KEMPER Corp [KMPR] Filings

10-Q 1 kmpr-20220331.htm 10-Q kmpr-20220331

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 the Quarterly Period Ended 3/31/2022


☐			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
5.875% Fixed-Rate Reset Junior Subordinated Debentures due 2062	KMPB	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 “large accelerated filer,” “ accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

63,800,711 shares of common stock, $0.10 par value, were outstanding as of April 28, 2022.

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 3 1 , 202 2 and 202 1 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 3 1 , 202 2 and 202 1 (Unaudited)	5

	Condensed Consolidated Balance Sheets as of March 3 1 , 202 2 and December 31, 202 1 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1 , 202 2 and 202 1 (Unaudited)	7

	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended Marc h 3 1 , 202 2 and 202 1 (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	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	61

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	61

Item 1A.	Risk Factors	61

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

Item 6.	Exhibits	62

Exhibit Index		62

Signatures		64

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, 2021 (the “2021 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 and associated governmental responses;

•The impact of inflation on insurance claims, including, but not limited to, the effects on material costs and personal injury claims of increasing medical costs;

•The effects on property claims attributed to supply chain disruption and scarcity of resources available to rebuild damaged structures, including labor and materials and the amount of salvage value recovered for damaged property;

•The rising costs of insurance claims from increased and more targeted 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, geopolitical events, significant global catastrophes such as the COVID-19 outbreak and subsequent global pandemic, 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;

•Increasing competition and higher costs for executive talent and employees with necessary skills and industry experience;

•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. 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, 2022		Mar 31, 2021
Revenues:
Earned Premiums	$	1,338.6	$	1,200.8
Net Investment Income	100.0		103.1
Change in Value of Alternative Energy Partnership Investments	(16.7)		(15.4)
Other Income (Loss)	2.4		1.5
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2
Net Realized Gains on Sales of Investments	1.5		13.8
Impairment Losses	(8.9)		(4.0)
Total Revenues	1,388.7		1,352.0
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses	1,153.4		889.5
Insurance Expenses	304.0		283.7

Loss from Early Extinguishment of Debt	3.7		—
Interest and Other Expenses	54.1		57.2
Total Expenses	1,515.2		1,230.4
Income (Loss) before Income Taxes	(126.5)		121.6
Income Tax Benefit (Expense)	31.7		1.6





Net Income (Loss)	$	(94.8)	$	123.2
Net Income (Loss) Per Unrestricted Share:
Basic	$	(1.49)	$	1.88
Diluted	$	(1.49)	$	1.85

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, 2022		Mar 31, 2021
Net Income (Loss)	$	(94.8)	$	123.2
Other Comprehensive Income (Loss) Before Income Taxes:
Changes in Net Unrealized Holding Gains (Losses) on Investment Securities with:
No Credit Losses Recognized in Condensed Consolidated Statements of Income	(644.6)		(364.0)
Credit Losses Recognized in Condensed Consolidated Statements of Income	(7.4)		(2.1)

Decrease (Increase) in Net Unrecognized Postretirement Benefit Costs	(0.1)		0.3
Gain (Loss) on Cash Flow Hedges	6.1		0.1
Other Comprehensive Income (Loss) Before Income Taxes	(646.0)		(365.7)
Other Comprehensive Income Tax Benefit (Expense)	135.6		75.7
Other Comprehensive Income (Loss), Net of Taxes	(510.4)		(290.0)
Total Comprehensive Income (Loss)	$	(605.2)	$	(166.8)

