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~~2023


☐			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~~63,991,262 shares of common stock, $0.10 par value, were outstanding as of ~~April 28, 2022.~~May 4, 2023.

KEMPER CORPORATION

INDEX


		Page
Caution Regarding Forward-Looking Statements		1

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of ~~Income~~Loss for the Three Months Ended March ~~March~~31, 3 1 ~~, 202~~2 2023 and ~~202~~1 2022 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive ~~Income~~ ~~(Loss)~~ Loss for the Three Months Ended March 3 1 ~~, 202~~2 31, 2023 and ~~202~~1 2022 (Unaudited)	5

	Condensed Consolidated Balance Sheets as of March 3 1 ~~, 202~~2 31, 2023 and December 31, ~~202~~1 2022 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1 ~~, 202~~2 31, 2023 and ~~202~~1 2022 (Unaudited)	7

	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended ~~Marc~~h 3 1 ~~, 202~~2 March 31, 2023 and ~~202~~1 2022 (Unaudited)	89

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3542

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6168

Item 4.	Controls and Procedures	6168

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	6168

Item 1A.	Risk Factors	6168

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6168

Item 6.	Exhibits	6269

Exhibit Index		6269

Signatures		6470

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~~2022 (the ~~“2021~~“2022 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;~~affiliates or related to business practices in the insurance industry;

•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 or strategic initiatives and other matters within the purview of ~~state~~ insurance regulators;

•Increased costs and initiatives required to address new legal and regulatory requirements;

•~~Liabilities,~~ 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);

•The interest rate environment, including proposed rate changes by the U.S. Federal Reserve, which may cause material fluctuations in our life policyholder benefit reserves;

•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;~~

responses, and technological and other environmental conditions;

•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;~~costs and the severity of claims resulting from a catastrophe;

•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, divestitures and/or ~~divestitures~~strategic initiatives 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;

•Increase in competition as a result of new competitors to the property and casualty insurance industry or existence of competitors that receive substantial infusion of capital or access to third-party capital;

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 Company’s earnings, 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.~~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~~LOSS

(Dollars in millions, except per share amounts)

(Unaudited)


		Three Months Ended				Period Ended
		Mar 31, 2022		Mar 31, 2021				Mar 31, 2023		Mar 31, 20221
Revenues:	Revenues:						Revenues:
Earned Premiums		$	1,338.6	$	1,200.8
Earned Premiums (Changes in Deferred Profit Liability: 2023 - $19.2; 2022 - $20.3)							Earned Premiums (Changes in Deferred Profit Liability: 2023 - $19.2; 2022 - $20.3)	$	1,180.9	$	1,320.0
Net Investment Income	Net Investment Income	100.0		103.1			Net Investment Income	101.8		100.0
Change in Value of Alternative Energy Partnership Investments	Change in Value of Alternative Energy Partnership Investments	(16.7)		(15.4)			Change in Value of Alternative Energy Partnership Investments	0.7		(16.7)
Other Income (Loss)		2.4		1.5
Other Income							Other Income	1.2		2.4
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2			Income (Loss) from Change in Fair Value of Equity and Convertible Securities	1.7		(28.2)
Net Realized Gains on Sales of Investments		1.5		13.8
Impairment Losses		(8.9)		(4.0)
Net Realized Investment Gains							Net Realized Investment Gains	6.4		1.5
Impairment Gains (Losses)							Impairment Gains (Losses)	2.1		(8.9)
Total Revenues	Total Revenues	1,388.7		1,352.0			Total Revenues	1,294.8		1,370.1
Expenses:	Expenses:						Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses		1,153.4		889.5
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses (Changes in Liability for Future Policyholder Benefits: 2023 - $1.9; 2022 - $18.6)							Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses (Changes in Liability for Future Policyholder Benefits: 2023 - $1.9; 2022 - $18.6)	1,052.0		1,123.2
Insurance Expenses	Insurance Expenses	304.0		283.7			Insurance Expenses	269.3		304.8

Loss from Early Extinguishment of Debt	Loss from Early Extinguishment of Debt	3.7		—			Loss from Early Extinguishment of Debt	—		3.7
Interest and Other Expenses	Interest and Other Expenses	54.1		57.2			Interest and Other Expenses	77.4		54.1
Total Expenses	Total Expenses	1,515.2		1,230.4			Total Expenses	1,398.7		1,485.8
Income (Loss) before Income Taxes		(126.5)		121.6
Income Tax Benefit (Expense)		31.7		1.6
Loss before Income Taxes							Loss before Income Taxes	(103.9)		(115.7)
Income Tax Benefit							Income Tax Benefit	23.8		29.4

Net Income (Loss)		$	(94.8)	$	123.2
Net Income (Loss) Per Unrestricted Share:
Net Loss							Net Loss	$	(80.1)	$	(86.3)
Net Loss Per Unrestricted Share:							Net Loss Per Unrestricted Share:
Basic	Basic	$	(1.49)	$	1.88		Basic	$	(1.25)	$	(1.36)
Diluted	Diluted	$	(1.49)	$	1.85		Diluted	$	(1.25)	$	(1.36)

1As of January 1, 2023, the Company adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts in the financial statements have been recasted to reflect application of the new guidance. See Note 1 to the Condensed Consolidated Financial Statements for additional information.

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)~~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)


	Three Months Ended
	Mar 31, 2023		Mar 31, 20221
Net Loss	$	(80.1)	$	(86.3)

Other Comprehensive Loss Before Income Taxes:
Changes in Net Unrealized Holding Gains (Losses) on Investment Securities with:
No Credit Losses Recognized in Condensed Consolidated Statements of Loss	187.2		(644.6)
Credit Losses Recognized in Condensed Consolidated Statements of Loss	—		(7.4)

Change in Net Unrecognized Postretirement Benefit Costs	(0.5)		(0.1)
Gain on Cash Flow Hedges	—		6.1
Change in Discount Rate on Future Life Policyholder Benefits	(109.8)		562.3
Other Comprehensive Income (Loss) Before Income Taxes	76.9		(83.7)
Other Comprehensive Income Tax (Expense) Benefit	(16.7)		17.5
Other Comprehensive Income (Loss), Net of Taxes	60.2		(66.2)
Total Comprehensive Loss	$	(19.9)	$	(152.5)

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			Mar 31, 2023		Dec 31, 20221
Assets:	Assets:					Assets:
Investments:	Investments:					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
Fixed Maturities at Fair Value (Amortized Cost: 2023 - $7,923.6; 2022 - $7,811.8 Allowance for Credit Losses: 2023 - $7.4; 2022 - $9.6)						Fixed Maturities at Fair Value (Amortized Cost: 2023 - $7,923.6; 2022 - $7,811.8 Allowance for Credit Losses: 2023 - $7.4; 2022 - $9.6)	$	7,189.4	$	6,894.8
Equity Securities at Fair Value (Cost: 2023 - $230.6; 2022 - $247.6)						Equity Securities at Fair Value (Cost: 2023 - $230.6; 2022 - $247.6)	243.6		243.2
Equity Method Limited Liability Investments	Equity Method Limited Liability Investments	230.0		241.9		Equity Method Limited Liability Investments	218.7		217.0
Alternative Energy Partnership Investments	Alternative Energy Partnership Investments	22.4		39.6		Alternative Energy Partnership Investments	17.0		16.3
Convertible Securities at Fair Value		46.1		46.4
Short-term Investments at Cost which Approximates Fair Value	Short-term Investments at Cost which Approximates Fair Value	243.8		284.1		Short-term Investments at Cost which Approximates Fair Value	278.4		278.4
Company-Owned Life Insurance						Company-Owned Life Insurance	595.3		586.5
Loans to Policyholders						Loans to Policyholders	283.1		283.4
Other Investments	Other Investments	1,035.2		925.6		Other Investments	271.8		269.9
Total Investments	Total Investments	9,968.1		10,387.4		Total Investments	9,097.3		8,789.5
Cash	Cash	297.3		148.2		Cash	60.6		212.4
Receivables from Policyholders (Allowance for Credit Losses: 2022 - $13.0; 2021 - $13.6)		1,404.5		1,418.7
Receivables from Policyholders (Allowance for Credit Losses: 2023 - $11.3; 2022 - $13.1)						Receivables from Policyholders (Allowance for Credit Losses: 2023 - $11.3; 2022 - $13.1)	1,344.0		1,286.6
Other Receivables	Other Receivables	203.4		207.3		Other Receivables	249.4		262.6
Deferred Policy Acquisition Costs	Deferred Policy Acquisition Costs	680.0		677.6		Deferred Policy Acquisition Costs	651.5		635.6
Goodwill	Goodwill	1,312.0		1,312.0		Goodwill	1,300.3		1,300.3
Current Income Tax Assets	Current Income Tax Assets	183.0		173.1		Current Income Tax Assets	15.0		167.6
Deferred Income Tax Assets						Deferred Income Tax Assets	166.0		129.0

Other Assets	Other Assets	566.4		592.2		Other Assets	519.6		530.0
Total Assets	Total Assets	$	14,614.7	$	14,916.5	Total Assets	$	13,403.7	$	13,313.6
Liabilities and Shareholders’ Equity:	Liabilities and Shareholders’ Equity:					Liabilities and Shareholders’ Equity:
Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Life and Health	Life and Health	$	3,556.3	$	3,540.9	Life and Health	$	3,399.6	$	3,276.2
Property and Casualty	Property and Casualty	2,760.1		2,772.7		Property and Casualty	2,721.1		2,756.9
Total Insurance Reserves	Total Insurance Reserves	6,316.4		6,313.6		Total Insurance Reserves	6,120.7		6,033.1
Unearned Premiums	Unearned Premiums	1,890.5		1,898.7		Unearned Premiums	1,778.0		1,704.4

Policyholder Obligations	Policyholder Obligations	655.0		504.0		Policyholder Obligations	700.6		701.3
Deferred Income Tax Liabilities		69.6		227.0

Accrued Expenses and Other Liabilities	Accrued Expenses and Other Liabilities	903.5		843.6		Accrued Expenses and Other Liabilities	770.0		817.3
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
Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2023 - $1,222.0; 2022 - $1,195.1)						Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2023 - $1,222.0; 2022 - $1,195.1)	1,387.5		1,386.9
Total Liabilities	Total Liabilities	11,220.2		10,908.8		Total Liabilities	10,756.8		10,643.0
Shareholders’ Equity:	Shareholders’ Equity:					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
Common Stock, $0.10 Par Value, 100,000,000 Shares Authorized; 63,982,224 Shares Issued and Outstanding at March 31, 2023 and 63,912,762 Shares Issued and Outstanding at December 31, 2022						Common Stock, $0.10 Par Value, 100,000,000 Shares Authorized; 63,982,224 Shares Issued and Outstanding at March 31, 2023 and 63,912,762 Shares Issued and Outstanding at December 31, 2022	6.4		6.4
Paid-in Capital	Paid-in Capital	1,803.1		1,790.7		Paid-in Capital	1,828.9		1,812.7
Retained Earnings	Retained Earnings	1,647.3		1,762.5		Retained Earnings	1,266.3		1,366.4
Accumulated Other Comprehensive Income (Loss)		(62.3)		448.1
Accumulated Other Comprehensive Loss						Accumulated Other Comprehensive Loss	(454.7)		(514.9)
Total Shareholders’ Equity	Total Shareholders’ Equity	3,394.5		4,007.7		Total Shareholders’ Equity	2,646.9		2,670.6
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	14,614.7	$	14,916.5	Total Liabilities and Shareholders’ Equity	$	13,403.7	$	13,313.6

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, 2023		Mar 31, 20221
Cash Flows from Operating Activities:
Net Loss	$	(80.1)	$	(86.3)
Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:
Net Realized Investment Gains	(6.4)		(1.5)
Impairment (Gains) Losses	(2.1)		8.9
Depreciation and Amortization of Property, Equipment and Software	11.9		13.4
Amortization of Intangibles Assets Acquired	4.3		6.2


Loss from Early Extinguishment of Debt	—		3.7
Change in Accumulated Undistributed Earnings of Equity Method Limited Liability Investments	0.8		(5.8)
(Income) Loss from Change in Value of Alternative Energy Partnership Investments	(0.7)		16.7
(Increase) Decrease in Value of Equity and Convertible Securities	(1.7)		28.2
Changes in:
Receivables from Policyholders	(57.4)		14.2
Reinsurance Recoverables	4.1		(0.3)
Deferred Policy Acquisition Costs	(15.9)		(1.6)
Insurance Reserves	(21.8)		(8.7)
Unearned Premiums	73.6		(8.2)
Income Taxes	106.2		(28.2)
Other Assets and Liabilities	(9.6)		31.1
Net Cash Provided by (Used in) Operating Activities	5.2		(18.2)
Cash Flows from Investing Activities:
Proceeds from Sales, Calls and Maturities of Fixed Maturities	154.0		128.6
Proceeds from the Sales or Paydowns of Investments:
Equity Securities	19.5		249.7

Mortgage Loans	18.6		22.8
Other Investments	2.6		20.5
Purchases of Investments:
Fixed Maturities	(293.3)		(527.2)
Equity Securities	(13.2)		(21.3)
Real Estate Investments	(0.2)		—
Company-Owned Life Insurance	—		(100.0)
Mortgage Loans	(13.3)		(21.3)
Other Investments	(4.7)		(1.9)
Net Sales of Short-term Investments	0.7		40.3


Acquisition of Software and Long-lived Assets	(10.0)		(16.0)
Other	1.1		0.7
Net Cash Used in Investing Activities	(138.2)		(225.1)

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~~1As of January 1, 2023, the Company adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts in the financial statements have been recasted to reflect application of the new guidance. See Note 1 to the Condensed Consolidated Financial Statements ~~are an integral part of these financial statements.~~

for additional information.

~~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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in millions)

(Unaudited)


	Three Months Ended
	Mar 31, 2023		Mar 31, 20221
Net Cash Used in Investing Activities (Carryforward from page 7)	(138.2)		(225.1)
Cash Flows from Financing Activities:
Repayment of Long-term Debt	—		(280.0)
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 Contract Obligations	89.3		208.6
Repayment of Policyholder Contract Obligations	(90.0)		(57.8)
Proceeds from Shares Issued under Employee Stock Purchase Plan	1.0		1.3

Dividends Paid	(19.4)		(19.8)
Other	0.3		0.3
Net Cash (Used in) Provided by Financing Activities	(18.8)		392.4









Net (decrease) increase in cash	(151.8)		149.1
Cash, Beginning of Year	212.4		148.2
Cash, End of Period	$	60.6	$	297.3

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

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended March 31, 2023
	Number of Shares	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, December 31, 20221	63.9	$	6.4	$	1,812.7	$	1,366.4	$	(514.9)	$	2,670.6


Net Loss	—	—		—		(80.1)		—		(80.1)
Other Comprehensive Income, Net of Taxes (Note 12)	—	—		—		—		60.2		60.2
Cash Dividends and Dividend Equivalents to Shareholders ($0.31 per share)	—	—		—		(19.4)		—		(19.4)

Shares Issued Under Employee Stock Purchase Plan (Note 13)	—	—		1.0		—		—		1.0
Equity-based Compensation Cost	—	—		15.6		—		—		15.6
Equity-based Awards, Net of Shares Exchanged	0.1	—		(0.4)		(0.6)		—		(1.0)

Balance, March 31, 2023	64.0	$	6.4	$	1,828.9	$	1,266.3	$	(454.7)	$	2,646.9


	Three Months Ended March 31, 20221
	Number of Shares	Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, December 31, 2021	63.7	$	6.4	$	1,790.7	$	1,734.2	$	(401.6)	$	3,129.7


Net Loss	—	—		—		(86.3)		—		(86.3)
Other Comprehensive Loss, Net of Taxes (Note 12)	—	—		—		—		(66.2)		(66.2)
Cash Dividends and Dividend Equivalents to Shareholders ($0.31 per share)	—	—		—		(19.6)		—		(19.6)

Shares Issued Under Employee Stock Purchase Plan (Note 13)	—	—		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	$	1,627.5	$	(467.8)	$	2,969.2

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

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation and Accounting Policies

The unaudited ~~interim~~Condensed Consolidated Financial Statements include the accounts of Kemper Corporation (“Kemper”) and its subsidiaries which include property and casualty, life subsidiaries and a health subsidiary through the date of its sale of December 1, 2022 (collectively referred to herein as the “Company”).

The unaudited 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~~2023 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~~2022 except for Note 6 “Liability for Future Policyholder Benefits”, Note 7 “Deferred Policy Acquisition Costs”, Note 12 ”Other Comprehensive Loss and Accumulated Other Comprehensive Loss” and Note 15 “Policyholder Obligations” which were impacted due to the ~~first quarter~~implementation 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.

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-12
Financial Services-Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts.

Adoption of New Accounting Guidance

The Company has adopted all recently issued accounting pronouncements with effective dates prior to January 1, ~~2022. There~~2023. Other than discussed below, there were no adoptions of such accounting pronouncements during the three months ended March 31, ~~2022~~2023 that had a material impact on the Company’s ~~interim~~ Condensed Consolidated Financial Statements.

Guidance ~~Not Yet~~ Adopted in 2023

~~In August 2018,~~The Company adopted Financial Accounting Standards Board ASU 2018-12for the ~~FASB issued~~liability for future policyholder benefits and deferred acquisition costs on a modified retrospective basis as of January 1, 2023, such that those balances were adjusted to conform to ASU 2018-12 on January 1, 2021.~~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~~new standard requires cash flow assumptions used to measure the liability for future ~~policy~~policyholder benefits for nonparticipating traditional and limited pay ~~long duration~~long-duration contracts to be updated at least annually with the recognition and remeasurement recorded in net ~~income, require~~income. It also requires 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~~income. ASU 2018-12 also simplifies the amortization of deferred acquisition costs to ~~be amortized on~~ a constant level basis over the expected term of the contract, ~~(iii) require~~requires all market risk benefits to be measured at fair value, and ~~(iv) enhance~~enhances certain presentation and disclosure requirements, ~~which include disaggregated rollforwards~~as discussed in Notes 6 and 7.

As a result of the adoption of ASU 2018-12, beginning retained earnings was reduced by $25.1 million and Accumulated Other Comprehensive Income (“AOCI”) reduced by $1,030.3 million as of January 1, 2021.

The table below presents the transition adjustment 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~~adoption of ~~this guidance on its financial statements.~~ASU 2018-12:


	Pre-Adoption Balance 12/31/2020		Adjustments to AOCI	Adjustments to Retained Earnings	Post- Adoption Balance 1/1/2021



Retained Earnings	$	(2,071.2)	—	25.1	$	(2,046.1)
AOCI	$	(680.5)	1,030.3	—	$	349.8

910

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1 - Basis of Presentation and Accounting Policies (Continued)

For the liability for future policyholder benefits, the net transition adjustment is related to the difference in the historical discount rates used pre-transition and the discount rate at December 31, 2020. At transition, there were no adjustments related to premium deficiencies, as the balance is only applicable to Kemper’s universal life contracts which are stated at account value.

The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Loss for the three months ended March 31, 2022 were as follows:


	Prior to Adoption		Effect of Adoption		Post- Adoption Balance
Earned Premiums	$	1,338.6	(18.6)		$	1,320.0
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses	$	1,153.4	(30.2)		$	1,123.2
Insurance Expenses	$	304.0	0.8		$	304.8
Income Tax Benefit	$	31.7	(2.3)		$	29.4
Net Loss	$	(94.8)	8.5		$	(86.3)

Net Loss Per Unrestricted Share:
Basic	$	(1.49)	$	0.13	$	(1.36)
Diluted	$	(1.49)	$	0.13	$	(1.36)

The effects of adoption of ASU 2018-12 on the Condensed Consolidated Balance Sheet as of December 31, 2022 were as follows:


	Prior to Adoption		Effect of Adoption	Post- Adoption Balance
Deferred Policy Acquisition Costs	$	625.6	10.0	$	635.6
Deferred Income Tax Assets	$	189.4	(60.4)	$	129.0
Total Assets	$	13,364.0	(50.4)	$	13,313.6
Life and Health Insurance Reserves	$	3,554.0	(277.8)	$	3,276.2
Total Liabilities	$	10,920.8	(277.8)	$	10,643.0
Retained Earnings	$	1,380.1	(13.7)	$	1,366.4
Accumulated Other Comprehensive (Loss) Income	$	(756.0)	241.1	$	(514.9)
Total Shareholders’ Equity	$	2,443.2	227.4	$	2,670.6

The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2022 were as follows:


	Prior to Adoption		Effect of Adoption	Post- Adoption Balance
Change in Discount Rate on Future Life Policyholder Benefits	$	—	562.3	$	562.3
Other Comprehensive Loss Before Income Taxes	$	(646.0)	562.3	$	(83.7)
Other Comprehensive Income Tax Benefit	$	135.6	(118.1)	$	17.5
Other Comprehensive Loss, Net of Taxes	$	(510.4)	444.2	$	(66.2)
Total Comprehensive Loss	$	(605.2)	452.7	$	(152.5)

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1 - Basis of Presentation and Accounting Policies (Continued)

The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2022 were as follows:


	Prior to Adoption		Effect of Adoption	Post- Adoption Balance
Cash Flows from Operating Activities:
Net Loss	$	(94.8)	8.5	$	(86.3)
Change in Deferred Policy Acquisition Costs	$	(2.4)	0.8	$	(1.6)
Change in Insurance Reserves	$	2.9	(11.6)	$	(8.7)
Change in Income Taxes	$	(30.5)	2.3	$	(28.2)
Net Cash Used in Operating Activities	$	(18.2)	—	$	(18.2)

Guidance Not Yet Adopted

In March 2023, the FASB issued ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which expands the use of the proportional amortization method of accounting to equity investments in other tax credit structures that meet certain criteria. The proportional amortization method results in the tax credit investment being amortized in proportion to the allocation of tax credits and other tax benefits in each period, and a net presentation within the income tax line item. ASU 2023-02 is effective for annual periods beginning after December 15, 2023 and interim periods within those annual periods. The Company is currently evaluating impact of this guidance on its financial statements.

Significant Accounting Policies Related to ASU 2018-12

The below outlines those significant accounting policies related to ASU 2018-12 that are effective January 1, 2023.

Liability for Future Policyholder Benefits

A liability for future policyholder benefits, which is the present value of estimated future policyholder benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of estimated future net premiums to be collected from policyholders, is accrued as premium revenue is recognized. The liability is estimated using current assumptions that include discount rate, mortality, lapses and expenses. These current assumptions are based on judgments that consider the Company’s historical experience, industry data, and other factors.

The liability is adjusted for differences between actual and expected experience. Each quarter, the Company reviews and updates its estimate of cash flows expected over the lifetime of a group of contracts using actual historical experience and current future cash flow assumptions to calculate its revised net premium ratio. The revised net premium ratios are then used to calculate an updated liability for future policyholder benefits for the current reporting period, discounted at the original contract issuance discount rate. The Company has elected to use expense assumptions that are locked in at contract inception and are not subsequently reviewed or updated. Resulting changes in the liability due to differences in actual versus expected experience, changes in current cash flow assumptions, and prefunding and payout of benefits compared to the carrying amount of the liability as of that same date are recorded as a separate component of benefit expense in the Condensed Consolidated Statements of Loss.

The current discount rate assumption is an equivalent spot rate curve of annually compounded rates at monthly increments that is derived based on A-credit rated fixed-income instruments reflecting the duration characteristics of the liability. The Company utilizes published corporate yield curves from Bloomberg’s BVAL Investment Grade Corporate Sector curve. The current

discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in Other Comprehensive Income (Loss). For liability cash flows that are projected beyond the maximum observable point on the yield curve, the underlying yield curve is held constant.

Deferred Profit Liability

For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policyholder benefits, including discount rate, mortality, lapses, and expenses.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1 - Basis of Presentation and Accounting Policies (Continued)

The DPL is amortized and recognized as premium revenue in proportion to insurance in force for nonparticipating limited-payment contracts. Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance. The Company reviews and updates its estimates of cash flows for the DPL at the same time as the estimates of cash flows for the liability for future policyholder benefits. When cash flows are updated, the updated estimates are used to recalculate the DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, and any difference is recognized as either an increase or decrease to Earned Premiums.

Deferred Policy Acquisition Costs

Deferred costs are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability. These deferred costs are amortized on a constant level basis for grouped contracts over the expected term of the related contracts to approximate straight-line amortization. The expected term of the contract used for amortization is determined using mortality and termination assumptions that are based on the Company’s experience, industry data, and other factors and are consistent with those used for the liability for future policyholder benefits. If those projected assumptions change in future periods, they will be reflected in the straight-line amortization horizon at that time. Unexpected terminations, due to higher mortality and termination experience than expected, are recognized in the current period as a reduction of the capitalized balances. Amortization of deferred policy acquisition costs is included in Insurance Expenses in the Condensed Consolidated Statements of Loss.

Note 2 - Net ~~Income~~Loss 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)~~Loss Per Unrestricted Share and Diluted Net ~~Income (Loss)~~Loss Per Unrestricted Share for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 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		Three Months Ended
(Dollars in Millions, except per share amounts)					(Dollars in Millions, except per share amounts)	Mar 31, 2023		Mar 31, 2022
Net Loss					Net Loss	$	(80.1)	$	(86.3)
Less: Net Loss Attributed to Participating Awards					Less: Net Loss Attributed to Participating Awards	—		—
Net Loss Attributed to Unrestricted Shares					Net Loss Attributed to Unrestricted Shares	(80.1)		(86.3)
Dilutive Effect on Income of Equity-based Compensation Equivalent Shares					Dilutive Effect on Income of Equity-based Compensation Equivalent Shares	—		—
Diluted Net Loss Attributed to Unrestricted Shares					Diluted Net Loss Attributed to Unrestricted Shares	$	(80.1)	$	(86.3)
(Number of Shares in Thousands)	(Number of Shares in Thousands)	Mar 31, 2022	Mar 31, 2021		(Number of Shares in Thousands)
Weighted-average Unrestricted Shares Outstanding					Weighted-average Unrestricted Shares Outstanding	63,946.6		63,743.7
Equity-based Compensation Equivalent Shares	Equity-based Compensation Equivalent Shares	2,550.8	1,212.8		Equity-based Compensation Equivalent Shares	—		—
Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution	Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution	2,550.8	1,212.8		Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution	63,946.6		63,743.7
(Per Unrestricted Share in Whole Dollars)					(Per Unrestricted Share in Whole Dollars)
Basic Net Loss Per Unrestricted Share					Basic Net Loss Per Unrestricted Share	$	(1.25)	$	(1.36)
Diluted Net Loss Per Unrestricted Share					Diluted Net Loss Per Unrestricted Share	$	(1.25)	$	(1.36)

Note 3 - ~~Acquisition~~Dispositions

Disposition of ~~Business~~Reserve National Insurance Company

~~Acquisition of American Access Casualty Corporation~~

~~On April 1, 2021 Kemper completed~~In July 2022, the ~~acquisition of American Access Casualty~~Company entered into a definitive agreement to sell Reserve National Insurance Company and its ~~related captive insurance agency, Newins Insurance Agency Holdings, LLC, and its~~wholly-owned subsidiaries (collectively, ~~“AAC”~~“Reserve National”)~~. Pursuant~~ to Medical Mutual of Ohio, for approximately $90.0 million in total consideration. The sale closed on December 1, 2022 and a loss of $1.6 million, net of income tax, was recorded for the year ended December 31, 2022. Subsequent adjustments to this purchase price could occur pursuant to the definitive agreement ~~dated November 22, 2020, Kemper paid AAC’s equity holders total cash consideration of approximately $370.9 million.~~but

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.

1013

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~~Dispositions (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
are not expected to be material. The Company reported Reserve National’s results of operations in the Life & Health Insurance segment through December 1, 2022.

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 3three 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~~specialty automobile insurance and commercial automobile insurance. The Preferred Property & Casualty Insurance segment’s principal products are ~~personal~~preferred 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.~~Company.

