KEMPER Corp: Form 10-Q for the period ended Mar 31, 2024

Non-GAAP Financial Measures

In this report, the Company presents certain measures of its performance on a consolidated and segment basis that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business. Segment-specific financial measures are calculated using only the portion of consolidated results attributable to that specific segment.

Adjusted Consolidated Net Operating Income (Loss)

The Company believes that the non-GAAP financial measure of Adjusted Consolidated Net Operating Income (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. The most directly comparable GAAP financial measure is Net Income (Loss) attributable to Kemper Corporation.

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

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

(ii) Net Realized Investment Gains;

(iii) Impairment 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 Income (Loss) attributable to Kemper Corporation. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating Income (Loss) for the three months ended March 31, 2024 or 2023.

Change in Fair Value of Equity and Convertible Securities, Net Realized Investment Gains 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 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 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 GAAP. Significant non-recurring items are excluded because, by their nature, they are not indicative of the Company’s business or economic trends.

Non-GAAP Financial Measures (Continued)

Underlying Losses and Loss Adjustment Expenses (“LAE”) and Underlying Combined Ratio

The following discussion 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.

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.

Summary of Results

Net Income (Loss) attributable to Kemper Corporation was $71.3 million ($1.11 per unrestricted common share) for the three months ended March 31, 2024, compared to Net Loss attributable to Kemper Corporation of $80.1 million ($(1.25) per unrestricted common share) for the same period in 2023.

A reconciliation of Net Income (Loss) attributable to Kemper Corporation to Adjusted Consolidated Net Operating Income (Loss) (a non-GAAP financial measure) for the three months ended March 31, 2024 and 2023 is presented below.

(Dollars in Millions)

43

Summary of Results (Continued)

Net Income (Loss) attributable to Kemper Corporation

Net Income (Loss) attributable to Kemper Corporation increased by $151.4 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to higher Adjusted Consolidated Net Operating Income (Loss), an increase in net income from Non-Core Operations and lower Acquisition and Disposition Related Transaction, Integration, Restructuring

and Other Costs from the completion of certain strategic initiatives and lower costs in connection with the 2023 cost structure optimization initiatives.

Adjusted Consolidated Net Operating Income (Loss) increased by $125.4 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to an improvement in the Specialty Property & Casualty Insurance segment profitability driven by higher average earned premiums per exposure, lower underlying claim frequency and moderating increases in claim severity.

The income from Non-Core Operations increased by $14.5 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to an improvement in the underlying combined ratio driven by higher average earned premiums per exposure resulting from rate increases and a lower frequency of claims, lower catastrophe losses and a reduction in prior accident year losses due to normalization of loss patterns.

Corporate and Other Adjusted Net Operating Loss increased for the three months ended March 31, 2024 compared to the same periods in 2023, due primarily to increased overhead expenses.

Revenues

Total Revenues decreased by $151.8 million to $1,143.0 million for the three months ended March 31, 2024, compared to $1,294.8 million for the same period in 2023. The decrease was primarily driven by a reduction in earned premiums.

Earned Premiums decreased by $149.0 million to $1,031.9 million for the three months ended March 31, 2024, compared to $1,180.9 million for the same period in 2023, primarily driven by a $104.2 million decrease from the Specialty Property & Casualty Insurance segment due to continued lower new business volumes resulting from targeted actions to improve profitability, partially offset by higher average earned premium per exposure resulting from rate increases. The decrease was also due to $42.8 million in lower premiums from our Preferred Insurance business, reported as Non-Core Operations, due primarily to lower volumes resulting from the decision to exit and run-off the business as well as ongoing profit improvement actions.

Net Investment Income was $100.4 million for the three months ended March 31, 2024, compared to $101.8 million for the same period in 2023.

Specialty Property & Casualty Insurance

Selected financial information for the Specialty Property & Casualty Insurance segment is presented below.