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, 2022		Dec 31, 2021
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized Cost: 2022 - $7,810.4; 2021 - $7,358.2 Allowance for Credit Losses: 2022 - $9.1; 2021 - $7.5)	$	7,783.9	$	7,986.9
Equity Securities at Fair Value (Cost: 2022 - $466.0; 2021 - $618.7)	571.5		830.6
Equity Securities at Modified Cost	35.2		32.3
Equity Method Limited Liability Investments	230.0		241.9
Alternative Energy Partnership Investments	22.4		39.6
Convertible Securities at Fair Value	46.1		46.4
Short-term Investments at Cost which Approximates Fair Value	243.8		284.1
Other Investments	1,035.2		925.6
Total Investments	9,968.1		10,387.4
Cash	297.3		148.2
Receivables from Policyholders (Allowance for Credit Losses: 2022 - $13.0; 2021 - $13.6)	1,404.5		1,418.7
Other Receivables	203.4		207.3
Deferred Policy Acquisition Costs	680.0		677.6
Goodwill	1,312.0		1,312.0
Current Income Tax Assets	183.0		173.1

Other Assets	566.4		592.2
Total Assets	$	14,614.7	$	14,916.5
Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health	$	3,556.3	$	3,540.9
Property and Casualty	2,760.1		2,772.7
Total Insurance Reserves	6,316.4		6,313.6
Unearned Premiums	1,890.5		1,898.7

Policyholder Obligations	655.0		504.0
Deferred Income Tax Liabilities	69.6		227.0

Accrued Expenses and Other Liabilities	903.5		843.6
Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2022 - $1,343.9; 2021 - $1,152.1)	1,385.2		1,121.9
Total Liabilities	11,220.2		10,908.8
Shareholders’ Equity:
Common Stock, $0.10 Par Value, 100,000,000 Shares Authorized; 63,800,041 Shares Issued and Outstanding at March 31, 2022 and 63,684,628 Shares Issued and Outstanding at December 31, 2021	6.4		6.4
Paid-in Capital	1,803.1		1,790.7
Retained Earnings	1,647.3		1,762.5
Accumulated Other Comprehensive Income (Loss)	(62.3)		448.1
Total Shareholders’ Equity	3,394.5		4,007.7
Total Liabilities and Shareholders’ Equity	$	14,614.7	$	14,916.5

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, 2022		Mar 31, 2021
Cash Flows from Operating Activities:
Net Income (Loss)	$	(94.8)	$	123.2
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities:
Net Realized Investment (Gains) Losses	(1.5)		(13.8)
Impairment Losses	8.9		4.0
Depreciation and Amortization of Property, Equipment and Software	13.4		11.1
Amortization of Intangibles Assets Acquired	6.2		3.2


Loss from Early Extinguishment of Debt	3.7		—
Change in Accumulated Undistributed Earnings of Equity Method Limited Liability Investments	(5.8)		(18.1)
(Income) Loss from Change in Value of Alternative Energy Partnership Investments	16.7		15.4
(Increase) Decrease in Value of Equity and Convertible Securities	28.2		(52.2)
Changes in:
Receivables from Policyholders	14.2		(66.7)
Reinsurance Recoverables	(0.3)		5.0
Deferred Policy Acquisition Costs	(2.4)		(21.3)
Insurance Reserves	2.9		29.8
Unearned Premiums	(8.2)		97.9
Income Taxes	(30.5)		(37.3)
Other Assets and Liabilities	31.1		60.4
Net Cash Provided by (Used in) Operating Activities	(18.2)		140.6
Cash Flows from Investing Activities:
Proceeds from Sales, Calls and Maturities of Fixed Maturities	128.6		291.2
Proceeds from the Sales or Paydowns of Investments:
Equity Securities	249.7		27.3

Mortgage Loans	22.8		12.8
Other Investments	20.5		7.0
Purchases of Investments:
Fixed Maturities	(527.2)		(503.2)
Equity Securities	(21.3)		(12.5)
Real Estate Investments	—		(0.2)
Company-Owned Life Insurance	(100.0)		(100.0)
Mortgage Loans	(21.3)		(33.7)
Other Investments	(1.9)		(50.1)
Net Sales (Purchases) of Short-term Investments	40.3		677.4