Earned Premiums by product line for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Specialty Property & Casualty Insurance:	Specialty Property & Casualty Insurance:						Specialty Property & Casualty Insurance:
Personal Automobile	Personal Automobile	$	901.7	$	785.4		Personal Automobile	$	787.9	$	901.7
Commercial Automobile	Commercial Automobile	119.9		92.2			Commercial Automobile	156.3		119.9
Preferred Property & Casualty Insurance:	Preferred Property & Casualty Insurance:						Preferred Property & Casualty Insurance:
Personal Automobile		96.0		103.0
Preferred Automobile							Preferred Automobile	78.2		96.0
Homeowners	Homeowners	51.3		50.8			Homeowners	52.2		51.3
Other Personal Lines	Other Personal Lines	8.3		8.4			Other Personal Lines	7.0		8.3
Life & Health Insurance:	Life & Health Insurance:						Life & Health Insurance:
Life	Life	101.3		98.1			Life	82.2		82.7
Accident and Health	Accident and Health	45.8		47.4			Accident and Health	5.9		45.8
Property	Property	14.3		15.5			Property	11.2		14.3
Total Earned Premiums	Total Earned Premiums	$	1,338.6	$	1,200.8		Total Earned Premiums	$	1,180.9	$	1,320.0

1214

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~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Segment Revenues:	Segment Revenues:						Segment Revenues:
Specialty Property & Casualty Insurance:	Specialty Property & Casualty Insurance:						Specialty Property & Casualty Insurance:
Earned Premiums	Earned Premiums	$	1,021.6	$	877.6		Earned Premiums	$	944.2	$	1,021.6
Net Investment Income	Net Investment Income	34.9		35.0			Net Investment Income	38.5		34.9
Change in Value of Alternative Energy Partnership Investments	Change in Value of Alternative Energy Partnership Investments	(8.4)		(7.3)			Change in Value of Alternative Energy Partnership Investments	0.4		(8.4)
Other Income	Other Income	1.7		0.9			Other Income	0.9		1.7
Total Specialty Property & Casualty Insurance	Total Specialty Property & Casualty Insurance	1,049.8		906.2			Total Specialty Property & Casualty Insurance	984.0		1,049.8
Preferred Property & Casualty Insurance:	Preferred Property & Casualty Insurance:						Preferred Property & Casualty Insurance:
Earned Premiums	Earned Premiums	155.6		162.2			Earned Premiums	137.4		155.6
Net Investment Income	Net Investment Income	12.5		15.9			Net Investment Income	10.5		12.5
Change in Value of Alternative Energy Partnership Investments	Change in Value of Alternative Energy Partnership Investments	(3.9)		(4.1)			Change in Value of Alternative Energy Partnership Investments	0.1		(3.9)

Total Preferred Property & Casualty Insurance	Total Preferred Property & Casualty Insurance	164.2		174.0			Total Preferred Property & Casualty Insurance	148.0		164.2
Life & Health Insurance:	Life & Health Insurance:						Life & Health Insurance:
Earned Premiums	Earned Premiums	161.4		161.0			Earned Premiums	99.3		142.8
Net Investment Income	Net Investment Income	49.4		51.1			Net Investment Income	49.8		49.4
Change in Value of Alternative Energy Partnership Investments	Change in Value of Alternative Energy Partnership Investments	(4.4)		(4.0)			Change in Value of Alternative Energy Partnership Investments	0.2		(4.4)
Other Income		—		0.1
Other Loss							Other Loss	(0.4)		—
Total Life & Health Insurance	Total Life & Health Insurance	206.4		208.2			Total Life & Health Insurance	148.9		187.8
Total Segment Revenues	Total Segment Revenues	1,420.4		1,288.4			Total Segment Revenues	1,280.9		1,401.8
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2			Income (Loss) from Change in Fair Value of Equity and Convertible Securities	1.7		(28.2)
Net Realized Gains on Sales of Investments		1.5		13.8
Net Impairment Losses Recognized in Earnings		(8.9)		(4.0)
Net Realized Investment Gains							Net Realized Investment Gains	6.4		1.5
Net Impairment Gains (Losses) Recognized in Earnings							Net Impairment Gains (Losses) Recognized in Earnings	2.1		(8.9)
Other	Other	3.9		1.6			Other	3.7		3.9
Total Revenues	Total Revenues	$	1,388.7	$	1,352.0		Total Revenues	$	1,294.8	$	1,370.1

1315

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)~~Loss before Income Taxes, for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Segment Operating Income (Loss):	Segment Operating Income (Loss):						Segment Operating Income (Loss):
Specialty Property & Casualty Insurance	Specialty Property & Casualty Insurance	$	(60.2)	$	85.2		Specialty Property & Casualty Insurance	$	(74.7)	$	(60.2)
Preferred Property & Casualty Insurance	Preferred Property & Casualty Insurance	(9.5)		3.0			Preferred Property & Casualty Insurance	(12.2)		(9.5)
Life & Health Insurance	Life & Health Insurance	1.2		(0.8)			Life & Health Insurance	14.8		12.0
Total Segment Operating Income (Loss)		(68.5)		87.4
Corporate and Other Operating Income (Loss) From:
Total Segment Operating Loss							Total Segment Operating Loss	(72.1)		(57.7)
Corporate and Other Operating Loss From:							Corporate and Other Operating Loss From:

Other	Other	(14.0)		(11.5)			Other	(12.9)		(14.0)
Corporate and Other Operating Income (Loss)		(14.0)		(11.5)
Adjusted Consolidated Operating Income (Loss)		(82.5)		75.9
Corporate and Other Operating Loss							Corporate and Other Operating Loss	(12.9)		(14.0)
Adjusted Consolidated Operating Loss							Adjusted Consolidated Operating Loss	(85.0)		(71.7)
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	Income (Loss) from Change in Fair Value of Equity and Convertible Securities	(28.2)		52.2			Income (Loss) from Change in Fair Value of Equity and Convertible Securities	1.7		(28.2)
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)
Net Realized Investment Gains							Net Realized Investment Gains	6.4		1.5
Impairment Gains (Losses)							Impairment Gains (Losses)	2.1		(8.9)
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs							Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs	(29.1)		(4.7)
Loss from Early Extinguishment of Debt	Loss from Early Extinguishment of Debt	(3.7)		—			Loss from Early Extinguishment of Debt	—		(3.7)
Income (Loss) before Income Taxes		$	(126.5)	$	121.6
Loss before Income Taxes							Loss before Income Taxes	$	(103.9)	$	(115.7)

Segment Net Operating Income (Loss), including a reconciliation to Net ~~Income (Loss),~~Loss, for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was:


		Three Months Ended				Three Months Ended
(Dollars in Millions and Net of Income Taxes)	(Dollars in Millions and Net of Income Taxes)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions and Net of Income Taxes)	Mar 31, 2023		Mar 31, 2022
Segment Net Operating Income (Loss):	Segment Net Operating Income (Loss):						Segment Net Operating Income (Loss):
Specialty Property & Casualty Insurance	Specialty Property & Casualty Insurance	$	(44.7)	$	80.1		Specialty Property & Casualty Insurance	$	(58.4)	$	(44.7)
Preferred Property & Casualty Insurance	Preferred Property & Casualty Insurance	(6.1)		9.6			Preferred Property & Casualty Insurance	(9.5)		(6.1)
Life & Health Insurance	Life & Health Insurance	3.1		7.3			Life & Health Insurance	13.2		11.6
Total Segment Net Operating Income (Loss)		(47.7)		97.0
Corporate and Other Net Operating Income (Loss) From:
Total Segment Net Operating Loss							Total Segment Net Operating Loss	(54.7)		(39.2)
Corporate and Other Net Operating Loss From:							Corporate and Other Net Operating Loss From:

Other	Other	(12.4)		(9.8)			Other	(10.5)		(12.4)
Total Corporate and Other Net Operating Income (Loss)		(12.4)		(9.8)
Adjusted Consolidated Net Operating Income (Loss)		(60.1)		87.2
Total Corporate and Other Net Operating Income Loss							Total Corporate and Other Net Operating Income Loss	(10.5)		(12.4)
Adjusted Consolidated Net Operating Loss							Adjusted Consolidated Net Operating Loss	(65.2)		(51.6)
Net Income (Loss) From:	Net Income (Loss) From:						Net Income (Loss) From:
Change in Fair Value of Equity and Convertible Securities	Change in Fair Value of Equity and Convertible Securities	(22.3)		41.2			Change in Fair Value of Equity and Convertible Securities	1.3		(22.3)
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)
Net Realized Investment Gains							Net Realized Investment Gains	5.1		1.2
Impairment Gains (Losses)							Impairment Gains (Losses)	1.7		(7.0)
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs							Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs	(23.0)		(3.7)
Loss from Early Extinguishment of Debt	Loss from Early Extinguishment of Debt	(2.9)		—			Loss from Early Extinguishment of Debt	—		(2.9)
Net Income (Loss)		$	(94.8)	$	123.2
Net Loss							Net Loss	$	(80.1)	$	(86.3)

1416

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5 - Property and Casualty Insurance Reserves

Property and casualty insurance reserve activity for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was:


		Three Months Ended					Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021		(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Property and Casualty Insurance Reserves:	Property and Casualty Insurance Reserves:					Property and Casualty Insurance Reserves:
Gross of Reinsurance at Beginning of Year	Gross of Reinsurance at Beginning of Year	$	2,772.7	$	1,982.5	Gross of Reinsurance at Beginning of Year	$	2,756.9	$	2,772.7
Less Reinsurance Recoverables at Beginning of Year	Less Reinsurance Recoverables at Beginning of Year	41.9		50.1		Less Reinsurance Recoverables at Beginning of Year	39.6		41.9
Property and Casualty Insurance Reserves - Net of Reinsurance at Beginning of Year		2,730.8		1,932.4
Property and Casualty Insurance Reserves, Net of Reinsurance at Beginning of Year						Property and Casualty Insurance Reserves, Net of Reinsurance at Beginning of Year	2,717.3		2,730.8

Incurred Losses and LAE Related to:
Incurred Losses and Loss Adjustment Expenses (“ LAE”) Related to:						Incurred Losses and Loss Adjustment Expenses (“ LAE”) Related to:

Current Year	Current Year	1,041.9		777.0		Current Year	944.0		1,041.9

Prior Years	Prior Years	(2.7)		0.1		Prior Years	41.9		(2.7)
Total Incurred Losses and LAE	Total Incurred Losses and LAE	1,039.2		777.1		Total Incurred Losses and LAE	985.9		1,039.2
Paid Losses and LAE Related to:	Paid Losses and LAE Related to:					Paid Losses and LAE Related to:

Current Year	Current Year	373.9		258.0		Current Year	325.5		373.9

Prior Years	Prior Years	676.9		500.3		Prior Years	690.9		676.9
Total Paid Losses and LAE	Total Paid Losses and LAE	1,050.8		758.3		Total Paid Losses and LAE	1,016.4		1,050.8
Property and Casualty Insurance Reserves - Net of Reinsurance at End of Period		2,719.2		1,951.2
Property and Casualty Insurance Reserves, Net of Reinsurance at End of Period						Property and Casualty Insurance Reserves, Net of Reinsurance at End of Period	2,686.8		2,719.2
Plus Reinsurance Recoverables at End of Period	Plus Reinsurance Recoverables at End of Period	40.9		48.3		Plus Reinsurance Recoverables at End of Period	34.3		40.9
Property and Casualty Insurance Reserves - Gross of Reinsurance at End of Period	Property and Casualty Insurance Reserves - Gross of Reinsurance at End of Period	$	2,760.1	$	1,999.5	Property and Casualty Insurance Reserves - Gross of Reinsurance at End of Period	$	2,721.1	$	2,760.1

Property and casualty insurance reserves are estimated based on historical experience patterns and current economic trends. Actual loss experience and loss trends are likely to differ from these historical experience patterns and economic conditions. Loss experience and loss trends emerge over several years from the dates of loss inception. The Company monitors such emerging loss trends on a quarterly basis. Changes in such estimates are included in the Condensed Consolidated Statements of ~~Income~~Loss in the period of change.

For the three months ended March 31, 2023, the Company increased its property and casualty insurance reserves by $41.9 million to recognize adverse development of loss and LAE reserves from prior accident years. Specialty personal automobile insurance loss and LAE reserves developed adversely by $22.9 million due primarily to higher than expected emergence in loss patterns related to third and fourth accident quarters of 2022 within the bodily injury and physical damage coverages. Commercial automobile insurance loss and LAE reserves developed adversely by $8.2 million due to higher than expected emergence in loss patterns related to 2021 and 2022 bodily injury coverages. Preferred personal automobile insurance loss and LAE reserves developed adversely by $3.4 million due to higher than expected emergence in loss patterns related to the third and fourth accident quarters of 2022 within the physical damage coverages. Homeowners loss and LAE reserves developed adversely by $5.5 million. Other lines loss and LAE reserves developed adversely by $1.9 million due to higher than expected loss patterns related to fourth quarter 2022 non-weather and weather related losses.

For the three months ended March 31, 2022, the Company decreased its property and casualty insurance reserves by $2.7 million to recognize favorable development of loss and LAE reserves from prior accident years. Specialty personal automobile insurance loss and LAE reserves developed favorably by $8.3 million due primarily to the emergence of more favorable loss patterns than expected for liability and physical damage insurance. Commercial automobile insurance loss and LAE reserves developed adversely by $5.2 million due primarily to the emergence of more adverse loss patterns than expected for liability insurance. Preferred personal automobile insurance loss and LAE reserves developed adversely by $1.6 million due primarily to the emergence of more adverse loss patterns than expected for liability insurance. Homeowners loss and LAE reserves developed favorably by $4.4 million due primarily to the emergence of more favorable loss patterns than expected. Other lines loss and LAE reserves developed adversely by $3.2 million due primarily to the emergence of more adverse loss patterns than expected for prior accident years.

For the three months ended March 31, 2021, the Company increased its property and casualty insurance reserves by $0.1 million to recognize adverse development of loss and LAE reserves from prior accident years. Specialty personal automobile insurance loss and LAE reserves developed favorably by $4.0 million due primarily to the emergence of more favorable loss patterns than expected for liability insurance. Commercial automobile insurance loss and LAE reserves developed adversely by $3.0 million due primarily to the emergence of more adverse loss patterns than expected for liability insurance. Preferred personal automobile insurance loss and LAE reserves developed adversely by $1.3 million due primarily to the emergence of more adverse loss patterns than expected for liability insurance. Homeowners loss and LAE reserves developed favorably by $2.6 million due primarily to the emergence of more favorable loss patterns than expected. Other lines loss and LAE reserves developed adversely by $2.3 million due primarily to the emergence of more adverse loss patterns than expected for prior accident years.

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 5 - Property and Casualty Insurance Reserves (Continued)~~

The Company cannot predict whether loss and LAE reserves will develop favorably or adversely from the amounts reported in the Company’s Condensed Consolidated Financial Statements. The Company believes that any such development will not have

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5 - Property and Casualty Insurance Reserves (Continued)

a material effect on the Company’s Condensed Consolidated Shareholders’ Equity, but could have a material effect on the Company’s consolidated financial results for a given period.

Receivables from Policyholders - Allowance for Expected Credit Losses

The following table presents receivables from policyholders, net of the allowance for expected credit losses including a rollforward of changes in the allowance for expected credit losses for the three months ended March 31, ~~2022.~~2023.


(Dollars in Millions)	(Dollars in Millions)	Receivables from Policyholders, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		(Dollars in Millions)	Receivables from Policyholders, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
Balance at Beginning of Year	Balance at Beginning of Year	$	1,418.7	$	13.6	Balance at Beginning of Year	$	1,286.6	$	13.1
Provision for Expected Credit Losses	Provision for Expected Credit Losses			11.3		Provision for Expected Credit Losses			11.0
Write-offs of Uncollectible Receivables from Policyholders	Write-offs of Uncollectible Receivables from Policyholders			(11.9)		Write-offs of Uncollectible Receivables from Policyholders			(12.8)
Balance at End of Period	Balance at End of Period	$	1,404.5	$	13.0	Balance at End of Period	$	1,344.0	$	11.3


(Dollars in Millions)	(Dollars in Millions)	Receivables from Policyholders, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		(Dollars in Millions)	Receivables from Policyholders, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
Balance at Beginning of Year	Balance at Beginning of Year	$	1,194.5	$	20.9	Balance at Beginning of Year	$	1,418.7	$	13.6
Provision for Expected Credit Losses	Provision for Expected Credit Losses			12.8		Provision for Expected Credit Losses			11.3
Write-offs of Uncollectible Receivables from Policyholders	Write-offs of Uncollectible Receivables from Policyholders			(22.4)		Write-offs of Uncollectible Receivables from Policyholders			(11.9)
Balance at End of Period	Balance at End of Period	$	1,260.9	$	11.3	Balance at End of Period	$	1,404.5	$	13.0

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6 - ~~Investments~~Liability for Future Policyholder Benefits

~~Fixed Maturities~~

The ~~amortized cost~~following tables summarize balances and ~~estimated fair values~~changes in the present value of expected net premiums, present value of expected future policyholder benefits and net liability for future policyholder benefits as of and for the three months ended March 31, 2023 and March 31, 2022:


	Present Value of Expected Net Premiums
	Mar 31, 2023		Mar 31, 2022
Balance, Beginning of Year	$	688.6	$	669.0

Beginning Balance at Original Discount Rate	$	728.9	$	599.8
Effect of Changes in Cash Flow Assumptions	—		—
Effect of Actual Variances from Expected Experience	0.7		12.5
Adjusted Beginning of Year Balance	729.6		612.3
Issuances	31.8		41.6
Interest Accrual	7.0		5.1
Net Premiums Collected	(23.9)		(21.1)
Ending Balance at Original Discount Rate	744.5		637.9
Effect of Changes in Discount Rate Assumptions	(22.1)		23.1
Balance, End of Period	$	722.4	$	661.0

	Present Value of Expected Future Policyholder Benefits
	Mar 31, 2023		Mar 31, 2022
Balance, Beginning of Year	$	3,561.0	$	4,933.1

Beginning Balance at Original Discount Rate	$	3,906.2	$	3,788.1
Effect of Changes in Cash Flow Assumptions	—		—
Effect of Actual Variances From Expected Experience	0.3		12.7
Adjusted Beginning of Year Balance	3,906.5		3,800.8
Issuances	31.8		41.6
Interest Accrual	42.4		40.8
Benefit Payments	(63.8)		(71.0)
Ending Balance at Original Discount Rate	3,916.9		3,812.2
Effect of Changes in Discount Rate Assumptions	(217.4)		536.5
Balance, End of Period	$	3,699.5	$	4,348.7

	Net Liability for Future Policyholder Benefits
	Mar 31, 2023		Mar 31, 2022
Net Liability for Future Policyholder Benefits	$	2,977.1	$	3,687.7
Less: Reinsurance Recoverable	—		—
Net Liability for Future Policyholder Benefits, After Reinsurance Recoverable	$	2,977.1	$	3,687.7

The weighted-average liability duration of the ~~Company’s Investments in Fixed Maturities at March 31, 2022 were:~~liability for future policyholder benefits as calculated under current rates is as follows:

Amortized
Cost Gross Unrealized Allowance for Expected Credit Losses Fair Value
(Dollars in Millions) Gains Losses
U.S. Government and Government Agencies and Authorities $ 644.8 $ 10.7 $ (25.1) $ — $ 630.4
States and Political Subdivisions 1,808.6 64.4 (102.8) — 1,770.2
Foreign Governments 6.2 — (1.2) — 5.0
Corporate Securities:
Bonds and Notes 4,103.5 192.6 (130.9) (9.1) 4,156.1
Redeemable Preferred Stocks 7.0 — (0.2) — 6.8
Collateralized Loan Obligations 909.7 0.6 (12.4) — 897.9
Other Mortgage- and Asset-backed 330.6 2.4 (15.5) — 317.5
Investments in Fixed Maturities $ 7,810.4 $ 270.7 $ (288.1) $ (9.1) $ 7,783.9


	Mar 31, 2023	Mar 31, 2022
Weighted-Average Liability Duration of the Liability for Future Policyholder Benefits (Years)	14.9	17.1

1619

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6 - Liability for Future Policyholder Benefits (Continued)

The reconciliation of the net liability for future policyholder benefits to Life and Health Insurance Reserves in the Condensed Consolidated Balance Sheets is as follows:


	Mar 31, 2023		Mar 31, 2022
Present Value of Expected Future Policyholder benefits	$	3,699.5	$	4,348.7
Less: Present Value of Expected Net Premiums	722.4		661.0
Net Liability for Future Policyholder benefits	2,977.1		3,687.7
Deferred Profit Liability	272.6		213.9
Other1	149.9		202.6
Total Life and Health Insurance Reserves	$	3,399.6	$	4,104.2

1Other primarily consists of Accident and Health and Universal Life reserves

The amounts of expected undiscounted future benefit payments, expected undiscounted future gross premiums and expected discounted future gross premiums, were as follows:


	Mar 31, 2023		Mar 31, 2022
Expected Future Benefit Payments, undiscounted	$	10,177.7	$	9,536.9
Expected Future Gross Premiums, undiscounted	$	4,464.2	$	3,808.5
Expected Future Gross Premiums, discounted	$	2,931.1	$	2,912.1

The amount of revenue and interest recognized in the Condensed Consolidated Statements of Loss is as follows:


	Three Months Ended
	Mar 31, 2023		Mar 31, 2022
Gross Premiums or Assessments	$	103.8	$	101.4
Interest Expense	$	35.4	$	35.6

The weighted-average interest rate is as follows:


	Mar 31, 2023		Mar 31, 2022
Interest Accretion Rate	4.55	%	4.55	%
Current Discount Rate	5.05	%	3.76	%

Significant assumption inputs to the calculation of the liability for future policyholder benefits for term life, permanent limited pay, permanent recurring pay, and guaranteed issue products include mortality, lapses, and discount rates (both accretion and current). In the first quarter of 2023, the Company reviewed all significant assumptions and did not make any changes to mortality and lapse assumptions as actual experience for mortality and lapse across these products was materially consistent with the underlying assumptions. Market data that underlies current discount rates was updated from December 31, 2022.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7 - Deferred Policy Acquisition Costs

The following table presents the balances and changes in Deferred Policy Acquisition Costs for the Life and Health and Property and Casualty business for the three months ended March 31, 2023 and 2022:


	March 31, 2023						March 31, 2022
	Life and Health		Property and Casualty		Total		Life and Health		Property and Casualty		Total
Balance, Beginning of Year	$	404.5	$	231.1	$	635.6	$	419.3	$	268.7	$	688.0
Capitalizations	15.4		149.5		164.9		16.5		165.7		182.2
Amortization Expense	(5.6)		(142.3)		(147.9)		(7.2)		(171.5)		(178.7)
Experience Adjustment	(1.1)		—		(1.1)		(1.9)		—		(1.9)
Balance, End of Period	$	413.2	$	238.3	$	651.5	$	426.7	$	262.9	$	689.6

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 are amortized over the period in which premiums are earned. Costs deferred on traditional life insurance products and other long-duration insurance contracts are amortized on a constant level basis over the expected life of the contracts in accordance with the assumptions used to estimate the liability for future policyholder benefits for nonparticipating traditional and limited-payment contracts. The underlying assumptions for deferred policy acquisition costs and the liability for future policyholder benefits were updated concurrently.

In the first quarter of 2023, the Company did not make any changes to future assumptions.

Note 8 - Investments

Fixed Maturities

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2023 were:


	Amortized Cost		Gross Unrealized				Allowance for Expected Credit Losses		Fair Value
(Dollars in Millions)			Gains		Losses
U.S. Government and Government Agencies and Authorities	$	633.6	$	3.4	$	(73.0)	$	—	$	564.0
States and Political Subdivisions	1,794.8		23.1		(194.2)		(0.8)		1,622.9
Foreign Governments	4.8		—		(0.8)		—		4.0
Corporate Securities:
Bonds and Notes	4,097.0		31.4		(418.5)		(6.6)		3,703.3
Redeemable Preferred Stocks	9.0		—		(1.0)		—		8.0
Collateralized Loan Obligations	1,033.0		0.1		(51.2)		—		981.9
Other Mortgage- and Asset-backed	351.4		0.3		(46.4)		—		305.3
Investments in Fixed Maturities	$	7,923.6	$	58.3	$	(785.1)	$	(7.4)	$	7,189.4

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8 - Investments (Continued)

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, ~~2021~~2022 were:


		Amortized Cost		Gross Unrealized				Allowance for Expected Credit Losses				Fair Value					Amortized Cost		Gross Unrealized				Allowance for Expected Credit Losses		Fair Value
(Dollars in Millions)	(Dollars in Millions)			Gains		Losses				(Dollars in Millions)				Gains					Losses
U.S. Government and Government Agencies and Authorities	U.S. Government and Government Agencies and Authorities	$	610.1	$	29.2	$	(1.9)			$	—				$	637.4		U.S. Government and Government Agencies and Authorities	$	612.5	$	1.3	$	(85.8)	$	—	$	528.0
States and Political Subdivisions	States and Political Subdivisions	1,752.5		144.6		(7.0)		—				1,890.1		States and Political Subdivisions			1,797.6		10.3		(238.3)		(0.7)		1,568.9
Foreign Governments	Foreign Governments	6.7		—		(1.2)		—				5.5		Foreign Governments			5.0		—		(0.9)		—		4.1
Corporate Securities:	Corporate Securities:													Corporate Securities:
Bonds and Notes	Bonds and Notes	3,929.0		481.4		(16.0)		(7.5)				4,386.9		Bonds and Notes			4,030.3		17.7		(499.7)		(8.9)		3,539.4
Redeemable Preferred Stocks	Redeemable Preferred Stocks	7.0		0.4		—		—				7.4		Redeemable Preferred Stocks			9.0		—		(1.0)		—		8.0
Collateralized Loan Obligations	Collateralized Loan Obligations	756.0		0.9		(4.8)		—				752.1		Collateralized Loan Obligations			1,014.7		—		(60.8)		—		953.9
Other Mortgage- and Asset-backed	Other Mortgage- and Asset-backed	296.9		12.4		(1.8)		—				307.5		Other Mortgage- and Asset-backed			342.7		0.1		(50.3)		—		292.5
Investments in Fixed Maturities	Investments in Fixed Maturities	$	7,358.2	$	668.9	$	(32.7)	$	(7.5)			$	7,986.9	Investments in Fixed Maturities			$	7,811.8	$	29.4	$	(936.8)	$	(9.6)	$	6,894.8

Other Receivables included ~~$1.9~~$11.4 million and ~~$0.6~~$5.8 million of unsettled sales of Investments in Fixed Maturities at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Accrued Expenses and Other Liabilities included unsettled purchases of Investments in Fixed Maturities of ~~$73.4~~$3.7 million and ~~$12.7~~$25.9 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The amortized cost and estimated fair ~~values~~value of the Company’s Investments in Fixed Maturities at March 31, ~~2022~~2023 by contractual maturity were:


(Dollars in Millions)	(Dollars in Millions)	Amortized Cost		Fair Value		(Dollars in Millions)	Amortized Cost		Fair Value
Due in One Year or Less	Due in One Year or Less	$	154.3	$	155.8	Due in One Year or Less	$	152.7	$	144.4
Due after One Year to Five Years	Due after One Year to Five Years	1,055.8		1,059.2		Due after One Year to Five Years	1,000.6		969.2
Due after Five Years to Ten Years	Due after Five Years to Ten Years	1,578.8		1,549.2		Due after Five Years to Ten Years	1,193.0		1,058.3
Due after Ten Years	Due after Ten Years	3,275.8		3,318.2		Due after Ten Years	3,705.0		3,305.5
Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date	Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date	1,745.7		1,701.5		Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date	1,872.3		1,712.0
Investments in Fixed Maturities	Investments in Fixed Maturities	$	7,810.4	$	7,783.9	Investments in Fixed Maturities	$	7,923.6	$	7,189.4

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.

Investments in Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date at March 31, ~~2022~~2023 consisted of securities issued by the Government National Mortgage Association with a fair value of ~~$390.7~~$259.6 million, securities issued by the Federal National Mortgage Association with a fair value of ~~$65.8~~$97.5 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of ~~$29.5~~$67.9 million, and securities issued by other non-governmental issuers with a fair value of ~~$1,215.5~~$1,287.0 million.

1722

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 68 - Investments (Continued)

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at March 31, ~~2022~~2023 is presented below.


