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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
FORM 10-Q
______________________________________________________

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

For the Quarterly Period Ended 03/31/2021
OR

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

For the Transition Period from to
Commission file number 001-18298
______________________________________________________
Kemper Corporation
(Exact name of registrant as specified in its charter)
______________________________________________________

DE | 95-4255452
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
200 E. Randolph Street
Suite 3300
Chicago | IL | 60601
(Address of principal executive offices) | (Zip Code)

(312) 661-4600
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

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

______________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “ accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐
Smaller reporting company | ☐ | Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
64,566,506 shares of common stock, $0.10 par value, were outstanding as of April 27, 2021.

KEMPER CORPORATION
INDEX

|  |  | Page
Caution Regarding Forward-Looking Statements |  | 1
PART I. | FINANCIAL INFORMATION |  |
Item 1. | Financial Statements |  |
| Condensed Consolidated Statements of Income for the Three Months Ended March 3 1, 202 1 and 20 20 (Unaudited) |  | 4
| Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 20 21 and 20 20 (Unaudited) |  | 5
| Condensed Consolidated Balance Sheets as of M arch 31, 202 1 and December 31, 20 20 (Unaudited) |  | 6
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 202 1 and 20 20 (Unaudited) |  | 7
| Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 202 1 and 20 20 (Unaudited) |  | 8
| Notes to the Condensed Consolidated Financial Statements (Unaudited) |  | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 36
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |  | 62
Item 4. | Controls and Procedures |  | 62
PART II. | OTHER INFORMATION |  |
Item 1. | Legal Proceedings |  | 63
Item 1A. | Risk Factors |  | 63
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 63
Item 6. | Exhibits |  | 64
Exhibit Index |  | 64
Signatures |  | 65

Caution Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), Risk Factors and the accompanying unaudited Condensed Consolidated Financial Statements (including the notes thereto) of Kemper Corporation (“Kemper”) and its subsidiaries (individually and collectively referred to herein as the “Company”) may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements give expectations or forecasts of future events. The reader can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “believe(s),” “goal(s),” “target(s),” “estimate(s),” “anticipate(s),” “forecast(s),” “project(s),” “plan(s),” “intend(s),” “expect(s),” “might,” “may,” “could” and other terms of similar meaning. Forward-looking statements, in particular, include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong, and, accordingly, Kemper cautions readers not to place undue reliance on such statements. Kemper bases these statements on current expectations and the current economic environment as of the date of this Quarterly Report on Form 10-Q. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties that may be important in determining the Company’s actual future results and financial condition.
In addition to those factors discussed under Item 1A., “Risk Factors,” of Part I of Kemper’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”), for the year ended December 31, 2020 (the “2020 Annual Report”), the reader should consider the following list of general factors that, among others, could cause the Company’s actual results and financial condition to differ materially from estimated results and financial condition.
Factors related to the legal and regulatory environment in which Kemper and its subsidiaries operate
•Evolving policies, practices and interpretations by regulators and courts that increase operating costs and potential liabilities, particularly any that involve retroactive application of new requirements, including, but not limited to, initiatives related to unclaimed property laws or claims handling practices with respect to life insurance policies and the proactive use of death verification databases, and developments related to the novel coronavirus COVID-19 (“COVID-19”);
•Adverse outcomes in litigation or other legal or regulatory proceedings involving Kemper or its subsidiaries or affiliates;
•Governmental actions, including, but not limited to, implementation of new laws and regulations, and court decisions interpreting existing and future laws and regulations or policy provisions;
•Uncertainties related to regulatory approval of insurance rates, policy forms, insurance products, license applications, dividends from insurance subsidiaries, acquisitions of businesses and other matters within the purview of state insurance regulators;
•Increased costs and initiatives required to address new legal and regulatory requirements;
•Liabilities, costs and other impacts arising from developments related to cybersecurity, privacy and data governance, including, without limitation, cyber incidents that have occurred or could occur;
Factors relating to insurance claims and related reserves in the Company’s insurance businesses
•The incidence, frequency and severity of catastrophes occurring in any particular reporting period or geographic area, including natural disasters, pandemics (including COVID-19) and terrorist attacks or other man-made events;
•The frequency and severity of insurance claims (including those associated with catastrophe losses and pandemics);
•Changes in facts and circumstances affecting assumptions used in determining loss and loss adjustment expenses (“LAE”) reserves, including, but not limited to, the frequency and severity of insurance claims, changes in claims handling procedures and closure patterns, development patterns and the impacts of COVID-19;
1

•The impact of inflation on insurance claims, including, but not limited to, the effects on personal injury claims of increasing medical costs and the effects on property claims attributed to scarcity of resources available to rebuild damaged structures, including labor and materials and the amount of salvage value recovered for damaged property, and the rising costs of insurance claims from increased litigation, higher jury awards, broader definitions of liability, and other effects of societal trends referred to as social inflation;
•Developments related to insurance policy claims and coverage issues, including, but not limited to, interpretations, pronouncements or decisions by courts or regulators that may govern or influence losses incurred in connection with hurricanes and other catastrophes, including COVID-19;
•Orders, interpretations or other actions by regulators that impact the reporting, adjustment and payment of claims;
•Changes in the pricing or availability of reinsurance, or in the financial condition of reinsurers and amounts recoverable therefrom;
Factors related to the Company’s ability to compete
•Changes in the ratings of Kemper and/or its insurance company subsidiaries by rating agencies with regard to credit, financial strength, claims paying ability and other areas on which the Company is rated;
•The level of success and costs incurred in realizing or maintaining economies of scale, integrating acquired businesses and implementing significant business initiatives and the timing of the occurrence or completion of such events, including, but not limited to, those related to expense and claims savings, consolidations, reorganizations and technology;
•Absolute and relative performance of the Company’s products and services, including, but not limited to, the level of success achieved in designing and introducing new insurance products and services;
•Difficulties with technology, data and network security (including as a result of cyber attacks that have occurred or could occur), outsourcing relationships or cloud-based technology that could negatively impact the Company’s ability to conduct business, a heightened risk when substantial numbers of employees shift to work from home arrangements, such as the arrangements implemented for a vast majority of the Company’s employees and some business partners during the COVID-19 pandemic;
•The ability of the Company to maintain the availability and required performance of critical systems and manage technology initiatives cost-effectively to address insurance industry developments and regulatory requirements;
•Heightened competition, including, with respect to pricing, consolidations of existing competitors or entry of new competitors and alternate distribution channels, introduction of new technologies, use and enhancements of telematics, refinements of existing products and development of new products by current or future competitors;
•Expected benefits and synergies from mergers, acquisitions and/or divestitures that may not be realized to the extent anticipated, within expected time frames or at all, due to a number of factors including, but not limited to, the loss of key agents/brokers, customers or employees, increased costs, fees, expenses and related charges and delays caused by unanticipated developments or factors outside of the Company’s control;
•The successful formulation and execution of the Company’s plan with regard to corporate strategy and significant operational changes;
Factors relating to the business environment in which Kemper and its subsidiaries operate
•Changes in general economic conditions, including those related to, without limitation, performance of financial markets, interest rates, inflation, unemployment rates, significant global events such as the pandemic related to COVID-19, and fluctuating values of particular investments held by the Company;
•Absolute and relative performance of investments held by the Company;
•Changes in insurance industry trends and significant industry developments;
•Changes in consumer trends, including changes in number of miles driven by automobile insurance policyholders, and significant consumer or product developments;
•Changes in capital requirements, including the calculations thereof, used by regulators and rating agencies;
•Changes related to the phase out of the London Interbank Offered Rate (“LIBOR”) reference rates beginning after 2021;
•Regulatory, accounting or tax changes that may affect the cost of, or demand for, the Company’s products or services or after-tax returns from the Company’s investments;
•The impact of required participation in state windpools and joint underwriting associations, residual market assessments and assessments for insurance industry insolvencies including the impact of COVID-19;
2

•Changes in distribution channels, methods or costs resulting from changes in laws or regulations, legal proceedings or market forces;
•Increased costs and risks related to cybersecurity that could materially affect the Company’s operations including, but not limited to, data breaches, cyber attacks, virus or malware attacks, or other infiltrations or incidents affecting system integrity, availability and performance, and actions taken to minimize and remediate the risks of such events that have occurred or could occur;
Other risks and uncertainties described from time to time in Kemper’s filings with the U.S. Securities and Exchange Commission (“SEC”).
Kemper cannot provide any assurances that the results and outcomes contemplated in any forward-looking statements will be achieved or will be achieved in any particular timetable or that future events or developments will not cause such statements to be inaccurate including impacts related to COVID-19. Kemper assumes no obligation to correct or update any forward-looking statements publicly for any changes in events or developments or in the Company’s expectations or results subsequent to the date of this Quarterly Report on Form 10-Q. Kemper advises the reader, however, to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.
3

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KEMPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)

|  | Three Months Ended |  |
|  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Revenues: |  |  |  |  |  |  |  |
Earned Premiums |  | $ | 1,200.8 |  |  | $ | 1,166.4 |  |  |  |  |
Net Investment Income |  | 103.1 |  |  | 85.6 |  |  |  |  |
Change in Value of Alternative Energy Partnership Investments |  | (15.4) |  |  | — |  |  |  |  |
Other Income |  | 1.5 |  |  | 90.3 |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | 52.2 |  |  | (117.8) |  |  |  |  |
Net Realized Gains on Sales of Investments |  | 13.8 |  |  | 16.5 |  |  |  |  |
Impairment Losses |  | (4.0) |  |  | (12.0) |  |  |  |  |
Total Revenues |  | 1,352.0 |  |  | 1,229.0 |  |  |  |  |
Expenses: |  |  |  |  |  |  |  |
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses |  | 889.5 |  |  | 835.2 |  |  |  |  |
Insurance Expenses |  | 283.7 |  |  | 271.6 |  |  |  |  |
Interest and Other Expenses |  | 57.2 |  |  | 44.5 |  |  |  |  |
Total Expenses |  | 1,230.4 |  |  | 1,151.3 |  |  |  |  |
Income before Income Taxes |  | 121.6 |  |  | 77.7 |  |  |  |  |
Income Tax Benefit (Expense) |  | 1.6 |  |  | (13.7) |  |  |  |  |
Net Income |  | $ | 123.2 |  |  | $ | 64.0 |  |  |  |  |
Net Income Per Unrestricted Share: |  |  |  |  |  |  |  |
Basic |  | $ | 1.88 |  |  | $ | 0.96 |  |  |  |  |
Diluted |  | $ | 1.85 |  |  | $ | 0.95 |  |  |  |  |

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.
4

KEMPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(Unaudited)

|  | Three Months Ended |  |
|  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Income |  | $ | 123.2 |  |  | $ | 64.0 |  |  |  |  |
Other Comprehensive Income (Loss) Before Income Taxes: |  |  |  |  |  |  |  |
Changes in Net Unrealized Holding Gains (Losses) on Investment Securities with: |  |  |  |  |  |  |  |
No Credit Losses Recognized in Condensed Consolidated Statements of Income |  | (364.0) |  |  | (201.9) |  |  |  |  |
Credit Losses Recognized in Condensed Consolidated Statements of Income |  | (2.1) |  |  | (2.9) |  |  |  |  |
Decrease (Increase) in Net Unrecognized Postretirement Benefit Costs |  | 0.3 |  |  | 0.7 |  |  |  |  |
Gain on Cash Flow Hedges |  | 0.1 |  |  | 0.1 |  |  |  |  |
Other Comprehensive Income (Loss) Before Income Taxes |  | (365.7) |  |  | (204.0) |  |  |  |  |
Other Comprehensive Income Tax Benefit (Expense) |  | 75.7 |  |  | 42.8 |  |  |  |  |
Other Comprehensive Income (Loss), Net of Taxes |  | (290.0) |  |  | (161.2) |  |  |  |  |
Total Comprehensive Income (Loss) |  | $ | (166.8) |  |  | $ | (97.2) |  |  |  |  |

