value option method of accounting were $39.9 million at December 31, 2020. For investments in fixed maturities classified as held to maturity, a company is required to carry the investment at amortized cost, with only amortization occurring during the period recognized into income. None of the Company’s investments in fixed maturities were classified as held to maturity at December 31, 2020. Changes in the fair value of investments in fixed maturities classified as available for sale are not recognized in income during the period, but rather are recognized as a separate component of Accumulated Other Comprehensive Income (“AOCI”) until realized. Both the reported and fair values of the Company’s investments in fixed maturities classified as available for sale were $7,605.9 million at December 31, 2020.
Equity securities with readily determinable fair values are recorded as Equity Securities at Fair Value with changes in fair values recognized into income for the period reported. Accordingly, both the reported and fair values of the Company’s investments in Equity Securities at Fair Value were $858.5 million at December 31, 2020. The Company holds certain equity investments without readily determinable fair values at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. Changes in the carrying value of Equity Securities at Modified Cost due to observable price changes are recorded into income for the period reported.
The Company’s portfolio also includes investments in Alternative Energy Partnerships that are accounted for under the Hypothetical Liquidation at Book Value (“HLBV”) method. Under the HLBV method, the amounts of income and loss attributed to investors reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements of these funds. Attributing income and loss under the HLBV method requires the use of significant assumptions and forecasts to calculate the amounts that fund investors would receive upon a hypothetical liquidation. See Note 2 “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements for additional information.
Had the Company elected the fair value option for all of its investments in financial instruments, the Company’s reported net income for the year ended December 31, 2020, would have increased by $292.3 million.
The Company regularly reviews its fixed maturity investment portfolio and holdings in Equity Securities at Modified Cost for factors that may indicate a decline in the fair value of an investment below its cost, amortized cost or modified cost basis.
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CRITICAL ACCOUNTING ESTIMATES (Continued)
Such reviews are inherently uncertain in that the value of the investment may not fully recover or may decline further in future periods. Some factors considered in evaluating whether or not a decline in fair value of an investment exist include, but are not limited to, the following:
Fixed Maturity Securities
The financial condition, credit rating and prospects of the issuer;
The length of time and magnitude of the unrealized loss;
The ability of the issuer to make scheduled principal and interest payments;
The volatility of the investment;
Equity Securities at Modified Cost
Opinions of the Company’s external investment managers;
The financial condition and prospects of the issuer;
Current market conditions;
Changes in credit ratings; and
Changes in the regulatory environment.

Changes in these factors from their December 31, 2020 evaluation date could result in the Company determining that a decline in the fair value exists for an investment held and evaluated at December 31, 2020. Such determination would result in an impairment loss in the period such determination is made.
Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses
The Company’s Property and Casualty Insurance Reserves are reported using the Company’s estimate of its ultimate liability for losses and LAE for claims that occurred prior to the end of any given accounting period but have not yet been paid. The Company had $1,982.5 million and $1,969.8 million of gross loss and LAE reserves at December 31, 2020 and 2019, respectively.
Property and Casualty Insurance Reserves for the Company’s business segments at December 31, 2020 and 2019 were:
DOLLARS IN MILLIONS20202019
Business Segments:
Specialty Property & Casualty Insurance$1,544.8 $1,551.0 
Preferred Property & Casualty Insurance411.6 388.5 
Life & Health Insurance4.6 3.3 
Total Business Segments1,961.0 1,942.8 
Unallocated Reserves21.5 27.0 
Total Property and Casualty Insurance Reserves$1,982.5 $1,969.8 
In estimating the Company’s Property and Casualty Insurance Reserves, the Company’s actuaries exercise professional judgment and must consider, and are influenced by, many variables that are difficult to quantify. Accordingly, the process of estimating and establishing the Company’s Property and Casualty Insurance Reserves is inherently uncertain, and the actual ultimate cost of known and unknown claims may vary materially from the estimated amounts reserved.
The Company’s actuaries estimate reserves at least quarterly for most product lines and/or coverage levels using accident quarters or years spanning 10 or more years, depending on the product line and/or coverage level or emerging issues relating to them. The Company’s actuaries use a variety of generally accepted actuarial loss reserving estimation methodologies, including, but not limited to, the following:
Incurred Loss Development Methodology;
Paid Loss Development Methodology;
Bornhuetter-Ferguson Incurred Loss Methodology;
Bornhuetter-Ferguson Paid Loss Methodology; and
Frequency and Severity Methodology.
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Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

CRITICAL ACCOUNTING ESTIMATES (Continued)
The Company’s actuaries generally review the results of at least four of the estimation methodologies, two based on paid data and two based on incurred data, to initially estimate the ultimate losses and LAE for the current accident quarter or year and re-estimate the ultimate losses and LAE for previous accident quarters or years to determine if changes in the previous estimates of the ultimate losses and LAE are indicated by the most recent data. In some cases, the methodologies produce a cluster of estimates with a tight band of indicated possible outcomes. In other cases, however, the methodologies produce conflicting results and wider bands of indicated possible outcomes, and the Company’s actuaries perform additional analyses before making their final selections. However, such bands do not necessarily constitute a range of outcomes, nor does the Company’s management or the Company’s actuaries calculate a range of outcomes.
The key assumption in these estimation methodologies is that patterns observed in prior periods are indicative of how losses and LAE are expected to develop in the future and that such historical data can be used to predict and estimate ultimate losses and LAE. However, changes in the Company’s business processes, by their very nature, are likely to affect the development patterns, which means the Company’s actuaries must routinely make assumptions about how changes in business practices would affect historical patterns.
The ultimate impact of a single change in a business process is difficult to quantify and detect, and even more difficult if several changes to business processes occur over several years. Initially after a change is implemented, there are fewer data points, as compared to the historical data, for the Company’s actuaries to analyze. With fewer data points to analyze, the Company’s actuaries cannot be certain that observed differences from the historical data trends are a result of the change in business process or merely a random fluctuation in the data. As the Company’s actuaries observe more data points following the change in business process, the Company’s actuaries can gain more confidence in whether the change in business process is affecting the development pattern. The challenge for the Company’s actuaries is how much weight to place on the development patterns based on the older historical data and how much weight to place on the development patterns based on more recent data.
For each accident quarter or year, the point estimate selected by the Company’s actuaries is not necessarily one of the points produced by any particular one of the methodologies utilized, but often is another point selected by the Company’s actuaries, using their professional judgment, that takes into consideration each of the points produced by the several loss reserving estimation methodologies used. In some cases, for a particular product, the current accident quarter or year may not have enough paid claims data to rely upon, leading the Company’s actuaries to conclude that the incurred loss development methodology provides a better estimate than the paid loss development methodology. Therefore, the Company’s actuaries may give more weight to the incurred loss development methodology for that particular accident quarter or year. As an accident quarter or year ages for that same product, the actuary may gain more confidence in the paid loss development methodology and begin to give more weight to the paid loss development methodology. The Company’s actuaries’ quarterly selections are summed by product and/or coverage levels to create the actuarial indication of the ultimate losses. More often than not, the actuarial indication for a particular product line and accident quarter or year is most heavily weighted toward the incurred loss development methodology, particularly for short-tail lines such as personal automobile insurance. Historically, the incurred loss development methodology has been more reliable in predicting ultimate losses for short-tail lines, especially in the more recent accident quarters or years, compared with the paid loss development methodology. However, in some circumstances changes can occur which impact numerous variables, including, but not limited to, those variables identified below that are difficult to quantify and/or impact the predictive value of prior development patterns relied upon in the incurred loss development methodology and paid loss development methodology. In those circumstances, the Company’s actuaries must make adjustments to these loss reserving estimation methodologies or use additional generally accepted actuarial estimation methodologies. In those circumstances, the Company’s actuaries, using their professional judgment, may place more weight on the adjusted loss reserving estimation methodologies or other generally accepted actuarial estimation methodologies until the newer development patterns fully emerge and the Company’s actuaries can fully rely on the unadjusted loss reserving estimation methodologies. In the event of a wide variation among results generated by the different projection methodologies, the Company’s actuaries further analyze the data using additional techniques.
In estimating reserves, the Company’s actuaries exercise professional judgment and must consider, and are influenced by, many variables that are difficult to quantify, such as:
Changes in the level of minimum case reserves, and the automatic aging of those minimum case reserves;
Changes to claims practices, including, but not limited to, changes in the reporting and impact of large losses, timing of reported claims, changes in claims closing and re-opening patterns, adequacy of case reserves, implementation of new systems for handling claims, turnover of claims department staffs, timing and depth of the audit review of claims handling procedures;
Changes in underwriting practices;
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CRITICAL ACCOUNTING ESTIMATES (Continued)

