Kemper Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended March 31, 2020



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission file number 001-18298

______________________________________________________

Kemper Corporation

(Exact name of registrant as specified in its charter)

______________________________________________________



DE		95-4255452
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 E. Randolph Street
Suite 3300
Chicago	IL	60601
(Address of principal executive offices)		(Zip Code)

(312) 661-4600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	KMPR	NYSE

______________________________________________________

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “accelerated filer, large accelerated filer, smaller reporting company and emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐

Smaller Reporting Company	☐	Emerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

65,250,705 shares of common stock, $0.10 par value, were outstanding as of April 29, 2020.

KEMPER CORPORATION

INDEX



		Page
Caution Regarding Forward-Looking Statements		1

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	5

	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	7

	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)	8

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 6.	Exhibits	62

Exhibit Index		62

Signatures		63

Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), Risk Factors and the accompanying unaudited Condensed Consolidated Financial Statements (including the notes thereto) of Kemper Corporation (“Kemper”) and its subsidiaries (individually and collectively referred to herein as the “Company”) 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 Quarterly Report on Form 10-Q. 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 those factors discussed under Item 1A., “Risk Factors,” of Part I of Kemper’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”), for the year ended December 31, 2019 (the “2019 Annual Report”) as updated by Item 1A. of Part II of this Quarterly Report on Form 10-Q, 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, state 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 and developments related to cybersecurity, privacy and data governance;

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);


•	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;


•	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;

Caution Regarding Forward-Looking Statements (continued)


•	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;


•	Potential difficulties with technology, data and network security (including as a result of cyber attacks), outsourcing relationships or cloud-based technology could negatively impact the Company’s ability to conduct business. This risk is heightened in the current environment where a vast majority of the Company's employees have shifted to a work from home arrangement;


•	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 global 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;


•	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;


•	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-incidents, virus or malware attacks or other system hazards or infiltrations affecting system integrity, availability and performance, and actions taken to minimize and remediate the risks thereof;

Caution Regarding Forward-Looking Statements (continued)

Other risks and uncertainties described from time to time in Kemper’s filings with the 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 Quarterly Report on Form 10-Q. Kemper advises the reader, however, to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions, except per share amounts)

(Unaudited)



	Three Months Ended
	Mar 31, 2020			Mar 31, 2019
Revenues:
Earned Premiums	$	1,166.4		$	1,074.8
Net Investment Income	85.6			82.7
Other Income	90.3			1.9
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(117.8		)	64.4
Net Realized Gains on Sales of Investments	16.5			16.1
Impairment Losses	(12.0		)	(3.6		)
Total Revenues	1,229.0			1,236.3
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses	835.2			765.4
Insurance Expenses	271.6			234.8
Interest and Other Expenses	44.5			41.4
Total Expenses	1,151.3			1,041.6
Income from Continuing Operations before Income Taxes	77.7			194.7
Income Tax Expense	(13.7		)	(39.4		)
Net Income	$	64.0		$	155.3
Income from Continuing Operations Per Unrestricted Share:
Basic	$	0.96		$	2.38
Diluted	$	0.95		$	2.35
Net Income Per Unrestricted Share:
Basic	$	0.96		$	2.38
Diluted	$	0.95		$	2.35

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(Unaudited)



	Three Months Ended
	Mar 31, 2020			Mar 31, 2019
Net Income	$	64.0		$	155.3
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 Income	(201.9		)	162.8
Credit Losses Recognized in Consolidated Statements of Income	(2.9		)	—
Decrease in Net Unrecognized Postretirement Benefit Costs	0.7			0.6
Gain on Cash Flow Hedges	0.1			0.1
Other Comprehensive Income (Loss) Before Income Taxes	(204.0		)	163.5
Other Comprehensive Income Tax Benefit (Expense)	42.8			(34.4		)
Other Comprehensive Income (Loss)	(161.2		)	129.1
Total Comprehensive Income (Loss)	$	(97.2	)	$	284.4

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

(Unaudited)



