KEMPER Corp: Form 10-Q for the period ended Sep 30, 2023

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.

In the third quarter of 2023, the Company announced that it will exit the Preferred Property and Casualty Insurance business and will actively reduce the business beginning in third quarter 2023, with all policies being non-renewed or canceled in accordance with applicable state regulations. In connection with the exit, the Company changed its calculation of Adjusted Consolidated Net Loss to exclude the results of the Preferred Property and Casualty Insurance business effective July 1, 2023, since the results are irrelevant to ongoing operations of the Company and do not qualify for Discontinued Operations under U.S. GAAP. The results of this business, previously reported as a reportable segment, are now reflected as Non-Core Operations and presented as a reconciling item between Segment Adjusted Operating Net Loss and Net Loss. Prior period amounts have been recast to reflect the change in reportable segments and the segment measure of performance.

Net Loss Attributable to Kemper Corporation was $323.5 million ($(5.05) per unrestricted common share) for the nine months ended September 30, 2023, compared to Net Loss Attributable to Kemper Corporation of $233.3 million ($(3.66) per unrestricted common share) for the same period in 2022.

Net Loss Attributable to Kemper Corporation was $146.3 million ($(2.28) per unrestricted common share) for the three months ended September 30, 2023, compared to Net Loss Attributable to Kemper Corporation of $74.8 million ($(1.17) per unrestricted common share) for the same period in 2022.

Summary of Results (Continued)

A reconciliation of Net Loss to Adjusted Consolidated Net Operating Loss (a non-GAAP financial measure) for the nine and three months ended September 30, 2023 and 2022 is presented below.

(Dollars in Millions and Net of Income Taxes)

Net Loss attributable to Kemper Corporation

Net Loss attributable to Kemper Corporation increased by $90.2 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to a $55.5 million after-tax noncash charge related to the settlement of the Company’s pension obligations, increased Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs, a $45.5 million after-tax charge from the impairment of the goodwill asset related to the Preferred Property & Casualty Insurance business, and Net Realized Losses on Investments, partially offset by favorable changes in the Change in Fair Value of Equity and Convertible Securities and a reduction in Impairment Losses. Adjusted Consolidated Net Operating Loss increased by $4.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily due to a decrease from the Life Insurance Segment, partially offset by a reduction in Segment Insurance Net Operating Losses in the Specialty Segment.

Net Loss attributable to Kemper Corporation increased by $71.5 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to a Pension settlement charge, as described above, increased Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs, as well as Net Realized Losses on Investments. Adjusted Consolidated Net Operating Loss increased by $0.9 million for the three months ended September 30, 2023, compared to the same period in 2022.

See “Specialty Property & Casualty Insurance,” and “Life Insurance,” for discussion of each respective segment’s results. Corporate and Other Adjusted Net Operating Loss increased for the nine months ended September 30, 2023 compared to the same periods in 2022, due primarily to a decrease in Net Investment Income.

Summary of Results (Continued)

Corporate and Other Adjusted Net Operating Loss decreased for the three months ended September 30, 2023 compared to the same periods in 2022, due primarily to an increase in Net Investment Income.

Revenues

Earned Premiums were $3,465.6 million for the nine months ended September 30, 2023, compared to $3,948.5 million for the same period in 2022, a decrease of $482.9 million. Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $297.9 million for the nine months ended September 30, 2023, compared to the same period in 2022. Earned premiums in the Life Insurance segments decreased by $125.3 million for the nine months ended September 30, 2023, compared to the same period in 2022. See “Specialty Property & Casualty Insurance”, and “ Life Insurance” for discussion of the changes in each segment’s earned premiums.

Earned Premiums were $1,117.8 million for the three months ended September 30, 2023, compared to $1,290.9 million for the same period in 2022, a decrease of $173.1 million. Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $109.1 million for the three months ended September 30, 2023, compared to the same period in 2022. Earned premiums in the Life Insurance segments decreased by $40.0 million for the three months ended September 30, 2023, compared to the same period in 2022. See “Specialty Property & Casualty Insurance”, and “ Life Insurance” for discussion of the changes in each segment’s earned premiums.

Net Investment Income decreased by $1.2 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to lower returns on Equity Method Limited Liability Investments and Equity Securities offset by higher rate earned on Fixed Income Securities.

Net Investment Income increased by $9.2 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to higher rate earned on Fixed Income Securities, Short Term Investments and Equity Method Limited Liability Investments offset by lower returns on Company Owned Life Insurance and Equity Securities.