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.
5

KEMPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
(Unaudited)

| Mar 31, 2021 |  | Dec 31, 2020
Assets: |  |  |
Investments: |  |  |
Fixed Maturities at Fair Value (Amortized Cost: 2021 - $6,929.6; 2020 - $6,692.7 Allowance for Credit Losses: 2021 - $4.6; 2020 - $3.3) | $ | 7,479.4 |  |  | $ | 7,605.9 |
Equity Securities at Fair Value (Cost: 2021 - $680.6; 2020 - $684.1) | 897.4 |  |  | 858.5 |
Equity Securities at Modified Cost | 36.0 |  |  | 40.1 |
Equity Method Limited Liability Investments | 219.2 |  |  | 204.0 |
Alternative Energy Partnership Investments | 54.4 |  |  | 21.3 |
Convertible Securities at Fair Value | 42.6 |  |  | 39.9 |
Short-term Investments at Cost which Approximates Fair Value | 196.9 |  |  | 875.4 |
Other Investments | 896.8 |  |  | 779.0 |
Total Investments | 9,822.7 |  |  | 10,424.1 |
Cash | 547.4 |  |  | 206.1 |
Receivables from Policyholders (Allowance for Credit Losses: 2021 - $11.3 ; 2020 - $20.9) | 1,260.9 |  |  | 1,194.5 |
Other Receivables | 225.4 |  |  | 222.4 |
Deferred Policy Acquisition Costs | 611.7 |  |  | 589.3 |
Goodwill | 1,114.0 |  |  | 1,114.0 |
Current Income Tax Assets | 65.6 |  |  | 15.6 |
Other Assets | 556.0 |  |  | 575.9 |
Total Assets | $ | 14,203.7 |  |  | $ | 14,341.9 |
Liabilities and Shareholders’ Equity: |  |  |
Insurance Reserves: |  |  |
Life and Health | $ | 3,541.6 |  |  | $ | 3,527.5 |
Property and Casualty | 1,999.5 |  |  | 1,982.5 |
Total Insurance Reserves | 5,541.1 |  |  | 5,510.0 |
Unearned Premiums | 1,713.0 |  |  | 1,615.1 |
Policyholder Obligations | 466.5 |  |  | 467.0 |
Deferred Income Tax Liabilities | 227.6 |  |  | 285.7 |
Accrued Expenses and Other Liabilities | 793.8 |  |  | 727.9 |
Long-term Debt, Current and Non-current, at Amortized Cost (Fair Value: 2021 - $1,213.3; 2020 - $1,247.8) | 1,122.6 |  |  | 1,172.8 |
Total Liabilities | 9,864.6 |  |  | 9,778.5 |
Shareholders’ Equity: |  |  |
Common Stock, $0.10 Par Value, 100,000,000 Shares Authorized; 65,016,340 Shares Issued and Outstanding at March 31, 2021 and 65,436,207 Shares Issued and Outstanding at December 31, 2020 | 6.5 |  |  | 6.5 |
Paid-in Capital | 1,802.1 |  |  | 1,805.2 |
Retained Earnings | 2,140.0 |  |  | 2,071.2 |
Accumulated Other Comprehensive Income | 390.5 |  |  | 680.5 |
Total Shareholders’ Equity | 4,339.1 |  |  | 4,563.4 |
Total Liabilities and Shareholders’ Equity | $ | 14,203.7 |  |  | $ | 14,341.9 |

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.
6

KEMPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)

| Three Months Ended
| Mar 31, 2021 |  | Mar 31, 2020
Cash Flows from Operating Activities: |  |  |
Net Income | $ | 123.2 |  |  | $ | 64.0 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |  |  |
Net Realized Investment (Gains) Losses | (13.8) |  |  | (16.5) |
Impairment Losses | 4.0 |  |  | 12.0 |
Depreciation and Amortization of Property, Equipment and Software | 11.1 |  |  | 8.0 |
Amortization of Intangibles Assets Acquired | 3.2 |  |  | 4.7 |
Change in Accumulated Undistributed Earnings of Equity Method Limited Liability Investments | (18.1) |  |  | (0.7) |
(Income) Loss from Change in Value of Alternative Energy Partnership Investments | 15.4 |  |  | — |
(Increase) Decrease in Value of Equity and Convertible Securities | (52.2) |  |  | 117.8 |
Changes in: |  |  |
Receivables from Policyholders | (66.7) |  |  | (94.3) |
Reinsurance Recoverables | 5.0 |  |  | 9.8 |
Deferred Policy Acquisition Costs | (21.3) |  |  | (13.8) |
Insurance Reserves | 29.8 |  |  | (29.4) |
Unearned Premiums | 97.9 |  |  | 75.9 |
Income Taxes | (37.3) |  |  | 14.7 |
Other Assets and Liabilities | 60.4 |  |  | (89.9) |
Net Cash Provided by Operating Activities | 140.6 |  |  | 62.3 |
Cash Flows from Investing Activities: |  |  |
Proceeds from Sales, Calls and Maturities of Fixed Maturities | 291.2 |  |  | 225.5 |
Proceeds from the Sales or Paydowns of Investments: |  |  |
Equity Securities | 27.3 |  |  | 372.1 |
Real Estate Investments | — |  |  | 1.9 |
Mortgage Loans | 12.8 |  |  | 8.5 |
Other Investments | 7.0 |  |  | 4.0 |
Purchases of Investments: |  |  |
Fixed Maturities | (503.2) |  |  | (393.9) |
Equity Securities | (12.5) |  |  | (290.0) |
Real Estate Investments | (0.2) |  |  | (0.1) |
Corporate-owned Life Insurance | (100.0) |  |  | (100.0) |
Mortgage Loans | (33.7) |  |  | (4.6) |
Other Investments | (50.1) |  |  | (9.2) |
Net Sales (Purchases) of Short-term Investments | 677.4 |  |  | 301.8 |
Acquisition of Software and Long-lived Assets | (9.2) |  |  | (20.1) |
Other | 4.9 |  |  | (1.9) |
Net Cash Provided by Investing Activities | 311.7 |  |  | 94.0 |
Cash Flows from Financing Activities: |  |  |
Repayment of Long-term Debt | (50.0) |  |  | — |
Proceeds from Policyholder Obligations | 60.7 |  |  | 156.6 |
Repayment of Policyholder Obligations | (61.5) |  |  | (36.2) |
Proceeds from Shares Issued under Employee Stock Purchase Plan | 1.2 |  |  | 1.0 |
Common Stock Repurchases | (42.1) |  |  | (95.9) |
Dividends and Dividend Equivalents Paid | (21.0) |  |  | (20.0) |
Other | 1.7 |  |  | 2.7 |
Net Cash (Used in) Provided by Financing Activities | (111.0) |  |  | 8.2 |
Increase in Cash | 341.3 |  |  | 164.5 |
Cash, Beginning of Year | 206.1 |  |  | 136.8 |
Cash, End of Period | $ | 547.4 |  |  | $ | 301.3 |

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.
7

KEMPER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in millions)
(Unaudited)

|  | Three Months Ended March 31, 2021
(Dollars and Shares in Millions, Except Per Share Amounts) |  | Number of Shares |  | Common Stock |  | Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Shareholders’ Equity
Balance, December 31, 2020 |  | 65.4 |  |  | $ | 6.5 |  |  | $ | 1,805.2 |  |  | $ | 2,071.2 |  |  | $ | 680.5 |  |  | $ | 4,563.4 |
Net Income |  | — |  |  | — |  |  | — |  |  | 123.2 |  |  | — |  |  | 123.2 |
Other Comprehensive Income, Net of Taxes (Note 8) |  | — |  |  | — |  |  | — |  |  | — |  |  | (290.0) |  |  | (290.0) |
Cash Dividends and Dividend Equivalents to Shareholders ($0.31 per share) |  | — |  |  | — |  |  | — |  |  | (21.0) |  |  | — |  |  | (21.0) |
Repurchases of Common Stock (Note 9) |  | (0.6) |  |  | — |  |  | (16.4) |  |  | (30.7) |  |  | — |  |  | (47.1) |
Shares Issued Under Employee Stock Purchase Plan |  | — |  |  | — |  |  | 1.2 |  |  | — |  |  | — |  |  | 1.2 |
Equity-based Compensation Cost |  | — |  |  | — |  |  | 12.3 |  |  | — |  |  | — |  |  | 12.3 |
Equity-based Awards, Net of Shares Exchanged |  | 0.2 |  |  | — |  |  | (0.2) |  |  | (2.7) |  |  | — |  |  | (2.9) |
Balance, March 31, 2021 |  | 65.0 |  |  | $ | 6.5 |  |  | $ | 1,802.1 |  |  | $ | 2,140.0 |  |  | $ | 390.5 |  |  | $ | 4,339.1 |

|  | Three Months Ended March 31, 2020
(Dollars and Shares in Millions, Except Per Share Amounts) |  | Number of Shares |  | Common Stock |  | Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Shareholders’ Equity
Balance, December 31, 2019 |  | 66.7 |  |  | $ | 6.7 |  |  | $ | 1,819.2 |  |  | $ | 1,810.3 |  |  | $ | 336.1 |  |  | $ | 3,972.3 |
Net Income |  | — |  |  | — |  |  | — |  |  | 64.0 |  |  | — |  |  | 64.0 |
Other Comprehensive Income, Net of Taxes (Note 8) |  | — |  |  | — |  |  | — |  |  | — |  |  | (161.2) |  |  | (161.2) |
Cash Dividends and Dividend Equivalents to Shareholders ($0.30 per share) |  | — |  |  | — |  |  | — |  |  | (20.2) |  |  | — |  |  | (20.2) |
Repurchases of Common Stock |  | (1.5) |  |  | (0.1) |  |  | (40.7) |  |  | (60.4) |  |  | — |  |  | (101.2) |
Issuance of Common Stock, Net of Transaction Costs (Note 9) |  | — |  |  | — |  |  | 1.0 |  |  | — |  |  | — |  |  | 1.0 |
Equity-based Compensation Cost |  | — |  |  | — |  |  | 7.3 |  |  | — |  |  | — |  |  | 7.3 |
Equity-based Awards, Net of Shares Exchanged |  | 0.2 |  |  | (0.1) |  |  | 1.4 |  |  | (2.5) |  |  | — |  |  | (1.2) |
Balance, March 31, 2020 |  | 65.4 |  |  | $ | 6.5 |  |  | $ | 1,788.2 |  |  | $ | 1,791.2 |  |  | $ | 174.9 |  |  | $ | 3,760.8 |

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.
8

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation and Accounting Policies
The unaudited interim Condensed Consolidated Financial Statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) on a basis consistent with reporting interim financial information pursuant to the rules and regulations for Form 10-Q and Article 10 of Regulation S-X of the SEC and include the accounts of Kemper Corporation and its subsidiaries. All intercompany accounts and transactions have been eliminated. Certain prior year amounts in the Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current presentation.
Certain financial information that is included in annual financial statements, including certain financial statement footnote disclosures, prepared in accordance with GAAP is not required by the rules and regulations of the SEC for interim financial reporting and has been condensed or omitted. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements include all adjustments necessary to fairly present the financial position, results of operations and cash flows for the interim periods presented. The preparation of interim financial statements requires significant management estimates. Due to this factor and other factors, such as the seasonal nature of some portions of the insurance business, as well as market conditions and the impacts of COVID-19, annualizing the results of operations for the three months ended March 31, 2021 would not necessarily be indicative of the results expected for the full fiscal year. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and related notes included in Kemper’s Annual Report for the year ended December 31, 2020.
As of March 31, 2021, the Company has elected to display its investments in Alternative Energy Partnerships in the Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets as Change in Value of Alternative Energy Partnership Investments and Alternative Energy Partnership Investments, respectively. These were previously reported in Net Investment Income on the Condensed Consolidated Statements of Income and in Equity Method Limited Liability Investments on the Condensed Consolidated Balance Sheets. Impacts to prior period presentation are not material.
Adoption of New Accounting Guidance
Guidance Adopted in 2021
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes by eliminating certain exceptions to the guidance in ASC Topic 740, Income Taxes, related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Further, ASU 2019-12 clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of ASU 2019-12 did not have a material effect on the Company’s interim Condensed Consolidated Financial Statements.
In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues), which clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of ASU 2020-01 did not have a material effect on the Company’s interim Condensed Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance in ASU 2020-04, if elected, shall apply to contract modifications if the terms that are modified
9