(Dollars in Millions)

45

Specialty Property & Casualty Insurance (Continued)

Insurance Reserves

(Dollars in Millions)

See MD&A, “Critical Accounting Estimates,” of the 2023 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, 2024 Compared to the Same Period in 2023

The Specialty Property & Casualty Insurance segment reported Total Segment Adjusted Net Operating Income of $69.2 million for the three months ended March 31, 2024, compared to Total Segment Adjusted Net Operating Loss of $58.4 million for the same period in 2023. Segment adjusted net operating results improved by $127.6 million that included a $105.0 million and $22.6 million increase from personal automobile and commercial vehicle insurance, respectively, due primarily to higher average earned premiums per exposure resulting from rate increases, lower underlying claim frequency and moderating increases in claim severity.

Earned Premiums in the Specialty Property & Casualty Insurance segment decreased by $104.2 million for the three months ended March 31, 2024, compared to the same period in 2023, due to continued lower new business volumes 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 $2.6 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to higher rates on and levels of Short-term Investments.

Incurred losses and LAE were $619.1 million, or 73.7% of earned premiums for the three months ended March 31, 2024, compared to $864.9 million, or 91.6% of earned premiums, for the same period in 2023. Incurred losses and LAE as a percentage of earned premiums decreased primarily due to an improvement in the underlying loss and LAE ratio and lower adverse prior year development. Underlying losses and LAE as a percentage of earned premiums were 72.5% for the three months ended March 31, 2024, an improvement of 15.0 percentage points, compared to the same period in 2023, driven by higher average earned premium per exposure (25.6% increase year over year) resulting from rate increases and lower underlying claims frequency, partially offset by moderating higher claims average severity trends from elevated inflation. 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 $6.0 million for the three months ended March 31, 2024, compared to adverse development of $31.1 million for the same period in 2023, an improvement of $25.1 million due primarily to normalization in loss patterns. Catastrophe losses and LAE (excluding reserve development) were $4.1 million for the

Specialty Property & Casualty Insurance (Continued)

three months ended March 31, 2024 compared to $8.4 million for the same period in 2023, an improvement of $4.3 million due to lower wind and hail losses.

Insurance Expenses were $176.9 million, or 21.1% of earned premiums, for the three months ended March 31, 2024, compared to $193.8 million, or 20.5% of earned premiums for the same period in 2023. Insurance Expenses decreased $16.9 million due to lower new business volumes as discussed above. As a percentage of earned premiums, Insurance Expenses increased 0.6% as earned premium decreases outpaced expense decreases.

The Specialty Property & Casualty Insurance segment’s first quarter of 2024 effective income tax rate was 19.9% compared to 21.9% for the same period in 2023. The effective income tax rate for the first quarters of 2024 and 2023 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. The decrease in the effective tax rate from the first quarter of 2023 is due primarily to an increased benefit from tax preferred investment income.

Specialty Personal Automobile Insurance

Selected financial information for the specialty personal automobile insurance product line is presented below.

(Dollars in Millions)

47

Specialty Property & Casualty Insurance (Continued)

Three Months Ended March 31, 2024 Compared to the Same Period in 2023

Earned Premiums on personal automobile insurance decreased by $112.6 million for the three months ended March 31, 2024, compared to the same period in 2023, due to continued lower new business volumes 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 $496.3 million, or 73.5% of earned premiums for the three months ended March 31, 2024, compared to $728.2 million, or 92.4% of earned premiums, for the same period in 2023. Incurred losses and LAE as a percentage of earned premiums decreased primarily due to an improvement in the underlying loss and LAE ratio and lower adverse prior year development. Underlying losses and LAE as a percentage of related earned premiums were 71.9% for the three months ended March 31, 2024, compared to 88.5% for the same period in 2023, an improvement of 16.6 percentage 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 $7.1 million for the three months ended March 31, 2024, compared to adverse development of $22.9 million for the same period in 2023, an improvement of $15.8 million due primarily to normalization of loss patterns. Catastrophe losses and LAE (excluding reserve development) were $3.5 million for the three months ended March 31, 2024, compared to $7.7 million for the same period in 2023, an improvement of $4.2 million mainly due to lower wind and hail losses.

Specialty Property & Casualty Insurance (Continued)

Commercial Automobile Insurance

Selected financial information for the commercial automobile insurance product line is presented below.