		Less Than 12 Months				12 Months or Longer				Total					Less Than 12 Months				12 Months or Longer				Total
(Dollars in Millions)	(Dollars in Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed Maturities:	Fixed Maturities:													Fixed Maturities:
U.S. Government and Government Agencies and Authorities	U.S. Government and Government Agencies and Authorities	$	410.7	$	(24.5)	$	4.0	$	(0.6)	$	414.7	$	(25.1)	U.S. Government and Government Agencies and Authorities	$	123.6	$	(7.3)	$	330.9	$	(65.7)	$	454.5	$	(73.0)
States and Political Subdivisions	States and Political Subdivisions	822.9		(98.1)		26.8		(4.7)		849.7		(102.8)		States and Political Subdivisions	332.1		(17.5)		724.1		(176.7)		1,056.2		(194.2)
Foreign Governments	Foreign Governments	2.1		(0.7)		2.1		(0.5)		4.2		(1.2)		Foreign Governments	0.6		—		2.4		(0.8)		3.0		(0.8)
Corporate Securities:	Corporate Securities:													Corporate Securities:
Bonds and Notes	Bonds and Notes	1,488.5		(107.2)		168.4		(23.7)		1,656.9		(130.9)		Bonds and Notes	1,811.8		(132.9)		1,312.7		(285.6)		3,124.5		(418.5)
Redeemable Preferred Stocks	Redeemable Preferred Stocks	5.3		(0.2)		—		—		5.3		(0.2)		Redeemable Preferred Stocks	3.0		(0.2)		4.7		(0.8)		7.7		(1.0)
Collateralized Loan Obligations	Collateralized Loan Obligations	533.4		(6.5)		228.6		(5.9)		762.0		(12.4)		Collateralized Loan Obligations	278.5		(11.9)		694.2		(39.3)		972.7		(51.2)
Other Mortgage- and Asset-backed	Other Mortgage- and Asset-backed	222.9		(15.5)		0.1		—		223.0		(15.5)		Other Mortgage- and Asset-backed	105.6		(8.5)		189.6		(37.9)		295.2		(46.4)
Total Fixed Maturities	Total Fixed Maturities	$	3,485.8	$	(252.7)	$	430.0	$	(35.4)	$	3,915.8	$	(288.1)	Total Fixed Maturities	$	2,655.2	$	(178.3)	$	3,258.6	$	(606.8)	$	5,913.8	$	(785.1)

Investment-grade fixed maturity investments comprised ~~$270.9~~$753.7 million and below-investment-grade ~~fixed maturity investments~~Fixed Maturity Investments comprised ~~$17.2~~$31.4 million of the unrealized losses on investments in fixed maturities at March 31, ~~2022.~~2023. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 6%11.3% of the amortized cost basis of the investment.

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, ~~2021~~2022 is presented below.


		Less Than 12 Months				12 Months or Longer				Total					Less Than 12 Months				12 Months or Longer				Total
(Dollars in Millions)	(Dollars in Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed Maturities:	Fixed Maturities:													Fixed Maturities:
U.S. Government and Government Agencies and Authorities	U.S. Government and Government Agencies and Authorities	$	168.7	$	(1.8)	$	1.2	$	(0.1)	$	169.9	$	(1.9)	U.S. Government and Government Agencies and Authorities	$	337.3	$	(49.3)	$	126.5	$	(36.5)	$	463.8	$	(85.8)
States and Political Subdivisions	States and Political Subdivisions	385.0		(6.9)		1.5		(0.1)		386.5		(7.0)		States and Political Subdivisions	854.7		(140.6)		276.8		(97.7)		1,131.5		(238.3)
Foreign Governments	Foreign Governments	2.2		(0.6)		2.6		(0.6)		4.8		(1.2)		Foreign Governments	0.1		—		2.6		(0.9)		2.7		(0.9)
Corporate Securities:	Corporate Securities:													Corporate Securities:
Bonds and Notes	Bonds and Notes	596.8		(13.1)		49.3		(2.9)		646.1		(16.0)		Bonds and Notes	2,730.6		(373.9)		424.4		(125.8)		3,155.0		(499.7)
Redeemable Preferred Stocks	Redeemable Preferred Stocks	0.1		—		—		—		0.1		—		Redeemable Preferred Stocks	7.7		(1.0)		—		—		7.7		(1.0)
Collateralized Loan Obligations	Collateralized Loan Obligations	250.9		(2.6)		192.6		(2.2)		443.5		(4.8)		Collateralized Loan Obligations	568.2		(34.2)		373.9		(26.6)		942.1		(60.8)
Other Mortgage- and Asset-backed	Other Mortgage- and Asset-backed	100.1		(1.8)		—		—		100.1		(1.8)		Other Mortgage- and Asset-backed	205.4		(28.9)		79.5		(21.4)		284.9		(50.3)
Total Fixed Maturities	Total Fixed Maturities	$	1,503.8	$	(26.8)	$	247.2	$	(5.9)	$	1,751.0	$	(32.7)	Total Fixed Maturities	$	4,704.0	$	(627.9)	$	1,283.7	$	(308.9)	$	5,987.7	$	(936.8)

Investment-grade fixed maturity investments comprised ~~$23.7~~$904.0 million and below-investment-grade ~~fixed maturity investments~~Fixed Maturity Investments comprised ~~$9.0~~$32.8 million of the unrealized losses on ~~investments~~Investments in ~~fixed maturities~~Fixed Maturities at December 31, ~~2021.~~2022. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 4%11% of the amortized cost basis of the investment.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 68 - Investments (Continued)

At March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021. 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 cashflows, 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.

Fixed Maturities - Expected Credit Losses

The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for three months ended March 31, ~~2022.~~2023.


				Corporate Bonds and Notes			Total			States and Political Subdivisions		Corporate Bonds and Notes		Total
(Dollars in Millions)	(Dollars in Millions)	Corporate Bonds and Notes	Total			Corporate Bonds and Notes			Total
Beginning of the Year	Beginning of the Year			$	7.5		$	7.5		$	0.7	$	8.9	$	9.6
Additions for Securities for which No Previous Expected Credit Losses were Recognized	Additions for Securities for which No Previous Expected Credit Losses were Recognized			3.8			3.8		Additions for Securities for which No Previous Expected Credit Losses were Recognized	—		0.3		0.3
Reduction Due to Sales	Reduction Due to Sales			—			—		Reduction Due to Sales	—		(1.9)		(1.9)
Net Increase (Decrease) in Allowance on Securities for which Expected Credit Losses were Previously Recognized				1.3			1.3
Net Increase in Allowance on Securities for which Expected Credit Losses were Previously Recognized									Net Increase in Allowance on Securities for which Expected Credit Losses were Previously Recognized	0.1		(0.7)		(0.6)
Write-offs Charged Against Allowance	Write-offs Charged Against Allowance			(3.5)			(3.5)		Write-offs Charged Against Allowance	—		—		—
End of the Period	End of the Period			$	9.1		$	9.1	End of the Period	$	0.8	$	6.6	$	7.4

The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for the three months ended March 31, ~~2021.~~2022.


			Foreign Governments		Corporate Bonds and Notes			Total			Corporate Bonds and Notes		Total
(Dollars in Millions)	(Dollars in Millions)	Foreign Governments					Corporate Bonds and Notes			Total
Beginning of the Year	Beginning of the Year		$	0.3	$	3.0		$	3.3		$	7.5	$	7.5
Additions for Securities for which No Previous Expected Credit Losses were Recognized										Additions for Securities for which No Previous Expected Credit Losses were Recognized	3.8		3.8

Additions for Securities for which No Previous Expected Credit Losses were Recognized			—		1.3			1.3
Reduction Due to Sales			—		(0.3)			(0.3)
Net Increase (Decrease) in Allowance on Securities for which Expected Credit Losses were Previously Recognized			0.2		0.3			0.5
Net Increase in Allowance on Securities for which Expected Credit Losses were Previously Recognized										Net Increase in Allowance on Securities for which Expected Credit Losses were Previously Recognized	1.3		1.3
Write-offs Charged Against Allowance	Write-offs Charged Against Allowance		(0.2)		—			(0.2)		Write-offs Charged Against Allowance	(3.5)		(3.5)
End of the Period	End of the Period		$	0.3	$	4.3		$	4.6	End of the Period	$	9.1	$	9.1

Equity Securities at Fair Value

Investments in Equity Securities at Fair Value were ~~$571.5~~$243.6 million and ~~$830.6~~$243.2 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Net unrealized ~~losses~~gains arising during the three months ended March 31, ~~2022~~2023 and recognized in earnings, related to such investments still held as of March 31, ~~2022,~~2023, were ~~$24.0~~$4.4 million.

Investments in Equity Securities at Modified Cost were $35.2 million and $32.3 million at March 31, 2022 and December 31, 2021, respectively. 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

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 6 - Investments (Continued)~~

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 Condensed 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 did not recognize any changes in carrying value due to observable transactions for the three months ended March 31, 2022. The Company did not recognize any impairment on Equity Securities at Modified Cost for three months ended March 31, 2022 as a result of the Company’s impairment analysis. The Company recognized no cumulative increases or decreases in the carrying value due to observable transactions and $10.0 million of cumulative impairments on Equity Securities at Modified Cost held as of March 31, 2022.

There were no unsettled purchases of Investments in Equity Securities at Fair Value at March 31, ~~2022.~~2023. There were ~~$2.7 million of~~no unsettled purchases of Investments in Equity Securities at Fair Value at December 31, ~~2021.~~2022. There were no unsettled sales of Investments in Equity Securities at Fair Value at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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 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.

The Company’s maximum exposure to loss at March 31, ~~2022~~2023 is limited to the total carrying value of ~~$230.0~~$218.7 million. In addition, the Company had outstanding commitments totaling approximately ~~$92.2~~$96.4 million to fund Equity Method Limited Liability Investments at March 31, ~~2022.~~2023. At March 31, ~~2022, 3.2%~~2023, 2.0% of Equity Method Limited Liability Investments were reported without a reporting lag. Of the total carrying value, ~~10.8%~~5.6% was reported with a one month lag and the remainder was reported with more than a one month lag.

~~There were $0.5 million of unsettled purchases of Equity Method Limited Liability~~

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8 - Investments ~~at March 31, 2022.~~ (Continued)

There were no unsettled purchases of Equity Method Limited Liability Investments at March 31, 2023 and December 31, ~~2021.~~2022, respectively. There were ~~$4.7~~$29.9 million and ~~$1.2~~$35.2 million unsettled sales of Equity Method Limited Liability Investments at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Unsettled sales of Equity Method Limited Liability Investments are carried within Other Receivables on the Condensed Consolidated Balance Sheets.

Alternative Energy Partnership Investments

Alternative Energy Partnership Investments include partnerships formed to invest in newly installed residential solar leases and power purchase agreements. As a result of this investment, the Company has the right to certain investment tax credits and tax depreciation benefits, and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time. The Hypothetical Liquidation at Book Value (“HLBV”) equity method of accounting is used for the Company’s investments in Alternative Energy Partnership Investments.

The Company’s maximum exposure to loss at March 31, ~~2022~~2023 is limited to the total carrying value of ~~$22.4~~$17.0 million. The Company ~~has~~had no outstanding commitments to fund Alternative Energy Partnership Investments as of March 31, ~~2022.~~2023. Alternative Energy Partnership Investments are reported on a three month lag.

Loans to Policyholders

Loans to Policyholders represents funds loaned to policyholders up to the cash surrender value of the associated insurance policies and are carried at the unpaid principal balances due to the Company from the policyholders. Interest income on policy loans is recognized in Net Investment Income at the contract interest rate when earned. Policy loans are fully collateralized by the cash surrender value of the associated insurance policies.

The carrying values of the Company’s Loans to Policyholders at Unpaid Principal investment at March 31, 2023 and December 31, 2022 were $283.1 million and $283.4 million, respectively.

Other Investments

The carrying values of the Company’s Other Investments at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 were:


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Company-Owned Life Insurance		$	556.4	$	448.1
Loans to Policyholders at Unpaid Principal		284.7		286.2
Equity Securities at Modified Cost						Equity Securities at Modified Cost	$	37.1	$	38.4
Convertible Securities at Fair Value						Convertible Securities at Fair Value	45.3		43.3
Real Estate at Depreciated Cost	Real Estate at Depreciated Cost	93.3		94.0		Real Estate at Depreciated Cost	93.0		93.6

Mortgage Loans and Other		100.8		97.3
Mortgage Loans						Mortgage Loans	85.7		91.1
Other						Other	10.7		3.5
Total	Total	$	1,035.2	$	925.6	Total	$	271.8	$	269.9

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 Condensed Consolidated Statements of Loss 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 did not recognize any changes in carrying value due to observable transactions for the three months ended March 31, 2023. The Company did not recognize any impairment on Equity Securities at Modified Cost for three months ended March 31, 2023 as a result of the Company’s impairment analysis. The Company recognized no cumulative increases or decreases in the carrying value due to observable transactions and $9.6 million of cumulative impairments on Equity Securities at Modified Cost held as of March 31, 2023.

2025

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 68 - Investments (Continued)

Net Investment Income

Net Investment Income for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Investment Income:	Investment Income:						Investment Income:
Interest on Fixed Income Securities	Interest on Fixed Income Securities	$	68.7	$	69.0		Interest on Fixed Income Securities	$	86.2	$	68.7
Dividends on Equity Securities Excluding Alternative Investments	Dividends on Equity Securities Excluding Alternative Investments	1.5		2.1			Dividends on Equity Securities Excluding Alternative Investments	1.0		1.5
Alternative Investments:	Alternative Investments:						Alternative Investments:
Equity Method Limited Liability Investments	Equity Method Limited Liability Investments	13.3		22.5			Equity Method Limited Liability Investments	1.1		13.3

Limited Liability Investments Included in Equity Securities	Limited Liability Investments Included in Equity Securities	7.6		4.5			Limited Liability Investments Included in Equity Securities	2.6		7.6
Total Alternative Investments	Total Alternative Investments	20.9		27.0			Total Alternative Investments	3.7		20.9
Short-term Investments	Short-term Investments	0.1		1.2			Short-term Investments	2.3		0.1
Loans to Policyholders	Loans to Policyholders	5.5		5.5			Loans to Policyholders	5.4		5.5
Real Estate	Real Estate	2.2		2.4			Real Estate	2.4		2.2
Company-Owned Life Insurance							Company-Owned Life Insurance	8.8		8.3
Other	Other	10.0		4.7			Other	3.0		1.7
Total Investment Income	Total Investment Income	108.9		111.9			Total Investment Income	112.8		108.9
Investment Expenses:	Investment Expenses:						Investment Expenses:
Real Estate	Real Estate	2.5		2.1			Real Estate	2.1		2.5
Other Investment Expenses	Other Investment Expenses	6.4		6.7			Other Investment Expenses	8.9		6.4
Total Investment Expenses	Total Investment Expenses	8.9		8.8			Total Investment Expenses	11.0		8.9
Net Investment Income	Net Investment Income	$	100.0	$	103.1		Net Investment Income	$	101.8	$	100.0

Gross gains and losses on sales of investments in fixed maturities for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Fixed Maturities:	Fixed Maturities:						Fixed Maturities:
Gains on Sales	Gains on Sales	$	0.4	$	13.2		Gains on Sales	$	1.1	$	0.4
Losses on Sales	Losses on Sales	(0.8)		(1.1)			Losses on Sales	(3.3)		(0.8)

Note 9 - Derivatives

The Company’s earnings, cash flows, and financial position are subject to fluctuations due to changes in prevailing interest rates. From time to time, the Company uses derivative financial instruments to reduce fluctuations of earnings related to interest rate exposure.

The Company entered into derivative agreements with maturity dates throughout 2023. Derivative instruments are carried at fair value on the Condensed Consolidated Balance Sheets. Derivative instruments in a gain position are presented within Other Investments and those in a loss position are included in Accrued Expenses and Other Liabilities. Changes in the fair values of derivatives are recorded on the Condensed Consolidated Statements of Loss within Net Realized Investment Gains or Accumulated Other Comprehensive Loss along with the corresponding change in the designated hedge assets.

2126

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9 - Derivatives (Continued)

Interest Rate Risk

The Company’s debt securities valuations utilize the Treasury designated benchmark rate, exposing the Company to variability due to changes in interest rates.

Interest Swap Lock

The Company entered into an interest swap lock agreement in the third quarter of 2022 classified as cash flow hedges to manage exposure to changes in future purchase prices of fixed maturity securities attributable to changes in the benchmark (Treasury) interest rate. The Company assesses the effectiveness of cash flow hedges using the hypothetical derivative method. Based on the results of the assessment, the hedge was determined to be effective. The interest swap lock agreement was closed out in the first quarter of 2023.

Ultra-Long Treasury Futures

During 2023, the Company entered into two transactions of exchange-traded ultra-long Treasury futures (“Treasury Futures”) in order to manage exposure to upcoming changes in the benchmark (Treasury) interest rate of forecasted transactions. These derivatives expire quarterly, with the longest future transaction being executed in 2024. A portion of the futures qualified for hedge accounting as a cash flow hedge. The remaining futures did not qualify for hedge accounting. The results are shown in the Treasury Futures section below.

Reverse Treasury Lock

During 2022 the Company entered into a Reverse Treasury Lock agreement to manage reinvestment risk on future purchases of fixed maturity securities. The Reverse Treasury Lock agreement did not qualify for hedge accounting and matured in the first quarter of 2023. The results are shown in the Reverse Treasury Lock section below.

Primary Risks Managed byDerivatives

The following table presents the derivative instruments, primary underlying risk exposure, gross notional amount, and estimated fair value of the Company’s derivatives:


		March 31, 2023						December 31, 2022
(Dollars in Millions)				Estimated Fair Value						Estimated Fair Value
Derivative Instrument	Primary Underlying Risk Exposure	Gross Notional Amount		Assets		Liabilities		Gross Notional Amount		Assets		Liabilities

Derivatives Designated as Hedging Instruments:
Interest Swap Lock	Interest Rate Risk	$	—	$	—	$	—	$	5.0	$	—	$	0.4
Treasury Futures	Interest Rate Risk	$	100.0	$	3.5	$	—	$	—	$	—	$	—

Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Treasury Futures	Interest Rate Risk	$	100.0	$	4.5	$	—	$	—	$	—	$	—
Reverse Treasury Lock	Interest Rate Risk	$	—	$	—	$	—	$	100.0	$	1.7	$	—

Note 710 - Fair Value Measurements

The Company classifies its ~~investments~~Investments in Fixed Maturities as available-for-sale and reports these investments at fair value. The Company reports equity investments with readily determinable fair values as Equity Securities at Fair Value. Certain investments that are measured at fair value using the net asset value practical expedient are not required to be classified using the fair value hierarchy, but are presented in the following two tables to permit reconciliation of the fair value hierarchy to the amounts presented in the Condensed Consolidated Balance Sheets.

The valuation of assets measured at fair value in Company’s Condensed Consolidated Balance Sheets at March 31, 2022 is summarized below. The Company has no material liabilities that are measured and reported at fair value.

Fair Value Measurements
(Dollars in Millions) Quoted Prices
in Active Markets
for Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Measured at Net Asset Value Total Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities $ 127.3 $ 503.1 $ — $ — $ 630.4
States and Political Subdivisions — 1,770.2 — — 1,770.2
Foreign Governments — 5.0 — — 5.0
Corporate Securities:
Bonds and Notes — 3,950.5 205.6 — 4,156.1
Redeemable Preferred Stock — 1.2 5.6 — 6.8
Collateralized Loan Obligations — 897.9 — — 897.9
Other Mortgage and Asset-backed — 311.3 6.2 — 317.5
Total Investments in Fixed Maturities 127.3 7,439.2 217.4 — 7,783.9
Equity Securities at Fair Value:
Preferred Stocks:
Finance, Insurance and Real Estate — 33.0 — — 33.0
Other Industries — 14.9 1.5 — 16.4
Common Stocks:
Finance, Insurance and Real Estate 0.9 — — — 0.9
Other Industries 1.4 0.4 0 — 1.8
Other Equity Interests:
Exchange Traded Funds 201.6 — — — 201.6
Limited Liability Companies and Limited Partnerships — — — 317.8 317.8
Total Investments in Equity Securities at Fair Value 203.9 48.3 1.5 317.8 571.5
Convertible Securities at Fair Value — 46.1 — — 46.1
Total $ 331.2 $ 7,533.6 $ 218.9 $ 317.8 $ 8,401.5

At March 31, 2022, the Company had unfunded commitments to invest an additional $101.2 million in certain limited liability investment companies and limited partnerships that will be included in Other Equity Interests when funded.

2227

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 710 - Fair Value Measurements (Continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at March 31, 2023 is summarized below. The Company has no material liabilities that are measured and reported at fair value.


	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Total Fair Value
Assets:
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	120.8	$	443.2	$	—	$	—	$	564.0
States and Political Subdivisions	—		1,622.9		—		—		1,622.9
Foreign Governments	—		4.0		—		—		4.0
Corporate Securities:
Bonds and Notes	—		3,507.2		196.1		—		3,703.3
Redeemable Preferred Stock	—		1.2		6.8		—		8.0
Collateralized Loan Obligations	—		981.9		—		—		981.9
Other Mortgage- and Asset-backed	—		300.0		5.3		—		305.3
Total Investments in Fixed Maturities	120.8		6,860.4		208.2		—		7,189.4
Equity Securities at Fair Value:
Preferred Stocks:
Finance, Insurance and Real Estate	—		28.8		—		—		28.8
Other Industries	—		9.6		1.6		—		11.2
Common Stocks:
Finance, Insurance and Real Estate	0.6		—		—		—		0.6
Other Industries	0.2		—		0.4		—		0.6
Other Equity Interests:
Exchange Traded Funds	6.8		—		—		—		6.8
Limited Liability Companies and Limited Partnerships	—		—		—		195.6		195.6
Total Investments in Equity Securities at Fair Value	7.6		38.4		2.0		195.6		243.6






Other Investments:
Convertible Securities at Fair Value	—		45.3		—		—		45.3
Derivative Investments Designated as Cash Flow Hedges	—		3.5		—		—		3.5
Derivative Instruments Not Designated as Hedges	—		4.5		—		—		4.5
Total Assets	$	128.4	$	6,952.1	$	210.2	$	195.6	$	7,486.3

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10 - Fair Value Measurements (Continued)

The valuation of assets measured at fair value in the Company’s Consolidated Balance ~~Sheets~~Sheet at December 31, ~~2021~~2022 is summarized below.


		Fair Value Measurements											Fair Value Measurements
(Dollars in Millions)	(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Total Fair Value		(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Total Fair Value
Assets:												Assets:
Fixed Maturities:	Fixed Maturities:											Fixed Maturities:
U.S. Government and Government Agencies and Authorities	U.S. Government and Government Agencies and Authorities	$	132.8	$	504.6	$	—	$	—	$	637.4	U.S. Government and Government Agencies and Authorities	$	103.6	$	424.4	$	—	$	—	$	528.0
States and Political Subdivisions	States and Political Subdivisions	—		1,890.1		—		—		1,890.1		States and Political Subdivisions	—		1,568.9		—		—		1,568.9
Foreign Governments	Foreign Governments	—		5.5		—		—		5.5		Foreign Governments	—		4.1		—		—		4.1
Corporate Securities:	Corporate Securities:											Corporate Securities:
Bonds and Notes	Bonds and Notes	—		4,150.1		236.8		—		4,386.9		Bonds and Notes	—		3,323.4		216.0		—		3,539.4
Redeemable Preferred Stocks	Redeemable Preferred Stocks	—		1.3		6.1		—		7.4		Redeemable Preferred Stocks	—		1.2		6.8		—		8.0
Collateralized Loan Obligations	Collateralized Loan Obligations	—		752.1		—		—		752.1		Collateralized Loan Obligations	—		953.9		—		—		953.9
Other Mortgage and Asset-backed		—		300.5		7.0		—		307.5
Other Mortgage- and Asset-backed												Other Mortgage- and Asset-backed	—		287.4		5.1		—		292.5
Total Investments in Fixed Maturities	Total Investments in Fixed Maturities	132.8		7,604.2		249.9		—		7,986.9		Total Investments in Fixed Maturities	103.6		6,563.3		227.9		—		6,894.8
Equity Securities at Fair Value:	Equity Securities at Fair Value:											Equity Securities at Fair Value:
Preferred Stocks:	Preferred Stocks:											Preferred Stocks:
Finance, Insurance and Real Estate	Finance, Insurance and Real Estate	—		34.2		—		—		34.2		Finance, Insurance and Real Estate	—		29.0		—		—		29.0
Other Industries	Other Industries	—		16.1		1.5		—		17.6		Other Industries	—		9.2		1.6		—		10.8
Common Stocks:	Common Stocks:											Common Stocks:

Finance, Insurance and Real Estate	Finance, Insurance and Real Estate	18.9		—		—		—		18.9		Finance, Insurance and Real Estate	0.9		—		—		—		0.9
Other Industries	Other Industries	2.9		—		—		—		2.9		Other Industries	0.3		0.4		0.5		—		1.2
Other Equity Interests:	Other Equity Interests:											Other Equity Interests:
Exchange Traded Funds	Exchange Traded Funds	432.0		—		—		—		432.0		Exchange Traded Funds	12.2		—		—		—		12.2
Limited Liability Companies and Limited Partnerships	Limited Liability Companies and Limited Partnerships	—		—		—		325.0		325.0		Limited Liability Companies and Limited Partnerships	—		—		—		189.1		189.1
Total Investments in Equity Securities at Fair Value	Total Investments in Equity Securities at Fair Value	453.8		50.3		1.5		325.0		830.6		Total Investments in Equity Securities at Fair Value	13.4		38.6		2.1		189.1		243.2

Other Investments:

Convertible Securities at Fair Value	Convertible Securities at Fair Value	—		46.4		—		—		46.4		Convertible Securities at Fair Value	—		43.3		—		—		43.3

Total		$	586.6	$	7,700.9	$	251.4	$	325.0	$	8,863.9
Other Investments:												Other Investments:
Derivative Instruments Not Designated as Hedges												Derivative Instruments Not Designated as Hedges	—		1.7		—		—		1.7
Total Assets												Total Assets	$	117.0	$	6,646.9	$	230.0	$	189.1	$	7,183.0
Liabilities:												Liabilities:
Accrued Expenses and Other Liabilities:												Accrued Expenses and Other Liabilities:
Derivative Instruments Designated as Cash Flow Hedges												Derivative Instruments Designated as Cash Flow Hedges	$	—	$	(0.4)	$	—	$	—	$	(0.4)
Total Liabilities												Total Liabilities	$	—	$	(0.4)	$	—	$	—	$	(0.4)

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10 - Fair Value Measurements (Continued)

The Company’s investments in Fixed Maturities that are classified as Level 1 primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities at Fair Value that are classified as Level 1 consist of either investments in publicly-traded common stocks or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 primarily consist of investments in corporate bonds, obligations of states and political subdivisions, collateralized loan obligations, and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities at Fair Value that are classified as Level 2 primarily consist of investments in preferred stocks. The Company’s Derivative Instruments Designated as Fair Value Hedges that are classified as Level 2 primarily consist of hedges against the Company’s available for sale debt securities portfolio. The Company uses a leading, nationally recognized provider of market data and analytics to price the vast majority of the Company’s Level 2 measurements. The provider utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Because many fixed maturity securities do not trade on a daily basis, the provider’s evaluated pricing

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 7 - Fair Value Measurements (Continued)~~

applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, the provider uses model processes to develop prepayment and interest rate scenarios.

The pricing provider’s models and processes also take into account market convention. For each asset class, teams of its evaluators gather information from market sources and integrate relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The Company generally validates the measurements obtained from its primary pricing provider by comparing them with measurements obtained from one additional pricing provider that provides either prices from recent market transactions, quotes in inactive markets or evaluations based on its own proprietary models.

The Company investigates significant differences related to the values provided. On completion of its investigation, management exercises judgment to determine the price selected and whether adjustments, if any, to the price obtained from the Company’s primary pricing provider would warrant classification of the price as Level 3. In instances where a measurement cannot be obtained from either pricing provider, the Company generally will evaluate bid prices from one or more binding quotes obtained from market makers to value investments in inactive markets and classified by the Company as Level 2. The Company generally classifies securities when it receives non-binding quotes or indications as Level 3 securities unless the Company can validate the quote or indication against recent transactions in the market.

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in determining fair values for fixed maturity investments in corporate securities classified as Level 3 at March 31, ~~2022.~~2023.