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 1 - Basis of Presentation and Accounting Policies (Continued)
directly replace, or have the potential to replace, a reference rate with another interest rate index. If other terms are contemporaneously modified in a manner that changes, or has the potential to change, the amount or timing of contractual cash flows, the guidance in ASU 2020-04 shall apply only if those modifications are related to the replacement of a reference rate. ASU 2020-04 is effective for contract modifications made between March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not have a material effect on the Company’s interim Condensed Consolidated Financial Statements. The Company will continue to evaluate the impact of this guidance on its financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs, which clarifies that an entity should re-evaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods. The adoption of ASU 2020-08 did not have a material effect on the Company’s interim Condensed Consolidated Financial Statements.
The Company has adopted all other recently issued accounting pronouncements with effective dates prior to January 1, 2021. There were no adoptions of such accounting pronouncements during the three months ended March 31, 2021 that had a material impact on the Company’s interim Condensed Consolidated Financial Statements.
Guidance Not Yet Adopted
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. ASU 2018-12 amends the accounting model for certain long-duration insurance contracts and requires the insurer to provide additional disclosures in annual and interim reporting periods. In November 2020, the FASB issued ASU 2020-11 which deferred the effective date of ASU 2018-12 by one year for public business entities. ASU 2018-12 is now effective for fiscal years beginning after December 15, 2022, and interim periods within those annual periods. The amendments in ASU 2018-12 (i) require cash flow assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited pay long duration contracts to be updated at least annually with the recognition and remeasurement recorded in net income, (ii) simplify the amortization of deferred acquisition costs to be amortized on a constant level basis over the expected term of the contract, (iii) require all market risk benefits to be measured at fair value, and (iv) enhance certain presentation and disclosure requirements which include disaggregated rollforwards for liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, deferred acquisition costs, and information about significant inputs, judgments and methods used in the measurement. The Company plans to adopt using the modified retrospective transition method and is currently evaluating the impact of this guidance on its financial statements.
10

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 2 - Net Income Per Unrestricted Share
The Company’s awards of deferred stock units granted to Kemper’s non-employee directors prior to 2019 contain rights to receive non-forfeitable dividend equivalents and participate in the undistributed earnings with common shareholders. Accordingly, the Company is required to apply the two-class method of computing basic and diluted earnings per share.
A reconciliation of the numerator and denominator used in the calculation of Basic Net Income Per Unrestricted Share and Diluted Net Income Per Unrestricted Share for the three months ended March 31, 2021 and 2020 is presented below.

|  | Three Months Ended |  |
(Dollars in Millions, except per share amounts) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Income |  | $ | 123.2 |  |  | $ | 64.0 |  |  |  |  |
Less Net Income Attributed to Participating Awards |  | 0.1 |  |  | 0.1 |  |  |  |  |
Net Income Attributed to Unrestricted Shares |  | 123.1 |  |  | 63.9 |  |  |  |  |
Dilutive Effect on Income of Equity-based Compensation Equivalent Shares |  | — |  |  | — |  |  |  |  |
Diluted Net Income Attributed to Unrestricted Shares |  | $ | 123.1 |  |  | $ | 63.9 |  |  |  |  |
(Number of Shares in Thousands) |  |  |  |  |  |  |  |
Weighted-average Unrestricted Shares Outstanding |  | 65,424.6 |  |  | 66,515.9 |  |  |  |  |
Equity-based Compensation Equivalent Shares |  | 1,128.2 |  |  | 458.3 |  |  |  |  |
Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution |  | 66,552.8 |  |  | 66,974.2 |  |  |  |  |
(Per Unrestricted Share in Whole Dollars) |  |  |  |  |  |  |  |
Basic Net Income Per Unrestricted Share |  | $ | 1.88 |  |  | $ | 0.96 |  |  |  |  |
Diluted Net Income Per Unrestricted Share |  | $ | 1.85 |  |  | $ | 0.95 |  |  |  |  |

The number of shares of Kemper common stock that were excluded from the calculations of Equity-based Compensation Equivalent Shares and Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended March 31, 2021 and 2020, because the effect of inclusion would be anti-dilutive, is presented below.

|  | Three Months Ended |  |
(Number of Shares in Thousands) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Equity-based Compensation Equivalent Shares |  | 1,212.8 |  |  | 828.9 |  |  |  |  |
Weighted-average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution |  | 1,212.8 |  |  | 828.9 |  |  |  |  |

Note 3 - Business Segments
The Company is engaged, through its subsidiaries, in the property and casualty insurance and life and health insurance businesses. The Company conducts its operations through three operating segments: Specialty Property & Casualty Insurance, Preferred Property & Casualty Insurance and Life & Health Insurance.
The Specialty Property & Casualty Insurance segment’s principal products are specialty automobile insurance and commercial automobile insurance. The Preferred Property & Casualty Insurance segment’s principal products are preferred automobile insurance, homeowners insurance and other personal insurance. These products are distributed primarily through independent agents and brokers. The Life & Health Insurance segment’s principal products are individual life, accident, supplemental health and property insurance. These products are distributed by career agents employed by the Company and independent agents and brokers.
11

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 3 - Business Segments (continued)
Earned Premiums by product line for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Specialty Property & Casualty Insurance: |  |  |  |  |  |  |  |
Specialty Automobile |  | $ | 785.4 |  |  | $ | 753.2 |  |  |  |  |
Commercial Automobile |  | 92.2 |  |  | 69.3 |  |  |  |  |
Preferred Property & Casualty Insurance: |  |  |  |  |  |  |  |
Personal Automobile |  | 103.0 |  |  | 114.9 |  |  |  |  |
Homeowners |  | 50.8 |  |  | 56.8 |  |  |  |  |
Other Personal Lines |  | 8.4 |  |  | 9.2 |  |  |  |  |
Life & Health Insurance: |  |  |  |  |  |  |  |
Life |  | 98.1 |  |  | 97.2 |  |  |  |  |
Accident and Health |  | 47.4 |  |  | 49.4 |  |  |  |  |
Property |  | 15.5 |  |  | 16.4 |  |  |  |  |
Total Earned Premiums |  | $ | 1,200.8 |  |  | $ | 1,166.4 |  |  |  |  |

12

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 3 - Business Segments (continued)
Segment Revenues, including a reconciliation to Total Revenues, for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Segment Revenues: |  |  |  |  |  |  |  |
Specialty Property & Casualty Insurance: |  |  |  |  |  |  |  |
Earned Premiums |  | $ | 877.6 |  |  | $ | 822.5 |  |  |  |  |
Net Investment Income |  | 35.0 |  |  | 28.8 |  |  |  |  |
Change in Value of Alternative Energy Partnership Investments |  | (7.3) |  |  | — |  |  |  |  |
Other Income |  | 0.9 |  |  | 0.9 |  |  |  |  |
Total Specialty Property & Casualty Insurance |  | 906.2 |  |  | 852.2 |  |  |  |  |
Preferred Property & Casualty Insurance: |  |  |  |  |  |  |  |
Earned Premiums |  | 162.2 |  |  | 180.9 |  |  |  |  |
Net Investment Income |  | 15.9 |  |  | 9.7 |  |  |  |  |
Change in Value of Alternative Energy Partnership Investments |  | (4.1) |  |  | — |  |  |  |  |
Total Preferred Property & Casualty Insurance |  | 174.0 |  |  | 190.6 |  |  |  |  |
Life & Health Insurance: |  |  |  |  |  |  |  |
Earned Premiums |  | 161.0 |  |  | 163.0 |  |  |  |  |
Net Investment Income |  | 51.1 |  |  | 51.0 |  |  |  |  |
Change in Value of Alternative Energy Partnership Investments |  | (4.0) |  |  | — |  |  |  |  |
Other Income |  | 0.1 |  |  | 0.1 |  |  |  |  |
Total Life & Health Insurance |  | 208.2 |  |  | 214.1 |  |  |  |  |
Total Segment Revenues |  | 1,288.4 |  |  | 1,256.9 |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | 52.2 |  |  | (117.8) |  |  |  |  |
Net Realized Gains on Sales of Investments |  | 13.8 |  |  | 16.5 |  |  |  |  |
Impairment Losses |  | (4.0) |  |  | (12.0) |  |  |  |  |
Other |  | 1.6 |  |  | 85.4 |  |  |  |  |
Total Revenues |  | $ | 1,352.0 |  |  | $ | 1,229.0 |  |  |  |  |

13

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 3 - Business Segments (continued)
Segment Operating Income, including a reconciliation to Income before Income Taxes, for the three months ended March 31, 2021 and 2020 was:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Segment Operating Income (Loss): |  |  |  |  |  |  |  |
Specialty Property & Casualty Insurance |  | $ | 85.2 |  |  | $ | 75.0 |  |  |  |  |
Preferred Property & Casualty Insurance |  | 3.0 |  |  | 23.0 |  |  |  |  |
Life & Health Insurance |  | (0.8) |  |  | 26.5 |  |  |  |  |
Total Segment Operating Income (Loss) |  | 87.4 |  |  | 124.5 |  |  |  |  |
Corporate and Other Operating Income (Loss) From: |  |  |  |  |  |  |  |
Partial Satisfaction of Judgment |  | — |  |  | 89.4 |  |  |  |  |
Other |  | (11.5) |  |  | (11.1) |  |  |  |  |
Corporate and Other Operating Income (Loss) |  | (11.5) |  |  | 78.3 |  |  |  |  |
Adjusted Consolidated Operating Income (Loss) |  | 75.9 |  |  | 202.8 |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | 52.2 |  |  | (117.8) |  |  |  |  |
Net Realized Gains on Sales of Investments |  | 13.8 |  |  | 16.5 |  |  |  |  |
Impairment Losses |  | (4.0) |  |  | (12.0) |  |  |  |  |
Acquisition Related Transaction, Integration and Other Costs |  | (16.3) |  |  | (11.8) |  |  |  |  |
Income before Income Taxes |  | $ | 121.6 |  |  | $ | 77.7 |  |  |  |  |

Segment Net Operating Income, including a reconciliation to Net Income, for the three months ended March 31, 2021 and 2020 was:

|  | Three Months Ended |  |
(Dollars in Millions and Net of Income Taxes) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Segment Net Operating Income (Loss): |  |  |  |  |  |  |  |
Specialty Property & Casualty Insurance |  | $ | 80.1 |  |  | $ | 60.1 |  |  |  |  |
Preferred Property & Casualty Insurance |  | 9.6 |  |  | 18.4 |  |  |  |  |
Life & Health Insurance |  | 7.3 |  |  | 22.3 |  |  |  |  |
Total Segment Net Operating Income (Loss) |  | 97.0 |  |  | 100.8 |  |  |  |  |
Corporate and Other Net Operating Income (Loss) From: |  |  |  |  |  |  |  |
Partial Satisfaction of Judgment |  | — |  |  | 70.6 |  |  |  |  |
Other |  | (9.8) |  |  | (8.5) |  |  |  |  |
Total Corporate and Other Net Operating Income (Loss) |  | (9.8) |  |  | 62.1 |  |  |  |  |
Adjusted Consolidated Net Operating Income (Loss) |  | 87.2 |  |  | 162.9 |  |  |  |  |
Net Income (Loss) From: |  |  |  |  |  |  |  |
Change in Fair Value of Equity and Convertible Securities |  | 41.2 |  |  | (93.1) |  |  |  |  |
Net Realized Gains on Sales of Investments |  | 10.9 |  |  | 13.0 |  |  |  |  |
Impairment Losses |  | (3.2) |  |  | (9.5) |  |  |  |  |
Acquisition Related Transaction, Integration and Other Costs |  | (12.9) |  |  | (9.3) |  |  |  |  |
Net Income |  | $ | 123.2 |  |  | $ | 64.0 |  |  |  |  |