Changes in the mix of business by state, class and policy limit within product line;
Growth in new lines of business;
Changes in the attachment points of the Company’s reinsurance programs;
Medical costs, including, but not limited to, the ability to assess the extent of injuries and the impact of inflation;
Repair costs, including, but not limited to, the impact of inflation and the availability of labor and materials;
Changes in the judicial environment, including, but not limited to, the interpretation of policy provisions, the impact of jury awards and changes in case law; and
Changes in state regulatory requirements.
A change in any one or more of the foregoing factors is likely to result in a projected ultimate net loss and LAE that is different from the previously estimated reserve and/or previous frequency and severity trends. Such changes in estimates may be material.
For example, the Company’s actuaries review frequency (number of claims per policy or exposure), severity (dollars of loss per claim) and average premium (dollars of premium per exposure). Actual frequency and severity experienced will vary depending on changes in mix by class of insured risk. Similarly, the actual frequency and rate of recovery from reinsurance will vary depending on changes in the attachment point for reinsurance. In particular, in periods of high growth or expansion into new markets, there may be additional uncertainty in estimating the ultimate losses and LAE. The contributing factors of this potential risk are changes in the Company’s mix by policy limit and mix of business by state or jurisdiction.
Actuaries use historical experience and trends as predictors of how losses and LAE will emerge over time. However, historical experience may not necessarily be indicative of how actual losses and LAE will emerge. Changes in case reserve adequacy, changes in minimum case reserves and changes in internal claims handling procedures could impact the timing and recognition of incurred claims and produce an estimate that is either too high or too low if not adjusted for by the actuary. For example, if, due to changes in claims handling procedures, actual claims are settled more rapidly than they were settled historically, the estimate produced by the paid loss development methodology would tend to be overstated if the actuary did not identify and adjust for the impact of the changes in claims handling procedures. Similarly, if, due to changes in claims handling procedures, actual claim reserves are set at levels higher than past experience, the estimate produced by the incurred loss development methodology would tend to be overstated if the actuary did not identify and adjust for the impact of the changes in claims handling procedures.
The final step in the quarterly loss and LAE reserving process involves a comprehensive review of the actuarial indications by the Company’s chief actuary and corporate management who apply their collective judgment and determine the appropriate estimated level of reserves to record. Numerous factors are considered in this determination process, including, but not limited to, the assessed reliability of key loss trends and assumptions that may be significantly influencing the current actuarial indications, changes in claim handling practices or other changes that affect the timing of payment or development patterns, changes in the mix of business, the maturity of the accident quarter or year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, the improvement or deterioration of actuarial indications in the current period as compared to prior periods, and the amount of reserves related to third party pools for which the Company does not have access to the underlying data and, accordingly, relies on calculations provided by such pools.
Estimated Variability of Property and Casualty Insurance Reserves
The Company’s goal is to ensure that its total reserves for property and casualty insurance losses and LAE are adequate to cover all costs, while sustaining minimal variation from the time reserves for losses and LAE are initially estimated until losses and LAE are fully paid. Changes in the Company’s estimates of these losses and LAE over time, also referred to as “development,” will occur and may be material. Favorable development is recognized and reported in the Consolidated Financial Statements when the Company decreases its previous estimate of ultimate losses and LAE and results in an increase in net income in the period recognized, whereas adverse development is recognized and reported in the Consolidated Financial Statements when the Company increases its previous estimate of ultimate losses and LAE and results in a decrease in net income.
Although development will emerge in all of the Company’s product lines, development in the Company’s specialty personal automobile insurance product line could have the most significant impact due to the relative size of its loss and LAE reserves. To further illustrate the sensitivity of the Company’s reserves for specialty personal automobile insurance losses and LAE, the Company measures the standard deviation of the mean reserve estimate using a bootstrapping methodology. The Company
65

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

CRITICAL ACCOUNTING ESTIMATES (Continued)
believes that one standard deviation of variability is a reasonably likely scenario to measure variability for its loss and LAE reserves for specialty personal automobile insurance. The Company estimates that the Company’s specialty personal automobile insurance loss and LAE reserves could have varied by $84.6 million in either direction at December 31, 2020 for all accident years combined under this scenario. In addition to the factors described above, other factors may also impact loss reserve development in future periods. These factors include governmental actions, including court decisions interpreting existing laws, regulations or policy provisions, developments related to insurance policy claims and coverage issues, adverse or favorable outcomes in pending claims litigation, the number and severity of insurance claims, the impact of inflation on insurance claims and the impact of required participation in windpools and joint underwriting associations and residual market assessments. Although the Company’s actuaries do not make specific numerical assumptions about these factors, changes in these factors from past patterns will impact historical loss development factors and, in turn, future loss reserve development. Significant favorable changes in one or more factors will lead to favorable future loss reserve development, which could result in the actual loss developing closer to, or even below, the lower end of the Company’s estimated reserve variability. Significant unfavorable changes in one or more factors will lead to unfavorable loss reserve development, which could result in the actual loss developing closer to, or even above, the higher end of the Company’s estimated reserve variability. Accordingly, due to these factors and the other factors enumerated throughout the MD&A and the inherent limitations of the loss reserving estimation methodologies, the estimated and illustrated reserve variability may not necessarily be indicative of the Company’s future reserve variability, which could ultimately be greater than the estimated and illustrated variability. In addition, as previously noted, development will emerge in all of the Company’s product lines over time. Accordingly, the Company’s future reserve variability could ultimately be greater than the illustrated variability. Additional information pertaining to the estimation of, and development of, the Company’s Property and Casualty Insurance Reserves is contained in Item 1 of Part I of this 2020 Annual Report under the heading “Property and Casualty Loss and Loss Adjustment Expense Reserves.”
Goodwill Recoverability
The Company tests goodwill for recoverability at the reporting unit level on an annual basis, or whenever events or circumstances indicate the fair value of a reporting unit may have declined below its carrying value. The Company performed a qualitative goodwill impairment assessment for all reporting units with goodwill as of October 1, 2020. The qualitative assessment takes into consideration changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, events impacting reporting units, and changes in Kemper’s stock price since the last quantitative assessment, which was performed on January 1, 2017. Based on its qualitative assessment, the Company concluded that the associated goodwill was recoverable for each reporting unit tested.
Pension Benefit Obligations
The process of estimating the Company’s pension benefit obligations and pension benefit costs is inherently uncertain and the actual cost of benefits may vary materially from the estimates recorded. These liabilities are particularly volatile due to their long-term nature and are based on several assumptions. The main assumptions used in the valuation of the Company’s pension benefit obligations and pension costs are:
Estimated mortality of the participants and beneficiaries eligible for benefits;
Estimated expected long-term rates of returns on investments; and
Estimated rate used to discount the expected benefit payment to a present value.
A change in any one or more of these assumptions is likely to result in a projected benefit obligation or pension cost that differs from the actuarial estimates at December 31, 2020. Such changes in estimates may be material.
OFF–BALANCE SHEET ARRANGEMENTS
The Company has no material obligations under guarantee contracts. The Company has no material retained or contingent interests in assets transferred to an unconsolidated entity. The Company has no material obligations, including contingent obligations, under contracts that would be accounted for as derivative instruments. The Company has no obligations, including contingent obligations, arising out of a variable interest in an unconsolidated entity held by, and material to, the Company, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with the Company. Accordingly, the Company has no material off–balance sheet arrangements.
66

Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP recognized by the Financial Accounting Standards Board (“FASB”) that is applicable to the Company. The FASB issues ASUs to amend the authoritative literature in ASC.
The Company has adopted all recently issued accounting pronouncements with effective dates prior to January 1, 2020. See Note 2, “Summary of Accounting Policies and Accounting Changes” to the Consolidated Financial Statements for discussion on adoption of these ASUs and impacts to the Company’s financial statements, which were not material. For all recently issued accounting pronouncements with effective dates after December 31, 2020, the Company does not expect adoption to have a material impact on its financial statements, with the possible exception of ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts.
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.
Quantitative Information About Market Risk
The Company’s consolidated balance sheets include three types of financial instruments subject to the material market risk disclosures required by the SEC:

1.Investments in Fixed Maturities;
2.Investments in Equity Securities at Fair Value; and
3.Debt.
Investments in Fixed Maturities and Debt are subject to material interest rate risk. The Company’s Investments in Equity Securities include common and preferred stocks and hedge funds and, accordingly, are subject to material equity price risk and interest rate risk.
For purposes of this disclosure, market risk sensitive financial instruments are divided into two categories: financial instruments acquired for trading purposes and financial instruments acquired for purposes other than trading. The Company’s market risk sensitive financial instruments are generally classified as held for purposes other than trading. The Company has no significant holdings of financial instruments acquired for trading purposes. The Company has no significant holdings of derivatives.
The Company measures its sensitivity to market risk by evaluating the change in its financial assets and liabilities relative to fluctuations in interest rates and equity prices. The evaluation is made using instantaneous changes in interest rates and equity prices on a static balance sheet to determine the effect such changes would have on the Company’s market value at risk and the resulting pre-tax effect on Shareholders’ Equity. The changes chosen represent the Company’s view of adverse changes which are reasonably possible over a one-year period. The selection of the changes chosen should not be construed as the Company’s prediction of future market events, but rather an illustration of the impact of such possible events.
For the interest rate sensitivity analysis presented below, the Company assumed an adverse and instantaneous increase of 100 basis points in the yield curve at both December 31, 2020 and 2019 for Investments in Fixed Maturities. Such 100 basis point increase in the yield curve may not necessarily result in a corresponding 100 basis point increase in the interest rate for all investments in fixed maturities. For example, a 100 basis point increase in the yield curve for risk-free, taxable investments in fixed maturities may not result in a 100 basis point increase for tax-exempt investments in fixed maturities. For Investments in Fixed Maturities, the Company also anticipated changes in cash flows due to changes in the likelihood that investments would be called or prepaid prior to their contractual maturity. All other variables were held constant. For preferred stock equity securities, the Company assumed an adverse and instantaneous increase of 100 basis points in market interest rates from their levels at both December 31, 2020 and 2019. All other variables were held constant. For Debt, the Company assumed an adverse and instantaneous decrease of 100 basis points in market interest rates from their levels at December 31, 2020 and 2019. All other variables were held constant. The Company measured equity price sensitivity assuming an adverse and instantaneous 30% decrease in the Standard and Poor’s Stock Index (the “S&P 500”) from its level at December 31, 2020 and 2019, with all other variables held constant. The Company’s investments in Equity Securities at Fair Value were correlated with the S&P 500 using the portfolio’s weighted-average beta of 0.73 and 0.99 at December 31, 2020 and 2019, respectively. Beta measures a stock’s relative volatility in relation to the rest of the stock market, with the S&P 500 having a beta coefficient of 1.00. The Equity Securities a Fair Value portfolio’s weighted-average beta was calculated using each security’s assumed forward looking betas based on underlying investment characteristics weighted by the fair value of such securities as of December 31, 2020. The Equity Securities at Fair Value portfolio’s weighted-average beta was calculated using each security’s beta for the five-year
67


QUANTITATIVE INFORMATION ABOUT MARKET RISK (Continued)
periods ended December 31, 2019, and weighted on the fair value of such securities at December 31, 2019, respectively. For equity securities without observable market inputs, the Company assumed a beta of 1.00 at December 31, 2019.