(Dollars in Millions)

Three Months Ended March 31, 2024 Compared to the Same Period in 2023

Earned Premiums from commercial automobile insurance increased by $8.4 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to higher average earned premium per exposure resulting from rate increases. Incurred losses and LAE were $122.8 million, or 74.6% of earned premiums in 2024, compared to $136.7 million, or 87.5% of earned premiums in 2023. Incurred losses and LAE as a percentage of earned premiums decreased primarily due to an improvement in the underlying loss ratio and lower adverse prior year development. Underlying losses and LAE as a percentage of earned premiums were 74.8% for the three months ended March 31, 2024, compared to 81.9% during the same time period in 2023, an improvement of 7.1 percentage points due primarily to higher average earned premiums per exposure resulting from rate increases and a lower frequency of claims. Favorable loss and LAE reserve development was $1.1 million for the three months ended March 31, 2024, compared to adverse development of $8.2 million for the same period in 2023, an improvement of $9.3 million due primarily to normalization of loss patterns.

Life Insurance

Selected financial information for the Life Insurance segment is presented below.

(Dollars in Millions)

Insurance Reserves

(Dollars in Millions)

Overall

Three Months Ended March 31, 2024 Compared to the Same Period in 2023

The Life Insurance segment reported Total Segment Adjusted Net Operating Income of $11.9 million for the three months ended March 31, 2024, compared to $13.2 million for the same period in 2023. The decrease in segment net operating results was primarily due to a reduction in net investment income, partially offset by changes in mortality experience from life insurance products.

Earned Premiums decreased $2.0 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to lower volume on life insurance.

Net investment income decreased by $5.5 million for the three months ended March 31, 2024, compared to the same period in 2023, due to lower levels of fixed income securities and Company-Owned Life Insurance.

Policyholders’ Benefits and Incurred Losses and LAE decreased by $6.9 million for the three months ended March 31, 2024, compared to the same period in 2023, due to changes in mortality experience in life insurance products.

The Life Insurance segment’s first quarter 2024 effective income tax rate was 15.2% compared to 11.7% for the same period in 2023. The effective income tax rate for the first quarters of 2024 and 2023 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. The increase in the effective tax rate from the first quarter of 2023 is due primarily to a decreased benefit from tax preferred investment income.

Investment Results

Net Investment Income

Net Investment Income for the three months ended March 31, 2024 and 2023 is presented below:

(Dollars in Millions)

Net Investment Income was $100.4 million and $101.8 million for the three months ended March 31, 2024 and 2023, respectively. Net Investment Income decreased by $1.4 million in 2024 due primarily to lower returns from equity method limited liability investments, lower levels of fixed income securities and a reduction in income from investments in company owned life insurance partially offset by an increase in income from higher rates on and levels of short-term investments.

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) Gains

The components of Total Comprehensive Investment (Losses) Gains for the three months ended March 31, 2024 and 2023 are presented below:

(Dollars in Millions)

Total Comprehensive Investment Losses were $98.1 million for the three months ended March 31, 2024, compared to Total Comprehensive Investment Gains of $190.0 million for the three months ended March 31, 2023. The decrease of $288.1 million in comprehensive investment results was primarily due to an increase in the Company’s unrealized loss position on the fixed income securities portfolio in the first quarter of 2024 as compared to a decrease in the Company's unrealized loss position on the fixed income securities portfolio in the first quarter of 2023.

Change in Fair Value of Equity and Convertible Securities

The components of Change in Fair Value of Equity and Convertible Securities for the three months ended March 31, 2024 and 2023 are presented below:

(Dollars in Millions)

52

Investment Results (Continued)

Net Realized Gains on Sales of Investments

The components of Net Realized Investment Gains for the three months ended March 31, 2024 and 2023 are presented below:

(Dollars in Millions)

Fixed Maturities

Net realized gains and losses on sales of fixed maturities for the three months ended March 31, 2024 and 2023 primarily relate to normal portfolio management. The net realized gains and losses on hedging activity for the three months ended March 31, 2024 and 2023 are related to treasury futures that did not qualify for hedge accounting treatment.

Impairment 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. Conversely, an increase in the fair value or disposal of an investment with a previously established credit allowance will result in the reversal of impairment losses reported in the Condensed Consolidated Statements of Income (Loss) in the period.