Acquisition of Software and Long-lived Assets	(16.0)		(9.2)
Other	0.7		4.9
Net Cash Provided by (Used in) Investing Activities	(225.1)		311.7
Cash Flows from Financing Activities:
Repayment of Long-term Debt	(280.0)		(50.0)
Proceeds from Issuance of 3.800% Senior Notes due February 23, 2032	396.3		—
Issuance Fees on 3.800% Senior Notes due February 23, 2032	(1.2)		—
Proceeds from Issuance of 5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062	145.6		—
Issuance Fees on 5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062	(0.9)		—
Proceeds from Policyholder Obligations	208.6		60.7
Repayment of Policyholder Obligations	(57.8)		(61.5)
Proceeds from Shares Issued under Employee Stock Purchase Plan	1.3		1.2
Common Stock Repurchases	—		(42.1)
Dividends and Dividend Equivalents Paid	(19.8)		(21.0)
Other	0.3		1.7
Net Cash Provided by (Used in) Financing Activities	392.4		(111.0)
Increase (Decrease) in Cash	149.1		341.3
Cash, Beginning of Year	148.2		206.1
Cash, End of Period	$	297.3	$	547.4

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 March 31, 2022
(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, 2021	63.7	$	6.4	$	1,790.7	$	1,762.5	$	448.1	$	4,007.7


Net Income (Loss)	—	—		—		(94.8)		—		(94.8)
Other Comprehensive Income (Loss), Net of Taxes (Note 9)	—	—		—		—		(510.4)		(510.4)
Cash Dividends and Dividend Equivalents to Shareholders ($0.31 per share)	—	—		—		(19.6)		—		(19.6)
Repurchases of Common Stock (Note 10)	—	—		—		—		—		—
Shares Issued Under Employee Stock Purchase Plan (Note 10)	—	—		1.3		—		—		1.3
Equity-based Compensation Cost	—	—		11.9		—		—		11.9
Equity-based Awards, Net of Shares Exchanged	0.1	—		(0.8)		(0.8)		—		(1.6)

Balance, March 31, 2022	63.8	$	6.4	$	1,803.1	$	1,647.3	$	(62.3)	$	3,394.5


	Three Months Ended March 31, 2021
(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, 2020	65.4	$	6.5	$	1,805.2	$	2,071.2	$	680.5	$	4,563.4


Net Income (Loss)	—	—		—		123.2		—		123.2
Other Comprehensive Income (Loss), Net of Taxes (Note 9)	—	—		—		—		(290.0)		(290.0)
Cash Dividends and Dividend Equivalents to Shareholders ($0.31 per share)	—	—		—		(21.0)		—		(21.0)
Repurchases of Common Stock (Note 10)	(0.6)	—		(16.4)		(30.7)		—		(47.1)
Shares Issued Under Employee Stock Purchase Plan (Note 10)	—	—		1.2		—		—		1.2
Equity-based Compensation Cost	—	—		12.3		—		—		12.3
Equity-based Awards, Net of Shares Exchanged	0.2	—		(0.2)		(2.7)		—		(2.9)

Balance, March 31, 2021	65.0	$	6.5	$	1,802.1	$	2,140.0	$	390.5	$	4,339.1

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 and Accounting Policies

The unaudited interim Condensed Consolidated Financial Statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) on a basis consistent with reporting interim financial information pursuant to the rules and regulations for Form 10-Q and Article 10 of Regulation S-X of the SEC and include the accounts of Kemper Corporation and its subsidiaries. All intercompany accounts and transactions have been eliminated.

Certain financial information that is included in annual financial statements, including certain financial statement footnote disclosures, prepared in accordance with 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 to fairly present the financial position, results of operations and cash flows for the interim periods presented. The preparation of interim financial statements requires significant management estimates. Due to 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, annualizing the results of operations for the three months ended March 31, 2022 would not necessarily be indicative of the results expected for the full fiscal year. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and related notes included in Kemper’s Annual Report for the year ended December 31, 2021.