14

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4 - Property and Casualty Insurance Reserves
Property and casualty insurance reserve activity for the three months ended March 31, 2021 and 2020 was:

|  | Three Months Ended
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020
Property and Casualty Insurance Reserves: |  |  |  |
Gross of Reinsurance at Beginning of Year |  | $ | 1,982.5 |  |  | $ | 1,969.8 |
Less Reinsurance Recoverables at Beginning of Year |  | 50.1 |  |  | 65.6 |
Property and Casualty Insurance Reserves - Net of Reinsurance at Beginning of Year |  | 1,932.4 |  |  | 1,904.2 |
Property and Casualty Insurance Reserves Acquired, Net of Reinsurance |  | — |  |  | — |
Incurred Losses and LAE Related to: |  |  |  |
Current Year |  | 777.0 |  |  | 738.1 |
Prior Years |  | 0.1 |  |  | 0.9 |
Total Incurred Losses and LAE |  | 777.1 |  |  | 739.0 |
Paid Losses and LAE Related to: |  |  |  |
Current Year |  | 258.0 |  |  | 257.0 |
Prior Years |  | 500.3 |  |  | 505.8 |
Total Paid Losses and LAE |  | 758.3 |  |  | 762.8 |
Property and Casualty Insurance Reserves - Net of Reinsurance at End of Period |  | 1,951.2 |  |  | 1,880.4 |
Plus Reinsurance Recoverables at End of Period |  | 48.3 |  |  | 61.2 |
Property and Casualty Insurance Reserves - Gross of Reinsurance at End of Period |  | $ | 1,999.5 |  |  | $ | 1,941.6 |

Property and casualty insurance reserves are estimated based on historical experience patterns and current economic trends. Actual loss experience and loss trends are likely to differ from these historical experience patterns and economic conditions. Loss experience and loss trends emerge over several years from the dates of loss inception. The Company monitors such emerging loss trends on a quarterly basis. Changes in such estimates are included in the Condensed Consolidated Statements of Income in the period of change.
For the three months ended March 31, 2021, the Company increased its property and casualty insurance reserves by $0.1 million to recognize adverse development of loss and LAE reserves from prior accident years. Specialty personal automobile insurance loss and LAE reserves developed favorably by $4.0 million due primarily to the emergence of more favorable loss patterns than expected for liability insurance. Commercial automobile insurance loss and LAE reserves developed adversely by $3.0 million due primarily to the emergence of more adverse loss patterns than expected for liability insurance. Preferred personal automobile insurance loss and LAE reserves developed adversely by $1.3 million due primarily to the emergence of more adverse patterns than expected for liability insurance. Homeowners loss and LAE reserves developed favorably by $2.6 million due primarily to the emergence of more favorable loss patterns than expected. Other lines loss and LAE reserves developed adversely by $2.3 million due primarily to the emergence of more adverse loss patterns than expected for prior accident years.
For the three months ended March 31, 2020, the Company decreased its property and casualty insurance reserves by $0.9 million to recognize favorable development of loss and LAE reserves from prior accident years. Specialty personal automobile insurance loss and LAE reserves developed favorably by $18.0 million due primarily to the emergence of more favorable loss patterns than expected for liability insurance related to the 2018 accident year. Commercial automobile loss and LAE reserves developed favorably by $12.5 million due primarily to the emergence of more favorable loss patterns than expected for liability insurance related to the 2018 accident year. Preferred personal automobile insurance loss and LAE reserves developed favorably by $2.1 million due primarily to the emergence of more favorable loss patterns than expected for liability insurance related to 2018 and 2017 accident years. Homeowners insurance loss and LAE reserves developed favorably by $5.0 million primarily due to the net of reinsurance impact from the sale of subrogation rights related to the 2017 and 2018 California Wildfires. Other lines loss and LAE reserves developed favorably by $1.8 million due primarily to the emergence of more favorable loss patterns than expected for the 2018 and 2017 accident years.
15

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4 - Property and Casualty Insurance Reserves (continued)
The Company cannot predict whether loss and LAE reserves will develop favorably or adversely from the amounts reported in the Company’s Condensed Consolidated Financial Statements. The Company believes that any such development will not have a material effect on the Company’s Condensed Consolidated Shareholders’ Equity, but could have a material effect on the Company’s consolidated financial results for a given period.
Receivables from Policyholders - Allowance for Expected Credit Losses
The following table presents receivables from policyholders, net of the allowance for expected credit losses including a rollforward of changes in the allowance for expected credit losses for the three months ended March 31, 2021.

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

The following table presents receivables from policyholders, net of the allowance for expected credit losses including a rollforward of changes in the allowance for expected credit losses for the three months ended March 31, 2020.

(Dollars in Millions) |  | Receivables from Policyholders, Net of Allowance for Expected Credit Losses |  | Allowance for Expected Credit Losses
Balance at Beginning of Year |  | $ | 1,117.1 |  |  | $ | 22.3 |
Provision for Expected Credit Losses |  |  |  | 11.9 |
Write-offs of Uncollectible Receivables from Policyholders |  |  |  | (11.1) |
Balance at End of Period |  | $ | 1,219.1 |  |  | $ | 23.1 |

Note 5 - Investments
Fixed Maturities
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2021 were:

|  | Amortized Cost |  | Gross Unrealized |  | Allowance for Expected Credit Losses |  | Fair Value
(Dollars in Millions) |  | Gains |  | Losses
U.S. Government and Government Agencies and Authorities |  | $ | 498.0 |  |  | $ | 35.7 |  |  | $ | (1.3) |  |  | $ | — |  |  | $ | 532.4 |
States and Political Subdivisions |  | 1,538.6 |  |  | 140.9 |  |  | (11.6) |  |  | — |  |  | 1,667.9 |
Foreign Governments |  | 6.3 |  |  | — |  |  | (1.2) |  |  | (0.3) |  |  | 4.8 |
Corporate Securities: |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | 3,886.3 |  |  | 419.2 |  |  | (30.4) |  |  | (4.3) |  |  | 4,270.8 |
Redeemable Preferred Stocks |  | 7.0 |  |  | 0.1 |  |  | (0.1) |  |  | — |  |  | 7.0 |
Collateralized Loan Obligations |  | 791.0 |  |  | 2.4 |  |  | (10.5) |  |  | — |  |  | 782.9 |
Other Mortgage- and Asset-backed |  | 202.4 |  |  | 11.3 |  |  | (0.1) |  |  | — |  |  | 213.6 |
Investments in Fixed Maturities |  | $ | 6,929.6 |  |  | $ | 609.6 |  |  | $ | (55.2) |  |  | $ | (4.6) |  |  | $ | 7,479.4 |

16

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5 - Investments (continued)
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2020 were:

|  | Amortized Cost |  | Gross Unrealized |  | Allowance for Expected Credit Losses |  | Fair Value
(Dollars in Millions) |  | Gains |  | Losses |  |
U.S. Government and Government Agencies and Authorities |  | $ | 536.5 |  |  | $ | 48.9 |  |  | $ | (0.1) |  |  | $ | — |  |  | $ | 585.3 |
States and Political Subdivisions |  | 1,404.3 |  |  | 185.4 |  |  | (0.2) |  |  | — |  |  | 1,589.5 |
Foreign Governments |  | 6.6 |  |  | — |  |  | (1.1) |  |  | (0.3) |  |  | 5.2 |
Corporate Securities: |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | 3,749.5 |  |  | 689.5 |  |  | (10.6) |  |  | (3.0) |  |  | 4,425.4 |
Redeemable Preferred Stocks |  | 7.0 |  |  | 0.5 |  |  | — |  |  | — |  |  | 7.5 |
Collateralized Loan Obligations |  | 785.1 |  |  | 2.3 |  |  | (19.7) |  |  | — |  |  | 767.7 |
Other Mortgage- and Asset-backed |  | 203.7 |  |  | 21.6 |  |  | — |  |  | — |  |  | 225.3 |
Investments in Fixed Maturities |  | $ | 6,692.7 |  |  | $ | 948.2 |  |  | $ | (31.7) |  |  | $ | (3.3) |  |  | $ | 7,605.9 |

Other Receivables included $23.7 million and $5.1 million of unsettled sales of Investments in Fixed Maturities at March 31, 2021 and December 31, 2020, respectively. Accrued Expenses and Other Liabilities included unsettled purchases of Investments in Fixed Maturities of $54.7 million and $4.3 million at March 31, 2021 and December 31, 2020, respectively.
The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2021 by contractual maturity were:

(Dollars in Millions) |  | Amortized Cost |  | Fair Value
Due in One Year or Less |  | $ | 81.4 |  |  | $ | 84.6 |
Due after One Year to Five Years |  | 1,049.7 |  |  | 1,111.0 |
Due after Five Years to Ten Years |  | 1,570.2 |  |  | 1,691.0 |
Due after Ten Years |  | 2,878.0 |  |  | 3,219.5 |
Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date |  | 1,350.3 |  |  | 1,373.3 |
Investments in Fixed Maturities |  | $ | 6,929.6 |  |  | $ | 7,479.4 |

The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Investments in Mortgage- and Asset-backed Securities Not Due at a Single Maturity Date at March 31, 2021 consisted of securities issued by the Government National Mortgage Association with a fair value of $361.3 million, securities issued by the Federal National Mortgage Association with a fair value of $4.8 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $11.7 million and securities of other non-governmental issuers with a fair value of $995.5 million.
17

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5 - Investments (continued)
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at March 31, 2021 is presented below.

|  | Less Than 12 Months |  | 12 Months or Longer |  | Total
(Dollars in Millions) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Fixed Maturities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and Government Agencies and Authorities |  | $ | 21.0 |  |  | $ | (1.3) |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 21.1 |  |  | $ | (1.3) |
States and Political Subdivisions |  | 335.7 |  |  | (11.6) |  |  | 0.7 |  |  | — |  |  | 336.4 |  |  | (11.6) |
Foreign Governments |  | 0.2 |  |  | (0.1) |  |  | 2.2 |  |  | (1.1) |  |  | 2.4 |  |  | (1.2) |
Corporate Securities: |  |  |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | 559.1 |  |  | (25.8) |  |  | 59.6 |  |  | (4.6) |  |  | 618.7 |  |  | (30.4) |
Redeemable Preferred Stocks |  | 5.4 |  |  | (0.1) |  |  | — |  |  | — |  |  | 5.4 |  |  | (0.1) |
Collateralized Loan Obligations |  | 42.1 |  |  | (0.2) |  |  | 320.8 |  |  | (10.3) |  |  | 362.9 |  |  | (10.5) |
Other Mortgage- and Asset-backed |  | 17.3 |  |  | (0.1) |  |  | 0.1 |  |  | — |  |  | 17.4 |  |  | (0.1) |
Total Fixed Maturities |  | $ | 980.8 |  |  | $ | (39.2) |  |  | $ | 383.5 |  |  | $ | (16.0) |  |  | $ | 1,364.3 |  |  | $ | (55.2) |

Investment-grade fixed maturity investments comprised $39.8 million and below-investment-grade fixed maturity investments comprised $15.4 million of the unrealized losses on investments in fixed maturities at March 31, 2021. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 9% of the amortized cost basis of the investment.
An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2020 is presented below.