(Dollars in Millions)	(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs					Weighted-average Yield		(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs			Weighted-average Yield
Investment-grade	Investment-grade	Market Yield	$	98.5	3.5	%	-	11.0	%	6.7	%	Investment-grade	Market Yield	$	64.1	4.2%	-	14.0%	8.9	%
Non-investment-grade:	Non-investment-grade:											Non-investment-grade:
Senior Debt	Senior Debt	Market Yield	40.1		5.9		-	26.0		10.1		Senior Debt	Market Yield	48.6		4.6	-	36.7	12.8
Junior Debt	Junior Debt	Market Yield	51.6		6.0		-	28.5		16.0		Junior Debt	Market Yield	36.8		11.5	-	23.3	15.2

Other	Other	Various	27.2									Other	Various	58.7
Total Level 3 Fixed Maturity Investments	Total Level 3 Fixed Maturity Investments		$	217.4								Total Level 3 Fixed Maturity Investments		$	208.2

(Dollars in Millions) Unobservable Input Total Fair Value Range of Unobservable Inputs Weighted-average Yield
Investment-grade Market Yield $ 87.9 2.3 % - 10.3 % 5.4 %
Non-investment-grade:
Senior Debt Market Yield 76.1 5.1 - 20.2 8.5
Junior Debt Market Yield 53.9 6.0 - 27.5 15.0
Other Various 32.0
Total Level 3 Fixed Maturity Investments $ 249.9


(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs			Weighted-average Yield
Investment-grade	Market Yield	$	56.5	4.6%	-	14.5%	9.2	%
Non-investment-grade:
Senior Debt	Market Yield	72.9		4.6	-	36.7	10.9
Junior Debt	Market Yield	42.1		8.8	-	22.5	15.1
Other	Various	56.4
Total Level 3 Fixed Maturity Investments		$	227.9

2430

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 710 - Fair Value Measurements (Continued)

For an investment in a fixed maturity security, an increase in the yield used to determine the fair value of the security will decrease the fair value of the security. A decrease in the yield used to determine fair value will increase the fair value of the security, but for callable securities the fair value increase is generally limited to par, unless security is currently callable at a ~~premium..~~premium.

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended March 31, ~~2022~~2023 is presented below.


		Fixed Maturities						Equity Securities				Fixed Maturities						Equity Securities
(Dollars in Millions)	(Dollars in Millions)	Corporate Bonds and Notes		Redeemable Preferred Stocks		Collateralized Loan Obligations		Other Mortgage- and Asset- backed		Preferred and Common Stocks			Total		(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks		Other Mortgage- and Asset- backed		Preferred and Common Stocks		Total
Balance at Beginning of Period	Balance at Beginning of Period	$	236.8	$	6.1	$	—	$	7.0	$	1.5		$	251.4	Balance at Beginning of Period	$	216.0		$	6.8	$	5.1	$	2.1	$	230.0
Total Gains (Losses):	Total Gains (Losses):														Total Gains (Losses):
Included in Condensed Consolidated Statement of Income		(5.7)		—		—		—		—			(5.7)
Included in Other Comprehensive Income (Loss)		(1.7)		(0.5)		—		(0.8)		—			(3.0)
Included in Condensed Consolidated Statements of Loss															Included in Condensed Consolidated Statements of Loss	0.4			—		—		(0.5)		(0.1)
Included in Other Comprehensive (Loss) Income															Included in Other Comprehensive (Loss) Income	1.5			—		0.2		—		1.7
Purchases	Purchases	13.7		—		—		—		—			13.7		Purchases	19.4			—		—		—		19.4
Settlements	Settlements	—		—		—		—		—			—		Settlements	—			—		—		—		—
Sales	Sales	(42.8)		—		—		—		—			(42.8)		Sales	(41.2)			—		—		—		(41.2)
Transfers into Level 3	Transfers into Level 3	5.3		—		—		—		—			5.3		Transfers into Level 3	—			—		—		0.4		0.4
Transfers out of Level 3	Transfers out of Level 3	—		—		—		—		—			—		Transfers out of Level 3	—			—		—		—		—
Balance at End of Period	Balance at End of Period	$	205.6	$	5.6	$	—	$	6.2	$	1.5		$	218.9	Balance at End of Period	$	196.1		$	6.8	$	5.3	$	2.0	$	210.2

The transfers into and out of Level 3 were due primarily to changes in the availability of market observable inputs.

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended March 31, ~~2021~~2022 is presented below.


		Fixed Maturities												Fixed Maturities				Equity Securities
(Dollars in Millions)	(Dollars in Millions)	Corporate Bonds and Notes		States and Political Sub- divisions		Redeemable Preferred Stocks		Collateralized Loan Obligations		Other Mortgage- and Asset- backed		Total			(Dollars in Millions)	Corporate Bonds and Notes		Redeemable Preferred Stocks		Other Mortgage- and Asset- backed		Preferred and Common Stocks		Total
Balance at Beginning of Year	Balance at Beginning of Year	$	433.0	$	—	$	6.2	$	—	$	10.0	$	449.2		Balance at Beginning of Year	$	236.8	$	6.1	$	7.0	$	1.5	$	251.4
Total Gains (Losses):
Included in Condensed Consolidated Statement of Income		(1.1)		—		—		—		—		(1.1)
Included in Other Comprehensive Income (Loss)		(3.7)		—		(0.5)		—		(0.8)		(5.0)
Total Losses:															Total Losses:
Included in Condensed Consolidated Statements of Loss															Included in Condensed Consolidated Statements of Loss	(5.7)		—		—		—		(5.7)
Included in Other Comprehensive Income Loss															Included in Other Comprehensive Income Loss	(1.7)		(0.5)		(0.8)		—		(3.0)
Purchases	Purchases	17.8		—		—		—		—		17.8			Purchases	13.7		—		—		—		13.7
Settlements	Settlements	—		—		—		—		—		—			Settlements	—		—		—		—		—
Sales	Sales	(30.9)		—		—		—		(0.2)		(31.1)			Sales	(42.8)		—		—		—		(42.8)
Transfers into Level 3	Transfers into Level 3	—		—		—		—		—		—			Transfers into Level 3	5.3		—		—		—		5.3
Transfers out of Level 3	Transfers out of Level 3	(0.6)		—		—		—		—		(0.6)			Transfers out of Level 3	—		—		—		—		—
Balance at End of Period	Balance at End of Period	$	414.5	$	—	$	5.7	$	—	$	9.0	$	429.2		Balance at End of Period	$	205.6	$	5.6	$	6.2	$	1.5	$	218.9

The transfers into and out of Level 3 were due to changes in the availability of market observable inputs.

2531

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 710 - Fair Value Measurements (Continued)

The table below shows investments reported at fair value using NAV and their unfunded commitments by asset class as of March 31, 2023 and December 31, 2022.


(Dollars in Millions)	March 31, 2023				December 31, 2022
Asset Class	Fair Value Using NAV		Unfunded Commitments		Fair Value Using NAV		Unfunded Commitments
Reported as Equity Method Limited Liability Investments:
Mezzanine Debt	$	117.3	$	53.3	$	114.3	$	51.6
Senior Debt	21.8		40.7		21.6		42.0
Distressed Debt	8.3		—		9.4		—
Secondary Transactions	9.1		1.7		9.3		1.7
Hedge Fund	0.1		—		0.5		—
Leveraged Buyout	9.2		0.7		8.9		0.6
Growth Equity	1.2		—		1.2		—
Real Estate	43.3		—		43.3		—
Other	8.4		—		8.5		—
Total Equity Method Limited Liability Investments	218.7		96.4		217.0		95.9

Alternative Energy Partnership Investments	17.0		—		16.3		—

Reported as Other Equity Interests at Fair Value:
Mezzanine Debt	111.4		62.4		106.0		56.0
Senior Debt	21.9		6.0		21.9		6.0
Distressed Debt	12.7		13.0		12.5		13.0
Secondary Transactions	3.1		4.3		3.5		4.2
Hedge Funds	17.7		—		18.1		—
Leveraged Buyout	22.3		7.9		21.6		9.0
Growth Equity	6.3		6.7		5.4		7.9
Real Estate	0.2		0.2		—		—
Other	—		—		0.1		0.2
Total Reported as Other Equity Interests at Fair Value	195.6		100.5		189.1		96.3

Reported as Equity Securities at Modified Cost:
Other	8.3		—		8.3		—
Total Reported as Equity Securities at Modified Cost	8.3		—		8.3		—


Total Investments in Limited Liability Companies and Limited Partnerships	$	439.6	$	196.9	$	430.7	$	192.2

At March 31, 2023, the Company had unfunded commitments to invest an additional $196.9 million in certain limited liability investment companies and limited partnerships that will be included in Other Equity Interests and Equity Method Limited Liability Investments if funded.

The fund investments included above (excluding Hedge Funds) are not redeemable, because distributions from the funds will be received when underlying investments of the funds are liquidated. The funds are generally expected to have approximately 10 year lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-year increments.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10 - Fair Value Measurements (Continued)

The hedge fund investments included above, which are carried at fair value, are generally redeemable subject to the redemption notices period. The majority of the hedge fund investments are redeemable monthly or quarterly.

The following table includes information related to the Company’s investments in certain private equity funds or hedge funds that calculate a net asset value per share:


Asset Class						Investment Category Includes
Mezzanine Debt						Funds with investments in junior or subordinated debt and potentially minority equity securities issued by private companies.
Senior Debt						Funds with investments in senior or first lien debt and potentially minority equity securities typically issued by private companies.
Distressed Debt						Funds with debt or minority equity investments that are made opportunistically in companies that are in or near default or under financial strain with potential to have an active role in restructuring company.
Secondary Transactions						Funds that focus on purchasing third party fund interests from investors seeking liquidity within their own portfolio.
Hedge Fund						Funds that focus primarily on investing in public securities with strategy of generating uncorrelated returns to the public markets.
Leveraged Buyout						Funds with control equity investments in more mature, positive cash flowing, private companies that are typically purchased with the use of financial leverage.
Growth Equity						Funds that invest in early or venture stage companies with high growth potential with view towards generating realizations through sale or initial public offering (“IPO”) of company.
Real Estate						Funds with investments in multi-family housing properties.
Other						Consists of direct investments of preferred equity or minority common equity investments into private companies structured as limited partnerships or limited liability companies.

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(Dollars in Millions)	(Dollars in Millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		(Dollars in Millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:	Financial Assets:									Financial Assets:
Loans to Policyholders	Loans to Policyholders	$	284.7	$	284.7	$	286.2	$	286.2	Loans to Policyholders	$	283.1	$	283.1	$	283.4	$	283.4
Short-term Investments	Short-term Investments	243.8		243.8		284.1		284.1		Short-term Investments	278.4		278.4		278.4		278.4
Mortgage Loans	Mortgage Loans	99.8		99.8		96.8		96.8		Mortgage Loans	85.7		85.7		91.1		91.1
Company-Owned Life Insurance	Company-Owned Life Insurance	556.4		556.4		$	448.1	$	448.1	Company-Owned Life Insurance	595.3		595.3		$	586.5	$	586.5
Equity Securities at Modified Cost	Equity Securities at Modified Cost	35.2		35.2		32.3		32.3		Equity Securities at Modified Cost	37.1		37.1		38.4		38.4
Financial Liabilities:	Financial Liabilities:									Financial Liabilities:
Long-term Debt	Long-term Debt	$	1,385.2	$	1,343.9	$	1,121.9	$	1,152.1	Long-term Debt	$	1,387.5	$	1,222.0	$	1,386.9	$	1,195.1
Policyholder Obligations	Policyholder Obligations	553.1		553.1		401.9		401.9		Policyholder Obligations	601.0		601.0		601.0		601.0

~~The~~Loans to policyholders are carried at unpaid principal balance which approximates fair value ~~measurement for loans to policyholders~~and are categorized as Level 3 within the fair value hierarchy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The fair value measurement of Short-term Investments is estimated using inputs that are considered either Level 1 or Level 2 measurements. The Mortgage Loans fair value measurement is considered equal to amortized cost given the ~~short term~~short-term nature of the investments. The fair value measurement of Equity Securities at Modified Cost is estimated using inputs that are considered Level 3 measurements. The ~~fair~~cash surrender value of Company-Owned Life Insurance approximates ~~cash surrender value.~~fair value and is considered to be a Level 2 investment. The fair value of Long-term Debt is estimated using quoted prices for similar liabilities in markets that are not active. The inputs used in the valuation are considered Level 2 measurements. Policyholder Obligations presented in the

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10 - Fair Value Measurements (Continued)

preceding table consist of advances from the ~~FHLB~~Federal Home Loan Bank (“ FHLB”) of Chicago, and the inputs used in the valuation are considered Level 2 measurements.

Note 811 - Variable Interest Entities

The Company invests in an Alternative Energy Partnership formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits. This entity was formed to invest in newly installed residential solar leases and power purchase agreements. As a result of this investment, the Company has the right to certain investment tax credits and tax depreciation benefits, and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers.

The Company’s interest in the Alternative Energy Partnership Investment is considered an investment in a variable interest entity (“VIE”). To determine whether the investment should be consolidated in the Consolidated Financial Statements, the Company evaluates whether it is the primary beneficiary of the VIE. The primary beneficiary is the party that has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has determined that it is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the economic performance of the entity and therefore is not required to consolidate the VIE. The project sponsor governs the entity and the Company only has consent rights that have been deemed protective in nature and does not participate in key economic decisions of the entity.

The investment is accounted for using the equity method of accounting and included in Alternative Energy Partnership Investments in the Condensed Consolidated Balance Sheets. The Company uses the HLBV equity method to account for earnings and losses. This method provides an earnings allocation that appropriately reflects the substantive economics of the investment. Earnings and losses on the investment are reported in Change in Value of Alternative Energy Partnership Investments and investment tax credits are recognized in Income Tax ~~Expense (Benefit)~~(Expense) Benefit on the Condensed Consolidated Statements of ~~Income.~~

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 8 - Variable Interest Entities (Continued)~~Loss.

The following table presents information regarding activity in the Company’s Alternative Energy Partnership Investments ~~as of~~for the ~~periods indicated:~~three months ended March 31, 2023 and 2022.

Three Months Ended
(Dollars in millions) Mar 31, 2022 Mar 31, 2021
Fundings $ — $ 48.5
Cash distribution from investment 0.4 —
Gain (loss) on investments in Alternative Energy Partnership (16.7) (15.4)
Income tax credits recognized 3.9 28.4
Tax benefit (expense) recognized from Alternative Energy Partnership 3.1 0.2


	Three Months Ended
(Dollars in millions)	Mar 31, 2023		Mar 31, 2022
Fundings	$	—	$	—
Cash Distribution from Investment	0.5		0.4
Income (Loss) on Investments in Alternative Energy Partnership	0.7		(16.7)
Income Tax (Recapture) Credits Recognized	(0.1)		3.9
Tax (Expense) Benefit Recognized from Alternative Energy Partnership	(0.2)		3.1

The following table represents the carrying value of the associated assets and liabilities and the associated maximum loss exposure of the Alternative Energy Partnership Investments as of ~~the dates indicated:~~March 31, 2023 and December 31, 2022.

~~(Dollars in millions)~~

~~Mar 31, 2022~~

~~Cash~~

~~19.3~~

~~Equipment, net of depreciation~~

~~271.1~~

~~Other assets~~

~~2.9~~

~~Total unconsolidated assets~~

~~293.3~~

~~Maximum loss exposure~~

~~22.4~~


(Dollars in millions)	Mar 31, 2023		Dec 31, 2022
Cash	$	2.9	$	3.0
Equipment, Net of Depreciation	259.1		261.7
Other Assets	5.7		5.1
Total Unconsolidated Assets	267.7		269.7
Maximum Loss Exposure	17.0		16.3

The Company’s maximum loss exposure in the event that all of the assets in the Alternative Energy Partnership are deemed worthless is ~~$22.4~~$17.0 million and $16.3 million, which is the carrying value of the investment at March 31, ~~2022.~~

~~Note 9 - Other Comprehensive Income (Loss)~~2023 and ~~Accumulated Other Comprehensive Income (Loss)~~

~~The tables below display the changes in Accumulated Other Comprehensive Income (Loss) by component for the three months ended March~~December 31, 2022, ~~and 2021.~~

(Dollars in Millions) Net Unrealized Gains (Losses) on Other Investments Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses Net Unrecognized Postretirement Benefit Costs Gain (Loss) on Cash Flow Hedges Total
Balance as of January 1, 2022 505.8 (3.7) (52.1) (1.9) 448.1
Other Comprehensive Income (Loss) Before Reclassifications (515.1) (5.8) — 4.7 (516.2)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $(1.5), $—, $—, $— and $(1.5) 5.8 — — — 5.8
Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $135.2, $1.6, $—, $(1.2) and $135.6 (509.3) (5.8) — 4.7 (510.4)
Balance as of March 31, 2022 (3.5) (9.5) (52.1) 2.8 (62.3)

respectively.

2734

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 912 - Other Comprehensive ~~Income (Loss)~~Loss and Accumulated Other Comprehensive ~~Income (Continued)~~Loss

(Dollars in Millions) Net Unrealized Gains (Losses) on Other Investments Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses Net Unrecognized Postretirement Benefit Costs Gain (Loss) on Cash Flow Hedges Total
Balance as of January 1, 2021 730.6 (2.1) (45.7) (2.3) 680.5
Other Comprehensive Income (Loss) Before Reclassifications (281.5) (1.7) 0.8 0.1 (282.3)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $2.1, $—, $—, $— and $2.1 (7.7) — — — (7.7)
Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $74.8, $0.4, $0.5, $— and $75.7 (289.2) (1.7) 0.8 0.1 (290.0)
Balance as of March 31, 2021 441.4 (3.8) (44.9) (2.2) 390.5
The tables below display the changes in Accumulated Other Comprehensive Loss by component for the three months ended March 31, 2023 and 2022.


(Dollars in Millions)	Net Unrealized Losses on Other Investments		Net Unrealized Losses on Investments with an Allowance for Credit Losses		Net Unrecognized Postretirement Benefit Costs		Gain (Loss) on Cash Flow Hedges		Change in Discount Rate on Future Life Policyholder Benefits		Total
Balance as of January 1, 2023	$	(719.4)	$	(2.2)	$	(37.2)	$	2.8	$	241.1	$	(514.9)
Other Comprehensive Income (Loss) Before Reclassifications	147.5		1.4		—		—		(86.7)		62.2
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $0.0, $0.4, $(0.1), $0.1, $0.0 and $0.4	(0.1)		(1.4)		(0.4)		(0.1)		—		(2.0)
Other Comprehensive Income (Loss) Net of Tax Benefit (Expense) of $(39.8), $(0.4), $0.0, $0.0, $23.1 and $(17.1)	147.4		—		(0.4)		(0.1)		(86.7)		60.2
Balance as of March 31, 2023	$	(572.0)	$	(2.2)	$	(37.6)	$	2.7	$	154.4	$	(454.7)


(Dollars in Millions)	Net Unrealized Gains (Losses) on Other Investments		Net Unrealized Losses on Investments with an Allowance for Credit Losses		Net Unrecognized Postretirement Benefit Costs		(Loss) Gain on Cash Flow Hedges		Change in Discount Rate on Future Life Policyholder Benefits		Total
Balance as of January 1, 2022, as Reported	$	505.8	$	(3.7)	$	(52.1)	$	(1.9)	$	(849.7)	$	(401.6)


Other Comprehensive (Loss) Income Before Reclassifications	(515.1)		(5.8)		—		4.7		444.2		(72.0)
Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income Net of Tax Benefit (Expense) of $(1.5), $0.0, $0.0, $0.0, $0.0 and $(1.5)	5.8		—		—		—		—		5.8
Other Comprehensive (Loss) Income Net of Tax (Expense) Benefit of $135.2, $1.6, $0.0, $(1.2), $(118.1) and $17.5	(509.3)		(5.8)		—		4.7		444.2		(66.2)
Balance as of March 31, 2022	$	(3.5)	$	(9.5)	$	(52.1)	$	2.8	$	(405.5)	$	(467.8)

Amounts reclassified from Accumulated Other Comprehensive ~~Income (Loss)~~Loss shown above are reported in Net ~~Income (Loss)~~Loss as follows:


Components of ~~AOCI~~Accumulated Other Comprehensive Loss			Consolidated Statements of Income Line Item Affected by Reclassifications
Net ~~unrealized~~Unrealized Gains (Losses) on Other Investments and Net Unrealized ~~Gains (Losses)~~Losses on Investments with an Allowance for Credit Losses			Net Realized Investment Gains ~~on Sales of Investments~~(Losses) and Impairment Losses
Net Unrecognized Postretirement Benefit Costs			Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses, Insurance Expenses, and Interest and Other Expenses
Gain (Loss) on Cash Flow Hedges			Interest and Other Expenses
Change in Discount Rate on Future Life Policyholder Benefits			Not applicable

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1013 - Shareholders’ Equity

Common Stock Repurchases

During the three months ended March 31, 2023 and 2022, Kemper did not repurchase any shares of its common stock. During the three months ended March 31, 2021 Kemper repurchased and retired approximately 590,000 shares of its common stock under its share repurchase authorization for an aggregate cost of $47.1 million and an average cost per share of $79.36.

~~These purchases were made in the open market in accordance with applicable federal securities laws, including Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934.~~

Employee Stock Purchase Plan

During the three months ended March 31, 2023 and 2022, ~~and 2021,~~respectively, the Company issued approximately ~~22,000~~18,000 and ~~15,000~~22,000 shares under the Kemper Employee Stock Purchase Plan (“ESPP”)~~, respectively,~~ at an average discounted price of ~~$48.06~~$46.46 and ~~$67.76~~$48.06 per share. Compensation costs charged against income ~~were $0.2 million and~~was $0.2 million for the ~~year~~three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 1114 - Pension Benefits and Postretirement Benefits Other Than Pensions

The Company sponsors a qualified defined benefit pension plan (the “Pension Plan”) that covers approximately ~~3,145~~3,100 participants and beneficiaries. Effective January 1, 2006, the Pension Plan was closed to new hires and, effective June 30, 2016,

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 11 - Pension Benefits and Postretirement Benefits Other Than Pensions (Continued)~~

benefit accruals were frozen for substantially all of the participants under the Pension Plan. The Pension Plan is generally non-contributory, but participation requires or required some employees to contribute 3% of pay, as defined, per year. Benefits for participants who are or were required to contribute to the Pension Plan are based on compensation during plan participation and the number of years of participation. Benefits for the vast majority of participants who are not required to contribute to the Pension Plan are based on years of service and final average pay, as defined. The Company funds the Pension Plan in accordance with the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The components of Pension ~~(Benefit)~~ Expense for the Pension Plan for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022

Interest Cost on Projected Benefit Obligation	Interest Cost on Projected Benefit Obligation	$	2.2	$	1.8		Interest Cost on Projected Benefit Obligation	$	3.4	$	2.2
Expected Return on Plan Assets	Expected Return on Plan Assets	(1.9)		(2.3)			Expected Return on Plan Assets	(3.3)		(1.9)
Amortization of Prior Service Cost	Amortization of Prior Service Cost	0.2		—			Amortization of Prior Service Cost	0.2		0.2
Amortization of Net Actuarial Loss	Amortization of Net Actuarial Loss	0.4		0.7			Amortization of Net Actuarial Loss	—		0.4

Total Pension (Benefit) Expense		$	0.9	$	0.2
Total Pension Expense							Total Pension Expense	$	0.3	$	0.9

The Company sponsors two other than pension postretirement benefit (“OPEB”) plans (together the “OPEB Plans”) that together provide medical, dental and/or life insurance benefits to approximately 400 retired and 500 active employees.

The components of OPEB ~~benefits~~Benefit for the OPEB Plans for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Service Cost	Service Cost	$	0.1	$	0.1		Service Cost	$	—	$	0.1
Interest Cost on Accumulated Postretirement Benefit Obligation	Interest Cost on Accumulated Postretirement Benefit Obligation	—		—			Interest Cost on Accumulated Postretirement Benefit Obligation	0.1		—
Amortization of Prior Service Credit	Amortization of Prior Service Credit	(0.3)		(0.3)			Amortization of Prior Service Credit	(0.3)		(0.3)
Amortization of Net Gain	Amortization of Net Gain	(0.4)		(0.4)			Amortization of Net Gain	(0.4)		(0.4)
Total OPEB (Benefit) Expense		$	(0.6)	$	(0.6)
Total OPEB Benefit							Total OPEB Benefit	$	(0.6)	$	(0.6)

The non-service cost components of the Pension Plan and OPEB Plans are presented within the Interest and Other Expenses line item in the Condensed Consolidated Statements of ~~Income.~~Loss.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1215 - Policyholder Obligations

Policyholder Obligations at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
FHLB Funding Agreements	FHLB Funding Agreements	$	553.1	$	401.9	FHLB Funding Agreements	$	601.0	$	601.0
Universal Life-type Policyholder Account Balances	Universal Life-type Policyholder Account Balances	101.9		102.1		Universal Life-type Policyholder Account Balances	99.6		100.3
Total	Total	$	655.0	$	504.0	Total	$	700.6	$	701.3

FHLB Funding Agreements

Kemper’s subsidiary, United Insurance Company of America ("(“United ~~Insurance"~~Insurance”) has entered into funding agreements with the ~~Federal Home Loan Bank (“FHLB”)~~FHLB of Chicago in exchange for cash, which it uses for spread lending purposes. During the three months ended March 31, ~~2022,~~2023, United Insurance received advances of ~~$208.4~~$89.1 million from the FHLB of Chicago and made repayments of ~~$57.1~~$89.1 million under the spread lending program.

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 12 - Policyholder Obligations (Continued)~~

When a funding agreement is issued, United Insurance is then required to post collateral in the form of eligible securities including mortgage-backed, government, and agency debt instruments for each of the advances that are entered. 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. Upon any event of default by United Insurance, the FHLB’s recovery on the collateral is limited to the amount of United Insurance’s liability under the funding agreements to the FHLB of Chicago.

United Insurance’s liability under the funding agreements with the FHLB of Chicago, the amount of collateral pledged under such agreements and FHLB of Chicago common stock owned by United Insurance at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 is presented below.


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Liability under Funding Agreements	Liability under Funding Agreements	$	553.1	$	401.9	Liability under Funding Agreements	$	601.0	$	601.0
Fair Value of Collateral Pledged	Fair Value of Collateral Pledged	622.5		556.6		Fair Value of Collateral Pledged	772.9		744.6
FHLB of Chicago Common Stock Owned at Cost	FHLB of Chicago Common Stock Owned at Cost	14.7		11.8		FHLB of Chicago Common Stock Owned at Cost	17.5		17.5

Universal Life-type Policyholder Account Balances

The Company’s weighted-average crediting rate for Universal Life-type Policyholder Account Balances was 5.1% for the three months ended March 31, 2023 and March 31, 2022, respectively. Guaranteed minimum benefit amounts in excess of the current account balances for these contracts were $306.8 million and $311.4 million as of March 31, 2023 and December 31, 2022, respectively. The cash surrender value of the Company’s policyholder obligations for these contracts were $100.0 million as of March 31, 2023 and December 31, 2022, respectively.

Note 1316 - Debt

Amended and Extended Credit Agreement

Financial covenants within the agreement limit the Company from accessing the maximum capacity. The amount available as of March 31, 2023 was $520.0 million. There were no outstanding borrowings under the credit agreement at either March 31, ~~2022~~2023 or December 31, ~~2021.~~

The Company incurred $2.2 million debt issuance costs in relation to the amended agreement. As of March 31, 2022 there were $2.6 million of remaining unamortized costs under the credit agreement, which will be amortized under the remaining term of the credit agreement.2022.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 16 - Debt (Continued)

Long-term Debt

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption.

Total amortized cost of Long-term Debt outstanding at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was:

(Dollars in Millions) Mar 31,
2022 Dec 31,
2021
Senior Notes:
5.000% Senior Notes due September 19, 2022
$ — $ 276.7
4.350% Senior Notes due February 15, 2025
449.1 449.0
2.400% Senior Notes due September 30, 2030
396.3 396.2
3.800% Senior Notes due February 23, 2032
395.1 —
5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062
144.7 —
Total Long-term Debt Outstanding $ 1,385.2 $ 1,121.9

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 13 - Debt (Continued)~~

~~Redemption of 5.000% Senior Notes Due 2022~~

The liabilities of Infinity Property and Casualty Corporation (“Infinity”) at the date of Infinity’s acquisition 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.

On February 23, 2022, Kemper issued a notice of redemption for the entire $275.0 million aggregate principal outstanding of the 2022 Senior Notes at a redemption price equal to 100% of their principal, plus accrued and unpaid interest on the redemption date. On March 25, 2022, Kemper completed the redemption, and the 2022 Senior Notes were repaid in full. The Company recognized a Loss from Early Extinguishment of Debt of $3.7 million in its March 31, 2022 Condensed Consolidated Statement of Income.

~~The Company used the proceeds received from Kemper’s 2032 Senior Notes offering to repay the 2022 Senior Notes. See “3.800%~~ ~~Senior Notes Due 2032” below for additional information regarding the debt issuance.~~


(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Senior Notes:
4.350% Senior Notes due February 15, 2025	$	449.4	$	449.3
2.400% Senior Notes due September 30, 2030	396.7		396.6
3.800% Senior Notes due February 23, 2032	395.6		395.5
5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062	145.8		145.5
Total Long-term Debt Outstanding	$	1,387.5	$	1,386.9

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”). 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 2017. 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

Kemper has $400.0 million aggregate principal of 2.400% senior notes due September 30, 2030 (the “2030 Senior Notes”). The net proceeds of issuance were $395.8 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.