	Mar 31, 2020		Dec 31, 2019
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized Cost: 2020 - $6,667.3; 2019 - $6,372.7, Allowance for Credit Losses: 2020 - $4.6)	$	6,998.5	$	6,922.1
Equity Securities at Fair Value (Cost: 2020 - $698.0; 2019 - $818.8)	709.8		907.3
Equity Securities at Modified Cost	44.8		41.9
Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings	226.3		220.4
Convertible Securities at Fair Value	32.8		37.3
Short-term Investments at Cost which Approximates Fair Value	166.7		470.9
Other Investments	760.2		661.5
Total Investments	8,939.1		9,261.4
Cash	301.3		136.8
Receivables from Policyholders (Allowance for Credit Losses: 2020 - $23.1; 2019 - $22.3)	1,219.1		1,117.1
Other Receivables	207.8		219.7
Deferred Policy Acquisition Costs	551.5		537.7
Goodwill	1,114.0		1,114.0
Current Income Tax Assets	17.8		44.7
Other Assets	581.7		557.7
Total Assets	$	12,932.3	$	12,989.1
Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health	$	3,500.8	$	3,502.0
Property and Casualty	1,941.6		1,969.8
Total Insurance Reserves	5,442.4		5,471.8
Unearned Premiums	1,621.4		1,545.5
Policyholder Contract Liabilities	430.5		309.8
Deferred Income Tax Liabilities	116.0		178.2
Accrued Expenses and Other Liabilities	783.1		733.1
Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2020 - $779.7; 2019 - $820.2)	778.1		778.4
Total Liabilities	9,171.5		9,016.8
Shareholders’ Equity:
Common Stock, $0.10 Par Value, 100 Million Shares Authorized; 65,365,417 Shares Issued and Outstanding at March 31, 2020 and 66,665,888 Shares Issued and Outstanding at December 31, 2019	6.5		6.7
Paid-in Capital	1,788.2		1,819.2
Retained Earnings	1,791.2		1,810.3
Accumulated Other Comprehensive Income	174.9		336.1
Total Shareholders’ Equity	3,760.8		3,972.3
Total Liabilities and Shareholders’ Equity	$	12,932.3	$	12,989.1

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)



	Three Months Ended
	Mar 31, 2020			Mar 31, 2019
Operating Activities:
Net Income	$	64.0		$	155.3
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Increase in Deferred Policy Acquisition Costs	(13.8		)	(29.2		)
Amortization of Intangible Assets Acquired	4.7			8.7
Equity in Earnings of Equity Method Limited Liability Investments	(1.8		)	(3.6		)
Distribution of Accumulated Earnings of Equity Method Limited Liability Investments	1.1			4.3
Decrease (Increase) in Value of Equity and Convertible Securities at Fair Value	117.8			(64.4		)
Amortization of Investment Securities and Depreciation of Investment Real Estate	0.4			1.6
Net Realized Gains on Sales of Investments	(16.5		)	(16.1		)
Impairment Losses	12.0			3.6
Depreciation and Amortization of Property, Equipment and Software	8.0			3.1
Increase in Receivables	(89.4		)	(56.1		)
Increase (Decrease) in Insurance Reserves	(29.4		)	3.8
Increase in Unearned Premiums	75.9			75.2
Change in Income Taxes	14.7			40.1
Change in Accrued Expenses and Other Liabilities	(76.3		)	(42.4		)
Other, Net	(9.1		)	5.1
Net Cash Provided by Operating Activities	62.3			89.0
Investing Activities:
Sales, Paydowns and Maturities of Fixed Maturities	225.5			402.6
Purchases of Fixed Maturities	(393.9		)	(368.4		)
Sales of Equity and Convertible Securities	372.1			39.6
Purchases of Equity and Convertible Securities	(290.0		)	(207.6		)
Acquisition and Improvements of Investment Real Estate	(0.1		)	(0.4		)
Sales of Investment Real Estate	1.9			—
Sale of and Return of Investment of Equity Method Limited Liability Investments	4.0			7.1
Acquisitions of Equity Method Limited Liability Investments	(9.2		)	(18.6		)
Decrease (Increase) in Short-term Investments	301.8			(53.3		)
Acquisition of Mortgage Loans	(4.6		)	—
Paydowns of Mortgage Loans	8.5			—
Increase in Other Investments	(0.4		)	(10.6		)
Purchases of Corporate-owned Life Insurance	(100.0		)	—
Acquisition of Software and Long-lived Assets	(20.1		)	(9.3		)
Other, Net	(1.5		)	(0.8		)
Net Cash Provided (Used) by Investing Activities	94.0			(219.7		)
Financing Activities:
Proceeds from Policyholder Contract Liabilities	156.6			187.7
Repayment of Policyholder Contract Liabilities	(36.2		)	(10.0		)
Common Stock Repurchases	(95.9		)	—
Dividends and Dividend Equivalents Paid	(20.0		)	(16.4		)
Proceeds from Shares Issued under Employee Stock Purchase Plan	1.0			—
Cash Exercise of Stock Options	2.7			1.3
Net Cash Provided by Financing Activities	8.2			162.6
Increase in Cash	164.5			31.9
Cash, Beginning of Year	136.8			75.1
Cash, End of Period	$	301.3		$	107.0