The estimated adverse effects on the fair value of the Company’s financial instruments at December 31, 2020 using these assumptions were: 
DOLLARS IN MILLIONSFair ValuePro Forma Increase (Decrease)
Interest
Rate Risk
Equity
Price Risk
Total
Market Risk
ASSETS
Investments in Fixed Maturities$7,605.9 $(576.0)$ $(576.0)
Investments in Equity Securities858.5 (2.5)(173.4)(175.9)
LIABILITIES
Debt$1,247.8 $41.2 $ $41.2 
The estimated adverse effects on the fair value of the Company’s financial instruments at December 31, 2019 using these assumptions were:
DOLLARS IN MILLIONSFair ValuePro Forma Increase (Decrease)
Interest
Rate Risk
Equity
Price Risk
Total
Market Risk
ASSETS
Investments in Fixed Maturities$6,922.1 $(489.1)$— $(489.1)
Investments in Equity Securities907.3 (40.2)(175.1)(215.3)
LIABILITIES
Debt$820.2 $29.2 $— $29.2 
The market risk sensitivity analysis assumes that the composition of the Company’s interest rate sensitive assets and liabilities, including, but not limited to, credit quality, and the equity price sensitive assets existing at the beginning of the period remains constant over the period being measured. It also assumes that a particular change in interest rates is uniform across the yield curve regardless of the time to maturity. Interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market interest rates. Also, any future correlation, either in the near term or the long term, between the Company’s common stock equity securities and fair value option portfolios and the S&P 500 may differ from the historical correlation as represented by the weighted-average historical beta of the common stock equity securities and fair value option portfolios. Accordingly, the market risk sensitivity analysis may not be indicative of, is not intended to provide, and does not provide, a precise forecast of the effect of changes of market rates on the Company’s income or shareholders’ equity. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates or equity prices.
To the extent that any adverse 100 basis point change occurs in increments over a period of time instead of instantaneously, the adverse impact on fair values would be partially mitigated because some of the underlying financial instruments would have matured. For example, proceeds from any maturing assets could be reinvested and any new liabilities would be incurred at the then current interest rates.
Qualitative Information About Market Risk
Market risk is a broad term related to economic losses due to adverse changes in the fair value of a financial instrument and is inherent to all financial instruments. SEC disclosure rules focus on only one element of market risk—price risk. Price risk relates to changes in the level of prices due to changes in interest rates, equity prices, foreign exchange rates or other factors that relate to market volatility of the rate, index, or price underlying the financial instrument. The Company’s primary market risk exposures are to changes in interest rates and equity prices.
The Company manages its interest rate exposures with respect to Investments in Fixed Maturities by investing primarily in investment-grade securities of moderate effective duration.
68


Item 8.    Financial Statements and Supplementary Data
Index to the Consolidated Financial Statements of
Kemper Corporation and Subsidiaries
 
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018
Notes to the Consolidated Financial Statements
Note 1—Basis of Presentation and Significant Estimates
Note 2—Summary of Accounting Policies and Accounting Changes
Note 3—Acquisition of Business
Note 4—Investments
Note 5—Goodwill and Intangible Assets
Note 6—Property and Casualty Insurance Reserves
Note 7—Policyholder Obligations
Note 8—Debt
Note 9—Leases
Note 10—Shareholders’ Equity
Note 11—Long-term Equity-based Compensation
Note 12—Income from Continuing Operations per Unrestricted Share
Note 13—Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income
Note 14—Income from Investments
Note 15—Insurance Expenses
Note 16—Income Taxes
Note 17—Pension Benefits
Note 18—Postretirement Benefits Other Than Pensions
Note 19—Business Segments
Note 20—Catastrophe Reinsurance
Note 21—Other Reinsurance
Note 22—Fair Value Measurements
Note 23—Contingencies
Note 24—Related Parties
Note 25—Quarterly Financial Information (Unaudited)
Report of Independent Registered Public Accounting Firm

69


KEMPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31,
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS202020192018
Revenues:
Earned Premiums$4,672.2 $4,472.4 $3,384.4 
Net Investment Income348.2 364.3 340.9 
Other Income94.6 35.5 42.2 
Income (Loss) from Change in Fair Value of Equity and Convertible Securities72.1 138.9 (64.3)
Net Realized Gains on Sales of Investments38.1 41.9 26.4 
Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses(19.5)(13.7)(4.5)
Portion of Gains (Losses) Recognized in Other Comprehensive Income0 (0.1)
Impairment Losses(19.5)(13.8)(4.5)
Total Revenues5,205.7 5,039.2 3,725.1 
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses3,323.6 3,188.3 2,466.5 
Insurance Expenses1,100.5 1,019.7 900.5 
Loss from Early Extinguishment of Debt0 5.8 
Interest and Other Expenses271.5 163.8 159.0 
Total Expenses4,695.6 4,377.6 3,526.0 
Income from Continuing Operations before Income Taxes510.1 661.6 199.1 
Income Tax Expense(100.2)(130.5)(10.7)
Income from Continuing Operations409.9 531.1 188.4 
Income from Discontinued Operations0 1.7 
Net Income$409.9 $531.1 $190.1 
Income from Continuing Operations Per Unrestricted Share:
Basic$6.24 $8.04 $3.22 
Diluted$6.14 $7.96 $3.19 
Net Income Per Unrestricted Share:
Basic$6.24 $8.04 $3.25 
Diluted$6.14 $7.96 $3.22 
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
70


KEMPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For The Years Ended December 31,
DOLLARS IN MILLIONS202020192018
Net Income$409.9 $531.1 $190.1 
Other Comprehensive Income (Loss) Before Income Taxes:
Changes in Net Unrealized Holding Gains (Losses) on Investment Securities with:
No Credit Losses Recognized in Consolidated Statements of Income369.9 405.3 (236.1)
Credit Losses Recognized in Consolidated Statements of Income(2.6)— — 
Foreign Currency Translation Adjustments — 0.3 
Decrease (Increase) in Net Unrecognized Postretirement Benefit Costs70.2 (7.8)(6.9)
Gain (Loss) on Cash Flow Hedges0.4 0.4 1.2 
Other Comprehensive Income (Loss) Before Income Taxes437.9 397.9 (241.5)
Other Comprehensive Income Tax Benefit (Expense)(93.5)(83.6)50.7 
Other Comprehensive Income (Loss)344.4 314.3 (190.8)
Total Comprehensive Income (Loss)$754.3 $845.4 $(0.7)
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.

71


KEMPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS20202019
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized Cost: 2020 - $6,692.7; 2019 - $6,372.7; Allowance for Credit Losses: 2020 - $3.3)$7,605.9 $6,922.1 
Equity Securities at Fair Value (Cost: 2020 - $684.1; 2019 - $818.8)858.5 907.3 
Equity Securities at Modified Cost40.1 41.9 
Equity Method Limited Liability Investments225.3 220.4 
Convertible Securities at Fair Value39.9 37.3 
Short-term Investments at Cost which Approximates Fair Value875.4 470.9 
Other Investments779.0 661.5 
Total Investments10,424.1 9,261.4 
Cash206.1 136.8 
Receivables from Policyholders (Allowance for Credit Losses: 2020 - $20.9; 2019 - $22.3)1,194.5 1,117.1 
Other Receivables222.4 219.7 
Deferred Policy Acquisition Costs589.3 537.7 
Goodwill1,114.0 1,114.0 
Current Income Tax Assets15.6 44.7 
Other Assets575.9 557.7 
Total Assets$14,341.9 $12,989.1 
Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health$3,527.5 $3,502.0 
Property and Casualty1,982.5 1,969.8 
Total Insurance Reserves5,510.0 5,471.8 
Unearned Premiums1,615.1 1,545.5 
Policyholder Obligations467.0 309.8 
Deferred Income Tax Liabilities285.7 178.2 
Accrued Expenses and Other Liabilities727.9 733.1 
Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2020 - $1,247.8; 2019 - $820.2)1,172.8 778.4 
Total Liabilities9,778.5 9,016.8 
Shareholders’ Equity:
Common Stock, $0.10 Par Value Per Share, 100,000,000 Shares Authorized; 65,436,207 Shares Issued and Outstanding at December 31, 2020 and 66,665,888 Shares Issued and Outstanding at December 31, 20196.5 6.7 
Paid-in Capital1,805.2 1,819.2 
Retained Earnings2,071.2 1,810.3 
Accumulated Other Comprehensive Income680.5 336.1 
Total Shareholders’ Equity4,563.4 3,972.3 
Total Liabilities and Shareholders’ Equity$14,341.9 $12,989.1 
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
72


KEMPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
DOLLARS IN MILLIONS202020192018
Cash Flows from Operating Activities:
Net Income$409.9 $531.1 $190.1 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net Realized Investment (Gains) Losses(38.1)(41.9)(26.4)
Impairment Losses19.5 13.8 4.5 
Depreciation and Amortization of Property, Equipment and Software36.2 32.8 15.6 
Amortization of Intangibles Assets Acquired18.8 29.7 156.3 
Settlement Costs Related to Defined Benefit Pension Plan64.1 
Contribution to Defined Benefit Pension Plan0 (55.3)(5.1)
Loss from Early Extinguishment of Debt0 5.8 
Change in Accumulated Undistributed Earnings of Equity Method Limited Liability
Investments
(4.0)10.9 2.9 
Decrease (Increase) in Value of Equity and Convertible Securities at Fair Value(72.1)(138.9)64.3 
Changes in:
Receivables from Policyholders(77.4)(110.1)(57.6)
Reinsurance Recoverables16.8 35.6 (46.7)
Deferred Policy Acquisition Costs(52.3)(66.9)(104.6)
Insurance Reserves38.3 102.3 183.2 
Unearned Premiums69.6 121.2 54.7 
Income Taxes46.5 58.8 13.1 
Other Assets and Liabilities(27.8)5.4 94.9 
Net Cash Provided by Operating Activities448.0 534.3 539.2 
Cash Flows from Investing Activities:
Proceeds from Sales, Calls and Maturities of Fixed Maturities972.4 1,229.1 2,643.3 
Proceeds from the Sales or Paydowns of Investments:
Equity Securities434.4 217.3 351.9 
Real Estate Investments5.4 
Mortgage Loans25.5 17.2 
Other Investments45.2 29.5 14.1 
Purchases of Investments:
Fixed Maturities(1,293.3)(1,284.9)(2,413.2)
Equity Securities(319.1)(307.0)(478.5)
Real Estate Investments(0.5)(1.4)(1.5)
Corporate-owned Life Insurance(100.0)(150.0)
Mortgage Loans(52.7)(44.5)
Other Investments(43.5)(73.8)(45.1)
Net Sales (Purchases) of Short-term Investments(390.8)(176.0)52.7 
Acquisition of Business, Net of Cash Acquired0 (560.6)
Acquisition of Software and Long-lived Assets(53.4)(84.0)(65.3)
Other13.4 (4.9)4.6 
Net Cash Provided by (Used in) Investing Activities(757.0)(633.4)(497.6)
Cash Flows from Financing Activities:
Net Proceeds from Issuance of Long-term Debt395.6 49.9 249.4 
Repayment of Long-term Debt0 (185.0)(215.0)
Proceeds from Policyholder Obligations467.0 615.8 11.4 
Repayment of Policyholder Obligations(304.8)(383.6)(2.5)
Proceeds from Issuance of Common Stock, Net of Transaction Costs0 127.5 
Proceeds from Shares Issued under Employee Stock Purchase Plan4.4 1.6 
Common Stock Repurchases(110.4)
Dividends and Dividend Equivalents Paid(78.9)(67.8)(56.4)
Other5.4 2.4 0.9 
Net Cash Provided by (Used in) Financing Activities378.3 160.8 (12.2)
Increase in Cash69.3 61.7 29.4 
Cash, Beginning of Year136.8 75.1 45.7 
Cash, End of Period$206.1 $136.8 $75.1 
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
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KEMPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
DOLLARS AND SHARES IN MILLIONS,
EXCEPT PER SHARE AMOUNTS
For the Years Ended December 31, 2020, 2019 and 2018
Number of
Shares
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
BALANCE, DECEMBER 31, 201751.5 $5.1 $673.1 $1,243.0 $194.4 $2,115.6 
Cumulative Effect of Adoption of New Accounting Standard— — — (18.2)18.2 
BALANCE, JANUARY 1, 2018 As Adjusted51.5 5.1 673.1 1,224.8 212.6 $2,115.6 
Net Income— — — 190.1 — 190.1 
Other Comprehensive Income (Loss), Net of Taxes (Note 13)— — — — (190.8)(190.8)
Cash Dividends and Dividend Equivalents to Shareholders ($0.96 per share)— — — (56.4)— (56.4)
Issuances of Common Stock (Note 3)13.1 1.4 977.2 — 978.6 
Equity-based Compensation Cost (Note 11)— — 18.6 — — 18.6 
Equity-based Awards, Net of Shares Exchanged (Note 11)0.1 — (2.6)(3.0)— (5.6)
BALANCE, DECEMBER 31, 201864.7 6.5 1,666.3 1,355.5 21.8 3,050.1 
Net Income— — — 531.1 — 531.1 
Other Comprehensive Income (Loss), Net of Taxes (Note 13)— — — — 314.3 314.3 
Cash Dividends and Dividend Equivalents to Shareholders ($1.03 per share)— — — (68.4)— (68.4)
Issuances of Common Stock (Note 3)1.6 0.2 127.0 — 127.2 
Shares Issued Under Employee Stock Purchase Plan (Note 10)  1.9   1.9 
Equity-based Compensation Cost (Note 11)— — 25.3 — — 25.3 
Equity-based Awards, Net of Shares Exchanged (Note 11)0.4 — (1.3)(7.9)— (9.2)
BALANCE, DECEMBER 31, 201966.7 6.7 1,819.2 1,810.3 336.1 3,972.3 
Net Income   409.9  409.9 
Other Comprehensive Income (Loss), Net of Taxes (Note 13)    344.4 344.4 
Cash Dividends and Dividend Equivalents to Shareholders ($1.20 per share)   (79.4) (79.4)
Repurchase of Common Stock (Note 10)(1.6)(0.2)(44.2)(66.0)0 (110.4)
Shares Issued Under Employee Stock Purchase Plan (Note 10)  4.4   4.4 
Equity-based Compensation Cost (Note 11)  24.9   24.9 
Equity-based Awards, Net of Shares Exchanged (Note 11)0.3  0.9 (3.6) (2.7)
BALANCE, DECEMBER 31, 202065.4 $6.5 $1,805.2 $2,071.2 $680.5 $4,563.4 
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.


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NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ESTIMATES
The Consolidated Financial Statements included the accounts of Kemper Corporation (“Kemper”) and its subsidiaries which include property and casualty and life and health subsidiaries (collectively referred to herein as the “Company”). The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions have been eliminated.
Periodically, Kemper may acquire an additional company which then becomes one of the various subsidiaries of Kemper. When an acquisition occurs, Kemper will include the results of the acquired company in the consolidated financial results from the date of its acquisition and forward.
Certain prior year amounts for company-owned life insurance (“COLI”) have been reclassified from Other Assets to Other Investments to conform to the current presentation.
Certain prior year amounts in the Consolidated Statements of Cash Flows have been reclassified to conform to the current presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Many of these estimates and assumptions are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ materially from those estimates and assumptions.
The fair values of the Company’s Investments in Fixed Maturities, Investments in Convertible Securities at Fair Value, Investments in Equity Securities at Fair Value and Debt are estimated using a hierarchical framework which prioritizes and ranks market price observability. The carrying amounts reported in the Consolidated Balance Sheets approximate fair value for Cash, Short-term Investments and certain other assets and other liabilities because of their short-term nature. The actual value at which financial instruments could be sold or settled with a willing buyer or seller may differ from estimated fair values depending on a number of factors, including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.
The process of estimating and establishing reserves for losses and loss adjustment expenses ("LAE") for property and casualty insurance is inherently uncertain, and the actual ultimate net cost of known and unknown claims may vary materially from the estimated amounts reserved. The reserving process is particularly imprecise for claims involving long-tailed exposures, which may not be discovered or reported until years after the insurance policy period has ended. Management considers a variety of factors, including, but not limited to, past claims experience, current claim trends and relevant legal, economic and social conditions, in estimating reserves. A change in any one or more factors is likely to result in the ultimate net claim costs differing from the estimated reserve. Changes in such estimates may be material and would be recognized in the Consolidated Financial Statements when such estimates change.
The process of determining whether an asset is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Projections are inherently uncertain, and, accordingly, actual future cash flows may differ materially from projected cash flows. As a result, the Company’s assessment of the impairment of long-lived assets is susceptible to the risk inherent in making such projections.
NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES
Investments
Investments in Fixed Maturities include bonds, notes and redeemable preferred stocks. Investments in Fixed Maturities are classified as available for sale and reported at fair value. Net Investment Income, including amortization of purchased premiums and accretion of market discounts, on Investments in Fixed Maturities is recognized as interest over the period that it is earned using the effective yield method. Unrealized appreciation or depreciation, net of applicable deferred income taxes, on fixed maturities classified as available for sale is reported in Accumulated Other Comprehensive Income (“AOCI”) included in Shareholders’ Equity.
Investments in Convertible Securities include fixed maturities with equity conversion features. The Company has elected the fair value option method of accounting for investments in Convertible Securities and records Convertible Securities at fair value
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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
on the Consolidated Balance Sheets. Changes in fair value of Convertible Securities are recorded in the Consolidated Statements of Income during the period such changes occur.
Equity investments include common stocks, non-redeemable preferred stocks, exchange traded funds, money market mutual funds and limited liability companies and investment partnerships in which the Company’s interests are deemed minor. Equity investments with readily determinable fair values are recorded as Equity Securities at Fair Value on the Consolidated Balance Sheets. Effective January 1, 2018, changes in the fair value of such equity securities are reported in the Consolidated Statements of Income. Prior to January 1, 2018, changes in the fair values of such equity securities were reported in AOCI. Dividend income on investments in common and non-redeemable preferred stocks is recognized on the ex-dividend date. The Company holds certain equity investments without readily determinable fair values at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on the Consolidated Balance Sheets as Equity Securities at Modified Cost. Changes in the carrying value of Modified Cost investments due to observable price changes are recorded as Income (Loss) from Change in Fair Value of Equity and Convertible Securities.
Equity Method Limited Liability Investments include investments in limited liability investment companies and limited partnerships in which the Company’s interests are not deemed minor and are accounted for under the equity method of accounting whereby changes in net asset values are recorded in Net Investment Income in the Consolidated Statements of Income. Certain partnerships for which results are not available on a timely basis are reported on a lag.
Investments in Alternative Energy Partnerships are measured using the Hypothetical Liquidation at Book Value (“HLBV”) method of equity method accounting whereby changes in the estimated amount the Company would receive upon the liquidation and distribution of the equity investment’s net assets, are recorded in Net Investment Income. Tax credits allocated from investments in Alternative Energy Partnerships are recognized using the flow-through method, where credits are recorded as a reduction to income tax expense in the period earned. Differences in the basis calculated under tax law and U.S. GAAP are recognized using the income statement approach, where basis differences are recorded to Income Tax Expense immediately, rather than deferred as adjustments to the carrying value of the asset. Certain partnerships for which results are not available on a timely basis are reported on a lag.
Short-term Investments include certificates of deposit and other fixed maturities that mature within one year from the date of purchase, U.S. Treasury bills, money market mutual funds and overnight interest-bearing accounts. Short-term Investments are reported at cost, which approximates fair value.
Other Investments primarily include COLI, loans to policyholders, real estate and mortgage loans. COLI is reported at cash surrender value with changes due to cost of insurance and investment experience reported in Net Investment Income in the Consolidated Statements of Income. Loans to policyholders are carried at unpaid principal balance. Real estate is carried at cost, net of accumulated depreciation. Real estate is depreciated over the estimated useful life of the asset using the straight-line method of depreciation. Real estate is evaluated for impairment when events or circumstances indicate the carrying value may not be recoverable. An impairment loss on real estate is recognized when the carrying value exceeds the sum of undiscounted projected future cash flows as well as the fair value, or, in the case of a property classified as held for sale, when the carrying value exceeds the fair value, net of costs to sell. Mortgage loans are carried at amortized cost, net of a reserve for expected credit losses.
The following accounting policy has been updated effective January 1, 2020 to reflect the Company's adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as described above.
Investments in Fixed Maturities - Allowance for Expected Credit Losses
For fixed maturity investments that the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery of value, the full amount of the impairment is reported in Impairment Losses.  The Company writes down the investment’s amortized cost to its fair value, and will not adjust for any subsequent recoveries.