Gain from the Change in Value of Alternative Energy Partnership Investments was $2.3 million for the nine months ended September 30, 2023, compared to loss of $21.2 million for the same period 2022. Tax expense related to the Alternative Energy Partnership Investments were $0.6 million compared to tax benefit of $8.0 million for the nine months ended September 30, 2023 and 2022, respectively. This resulted in net income of $1.7 million and net loss of $13.2 million attributable to Alternative Energy Partnership Investments for the nine months ended September 30, 2023 and 2022, respectively.

Gain from the Change in Value of Alternative Energy Partnership Investments was $0.8 million for the three months ended September 30, 2023, compared to gain of $0.4 million for the same period 2022. Tax expense related to the Alternative Energy Partnership Investments were $0.2 million, compared to tax expense of $0.1 million for the three months ended September 30, 2023 and 2022, respectively. This resulted in net income of $0.6 million and a net income of $0.3 million attributable to Alternative Energy Partnership Investments for the three months ended September 30, 2023 and 2022, respectively.

Other Income was $5.3 million for the nine months ended September 30, 2023, compared to Other Income of $7.3 million for the same period in 2022.

Other Income was $2.4 million for the three months ended September 30, 2023, compared to Other Income of $4.0 million for the same period in 2022.

Net Realized Investment Losses were $38.3 million for the nine months ended September 30, 2023, compared to Net Realized Investment Gains of $0.4 million for the same period in 2022, primarily due to losses on our Ultra-Long Treasury Future derivative transactions.

Net Realized Investment Losses were $30.3 million for the three months ended September 30, 2023, compared to Net Realized Investment Losses of $12.1 million for the same period in 2022, primarily due to losses on our Ultra-Long Treasury Future derivative transactions.

Impairment Gains were $0.1 million for the nine months ended September 30, 2023, compared to Impairment Losses of $22.1 million for the same period in 2022.

Impairment Losses were $1.1 million for the three months ended September 30, 2023, compared to Impairment Losses of $8.3 million for the same period in 2022.

See “Investment Results,” under the sub-captions “Net Realized (Losses) Gains on Sales of Investment” and “Impairment Gains (Losses)” for additional information. 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.

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 Loss

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

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

(ii) Net Realized Investment (Losses) Gains;

(iii) Impairment Gains (Losses);

(iv) Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs;

(v) Debt Extinguishment, Pension Settlement and Other Charges;

(vi) Goodwill Impairment Charges;

(vii) Non-Core Operations; and

(viii) 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 Loss. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating Loss for the nine and three months ended September 30, 2023 or 2022.

The Company believes that Adjusted Consolidated Net Operating Loss provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded. Income (Loss) from Change in Fair Value of Equity and Convertible Securities, Net Realized Investment (Losses) Gains and Impairment Gains (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 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 Settlement 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. Goodwill impairment charges are excluded because they are infrequent and non-recurring charges. Non-Core Operations includes the results of our Preferred

Non-GAAP Financial Measures (Continued)

Insurance business which we expect to fully exit. These results are excluded because they are irrelevant to our ongoing operations and do not qualify for Discontinued Operations under Generally Accepted Accounting Principles ("GAAP"). 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.

Specialty Property & Casualty Insurance

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

(Dollars in Millions)

55

Specialty Property & Casualty Insurance (Continued)

Insurance Reserves

(Dollars in Millions)

See “Critical Accounting Estimates,” of the 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

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

The Specialty Property & Casualty Insurance segment reported a Total Segment Adjusted Net Operating Loss of $102.4 million for the nine months ended September 30, 2023, compared to Total Segment Adjusted Net Operating Loss of $112.3 million for the same period in 2022. Total Segment Adjusted Net Operating Loss improved by $9.9 million mostly driven by a $24.6 million improvement from personal automobile insurance due primarily to higher average earned premiums per exposure resulting from rate increases and lower underlying claim frequency that was partially offset by unfavorable prior year loss and LAE development. The improvement in segment adjusted net operating loss was offset by a $14.7 million decrease from the commercial automobile insurance business due primarily to an increase in the underlying loss ratio from higher claim average severity.

Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $297.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to a decrease in new business resulting from targeted actions to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases.

Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $22.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to higher rates on Fixed Income Securities and short-term investments partially offset by lower returns from Equity Securities.