3.800% Senior Notes Due 2032

On February 15, 2022, Kemper offered and sold $400.0 million aggregate principal of 3.800% senior notes due February 23, 2032 (the “2032 Senior Notes”). The net proceeds of issuance were $395.1 million, net of discount and transaction costs for an effective yield of 3.950%. The 2032 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.

In anticipation of the issuance of the 2032 Senior Notes and for risk management purposes, the Company entered into a derivative transaction to hedge the risk of changes in the debt cash flows attributable to changes in the benchmark U.S. Treasury interest rate during the period leading up to the debt issuance (“Treasury Lock”). The effective portion of the gain on the derivative instrument upon discontinuance was $5.9 million before taxes, and is reported as a component of Accumulated Other Comprehensive Income (Loss). Beginning with the issuance of the 2032 Senior Notes described in the preceding paragraph, such gain is being amortized into earnings and reported in Interest and Other Expenses in the same periods that the hedged items affect earnings. Amortization, reported in Interest and Other Expenses, was $0.1 million for the three months ended March 31, ~~2022.~~2023. The Company expects to reclassify $0.5 million of net gain on derivative instruments from AOCI to earnings for the twelve months ended March 31, ~~2023~~2024 as interest expense on the debt is recognized.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 16 - Debt (Continued)

5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062

On March 10, 2022, Kemper issued $150.0 million aggregate principal amount of 5.875% Fixed-Rate Reset Junior Subordinated Debentures due March 15, 2062 (the “2062 Junior Debentures”). The net proceeds from issuance were $144.7 million, net of discount and transaction costs. The 2062 Junior Debentures will bear interest from and including the date

~~KEMPER CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 13 - Debt (Continued)~~

of original issue to, but excluding, March 15, 2027 (the “First Reset Date”) at the fixed rate of 5.875% per annum. The interest rate on the First Reset Date, and subsequent Reset Dates, will be equal to the Five-Year Treasury Rate as of the most recent Reset Date plus 4.140% to be reset on each Reset Date. Interest is due quarterly in arrears beginning on June 15, 2022. The Company has the option to defer interest payments for one or more optional deferral periods of up to five consecutive years, provided that no optional deferral period shall extend beyond March 15, 2062, or any earlier accelerated maturity date arising from an event of default or any earlier redemption of the 2062 Junior Debentures.

The 2062 Junior Debentures are unsecured and may be redeemed in whole or in part on the First Reset Date or any time thereafter, at a redemption price equal to the principal amount of the debentures being redeemed plus any accrued and unpaid interest.

Short-term Debt

Kemper’s subsidiaries, United Insurance, Trinity Universal Insurance Company (“Trinity”) and ~~Alliance~~American Access Casualty Company (“AAC”), are members of the FHLBs of Chicago, Dallas and Chicago respectively. Alliance United Insurance Company (“Alliance”) was a member of the FHLB of San Francisco ~~respectively.~~until it surrendered all California licenses on January 30, 2023 and ceased to exist as an insurance company. As a requirement of membership in the FHLBs, United Insurance, Trinity, and ~~Alliance~~AAC maintain a certain level of investment in FHLB stock. The Company periodically uses short-term FHLB borrowings for a combination of cash management and risk management purposes, in addition to long-term FHLB borrowings for spread lending purposes. There were no short-term debt advances from the FHLBs of Chicago ~~Dallas~~ or ~~San Francisco~~Dallas outstanding at March 31, ~~2022~~2023 or December 31, ~~2021.~~2022. For information on United Insurance’s funding agreement with the FHLB of Chicago in connection with the spread lending program, see Note ~~12,~~15, “Policyholder Obligations,” to the Condensed Consolidated Financial Statements.

Interest Expense and Interest Paid

Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $14.1 million for the three months ended March 31, 2023. Interest paid, including facility fees, was $24.8 million for the three months ended March 31, 2023. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $12.7 million for the three months ended March 31, 2022. Interest paid, including facility fees, was $22.0 million for the three months ended March 31, 2022. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $11.1 million for the three months ended March 31, 2021. Interest paid, including facility fees, was $21.7 million for the three months ended March 31, 2021.

Note 1417 - Leases

The Company leases certain office space under non-cancelable operating leases, with initial terms typically ranging from one to fifteen years, along with options that permit renewals for additional periods. The Company also leases certain equipment under non-cancelable operating leases, with initial terms typically ranging from one to five years. Minimum rent is expensed on a straight-line basis over the term of the lease.

The following table presents operating lease right-of-use assets and lease liabilities.

(Dollars in Millions) Mar 31,
2022 Dec 31,
2021
Operating Lease Right-of-Use Assets $ 60.4 $ 64.4
Operating Lease Liabilities 80.1 84.8


(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Operating Lease Right-of-Use Assets	$	40.0	$	45.1
Operating Lease Liabilities	68.5		72.6

3239

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1417 - Leases (Continued)

Lease expenses are primarily included in Insurance Expenses in the Condensed Consolidated ~~Statement~~Statements of ~~Income.~~Loss. Additional information regarding the Company’s lease cost is presented below.


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Lease Cost:	Lease Cost:						Lease Cost:
Amortization of Right-of-Use Assets - Finance Leases		$	—	$	0.1

Operating Lease Cost	Operating Lease Cost	5.6		5.1			Operating Lease Cost	$	4.1	$	5.6
Variable Lease Cost	Variable Lease Cost	0.1		—			Variable Lease Cost	0.1		0.1
Short-Term Lease Cost (1)	Short-Term Lease Cost (1)	1.2		0.9			Short-Term Lease Cost (1)	—		1.2
Total Lease Expense	Total Lease Expense	$	6.9	$	6.1		Total Lease Expense	$	4.2	$	6.9
Less: Sub-Lease Income	Less: Sub-Lease Income	0.1		—			Less: Sub-Lease Income	—		0.1
Total Lease Cost	Total Lease Cost	$	6.8	$	6.1		Total Lease Cost	$	4.2	$	6.8

(1) - Leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Balance Sheets.

Other Information on Operating Leases

Supplemental cash flow information related to the Company’s operating ~~and finance~~ leases for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Three Months Ended					Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021		(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Operating Cash Flows from Operating Lease (Fixed Payments)	Operating Cash Flows from Operating Lease (Fixed Payments)	$	6.2	$	5.4	Operating Cash Flows from Operating Lease (Fixed Payments)	$	6.1	$	6.2
Operating Cash Flows from Operating Lease (Liability Reduction)	Operating Cash Flows from Operating Lease (Liability Reduction)	5.5		4.6		Operating Cash Flows from Operating Lease (Liability Reduction)	5.5		5.5
Financing Cash Flows from Finance Leases		—		0.1

Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	1.0		2.3		Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	1.4		1.0

As of March 31, 2023, the Company does not have any finance leases.

Significant judgments and assumptions for determining lease asset and liability at March 31, ~~2022~~2023 and ~~2021~~2022 are presented below.

Three Months Ended

Mar 31,
2022

Mar 31,
2021

Mar 31,
2023

Mar 31,
2022

Weighted-average Remaining Lease Term - Finance Leases

0.8 years

0.5 years

Weighted-average Remaining Lease Term - Finance Leases

N/A

0.8 years

Weighted-average Remaining Lease Term - Operating Leases

5.8 years

6.6 years

Weighted-average Remaining Lease Term - Operating Leases

5.6 years

5.8 years

Weighted-average Discount Rate - Finance Leases

0.6

4.0

Weighted-average Discount Rate - Finance Leases

N/A

0.6

Weighted-average Discount Rate - Operating Leases

3.4

4.0

Weighted-average Discount Rate - Operating Leases

3.6

3.4

Most of the Company’s leases do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of its lease payments.

KEMPER CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 1417 - Leases (Continued)

Future minimum lease payments under operating leases at March 31, ~~2022~~2023 are presented below. There are no significant future minimum lease payments under finance leases.


(Dollars in Millions)	(Dollars in Millions)			(Dollars in Millions)
Remainder of 2022		$	18.2
2023		21.7
Remainder of 2023				Remainder of 2023	$	17.3
2024	2024	15.7		2024	17.6
2025	2025	10.2		2025	13.0
2026	2026	4.5		2026	6.5
2027 and Thereafter		20.5
2027				2027	4.2
2028 and Thereafter				2028 and Thereafter	17.9
Total Future Payments	Total Future Payments	$	90.8	Total Future Payments	$	76.5
Less Imputed Interest	Less Imputed Interest	10.7		Less Imputed Interest	8.0
Present Value of Minimum Lease Payments	Present Value of Minimum Lease Payments	$	80.1	Present Value of Minimum Lease Payments	$	68.5

Note 1518 - Income Taxes

The statute of limitations related to Kemper and its eligible subsidiaries’ consolidated Federal income tax returns is closed for all tax years up to and including ~~2011.~~2011 as well as 2018. As a result of the Company filing amended federal income tax returns, tax years 2012 and 2013 are under limited examination with respect to ~~carryback~~carry-back adjustments associated with the amended returns. The statute of limitations related to tax years 2014, 2015, 2016 and 2017 has been extended to ~~September 30, 2022.~~December 31, 2023. Tax years ~~2018,~~ 2019, 2020 and ~~2020~~2021 are subject to a statute of three years from the extended due dates of October 15, ~~2019,~~ 2020, 2021, and ~~2021,~~2022, respectively.

The expiration of the statute of limitations related to the various state income tax returns that Kemper and its subsidiaries file varies by state.

There were no ~~unrecognized tax benefits~~ Unrecognized Tax Benefits at March 31, ~~2022~~2023 or December 31, ~~2021.~~2022. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in ~~income tax expense.~~Income Tax Benefit.

~~Income~~For the three months ended March 31, 2023, federal income tax refunds received, net of income taxes paid, were $124.7 million. For the three months ended March 31, 2022, federal income taxes paid, net of refunds received, were ~~less than~~ $0.1 ~~million~~million.

For the three months ended March 31, 2023 and March 31, 2022, state income tax refunds, net of income taxes paid, were negligible. There were no foreign income taxes paid or refunds received for the three months ended March 31, ~~2022. Income taxes paid, net of refunds received, were $30.1 million for the three months ended~~2023 and March 31, ~~2021.~~2022, respectively.

Note 1619 - Commitments and Contingencies

In the ordinary course of its businesses, the Company is involved in legal ~~proceedings-~~proceedings including lawsuits, arbitration, regulatory examinations, audits and inquiries. Based on currently available information, the Company does not believe that it is reasonably possible that any of its pending legal proceedings will have a material effect on the Company’s ~~interim~~ Condensed Consolidated Financial Statements and Notes to the ~~interim~~ Condensed Consolidated Financial Statements.

Over the last decade there have been multiple initiatives that intend, in various ways, to impose new duties on life insurance companies to proactively search for information related to the deaths of their insureds. These initiatives, which include legislation, audits, regulatory examinations and litigation, seek to alter the terms of life insurance contracts by imposing requirements that did not exist and were not contemplated at the time the issuing companies entered into such contracts.

In 2016, the Company voluntarily began implementation of a comprehensive process to compare the records of its life insurance subsidiaries against one or more death verification databases to determine if any of its insureds may be deceased.

Attempts to estimate the ultimate outcomes of the aforementioned initiatives entail uncertainties including but not limited to the (i) scope and interpretation of pertinent statutes, including the matching criteria and methodologies to be used in comparing policy records against a death verification database, (ii) universe of policies affected, (iii) results of audits, examinations and other actions by regulators, (iv) results of the Company’s voluntary process, and (v) outcomes of any related litigation.

3441

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

Summary of Results

As discussed in Note 1, “Basis of Presentation and Accounting Policies”, to the Condensed Consolidated Financial Statements effective January 1, 2023, the Company adopted Accounting Standards Update No. 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments” (“LDTI”) under the modified retrospective method. Prior period amounts in the financial statements have been adjusted to reflect application of the new guidance. Related financial data shown in Management's Discussion and Analysis of Financial Condition and Results of Operations also have been adjusted.

Net Loss was ~~$94.8~~$80.1 million ($~~(1.49)~~(1.25) per unrestricted common share) for the three months ended March 31, ~~2022,~~2023, compared to Net ~~Income~~Loss of ~~$123.2~~$86.3 million ($~~1.88~~(1.36) per unrestricted common share) for the same period in ~~2021.~~2022.

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 numbers referenced in the following paragraphs are estimates. The actual impacts could ultimately differ from the stated estimates, although the Company believes any difference would likely not be material.

For the three months ended March 31, 2022, the Company estimates that its net results were negatively impacted by $120 million related to the effects of the COVID-19 pandemic and related economic conditions. The impact to net results was primarily related to underwriting losses in the P&C business attributable to rising loss costs fueled by higher inflation, as well as pandemic-related auto industry shortages of supplies such as chips, high demand for used cars, and higher labor costs. Additionally, the Life & Health insurance segment continued to experience excess pandemic-related mortality.

For the three months ended March 31, 2021, the Company estimated that its net results were negatively impacted by $5 million related to the effects of the COVID-19 pandemic and related economic conditions. The decrease to net income was primarily attributed to excess mortality in the Life & Health Insurance segment, partially offset by favorable underwriting results driven by lower frequency in the auto business of the P&C segments as a significant reduction in miles driven occurred.

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 the Company’s 2021 Annual Report on Form 10-K.

A reconciliation of Net ~~Income (Loss)~~Loss to Adjusted Consolidated Net Operating Income (Loss) (a non-GAAP financial measure) for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is presented below.

Three Months Ended
(Dollars in Millions and Net of Income Taxes) Mar 31,
2022 Mar 31,
2021 Increase
(Decrease)
Net Income (Loss) $ (94.8) $ 123.2 $ (218.0)
Less:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities (22.3) 41.2 (63.5)
Net Realized Gains on Sales of Investments 1.2 10.9 (9.7)
Impairment Losses (7.0) (3.2) (3.8)
Acquisition Related Transaction, Integration and Other Costs (3.7) (12.9) 9.2
Loss from Early Extinguishment of Debt (2.9) — $ (2.9)
Adjusted Consolidated Net Operating Income (Loss) $ (60.1) $ 87.2 $ (147.3)
Components of Adjusted Consolidated Net Operating Income (Loss):
Segment Net Operating Income (Loss):
Specialty Property & Casualty Insurance $ (44.7) $ 80.1 $ (124.8)
Preferred Property & Casualty Insurance (6.1) 9.6 (15.7)
Life & Health Insurance 3.1 7.3 (4.2)
Total Segment Net Operating Income (Loss) (47.7) 97.0 (144.7)
Corporate and Other Net Operating Income (Loss) From:
Other (12.4) (9.8) (2.6)
Corporate and Other Net Operating Income (Loss) (12.4) (9.8) (2.6)
Adjusted Consolidated Net Operating Income (Loss) $ (60.1) $ 87.2 $ (147.3)

~~Summary of Results (Continued)~~


	Three Months Ended
(Dollars in Millions and Net of Income Taxes)	Mar 31, 2023		Mar 31, 2022		Increase (Decrease)
Net Loss	$	(80.1)	$	(86.3)	$	6.2


Less:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	1.3		(22.3)		23.6
Net Realized Investment Gains	5.1		1.2		3.9
Impairment Gains (Losses)	1.7		(7.0)		8.7
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs	(23.0)		(3.7)		(19.3)
Debt Extinguishment, Pension, and Other Charges	—		(2.9)		$	2.9
Adjusted Consolidated Net Operating Loss	$	(65.2)	$	(51.6)	$	(13.6)

Components of Adjusted Consolidated Net Operating (Loss) Income:
Segment Net Operating (Loss) Income:
Specialty Property & Casualty Insurance	$	(58.4)	$	(44.7)	$	(13.7)
Preferred Property & Casualty Insurance	(9.5)		(6.1)		(3.4)
Life & Health Insurance	13.2		11.6		1.6
Segment Net Operating Loss	(54.7)		(39.2)		(15.5)
Corporate and Other Net Operating Loss From:


Other	(10.5)		(12.4)		1.9
Corporate and Other Net Operating Loss	(10.5)		(12.4)		1.9
Adjusted Consolidated Net Operating Loss	$	(65.2)	$	(51.6)	$	(13.6)

Net ~~Income~~Loss

Net ~~Income~~Loss decreased by ~~$218.0~~$6.2 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~lower Adjusted Consolidated Net Operating Income and loss~~increased income from Change in Fair Value of Equity and Convertible ~~Securities.~~securities, partially offset by increases in Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs. Adjusted Consolidated Net Operating ~~Income decreased~~Loss increased by ~~$147.3~~$13.6 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~lower Specialty Property & Casualty~~higher Segment Insurance Net Operating ~~Income,~~Losses in the Specialty and Preferred Property & Casualty ~~Segment Insurance Net Operating Income,~~Segments, partially offset by higher net income in the Life &and Health Insurance ~~Segment Net Operating Income, and Corporate and Other Net Operating Income.~~Segment.

See ~~MD&A,~~ “Specialty Property & Casualty ~~Insurance”,~~Insurance,” “Preferred Property & Casualty Insurance” and “Life & Health Insurance,” for discussion of each respective segment’s results. Corporate and Other Net Operating ~~Income~~Loss decreased due primarily to ~~increased interest expense resulting from the issuance of the 2032 Senior Notes. The Company’s investment results deteriorated for the three months ended March 31, 2022, compared to the same period~~increases in 2021, due primarily to a $63.5 million after-tax decrease in income from the change in fair value of equity and convertible securities, a $9.7 million after-tax decrease in net realized gains on sales of investments, and a $3.8 million after-tax increase in impairment losses. See MD&A, “Investment Results,” for additional discussion.Net Investment Income.

Summary of Results (Continued)

Revenues

Earned Premiums were ~~$1,338.6~~$1,180.9 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1,200.8~~$1,320.0 million for the same period in ~~2021, an increase~~2022, a decrease of ~~$137.8~~$139.1 million. Earned Premiums in the Specialty Property & Casualty Insurance segment ~~increased~~decreased by ~~$144.0~~$77.4 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. Earned Premiums in the Preferred Property & Casualty Insurance segments decreased by ~~$6.6~~$18.2 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. Earned premiums in the Life & Health Insurance segments decreased by $43.5 million for the three months ended March 31, 2023, compared to the same period in 2022. See ~~MD&A,~~ “Specialty Property & Casualty Insurance” ~~and~~, “Preferred Property & Casualty Insurance,” and “ Life & Health Insurance”, for discussion of the changes in each segment’s earned premiums.

Net Investment Income ~~decreased~~increased by ~~$3.1~~$1.8 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~lower return from Alternative~~higher rates and levels of investments in Fixed Income Securities and higher rates on Short Term Investments ~~lower yields on fixed income securities, partially~~ offset by ~~higher levels of fixed maturities~~lower returns on Equity Method Limited Liability Investments and ~~higher levels and rate on Company-Owned Life Insurance.~~lower balances in Equity Securities.

~~Loss~~Gain from the Change in Value of Alternative Energy Partnership Investments was ~~$16.7~~$0.7 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$15.4~~loss of $16.7 million for the same period ~~2021.~~2022. Tax ~~benefits~~expense related to the Alternative Energy Partnership Investments were ~~$7.0~~$0.3 million and ~~$28.6~~tax benefits of $7.0 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. This resulted in a net ~~loss~~income of ~~$9.7~~$0.4 million and net ~~income~~loss of ~~$13.2~~$9.7 million attributable to Alternative Energy Partnership Investments for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Other Income was ~~$2.4~~$1.2 million for the three months ended March 31, ~~2022,~~2023, compared to $2.4 million for the same period in 2022.

Net Realized Gains on Sales of Investments were $6.4 million for the three months ended March 31, 2023, compared to $1.5 million for the same period in ~~2021.~~2022.

~~Net Realized~~Impairment Gains ~~on Sales of Investments~~ were ~~$1.5~~$2.1 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$13.8~~an Impairment Loss of $8.9 million for the same period in ~~2021.~~

~~Impairment Losses were $8.9 million for the three months ended March 31, 2022, compared to $4.0 million for the same period in 2021.~~2022.

See ~~MD&A,~~ “Investment Results,” under the sub-captions “Net Realized Investment Gains ~~on Sales of Investments”~~(Losses)” and “Impairment Losses” for additional discussion. The Company cannot predict if or when similar investment gains or losses may occur in the future.

Non-GAAP Financial Measures

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.

~~Non-GAAP Financial Measures (Continued)~~

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 (Loss)~~

Non-GAAP Financial Measures (Continued)

Adjusted Consolidated Net Operating (Loss) Income

Adjusted Consolidated Net Operating (Loss) Income is an after-tax, non-GAAP financial measure and is computed by excluding from Net (Loss) Income ~~(Loss)~~ the after-tax impact ~~of:~~of

(i) (Loss) Income ~~(Loss)~~ from Change in Fair Value of Equity and Convertible Securities;

(ii) Net Realized Gains or Losses on Sales of Investments;

(iii) Impairment Losses;

(iv) Acquisition and Disposition Related Transaction, Integration, Restructuring 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 Net ~~Income~~ (Loss). Income. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating (Loss) Income for the three months ended March 31, ~~2022~~2023 or ~~2021.~~2022.

The Company believes that Adjusted Consolidated Net Operating (Loss) 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. (Loss) Income ~~(Loss)~~ from Change in Fair Value of Equity and Convertible Securities, Net Realized Gains or Losses 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 and Disposition Related Transaction Costs, Integration Costs, and ~~Integration~~Restructuring and Other 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 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.

3744

Specialty Property & Casualty Insurance

Selected financial information for the Specialty Property & Casualty Insurance segment follows.


		Three Months Ended								Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022			Mar 31, 2021			(Dollars in Millions)		Mar 31, 2023			Mar 31, 2022
Net Premiums Written	Net Premiums Written		$	1,023.7		$	972.0		Net Premiums Written		$	1,022.1		$	1,023.7

Earned Premiums	Earned Premiums		$	1,021.6		$	877.6		Earned Premiums		$	944.2		$	1,021.6
Net Investment Income	Net Investment Income		34.9			35.0			Net Investment Income		38.5			34.9
Change in Value of Alternative Energy Partnership Investments	Change in Value of Alternative Energy Partnership Investments		(8.4)			(7.3)			Change in Value of Alternative Energy Partnership Investments		0.4			(8.4)
Other Income	Other Income		1.7			0.9			Other Income		0.9			1.7
Total Revenues	Total Revenues		1,049.8			906.2			Total Revenues		984.0			1,049.8
Incurred Losses and LAE related to:	Incurred Losses and LAE related to:								Incurred Losses and LAE related to:
Current Year:	Current Year:								Current Year:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		911.7			650.0			Non-catastrophe Losses and LAE		825.4			911.7
Catastrophe Losses and LAE	Catastrophe Losses and LAE		2.1			1.7			Catastrophe Losses and LAE		8.4			2.1
Prior Years:	Prior Years:								Prior Years:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		(3.8)			(1.4)			Non-catastrophe Losses and LAE		31.6			(3.8)
Catastrophe Losses and LAE	Catastrophe Losses and LAE		0.7			0.4			Catastrophe Losses and LAE		(0.5)			0.7
Total Incurred Losses and LAE	Total Incurred Losses and LAE		910.7			650.7			Total Incurred Losses and LAE		864.9			910.7
Insurance Expenses	Insurance Expenses		199.3			170.3			Insurance Expenses		193.8			199.3

Operating Income (Loss)			(60.2)			85.2
Income Tax Benefit (Expense)			15.5			(5.1)
Segment Net Operating Income (Loss)			$	(44.7)		$	80.1
Operating Loss									Operating Loss		(74.7)			(60.2)
Income Tax Benefit									Income Tax Benefit		16.3			15.5
Segment Net Operating Loss									Segment Net Operating Loss		$	(58.4)		$	(44.7)

Ratios Based On Earned Premiums	Ratios Based On Earned Premiums								Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio		89.2		%	74.1		%	Current Year Non-catastrophe Losses and LAE Ratio		87.5		%	89.2		%
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio		0.2			0.2			Current Year Catastrophe Losses and LAE Ratio		0.9			0.2
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio		(0.4)			(0.2)			Prior Years Non-catastrophe Losses and LAE Ratio		3.3			(0.4)
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio		0.1			—			Prior Years Catastrophe Losses and LAE Ratio		(0.1)			0.1
Total Incurred Loss and LAE Ratio	Total Incurred Loss and LAE Ratio		89.1			74.1			Total Incurred Loss and LAE Ratio		91.6			89.1
Insurance Expense Ratio	Insurance Expense Ratio		19.5			19.4			Insurance Expense Ratio		20.5			19.5

Combined Ratio	Combined Ratio		108.6		%	93.5		%	Combined Ratio		112.1		%	108.6		%
Underlying Combined Ratio	Underlying Combined Ratio								Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio		89.2		%	74.1		%	Current Year Non-catastrophe Losses and LAE Ratio		87.5		%	89.2		%
Insurance Expense Ratio	Insurance Expense Ratio		19.5			19.4			Insurance Expense Ratio		20.5			19.5

Underlying Combined Ratio	Underlying Combined Ratio		108.7		%	93.5		%	Underlying Combined Ratio		108.0		%	108.7		%
Non-GAAP Measure Reconciliation	Non-GAAP Measure Reconciliation								Non-GAAP Measure Reconciliation
Combined Ratio	Combined Ratio		108.6		%	93.5		%	Combined Ratio		112.1		%	108.6		%
Less:	Less:								Less:
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio		0.2			0.2			Current Year Catastrophe Losses and LAE Ratio		0.9			0.2
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio		(0.4)			(0.2)			Prior Years Non-catastrophe Losses and LAE Ratio		3.3			(0.4)
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio		0.1			—			Prior Years Catastrophe Losses and LAE Ratio		(0.1)			0.1
Underlying Combined Ratio	Underlying Combined Ratio		108.7		%	93.5		%	Underlying Combined Ratio		108.0		%	108.7		%

3845

Specialty Property & Casualty Insurance (Continued)

Insurance Reserves


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Personal Automobile	Personal Automobile	$	1,952.3	$	1,985.8	Personal Automobile	$	1,805.6	$	1,875.8
Commercial Automobile	Commercial Automobile	356.5		333.9		Commercial Automobile	491.4		445.3
Insurance Reserves	Insurance Reserves	$	2,308.8	$	2,319.7	Insurance Reserves	$	2,297.0	$	2,321.1

Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Loss and Allocated LAE Reserves:	Loss and Allocated LAE Reserves:					Loss and Allocated LAE Reserves:
Case and Allocated LAE	Case and Allocated LAE	$	1,166.0	$	1,157.9	Case and Allocated LAE	$	1,094.8	$	1,099.9
Incurred But Not Reported	Incurred But Not Reported	934.0		953.0		Incurred But Not Reported	1,027.0		1,041.2
Total Loss and LAE Reserves	Total Loss and LAE Reserves	2,100.0		2,110.9		Total Loss and LAE Reserves	2,121.8		2,141.1
Unallocated LAE Reserves	Unallocated LAE Reserves	208.8		208.8		Unallocated LAE Reserves	175.2		180.0
Insurance Reserves	Insurance Reserves	$	2,308.8	$	2,319.7	Insurance Reserves	$	2,297.0	$	2,321.1

See ~~MD&A,~~ “Critical Accounting Estimates,” of the ~~2021~~2022 Annual Report 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

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

The Specialty Property & Casualty Insurance segment reported a Segment Net Operating Loss of ~~$44.7~~$58.4 million for the three months ended March 31, ~~2022,~~2023, compared to ~~Segment~~a Net Operating ~~Income~~Loss of ~~$80.1~~$44.7 million for the same period in ~~2021.~~2022. Segment ~~Net Operating Income decreased~~net operating losses increased by ~~$124.8~~$13.7 million mostly driven by a $14.4 million decrease in net income from our commercial automobile insurance business due primarily to an increase in the underlying loss ratio from higher claim frequency. The decrease was partially offset by an $0.7 million increase in net income from personal automobile insurance due primarily to higher average earned premiums per exposure resulting from rate increases that were mostly offset by unfavorable prior year loss and LAE development.

Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $77.4 million for the three months ended March 31, 2023, compared to the same period in 2022, due to a decrease in new business resulting from targeted underwriting actions to improve profitability, partially offset by higher average earned premium per exposure from rate increases.

Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $3.6 million for the three months ended March 31, 2023, compared to the same period in 2022, due primarily to higher rates in Fixed Income Securities and Short Term Investments offset by lower returns on Equity Method Limited Liability Investments and lower balances in Equity Securities.

Income related to the Change in Value of Alternative Energy Partnership Investments was $0.4 million for the three months ended March 31, 2023, compared to a loss of $8.4 million for the same period in 2022. Tax expenses related to the Alternative Energy Partnership Investments was $0.1 million for the three months ended March 31, 2023, compared to a tax benefit of $3.6 million for the three months ended March 31, 2022. This resulted in a net income of $0.3 million and net loss of $4.8 million attributable to Alternative Energy Partnership Investments for the three months ended March 31, 2023 and 2022, respectively.

Underlying losses and LAE as a percentage of earned premiums ~~related~~were 87.5% for the three months ended March 31, 2023, an improvement of 1.7 percentage points, compared to the same period in 2022, driven by higher ~~claim~~average earned premium per exposure resulting from rate increases mostly offset by higher claims frequency ~~and severity trends.~~from commercial automobile insurance. 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 $144.0 million for the three months ended March 31, 2022, compared to the same period in 2021, driven by the acquisition of AAC and higher average earned premium per exposure resulting from rate increases associated with higher loss trends. Policies-in-force were lower in Private Passenger Auto, excluding AAC, as a result of ongoing profit improvement actions.

Net Investment Income in the Specialty Property & Casualty Insurance segment decreased by $0.1 million for the three months ended March 31, 2022, compared to the same period in 2021, due primarily to lower return from Alternative Investments, partially offset by higher levels of investments and rate on Company-Owned Life Insurance, and higher levels of investments in fixed income securities.

Loss related to Change in Value of Alternative Energy Partnership Investments was $8.4 million for the three months ended March 31, 2022, compared to $7.3 million for the same period in 2021. Tax benefits related to the Alternative Energy Partnership Investments were $3.6 million and $13.6 million for the three months ended March 31, 2022 and 2021, respectively. This resulted in a net loss of $4.8 million and net income of $6.3 million attributable to Alternative Energy Partnership Investments for the three months ended March 31, 2022 and 2021, respectively.

Underlying losses and LAE as a percentage of earned premiums were 89.2% for the three months ended March 31, 2022, a deterioration of 15.1 percentage points, compared to the same period in 2021, due primarily to higher claim frequency and severity trends. Frequency trends increased as a result of driving activity returning to near pre-pandemic levels. Severity trends increased due to rising inflation and supply chain constraints. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Favorable Unfavorable loss and LAE reserve development (including catastrophe reserve development) was ~~$3.1~~$31.1 million for the three months ended ~~March 31, 2022, compared to $1.0 million for the same period in~~

3946

Specialty Property & Casualty Insurance (Continued)

~~2021.~~March 31, 2023, compared to $3.1 million of favorable development for the same period in 2022. Catastrophe losses and LAE (excluding reserve development) were ~~$2.1~~$8.4 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.7~~$2.1 million for the same period in ~~2021,~~2022, a deterioration of ~~$0.4~~$6.3 million.

Insurance Expenses were ~~$199.3~~$193.8 million, or ~~19.5%~~20.5% of earned premiums, for the three months ended March 31, ~~2022,~~2023, a deterioration of ~~0.1~~1.0 percentage points compared to the same period in ~~2021.~~2022.

The Specialty Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to ~~investment tax credits,~~investments in Corporate Owned Life Insurance, tax-exempt investment income and dividends received deductions.

Personal Automobile Insurance

Selected financial information for the personal automobile insurance product line follows.


		Three Months Ended								Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022			Mar 31, 2021			(Dollars in Millions)		Mar 31, 2023			Mar 31, 2022
Net Premiums Written	Net Premiums Written		$	884.8		$	861.5		Net Premiums Written		$	842.4		$	884.8
Earned Premiums	Earned Premiums		$	901.7		$	785.4		Earned Premiums		$	787.9		$	901.7

Incurred Losses and LAE related to:	Incurred Losses and LAE related to:								Incurred Losses and LAE related to:
Current Year:	Current Year:								Current Year:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		$	827.7		$	586.4		Non-catastrophe Losses and LAE		$	697.6		$	827.7
Catastrophe Losses and LAE	Catastrophe Losses and LAE		2.0			1.6			Catastrophe Losses and LAE		7.7			2.0
Prior Years:	Prior Years:								Prior Years:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		(9.0)			(4.4)			Non-catastrophe Losses and LAE		23.4			(9.0)
Catastrophe Losses and LAE	Catastrophe Losses and LAE		0.7			0.4			Catastrophe Losses and LAE		(0.5)			0.7
Total Incurred Losses and LAE	Total Incurred Losses and LAE		$	821.4		$	584.0		Total Incurred Losses and LAE		$	728.2		$	821.4

Ratios Based On Earned Premiums	Ratios Based On Earned Premiums								Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio		91.8		%	74.7		%	Current Year Non-catastrophe Losses and LAE Ratio		88.5		%	91.8		%
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio		0.2			0.2			Current Year Catastrophe Losses and LAE Ratio		1.0			0.2
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio		(1.0)			(0.6)			Prior Years Non-catastrophe Losses and LAE Ratio		3.0			(1.0)
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio		0.1			0.1			Prior Years Catastrophe Losses and LAE Ratio		(0.1)			0.1
Total Incurred Loss and LAE Ratio	Total Incurred Loss and LAE Ratio		91.1		%	74.4		%	Total Incurred Loss and LAE Ratio		92.4		%	91.1		%

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums from personal automobile insurance ~~increased~~decreased by ~~$116.3~~$113.8 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due ~~primarily~~ to ~~the acquisition of AAC and higher average earned premium per exposure resulting from rate increases associated with higher loss costs, partially offset by~~ a decrease in new business driven by targeted underwriting actions ~~focused on improving profitability.~~to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were ~~$821.4~~$728.2 million, or ~~91.1%~~92.4% of earned premiums for the three months ended March 31, ~~2022,~~2023, compared to ~~$584.0~~$821.4 million, or ~~74.4%~~91.1% of earned premiums, for the same period in ~~2021.~~2022. Incurred losses and LAE as a percentage of earned premiums increased due primarily to ~~a deterioration~~unfavorable prior year loss and LAE development, offset by improvement in underlying losses and LAE as a percentage of earned premium. Underlying losses and LAE as a percentage of ~~related~~ earned premiums were ~~91.8%~~88.5% for the three months ended March 31, ~~2022,~~2023, compared to ~~74.7%~~91.8% for the same period in ~~2021, a deterioration~~2022, an improvement of 17.1 points due to higher claim frequency and severity trends. Frequency trends increased as a result of driving activity returning to near pre-pandemic levels. Severity trends increased due to rising inflation and supply chain constraints. Favorable3.3 points. Unfavorable loss and LAE reserve development was ~~$8.3~~$22.9 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$4.0~~favorable development of $8.3 million for the same period in ~~2021.~~2022. Catastrophe losses and LAE (excluding reserve development) were ~~$2.0~~$7.7 million for the three months ended March 31, ~~2022,~~2023 primarily driven by multiple California weather events, compared to ~~$1.6~~$2.0 million for the same period in ~~2021.~~2022.

4047

Specialty Property & Casualty Insurance (Continued)

Commercial Automobile Insurance

Selected financial information for the commercial automobile insurance product line follows.


		Three Months Ended								Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022			Mar 31, 2021			(Dollars in Millions)		Mar 31, 2023			Mar 31, 2022
Net Premiums Written	Net Premiums Written		$	138.9		$	110.5		Net Premiums Written		$	179.7		$	138.9
Earned Premiums	Earned Premiums		$	119.9		$	92.2		Earned Premiums		$	156.3		$	119.9

Incurred Losses and LAE related to:	Incurred Losses and LAE related to:								Incurred Losses and LAE related to:
Current Year:	Current Year:								Current Year:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		$	84.0		$	63.6		Non-catastrophe Losses and LAE		$	127.8		$	84.0
Catastrophe Losses and LAE	Catastrophe Losses and LAE		0.1			0.1			Catastrophe Losses and LAE		0.7			0.1
Prior Years:	Prior Years:								Prior Years:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		5.2			3.0			Non-catastrophe Losses and LAE		8.2			5.2
Catastrophe Losses and LAE	Catastrophe Losses and LAE		—			—			Catastrophe Losses and LAE		—			—
Total Incurred Losses and LAE	Total Incurred Losses and LAE		$	89.3		$	66.7		Total Incurred Losses and LAE		$	136.7		$	89.3

Ratios Based On Earned Premiums	Ratios Based On Earned Premiums								Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio		70.1		%	68.9		%	Current Year Non-catastrophe Losses and LAE Ratio		81.9		%	70.1		%
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio		0.1			0.1			Current Year Catastrophe Losses and LAE Ratio		0.4			0.1
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio		4.3			3.3			Prior Years Non-catastrophe Losses and LAE Ratio		5.2			4.3
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio		—			—			Prior Years Catastrophe Losses and LAE Ratio		—			—
Total Incurred Loss and LAE Ratio	Total Incurred Loss and LAE Ratio		74.5		%	72.3		%	Total Incurred Loss and LAE Ratio		87.5		%	74.5		%

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums from commercial automobile insurance increased by ~~$27.7~~$36.4 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to higher volume and higher average earned premium per exposure. Incurred losses and LAE were $136.7 million, or 87.5% of earned premiums in 2023, compared to $89.3 million, or 74.5% of earned premiums in ~~2022, compared to $66.7 million, or 72.3% of earned premiums in 2021.~~2022. Incurred losses and LAE as a percentage of earned premiums increased due primarily to a deterioration in underlying losses and LAE as a percentage of earned premiums, as well as adverse loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums were 81.9% in 2023, compared to 70.1% in 2022, ~~compared to 68.9% in 2021,~~ a deterioration of ~~1.2~~11.8 percentage points due primarily to a higher ~~claim severity trends.~~frequency of bodily injury claims. Severity trends increased due to rising inflation and supply chain constraints. Adverse loss and LAE reserve development was ~~$5.2~~$8.2 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$3.0~~$5.2 million for the same period in ~~2021.~~2022.

4148

Preferred Property & Casualty Insurance

Selected financial information for the Preferred Property & Casualty Insurance segment follows.


		Three Months Ended						Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022			Mar 31, 2021				(Dollars in Millions)	Mar 31, 2023			Mar 31, 2022
Net Premiums Written	Net Premiums Written	$	137.4		$	154.4			Net Premiums Written	$	124.0		$	137.4

Earned Premiums	Earned Premiums	$	155.6		$	162.2			Earned Premiums	$	137.4		$	155.6
Net Investment Income	Net Investment Income	12.5			15.9				Net Investment Income	10.5			12.5
Changes in Value of Alternative Energy Partnership Investments	Changes in Value of Alternative Energy Partnership Investments	(3.9)			(4.1)				Changes in Value of Alternative Energy Partnership Investments	0.1			(3.9)
Other Income		—			—

Total Revenues	Total Revenues	164.2			174.0				Total Revenues	148.0			164.2
Incurred Losses and LAE related to:	Incurred Losses and LAE related to:								Incurred Losses and LAE related to:
Current Year:	Current Year:								Current Year:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE	112.2			96.2				Non-catastrophe Losses and LAE	90.4			112.2
Catastrophe Losses and LAE	Catastrophe Losses and LAE	11.4			24.0				Catastrophe Losses and LAE	17.0			11.4
Prior Years:	Prior Years:								Prior Years:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE	2.1			0.1				Non-catastrophe Losses and LAE	6.9			2.1
Catastrophe Losses and LAE	Catastrophe Losses and LAE	(3.2)			(0.3)				Catastrophe Losses and LAE	2.9			(3.2)
Total Incurred Losses and LAE	Total Incurred Losses and LAE	122.5			120.0				Total Incurred Losses and LAE	117.2			122.5
Insurance Expenses	Insurance Expenses	51.2			51.0				Insurance Expenses	43.0			51.2

Operating Income (Loss)		(9.5)			3.0
Income Tax Benefit (Expense)		3.4			6.6
Segment Net Operating Income (Loss)		$	(6.1)		$	9.6
Operating Loss									Operating Loss	(12.2)			(9.5)
Income Tax Benefit									Income Tax Benefit	2.7			3.4
Segment Net Operating Loss									Segment Net Operating Loss	$	(9.5)		$	(6.1)

Ratios Based On Earned Premiums	Ratios Based On Earned Premiums								Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio	72.2		%	59.3		%		Current Year Non-catastrophe Losses and LAE Ratio	65.8		%	72.2		%
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio	7.3			14.8				Current Year Catastrophe Losses and LAE Ratio	12.4			7.3
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio	1.3			0.1				Prior Years Non-catastrophe Losses and LAE Ratio	5.0			1.3
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio	(2.1)			(0.2)				Prior Years Catastrophe Losses and LAE Ratio	2.1			(2.1)
Total Incurred Loss and LAE Ratio	Total Incurred Loss and LAE Ratio	78.7			74.0				Total Incurred Loss and LAE Ratio	85.3			78.7
Insurance Expense Ratio	Insurance Expense Ratio	32.9			31.4				Insurance Expense Ratio	31.3			32.9

Combined Ratio	Combined Ratio	111.6		%	105.4		%		Combined Ratio	116.6		%	111.6		%
Underlying Combined Ratio	Underlying Combined Ratio								Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio	72.2		%	59.3		%		Current Year Non-catastrophe Losses and LAE Ratio	65.8		%	72.2		%
Insurance Expense Ratio	Insurance Expense Ratio	32.9			31.4				Insurance Expense Ratio	31.3			32.9

Underlying Combined Ratio	Underlying Combined Ratio	105.1		%	90.7		%		Underlying Combined Ratio	97.1		%	105.1		%
Non-GAAP Measure Reconciliation	Non-GAAP Measure Reconciliation								Non-GAAP Measure Reconciliation
Combined Ratio	Combined Ratio	111.6		%	105.4		%		Combined Ratio	116.6		%	111.6		%
Less:	Less:								Less:
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio	7.3			14.8				Current Year Catastrophe Losses and LAE Ratio	12.4			7.3
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio	1.3			0.1				Prior Years Non-catastrophe Losses and LAE Ratio	5.0			1.3
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio	(2.1)			(0.2)				Prior Years Catastrophe Losses and LAE Ratio	2.1			(2.1)
Underlying Combined Ratio	Underlying Combined Ratio	105.1		%	90.7		%		Underlying Combined Ratio	97.1		%	105.1		%

4249

Preferred Property & Casualty Insurance (Continued)

CATASTROPHE FREQUENCY AND SEVERITY


		Three Months Ended							Three Months Ended
		Mar 31, 2022			Mar 31, 2021				Mar 31, 2023			Mar 31, 2022
(Dollars in Millions)	(Dollars in Millions)	Number of Events	Losses and LAE		Number of Events	Losses and LAE		(Dollars in Millions)	Number of Events	Losses and LAE		Number of Events	Losses and LAE
Range of Losses and LAE Per Event:
Range of Losses and LAE Per Event								Range of Losses and LAE Per Event
Below $5	Below $5	11	$	11.4	11	$	8.9	Below $5	24	$	17.0	11	$	11.4
$5 - $10	$5 - $10	—	—		—	—		$5 - $10	—	—		—	—
$10 - $15	$10 - $15	—	—		—	—		$10 - $15	—	—		—	—
$15 - $20	$15 - $20	—	—		1	15.1		$15 - $20	—	—		—	—
$20 - $25	$20 - $25	—	—		—	—		$20 - $25	—	—		—	—
Greater Than $25	Greater Than $25	—	—		—	—		Greater Than $25	—	—		—	—
Total	Total	11	$	11.4	12	$	24.0	Total	24	$	17.0	11	$	11.4

INSURANCE RESERVES


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Personal Automobile	Personal Automobile	$	307.9	$	308.6	Personal Automobile	$	284.1	$	298.4
Homeowners	Homeowners	93.1		95.4		Homeowners	94.7		91.8
Other	Other	30.6		29.2		Other	29.1		28.9
Insurance Reserves	Insurance Reserves	$	431.6	$	433.2	Insurance Reserves	$	407.9	$	419.1
Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Loss and Allocated LAE Reserves:	Loss and Allocated LAE Reserves:					Loss and Allocated LAE Reserves:
Case and Allocated LAE	Case and Allocated LAE	$	271.1	$	272.5	Case and Allocated LAE	$	250.3	$	251.6
Incurred But Not Reported	Incurred But Not Reported	131.8		131.9		Incurred But Not Reported	129.0		139.0
Total Loss and LAE Reserves	Total Loss and LAE Reserves	402.9		404.4		Total Loss and LAE Reserves	379.3		390.6
Unallocated LAE Reserves	Unallocated LAE Reserves	28.7		28.8		Unallocated LAE Reserves	28.6		28.5
Insurance Reserves	Insurance Reserves	$	431.6	$	433.2	Insurance Reserves	$	407.9	$	419.1

Overall

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

The Preferred Property & Casualty Insurance segment reported a Segment Net Operating Loss of ~~$6.1~~$9.5 million for the three months ended March 31, ~~2022,~~2023, compared to Segment Net Operating ~~Income~~Loss of ~~$9.6~~$6.1 million for the same period in ~~2021.~~2022. Segment ~~Net Operating Loss~~net operating results decreased by ~~$15.7~~$3.4 million mostly driven by a $6.9 million decrease in net income from homeowners insurance due primarily to higher ~~underlying losses~~prior year loss and LAE ~~as a percentage~~development and higher levels of ~~earned premiums,~~catastrophe activity, partially offset by a $3.7 million increase in net income from preferred personal automobile insurance mostly due to higher average earned premiums per exposure from resulting rate increases and lower ~~catastrophe losses and LAE.~~automobile frequency of claims.

Preferred Property & Casualty Insurance (Continued)

Earned Premiums in the Preferred Property & Casualty Insurance segment decreased by ~~$6.6~~$18.2 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to lower personal automobile insurance volumes as a result of ongoing profit improvement actions.

~~Preferred Property & Casualty Insurance (Continued)~~

Net Investment Income in the Preferred Property & Casualty Insurance segment decreased by ~~$3.4~~$2.0 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to lower ~~return from Alternative~~returns on Equity Method Limited Liability Investments ~~partially~~ offset by higher ~~levels of investments and rate on Company-Owned Life Insurance, and higher levels of investments~~rates in ~~fixed income securities.~~Fixed Income Securities.

~~Loss~~Income related to Changes in Value of Alternative Energy Partnership Investments was ~~$3.9~~$0.1 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$4.1~~a loss of $3.9 million for the same period in ~~2021.~~2022. Tax ~~benefits~~expense related to the Alternative Energy Partnership Investments ~~were $1.6 million and $7.6~~was $0.1 million for the three months ended March 31, ~~2022 and 2021, respectively.~~2023, compared to a tax benefit of $1.6 million for the three months ended March 31, 2022. This resulted in a net ~~loss~~income of ~~$2.3~~$0.0 million and net ~~income~~loss of ~~$3.5~~$2.3 million attributable to Alternative Energy Partnership Investments for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Underlying losses and LAE as a percentage of earned premiums were ~~72.2%~~65.8% and ~~59.3%~~72.2% for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Underlying losses and LAE as a percentage of earned premiums ~~increased primarily due to severity trends caused by ongoing supply chain issues~~decreased as a result of higher average earned premiums per exposure resulting from rate increases and ~~rising inflation.~~lower frequency of auto claims. Catastrophe losses and LAE (excluding reserve development) were $17.0 million in 2023 primarily driven by California rain events, compared to $11.4 million in 2022, ~~compared to $24.0 million in 2021, a decreased~~an increase of ~~$12.6~~$5.6 million. Catastrophe losses and LAE (excluding reserve development) ~~decreased~~increased due primarily to ~~a decrease~~an increase in ~~severity~~frequency of catastrophic events in ~~2022,~~2023, compared to ~~2021.~~the same period in 2022. There ~~was zero catastrophic event above $5 million in 2022, compared to one~~were no catastrophic events above $5 million in ~~2021. Favorable~~2023 or in the same period in 2022. Unfavorable loss and LAE reserve development (including catastrophe reserve development) was $9.8 million in 2023, compared to favorable development of $1.1 million in ~~2022, compared to $0.2 million in 2021.~~2022.

Insurance expenses were ~~$51.2~~$43.0 million, or ~~32.9%~~31.3% of earned premiums in ~~2022, a deterioration~~2023, an improvement of ~~1.5%~~1.6% percentage points compared to ~~2021.~~2022.

The Preferred Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to ~~investment tax credits,~~investments in Company-Owned Life Insurance, tax-exempt investment income and dividends received deductions.

Preferred Personal Automobile Insurance

Selected financial information for the personal automobile insurance product line follows.

Three Months Ended
(Dollars in Millions) Mar 31,
2022 Mar 31,
2021
Net Premiums Written $ 84.2 $ 100.4
Earned Premiums $ 96.0 $ 103.0
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE $ 80.5 $ 67.8
Catastrophe Losses and LAE 0.5 0.6
Prior Years:
Non-catastrophe Losses and LAE 1.5 1.2
Catastrophe Losses and LAE 0.1 0.1
Total Incurred Losses and LAE $ 82.6 $ 69.7
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio 83.8 % 65.8 %
Current Year Catastrophe Losses and LAE Ratio 0.5 0.6
Prior Years Non-catastrophe Losses and LAE Ratio 1.6 1.2
Prior Years Catastrophe Losses and LAE Ratio 0.1 0.1
Total Incurred Loss and LAE Ratio 86.0 % 67.7 %


	Three Months Ended
(Dollars in Millions)	Mar 31, 2023			Mar 31, 2022
Net Premiums Written	$	71.8		$	84.2
Earned Premiums	$	78.2		$	96.0
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE	$	62.7		$	80.5
Catastrophe Losses and LAE	1.2			0.5
Prior Years:
Non-catastrophe Losses and LAE	2.9			1.5
Catastrophe Losses and LAE	0.5			0.1
Total Incurred Losses and LAE	$	67.3		$	82.6

Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	80.3		%	83.8		%
Current Year Catastrophe Losses and LAE Ratio	1.5			0.5
Prior Years Non-catastrophe Losses and LAE Ratio	3.7			1.6
Prior Years Catastrophe Losses and LAE Ratio	0.6			0.1
Total Incurred Loss and LAE Ratio	86.1		%	86.0		%

4451

Preferred Property & Casualty Insurance (Continued)

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums in preferred personal automobile insurance decreased by ~~$7.0~~$17.8 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to lower volume as a result of ongoing profit improvement actions. Incurred losses and LAE were ~~$82.6~~$67.3 million, or ~~86.0%~~86.1% of earned premiums, for the three months ended March 31, ~~2022,~~2023, compared to ~~$69.7~~$82.6 million, or ~~67.7%~~86.0% of earned premiums, for the same period in ~~2021.~~2022. Incurred losses and LAE as a percentage of earned premiums decreased due primarily to an improvement in the underlying loss and LAE ratio, offset by unfavorable prior year development. Underlying losses and LAE as a percentage of earned premiums were 80.3% for the three months ended March 31, 2023, compared to 83.8% for the same period in 2022, an improvement of 3.5 percentage points due to ongoing profit improvement actions. Adverse loss and LAE reserve development (including catastrophe loss reserve development) was $3.4 million for the three months ended March 31, 2023, compared to $1.6 million for the same period in 2022. Catastrophe losses and LAE (excluding reserve development) were $1.2 million for the three months ended March 31, 2023, compared to $0.5 million for the same period in 2022.

Homeowners Insurance

Selected financial information for the homeowners insurance product line follows.


	Three Months Ended
(Dollars in Millions)	Mar 31, 2023			Mar 31, 2022
Net Premiums Written	$	46.2		$	45.5
Earned Premiums	$	52.2		$	51.3
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE	$	23.9		$	27.5
Catastrophe Losses and LAE	14.9			10.8
Prior Years:
Non-catastrophe Losses and LAE	3.1			(1.6)
Catastrophe Losses and LAE	2.4			(2.8)
Total Incurred Losses and LAE	$	44.3		$	33.9

Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	45.9		%	53.6		%
Current Year Catastrophe Losses and LAE Ratio	28.5			21.1
Prior Years Non-catastrophe Losses and LAE Ratio	5.9			(3.1)
Prior Years Catastrophe Losses and LAE Ratio	4.6			(5.5)
Total Incurred Loss and LAE Ratio	84.9		%	66.1		%

Three Months Ended March 31, 2023 Compared to the Same Period in 2022

Earned Premiums in homeowners insurance increased by $0.9 million for the three months ended March 31, 2023, compared to the same period in 2022 driven by higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were $44.3 million, or 84.9% of earned premiums, for the three months ended March 31, 2023, compared to $33.9 million, or 66.1% of earned premiums, for the same period in 2022. Incurred losses and LAE as a percentage of earned premiums increased due primarily to ~~a deterioration in the~~higher incurred catastrophe losses (excluding loss reserve development),and unfavorable development on prior year underlying ~~loss~~and catastrophe losses and LAE, ~~ratio.~~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 ~~83.8%~~45.9% for the three months ended March 31, ~~2022,~~2023, compared to ~~65.8%~~53.6% for the same period in ~~2021,~~2022, a ~~deterioration~~decrease of ~~18.0~~7.7 percentage ~~points primarily due~~points. Catastrophe losses and LAE (excluding reserve development) were $14.9 million for the three months ended March 31, 2023, compared to higher claim frequency and severity trends. Frequency trends increased as a result of driving activity returning to pre-pandemic levels. Severity trends increased due to rising inflation and supply chain constraints. Adverse$10.8 million for the same period in 2022. There were no catastrophic events above $5 million in 2023, or in the same period in 2022. Unfavorable loss and LAE reserve development (including catastrophe loss reserve development) was ~~$1.6~~$5.5 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.3~~favorable development of $4.4 million for the same period in ~~2021. Catastrophe losses and LAE (excluding reserve development) were $0.5 million for the three months ended March 31, 2022, compared to $0.6 million for the same period in 2021.~~

~~Homeowners Insurance~~

~~Selected financial information for the homeowners insurance product line follows.~~

Three Months Ended
(Dollars in Millions) Mar 31,
2022 Mar 31,
2021
Net Premiums Written $ 45.5 $ 46.1
Earned Premiums $ 51.3 $ 50.8
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE $ 27.5 $ 24.2
Catastrophe Losses and LAE 10.8 22.0
Prior Years:
Non-catastrophe Losses and LAE (1.6) (2.5)
Catastrophe Losses and LAE (2.8) (0.1)
Total Incurred Losses and LAE $ 33.9 $ 43.6
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio 53.6 % 47.6 %
Current Year Catastrophe Losses and LAE Ratio 21.1 43.3
Prior Years Non-catastrophe Losses and LAE Ratio (3.1) (4.9)
Prior Years Catastrophe Losses and LAE Ratio (5.5) (0.2)
Total Incurred Loss and LAE Ratio 66.1 % 85.8 %

~~Three Months Ended March 31, 2022 Compared to the Same Period in 2021~~

Earned Premiums in homeowners insurance increased by $0.5 million for the three months ended March 31, 2022, compared to the same period in 2021. Incurred losses and LAE were $33.9 million, or 66.1% of earned premiums, for the three months ended March 31, 2022, compared to $43.6 million, or 85.8% of earned premiums, for the same period in 2021. Incurred losses and LAE as a percentage of earned premiums decreased due primarily to lower incurred catastrophe losses (excluding loss reserve development) and increased favorable prior year 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 53.6% for the three months ended March 31, 2022, compared to 47.6% for the same period in 2021, an increase of 6.0 percentage points. Catastrophe losses and LAE (excluding reserve development) were $10.8 million for the three months ended March 31, 2022, compared to $22.0 million for the same period in 2021. There were zero catastrophic event above $5 million for the three months ended March 31, 2022, compared to one catastrophic event above $5 million for the same period in 2021. Favorable2022.

4552

Preferred Property & Casualty Insurance (Continued)

~~loss and LAE reserve development (including catastrophe loss reserve development) was $4.4 million for the three months ended March 31, 2022, compared to $2.6 million for the same period in 2021.~~

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 follows.