For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company will not be required to sell before an anticipated recovery of value, the Company will evaluate whether a decline in fair value below the amortized cost basis has occurred from a credit loss or other factors (non-credit related). Considerations in


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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)

the credit loss assessment include (1) extent to which the fair value has been less than amortized cost, (2) conditions related to the security, an industry, or a geographic area, (3) payment structure of the investment and the likelihood of the issuer's ability
to make contractual cash flows, (4) defaults or other collectability concerns related to the issuer, (5) changes in the ratings assigned by a rating agency and (6) other credit enhancements that affect the investment’s expected performance.

Any increase or decrease in the expected allowance for credit losses related to investments is recognized in Impairment Losses. The expected allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis and is adjusted for any additional expected credit losses or subsequent recoveries. The amortized cost basis of the investment is not adjusted for the expected allowance for credit loss. The impairment related to other factors (non-credit related) is reported in Other Comprehensive Income, net of applicable taxes.

The Company reports accrued investment income separately for available-for-sale fixed maturity securities and has elected not to measure an allowance for credit losses on accrued investment income. Accrued investment income is written off through impairment losses at the time the issuer of the bond defaults or is expected to default on interest payments.

Fair Value Measurements
The Company uses a hierarchical framework which prioritizes and ranks the market observability of inputs used in fair value measurements. Market price observability is affected by a number of factors, including the type of asset or liability and the characteristics specific to the asset or liability being measured. Assets and liabilities with readily available, active, quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The Company classifies the inputs used to measure fair value into one of three levels as follows:
Level 1 — Quoted prices in an active market for identical assets or liabilities;
Level 2 — Observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 — Significant unobservable inputs for the asset or liability being measured.
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level of input that is significant to the entire measurement. Such determination requires significant management judgment.
Deferred Policy Acquisition Costs
Costs directly associated with the successful acquisition of business, principally commissions and certain premium taxes and policy issuance costs, are deferred. Costs deferred on property and casualty insurance contracts and short duration health insurance contracts are amortized over the period in which premiums are earned. Costs deferred on traditional life insurance products and other long-duration insurance contracts are primarily amortized over the anticipated premium-paying period of the related policies in proportion to the ratio of the annual premiums to the total premiums anticipated, which is estimated using the same assumptions used in calculating policy reserves.
Goodwill
The cost of an acquired entity over the fair value of net assets acquired is reported as Goodwill. Goodwill is not amortized, but rather is tested for recoverability annually or when certain triggering events require testing.
Insurance Reserves
Reserves for losses and LAE on property and casualty insurance coverage and health insurance coverage represent the estimated claim cost and loss adjustment expense necessary to cover the ultimate net cost of investigating and settling all losses incurred and unpaid at the end of any given accounting period. Such estimates are based on individual case estimates for reported claims and estimates for incurred but not reported (“IBNR”) losses, including expected development on reported

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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
claims. These estimates are adjusted in the aggregate for ultimate loss expectations based on historical experience patterns and current economic trends, with any change in the estimated ultimate liabilities being reported in the Consolidated Statements of Income in the period of change. Changes in such estimates may be material.
For traditional life insurance products, the reserves for future policy benefits are estimated on the net level premium method using assumptions as of the issue date for mortality, interest, policy lapses and expenses, including provisions for adverse deviations. These assumptions vary by such characteristics as plan, age at issue and policy duration. Mortality assumptions are based on the Company’s historical experience and industry standards. Interest rate assumptions principally range from 3% to 7%. Lapse rate assumptions are based on actual and industry experience. Insurance Reserves for life insurance products are comprised of reserves for future policy benefits plus an estimate of the Company’s liability for unpaid life insurance claims and claims adjustment expenses, which includes an estimate for IBNR life insurance claims. Prior to 2016, except when required by applicable law, the Company did not utilize the database of reported deaths maintained by the Social Security Administration or any other comparable database (a “Death Master File” or “DMF”) in its operations, including to determine its IBNR liability for life insurance products. Instead of using such a database, the Company calculated its IBNR liability for life insurance products using Company-specific historical information, which included analyzing average paid claims and the average lag between date of death and the date reported to the Company for claims for which proof of death had been provided. In 2016, the Company initiated a voluntary enhancement of its claims handling procedures for its life insurance policies. The Company is now utilizing a DMF to identify potential situations where the Company has yet to be notified of an insured’s death and, as appropriate, initiating an outreach process to identify and contact beneficiaries and settle claims. Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses for the year ended December 31, 2016 included a charge of $77.8 million to recognize the initial impact of using a DMF in the Company’s operations, including to determine its IBNR liability for unpaid claims and claims adjustment expenses for life insurance products.
Policyholder Obligations
Policyholder Obligations include Federal Home Loan Bank (“FHLB”) funding agreements used for spread lending purposes and universal life-type policyholder contracts and are stated at account balances.
The following accounting policy has been updated effective January 1, 2020 to reflect the Company's adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as described below.
Receivables from Policyholders - Allowance for Expected Credit Losses
The allowance for credit losses is a valuation account that is deducted from the receivables from policyholders based on the net amount expected to be collected on the insurance contract. Receivables from policyholders are charged off against the allowance when management believes the uncollectability of the receivable is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience on the receivables from policyholders provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current environmental conditions, primarily unemployment rates that could impact an insured’s ability to pay premiums.
Other Receivables
Other Receivables primarily include reinsurance recoverables and accrued investment income. Reinsurance Recoverables were $50.1 million and $122.6 million at December 31, 2020 and 2019, respectively. Accrued Investment Income was $77.1 million and $78.7 million at December 31, 2020 and 2019, respectively.
Other Assets
Other Assets primarily include property and equipment, internal use software, right-of-use assets, insurance licenses acquired in business combinations, the value of other intangible assets acquired and prepaid expenses. Property and equipment is depreciated over the useful lives of the assets, generally using the straight-line or double declining balance methods of

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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
depreciation depending on the asset involved. Internal use software is amortized over the useful life of the asset using the straight-line method of amortization and is evaluated for recoverability upon identification of impairment indicators. Insurance licenses acquired in business combinations and other indefinite life intangibles are not amortized, but rather tested periodically for recoverability.
The Company accounts for the value of business acquired (“VOBA”) based on actuarial estimates of the present value of future cash flows embedded in insurance in force as of an acquisition date. VOBA was $20.3 million and $24.1 million at December 31, 2020 and 2019, respectively. VOBA is amortized over the expected profit emergence period of the policies in force as of the acquisition date. The Company evaluates VOBA assets for recoverability annually.
The Company accounts for the future profits embedded in customer relationships (“Customer Relationships”) acquired based on the present value of estimated future cash flows from such relationships. Customer Relationships was $3.4 million and $4.3 million at December 31, 2020 and 2019, respectively, and are amortized on a straight-line basis over the estimated useful life of the relationship. Customer Relationships are tested for recoverability using undiscounted projections of future cash flows and written down to estimated fair value if the carrying value exceeds the sum of such projections of undiscounted cash flows.
The Company accounts for the present value of the future profits embedded in broker or agent relationships acquired (“Agent Relationships”) based on the present value of estimated future cash flows from such acquired relationships or, using the cost recovery method, which estimates the ultimate cost to build a comparable distribution network. Agent Relationships was $57.6 million and $62.5 million at December 31, 2020 and 2019, respectively, and are amortized on a straight-line basis over the estimated useful life of the relationship. Agent Relationships are tested for recoverability using undiscounted projections of future cash flows and written down to estimated fair value if the carrying value exceeds the sum of such projections of undiscounted cash flows.
Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities primarily include drafts payable, accrued salaries and commissions, pension benefits, postretirement medical benefits, lease liability and accrued taxes, licenses and fees.
Recognition of Earned Premiums and Related Expenses
Property and casualty insurance and short duration health insurance premiums are deferred when written and recognized and earned ratably over the periods to which the premiums relate. Unearned Premiums represent the portion of the premiums written related to the unexpired portion of policies in force which has been deferred and is reported as a liability. The Company performs a premium deficiency analysis typically at a segment level, namely Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance, which is consistent with the manner in which the Company acquires and services policies and measures profitability. Anticipated investment income is excluded from such analysis. A premium deficiency is recognized when the sum of expected claim costs, claim adjustment expenses, unamortized deferred policy acquisition costs and maintenance costs exceeds the related unearned premiums by first reducing related deferred policy acquisition costs to an amount, but not below zero, at which the premium deficiency would not exist. If a premium deficiency remains after first reducing deferred policy acquisition costs, a premium deficiency reserve is established and reported as a liability in the Company’s financial statements.
Traditional life insurance premiums are recognized as revenue when due. Policyholders’ benefits are associated with related premiums to result in recognition of profits over the periods for which the benefits are provided using the net level premium method.
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses include provisions for future policy benefits under life and certain accident and health insurance contracts and provisions for reported claims, estimates for IBNR claims and loss adjustment expenses. Benefit payments in excess of policy account balances are expensed.