|  | Less Than 12 Months |  | 12 Months or Longer |  | Total
(Dollars in Millions) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Fixed Maturities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and Government Agencies and Authorities |  | $ | 10.5 |  |  | $ | (0.1) |  |  | $ | — |  |  | $ | — |  |  | $ | 10.5 |  |  | $ | (0.1) |
States and Political Subdivisions |  | 23.3 |  |  | (0.2) |  |  | — |  |  | — |  |  | 23.3 |  |  | (0.2) |
Foreign Governments |  | 0.5 |  |  | (0.1) |  |  | 2.6 |  |  | (1.0) |  |  | 3.1 |  |  | (1.1) |
Corporate Securities: |  |  |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | 132.9 |  |  | (7.5) |  |  | 46.1 |  |  | (3.1) |  |  | 179.0 |  |  | (10.6) |
Collateralized Loan Obligations |  | 145.2 |  |  | (3.8) |  |  | 371.4 |  |  | (15.9) |  |  | 516.6 |  |  | (19.7) |
Other Mortgage- and Asset-backed |  | 6.3 |  |  | — |  |  | — |  |  | — |  |  | 6.3 |  |  | — |
Total Fixed Maturities |  | $ | 318.7 |  |  | $ | (11.7) |  |  | $ | 420.1 |  |  | $ | (20.0) |  |  | $ | 738.8 |  |  | $ | (31.7) |

Investment-grade fixed maturity investments comprised $8.0 million and below-investment-grade fixed maturity investments comprised $23.7 million of the unrealized losses on investments in fixed maturities at December 31, 2020. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 11% of the amortized cost basis of the investment.
18

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5 - Investments (continued)
At March 31, 2021 and December 31, 2020, the Company did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell these investments before an anticipated recovery of value. The Company evaluated these investments for credit losses at March 31, 2021 and December 31, 2020. The Company considers many factors in evaluating whether the unrealized losses were credit related including, but not limited to, the extent to which the fair value has been less than amortized cost, conditions related to the security, industry, or geographic area, payment structure of the investment and the likelihood of the issuer’s ability to make contractual cashflows, defaults or other collectability concerns related to the issuer, changes in the ratings assigned by a rating agency, and other credit enhancements that affect the investment’s expected performance. The Company determined that the unrealized losses on these securities were due to non-credit related factors at the evaluation date.
Fixed Maturities - Impairment Losses
The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for three months ended March 31, 2021.

|  |  |  | Foreign Governments |  | Corporate Bonds and Notes |  |  |  | Total
(Dollars in Millions)
Beginning of the Period |  |  |  | $ | 0.3 |  |  | $ | 3.0 |  |  |  |  | $ | 3.3 |
Additions for Securities for which No Previous Expected Credit Losses were Recognized |  |  |  | — |  |  | 1.3 |  |  |  |  | 1.3 |
Reduction Due to Sales |  |  |  | — |  |  | (0.3) |  |  |  |  | (0.3) |
Net Increase (Decrease) in Allowance on Previously Impaired Securities |  |  |  | 0.2 |  |  | 0.3 |  |  |  |  | 0.5 |
Write-offs Charged Against Allowance |  |  |  | (0.2) |  |  | — |  |  |  |  | (0.2) |
End of the Period |  |  |  | $ | 0.3 |  |  | $ | 4.3 |  |  |  |  | $ | 4.6 |

The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for the three months ended March 31, 2020.

|  |  |  | Foreign Governments |  | Corporate Bonds and Notes |  |  |  | Total
(Dollars in Millions)
Beginning of the Year |  |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | — |
Additions for Securities for which No Previous Expected Credit Losses were Recognized |  |  |  | 1.1 |  |  | 3.5 |  |  |  |  | 4.6 |
Reduction Due to Sales |  |  |  | — |  |  | — |  |  |  |  | — |
Net Increase (Decrease) in Allowance on Previously Impaired Securities |  |  |  | — |  |  | — |  |  |  |  | — |
Write-offs Charged Against Allowance |  |  |  | — |  |  | — |  |  |  |  | — |
End of the Period |  |  |  | $ | 1.1 |  |  | $ | 3.5 |  |  |  |  | $ | 4.6 |

Equity Securities
Investments in Equity Securities at Fair Value were $897.4 million and $858.5 million at March 31, 2021 and December 31, 2020, respectively. Net unrealized gains arising during the three months ended March 31, 2021 and recognized in earnings, related to such investments still held as of March 31, 2021, were $56.5 million.
For Equity Securities at Modified Cost, the Company performs a qualitative impairment analysis on a quarterly basis consisting of various factors such as earnings performance, current market conditions, changes in credit ratings, changes in the regulatory environment and other factors. If the qualitative analysis identifies the presence of impairment indicators, the Company estimates the fair value of the investment. If the estimated fair value is below the carrying value, the Company records an impairment in the Condensed Consolidated Statement of Income to reduce the carrying value to the estimated fair value. When the Company identifies observable transactions of the same or similar securities to those held by the Company, the Company increases or decreases the carrying value to the observable transaction price. The Company did not recognize any increases in
19

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5 - Investments (continued)
the carrying value due to observable transactions for the three months ended March 31, 2021. The Company recognized an impairment of $0.8 million on Equity Securities at Modified Cost for the three months ended March 31, 2021 as a result of the Company’s qualitative impairment analysis. The Company has recognized $0.5 million of cumulative decreases in the carrying value due to observable transactions, no cumulative increases in the carrying value due to observable transactions and $6.7 million of cumulative impairments on Equity Securities at Modified Cost held as of March 31, 2021.
There were no unsettled sales or purchases of Investments in Equity Securities at March 31, 2021 and December 31, 2020.
Equity Method Limited Liability Investments
Equity Method Limited Liability Investments include investments in limited liability investment companies and limited partnerships in which the Company’s interests are not deemed minor and are accounted for under the equity method of accounting. The Company’s investments in Equity Method Limited Liability Investments are generally of a passive nature in that the Company does not take an active role in the management of the investment entity.
The Company’s maximum exposure to loss at March 31, 2021 is limited to the total carrying value of $219.2 million. In addition, the Company had outstanding commitments totaling approximately $94.6 million to fund Equity Method Limited Liability Investments at March 31, 2021. At March 31, 2021, 4.3% of Equity Method Limited Liability Investments were reported without a reporting lag. Of the total carrying value, 11.0% was reported with a one month lag and the remainder was reported with more than a one month lag.
Alternative Energy Partnership Investments
Alternative Energy Partnership Investments include partnerships formed to invest in newly installed residential solar leases and power purchase agreements. As a result of this investment, the Company has the right to certain investment tax credits and tax depreciation benefits, and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time. The Hypothetical Liquidation at Book Value (“HLBV”) equity method of accounting is used for the Company’s investments in Alternative Energy Partnership Investments.
The Company’s maximum exposure to loss at March 31, 2021 is limited to the total carrying value of $54.4 million. In addition, the Company had outstanding commitments totaling approximately $31.5 million to fund Alternative Energy Partnership Investments at March 31, 2021. Alternative Energy Partnership Investments are reported on a three month lag.
Other Investments
The carrying values of the Company’s Other Investments at March 31, 2021 and December 31, 2020 were:

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Company-owned Life Insurance |  | $ | 429.5 |  |  | $ | 327.4 |
Loans to Policyholders at Unpaid Principal |  | 295.1 |  |  | 297.9 |
Real Estate at Depreciated Cost |  | 98.0 |  |  | 98.7 |
Mortgage Loans and Other |  | 74.2 |  |  | 55.0 |
Total |  | $ | 896.8 |  |  | $ | 779.0 |

20

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5 - Investments (continued)
Net Investment Income
Net Investment Income for the three months ended March 31, 2021 and 2020 was:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Investment Income (Loss): |  |  |  |  |  |  |  |
Interest on Fixed Income Securities |  | $ | 69.0 |  |  | $ | 71.0 |  |  |  |  |
Dividends on Equity Securities Excluding Alternative Investments |  | 2.1 |  |  | 4.3 |  |  |  |  |
Alternative Investments: |  |  |  |  |  |  |  |
Equity Method Limited Liability Investments |  | 22.5 |  |  | 1.8 |  |  |  |  |
Limited Liability Investments Included in Equity Securities |  | 4.5 |  |  | 3.8 |  |  |  |  |
Total Alternative Investments |  | 27.0 |  |  | 5.6 |  |  |  |  |
Short-term Investments |  | 1.2 |  |  | 1.6 |  |  |  |  |
Loans to Policyholders |  | 5.5 |  |  | 5.6 |  |  |  |  |
Real Estate |  | 2.4 |  |  | 2.5 |  |  |  |  |
Other |  | 4.7 |  |  | 4.2 |  |  |  |  |
Total Investment Income |  | 111.9 |  |  | 94.8 |  |  |  |  |
Investment Expenses: |  |  |  |  |  |  |  |
Real Estate |  | 2.1 |  |  | 2.6 |  |  |  |  |
Other Investment Expenses |  | 6.7 |  |  | 6.6 |  |  |  |  |
Total Investment Expenses |  | 8.8 |  |  | 9.2 |  |  |  |  |
Net Investment Income |  | $ | 103.1 |  |  | $ | 85.6 |  |  |  |  |

Gross gains and losses on sales of investments in fixed maturities for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Fixed Maturities: |  |  |  |  |  |  |  |
Gains on Sales |  | $ | 13.2 |  |  | $ | 15.9 |  |  |  |  |
Losses on Sales |  | (1.1) |  |  | (1.1) |  |  |  |  |

21

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6 - Fair Value Measurements
The Company classifies its investments in Fixed Maturities as available-for-sale and reports these investments at fair value. The Company reports equity investments with readily determinable fair values as Equity Securities at Fair Value. Certain investments that are measured at fair value using the net asset value practical expedient are not required to be classified using the fair value hierarchy, but are presented in the following two tables to permit reconciliation of the fair value hierarchy to the amounts presented in the Condensed Consolidated Balance Sheets.
The valuation of assets measured at fair value in Company’s Condensed Consolidated Balance Sheets at March 31, 2021 is summarized below.

|  | Fair Value Measurements |  |
(Dollars in Millions) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Measured at Net Asset Value |  | Total Fair Value
Fixed Maturities: |  |  |  |  |  |  |  |  |  |
U.S. Government and Government Agencies and Authorities |  | $ | 133.0 |  |  | $ | 399.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 532.4 |
States and Political Subdivisions |  | — |  |  | 1,667.9 |  |  | — |  |  | — |  |  | 1,667.9 |
Foreign Governments |  | — |  |  | 4.8 |  |  | — |  |  | — |  |  | 4.8 |
Corporate Securities: |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | — |  |  | 3,856.3 |  |  | 414.5 |  |  | — |  |  | 4,270.8 |
Redeemable Preferred Stock |  | — |  |  | 1.3 |  |  | 5.7 |  |  | — |  |  | 7.0 |
Collateralized Loan Obligations |  | — |  |  | 782.9 |  |  | — |  |  | — |  |  | 782.9 |
Other Mortgage and Asset-backed |  | — |  |  | 204.6 |  |  | 9.0 |  |  | — |  |  | 213.6 |
Total Investments in Fixed Maturities |  | 133.0 |  |  | 6,917.2 |  |  | 429.2 |  |  | — |  |  | 7,479.4 |
Equity Securities at Fair Value: |  |  |  |  |  |  |  |  |  |
Preferred Stocks: |  |  |  |  |  |  |  |  |  |
Finance, Insurance and Real Estate |  | — |  |  | 38.6 |  |  | — |  |  | — |  |  | 38.6 |
Other Industries |  | — |  |  | 16.0 |  |  | — |  |  | — |  |  | 16.0 |
Common Stocks: |  |  |  |  |  |  |  |  |  |
Finance, Insurance and Real Estate |  | 6.8 |  |  | 1.7 |  |  | — |  |  | — |  |  | 8.5 |
Other Industries |  | 2.8 |  |  | — |  |  | 0.1 |  |  | — |  |  | 2.9 |
Other Equity Interests: |  |  |  |  |  |  |  |  |  |
Exchange Traded Funds |  | 522.5 |  |  | — |  |  | — |  |  | — |  |  | 522.5 |
Limited Liability Companies and Limited Partnerships |  | — |  |  | — |  |  | — |  |  | 308.9 |  |  | 308.9 |
Total Investments in Equity Securities at Fair Value |  | 532.1 |  |  | 56.3 |  |  | 0.1 |  |  | 308.9 |  |  | 897.4 |
Convertible Securities at Fair Value |  | — |  |  | 42.6 |  |  | — |  |  | — |  |  | 42.6 |
Total |  | $ | 665.1 |  |  | $ | 7,016.1 |  |  | $ | 429.3 |  |  | $ | 308.9 |  |  | $ | 8,419.4 |