Three Months Ended
(Dollars in Millions) Mar 31,
2022 Mar 31,
2021
Net Premiums Written $ 7.7 $ 7.9
Earned Premiums $ 8.3 $ 8.4
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE $ 4.2 $ 4.2
Catastrophe Losses and LAE 0.1 1.4
Prior Years:
Non-catastrophe Losses and LAE 2.2 1.4
Catastrophe Losses and LAE (0.5) (0.3)
Total Incurred Losses and LAE $ 6.0 $ 6.7
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio 50.6 % 50.0 %
Current Year Catastrophe Losses and LAE Ratio 1.2 16.7
Prior Years Non-catastrophe Losses and LAE Ratio 26.5 16.7
Prior Years Catastrophe Losses and LAE Ratio (6.0) (3.6)
Total Incurred Loss and LAE Ratio 72.3 % 79.8 %


	Three Months Ended
(Dollars in Millions)	Mar 31, 2023			Mar 31, 2022
Net Premiums Written	$	6.0		$	7.7
Earned Premiums	$	7.0		$	8.3
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE	$	3.8		$	4.2
Catastrophe Losses and LAE	0.9			0.1
Prior Years:
Non-catastrophe Losses and LAE	0.9			2.2
Catastrophe Losses and LAE	—			(0.5)
Total Incurred Losses and LAE	$	5.6		$	6.0

Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	54.2		%	50.6		%
Current Year Catastrophe Losses and LAE Ratio	12.9			1.2
Prior Years Non-catastrophe Losses and LAE Ratio	12.9			26.5
Prior Years Catastrophe Losses and LAE Ratio	—			(6.0)
Total Incurred Loss and LAE Ratio	80.0		%	72.3		%

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums in other personal insurance decreased by ~~$0.1~~$1.3 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. Incurred losses and LAE were ~~$6.0~~$5.6 million, or ~~72.3%~~80.0% of earned premiums, for the three months ended March 31, ~~2022,~~2023, compared to ~~$6.7~~$6.0 million, or ~~79.8%~~72.3% of earned premiums, for the same period in ~~2021.~~2022. Underlying losses and LAE as a percentage of earned premiums were ~~50.6%~~54.2% for the three months ended March 31, ~~2022,~~2023, compared to ~~50.0%~~50.6% for the same period in ~~2021,~~2022, a deterioration of ~~0.6~~3.6 percentage points. Catastrophe losses and LAE (excluding loss reserve development) were ~~$0.1~~$0.9 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.4~~$0.1 million for the same period in ~~2021.~~2022. Adverse loss and LAE reserve development (including catastrophe losses development) for the three months ended March 31, ~~2022~~2023 was ~~$1.7~~$0.9 million, compared to ~~$1.1~~$1.7 million for the same period in ~~2021.~~2022.

4653

Life & Health Insurance

Selected financial information for the Life & Health Insurance segment follows.


		Three Months Ended						Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022		Mar 31, 2021		(Dollars in Millions)		Mar 31, 2023		Mar 31, 2022

Earned Premiums	Earned Premiums		$	161.4	$	161.0	Earned Premiums		$	99.3	$	142.8
Net Investment Income	Net Investment Income		49.4		51.1		Net Investment Income		49.8		49.4
Changes in Value of Alternative Energy Partnership Investments	Changes in Value of Alternative Energy Partnership Investments		(4.4)		(4.0)		Changes in Value of Alternative Energy Partnership Investments		0.2		(4.4)
Other Income			—		0.1
Other Loss							Other Loss		(0.4)		—
Total Revenues	Total Revenues		206.4		208.2		Total Revenues		148.9		187.8
Policyholders’ Benefits and Incurred Losses and LAE	Policyholders’ Benefits and Incurred Losses and LAE		120.1		118.7		Policyholders’ Benefits and Incurred Losses and LAE		69.9		89.9
Insurance Expenses	Insurance Expenses		85.1		90.3		Insurance Expenses		64.2		85.9

Operating Income (Loss)			1.2		(0.8)
Income Tax Benefit (Expense)			1.9		8.1
Segment Net Operating Income (Loss)			$	3.1	$	7.3
Operating Income							Operating Income		14.8		12.0
Income Tax Expense							Income Tax Expense		(1.6)		(0.4)
Segment Net Operating Income							Segment Net Operating Income		$	13.2	$	11.6

INSURANCE RESERVES


(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Insurance Reserves:	Insurance Reserves:					Insurance Reserves:
Future Policyholder Benefits	Future Policyholder Benefits	$	3,467.5	$	3,454.1	Future Policyholder Benefits	$	3,346.9	$	3,218.5
Incurred Losses and LAE Reserves:	Incurred Losses and LAE Reserves:					Incurred Losses and LAE Reserves:
Life	Life	63.6		60.7		Life	48.3		53.3
Accident and Health	Accident and Health	25.2		26.1		Accident and Health	4.4		4.3
Property	Property	3.1		3.6		Property	2.7		2.3
Total Incurred Losses and LAE Reserves	Total Incurred Losses and LAE Reserves	91.9		90.4		Total Incurred Losses and LAE Reserves	55.4		59.9
Insurance Reserves	Insurance Reserves	$	3,559.4	$	3,544.5	Insurance Reserves	$	3,402.3	$	3,278.4

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 maintained by the Social Security Administration 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~~Incurred But Not Reported (“IBNR”) liability for unpaid claims and claims adjustment expenses for life insurance products. Subsequently, the Company reduced its estimate of the initial impact of using death verification databases by $30.3 ~~million,~~million.

See Note 1 “Summary of ~~which $9.3 million was recognized during 2020~~Accounting Policies and ~~$21.0 million was recognized during 2019.~~Accounting Changes,” to the Consolidated Financial Statements under the sub-caption “Insurance Reserves” for additional discussion.

Overall

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Segment Net Operating Income in the Life & Health Insurance segment was $13.2 million for the three months ended March 31, 2023, compared to $11.6 million in 2022.

Earned Premiums in the Life & Health Insurance segment decreased by $43.5 million for the three months ended March 31, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022 and lower volume on property insurance products.

Life & Health Insurance (Continued)

Net Investment Income increased by $0.4 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021. This is~~2022, due primarily to higher ~~volume~~rate earned on ~~life insurance products partially~~Fixed Income Securities, offset by lower ~~volume on accident~~returns from Equity Method Limited Liability Investments and ~~health insurance products and property insurance products.~~increased investment expenses.

~~Net Investment~~ Income decreased by $1.7 million for the three months ended March 31, 2022, compared to the same period in 2021, due primarily to lower return from Alternative Investments, lower yields on fixed income securities, partially offset by higher levels of investments and rate on Company-Owned Life Insurance.

~~Life & Health Insurance (Continued)~~

~~Loss~~ related to Changes in Value of Alternative Energy Partnership Investments was ~~$4.4~~$0.2 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$4.0~~loss of $4.4 million for the same period in ~~2021.~~2022. Tax ~~benefits~~expenses related to the Alternative Energy Partnership Investments were ~~$1.8~~$0.1 million and ~~$7.4~~tax benefits of $1.8 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. This resulted in a net ~~loss~~income of ~~$2.6~~$0.1 million and net ~~income~~loss of ~~$3.4~~$2.6 million attributable to Alternative Energy Partnership Investments for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Policyholders’ Benefits and Incurred Losses and LAE ~~increased~~decreased by ~~$1.4~~$20.0 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~higher persistency~~the disposition of Reserve National in December 2022 and ~~mortality for life insurance related to COVID-19, partially offset by~~ lower ~~frequency of accident~~current year property non-catastrophe losses and ~~health insurance claims.~~LAE.

Insurance Expenses in the Life & Health Insurance segment decreased by ~~$5.2~~$21.7 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to the disposition of Reserve National in December 2022, lower ~~levels~~commission expense and a reduction in expenses due to lower volume of ~~initiative spend on investments made to modernize and enhance the capabilities of the business.~~

~~Segment Net Operating Income in the Life & Health Insurance segment was $3.1 million for the three months ended March 31, 2022, compared to $7.3 million in 2021.~~property insurance products.

The Life & Health Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to ~~investment tax credits,~~investments in Company-Owned Life Insurance, tax-exempt investment income and dividends received deductions.

Life Insurance

Selected financial information for the life insurance product line follows.


		Three Months Ended						Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022		Mar 31, 2021		(Dollars in Millions)		Mar 31, 2023		Mar 31, 2022
Earned Premiums	Earned Premiums		$	101.3	$	98.1	Earned Premiums		$	82.2	$	82.7
Net Investment Income	Net Investment Income		47.9		49.6		Net Investment Income		49.5		47.9
Changes in Value of Alternative Energy Partnership Investments	Changes in Value of Alternative Energy Partnership Investments		(4.0)		(3.8)		Changes in Value of Alternative Energy Partnership Investments		0.2		(4.0)

Other Loss							Other Loss		(0.5)		—
Total Revenues	Total Revenues		145.2		143.9		Total Revenues		131.4		126.6
Policyholders’ Benefits and Incurred Losses and LAE	Policyholders’ Benefits and Incurred Losses and LAE		90.6		87.9		Policyholders’ Benefits and Incurred Losses and LAE		64.1		60.4
Insurance Expenses	Insurance Expenses		57.4		58.0		Insurance Expenses		56.1		58.2

Operating Income (Loss)			(2.8)		(2.0)
Income Tax Benefit (Expense)			2.6		8.0
Total Product Line Net Operating Income (Loss)			$	(0.2)	$	6.0
Operating Income							Operating Income		11.2		8.0
Income Tax (Expense) Benefit							Income Tax (Expense) Benefit		(0.9)		0.3
Total Product Line Net Operating Income							Total Product Line Net Operating Income		$	10.3	$	8.3

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums from life insurance ~~increased~~decreased by ~~$3.2~~$0.5 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to lower volume of life insurance products and partially offset by increased ~~new business and higher persistency.~~average premium rate. Policyholders’ Benefits and Incurred Losses and LAE on life insurance were ~~$90.6~~$64.1 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$87.9~~$60.4 million for the same period in ~~2021,~~2022, an increase of ~~$2.7~~$3.7 million due primarily to ~~higher persistency and~~changes in mortality ~~related to COVID-19.~~experience.

Insurance Expenses decreased by ~~$0.6~~$2.1 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to lower ~~levels of initiative spend on investments made to modernize and enhance the capabilities of the business.~~commission expense.

4855

Life & Health Insurance (Continued)

Accident and Health Insurance

Selected financial information for the accident and health insurance product line follows.


		Three Months Ended						Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022		Mar 31, 2021		(Dollars in Millions)		Mar 31, 2023		Mar 31, 2022
Earned Premiums	Earned Premiums		$	45.8	$	47.4	Earned Premiums		$	5.9	$	45.8
Net Investment Income	Net Investment Income		0.7		1.0		Net Investment Income		—		0.7
Changes in Value of Alternative Energy Partnership Investments	Changes in Value of Alternative Energy Partnership Investments		(0.1)		(0.1)		Changes in Value of Alternative Energy Partnership Investments		—		(0.1)
Other Income	Other Income		—		0.1		Other Income		0.1		—
Total Revenues	Total Revenues		46.4		48.4		Total Revenues		6.0		46.4
Policyholders’ Benefits and Incurred Losses and LAE	Policyholders’ Benefits and Incurred Losses and LAE		23.5		24.5		Policyholders’ Benefits and Incurred Losses and LAE		2.0		23.5
Insurance Expenses	Insurance Expenses		20.8		24.4		Insurance Expenses		2.0		20.8

Operating Income (Loss)			2.1		(0.5)
Income Tax Benefit (Expense)			(0.4)		0.2
Total Product Line Net Operating Income (Loss)			$	1.7	$	(0.3)
Operating Income							Operating Income		2.0		2.1
Income Tax Expense							Income Tax Expense		(0.4)		(0.4)
Total Product Line Net Operating Income							Total Product Line Net Operating Income		$	1.6	$	1.7

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums from accident and health insurance decreased by ~~$1.6~~$39.9 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. This is due primarily to ~~lower volume on new business sales.~~the disposition of Reserve National in December 2022. Policyholders’ Benefits and Incurred Losses and LAE on accident and health insurance were ~~$23.5~~$2.0 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$24.5~~$23.5 million for the same period in ~~2021.~~2022. This is due primarily to ~~lower frequency~~the disposition of ~~claims.~~ Reserve National in December 2022.

Insurance Expenses decreased by ~~$3.6~~$18.8 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~lower levels~~the disposition of ~~initiative spend on investments made to modernize and enhance the capabilities of the business.~~Reserve National in December 2022.

4956

Life & Health Insurance (Continued)

Property Insurance

Selected financial information for the property insurance product line follows.


		Three Months Ended								Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022			Mar 31, 2021			(Dollars in Millions)		Mar 31, 2023			Mar 31, 2022
Earned Premiums	Earned Premiums		$	14.3		$	15.5		Earned Premiums		$	11.2		$	14.3
Net Investment Income (Loss)			0.8			0.5
Net Investment Income									Net Investment Income		0.3			0.8
Changes in Value of Alternative Energy Partnership Investments	Changes in Value of Alternative Energy Partnership Investments		(0.3)			(0.1)			Changes in Value of Alternative Energy Partnership Investments		—			(0.3)

Total Revenues	Total Revenues		14.8			15.9			Total Revenues		11.5			14.8
Incurred Losses and LAE related to:	Incurred Losses and LAE related to:								Incurred Losses and LAE related to:
Current Year:	Current Year:								Current Year:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		4.1			3.2			Non-catastrophe Losses and LAE		2.2			4.1
Catastrophe Losses and LAE	Catastrophe Losses and LAE		0.4			1.9			Catastrophe Losses and LAE		0.6			0.4
Prior Years:	Prior Years:								Prior Years:
Non-catastrophe Losses and LAE	Non-catastrophe Losses and LAE		0.6			0.7			Non-catastrophe Losses and LAE		0.8			0.6
Catastrophe Losses and LAE	Catastrophe Losses and LAE		0.9			0.5			Catastrophe Losses and LAE		0.2			0.9
Total Incurred Losses and LAE	Total Incurred Losses and LAE		6.0			6.3			Total Incurred Losses and LAE		3.8			6.0
Insurance Expenses	Insurance Expenses		6.9			7.9			Insurance Expenses		6.1			6.9

Operating Income (Loss)			1.9			1.7
Income Tax Benefit (Expense)			(0.3)			(0.1)
Total Product Line Net Operating Income (Loss)			$	1.6		$	1.6
Operating Income									Operating Income		1.6			1.9
Income Tax Expense									Income Tax Expense		(0.3)			(0.3)
Total Product Line Net Operating Income									Total Product Line Net Operating Income		$	1.3		$	1.6
Ratios Based On Earned Premiums	Ratios Based On Earned Premiums								Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio	Current Year Non-catastrophe Losses and LAE Ratio		28.7		%	20.6		%	Current Year Non-catastrophe Losses and LAE Ratio		19.6		%	28.7		%
Current Year Catastrophe Losses and LAE Ratio	Current Year Catastrophe Losses and LAE Ratio		2.8			12.3			Current Year Catastrophe Losses and LAE Ratio		5.4			2.8
Prior Years Non-catastrophe Losses and LAE Ratio	Prior Years Non-catastrophe Losses and LAE Ratio		4.2			4.5			Prior Years Non-catastrophe Losses and LAE Ratio		7.1			4.2
Prior Years Catastrophe Losses and LAE Ratio	Prior Years Catastrophe Losses and LAE Ratio		6.3			3.2			Prior Years Catastrophe Losses and LAE Ratio		1.8			6.3
Total Incurred Loss and LAE Ratio	Total Incurred Loss and LAE Ratio		42.0		%	40.6		%	Total Incurred Loss and LAE Ratio		33.9		%	42.0		%

Three Months Ended March 31, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

Earned Premiums from property insurance decreased by ~~$1.2~~$3.1 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to a lower volume of property insurance products. Incurred losses and LAE on property insurance were ~~$6.0~~$3.8 million, or ~~42.0%~~33.9% of earned premiums, for the three months ended March 31, ~~2022,~~2023, compared to ~~$6.3~~$6.0 million, or ~~40.6%~~42.0% of earned premiums for the same period in ~~2021.~~2022. Underlying losses and LAE were ~~$4.1~~$2.2 million, or ~~28.7%~~19.6% of earned premiums for the three months ended March 31, ~~2022,~~2023, compared to ~~$3.2~~$4.1 million, or ~~20.6%~~28.7% of earned premiums for the same period in ~~2021, an increase~~2022, a decrease of ~~8.1~~9.1 percentage points due primarily to ~~higher~~lower claim ~~frequency.~~frequency and severity. Catastrophe losses and LAE (excluding loss reserve development) were ~~$0.4~~$0.6 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.9~~$0.4 million for the same period in ~~2021.~~2022. Catastrophe losses and LAE ~~decreased $1.5~~increased $0.2 million due primarily to ~~lower severity~~both higher frequency of catastrophe ~~claims.~~claims and higher claim severity. Adverse loss and LAE reserve development was ~~$1.5 million for the three months ended March 31, 2022, compared to an adverse development of $1.2 million in the same period in 2021.~~

~~Insurance expenses decreased~~ $1.0 million for the three months ended March 31, ~~2022,~~2023, compared to an adverse development of $1.5 million in the same period in 2022.

Insurance expenses decreased $0.8 million for the three months ended March 31, 2023, compared to the same period in ~~2021~~2022 due primarily to lower ~~levels~~volume of ~~initiative spend on investments made to modernize and enhance the capabilities of the business.~~property insurance products.

5057

Investment Results

Net Investment Income

Net Investment Income for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was:


		Three Months Ended					Three Months Ended
(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Investment Income:	Investment Income:							Investment Income:
Interest on Fixed Income Securities	Interest on Fixed Income Securities		$	68.7	$	69.0		Interest on Fixed Income Securities	$	86.2	$	68.7
Dividends on Equity Securities Excluding Alternative Investments	Dividends on Equity Securities Excluding Alternative Investments		1.5		2.1			Dividends on Equity Securities Excluding Alternative Investments	1.0		1.5
Alternative Investments:	Alternative Investments:							Alternative Investments:
Equity Method Limited Liability Investments	Equity Method Limited Liability Investments		13.3		22.5			Equity Method Limited Liability Investments	1.1		13.3

Limited Liability Investments Included in Equity Securities	Limited Liability Investments Included in Equity Securities		7.6		4.5			Limited Liability Investments Included in Equity Securities	2.6		7.6
Total Alternative Investments	Total Alternative Investments		20.9		27.0			Total Alternative Investments	3.7		20.9
Short-term Investments	Short-term Investments		0.1		1.2			Short-term Investments	2.3		0.1
Loans to Policyholders	Loans to Policyholders		5.5		5.5			Loans to Policyholders	5.4		5.5
Real Estate	Real Estate		2.2		2.4			Real Estate	2.4		2.2
Company-Owned Life Insurance								Company-Owned Life Insurance	8.8		8.3
Other	Other		10.0		4.7			Other	3.0		1.7
Total Investment Income	Total Investment Income		108.9		111.9			Total Investment Income	112.8		108.9
Investment Expenses:	Investment Expenses:							Investment Expenses:
Real Estate	Real Estate		2.5		2.1			Real Estate	2.1		2.5
Other Investment Expenses	Other Investment Expenses		6.4		6.7			Other Investment Expenses	8.9		6.4
Total Investment Expenses	Total Investment Expenses		8.9		8.8			Total Investment Expenses	11.0		8.9
Net Investment Income	Net Investment Income		$	100.0	$	103.1		Net Investment Income	$	101.8	$	100.0

Net Investment Income was ~~$100.0~~$101.8 million and ~~$103.1~~$100.0 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Net Investment Income ~~decreased~~increased by ~~$3.1~~$1.8 million in ~~2022~~2023 due primarily to higher rates and levels of investments in Fixed Income Securities and higher rates on Short Term Investments offset by lower ~~valuations of~~returns on Equity Method Limited Liability Investments ~~partially offset by higher volume of distributions received from appreciated Limited Liability Investments included~~and lower balances in Equity Securities. ~~Increase in Other Net Investment Income is driven by income from Company-Owned Life Insurance due to higher average investment balance and rate.~~

Income and distributions on Alternative Investments can fluctuate significantly between periods as they are influenced by operating performance of the underlying investments, changes in market or economic conditions or the timing of asset sales.

Total Comprehensive Investment Gains (Losses)

The components of Total Comprehensive Investment Gains (Losses) for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:

Three Months Ended
(Dollars in Millions) Mar 31,
2022 Mar 31,
2021
Recognized in Condensed Consolidated Statements of Income:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities $ (28.2) $ 52.2
Gains on Sales 2.4 14.9
Losses on Sales (0.9) (1.1)
Impairment Losses (8.9) (4.0)
Net Gains (Losses) Recognized in Condensed Consolidated Statements of Income (35.6) 62.0
Recognized in Other Comprehensive Income (Loss) (651.9) (366.1)
Total Comprehensive Investment Gains (Losses) $ (687.5) $ (304.1)


	Three Months Ended
(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Recognized in Condensed Consolidated Statements of Loss:
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	$	1.7	$	(28.2)
Gains on Sales	9.7		2.4
Losses on Sales	(3.3)		(0.9)
Gains on Hedging Activity	—		—
Impairment Gains (Losses)	2.1		(8.9)


Net Gains (Losses) Recognized in Condensed Consolidated Statements of Loss	10.2		(35.6)
Recognized in Other Comprehensive Income (Loss)	179.8		(651.9)
Total Comprehensive Investment Gains (Losses)	$	190.0	$	(687.5)

5158

Investment Results (Continued)

Total Comprehensive Investment Gains (Losses) were $190.0 million and $(687.5) million for the three months ended March 31, 2023 and 2022, respectively. Total Comprehensive Investment Losses decreased by ~~$383.4~~$877.5 million primarily due toto an a decrease in the ~~fair value of~~Company’s unrealized loss position on the ~~Company’s~~ fixed income bond ~~portfolio and a loss from the change in fair value of the Company’s fair value method equity and convertible securities.~~portfolio.

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 three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Preferred Stocks	Preferred Stocks	$	(2.4)	$	0.5		Preferred Stocks	$	0.1	$	(2.4)
Common Stocks	Common Stocks	0.4		0.4			Common Stocks	(0.5)		0.4
Other Equity Interests:	Other Equity Interests:						Other Equity Interests:
Exchange Traded Funds	Exchange Traded Funds	(30.9)		25.9			Exchange Traded Funds	0.1		(30.9)
Limited Liability Companies and Limited Partnerships	Limited Liability Companies and Limited Partnerships	4.5		23.2			Limited Liability Companies and Limited Partnerships	1.7		4.5
Total Other Equity Interests	Total Other Equity Interests	(26.4)		49.1			Total Other Equity Interests	1.8		(26.4)
Income (Loss) from Change in Fair Value of Equity Securities	Income (Loss) from Change in Fair Value of Equity Securities	(28.4)		50.0			Income (Loss) from Change in Fair Value of Equity Securities	1.4		(28.4)
Income (Loss) from Change in Fair Value of Convertible Securities		0.2		2.2
Income from Change in Fair Value of Convertible Securities							Income from Change in Fair Value of Convertible Securities	0.3		0.2
Income (Loss) from Change in Fair Value of Equity and Convertible Securities	Income (Loss) from Change in Fair Value of Equity and Convertible Securities	$	(28.2)	$	52.2		Income (Loss) from Change in Fair Value of Equity and Convertible Securities	$	1.7	$	(28.2)

Net Realized Gains on Sales of ~~Investments~~Investment

The components of Net Realized Investment Gains ~~on Sales of Investments~~ for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Fixed Maturities:	Fixed Maturities:						Fixed Maturities:
Gains on Sales	Gains on Sales	$	0.4	$	13.2		Gains on Sales	$	1.1	$	0.4
Losses on Sales	Losses on Sales	(0.8)		(1.1)			Losses on Sales	(3.3)		(0.8)

Equity Securities:	Equity Securities:						Equity Securities:
Gains on Sales	Gains on Sales	2.0		1.7			Gains on Sales	—		2.0
Losses on Sales	Losses on Sales	(0.1)		—			Losses on Sales	—		(0.1)

Other:							Other:

Gains on Sales							Gains on Sales	8.6		—

Net Realized Gains on Sales of Investments		$	1.5	$	13.8
Net Realized Investment Gains							Net Realized Investment Gains	$	6.4	$	1.5

Gross Gains on Sales	Gross Gains on Sales	$	2.4	$	14.9		Gross Gains on Sales	$	9.7	$	2.4
Gross Losses on Sales	Gross Losses on Sales	(0.9)		(1.1)			Gross Losses on Sales	(3.3)		(0.9)

Net Realized Gains on Sales of Investments		$	1.5	$	13.8
Net Realized Investment Gains							Net Realized Investment Gains	$	6.4	$	1.5

~~Investment Results (Continued)~~

Impairment ~~Losses~~Gains (Losses)

The Company regularly reviews its investment portfolio to determine whether a decline in the fair value of an investment has occurred from credit or other, non-credit related factors. If the decline in fair value is due to credit factors and the Company does not expect to receive cash flows sufficient to support the entire amortized cost basis, the credit loss is reported in the Condensed Consolidated Statements of ~~Income~~Loss in the period that the declines are evaluated. ~~The components~~Conversely, an increase in the fair value or disposal of ~~Impairment Losses~~an investment with a previously established credit allowance will result in the recognition of impairment gain reported in the Condensed Consolidated Statements of ~~Income~~Loss in the period.

Investment Results (Continued)

The components of Impairment Gains (Losses) in the Condensed Consolidated Statements of Loss for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended						Three Months Ended
		Mar 31, 2022			Mar 31, 2021				Mar 31, 2023		Mar 31, 2022
(Dollars in Millions)	(Dollars in Millions)	Amount		Number of Issuers	Amount		Number of Issuers			(Dollars in Millions)	Amount		Number of Issuers	Amount		Number of Issuers
Fixed Maturities	Fixed Maturities	$	(8.9)	17	$	(3.2)	6			Fixed Maturities	$	2.1	14	$	(8.9)	17
Equity Securities	Equity Securities	—		—	(0.8)		1			Equity Securities	—		—	—		—

Impairment Losses		$	(8.9)		$	(4.0)
Real Estate										Real Estate	—		—	—		—
Impairment Gains (Losses)										Impairment Gains (Losses)	$	2.1		$	(8.9)

Investment Quality and Concentrations

The Company’s fixed maturity investment portfolio is comprised primarily of high-grade corporate, municipal and agency bonds. At March 31, ~~2022, 94.9%~~2023, 95.9% 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 National Association of Insurance Commissioners (“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 Standard & Poor’s (“S&P”); a rating of Aaa, Aa, A or Baa from Moody’s Investors Service (“Moody’s”); or a rating of AAA, AA, A or BBB from Fitch Ratings.