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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
Reinsurance
In the normal course of business, Kemper’s insurance subsidiaries reinsure certain risks above certain retention levels with other insurance enterprises. These reinsurance agreements do not relieve Kemper’s insurance subsidiaries of their legal obligations to the policyholder. Amounts recoverable from reinsurers are included in Other Receivables.
Gains related to long-duration reinsurance contracts are deferred and amortized over the life of the underlying reinsured policies. Losses related to long-duration reinsurance contracts are recognized immediately. Any gain or loss associated with reinsurance agreements for which Kemper’s insurance subsidiaries have been legally relieved of their obligations to the policyholder is recognized in the period of relief.
Income Taxes
Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance, if any, is maintained for the portion of deferred income tax assets that the Company does not expect to recover. Increases, if any, in the valuation allowance for deferred income tax assets are recognized as income tax expense. Decreases, if any, in the valuation allowance for deferred income tax assets are generally recognized as income tax benefit. The effect on deferred income tax assets and liabilities of a change in tax law including a change in tax rates is recognized in income from continuing operations in the period in which the change is enacted.
The Company reports a liability for unrecognized tax benefits, if any, resulting from uncertain tax positions taken, or expected to be taken, in an income tax return, if any. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Discontinued Operations
In 2008, the Company sold its Unitrin Business Insurance operations and retained certain liabilities for unpaid insured losses that occurred prior to the date of the sale. Changes in the Company’s estimate of such retained liabilities after the sale were reported in Income from Discontinued Operations in 2018. In 2020, any remaining changes in the Company’s estimate of such retained liabilities were reported in Income from Continuing Operations.
Adoption of New Accounting Guidance
Accounting Standards Adopted in 2020
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss impairment model. The expected credit loss impairment model requires the entity to recognize its estimate of expected credit losses for affected financial assets using an allowance for credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected. The income statement includes the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have occurred during the period. Credit losses on available-for-sale debt securities are measured in a manner similar to prior GAAP, although ASU 2016-13 requires that they be presented as an allowance rather than as a write-down of the amortized cost. In situations where the estimate of credit loss on an available-for-sale debt security declines, entities will be able to record a reversal of the allowance to income in the current period, which was prohibited prior to the adoption of ASU 2016-13. ASU 2016-13 was adopted using the modified retrospective method for financial assets measured at amortized cost as well as receivables from policyholders. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity securities that have recognized an other-than-temporary impairment write-down prior to the effective date. The Company adopted the guidance effective January 1, 2020, which resulted in no cumulative-effect adjustment to retained earnings.

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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). To simplify the subsequent measurement of goodwill, ASU 2017-04 eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity previously had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized is limited to the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The adoption of ASU 2017-04 did not have a material effect on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments, previously addressed by ASU 2016-13, Measurement of Credit Losses on Financial Instruments, ASU 2017-12, Targeted Improvements to Derivatives and Hedging Activities, and ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The Company adopted ASU 2017-12 in the first quarter of 2019. Accordingly, the amendments in ASU 2019-04 related to clarifications on accounting for hedging activities are effective for the Company in the first quarter of 2020. The amendments of ASU 2019-04 related to ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2016-13, Measurement of Credit Losses on Financial Instruments, are effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The initial adoption of ASU 2019-04 did not have a material effect on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-05 provides transition relief for entities adopting the credit loss standard, ASU 2016-13. Specifically, ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that are: (i) within the scope of the credit loss guidance in Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments—Credit Losses; (ii) were previously recorded at amortized cost; (iii) are eligible for the fair value option under ASC Topic 825, Financial Instruments; and (iv) are not held to maturity debt. ASU 2019-05 is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The Company did not elect the fair value option upon adoption of ASU 2016-13 for the financial instruments outlined above.
Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. ASU 2018-12 amends the accounting model for certain long-duration insurance contracts and requires the insurer to provide additional disclosures in annual and interim reporting periods. In November 2020, the FASB issued ASU 2020-11 which deferred the effective date of ASU 2018-12 by one year for public business entities. ASU 2018-12 is now effective for fiscal years beginning after December 15, 2022, and interim periods within those annual periods. The amendments in ASU 2018-12 (i) require cash flow assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited pay long duration contracts to be updated at least annually with the recognition and remeasurement recorded in net income, (ii) simplify the amortization of deferred acquisition costs to be amortized on a constant level basis over the expected term of the contract, (iii) require all market risk benefits to be measured at fair value, and (iv) enhance certain presentation and disclosure requirements which include disaggregated rollforwards for liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, deferred acquisition costs, and information about significant inputs, judgements and methods used in the measurement. The Company plans to adopt using the modified retrospective transition method and is currently evaluating the impact of this guidance on its financial statements.





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NOTE 2. SUMMARY OF ACCOUNTING POLICIES AND ACCOUNTING CHANGES (Continued)
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes by eliminating certain exceptions to the guidance in ASC Topic 740, Income Taxes, related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Further, ASU 2019-12 clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements. The Company will continue to evaluate the impact of this guidance on its financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues), which clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance in ASU 2020-04, if elected, shall apply to contract modifications if the terms that are modified directly replace, or have the potential to replace, a reference rate with another interest rate index. If other terms are contemporaneously modified in a manner that changes, or has the potential to change, the amount or timing of contractual cash flows, the guidance in ASU 2020-04 shall apply only if those modifications are related to the replacement of a reference rate. ASU 2020-04 is effective for contract modifications made between March 12, 2020 through December 31, 2022. The adoption of the new guidance did not have an impact on the Company’s Consolidated Financial Statements. The Company will continue to evaluate the impact of this guidance on its financial statements.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs, which clarifies that an entity should re-evaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

The Company has adopted all other recently issued accounting pronouncements with effective dates prior to January 1, 2020. There were no adoptions of such accounting pronouncements during the year ended December 31, 2020 that had a material impact on the Company’s Consolidated Financial Statements.

NOTE 3. ACQUISITION OF BUSINESS
Acquisition of American Access Casualty Company
On November 23, 2020, Kemper announced that it entered into a definitive agreement to acquire American Access Casualty Company and its related captive insurance agency, Newins Insurance Agency Holdings, LLC, and its subsidiaries (collectively “AAC”), in a cash transaction valued at $370.0 million. The transaction is expected to close in the first quarter of 2021, subject to regulatory approval and other customary closing conditions.

AAC, headquartered in Downers Grove, Illinois, provides specialty private passenger auto insurance in Arizona, Illinois, Indiana, Nevada, and Texas. AAC wrote over $370.0 million of direct premiums in 2019 through a network of approximately 500 independent agents and over 110 captive agents.







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NOTE 3. ACQUISITION OF BUSINESS (Continued)
Acquisition of Infinity Property and Casualty Corporation
On July 2, 2018, Kemper acquired 100% of the outstanding common stock of Infinity Property and Casualty Corporation (“Infinity”), pursuant to the terms of the merger agreement dated February 13, 2018, with total cash, stock and equity-based compensation consideration paid to Infinity shareholders of approximately $1.5 billion. In conjunction with closing the acquisition, Kemper issued 13.2 million shares, with an aggregate fair value of $982.5 million based on Kemper’s July 2, 2018 stock price of $74.53 per share, and paid $564.6 million in cash consideration to Infinity’s shareholders. In addition, Kemper issued 44,010 restricted stock units under Kemper’s equity-based compensation plan to replace Infinity restricted shares that were outstanding immediately prior to the closing. The aggregate fair value of such Kemper restricted stock units granted was $3.3 million at July 2, 2018, of which $1.6 million is attributed to service provided prior to the closing and included in consideration paid. The remaining amount of $1.7 million is attributed to future service and will be recognized in compensation expense primarily over a period of two years. The cash consideration was funded by cash on hand as of July 2, 2018, inclusive of $250.0 million in borrowings under the Company’s delayed draw term loan facility and $110.0 million of Kemper subsidiary borrowings from the FHLB of Dallas and FHLB of Chicago. On July 13, 2018, Kemper subsidiaries repaid in full the $110.0 million of FHLB borrowings, plus accrued interest. On December 28, 2018, Kemper repaid $215.0 million of the delayed draw term loan facility. See Note 8, “Debt,” to the Consolidated Financial Statements for additional information. Infinity is a national provider of auto insurance focused on serving the specialty automobile market.
In 2019, the Company completed the process of estimating the fair value of assets acquired and liabilities assumed. In accordance with ASC Topic 805, Business Combinations, changes to the preliminary estimates and allocation as a result of events or conditions as of the acquisition date, are reported in the Company’s financial statements as an adjustment to the assets acquired and liabilities assumed. The Company finalized its estimate of certain legal and tax accruals, increasing liabilities assumed by $1.8 million, increasing current income tax assets by $0.2 million and increasing goodwill by $1.6 million compared with balances as of December 31, 2018. The Company has allocated all of the goodwill associated with the Infinity acquisition to the Specialty Property & Casualty Insurance segment. The factors that contributed to the recognition of goodwill include synergies from economies of scale within the underwriting and claims operations, acquiring a talented workforce and cost savings opportunities.
Based on the Company’s final allocation of the purchase price, the fair value of the assets acquired and liabilities assumed were:
DOLLARS IN MILLIONS
Investments$1,569.3 
Short-term Investments at Cost which Approximates Fair Value
Investments
98.8 
Cash4.0 
Receivables from Policyholders583.4 
Other Receivables31.7 
Value of Intangible Assets Acquired (Reported in Other Assets)262.7 
Current Income Tax Assets1.0 
Goodwill1
791.0 
Other Assets102.1 
Property and Casualty Insurance Reserves(717.2)
Unearned Premiums(715.6)
Debt(282.1)
Deferred Income Tax Liabilities(10.8)
Accrued Expenses and Other Liabilities(169.6)
Total Purchase Price$1,548.7 
1Non-deductible for tax-purposes.