During the first quarter of 2022, the Company began including anticipated net investment income in the premium deficiency analysis performed at the Specialty Property & Casualty Insurance and Preferred Property & Casualty Insurance segments. The Company believes the accounting principle change is preferable as it best reflects the ultimate profitability of an insurance contract in using all cash flows from the in-force policies, inclusive of related investment income, and provides improved comparability with industry peers. This accounting principle change had no impact on the results of the premium deficiency analysis in the current or prior periods presented.

Adoption of New Accounting Guidance

The Company has adopted all recently issued accounting pronouncements with effective dates prior to January 1, 2022. There were no adoptions of such accounting pronouncements during the three months ended March 31, 2022 that had a material impact on the Company’s interim Condensed Consolidated Financial Statements.

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. 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, require the discount rate used in measuring the liability to be an upper-medium grade fixed-income instrument yield, which is to be updated at each reporting period, and recognized in other comprehensive 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, judgments 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.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2 - Net Income Per Unrestricted Share

The Company’s awards of deferred stock units granted to Kemper’s non-employee directors prior to 2019 contain rights to receive non-forfeitable dividend equivalents and participate in the undistributed earnings with common shareholders. Accordingly, the Company is required to apply the two-class method of computing basic and diluted earnings per share.

A reconciliation of the numerator and denominator used in the calculation of Basic Net Income (Loss) Per Unrestricted Share and Diluted Net Income (Loss) Per Unrestricted Share for the three months ended March 31, 2022 and 2021 is presented below.


	Three Months Ended
(Dollars in Millions, except per share amounts)	Mar 31, 2022		Mar 31, 2021
Net Income (Loss)	$	(94.8)	$	123.2
Less: Net Income Attributed to Participating Awards	—		0.1
Net Income (Loss) Attributed to Unrestricted Shares	(94.8)		123.1
Dilutive Effect on Income of Equity-based Compensation Equivalent Shares	—		—
Diluted Net Income (Loss) Attributed to Unrestricted Shares	$	(94.8)	$	123.1
(Number of Shares in Thousands)
Weighted-average Unrestricted Shares Outstanding	63,743.7		65,424.6
Equity-based Compensation Equivalent Shares	—		1,128.2
Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution	63,743.7		66,552.8
(Per Unrestricted Share in Whole Dollars)
Basic Net Income (Loss) Per Unrestricted Share	$	(1.49)	$	1.88
Diluted Net Income (Loss) Per Unrestricted Share	$	(1.49)	$	1.85

The number of shares of Kemper common stock that were excluded from the calculations of Equity-based Compensation Equivalent Shares and Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended March 31, 2022 and 2021, because the effect of inclusion would be anti-dilutive, is presented below.


	Three Months Ended
(Number of Shares in Thousands)	Mar 31, 2022	Mar 31, 2021
Equity-based Compensation Equivalent Shares	2,550.8	1,212.8
Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution	2,550.8	1,212.8

Note 3 - Acquisition of Business

Acquisition of American Access Casualty Corporation

On April 1, 2021 Kemper completed the acquisition of American Access Casualty Company and its related captive insurance agency, Newins Insurance Agency Holdings, LLC, and its subsidiaries (collectively “AAC”). Pursuant to the agreement dated November 22, 2020, Kemper paid AAC’s equity holders total cash consideration of approximately $370.9 million.

During the first quarter of 2022, the Company finalized its estimates of the fair value of assets acquired and liabilities assumed. There were no changes to the Company’s preliminary estimates or allocation of the purchase price to the assets acquired and liabilities assumed.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3 - Acquisition of Business (Continued)

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)
Fixed Maturities at Fair Value	$	151.2
Equity Securities at Fair Value	82.4
Short-term Investments at Cost which Approximates Fair Value	100.1
Cash	54.3
Receivables from Policyholders	148.9
Other Receivables	2.0
Goodwill	198.0
Current Income Tax Assets	0.3
Other Assets	81.4
Property and Casualty Insurance Reserves	(211.1)
Unearned Premiums	(177.8)
Deferred Income Tax Liabilities	(7.8)
Accrued Expenses and Other Liabilities	(51.0)
Total Purchase Price	$	370.9

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.