The following table summarizes the credit quality of the Company’s fixed maturity investment portfolio at March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


(Dollars in Millions)	(Dollars in Millions)		Mar 31, 2022				Dec 31, 2021				(Dollars in Millions)		Mar 31, 2023				Dec 31, 2022
NAIC Rating	NAIC Rating	Rating	Fair Value		Percentage		Fair Value		Percentage		NAIC Rating	Rating	Fair Value		Percentage		Fair Value		Percentage
1	1	AAA, AA, A	$	5,302.9	68.1	%	$	5,351.6	67.0	%	1	AAA, AA, A	$	5,179.6	72.0	%	$	4,896.4	71.0	%
2	2	BBB	2,087.4		26.8		2,215.1		27.7		2	BBB	1,718.7		23.9		1,687.4		24.5
3-4	3-4	BB, B	307.0		4.0		331.0		4.2		3-4	BB, B	225.2		3.2		239.7		3.5
5-6	5-6	CCC or Lower	86.6		1.1		89.2		1.1		5-6	CCC or Lower	65.9		0.9		71.3		1.0
Total Investments in Fixed Maturities	Total Investments in Fixed Maturities		$	7,783.9	100.0	%	$	7,986.9	100.0	%	Total Investments in Fixed Maturities		$	7,189.4	100.0	%	$	6,894.8	100.0	%

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were ~~$17.2~~$31.4 million and ~~$9.0~~$32.8 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at March 31, 2023 and December 31, 2022:


	Mar 31, 2023				Dec 31, 2022
(Dollars in Millions)	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
U.S. Government and Government Agencies and Authorities	$	564.0	6.2	%	$	528.0	6.0	%
States and Political Subdivisions:

Revenue Bonds	1,374.1		15.1		1,324.3		15.1
States	144.8		1.6		143.8		1.6
Political Subdivisions	104.0		1.1		100.8		1.1
Foreign Governments	4.0		—		4.1		—
Total Investments in Governmental Fixed Maturities	$	2,190.9	24.0	%	$	2,101.0	23.8	%

5360

Investment Quality and Concentrations (Continued)

The following table summarizes the fair value of the Company’s investments in ~~governmental fixed maturities at March 31, 2022 and December 31, 2021:~~

Mar 31, 2022 Dec 31, 2021
(Dollars in Millions) Fair Value Percentage
of Total
Investments Fair Value Percentage
of Total
Investments
U.S. Government and Government Agencies and Authorities $ 630.4 6.3 % $ 637.4 6.1 %
States and Political Subdivisions:
Revenue Bonds 1,421.4 14.3 1,516.1 14.6
States 219.3 2.2 235.8 2.3
Political Subdivisions 129.5 1.3 138.2 1.3
Foreign Governments 5.0 0.1 5.5 0.1
Total Investments in Governmental Fixed Maturities $ 2,405.6 24.2 % $ 2,533.0 24.4 %

~~The following table summarizes the fair value of the Company’s investments in~~ non-governmental fixed maturities by industry at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		Mar 31, 2022				Dec 31, 2021					Mar 31, 2023				Dec 31, 2022
(Dollars in Millions)	(Dollars in Millions)	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments		(Dollars in Millions)	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
Finance, Insurance and Real Estate	Finance, Insurance and Real Estate	$	2,135.8	21.4	%	$	1,996.7	19.2	%	Finance, Insurance and Real Estate	$	2,086.3	22.9	%	$	2,007.5	22.8	%
Manufacturing	Manufacturing	1,445.9		14.5		1,571.0		15.1		Manufacturing	1,100.1		12.1		1,085.9		12.4
Transportation, Communication and Utilities	Transportation, Communication and Utilities	769.1		7.7		815.8		7.9		Transportation, Communication and Utilities	804.7		8.8		733.7		8.3
Services	Services	597.7		6.0		617.5		5.9		Services	640.7		7.0		602.4		6.9
Mining	Mining	239.0		2.4		254.3		2.4		Mining	182.2		2.0		173.3		2.0
Retail Trade	Retail Trade	162.4		1.6		171.4		1.7		Retail Trade	158.8		1.7		165.1		1.9
Construction	Construction	20.4		0.2		13.1		0.1		Construction	8.8		0.1		11.7		0.1
Other	Other	7.9		0.1		14.1		0.1		Other	16.9		0.2		14.2		0.2
Wholesale Trade		0.2		—		—		—

Total Investments in Non-governmental Fixed Maturities	Total Investments in Non-governmental Fixed Maturities	$	5,378.4	53.9	%	$	5,453.9	52.4	%	Total Investments in Non-governmental Fixed Maturities	$	4,998.5	54.8	%	$	4,793.8	54.6	%

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amount invested at March 31, ~~2022.~~2023.


(Dollars in Millions)	(Dollars in Millions)	Number of Issues	Aggregate Fair Value		(Dollars in Millions)	Number of Issues	Aggregate Fair Value
Below $5	Below $5	669	$	1,405.8	Below $5	740	$	1,480.1
$5 -$10	$5 -$10	211	1,549.2		$5 -$10	187	1,407.7
$10 - $20	$10 - $20	116	1,541.9		$10 - $20	109	1,478.8
$20 - $30	$20 - $30	30	730.8		$20 - $30	20	482.3
Greater Than $30	Greater Than $30	4	150.6		Greater Than $30	4	149.6
Total	Total	1,030	$	5,378.3	Total	1,060	$	4,998.5

The Company’s short-term investments primarily consist of money market funds and short term bonds. At March 31, ~~2022,~~2023, the Company had ~~$243.5~~$186.9 million invested in money market funds which primarily invest in U.S. Treasury securities and ~~$0.4~~$91.5 million invested in U.S. treasury bills and short-term bonds.

5461

Investment Quality and Concentrations (Continued)

The following table summarizes the fair value of the Company’s ten largest investment exposures in a single issuer, excluding investments in U.S. Government and Government Agencies and Authorities and Short-term Investments, at March 31, ~~2022:~~2023:


(Dollars in Millions)	(Dollars in Millions)	Fair Value		Percentage of Total Investments		(Dollars in Millions)	Fair Value		Percentage of Total Investments
Fixed Maturities:	Fixed Maturities:					Fixed Maturities:
States including their Political Subdivisions:	States including their Political Subdivisions:					States including their Political Subdivisions:
Texas	Texas	$	136.6	1.4	%	Texas	$	143.6	1.6	%
California	California	103.7		1.0		California	133.1		1.5
Michigan						Michigan	93.6		1.0
New York	New York	91.4		0.9		New York	89.5		1.0
Georgia	Georgia	89.8		0.9		Georgia	80.3		0.9
Michigan		76.6		0.8
Louisiana						Louisiana	65.5		0.7
Florida	Florida	70.8		0.7		Florida	59.2		0.7
Louisiana		69.7		0.7
Pennsylvania						Pennsylvania	59.2		0.7
Colorado	Colorado	65.2		0.7		Colorado	52.9		0.6
Equity Securities at Fair Value—Other Equity Interests:
Massachusetts						Massachusetts	49.2		0.5

Vanguard Total World Stock ETF		112.1		1.1
iShares® Core MSCI Total International Stock ETF		75.6		0.8

Total	Total	$	891.5	9.0	%	Total	$	826.1	9.2	%

5562

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. The Company’s investments in these limited liability investment companies and limited partnerships are reported either as Equity Method Limited Liability Investments, 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 is presented below.


		Unfunded Commitment		Reported Value					Unfunded Commitment		Reported Value
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2022		Dec 31, 2021		(Dollars in Millions)	Mar 31, 2023		Mar 31, 2023		Dec 31, 2022
Reported as Equity Method Limited Liability Investments:	Reported as Equity Method Limited Liability Investments:							Reported as Equity Method Limited Liability Investments:
Mezzanine Debt	Mezzanine Debt	$	40.2	$	121.0	$	120.0	Mezzanine Debt	$	53.3	$	117.3	$	114.3
Senior Debt	Senior Debt	49.0		25.8		27.5		Senior Debt	40.7		21.8		21.6
Distressed Debt	Distressed Debt	—		18.9		21.7		Distressed Debt	—		8.3		9.4
Secondary Transactions	Secondary Transactions	2.1		12.9		11.7		Secondary Transactions	1.7		9.1		9.3
Leveraged Buyout	Leveraged Buyout	0.9		9.2		8.7		Leveraged Buyout	0.7		9.2		8.9
Growth Equity	Growth Equity	—		1.3		0.7		Growth Equity	—		1.2		1.2
Real Estate	Real Estate	—		29.7		29.9		Real Estate	—		43.3		43.3
Hedge Fund	Hedge Fund	—		0.5		8.7		Hedge Fund	—		0.1		0.5
Other	Other	—		10.7		13.0		Other	—		8.4		8.5
Total Equity Method Limited Liability Investments	Total Equity Method Limited Liability Investments	92.2		230.0		241.9		Total Equity Method Limited Liability Investments	96.4		218.7		217.0

Alternative Energy Partnership Investments	Alternative Energy Partnership Investments	—		22.4		39.6		Alternative Energy Partnership Investments	—		17.0		16.3

Reported as Other Equity Interests at Fair Value:	Reported as Other Equity Interests at Fair Value:							Reported as Other Equity Interests at Fair Value:
Mezzanine Debt	Mezzanine Debt	52.5		131.8		129.3		Mezzanine Debt	62.4		111.4		106.0
Senior Debt	Senior Debt	15.7		30.2		29.9		Senior Debt	6.0		21.9		21.9
Distressed Debt	Distressed Debt	18.6		45.2		44.9		Distressed Debt	13.0		12.7		12.5
Secondary Transactions	Secondary Transactions	5.6		3.7		4.0		Secondary Transactions	4.3		3.1		3.5
Hedge Funds	Hedge Funds	—		68.1		82.7		Hedge Funds	—		17.7		18.1
Leveraged Buyout	Leveraged Buyout	8.3		34.8		32.2		Leveraged Buyout	7.9		22.3		21.6
Growth Equity	Growth Equity	0.5		4.0		2.0		Growth Equity	6.7		6.3		5.4
Real Estate								Real Estate	0.2		0.2		—
Other	Other	—		—		—		Other	—		—		0.1
Total Reported as Other Equity Interests at Fair Value	Total Reported as Other Equity Interests at Fair Value	101.2		317.8		325.0		Total Reported as Other Equity Interests at Fair Value	100.5		195.6		189.1
Reported as Equity Securities at Modified Cost:	Reported as Equity Securities at Modified Cost:							Reported as Equity Securities at Modified Cost:

Other	Other	—		7.6		7.7		Other	—		8.3		8.3
Total Reported as Equity Securities at Modified Cost	Total Reported as Equity Securities at Modified Cost	—		7.6		7.7		Total Reported as Equity Securities at Modified Cost	—		8.3		8.3

Total Investments in Limited Liability Companies and Limited Partnerships	Total Investments in Limited Liability Companies and Limited Partnerships	$	193.4	$	577.8	$	614.2	Total Investments in Limited Liability Companies and Limited Partnerships	$	196.9	$	439.6	$	430.7

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.

5663

Insurance, Interest, and Other Expenses

Expenses for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 were:


		Three Months Ended				Three Months Ended
(Dollars in Millions)	(Dollars in Millions)	Mar 31, 2022		Mar 31, 2021			(Dollars in Millions)	Mar 31, 2023		Mar 31, 2022
Insurance Expenses:	Insurance Expenses:						Insurance Expenses:
Commissions	Commissions	$	191.9	$	195.2		Commissions	$	166.9	$	191.9
General Expenses	General Expenses	87.1		84.6			General Expenses	94.2		87.1
Taxes, Licenses and Fees	Taxes, Licenses and Fees	25.4		25.4			Taxes, Licenses and Fees	23.6		25.4
Total Costs Incurred	Total Costs Incurred	304.4		305.2			Total Costs Incurred	284.7		304.4
Net Policy Acquisition Costs Amortized (Deferred)		(2.5)		(22.4)
Net Policy Acquisition Costs Deferred							Net Policy Acquisition Costs Deferred	(15.9)		(1.7)
Amortization of Value of Business Acquired (“VOBA”)	Amortization of Value of Business Acquired (“VOBA”)	2.1		0.9			Amortization of Value of Business Acquired (“VOBA”)	0.5		2.1

Insurance Expenses	Insurance Expenses	304.0		283.7			Insurance Expenses	269.3		304.8
Loss from Early Extinguishment of Debt	Loss from Early Extinguishment of Debt	3.7		—			Loss from Early Extinguishment of Debt	—		3.7
Interest and Other Expenses:	Interest and Other Expenses:						Interest and Other Expenses:
Interest Expense	Interest Expense	12.7		11.1			Interest Expense	14.1		12.7
Other Expenses:	Other Expenses:						Other Expenses:

Acquisition Related Transaction, Integration and Other Costs		4.7		16.3
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs							Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs	29.1		4.7
Other	Other	36.7		29.8			Other	34.2		36.7
Other Expenses	Other Expenses	41.4		46.1			Other Expenses	63.3		41.4
Interest and Other Expenses	Interest and Other Expenses	54.1		57.2			Interest and Other Expenses	77.4		54.1
Total Expenses	Total Expenses	$	361.8	$	340.9		Total Expenses	$	346.7	$	362.6

Insurance Expenses

Insurance Expenses ~~increased~~ decreased by ~~$20.3~~$35.5 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily to ~~a lower net deferral of policy acquisition costs as premium growth slowed due to ongoing profit improvement actions.~~less business being written.

Loss from Early Extinguishment of Debt

Loss from Early Extinguishment of ~~Debt~~Debt decreased by $3.7 million for the three months ended March 31, 2023, compared to the same period in 2022 due to the redemption of the 2022 Senior Notes.

Interest and Other Expenses

Interest expense increased by ~~$3.7~~$1.4 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021~~2022, primarily due ~~to the redemption of the 2022 Senior Notes.~~

~~Interest and Other Expenses~~

~~Interest expense increased by $1.6 million for the three months ended March 31, 2022, compared to the same period in 2021, due primarily~~ to the addition of the 2032 Senior Notes and the 2062 Junior ~~Debentures during the three months ended March 31, 2022.~~Debentures.

Other expenses ~~decreased~~increased by ~~$4.7~~$21.9 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~ 2022, due primarily to ~~a decrease~~increases in ~~acquisition-related integration expenses, partially offset by an increase in miscellaneous corporate expenses.~~restructuring costs of the Company’s operations.

Income Taxes

The federal corporate statutory income tax rate was 21% for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021.~~2022. The Company’s effective income tax rate differs from the federal corporate income tax rate due primarily to (1) the effects of tax-exempt investment income, (2) nontaxable income associated with the change in cash surrender value on Company-Owned Life Insurance, (3) Alternative Energy Partnership Investment and general business 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 and (5) a permanent difference associated with nondeductible executive compensation.

The Inflation Reduction Act (H.R. 5376 or the "Law") was signed into law on August 16, 2022, and became generally effective on January 1, 2023. Included in the provisions of the Law are various changes to the tax code, including the establishment of a Corporate Alternative Minimum tax. The Company has evaluated the provisions of the Law and does not expect a material impact. The Company will continue to monitor guidance as it is released by the Internal Revenue Service and United States Treasury.

Income Taxes (Continued)

Tax-exempt investment income and dividends received deductions collectively were ~~$6.3~~$7.7 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$5.0~~$6.3 million for the same period in ~~2021.The~~2022. The nontaxable increase in cash surrender value on Company-Owned Life Insurance was ~~$8.3~~$8.9 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$4.6~~$8.3 million for the

~~Income Taxes (Continued)~~

same period in ~~2021.~~ 2022. The Company realized net investment tax credit recaptures of $0.1 million for the three months ended March 31, 2023, compared to net investment tax credits of $3.5 million for the ~~three months ended March 31, 2022, compared to $25.4 million for the~~ same period in ~~2021. The~~2022. The amount of expense recognized for long-term equity-based compensation expense under GAAP ~~was $3.6 million higher than~~did not differ from the amount that would be deductible under the IRC for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.5~~$3.6 million ~~lower~~higher for the same period in ~~2021.~~2022. The amount of nondeductible executive compensation was ~~$3.1~~$4.9 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$3.5~~$3.1 million for the same period in ~~2021.~~2022.

Recently Issued Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements with effective dates prior to March 31, 2023.

In August 2018, the FASB issued ASU 2018-12. The Company’s adoption of LDTI was effective January 1, ~~2022. There~~2023 under the modified retrospective transition method. SeeNote 1, “Basis of Presentation and Accounting Policies,” to the Condensed Consolidated Financial Statements for more information.

Other than discussed above, there were no adoptions of such accounting pronouncements during the three months ended March 31, ~~2022~~2023 that had a material impact on the Company’s Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

~~Long-term Debt~~

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption. Total amortized cost of Long-term Debt outstanding at March 31, 2022 and December 31, 2021 was:

(Dollars in Millions) Mar 31,
2022 Dec 31,
2021
Senior Notes:
5.000% Senior Notes due September 19, 2022 $ — $ 276.7
4.350% Senior Notes due February 15, 2025 449.1 449.0
2.400% Senior Notes due September 30, 2030 396.3 396.2
3.800% Senior Notes due February 23, 2032 395.1 —
5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062 144.7 —
Total Long-term Debt Outstanding $ 1,385.2 $ 1,121.9

~~SeeNote 13, “Debt,” to the Consolidated Financial Statements for more information regarding the Company’s long-term debt.~~

Amended and Extended Credit Agreement

On March 15, 2022, the Company entered into an amended and extended credit agreement. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $600.0 million and extended the maturity date to March 15, 2027. Furthermore, the amended and extended credit agreement provides for an accordion feature whereby the Company can increase the revolving credit borrowing capacity by and additional $200.0 million tofor a total of maximum capacity of $800.0 million. Financial covenants within the agreement limit the Company from accessing the maximum capacity. The amount available as of March 31, 2023 was $520.0 million. There were no outstanding borrowings under the credit agreement at either March 31, ~~2022~~2023 or December 31, ~~2021.~~2022.

Long-term Debt


(Dollars in Millions)	Mar 31, 2023		Dec 31, 2022
Senior Notes:
4.350% Senior Notes due February 15, 2025	$	449.4	$	449.3
2.400% Senior Notes due September 30, 2030	396.7		396.6
3.800% Senior Notes due February 23, 2032	395.6		395.5
5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062	145.8		145.5
Total Long-term Debt Outstanding	$	1,387.5	$	1,386.9

SeeNote 16, “Debt,” to the Consolidated Financial Statements for more information regarding the Company’s long-term debt.

Federal Home Loan Bank Agreements

Kemper’s subsidiaries, United Insurance Company of America (“United Insurance”), Trinity Universal Insurance Company (“Trinity”), and ~~Alliance~~American Access Casualty Company (“AAC”) are members of the ~~FHLB~~Federal Home Loan Banks (“FHLBs”) of Chicago, Dallas and ~~San Francisco,~~Chicago respectively. Alliance ~~became~~United Insurance Company (“Alliance”) was a member of the FHLB of San Francisco until it surrendered all California licenses on January 30, 2023 and ceased to exist as an insurance company. American Access Casualty Company became a member of the FHLB of Chicago in ~~August 2020.~~May 2022. United Insurance and Trinity became members of the FHLBs of Chicago and Dallas, respectively, in 2013. Under their memberships, United Insurance, Trinity and ~~Alliance~~AAC may borrow through the advance program of their respective FHLB. As a requirement of membership in the

Liquidity and Capital Resources (Continued)

FHLB, United Insurance, Trinity and ~~Alliance~~AAC 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.~~Other Investments. The carrying value of FHLB of Chicago common stock was ~~$14.7 million and $11.8~~$17.5 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The carrying value of FHLB of Dallas common stock was $3.5 million and $3.4 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The carrying value of FHLB of San Francisco common stock was ~~$1.7~~$1.4 million at ~~March 31, 2022 and~~ December 31, ~~2021, respectively.~~2022. The Company periodically uses short-term FHLB borrowings for a combination of cash management and risk management purposes, in addition to long-term FHLB borrowings for spread lending purposes.

~~Liquidity and Capital Resources (Continued)~~

During the first three months of ~~2022,~~2023, United Insurance received advances of ~~$208.4~~$89.1 million from the FHLB of Chicago and made repayments of ~~$57.1~~$89.1 million. United Insurance had outstanding advances from the FHLB of Chicago totaling ~~$553.1~~$601.0 million at March 31, ~~2022.~~2023. 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 ~~$622.5~~$772.9 million at March 31, ~~2022.~~2023. 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 ~~12,~~15, “Policyholder Obligations,” to the Condensed 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 $200.0 million of Kemper’s common stock, in addition to $133.3 million remaining under the August 6, 2014 authorization, bringing the remaining share repurchase authorization to approximately $333.3 million. As of March 31, ~~2022~~2023 the remaining share repurchase authorization under the repurchase program was $171.6 million. The amount and timing of any future share repurchases under the authorization will depend on a variety of factors, including market conditions, the Company’s financial condition, results of operations, available liquidity, particular circumstances and other considerations.

During the three months ended March 31, 2023 and 2022, ~~the Company~~Kemper did not repurchase any shares of its common stock. During the three months ended March 31, 2021 the Company repurchased approximately 590,000 shares of its common stock under its share repurchase authorization for an aggregate cost of $47.1 million and an average cost per share of $79.36.

Dividends to Shareholders

Kemper paid a quarterly dividend to shareholders of $0.31 per common share in the first quarter of ~~2022.~~2023. Dividends and dividend equivalents paid were ~~$19.8~~$19.4 million for the three months ended March 31, ~~2022.~~2023.

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 insurance subsidiaries collectively did not pay any dividends to Kemper during the first three months of ~~2022.~~2023. Kemper estimates that its direct insurance subsidiaries would be able to pay approximately ~~$128.6~~$95.7 million in additional dividends to Kemper during the remainder of ~~2022~~2023 without prior regulatory approval.

Sources and Uses of Funds

Kemper and its direct non-insurance subsidiaries directly held cash and investments totaling ~~$318.3~~ $240.6 million at March 31, ~~2022,~~2023, compared to ~~$233.9~~$417.6 million at December 31, ~~2021.~~2022.

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

Liquidity and Capital Resources (Continued)

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.

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

~~Liquidity and Capital Resources (Continued)~~

sell investments to fund payments to policyholders andclaimants. 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.

Information about the Company’s cash flows for three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is presented below.


DOLLARS IN MILLIONS	DOLLARS IN MILLIONS	March 31, 2022		March 31, 2021		DOLLARS IN MILLIONS	March 31, 2023		March 31, 2022
Net Cash Provided by (Used in) Operating Activities	Net Cash Provided by (Used in) Operating Activities	$	(18.2)	$	140.6	Net Cash Provided by (Used in) Operating Activities	$	5.2	$	(18.2)
Net Cash Provided by (Used in) Investing Activities		(225.1)		311.7
Net Cash Provided by (Used in) Financing Activities		392.4		(111.0)
Net Cash Used in Investing Activities						Net Cash Used in Investing Activities	(138.2)		(225.1)
Net Cash (Used in) Provided by Financing Activities						Net Cash (Used in) Provided by Financing Activities	(18.8)		392.4

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.

Cash Provided by (Used in) Operating Activities

Net cash ~~used by~~provided in Operating Activities was ~~$18.2~~$5.2 million for the three months ended March 31, ~~2022,~~2023, compared to ~~generating $140.6 million of~~ net cash used of $18.2 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$158.8~~$23.4 million. Cash from operating activities ~~decreased~~increased primarily due to ~~higher~~a $124.7 million federal income tax refund that was received in first quarter 2023 and mostly offset by paid losses within the P&C business ~~in 2022~~ due to an increase in frequency ~~and rising loss costs from increased severity trends caused by rising inflation and supply chain constraints. This is partially offset by higher premium collections due to the acquisition~~ of ~~AAC in the second quarter of 2021.~~claims.

Cash ~~Provided by (Used in)~~Used in Investing Activities

Net cash used byin Investing Activities for the three months ended March 31, ~~2022~~2023 was ~~$225.1~~$138.2 million, compared to cash ~~provided~~used of ~~$311.7~~$225.1 million for the same period in ~~2021,~~2022, a decrease in cash used of ~~$536.8~~$86.9 million. This was primarily due to ~~the sale of short-term investments~~a decrease in ~~2021 to fund the cash acquisition of AAC. The Company also had increased net~~ purchases of ~~fixed maturities, mostly funded by higher proceeds from sales, calls and maturities of the existing fixed maturity portfolio and sales of equity securities.~~Corporate-Owned Life Insurance.

Cash (Used in) Provided by ~~(Used in)~~ Financing Activities

Net cash ~~provided by~~used in Financing Activities for the three months ended March 31, ~~2022~~2023 was ~~$392.4~~$18.8 million, compared to cash ~~used~~provided of ~~$111.0~~$392.4 million for the same period in ~~2021, an increase~~2022, decrease of ~~$503.4~~$411.2 million. This was primarily due to the issuance of the 2032 Senior Notes and 2062 Junior Debentures, partially of offset by the redemption of the 2022 Senior Notes. Additionally, the Company increased its net advances under the FHLB spread-lending program due to a ~~more attractive interest rate environment~~decrease in ~~2022.~~

debt raising activities in 2023.

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 valuation of liability for future policyholder benefits, the assessment of recoverability of goodwill, ~~and~~ the valuation of pension benefit ~~obligations.~~obligations, and the recoverability of deferred tax assets. The Company’s critical accounting policies are described in the MD&A included in the ~~2021~~2022 Annual Report. There have been no material changes to the information disclosed in the ~~2021~~2022 Annual Report with respect to these critical accounting ~~estimates and the Company’s critical accounting policies.~~

6067

Critical Accounting Estimates (Continued)

estimates and the Company’s significant accounting policies, other than the addition of significant accounting policies related to the adoption of ASU 2018-12 included in Note 1, “Basis of Presentation and Accounting Policies” to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s disclosures about market risk in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk of Part II of the ~~2021~~2022 Annual Report. Accordingly, no disclosures about market risk have been made in Item 3 of this Form 10-Q.

Item 4. Controls and Procedures

(a)Evaluation of disclosure controls and procedures.

The Company’s management, with the participation of Kemper’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, Kemper’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by Kemper in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and accumulated and communicated to the Company’s management, including Kemper’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Items not listed here have been omitted because they are inapplicable or the answer is negative.

Item 1. Legal Proceedings

Information concerning pending legal proceedings is incorporated herein by reference to Note ~~16, “Contingencies,~~19, “Commitments and Contingencies,” to the Condensed Consolidated Financial Statements in Part I of this Form 10-Q.

Item 1A. Risk Factors

For a discussion of the Company’s significant risk factors, see Item 1A. of Part I of the ~~2021~~2022 Annual Report. Readers are also advised to consider other factors not presently known by, or considered material to, the Company that could materially affect the Company’s business, financial condition and results of operations, along with other information disclosed in the ~~2021~~2022 Annual Report and this Quarterly Report on Form 10-Q, including the factors set forth under the caption “Caution Regarding Forward-Looking Statements” beginning on page 1 of the ~~2021~~2022 Annual Report and on page 1 of this Quarterly Report on Form 10-Q, and to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.

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

On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of up to an additional $200.0 million of Kemper common stock, in addition to the $133.3 million remaining under the August 6, 2014 authorization, bringing the remaining share repurchase authorization to approximately $333.3 million. As of December 31, ~~2021,~~2022, the remaining share repurchase authorization was $171.6 million under the repurchase program. During the quarter ended March 31, ~~2022,~~2023, Kemper did not repurchase any shares. As of March 31, ~~2022,~~2023, the remaining share repurchase authorization was $171.6 million under the repurchase program.

All purchases were made in the open market in accordance with applicable federal securities laws, including Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934.

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Item 6. Exhibits

The Exhibit Index that follows has been filed as part of this report. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.

Exhibit Index

The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers followed by an asterisk (*) indicate exhibits that are management contracts or compensatory plans or arrangements.
Incorporated by Reference
Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
4.1
Second Supplemental Indenture, dated as of February 23, 2022, by and between the Company and U.S. Bank Trust Company, National Association
8-K 001-18298 4.2 February 23, 2022
4.2
Third Supplemental Indenture, dated as of March 10, 2022, by and between the Company and U.S. Bank Trust Company, National Association
8-K 001-18298 4.2 March 10, 2022
10.1
Third Amended and Restated Credit Agreement, dated as of March 15, 2022, by and among the Company, as the borrower, the lenders and issuing banks from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent
8-K 001-18298 10.1 March 17, 2022
18.1
Preferability letter from Deloitte & Touche LLP regarding change in accounting principle
X
31.1
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)
X
31.2
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)
X
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.1 XBRL Instance Document X
101.2 XBRL Taxonomy Extension Schema Document X
101.3 XBRL Taxonomy Extension Calculation Linkbase Document X
101.4 XBRL Taxonomy Extension Label Linkbase Document X
101.5 XBRL Taxonomy Extension Presentation Linkbase Document X
101.6 XBRL Taxonomy Extension Definition Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File Number

Exhibit

Filing Date

Filed or Furnished Herewith

31.1

Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)

31.2

Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1

XBRL Instance Document

101.2

XBRL Taxonomy Extension Schema Document

101.3

XBRL Taxonomy Extension Calculation Linkbase Document

101.4

XBRL Taxonomy Extension Label Linkbase Document

101.5

XBRL Taxonomy Extension Presentation Linkbase Document

101.6

XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

6369

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Kemper Corporation

Date:	May ~~2, 2022~~8, 2023	/s/ JOSEPH P. LACHER, JR.
		Joseph P. Lacher, Jr.
		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

Date:	May ~~2, 2022~~8, 2023	/s/ JAMES J. MCKINNEY
		James J. McKinney
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date:	May ~~2, 2022~~8, 2023	/s/ ~~ANASTASIOS OMIRIDIS~~JAMES A. ALEXANDER
		~~Anastasios Omiridis~~James A. Alexander
		Senior Vice President and ~~Deputy~~ Chief ~~Financial~~Accounting Officer (Principal Accounting Officer)

6470


	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


(Dollars in Millions)	Net Unrealized Gains (Losses) on Other Investments	Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses	Net Unrecognized Postretirement Benefit Costs	Gain (Loss) on Cash Flow Hedges	Total
Balance as of January 1, 2022	505.8	(3.7)	(52.1)	(1.9)	448.1
Other Comprehensive Income (Loss) Before Reclassifications	(515.1)	(5.8)	—	4.7	(516.2)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $(1.5), $—, $—, $— and $(1.5)	5.8	—	—	—	5.8
Other Comprehensive Income (Loss) Net of Tax (Expense) Benefit of $135.2, $1.6, $—, $(1.2) and $135.6	(509.3)	(5.8)	—	4.7	(510.4)
Balance as of March 31, 2022	(3.5)	(9.5)	(52.1)	2.8	(62.3)