The components of Impairment Losses in the Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2024 and 2023 were:

(Dollars in Millions)

1 Includes losses from intent-to-sell securities and direct write-down securities of $1.5 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

2This amount was primarily related to a reversal on a previously impaired security.

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, 2024, approximately 95.8% 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 or 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, 2024 and December 31, 2023:

(Dollars in Millions)

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $19.4 million and $25.5 million at March 31, 2024 and December 31, 2023, respectively.

The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at March 31, 2024 and December 31, 2023:

(Dollars in Millions)

54

Investment Quality and Concentrations (Continued)

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by industry at March 31, 2024 and December 31, 2023.

(Dollars in Millions)

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amounts invested at March 31, 2024.

(Dollars in Millions)

The Company’s short-term investments primarily consist of money market funds and short-term bonds. At March 31, 2024, the Company had $226.6 million invested in money market funds, which primarily invest in U.S. Treasury securities and $294.1 million invested in U.S. Treasury bills and short-term bonds.

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 Investment, at March 31, 2024:

(Dollars in Millions)

56

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, 2024 and December 31, 2023 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 three months ended March 31, 2024 and 2023 were:

(Dollars in Millions)

Insurance Expenses

Insurance Expenses were $240.7 million for the three months ended March 31, 2024, compared to $269.3 million for the same period in 2023. Insurance Expenses decreased by $28.6 million in 2024 due primarily to lower expenses from less business being written.

Other Expenses

Other Expenses decreased by $17.6 million for the three months ended March 31, 2024, compared to the same period in 2023, due primarily to lower Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs from the completion of certain strategic initiatives and lower costs in connection with the 2023 cost structure optimization initiatives. These expenses for the three months ended March 31, 2024 were primarily driven by $12.1 million of integration expenses due to continued investments in information technology. These expenses for the three months ended March 31, 2023, were primarily driven by $19.5 million of integration expenses due to continued investments in information technology, $3.2 million of real estate exit costs resulting from impairments on operating leases and $2.8 million of accrued severance.

Income Taxes

The federal corporate statutory income tax rate was 21% for the three months ended March 31, 2024 and March 31, 2023. The Company’s effective income tax rate, which was 19.1% and 22.9% for the three months ended March 31, 2024 and 2023, respectively, 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, (6) impact of deferred taxes in foreign jurisdictions, and (7) a change in valuation allowance.

On December 27, 2023, legislation implementing a corporate income tax (“CIT”) in Bermuda was enacted into law. The CIT imposes a 15% income tax that applies to Bermuda businesses which are part of multinational enterprise groups with annual revenue of €750 million or more and will be effective for fiscal years beginning on or after January 1, 2025, with a five-year deferred effective date for certain groups with a limited international footprint. The Company will continue to monitor guidance as it is released from the Government of Bermuda.

Income Taxes (Continued)

The Inflation Reduction Act (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 (“CAMT”). The Company, at this time, is not subject to the CAMT.

Tax-exempt investment income and dividends received deductions were $5.8 million for the three months ended March 31, 2024, compared to $7.7 million for the same period in 2023.

The nontaxable increase in cash surrender value on Company-Owned Life Insurance was $7.1 million for the three months ended March 31, 2024, compared to $8.9 million for the same period in 2023.

The Company realized investment tax credits and other federal income tax credits of $0.3 million for the three months ended March 31, 2024, compared to recaptured investment tax credits and other federal tax credits of $0.1 million for the same period in 2023.

The amount of expense recognized for long-term equity-based compensation expense under GAAP was $0.7 million lower than the amount that would be deductible under the IRC for the three months ended March 31, 2024, compared to the amount of expense recognized for long-term equity-based compensation expense under GAAP not differing from the amount that would be deductible under the IRC for the same period in 2023.

The amount of nondeductible executive compensation was $4.2 million for the three months ended March 31, 2024, compared to $4.9 million for the same period in 2023.

As a result of recently enacted tax legislation in foreign jurisdictions in which the Company operates, a tax benefit of $12.8 million was recorded for the three months ended March 31, 2024. No tax expense or benefit was recorded for the same period in 2023.