83


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 4. INVESTMENTS
Fixed Maturities
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2020 were:
DOLLARS IN MILLIONSAmortized
Cost
Gross UnrealizedAllowance for Expected Credit LossesFair Value
GainsLosses
U.S. Government and Government Agencies and Authorities$536.5 $48.9 $(0.1)$0 $585.3 
States and Political Subdivisions1,404.3 185.4 (0.2)0 1,589.5 
Foreign Governments6.6 0 (1.1)(0.3)5.2 
Corporate Securities:
Bonds and Notes3,749.5 689.5 (10.6)(3.0)4,425.4 
Redeemable Preferred Stocks7.0 0.5 0 0 7.5 
Collateralized Loan Obligations785.1 2.3 (19.7)0 767.7 
Other Mortgage- and Asset-backed203.7 21.6 0 0 225.3 
Investments in Fixed Maturities$6,692.7 $948.2 $(31.7)$(3.3)$7,605.9 
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2019 were:
Amortized
Cost
Gross UnrealizedFair Value
DOLLARS IN MILLIONSGainsLosses
U.S. Government and Government Agencies and Authorities$784.7 $32.5 $(1.3)$815.9 
States and Political Subdivisions1,386.4 130.5 (1.1)1,515.8 
Foreign Governments17.2 1.2 (1.6)16.8 
Corporate Securities:
Bonds and Notes3,465.0 401.8 (7.1)3,859.7 
Redeemable Preferred Stocks6.8 (0.1)6.7 
Collateralized Loan Obligations624.6 2.1 (8.5)618.2 
Other Mortgage- and Asset-backed88.0 2.1 (1.1)89.0 
Investments in Fixed Maturities$6,372.7 $570.2 $(20.8)$6,922.1 
Other Receivables included $5.1 million and $1.0 million of unsettled sales of Investments in Fixed Maturities at December 31, 2020 and December 31, 2019, respectively. Accrued Expenses and Other Liabilities included unsettled purchases of Investments in Fixed Maturities of $4.3 million and $19.5 million at December 31, 2020 and 2019, respectively.
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2020 by contractual maturity were:
DOLLARS IN MILLIONSAmortized CostFair Value
Due in One Year or Less$98.6 $101.3 
Due after One Year to Five Years1,107.3 1,182.9 
Due after Five Years to Ten Years1,525.1 1,720.0 
Due after Ten Years2,567.8 3,177.7 
Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date1,393.9 1,424.0 
Investments in Fixed Maturities$6,692.7 $7,605.9 
The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

84


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 4. INVESTMENTS (Continued)
Investments in Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date at December 31, 2020 consisted of securities issued by the Government National Mortgage Association with a fair value of $413.8 million, securities issued by the Federal National Mortgage Association with a fair value of $5.2 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $12.0 million and securities of other non-governmental issuers with a fair value of $993.0 million.
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2020 is presented below.
DOLLARS IN MILLIONSLess Than 12 Months12 Months or LongerTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fixed Maturities:
U.S. Government and Government Agencies and Authorities$10.5 $(0.1)$0 $0 $10.5 $(0.1)
States and Political Subdivisions23.3 (0.2)0 0 23.3 (0.2)
Foreign Governments0.5 (0.1)2.6 (1.0)3.1 (1.1)
Corporate Securities:
Bonds and Notes132.9 (7.5)46.1 (3.1)179.0 (10.6)
Collateralized Loan Obligations145.2 (3.8)371.4 (15.9)516.6 (19.7)
Other Mortgage- and Asset-backed6.3 0 0 0 6.3 0 
Total Fixed Maturities$318.7 $(11.7)$420.1 $(20.0)$738.8 $(31.7)
At December 31, 2020, the Company did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell these investments before an anticipated recovery of value. The Company evaluated these investments for credit losses at December 31, 2020. The Company considers many factors in evaluating whether the unrealized losses were credit related including, but not limited to, the extent to which the fair value has been less than amortized cost, conditions related to the security, industry, or geographic area, payment structure of the investment and the likelihood of the issuer’s ability to make contractual cash flows, defaults or other collectability concerns related to the issuer, changes in the ratings assigned by a rating agency, and other credit enhancements that affect the investment’s expected performance. The Company determined that the unrealized losses on these securities were due to non-credit related factors at the evaluation date.
Investment-grade fixed maturity investments comprised $8.0 million and below-investment-grade fixed maturity investments comprised $23.7 million of the unrealized losses on investments in fixed maturities at December 31, 2020. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 11% of the amortized cost basis of the investment.
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2019 is presented below.
DOLLARS IN MILLIONSLess Than 12 Months12 Months or LongerTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fixed Maturities:
U.S. Government and Government Agencies and Authorities$118.5 $(1.3)$5.1 $$123.6 $(1.3)
States and Political Subdivisions63.0 (0.7)5.4 (0.4)68.4 (1.1)
Foreign Governments1.0 (0.3)3.1 (1.3)4.1 (1.6)
Corporate Securities:
Bonds and Notes160.0 (2.1)70.7 (5.0)230.7 (7.1)
Redeemable Preferred Stocks5.5 (0.1)5.5 (0.1)
Collateralized Loan Obligations95.5 (1.9)355.6 (6.6)451.1 (8.5)
Other Mortgage- and Asset-backed72.8 (1.1)72.8 (1.1)
Total Fixed Maturities$516.3 $(7.5)$439.9 $(13.3)$956.2 $(20.8)
85


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 4. INVESTMENTS (Continued)
Based on the Company’s evaluation at December 31, 2019 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
Investment-grade fixed maturity investments comprised $9.1 million and below-investment-grade fixed maturity investments comprised $11.7 million of the unrealized losses on investments in fixed maturities at December 31, 2019. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 5% of the amortized cost basis of the investment.
There were $0.3 million unrealized losses at December 31, 2019 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “Less Than 12 Months.” There were 0 unrealized losses at December 31, 2019 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.”
Fixed Maturities - Impairment Losses
The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for the year ended December 31, 2020.
 Foreign GovernmentsCorporate Bonds and NotesTotal
(Dollars in Millions)
Allowance for Credit Losses at Beginning of the Year$0 $0 $0 
Impact of Adopting ASU 2016-130 0 0 
Additions for Securities for which No Previous Expected Credit Losses were
Recognized
1.2 5.9 7.1 
Reduction Due to Sales(0.7)(1.3)(2.0)
Net Increase (Decrease) in Allowance on Previously Impaired Securities(0.2)(0.2)(0.4)
Write-offs Charged Against Allowance0 (1.4)(1.4)
Allowance for Credit Losses at End of Period$0.3 $3.0 $3.3 
Equity Securities
Equity Securities at Fair Value
Equity securities with readily-determinable fair values, including equity securities which the Company previously classified as Fair Value Option Investments, are classified as Equity Securities at Fair Value in the Consolidated Balance Sheets with changes in fair value recorded as Income from Change in Fair Value of Equity and Convertible Securities in the Consolidated Statements of Income. Net unrealized gains arising during the year-ended December 31, 2020 and recognized in earnings, related to such investments still held as of December 31, 2020 were $136.6 million.
Equity Securities at Modified Cost
For Equity Securities at Modified Cost, the Company performs a qualitative impairment analysis on a quarterly basis consisting of various factors such as earnings performance, current market conditions, changes in credit ratings, changes in the regulatory environment and other factors. If the qualitative analysis identifies the presence of impairment indicators, the Company estimates the fair value of the investment. If the estimated fair value is below the carrying value, the Company records an impairment in the Consolidated Statement of Income to reduce the carrying value to the estimated fair value. When the Company identifies observable transactions of the same or similar securities to those held by the Company, the Company increases or decreases the carrying value to the observable transaction price. The Company recognized a decrease of $0.5 million in the carrying value due to observable transactions for the year ended December 31, 2020. The Company recognized an impairment of $2.9 million on Equity Securities at Modified Cost for the year ended December 31, 2020 as a result of the Company’s qualitative impairment analysis. The Company has recognized 0 cumulative increases in the carrying value due to
86


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 4. INVESTMENTS (Continued)
observable transactions, 0 cumulative decreases in the carrying value due to observable transactions and $5.8 million of cumulative impairments on Equity Securities at Modified Cost held as of December 31, 2020.
Equity Method Limited Liability Investments
Equity Method Limited Liability Investments include investments in limited liability investment companies and limited partnerships in which the Company’s interests are not deemed minor and are accounted for under the equity method of accounting. The HLBV equity method of accounting is used for the Company’s investments in Alternative Energy Partnerships. The Company’s investments in Equity Method Limited Liability Investments are generally of a passive nature in that the Company does not take an active role in the management of the investment entity.

In 2020 and 2019, aggregate investment income (losses) from Equity Method Limited Liability Investments exceeded 10% of the Company’s pretax consolidated net income. Accordingly, the Company is disclosing aggregated summarized financial data for its Equity Method Limited Liability Investments for all periods presented in the Consolidated Financial Statements. Such aggregated summarized financial data does not represent the Company’s proportionate share of the Equity Method Limited Liability Investment assets or earnings. Aggregate total assets of the Equity Method Limited Liability Investments in which the Company invested totaled $3,554.5 million, $2,368.1 million and $2,805.3 million, as of December 31, 2020, 2019 and 2018, respectively. Aggregate total liabilities of the Equity Method Limited Liability Investments in which the Company invested totaled $1,602.5 million, $817.2 million and $1,030.7 million, as of December 31, 2020, 2019 and 2018, respectively. Aggregate net income of the Equity Method Limited Liability Investments in which the Company invested totaled $74.9 million, $78.0 million and $130.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The aggregate summarized financial data is based on the most recent and sufficiently-timely financial information available to the Company as of the respective reporting dates and periods. The Company’s maximum exposure to loss at December 31, 2020 is limited to the total carrying value of $225.3 million. In addition, the Company had outstanding commitments totaling approximately $172.8 million to fund Equity Method Limited Liability Investments at December 31, 2020. At December 31, 2020, 4.4% of Equity Method Limited Liability Investments were reported without a reporting lag. 8.0% of the total carrying value were reported with a one month lag and the remainder were reported with more than a one month lag.