Income related to Changes in Value of Alternative Energy Partnership Investments was $1.3 million for the nine months ended September 30, 2023, compared to loss of $10.6 million for the same period in 2022. Tax expenses related to the Alternative Energy Partnership Investments were $0.0 million for the nine months ended September 30, 2023, compared to benefits of $4.0 million for the nine months ended September 30, 2022. This resulted in net income of $1.3 million and net loss of $6.6 million attributable to Alternative Energy Partnership Investments for the nine months ended September 30, 2023 and 2022, respectively.

Underlying losses and LAE as a percentage of earned premiums were 83.1% for the nine months ended September 30, 2023, an improvement of 5.3 percentage points, compared to the same period in 2022, driven by higher average earned premium per exposure resulting from rate increases and lower underlying claims frequency, partially offset by higher claims average severity from rising inflation and supply chain constraints.

Specialty Property & Casualty Insurance (Continued)

Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Adverse loss and LAE reserve development (including catastrophe reserve development) was $133.0 million for the nine months ended September 30, 2023, compared to favorable development of $24.1 million for the same period in 2022. Catastrophe losses and LAE (excluding reserve development) were $32.0 million for the nine months ended September 30, 2023 compared to $23.1 million for the same period in 2022, a deterioration of $8.9 million.

Insurance Expenses were $563.6 million, or 20.4% of earned premiums, for the nine months ended September 30, 2023, an increase of 0.7 percent compared to the same period in 2022.

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

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

The Specialty Property & Casualty Insurance segment reported a Total Segment Adjusted Net Operating Loss of $33.2 million for the three months ended September 30, 2023, compared to a Total Segment Adjusted Net Operating Loss of $28.7 million for the same period in 2022. Segment Net Operating Loss increased by $4.5 million mostly driven by a $6.8 million increase in net operating loss from personal automobile insurance due primarily to unfavorable prior year loss and LAE development, partially offset by higher average earned premiums per exposure resulting from rate increases and lower underlying claim frequency.

Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $109.1 million for the three months ended September 30, 2023, compared to the same period in 2022, due to a decrease in new business resulting from targeted actions to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases.

Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $8.8 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to higher rates on Fixed Income Securities, Equity Method Limited Liability Investments and Short Term Investments offset by lower returns on Equity Securities.

Underlying losses and LAE as a percentage of earned premiums were 80.0% for the three months ended September 30, 2023, an improvement of 6.9 percentage points, compared to the same period in 2022, driven by personal automobile insurance due primarily to higher average earned premiums per exposure resulting from rate increases and lower underlying claims frequency that were partially offset by higher claim average severity from rising inflation and supply chain constraints. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Adverse loss and LAE reserve development (including catastrophe reserve development) was $77.8 million for the three months ended September 30, 2023, compared to favorable development of $6.4 million for the same period in 2022. Catastrophe losses and LAE (excluding reserve development) were $6.2 million for the three months ended September 30, 2023, compared to $14.8 million for the same period in 2022, a decrease of $8.6 million.

Insurance Expenses were $182.3 million, or 20.5% of earned premiums, for the three months ended September 30, 2023, an increase of 0.6 percentage points compared to the same period in 2022.

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

Specialty Property & Casualty Insurance (Continued)

Specialty Personal Automobile Insurance

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

(Dollars in Millions)

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from personal automobile insurance decreased by $387.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to a decrease in new business driven by targeted underwriting actions to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were $2,058.4 million, or 90.3% of earned premiums for the nine months ended September 30, 2023, compared to $2,403.4 million, or 90.1% of earned premiums, for the same period in 2022. Incurred losses and LAE as a percentage of earned premiums increased due to adverse prior year loss and LAE development, partially offset by an improvement in underlying losses and LAE as a percentage of earned premium driven by higher average earned premiums per exposure resulting from rate increases and a lower frequency of claims. Underlying losses and LAE as a percentage of related earned premiums were 84.2% for the nine months ended September 30, 2023, compared to 90.5% for the same period in 2022, an improvement of 6.3 points. Adverse loss and LAE reserve development was $110.9 million for the nine months ended September 30, 2023, compared to favorable development of $31.6 million for the same period in 2022. Catastrophe losses and LAE (excluding reserve development) were $27.7 million for the nine months ended September 30, 2023, primarily driven by multiple California weather events in the first quarter of 2023, numerous rain and hail events in the second quarter of 2023, and tropical storm activity in the third quarter of 2023, compared to $20.9 million for the same period in 2022.