At March 31, 2021, the Company had unfunded commitments to invest an additional $124.1 million in certain limited liability investment companies and limited partnerships that will be included in Other Equity Interests if funded.
22

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6 - Fair Value Measurements (continued)
The valuation of assets measured at fair value in the Company’s Consolidated Balance Sheets at December 31, 2020 is summarized below.

|  | Fair Value Measurements |  |
(Dollars in Millions) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Measured at Net Asset Value |  | Total Fair Value
Fixed Maturities: |  |  |  |  |  |  |  |  |  |
U.S. Government and Government Agencies and Authorities |  | $ | 134.0 |  |  | $ | 451.3 |  |  | $ | — |  |  | $ | — |  |  | $ | 585.3 |
States and Political Subdivisions |  | — |  |  | 1,589.5 |  |  | — |  |  | — |  |  | 1,589.5 |
Foreign Governments |  | — |  |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Corporate Securities: |  |  |  |  |  |  |  |  |  |
Bonds and Notes |  | — |  |  | 3,992.4 |  |  | 433.0 |  |  | — |  |  | 4,425.4 |
Redeemable Preferred Stocks |  | — |  |  | 1.3 |  |  | 6.2 |  |  | — |  |  | 7.5 |
Collateralized Loan Obligations |  | — |  |  | 767.7 |  |  | — |  |  | — |  |  | 767.7 |
Other Mortgage and Asset-backed |  | — |  |  | 215.3 |  |  | 10.0 |  |  | — |  |  | 225.3 |
Total Investments in Fixed Maturities |  | 134.0 |  |  | 7,022.7 |  |  | 449.2 |  |  | — |  |  | 7,605.9 |
Equity Securities at Fair Value: |  |  |  |  |  |  |  |  |  |
Preferred Stocks: |  |  |  |  |  |  |  |  |  |
Finance, Insurance and Real Estate |  | — |  |  | 43.7 |  |  | — |  |  | — |  |  | 43.7 |
Other Industries |  | — |  |  | 15.4 |  |  | — |  |  | — |  |  | 15.4 |
Common Stocks: |  |  |  |  |  |  |  |  |  |
Finance, Insurance and Real Estate |  | 8.7 |  |  | 1.7 |  |  | — |  |  | — |  |  | 10.4 |
Other Industries |  | 0.4 |  |  | — |  |  | — |  |  | — |  |  | 0.4 |
Other Equity Interests: |  |  |  |  |  |  |  |  |  |
Exchange Traded Funds |  | 496.4 |  |  | — |  |  | — |  |  | — |  |  | 496.4 |
Limited Liability Companies and Limited Partnerships |  | — |  |  | — |  |  | — |  |  | 292.2 |  |  | 292.2 |
Total Investments in Equity Securities at Fair Value |  | 505.5 |  |  | 60.8 |  |  | — |  |  | 292.2 |  |  | 858.5 |
Other Investments: |  |  |  |  |  |  |  |  |  |
Convertible Securities at Fair Value |  | — |  |  | 39.9 |  |  | — |  |  | — |  |  | 39.9 |
Total |  | $ | 639.5 |  |  | $ | 7,123.4 |  |  | $ | 449.2 |  |  | $ | 292.2 |  |  | $ | 8,504.3 |

The Company’s investments in Fixed Maturities that are classified as Level 1 in the two preceding tables primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities at Fair Value that are classified as Level 1 in the two preceding tables consist of either investments in publicly-traded common stocks or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 in the two preceding tables primarily consist of investments in corporate bonds, obligations of states and political subdivisions, and bonds and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities at Fair Value that are classified as Level 2 in the two preceding tables primarily consist of investments in preferred stocks. The Company uses a leading, nationally recognized provider of market data and analytics to price the vast majority of the Company’s Level 2 measurements. The provider utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Because many fixed maturity securities do not trade on a daily basis, the provider’s evaluated pricing applications apply available
23

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6 - Fair Value Measurements (continued)
information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, the provider uses model processes to develop prepayment and interest rate scenarios.
The pricing provider’s models and processes also take into account market convention. For each asset class, teams of its evaluators gather information from market sources and integrate relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The Company generally validates the measurements obtained from its primary pricing provider by comparing them with measurements obtained from one additional pricing provider that provides either prices from recent market transactions, quotes in inactive markets or evaluations based on its own proprietary models.
The Company investigates significant differences related to the values provided. On completion of its investigation, management exercises judgment to determine the price selected and whether adjustments, if any, to the price obtained from the Company’s primary pricing provider would warrant classification of the price as Level 3. In instances where a measurement cannot be obtained from either pricing provider, the Company generally will evaluate bid prices from one or more binding quotes obtained from market makers to value investments in inactive markets and classified by the Company as Level 2. The Company generally classifies securities when it receives non-binding quotes or indications as Level 3 securities unless the Company can validate the quote or indication against recent transactions in the market.
The table below presents quantitative information about the significant unobservable inputs utilized by the Company in determining fair values for fixed maturity investments classified as Level 3 at March 31, 2021.

(Dollars in Millions) |  | Unobservable Input |  | Total Fair Value |  | Range of Unobservable Inputs |  | Weighted-average Yield
Investment-grade |  | Market Yield |  | $ | 251.7 |  |  | 0.9 | % | - | 12.0 | % |  | 3.4 | %
Non-investment-grade: |  |  |  |  |  |  |  |  |  |
Senior Debt |  | Market Yield |  | 95.4 |  |  | 0.9 |  | - | 19.3 |  |  | 9.7 |
Junior Debt |  | Market Yield |  | 59.1 |  |  | 2.2 |  | - | 27.9 |  |  | 14.5 |
Other |  | Various |  | 23.0 |  |  |  |  |  |  |
Total Level 3 Fixed Maturity Investments |  |  |  | $ | 429.2 |  |  |  |  |  |  |

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in determining fair values for fixed maturity investments classified as Level 3 at December 31, 2020.

(Dollars in Millions) |  | Unobservable Input |  | Total Fair Value |  | Range of Unobservable Inputs |  | Weighted-average Yield
Investment-grade |  | Market Yield |  | $ | 246.7 |  |  | 1.4 | % | - | 13.0 | % |  | 3.8 | %
Non-investment-grade: |  |  |  |  |  |  |  |  |  |
Senior Debt |  | Market Yield |  | 111.1 |  |  | 2.4 |  | - | 23.4 |  |  | 9.5 |
Junior Debt |  | Market Yield |  | 64.6 |  |  | 3.1 |  | - | 27.9 |  |  | 13.7 |
Other |  | Various |  | 26.8 |  |  |  |  |  |  |
Total Level 3 Fixed Maturity Investments |  |  |  | $ | 449.2 |  |  |  |  |  |  |

24

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6 - Fair Value Measurements (continued)
For an investment in a fixed maturity security, an increase in the yield used to determine the fair value of the security will decrease the fair value of the security. A decrease in the yield used to determine fair value will increase the fair value of the security, but the fair value increase is generally limited to par, unless callable at a premium, if the security is currently callable.
Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended March 31, 2021 is presented below.

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

The transfers into and out of Level 3 were due primarily to changes in the availability of market observable inputs due to change in pricing provider.
Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended March 31, 2020 is presented below.

|  | Fixed Maturities |  |  |  |  |  |
(Dollars in Millions) |  | Corporate Bonds and Notes |  | States and Political Sub- divisions |  | Redeemable Preferred Stocks |  | Collateralized Loan Obligations |  | Other Mortgage- and Asset- backed |  |  |  |  |  |  |  | Total
Balance at Beginning of Year |  | $ | 409.1 |  |  | $ | — |  |  | $ | 6.7 |  |  | $ | 618.2 |  |  | $ | 10.2 |  |  |  |  |  |  |  |  | $ | 1,044.2 |
Total Gains (Losses): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in Condensed Consolidated Statement of Income |  | (2.7) |  |  | — |  |  | — |  |  | (0.3) |  |  | — |  |  |  |  |  |  |  |  | (3.0) |
Included in Other Comprehensive Income (Loss) |  | (24.8) |  |  | 0.1 |  |  | — |  |  | (9.5) |  |  | (0.6) |  |  |  |  |  |  |  |  | (34.8) |
Purchases |  | 27.2 |  |  | 0.6 |  |  | — |  |  | 53.6 |  |  | — |  |  |  |  |  |  |  |  | 81.4 |
Settlements |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | — |
Sales |  | (18.2) |  |  | — |  |  | — |  |  | (26.4) |  |  | (0.2) |  |  |  |  |  |  |  |  | (44.8) |
Transfers into Level 3 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |  |  |  |  | — |
Transfers out of Level 3 |  | — |  |  | — |  |  | — |  |  | (557.7) |  |  | — |  |  |  |  |  |  |  |  | (557.7) |
Balance at End of Period |  | $ | 390.6 |  |  | $ | 0.7 |  |  | $ | 6.7 |  |  | $ | 77.9 |  |  | $ | 9.4 |  |  |  |  |  |  |  |  | $ | 485.3 |

The transfers into and out of Level 3 were due to changes in the availability of market observable inputs.
25

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6 - Fair Value Measurements (continued)
Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

|  | March 31, 2021 |  | December 31, 2020
(Dollars in Millions) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial Assets: |  |  |  |  |  |  |  |
Loans to Policyholders |  | $ | 295.1 |  |  | $ | 295.1 |  |  | $ | 297.9 |  |  | $ | 297.9 |
Short-term Investments |  | 196.9 |  |  | 196.9 |  |  | 875.4 |  |  | 875.4 |
Mortgage Loans |  | 73.2 |  |  | 73.2 |  |  | 54.6 |  |  | 54.6 |
Financial Liabilities: |  |  |  |  |  |  |  |
Long-term Debt |  | $ | 1,122.6 |  |  | $ | 1,213.3 |  |  | $ | 1,172.8 |  |  | $ | 1,247.8 |
Policyholder Obligations |  | 407.5 |  |  | 407.5 |  |  | 407.8 |  |  | 407.8 |

The fair value measurement for loans to policyholders are categorized as Level 3 within the fair value hierarchy. The fair value measurement of Short-term Investments is estimated using inputs that are considered either Level 1 or Level 2 measurements. The fair value measurement of Mortgage Loans is estimated using inputs that are considered Level 2 measurements. The fair value of Long-term Debt is estimated using quoted prices for similar liabilities in markets that are not active. The inputs used in the valuation are considered Level 2 measurements. Policyholder Obligations presented in the preceding table consist of advances from the FHLB of Chicago, and the inputs used in the valuation are considered Level 2 measurements.
Note 7 - Variable Interest Entities
The Company invests in an Alternative Energy Partnership formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits. This entity was formed to invest in newly installed residential solar leases and power purchase agreements. As a result of this investment, the Company has the right to certain investment tax credits and tax depreciation benefits, and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time.
The Company’s interest in Alternative Energy Partnership Investments is considered an investment in a variable interest entity (“VIE”). To determine whether the investment should be consolidated in the Condensed Consolidated Financial Statements, the Company evaluates whether it is the primary beneficiary of the VIE. The primary beneficiary is the party that has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has determined that it is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the economic performance of the entity and therefore is not required to consolidate the VIE. The project sponsor governs the entity and the Company only has consent rights that have been deemed protective in nature and does not participate in key economic decisions of the entity.
The investment is accounted for using the equity method of accounting and included in Alternative Energy Partnership Investments in the Condensed Consolidated Balance Sheets. The Company uses the accounting methodology known as Hypothetical Liquidation at Book Value (“HLBV”) to account for earnings and losses. This method provides an earnings allocation that appropriately reflects the substantive economics of the investment. Earnings and losses on the investment are reported in Change in Value of Alternative Energy Partnership Investments on the Condensed Consolidated Statements of Income.
The following table presents information regarding activity in the Company’s Alternative Energy Partnership Investments as of the periods indicated:

($ in millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Fundings |  | $ | 48.5 |  |  | $ | 20.0 |
Cash distribution from investment |  | — |  |  | — |
Gain (loss) on investments in Alternative Energy Partnership |  | (15.4) |  |  | — |
Income tax credits recognized |  | 28.4 |  |  | 3.6 |
Tax expense (benefit) recognized from HLBV application |  | 0.2 |  |  | (0.4) |

26

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7 - Variable Interest Entities (continued)
The following table represents the carrying value of the associated assets and liabilities and the associated maximum loss exposure of the Alternative Energy Partnership Investments as of the dates indicated:

($ in millions) |  | Mar 31, 2021 |  |
Cash |  | $ | 7.2 |  |  |
Equipment, net of depreciation |  | 54.4 |  |  |
Other assets |  | 0.6 |  |  |
Total unconsolidated assets |  | 62.2 |  |  |
Maximum loss exposure |  | 54.4 |  |  |

The Company’s maximum loss exposure in the event that all of the assets in the Alternative Energy Partnership are deemed worthless is $54.4 million, which is the carrying value of the investment at March 31, 2021.
Note 8 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income
The components of Other Comprehensive Income (Loss) and AOCI for the three months ended March 31, 2021 were:

|  | Changes in Net Unrealized Gains (Losses) on Investment Securities |  |  |  |  |  |
(Dollars in Millions) |  | Having No Credit Losses Recognized in Consolidated Statements of Income |  | Having Credit Losses Recognized in Consolidated Statements of Income |  | Net Unrecognized Postretirement Benefit Costs |  | Gain (Loss) on Cash Flow Hedges |  | Total Accumulated Other Comprehensive Income (Loss)
Balance at Beginning of Period |  | 730.6 |  | $ | (2.1) |  |  | $ | (45.7) |  |  | $ | (2.3) |  |  | $ | 680.5 |
Other Comprehensive Income (Loss) Before Reclassification Adjustment, Net of Tax |  | (281.5) |  |  | (1.7) |  |  | 0.8 |  |  | 0.1 |  |  | (282.3) |
Reclassification Adjustment for Amounts Included in Net Income, Net of Tax |  | (7.7) |  |  | — |  |  | — |  |  | — |  |  | (7.7) |
Other Comprehensive Income (Loss), Net of Tax |  | (289.2) |  |  | (1.7) |  |  | 0.8 |  |  | 0.1 |  |  | (290.0) |
Balance at End of Period |  | $ | 441.4 |  |  | $ | (3.8) |  |  | $ | (44.9) |  |  | $ | (2.2) |  |  | $ | 390.5 |

27

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 8 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (continued)
The pre-tax components of the Other Comprehensive Income (Loss) and the related Income Tax Benefit (Expense) for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Changes in Net Unrealized Gains (Losses) on Investment Securities: |  |  |  |  |  |  |  |
Having No Credit Losses Recognized in Condensed Consolidated Statements of Income |  | $ | (354.2) |  |  | $ | (198.0) |  |  |  |  |
Income Tax Benefit (Expense) |  | 72.7 |  |  | 41.6 |  |  |  |  |
Net of Taxes |  | (281.5) |  |  | (156.4) |  |  |  |  |
Having Credit Losses Recognized in Condensed Consolidated Statements of Income |  | (2.1) |  |  | (2.9) |  |  |  |  |
Income Tax Benefit (Expense) |  | 0.4 |  |  | 0.6 |  |  |  |  |
Net of Taxes |  | (1.7) |  |  | (2.3) |  |  |  |  |
Reclassification Adjustment for Amounts Included in Net Income |  | (9.8) |  |  | (3.9) |  |  |  |  |
Income Tax Benefit (Expense) |  | 2.1 |  |  | 0.8 |  |  |  |  |
Net of Taxes |  | (7.7) |  |  | (3.1) |  |  |  |  |
Changes in Net Unrecognized Postretirement Benefit Costs |  | 0.3 |  |  | 0.7 |  |  |  |  |
Income Tax Benefit (Expense) |  | 0.5 |  |  | (0.2) |  |  |  |  |
Net of Taxes |  | 0.8 |  |  | 0.5 |  |  |  |  |
Changes in Gain (Loss) on Cash Flow Hedges |  | 0.1 |  |  | 0.1 |  |  |  |  |
Income Tax Benefit (Expense) |  | — |  |  | — |  |  |  |  |
Net of Taxes |  | 0.1 |  |  | 0.1 |  |  |  |  |
Total Other Comprehensive Income (Loss) Before Income Taxes |  | (365.7) |  |  | (204.0) |  |  |  |  |
Total Income Tax Benefit (Expense) |  | 75.7 |  |  | 42.8 |  |  |  |  |
Total Other Comprehensive Income (Loss), Net of Taxes |  | $ | (290.0) |  |  | $ | (161.2) |  |  |  |  |

28

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 8 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (continued)
Components of AOCI were reclassified to the following lines of the Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Reclassification of AOCI from Net Unrealized Gains on Investments to: |  |  |  |  |  |  |  |
Net Realized Gains on Sales of Investments |  | $ | 13.8 |  |  | $ | 15.9 |  |  |  |  |
Impairment Losses |  | (4.0) |  |  | (12.0) |  |  |  |  |
Total Before Income Taxes |  | 9.8 |  |  | 3.9 |  |  |  |  |
Income Tax Benefit (Expense) |  | (2.1) |  |  | (0.8) |  |  |  |  |
Reclassification from AOCI, Net of Income Taxes |  | 7.7 |  |  | 3.1 |  |  |  |  |
Reclassification of AOCI from Unrecognized Postretirement Benefit Costs to: |  |  |  |  |  |  |  |
Interest and Other Expenses |  | (0.3) |  |  | (0.7) |  |  |  |  |
Income Tax Benefit (Expense) |  | (0.5) |  |  | 0.1 |  |  |  |  |
Reclassification from AOCI, Net of Income Taxes |  | (0.8) |  |  | (0.6) |  |  |  |  |
Reclassification of AOCI from Loss on Cash Flow Hedges to: |  |  |  |  |  |  |  |
Interest and Other Expenses |  | (0.1) |  |  | (0.1) |  |  |  |  |
Income Tax Benefit (Expense) |  | — |  |  | — |  |  |  |  |
Reclassification from AOCI, Net of Income Taxes |  | (0.1) |  |  | (0.1) |  |  |  |  |
Total Reclassification from AOCI to Net Income |  | $ | 6.8 |  |  | $ | 2.4 |  |  |  |  |

Note 9 - Shareholders’ Equity
Common Stock Repurchases
During the three months ended March 31, 2021, Kemper repurchased and retired approximately 590,000 shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $47.1 million and average cost per share of $79.36. Of the total shares repurchased, approximately 540,000 were repurchased under a trading plan that was executed by Kemper under Rule 10b5-1 under the Securities Exchange Act of 1934.
During the three months ended March 31, 2020, Kemper repurchased and retired approximately 1,500,000 shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $101.2 million and an average cost per share of $67.98. Of the total shares repurchased, approximately 925,000 were repurchased under a trading plan that was executed by Kemper under Rule 10b5-1 under the Securities Exchange Act of 1934.
On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of 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 December 31, 2020. As of March 31, 2021, the remaining share repurchase authorization was $286.2 million under the repurchase program.
Employee Stock Purchase Plan
During the second quarter of 2019, Kemper’s stockholders approved the adoption of the Kemper Employee Stock Purchase Plan (“ESPP”) and the reservation of 1,300,000 shares of Kemper’s common stock for issuance under the ESPP.
Under the ESPP, the Company issued 14,878 shares on March 31, 2021 at a discounted price of $67.76 per share and 13,214 shares on March 31, 2020 at a discounted price of $63.21. Compensation costs charged against income were $0.2 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively.
29

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10 - Pension Benefits and Postretirement Benefits Other Than Pensions
The Company sponsors a qualified defined benefit pension plan (the “Pension Plan”) that covers approximately 3,175 participants and beneficiaries. Effective January 1, 2006, the Pension Plan was closed to new hires and, effective June 30, 2016, benefit accruals were frozen for substantially all of the participants under the Pension Plan. The Pension Plan is generally non-contributory, but participation requires or required some employees to contribute 3% of pay, as defined, per year. Benefits for participants who are or were required to contribute to the Pension Plan are based on compensation during plan participation and the number of years of participation. Benefits for the vast majority of participants who are not required to contribute to the Pension Plan are based on years of service and final average pay, as defined. The Company funds the Pension Plan in accordance with the requirements of Employee Retirement Income Security Act of 1974 (“ERISA”).
The components of Pension Income for the Pension Plan for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Interest Cost on Projected Benefit Obligation |  | $ | 1.8 |  |  | $ | 4.5 |  |  |  |  |
Expected Return on Plan Assets |  | (2.3) |  |  | (7.3) |  |  |  |  |
Amortization of Net Actuarial Loss |  | 0.7 |  |  | 1.5 |  |  |  |  |
Total Pension (Benefit) Expense |  | $ | 0.2 |  |  | $ | (1.3) |  |  |  |  |

The Company sponsors two other than pension postretirement benefit (“OPEB”) plans (together the “OPEB Plans”) that together provide medical, dental and/or life insurance benefits to approximately 575 retired and 500 active employees.
The components of OPEB benefits for the OPEB Plans for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Service Cost |  | $ | 0.1 |  |  | $ | 0.1 |  |  |  |  |
Interest Cost on Accumulated Postretirement Benefit Obligation |  | — |  |  | 0.1 |  |  |  |  |
Amortization of Prior Service Credit |  | (0.3) |  |  | (0.3) |  |  |  |  |
Amortization of Net Gain |  | (0.4) |  |  | (0.5) |  |  |  |  |
Total OPEB (Benefit) Expense |  | $ | (0.6) |  |  | $ | (0.6) |  |  |  |  |

The non-service cost components of the Pension Plan and OPEB Plans are presented within the Interest and Other Expenses line item in the Condensed Consolidated Statements of Income.
Note 11 - Policyholder Obligations
Policyholder Obligations at March 31, 2021 and December 31, 2020 were as follows:

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
FHLB Funding Agreements |  | $ | 407.5 |  |  | $ | 407.8 |
Other |  | 59.0 |  |  | 59.2 |
Total |  | $ | 466.5 |  |  | $ | 467.0 |

Kemper’s subsidiary, United Insurance Company of America ("United Insurance") has entered into funding agreements with the Federal Home Loan Bank (“FHLB”) of Chicago in exchange for cash, which it uses for spread lending purposes. During the three months ended March 31, 2021, United Insurance received advances of $60.5 million from the FHLB of Chicago and made repayments of $60.8 million under the spread lending program.
When a funding agreement is issued, United Insurance is then required to post collateral in the form of eligible securities including mortgage-backed, government, and agency debt instruments for each of the advances that are entered. The fair value
30

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 11 - Policyholder Obligations (continued)
of the collateral pledged must be maintained at certain specified levels above the borrowed amount, which can vary depending on the assets pledged. If the fair value of the collateral declines below these specified levels of the amount borrowed, United Insurance would be required to pledge additional collateral or repay outstanding borrowings. Upon any event of default by United Insurance, the FHLB’s recovery on the collateral is limited to the amount of United Insurance’s liability under the funding agreements to the FHLB of Chicago.
United Insurance’s liability under the funding agreements with the FHLB of Chicago, the amount of collateral pledged under such agreements and FHLB of Chicago common stock owned by United Insurance at March 31, 2021 and December 31, 2020 is presented below.