Other Investments
The carrying values of the Company’s Other Investments at December 31, 2020 and 2019 were:
DOLLARS IN MILLIONS20202019
Company-owned Life Insurance$327.4 $217.0 
Loans to Policyholders at Unpaid Principal297.9 305.6 
Real Estate at Depreciated Cost98.7 111.4 
Mortgage Loans and Other55.0 27.5 
Total$779.0 $661.5 
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Goodwill balances by business segment at December 31, 2020 and 2019 were:
DOLLARS IN MILLIONS20202019
Specialty Property & Casualty Insurance$845.0 $845.0 
Preferred Property & Casualty Insurance49.6 49.6 
Life & Health Insurance219.4 219.4 
Total$1,114.0 $1,114.0 
The Company tests goodwill for recoverability at the reporting unit level on an annual basis, or whenever events or circumstances indicate the fair value of a reporting unit may have declined below its carrying value. The Company performed a qualitative goodwill impairment assessment for all reporting units with goodwill as of October 1, 2020. The qualitative assessment takes into consideration changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, events impacting reporting units, and changes in Kemper’s stock price since the last quantitative assessment, which was performed on January 1, 2017. Based on its qualitative assessment, the Company concluded that the associated goodwill was recoverable for each reporting unit tested.
87


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 5. GOODWILL AND INTANGIBLE ASSETS (Continued)
The Gross carrying amount and accumulated amortization of Definite and Indefinite life intangible assets at December 31, 2020 and 2019 were:
 20202019
(Dollars in Millions)Gross Carrying AmountAccumulated AmortizationNet AmountGross
Carrying Amount
Accumulated AmortizationNet Amount
Definite Life Intangibles
Value of Business Acquired$194.5 $174.2 $20.3 $194.5 $170.4 $24.1 
Customer Relationships39.0 35.6 3.439.0 34.7 4.3 
Agent Relationships74.4 16.8 57.674.4 11.9 62.5 
Internal-Use Software299.6 108.6 191.0261.6 71.9 189.7 
Total Definite Life Intangible Assets607.5 335.2 272.3569.5 288.9 280.6 
Indefinite Life Intangible Assets
Trade Names5.2  5.25.2 — 5.2 
Insurance Licenses42.6  42.642.6 — 42.6 
Total Indefinite Life Intangible Assets47.8  47.847.8 — 47.8 
Total Intangible Assets$655.3 $335.2 $320.1 $617.3 $288.9 $328.4 
The Company records intangible assets acquired in business combinations and certain costs incurred developing and customizing internal-use software within Other Assets on the Consolidated Balance Sheets. Definite life intangible assets are amortized over the estimated profit emergence period or estimated useful life of the asset. Indefinite life intangible assets are not amortized, but rather tested annually for impairment. In 2020 and 2019, the Company recognized amortization expense on definite life intangible assets of $42.3 million and $37.8 million, respectively.
The amount of amortization expense expected to be recorded in the next five years for definite life intangible assets is as follows:
DOLLARS IN MILLIONS20212022202320242025
Definite Life Intangible Assets:
Value of Business Acquired$3.4 $1.9 $1.9 $1.8 $1.8 
Customer Relationships0.7 0.6 0.5 0.4 0.4 
Agent Relationships5.0 5.0 5.0 5.0 5.0 
Internal-Use Software24.8 25.6 22.8 19.4 15.4 
Total$33.9 $33.1 $30.2 $26.6 $22.6 
NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES
The Company’s Property and Casualty Insurance Reserves are reported using the Company’s estimate of its ultimate liability for losses and LAE for claims that occurred prior to the end of any given accounting period but have not yet been paid. Such estimates are based on individual case estimates for reported claims and estimates for IBNR losses, including expected development on reported claims.
The determination of individual case reserves differs by line of business. For personal automobile insurance and commercial automobile insurance, case reserves are set primarily using statistical reserves that are based on studies of historical average paid amounts by state, coverage and product. However, when such reserves exceed certain thresholds they are set manually by adjusters. For preferred homeowners insurance and other personal insurance, case reserves are set by adjusters and are based on the adjusters’ estimates of the amount for which the claims will ultimately be paid.
The Company’s actuaries estimate ultimate losses and LAE and, therefore, reserves at least quarterly for most product lines and/or coverage levels using accident quarters or years spanning 10 or more years, depending on the size of the product line
88


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES (Continued)
and/or coverage level or emerging issues relating to them. The Company’s actuaries use a variety of generally accepted actuarial loss reserving estimation methodologies to estimate the ultimate losses and LAE for the current accident quarter or year and re-estimate the ultimate losses and LAE for previous accident quarters or years to determine if changes in the previous estimates of the ultimate losses and LAE are indicated by the most recent data.
The key assumption in these estimation methodologies is that patterns observed in prior periods are indicative of how losses and LAE are expected to develop in the future and that such historical data can be used to predict and estimate ultimate losses and LAE. However, changes in the Company’s business processes, by their very nature, are likely to affect the development patterns, which generally results in the historical development factors becoming less reliable over time in predicting how losses and LAE will ultimately develop. The Company’s actuaries use professional judgment in determining how much weight to place on the development patterns based on the older historical data and how much weight to place on the development patterns based on more recent data. In some cases, the Company’s actuaries make adjustments to the loss reserving estimation methodologies to estimate ultimate losses and LAE.
The Company’s actuaries’ quarterly or yearly selections are summed by product and/or coverage levels to create the actuarial indication of the ultimate losses and LAE. Paid amounts are then subtracted from the ultimates to compute the reserves for property and casualty insurance losses and LAE. These results are reviewed by the Company’s chief actuary and corporate management who apply their collective judgment and determine the appropriate estimated level of reserves to record. Numerous factors are considered in this determination process, including, but not limited to, the assessed reliability of key loss trends and assumptions that may be significantly influencing the current actuarial indications, changes in claim handling practices or other changes that affect the timing of payment or development patterns, changes in the mix of business, the maturity of the accident year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, the improvement or deterioration of actuarial indications in the current period as compared to prior periods, and the amount of reserves related to third party pools for which the Company has limited access to the underlying data and, accordingly, relies on calculations provided by such pools. The Company’s goal is to ensure that its total reserves for property and casualty insurance losses and LAE are adequate to cover all costs, while sustaining minimal variation from the time reserves for losses and LAE are initially estimated until losses and LAE are fully developed. Changes in the Company’s estimates of these losses and LAE over time, also referred to as “development,” will occur and may be material.
The following tables contain information about incurred and paid claims development as of and for the year ended December 31, 2020, net of reinsurance and indemnification, as well as cumulative claim frequency and the total of IBNR liabilities, including expected development on reported claims included within the net incurred losses and allocated LAE amounts. The tables are grouped by major product line and, if relevant, coverage. The information about incurred and paid claims development for the years ended December 31, 2016 through 2019 is presented as supplementary information and is unaudited.












89


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES (Continued)
Specialty Personal Automobile Insurance—Liability
DOLLARS IN MILLIONS, EXCEPT CUMULATIVE REPORTED CLAIMSAs of December 31, 2020
Cumulative Incurred Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Total of IBNR Liabilities Plus Expected Development on Reported ClaimsCumulative Number of Reported Claims
Accident Year20162017201820192020
2016$969.4 $1,021.6 $1,027.2 $1,026.0 $1,022.7 $4.7 417,219 
2017997.7 999.9 1,004.5 999.1 13.7 397,059 
20181,128.1 1,119.1 1,120.0 33.9 447,610 
20191,270.7 1,306.9 91.4 485,455 
20201,219.3 368.6 399,216 
Total$5,668.0 
Cumulative Paid Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Accident Year20162017201820192020
2016$459.7 $831.1 $943.4 $987.7 $1,008.3 
2017441.9 808.6 926.7 967.7 
2018467.5 903.8 1,039.3 
2019497.2 1,052.5 
2020491.6 
Total4,559.4 
Outstanding Loss and Allocated LAE Reserves on Accident Years before 2016, Net of Reinsurance3.9 
Loss and Allocated LAE Reserves, Net of Reinsurance$1,112.5 
90


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES (Continued)
Specialty Personal Automobile Insurance—Physical Damage
DOLLARS IN MILLIONS, EXCEPT CUMULATIVE REPORTED CLAIMSAs of December 31, 2020
Cumulative Incurred Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Total of IBNR Liabilities Plus Expected Development on Reported ClaimsCumulative Number of Reported Claims
Accident Year20162017201820192020
2016$462.2 $456.9 $456.9 $457.0 $457.4 $(0.1)246,239 
2017475.6 465.6 465.1 465.6 0.1 251,935 
2018504.9 496.9 496.4 (0.4)270,000 
2019574.7 581.0 (10.7)286,954 
2020600.2 52.0 252,237 
Total2,600.6 
Cumulative Paid Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Accident Year20162017201820192020
2016$436.4 $460.2 $458.0 $457.5 $457.5 
2017443.0 468.7 466.0 465.9 
2018463.6 501.5 497.4 
2019525.8 585.7 
2020542.2 
Total2,548.7 
Outstanding Loss and Allocated LAE Reserves on Accident Years before 2016, Net of Reinsurance1.6 
Loss and Allocated LAE Reserves, Net of Reinsurance$53.5 

91


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES (Continued)
Commercial Automobile Insurance—Liability
DOLLARS IN MILLIONS, EXCEPT CUMULATIVE REPORTED CLAIMSAs of December 31, 2020
Cumulative Incurred Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Total of IBNR Liabilities Plus Expected Development on Reported ClaimsCumulative Number of Reported Claims
Accident Year20162017201820192020
2016$120.5 $112.4 $115.6 $117.7 $115.6 $1.1 20,427 
2017120.5 120.0 118.3 114.3 2.9 19,951 
2018123.2 116.5 113.0 12.6 20,146 
2019128.4 126.1 19.4 19,404 
2020140.5 60.5 16,457 
Total$609.5 
Cumulative Paid Losses and Allocated LAE, Net of Reinsurance and Indemnification
For the Years Ended December 31,
Accident Year20162017201820192020
2016$36.2 $71.6 $89.7 $102.3 $109.7 
201736.3 72.3 90.7 101.7 
201836.8 68.8 88.1 
201932.4 75.7 
202037.0 
Total412.2 
Outstanding Loss and Allocated LAE Reserves on Accident Years before 2016, Net of Reinsurance11.8 
Loss and Allocated LAE Reserves, Net of Reinsurance$209.1 
92


Kemper Corporation and Subsidiaries
Notes to the Consolidated Financial Statements



NOTE 6. PROPERTY AND CASUALTY INSURANCE RESERVES (Continued)
Commercial Automobile Insurance—Physical Damage
DOLLARS IN MILLIONS, EXCEPT CUMULATIVE REPORTED CLAIMSAs of December 31, 2020
Cumulative Incurred Losses and Allocated LAE, Net of Reinsurance
For the Years Ended December 31,
Total of IBNR Liabilities Plus Expected Development on Reported ClaimsCumulative Number of Reported Claims
Accident Year20162017201820192020
2016$24.2 $24.2 $24.1 $24.2 $24.2 $0 10,561 
201724.2 23.5 23.5 23.4 0.1 9,792 
201823.6 23.5 23.6 0.1 9,567 
201926.0 27.1 (0.3)9,290 
202031.9 4.6 10,936 
Total$130.2 
Cumulative Paid Losses and Allocated LAE, Net of Reinsurance and Indemnification
For the Years Ended December 31,
Accident Year20162017201820192020