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from personal automobile insurance decreased by $134.8 million for the three months ended September 30, 2023, compared to the same period in 2022, due to a decrease in new business driven by targeted underwriting actions to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were $659.4 million, or 91.1% of earned premiums for the three months ended September 30, 2023, compared to $764.3 million, or 89.0% of earned premiums, for the same period in 2022. Incurred losses and LAE as a percentage of earned premiums increased due primarily to prior year reserve development, partially offset by higher average earned premiums per exposure resulting from rate increases. Underlying losses and LAE as a percentage of related earned premiums were 80.6% for the three months ended September 30, 2023, compared to 88.3% for the same period in 2022, an improvement of 7.7 points driven by higher average earned premiums per exposure resulting from rate increases and a lower frequency of claims. Adverse loss and LAE reserve development was $70.9 million for the three months ended September 30, 2023, compared to favorable development of $6.6 million for the same period in 2022. The adverse loss and LAE development for three months ended September 30, 2023 was largely associated with a $40.6 million increase in estimates for Florida personal injury protection

Specialty Property & Casualty Insurance (Continued)

driven by increased frequency and severity resulting from more litigated claim activity, mainly from policy years 2020 through 2022, and a $23.9 million increase in estimates related to extended development patterns for bodily injury and property damage costs associated with claim activity from the second half of 2022. Catastrophe losses and LAE (excluding reserve development) were $5.0 million for the three months ended September 30, 2023, driven by multiple rain and hail events, compared to $13.1 million for the same period in 2022.

Commercial Automobile Insurance

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

(Dollars in Millions)

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from commercial automobile insurance increased by $89.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to higher volume and higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were $408.0 million, or 83.5% of earned premiums in 2023, compared to $305.5 million, or 76.7% of earned premiums in 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 higher levels of adverse loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums were 78.1% for the nine months ended September 30, 2023, compared to 74.2% during the same time period in 2022, a deterioration of 3.9 percentage points due primarily to higher severity trends from rising inflation and supply chain constraints. Adverse loss and LAE reserve development was $22.1 million for the nine months ended September 30, 2023, compared to adverse development of $7.5 million for the same period in 2022.

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from commercial automobile insurance increased by $25.7 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to higher volume and higher average earned premium per exposure. Incurred losses and LAE were $136.7 million, or 82.2% of earned premiums in 2023, compared to $112.1 million, or 79.7% of earned premiums in 2022. Incurred losses and LAE as a percentage of earned premiums increased due primarily to higher levels of adverse loss and LAE reserve development, partially offset by lower underlying losses and LAE as a percentage of earned premiums. Underlying losses and LAE as a percentage of earned premiums were 77.4% in the three months ended September 30, 2023, compared to 78.3% during the same time period in 2022, an improvement of 0.9 percentage points due primarily to higher average earned premiums per exposure resulting from rate increases. Adverse loss and LAE reserve development was $6.9 million for the three months ended September 30, 2023, compared to adverse development of $0.2 million for the same period in 2022.

Life Insurance

Selected financial information for the Life Insurance segment follows.

(Dollars in Millions)

INSURANCE RESERVES

(Dollars in Millions)

See Note 2 “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements under the sub-caption “Insurance Reserves” for additional discussion in the 2022 Annual Report.

Overall

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Total Segment Adjusted Net Operating Income in the Life Insurance segment was $36.8 million for the nine months ended September 30, 2023, compared to $45.8 million for the same period in 2022.

Earned Premiums in the Life Insurance segment decreased by $125.3 million for the nine months ended September 30, 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.

Net Investment Income decreased by $17.6 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to lower returns from Equity Method Limited Liability Investments.

Income related to Changes in Value of Alternative Energy Partnership Investments was $0.6 million for the nine months ended September 30, 2023, compared to loss of $5.6 million for the same period in 2022. Tax expense related to the Alternative Energy Partnership Investments were $0.0 million and tax benefits of $2.1 million for the nine months ended September 30, 2023 and 2022, respectively. This resulted in net income of $0.6 million and net loss of $3.5 million attributable to Alternative Energy Partnership Investments for the nine months ended September 30, 2023 and 2022, respectively.

Policyholders’ Benefits and Incurred Losses and LAE decreased by $69.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022, changes in mortality experience and lower current year property non-catastrophe losses and LAE.

Insurance Expenses in the Life Insurance segment decreased by $57.4 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022.

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

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Total Segment Adjusted Net Operating Income in the Life Insurance segment was $14.7 million for the three months ended September 30, 2023, compared to Total Segment Adjusted Net Operating Income of $14.0 million for the same period in 2022.

Earned Premiums in the Life Insurance segment decreased by $40.0 million for the three months ended September 30, 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.