Intangible Assets

Intangible assets consist of capitalized costs, primarily of the estimated fair value of distribution, customer relationships, policies in force, trade names and licenses, and technology. The estimated useful lives of these assets range from 1 to 8 years. These assets are reported in Other Assets in the Condensed Consolidated Balance Sheets.

Identifiable definite and indefinite lived intangible assets acquired consisted of the following:


(Dollars in Millions)
Definite Life Intangibles
Value of Business Acquired	$	42.9
Customer Relationships	4.8
Agent Relationships	7.2
Internal-Use Software	6.5
Trade Names	1.8
Indefinite Life Intangible Assets
Insurance Licenses	2.5

Unaudited Pro Forma Results

The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of AAC occurred on January 1, 2020. The adjustments to arrive at the pro forma information below included adjustments for the lost investment income on the cash used to fund the acquisition, amortization of the acquired intangible assets and the exclusion of certain acquisition related costs considered to be non-recurring in nature.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3 - Acquisition of Business (Continued)


	Three Months Ended
(Dollars in millions)	Mar 31, 2022		Mar 31, 2021
Total Revenues	$	1,388.7	$	1,443.2
Total Expenses	1,515.9		1,303.9
Income (Loss) from Continuing Operations before Income Taxes	(127.2)		139.3
Net Income (Loss)	$	(95.3)	$	136.8

The pro forma information is not necessarily indicative of the consolidated results of operations that might have been achieved had the transaction in fact occurred at the beginning of the periods presented, nor does the information project results for any future period. The pro forma information does not include the impact of any future cost savings or synergies that may be achieved as a result of the acquisition.

Note 4 - Business Segments

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 Specialty Property & Casualty Insurance segment’s principal products are personal automobile insurance and commercial automobile insurance. The Preferred Property & Casualty Insurance segment’s principal products are personal automobile insurance, homeowners insurance and other personal insurance. These products are distributed primarily through independent agents and brokers. The Life & Health Insurance segment’s principal products are individual life, accident, supplemental health and property insurance. These products are distributed by career agents employed by the Company and independent agents and brokers.

Earned Premiums by product line for the three months ended March 31, 2022 and 2021 were:


	Three Months Ended
(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021
Specialty Property & Casualty Insurance:
Personal Automobile	$	901.7	$	785.4
Commercial Automobile	119.9		92.2
Preferred Property & Casualty Insurance:
Personal Automobile	96.0		103.0
Homeowners	51.3		50.8
Other Personal Lines	8.3		8.4
Life & Health Insurance:
Life	101.3		98.1
Accident and Health	45.8		47.4
Property	14.3		15.5
Total Earned Premiums	$	1,338.6	$	1,200.8

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4 - Business Segments (Continued)

Segment Revenues, including a reconciliation to Total Revenues, for the three months ended March 31, 2022 and 2021 were:


	Three Months Ended
(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021
Segment Revenues:
Specialty Property & Casualty Insurance:
Earned Premiums	$	1,021.6	$	877.6
Net Investment Income	34.9		35.0
Change in Value of Alternative Energy Partnership Investments	(8.4)		(7.3)
Other Income	1.7		0.9
Total Specialty Property & Casualty Insurance	1,049.8		906.2
Preferred Property & Casualty Insurance:
Earned Premiums	155.6		162.2
Net Investment Income	12.5		15.9
Change in Value of Alternative Energy Partnership Investments	(3.9)		(4.1)