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in millions)

(Unaudited)



	Three Months Ended Mar 31, 2020
(Dollars and Shares in Millions, Except Per Share Amounts)	Number of Shares		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
Balance, December 31, 2019	66.7		$	6.7		$	1,819.2		$	1,810.3		$	336.1		$	3,972.3
Net Income	—		—			—			64.0			—			64.0
Other Comprehensive Loss (Note 8)	—		—			—			—			(161.2		)	(161.2		)
Cash Dividends and Dividend Equivalents to Shareholders ($0.30 per share)	—		—			—			(20.2		)	—			(20.2		)
Repurchases of Common Stock	(1.5	)	(0.1		)	(40.7		)	(60.4		)	—			(101.2		)
Shares Issued Under Employee Stock Purchase Plan	—		—			1.0			—			—			1.0
Equity-based Compensation Cost	—		—			7.3			—			—			7.3
Equity-based Awards, Net of Shares Exchanged	0.2		(0.1		)	1.4			(2.5		)	—			(1.2		)
Balance, March 31, 2020	65.4		$	6.5		$	1,788.2		$	1,791.2		$	174.9		$	3,760.8



	Three Months Ended Mar 31, 2019
(Dollars and Shares in Millions, Except Per Share Amounts)	Number of Shares	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance, December 31, 2018	64.7	$	6.5	$	1,666.3		$	1,355.5		$	21.8	$	3,050.1
Net Income	—	—		—			155.3			—		155.3
Other Comprehensive Income (Note 8)	—	—		—			—			129.1		129.1
Cash Dividends and Dividend Equivalents to Shareholders ($0.25 per share)	—	—		—			(16.4		)	—		(16.4		)
Equity-based Compensation Cost	—	—		7.6			—			—		7.6
Equity-based Awards, Net of Shares Exchanged	0.2	—		(0.9		)	(4.7		)	—		(5.6		)
Balance, March 31, 2019	64.9	$	6.5	$	1,673.0		$	1,489.7		$	150.9	$	3,320.1

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the SEC and include the accounts of Kemper Corporation and its subsidiaries and are unaudited. All significant intercompany accounts and transactions have been eliminated. 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 financial information that is normally included in annual financial statements, including certain financial statement footnote disclosures, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is not required by the rules and regulations of the SEC for interim financial reporting and has been condensed or omitted. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation. The preparation of interim financial statements relies heavily on estimates. This factor and other factors, such as the seasonal nature of some portions of the insurance business, as well as market conditions and the impacts of COVID-19, call for caution in drawing specific conclusions from interim results. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and related notes included in the 2019 Annual Report.

Adoption of New Accounting Guidance

Guidance 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 a 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.

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. There was no impact of the adoption of ASU 2017-04.

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

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 1 - Basis of Presentation (continued)

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 impact of the adoption of ASU 2019-04 was not material.

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.

Guidance 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. ASU 2018-12 is effective for fiscal years beginning after December 15, 2021, and interim periods within those annual periods. The amendments in ASU 2018-12 are intended to improve measurement of the liability for future policy benefits related to nonparticipating traditional and limited-payment contracts, measurement and presentation of market risk benefits, amortization of deferred acquisition costs, and enhance presentation and disclosures. The Company is currently evaluating the impact of this guidance on its financial statements.

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 Company is currently evaluating the impact of this guidance on its financial statements.

In March 2020, 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 all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this guidance on its 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 three months ended March 31, 2020 that had a material impact on the Company’s Condensed Consolidated Financial Statements. With the exception of ASU 2018-12, Financial Services—Insurance (Topic 944):Targeted Improvements to Accounting for Long-Duration Contracts, the Company does not expect the adoption of recently issued accounting pronouncements with effective dates after March 31, 2020 to have a material impact on the Company’s financial statements and/or disclosures.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 1 - Basis of Presentation (continued)

Accounting Policies

The following accounting policies have 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 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 cashflows, (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.