Net Investment Income decreased by $3.2 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to lower returns from Company Owned Life Insurance, partially offset by higher rate earned on Short Term Investments.

Income related to Changes in Value of Alternative Energy Partnership Investments was $0.2 million for the three months ended September 30, 2023, compared to income of $0.1 million for the same period in 2022. There were $0.1 million tax benefits related to the Alternative Energy Partnership Investments for the three months ended September 30, 2023, compared to tax expenses of $0.0 million for the same period in 2022. This resulted in net income of $0.3 million and net income of $0.1 million attributable to Alternative Energy Partnership Investments for the three months ended September 30, 2023 and 2022, respectively.

Policyholders’ Benefits and Incurred Losses and LAE decreased by $23.8 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022, changes in mortality experience and lower current year property catastrophe losses and LAE.

Insurance Expenses in the Life Insurance segment decreased by $21.3 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022.

The Life Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to 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.

(Dollars in Millions)

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from life insurance decreased by $1.9 million for the nine months ended September 30, 2023, compared to the same period in 2022. Policyholders’ Benefits and Incurred Losses and LAE on life insurance were $183.2 million for the nine months ended September 30, 2023, compared to $186.8 million for the same period in 2022, a decrease of $3.6 million due primarily to changes in mortality experience.

Insurance Expenses decreased by $0.5 million for the nine months ended September 30, 2023, compared to the same period in 2022.

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from life insurance increased by $0.6 million for the three months ended September 30, 2023, compared to the same period in 2022. Policyholders’ Benefits and Incurred Losses and LAE on life insurance were $59.1 million for the three months ended September 30, 2023, compared to $61.5 million for the same period 2022, a decrease of $2.4 million due primarily to changes in mortality experience.

Insurance Expenses decreased by $1.8 million for the three months ended September 30, 2023, compared to the same period in 2022.

Accident and Health Insurance

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

(Dollars in Millions)

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from accident and health insurance decreased by $119.3 million for the nine months ended September 30, 2023, compared to the same period in 2022. This is due primarily to the disposition of Reserve National in December 2022. Policyholders’ Benefits and Incurred Losses and LAE on accident and health insurance were $9.6 million for the nine months ended September 30, 2023, compared to $70.3 million for the same period in 2022. This is due primarily to the disposition of Reserve National in December 2022.

Insurance Expenses decreased by $54.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022.

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from accident and health insurance decreased by $40.1 million for the three months ended September 30, 2023, compared to the same period in 2022. This is due primarily to the disposition of Reserve National in December 2022. Policyholders’ Benefit and Incurred Losses and LAE on accident and health insurance were $2.5 million for the three months ended September 30, 2023, compared to $22.3 million for the same period in 2022. This is due primarily to the disposition of Reserve National in December 2022.

Insurance Expenses decreased by $19.0 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to the disposition of Reserve National in December 2022.

Property Insurance

Selected financial information for the property insurance product line follows.

(Dollars in Millions)

Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from property insurance decreased by $4.1 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to lower volume of property insurance products. Incurred losses and LAE on property insurance were $10.1 million, or 29.5% of earned premiums, for the nine months ended September 30, 2023, compared to $15.6 million, or 40.7% of earned premiums for the same period in 2022. Underlying losses and LAE were $6.6 million, or 19.2% of earned premiums for the nine months ended September 30, 2023, compared to $10.5 million, or 27.4% of earned premiums for the same period in 2022, a decrease of 8.2 percentage points due primarily to lower claim frequency and severity. Catastrophe losses and LAE (excluding loss reserve development) were $1.9 million for the nine months ended September 30, 2023, compared to $2.4 million for the same period in 2022. Catastrophe losses and LAE decreased $0.5 million due primarily to lower severity of catastrophe claims. Adverse loss and LAE reserve development was $1.6 million for the nine months ended September 30, 2023, compared to adverse development of $2.7 million in the same period in 2022.

Insurance expenses decreased $2.1 million for the nine months ended September 30, 2023, compared to the same period in 2022 due primarily to lower volume of property insurance products.