Total Preferred Property & Casualty Insurance	164.2		174.0
Life & Health Insurance:
Earned Premiums	161.4		161.0
Net Investment Income	49.4		51.1
Change in Value of Alternative Energy Partnership Investments	(4.4)		(4.0)
Other Income	—		0.1
Total Life & Health Insurance	206.4		208.2
Total Segment Revenues	1,420.4		1,288.4
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2
Net Realized Gains on Sales of Investments	1.5		13.8
Net Impairment Losses Recognized in Earnings	(8.9)		(4.0)
Other	3.9		1.6
Total Revenues	$	1,388.7	$	1,352.0

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4 - Business Segments (Continued)

Segment Operating Income (Loss), including a reconciliation to Income (Loss) before Income Taxes, for the three months ended March 31, 2022 and 2021 was:


	Three Months Ended
(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021
Segment Operating Income (Loss):
Specialty Property & Casualty Insurance	$	(60.2)	$	85.2
Preferred Property & Casualty Insurance	(9.5)		3.0
Life & Health Insurance	1.2		(0.8)
Total Segment Operating Income (Loss)	(68.5)		87.4
Corporate and Other Operating Income (Loss) From:


Other	(14.0)		(11.5)
Corporate and Other Operating Income (Loss)	(14.0)		(11.5)
Adjusted Consolidated Operating Income (Loss)	(82.5)		75.9
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2
Net Realized Gains on Sales of Investments	1.5		13.8
Impairment Losses	(8.9)		(4.0)
Acquisition Related Transaction, Integration and Other Costs	(4.7)		(16.3)
Loss from Early Extinguishment of Debt	(3.7)		—
Income (Loss) before Income Taxes	$	(126.5)	$	121.6

Segment Net Operating Income (Loss), including a reconciliation to Net Income (Loss), for the three months ended March 31, 2022 and 2021 was:


	Three Months Ended
(Dollars in Millions and Net of Income Taxes)	Mar 31, 2022		Mar 31, 2021
Segment Net Operating Income (Loss):
Specialty Property & Casualty Insurance	$	(44.7)	$	80.1
Preferred Property & Casualty Insurance	(6.1)		9.6
Life & Health Insurance	3.1		7.3
Total Segment Net Operating Income (Loss)	(47.7)		97.0
Corporate and Other Net Operating Income (Loss) From:


Other	(12.4)		(9.8)
Total Corporate and Other Net Operating Income (Loss)	(12.4)		(9.8)
Adjusted Consolidated Net Operating Income (Loss)	(60.1)		87.2
Net Income (Loss) From:
Change in Fair Value of Equity and Convertible Securities	(22.3)		41.2
Net Realized Gains on Sales of Investments	1.2		10.9
Impairment Losses	(7.0)		(3.2)
Acquisition Related Transaction, Integration and Other Costs	(3.7)		(12.9)
Loss from Early Extinguishment of Debt	(2.9)		—

KEMPER Corp [KMPR] Filings
KEMPER Corp [KMPB] Filings
10-Q	[2022-05-02]
10-K	[2022-02-10]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
10-Q	[2021-04-29]
10-K	[2021-02-10]
10-Q	[2020-11-02]
10-Q	[2020-08-03]
10-Q	[2020-05-07]
10-K	[2020-02-14]
10-Q	[2019-11-04]
10-Q	[2019-08-05]
10-Q	[2019-04-29]
10-K	[2019-02-20]
10-Q	[2018-11-05]
10-Q	[2018-07-30]
10-Q	[2018-04-30]
10-K	[2018-02-13]
10-Q	[2017-10-30]
10-Q	[2017-08-01]
10-Q	[2017-05-04]
10-K	[2017-02-13]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-02-12]
10-Q	[2015-11-05]
10-Q	[2015-08-06]
10-Q	[2015-05-07]
10-K	[2015-02-12]
10-Q	[2014-11-06]
10-Q	[2014-08-07]
10-Q	[2014-05-08]
10-K	[2014-02-14]
10-Q	[2013-10-31]
10-Q	[2013-08-01]
10-Q	[2013-05-02]
10-K	[2013-02-15]

KEMPER Corp [KMPR] Filings

KEMPER Corp [KMPB] Filings