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 insureds ability to pay premiums and the anticipated impact of COVID-19.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 2 - Investments

Fixed Maturities

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2020 were:



	Amortized Cost		Gross Unrealized					Allowance for Expected Credit Losses			Fair Value
(Dollars in Millions)	Amortized Cost		Gains		Losses			Allowance for Expected Credit Losses			Fair Value
U.S. Government and Government Agencies and Authorities	$	700.3	$	60.3	$	—		$	—		$	760.6
States and Political Subdivisions	1,400.1		133.0		(4.1		)	—			1,529.0
Foreign Governments	7.3		—		(1.2		)	(1.1		)	5.0
Corporate Securities:
Bonds and Notes	3,697.7		314.4		(74.6		)	(3.5		)	3,934.0
Redeemable Preferred Stocks	6.8		—		(0.1		)	—			6.7
Collateralized Loan Obligations	684.5		0.8		(91.8		)	—			593.5
Other Mortgage- and Asset-backed	170.6		7.2		(8.1		)	—			169.7
Investments in Fixed Maturities	$	6,667.3	$	515.7	$	(179.9	)	$	(4.6	)	$	6,998.5

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2019 were:

Amortized

Cost

Price	78.06	EPS	6
Shares	67	P/E	13
MCap	5,246	P/FCF	14
Net Debt	683	EBIT	563
TEV	5,930	TEV/EBIT	11
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-02-14
10-Q	2019-09-30	Filed 2019-11-04
10-Q	2019-06-30	Filed 2019-08-05
10-Q	2019-03-31	Filed 2019-04-29
10-K	2018-12-31	Filed 2019-02-20
10-Q	2018-09-30	Filed 2018-11-05
10-Q	2018-06-30	Filed 2018-07-30
10-Q	2018-03-31	Filed 2018-04-30
10-K	2017-12-31	Filed 2018-02-13
10-Q	2017-09-30	Filed 2017-10-30
10-Q	2017-06-30	Filed 2017-08-01
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-02-13
10-Q	2016-09-30	Filed 2016-11-03
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-02-12
10-Q	2015-09-30	Filed 2015-11-05
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-07
10-K	2014-12-31	Filed 2015-02-12
10-Q	2014-09-30	Filed 2014-11-06
10-Q	2014-06-30	Filed 2014-08-07
10-Q	2014-03-31	Filed 2014-05-08
10-K	2013-12-31	Filed 2014-02-14
10-Q	2013-09-30	Filed 2013-10-31
10-Q	2013-06-30	Filed 2013-08-01
10-Q	2013-03-31	Filed 2013-05-02
10-K	2012-12-31	Filed 2013-02-15
10-Q	2012-09-30	Filed 2012-11-08
10-Q	2012-06-30	Filed 2012-08-06
10-Q	2012-03-31	Filed 2012-05-07
10-K	2011-12-31	Filed 2012-02-17
10-Q	2011-09-30	Filed 2011-11-02
10-Q	2011-06-30	Filed 2011-08-03
10-Q	2011-03-31	Filed 2011-05-04
10-K	2010-12-31	Filed 2011-02-03
10-Q	2010-09-30	Filed 2010-11-01
10-Q	2010-06-30	Filed 2010-08-02
10-Q	2010-03-31	Filed 2010-05-03
10-K	2009-12-31	Filed 2010-02-01

8-K	2020-06-03
8-K	2020-05-07
8-K	2020-05-05
8-K	2020-02-24
8-K	2020-02-10
8-K	2020-02-05
8-K	2020-01-13
8-K	2019-11-04
8-K	2019-09-19
8-K	2019-08-07
8-K	2019-08-05
8-K	2019-06-04
8-K	2019-04-30
8-K	2019-04-29
8-K	2019-02-11
8-K	2019-02-06
8-K	2019-01-25
8-K	2019-01-14
8-K	2018-11-30
8-K	2018-11-05
8-K	2018-10-22
8-K	2018-09-26
8-K	2018-07-30
8-K	2018-06-28
8-K	2018-06-27
8-K	2018-06-13
8-K	2018-06-08
8-K	2018-06-01
8-K	2018-05-22
8-K	2018-05-01
8-K	2018-04-30
8-K	2018-03-13
8-K	2018-02-13
8-K	2018-02-13
8-K	2018-02-13
8-K	2018-02-13
8-K	2018-02-06

EX-31.1	kmpr202003312020ex311.htm
EX-31.2	kmpr202003312020ex312.htm
EX-32.1	kmpr202003312020ex321.htm
EX-32.2	kmpr202003312020ex322.htm

KMPR 10Q Quarterly Report

Kemper Earnings 2020-03-31