Three Months Ended September 30, 2023 Compared to the Same Period in 2022

Earned Premiums from property insurance decreased by $0.5 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to lower volume of property insurance products. Incurred losses and LAE on property insurance were $3.1 million, or 27.2% of earned premiums, for the three months ended September 30, 2023, compared to $4.7 million, or 39.5% of earned premiums for the same period in 2022. Underlying losses and LAE were $2.2 million, or 19.3% of earned premiums for the three months ended September 30, 2023, compared to $2.8 million, or 23.5% of earned premiums for the same period in 2022, a decrease of 4.2 percentage points due primarily to lower claim frequency and severity. Catastrophe losses and LAE (excluding loss reserve development) were $0.5 million for the three months ended September 30, 2023, compared to $1.4 million for the same period in 2022. Catastrophe losses and LAE decreased by $0.9 million due primarily to lower severity of catastrophe claims. Adverse loss and LAE reserve development was $0.4 million for the three months ended September 30, 2023, compared to adverse development of $0.5 million for the same period in 2022.

Insurance expenses decreased $0.5 million for the three months ended September 30, 2023, compared to the same period in 2022 due primarily to lower volume of property insurance products.

Investment Results

Net Investment Income

Net Investment Income for the nine and three months ended September 30, 2023 and 2022 was:

(Dollars in Millions)

Net Investment Income was $315.1 million and $316.3 million for the nine months ended September 30, 2023 and 2022, respectively. Net Investment Income decreased by $1.2 million in 2023 due primarily to lower returns on Equity Method Limited Liability Investments and Equity Securities offset by higher rate earned on Fixed Income Securities.

Net Investment Income was $107.0 million and $97.8 million for the three months ended September 30, 2023 and 2022, respectively. Net Investment Income increased by $9.2 million in 2023 due primarily to higher rate earned on Fixed Income Securities, Short Term Investments and Equity Method Limited Liability Investments offset by lower returns on Company Owned Life Insurance and Equity Securities.

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.

Investment Results (Continued)

Total Comprehensive Investment Losses

The components of Total Comprehensive Investment Losses for the nine and three months ended September 30, 2023 and 2022 were:

(Dollars in Millions)

Total Comprehensive Investment Losses were $258.0 million for the nine months ended September 30, 2023, compared to Total Comprehensive Investment Losses of $1,746.1 million for the nine months ended September 30, 2022. The decrease of $1,488.1 million was primarily due to a decrease in the Company’s unrealized loss position on the fixed income bond portfolio.

Total Comprehensive Investment Losses were $359.2 million and $443.9 million for the three months ended September 30, 2023 and 2022. The decrease in loss of $84.7 million was primarily due to a decrease in the Company’s unrealized loss position on the fixed income bond 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 nine and three months ended September 30, 2023 and 2022 were:

(Dollars in Millions)

66

Investment Results (Continued)

Net Realized (Losses) Gains on Sales of Investment

The components of Net Realized Investment (Losses) Gains for the nine and three months ended September 30, 2023 and 2022 were:

(Dollars in Millions)

Impairment 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 Loss in the period that the declines are evaluated. Conversely, an increase in the fair value or disposal of an investment with a previously established credit allowance will result in the recognition of impairment gain reported in the Condensed Consolidated Statements of Loss in the period.

The components of Impairment Gains (Losses) in the Condensed Consolidated Statements of Loss for the nine and three months ended September 30, 2023 and 2022 were:

(Dollars in Millions)

Investment Quality and Concentrations

The Company’s fixed maturity investment portfolio is comprised primarily of high-grade corporate, municipal and agency bonds. At September 30, 2023, 95.7% 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

Investment Quality and Concentrations (Continued)

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 September 30, 2023 and December 31, 2022:

(Dollars in Millions)

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $28.9 million and $32.8 million at September 30, 2023 and December 31, 2022, respectively.

The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at September 30, 2023 and December 31, 2022:

(Dollars in Millions)

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by industry at September 30, 2023 and December 31, 2022.

(Dollars in Millions)

68

Investment Quality and Concentrations (Continued)

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amount invested at September 30, 2023.

(Dollars in Millions)

The Company’s short-term investments primarily consist of money market funds and short-term bonds. At September 30, 2023, the Company had $227.2 million invested in money market funds, which primarily invest in U.S. Treasury securities and $191.3 million invested in U.S. treasury bills and short-term bonds.

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 September 30, 2023:

(Dollars in Millions)

69

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 September 30, 2023, and December 31, 2022 is presented below.

(Dollars in Millions)

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.

Insurance, Interest, and Other Expenses

Expenses for the nine and three months ended September 30, 2023 and 2022 were:

(Dollars in Millions)

Insurance Expenses

Insurance Expenses were $794.4 million for the nine months ended September 30, 2023, compared to $913.0 million for the same period in 2022. Insurance Expenses decreased by $118.6 million in 2023 due primarily to lower expenses from less business being written.