The Company recorded a increase in valuation allowance of $12.8 million for the three months ended March 31, 2024, for those foreign deferred tax assets it determined were not more-likely-than-not to be realized. No valuation allowance was recorded for the same period in 2023.

Recently Issued Accounting Pronouncements

The Company has adopted all recently issued accounting pronouncements with effective dates prior to March 31, 2024.

There were no adoptions of such accounting pronouncements during the three months ended March 31, 2024 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 March 31, 2024 was $424.0 million. There were no outstanding borrowings under the credit agreement on either March 31, 2024 or December 31, 2023.

Liquidity and Capital Resources (Continued)

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, Current and Non-Current, outstanding on March 31, 2024 and December 31, 2023 was:

(Dollars in Millions)

See Note 15, “Debt,” to the Condensed 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 AAC are members of the Federal Home Loan Banks (“FHLBs”) of Chicago, Dallas and Chicago, respectively. AAC 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 $16.3 million and $16.6 million at March 31, 2024 and December 31, 2023, respectively. The carrying value of FHLB of Dallas common stock was $3.6 million and $3.6 million at March 31, 2024 and December 31, 2023, respectively. 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 three months of 2024, United Insurance received advances of $25.0 million from the FHLB of Chicago and made repayments of $19.2 million. United Insurance had outstanding advances from the FHLB of Chicago totaling $563.2 million at March 31, 2024. 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.

For these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $712.1 million at March 31, 2024. 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 14, “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 common stock, in addition to the $133.3 million remaining under the previous authorization. The Company did not repurchase any of its common stock for the three months ended March 31, 2024 or 2023, respectively. As of March 31, 2024, the remaining share repurchase authorization was $171.6 million under the repurchase program. 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.

Liquidity and Capital Resources (Continued)

Dividends to Shareholders

Kemper paid a quarterly dividend of $0.31 per common share in the first quarter of 2024. Dividends and dividend equivalents paid were $19.5 million for the three months ended March 31, 2024.

Subsidiary Dividends

Various insurance laws restrict the ability of Kemper’s insurance subsidiaries to pay dividends without regulatory approval. Such insurance laws applicable to the Company’s US based insurance subsidiaries 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 did not pay any dividends to Kemper during the first three months of 2024. Kemper’s US based insurance subsidiaries capacity to pay without prior regulatory approval is estimated to be zero as of the filing date.

Sources and Uses of Funds

The Company directly held cash and investments totaling $395.6 million at March 31, 2024, compared to $464.5 million at December 31, 2023.

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.

Information about the Company’s cash flows for three months ended March 31, 2024 and 2023 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 Provided by Operating Activities

Net cash provided by Operating Activities was $43.0 million for the three months ended March 31, 2024, compared to $5.2 million for the same period in 2023. The increase in cash provided by Operating Activities was primarily due to the impact of rate increases on premium collections as well as lower frequency and timing of paid claims within our Property and Casualty operations. Additionally, cash from operations for 2023 included a $124.7 million federal income tax refund received.

Liquidity and Capital Resources (Continued)

Net Cash Provided by (Used in) Investing Activities

Net cash provided by Investing Activities for the three months ended March 31, 2024 was $39.3 million, compared to net cash used of $138.2 million for the same period in 2023. The increase in cash provided by Investing Activities was primarily driven by the ongoing management of our investment portfolio that was impacted by timing of claim payments from our Property and Casualty operations.

Net Cash Used in Financing Activities

Net cash used in Financing Activities for the three months ended March 31, 2024 was $19.7 million, compared to net cash used of $18.8 million for the same period in 2023, an increase of $0.9 million.

Critical Accounting Estimates

Kemper’s subsidiaries conduct their operations in two industries: property and casualty insurance and life 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 life insurance reserves, the valuation of reserves for property and casualty insurance incurred losses and LAE, the assessment of recoverability of goodwill, and the recoverability of deferred tax assets. The Company’s critical accounting policies are described in the MD&A included in the 2023 Annual Report. There have been no material changes to the information disclosed in the 2023 Annual Report with respect to these critical accounting estimates and the Company’s significant accounting policies.

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 2023 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 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.

For a discussion of the Company’s significant risk factors, see Item 1A. of Part I of the 2023 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 2023 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 2023 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.