Insurance Expenses were $259.0 million for the three months ended September 30, 2023, compared to $300.5 million for the same period in 2022. Insurance Expenses decreased by $41.5 million in 2023 due primarily to lower expenses from less business being written.

Loss from Early Extinguishment of Debt

Loss from Early Extinguishment of Debt decreased by $3.7 million for the nine months ended September 30, 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 $1.2 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to the addition of the 2032 Senior Notes and the 2062 Junior Debentures.

Interest expense decreased by $0.2 million for the three months ended September 30, 2023, compared to the same period in 2022.

Other expenses increased by $139.4 million for the nine months ended September 30, 2023, compared to the same period in 2022, due primarily to a $70.2 million noncash charge related to the settlement of the Company’s pension obligations and increases in Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs.

Other expenses increased by $92.7 million for the three months ended September 30, 2023, compared to the same period in 2022, due primarily to a $70.2 million noncash charge related to the settlement of the Company’s pension obligations. The increase in Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs included $14.8 million of real estate exit costs related to the impairment of the Company’s corporate office lease in Chicago, Illinois, $10.9 million of

Insurance, Interest, and Other Expenses (Continued)

higher integration related expenses due to continued investments in information technology and $6.4 million of accrued severance expenses, mostly associated with the exit of the Preferred Insurance business.

Goodwill Impairment

Goodwill Impairment increased $49.6 million for the nine months ended September 30, 2023, compared to the same period in 2022, due to the impairment of goodwill related to the Preferred Property & Casualty Insurance segment. See Note 3 “Goodwill,” to the Condensed Consolidated Financial Statements for more information.

Income Taxes

The federal corporate statutory income tax rate was 21% for the nine months ended September 30, 2023 and September 30, 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 (5) a permanent difference associated with nondeductible executive compensation, and (6) an impairment of non-tax deductible goodwill.

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.

Tax-exempt investment income and dividends received deductions collectively were $17.4 million for the nine months ended September 30, 2023, compared to $17.9 million for the same period in 2022. Tax-exempt investment income and dividends received deductions collectively were $4.2 million for the three months ended September 30, 2023, compared to $5.6 million for the same period in 2022.

The nontaxable increase in cash surrender value on Company-Owned Life Insurance was $22.6 million for the nine months ended September 30, 2023, compared to $28.0 million for the same period in 2022. The nontaxable increase in cash surrender value on Company-Owned Life Insurance was $6.4 million for the three months ended September 30, 2023, compared to $9.9 million for the same period in 2022.

The Company realized investment tax credits and other federal income tax credits of $3.1 million for the nine months ended September 30, 2023, compared to realized investment tax credits and other federal tax credits of $5.8 million for the same period in 2022. The Company realized investment tax credits and other federal tax credits of $3.2 million for the three months ended September 30, 2023, compared to realized investment tax credits of $2.3 million for the same period in 2022.

The amount of expense recognized for long-term equity-based compensation expense under GAAP was $0.9 million higher than the amount that would be deductible under the IRC for the nine months ended September 30, 2023, compared to $6.1 million higher for the same period in 2022. The amount of expense recognized for long-term equity-based compensation expense under GAAP was $0.4 million higher than the amount that would be deductible under the IRC for the three months ended September 30, 2023, compared to $1.0 million higher for the same period in 2022.

The amount of nondeductible executive compensation was $8.9 million for the nine months ended September 30, 2023, compared to $9.3 million for the same period in 2022. The amount of nondeductible executive compensation was $1.7 million for the three months ended September 30, 2023, compared to $3.1 million for the same period in 2022.

The total impairment of non-tax deductible goodwill was $30.0 million for the nine months ended September 30, 2023 and none for the three month period. No impairment of non-tax deductible goodwill was recorded in the nine and three months ended September 30, 2022.

No tax expense was recognized related to sold and available for sale subsidiaries for the nine and three months ended September 30, 2023 compared to $10.5 million for the nine and three months ended September 30, 2022.

Recently Issued Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements with effective dates prior to September 30, 2023.

In August 2018, the FASB issued ASU 2018-12. The Company’s adoption of LDTI was effective January 1, 2023 under the modified retrospective transition method. See Note 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 nine months ended September 30, 2023 that had a material impact on the Company’s Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

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 an additional $200.0 million for 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 September 30, 2023 was $376.0 million. There were no outstanding borrowings under the credit agreement on either September 30, 2023 or December 31, 2022.

Long-term Debt

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance. Total amortized cost of Long-term Debt outstanding on September 30, 2023 and December 31, 2022 was:

(Dollars in Millions)

See Note 17, “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 American Access Casualty Company (“AAC”) are members of the Federal Home Loan Banks (“FHLBs”) of Chicago, Dallas and Chicago, respectively. Alliance 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 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 AAC may borrow through the advance program of their respective FHLB. As a requirement of membership in the FHLB, United Insurance, Trinity and 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 Other Investments. The carrying value of FHLB of Chicago common stock was $16.6 million and $17.5 million on September 30, 2023, and December 31, 2022, respectively. The carrying value of FHLB of Dallas common stock was $3.6 million and $3.4 million on September 30, 2023 and December 31, 2022, respectively. The carrying value of FHLB of San Francisco common stock was $1.4 million on December 31, 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.

During the first nine months of 2023, United Insurance received advances of $122.5 million from the FHLB of Chicago and made repayments of $166.1 million. United Insurance had outstanding advances from the FHLB of Chicago totaling $557.4 million at September 30, 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.

Liquidity and Capital Resources (Continued)

For these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $619.1 million at September 30, 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 16, “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 September 30, 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 various factors, including market conditions, the Company’s financial condition, results of operations, available liquidity, particular circumstances and other considerations.

During the nine and three months ended September 30, 2023, and 2022, Kemper did not repurchase any shares of its common stock.

Dividends to Shareholders

Kemper paid a quarterly dividend to shareholders of $0.31 per common share in the third quarter of 2023. Dividends and dividend equivalents paid were $59.8 million for the nine months ended September 30, 2023.

Subsidiary Dividends

Various 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 paid $103.0 million in dividends to Kemper during the first nine months of 2023. As of September 30, 2023, Kemper estimates that its direct insurance subsidiaries could pay approximately $190.0 million in additional dividends to Kemper during the remainder of 2023 without prior regulatory approval. In October 2023, an ordinary dividend of $62.0 million was paid to Kemper from its direct insurance subsidiaries.

Sources and Uses of Funds

Kemper and its direct non-insurance subsidiaries directly held cash and investments totaling $153.9 million at September 30, 2023, compared to $417.6 million at December 31, 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, 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 and Dallas, and capital contributions from Kemper. The primary uses of funds are the payment of policyholder benefits under life insurance contracts, claims under property and casualty insurance contracts and accident and health insurance contracts, the payment of commissions and general expenses, the purchase of investments and repayments of advances from the FHLBs of Chicago and Dallas.

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 can invest a portion of their operating cash flows to fund future policyholder benefits and claims. During periods in which premium revenues decline, insurance companies may experience negative cash flows from operations and may need to sell investments to fund payments to policyholders and claimants. In addition, if the Company’s property and casualty insurance subsidiaries experience several significant catastrophic events over a relatively short period of time, investments may be sold to fund payments, which could result in 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.

Liquidity and Capital Resources (Continued)

Information about the Company’s cash flows for nine months ended September 30, 2023 and 2022 is presented below.

DOLLARS IN MILLIONS

Cash available for investment activities is dependent on cash flow from Operating Activities and Financing Activities and the level of cash the Company elects to maintain.

Net Cash Used in Operating Activities

Net cash used in Operating Activities was $104.5 million for the nine months ended September 30, 2023, compared to $170.1 million for the same period in 2022. The improvement in cash used in Operating Activities was primarily due to a $124.7 million federal income tax refund that was received in first quarter 2023, partially offset by the timing of paid claims and a decrease in new business written from our Property and Casualty operations.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by Investing Activities for the nine months ended September 30, 2023 was $105.2 million, compared to net cash used of $129.6 million for the same period in 2022. The decrease in cash used in Investing Activities was primarily driven by the ongoing management of our investment portfolio that was impacted by a decrease in cash from our Property and Casualty operations, as explained above.

Net Cash (Used in) Provided by Financing Activities

Net cash used in Financing Activities for the nine months ended September 30, 2023 was $100.7 million, compared to net cash provided of $403.8 million for the same period in 2022, a decrease of $504.5 million. This was primarily due to a decrease in debt raising activities in 2023 and a decrease in the advances from the Company’s borrowing arrangement with the FHLB used for spread lending purposes.

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

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 2022 Annual Report. Accordingly, no disclosures about market risk have been made in Item 3 of this Form 10-Q.

(a) Evaluation of disclosure controls and procedures.

The Company’s management, with the participation of Kemper’s Chief Executive Officer and Interim 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 Interim 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 Interim 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.

For a discussion of the Company’s significant risk factors, see Item 1A. of Part I of the 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 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 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.