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Liability under Funding Agreements |  | $ | 407.5 |  |  | $ | 407.8 |
Fair Value of Collateral Pledged |  | 510.5 |  |  | 530.5 |
FHLB of Chicago Common Stock Owned at Cost |  | 11.8 |  |  | 11.8 |

Note 12 - Debt
Amended and Extended Credit Agreement and Term Loan Facility
On June 8, 2018, the Company entered into an amended and extended credit agreement and term loan facility. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $300.0 million and extended the maturity date to June 8, 2023. On June 4, 2019, the Company utilized the accordion feature under the credit agreement to increase its credit borrowing capacity by $100.0 million, resulting in the available credit commitments increasing from $300.0 million to $400.0 million. The Company incurred $0.1 million in additional debt issuance costs in connection with the utilization of the accordion feature, which, in addition to the $0.8 million of remaining unamortized costs under the credit agreement, is being amortized over the remaining term of the credit agreement. There were no outstanding borrowings under the credit agreement at either March 31, 2021 or December 31, 2020.
Long-term Debt
The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption.
Total amortized cost of Long-term Debt outstanding at March 31, 2021 and December 31, 2020 was:

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Term Loan due July 5, 2023 |  | $ | — |  |  | $ | 49.9 |
5.000% Senior Notes due September 19, 2022 |  | 277.9 |  |  | 278.3 |
4.350% Senior Notes due February 15, 2025 |  | 448.9 |  |  | 448.8 |
2.400% Senior Notes due September 30, 2030 |  | 395.8 |  |  | 395.8 |
Total Long-term Debt Outstanding |  | $ | 1,122.6 |  |  | $ | 1,172.8 |

Term Loan Due 2023
On June 4, 2019, the Company entered into a delayed-draw term loan facility with a borrowing capacity of $50.0 million and a maturity date four years from the borrowing date (the “2023 Term Loan”). On July 5, 2019, the Company borrowed $49.9 million, net of debt issuance costs, under the 2023 Term Loan, with a final maturity date of July 5, 2023 (and a mutual option to extend the maturity date by one year). On March 16, 2021, the Company repaid all outstanding borrowings and accrued interest on the 2023 Term Loan in the amount of $50.0 million.
31

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 12 - Debt (continued)
5.000% Senior Notes Due 2022
The liabilities of Infinity Property and Casualty Corporation (“Infinity”) at the date of Infinity’s acquisition included $275.0 million principal amount, 5.000% Senior Notes due September 19, 2022 (the “2022 Senior Notes”). The 2022 Senior Notes were recorded at fair value as of the acquisition date, $282.1 million, with the $7.1 million premium being amortized as a reduction to interest expense over the remaining term, resulting in an effective interest rate of 4.36%. On November 30, 2018, Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 2022 Senior Notes.
4.350% Senior Notes Due 2025
Kemper has $450.0 million aggregate principal of 4.350% senior notes due February 15, 2025 (the “2025 Senior Notes”). Kemper initially issued $250.0 million of the notes in February of 2015 and issued an additional $200.0 million of the notes in June of 2017. The additional notes are fungible with the initial notes issued in 2015, and together are treated as part of a single series for all purposes under the indenture governing the 2025 Senior Notes. The 2025 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices.
2.400% Senior Notes Due 2030
Kemper has $400.0 million aggregate principal of 2.400% senior notes due September 30, 2030 (the “2030 Senior Notes”). The net proceeds of issuance were $395.8 million, net of discount and transaction costs for an effective yield of 2.52%. The 2030 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time, at Kemper’s option, at specified redemption prices.
Short-term Debt
Kemper’s subsidiaries, United Insurance, Trinity Universal Insurance Company (“Trinity”) and Alliance are members of the FHLBs of Chicago, Dallas and San Francisco, respectively. As a requirement of membership in the FHLBs, United Insurance, Trinity and Alliance maintain a certain level of investment in FHLB stock. The Company periodically uses short-term FHLB borrowings for a combination of cash management and risk management purposes, in addition to long-term FHLB borrowings for spread leading purposes. There were no short-term debt advances from the FHLBs of Chicago, Dallas or San Francisco outstanding at March 31, 2021 or December 31, 2020. For information on United Insurance’s funding agreement with the FHLB of Chicago in connection with the spread leading program, see Note 11, “Policyholder Obligations,” to the Condensed Consolidated Financial Statements.
Interest Expense and Interest Paid
Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $11.1 million for the three months ended March 31, 2021. Interest paid, including facility fees, was $21.7 million for the three months ended March 31, 2021. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $7.5 million for the three months ended March 31, 2020. Interest paid, including facility fees, was $17.1 million for the three months ended March 31, 2020.
Note 13 - Leases
The Company leases certain office space under non-cancelable operating leases, with initial terms typically ranging from one to fifteen years, along with options that permit renewals for additional periods. The Company also leases certain equipment under non-cancelable operating leases, with initial terms typically ranging from one to five years. Minimum rent is expensed on a straight-line basis over the term of the lease.
The following table presents operating lease right-of-use assets and lease liabilities.

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Operating Lease Right-of-Use Assets |  | $ | 66.5 |  |  | $ | 68.6 |
Operating Lease Liabilities |  | 87.6 |  |  | 89.6 |

32

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 13 - Leases (continued)
Lease expenses are primarily included in Insurance Expenses in the Condensed Consolidated Statement of Income. Additional information regarding the Company’s lease cost is presented below.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Lease Cost: |  |  |  |  |  |  |  |
Amortization of Right-of-Use Assets - Finance Leases |  | $ | 0.1 |  |  | $ | 0.1 |  |  |  |  |
Operating Lease Cost |  | 5.1 |  |  | 5.6 |  |  |  |  |
Short-Term Lease Cost (1) |  | 0.9 |  |  | — |  |  |  |  |
Total Lease Cost |  | $ | 6.1 |  |  | $ | 5.7 |  |  |  |  |

(1) - Leases with an initial term of twelve months or less are not recorded on the Condensed Consolidated Balance Sheets.
(2) - Sublease income consists of rent from third parties of office space and is recognized as part of other income in the Condensed Consolidated Statements of Income.
Other Information on Operating Leases
Supplemental cash flow information related to the Company’s operating and finance leases for the three months ended March 31, 2021 and 2020 is as follows:

|  | Three Months Ended
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020
Operating Cash Flows from Operating Lease (Fixed Payments) |  | $ | 5.4 |  |  | $ | 5.3 |
Operating Cash Flows from Operating Lease (Liability Reduction) |  | 4.6 |  |  | 4.7 |
Financing Cash Flows from Finance Leases |  | 0.1 |  |  | 0.1 |
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities |  | 2.3 |  |  | 11.3 |

Significant judgments and assumptions for determining lease asset and liability at March 31, 2021 and 2020 are presented below.

|  | Three Months Ended
|  | Mar 31, 2021 |  | Mar 31, 2020
Weighted-average Remaining Lease Term - Finance Leases |  | 0.5 years |  | 1.4 years
Weighted-average Remaining Lease Term - Operating Leases |  | 6.6 years |  | 7.0 years
Weighted-average Discount Rate - Finance Leases |  | 4.0 | % |  | 4.0 | %
Weighted-average Discount Rate - Operating Leases |  | 4.0 | % |  | 3.8 | %

Most of the Company’s leases do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of its lease payments.
33

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 13 - Leases (continued)
Future minimum lease payments under finance and operating leases at March 31, 2021 are presented below.

(Dollars in Millions) |  | Finance Leases |  | Operating Leases
Remainder of 2021 |  | $ | 0.1 |  |  | $ | 17.5 |
2022 |  | — |  |  | 22.0 |
2023 |  | — |  |  | 19.3 |
2024 |  | — |  |  | 13.9 |
2025 |  | — |  |  | 9.1 |
2026 and Thereafter |  | — |  |  | 24.2 |
Total Future Payments |  | $ | 0.1 |  |  | $ | 106.0 |
Less Imputed Interest |  | — |  |  | 18.4 |
Present Value of Minimum Lease Payments |  | $ | 0.1 |  |  | $ | 87.6 |

Note 14 - Income Taxes
The statute of limitations related to Kemper and its eligible subsidiaries’ consolidated Federal income tax returns is closed for all tax years up to and including 2011. As a result of the Company filing amended federal income tax returns, tax years 2012 and 2013 are under limited examination with respect to carryback adjustments associated with the amended returns. The statute of limitations related to tax years 2014, 2015, 2016 and 2017 has been extended to March 31, 2022. Tax years 2018 and 2019 are subject to a statute of three years from the extended due dates of October 15, 2019 and 2020, respectively.
The expiration of the statute of limitations related to the various state income tax returns that Kemper and its subsidiaries file varies by state.
There were no unrecognized tax benefits at March 31, 2021 or December 31, 2020. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Income taxes paid, net of refunds received, were $30.1 million for the three months ended March 31, 2021. Income taxes paid, net of refunds received, were less than $0.1 million for the three months ended March 31, 2020.
Note 15 - Contingencies
In the ordinary course of its businesses, the Company is involved in legal proceedings, including lawsuits, arbitrations, regulatory examinations, audits and inquiries. Except with regard to the matters discussed below, based on currently available information, the Company does not believe that it is reasonably possible that any of its pending legal proceedings will have a material effect on the Company’s consolidated financial statements.
Over the last decade there have been multiple initiatives that intend, in various ways, to impose new duties on life insurance companies to proactively search for information related to the deaths of their insureds. These initiatives, which include legislation, audits, regulatory examinations and litigation, seek to alter the terms of life insurance contracts by imposing requirements that did not exist and were not contemplated at the time the issuing companies entered into such contracts.
In 2016, the Company voluntarily began implementing a comprehensive process to compare the life insurance records of its life insurance subsidiaries against one or more death verification databases to determine if any of its insureds may be deceased; the process is continuing.
Attempts to estimate the ultimate outcomes of the aforementioned initiatives entail uncertainties including but not limited to the (i) scope and interpretation of pertinent statutes, including the matching criteria and methodologies to be used in comparing policy records against a death verification database, (ii) universe of policies affected, (iii) results of audits, examinations and other actions by regulators, (iv) results of the Company’s voluntary process, and (v) outcomes of any related litigation.
34

KEMPER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 16 - Related Parties
Mr. Christopher B. Sarofim, a director of Kemper, is Vice Chairman and a member of the board of directors of Fayez Sarofim & Co. (“FS&C”), a registered investment advisory firm. FS&C provided investment management services to the Pension Plan. As part of the Pension Plan’s partial settlement of the pension obligations in 2020, the Pension Plan disposed of all assets managed by FS&C. Accordingly, the agreement between the Pension Plan and FS&C was terminated effective January 31, 2021.
Note 17 - Subsequent Events
On April 1, 2021 Kemper completed the acquisition of American Access Casualty Company and its related captive insurance agency, Newins Insurance Agency Holdings, LLC, and its subsidiaries (collectively “AAC”). Pursuant to the agreement dated November 22, 2020, Kemper paid AAC’s equity holders total cash consideration of approximately $370.0 million.
AAC, headquartered in Downers Grove, Illinois, provides specialty private passenger auto insurance in Arizona, Illinois, Indiana, Nevada, and Texas. AAC wrote over $350.0 million of direct premiums in 2020 through a network of approximately 600 independent agents and over 110 captive agents.
35

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Summary of Results
Net Income was $123.2 million ($1.88 per unrestricted common share) for the three months ended March 31, 2021, compared to $64.0 million ($0.96 per unrestricted common share) for the same period in 2020.
Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company's results of operations. The Company incurred additional expenses associated with COVID-19 and related economic conditions. The Company’s investment results were also negatively impacted by the disruption in global financial markets. For further discussion regarding the potential impacts of COVID-19 and related economic conditions on the Company, see “Caution Regarding Forward-Looking Statements” beginning on page 1and Item 1A., Risk Factors, of Part II of this Quarterly Report on Form 10-Q.
A reconciliation of Net Income to Adjusted Consolidated Net Operating Income (a non-GAAP financial measure) for the three months ended March 31, 2021 and 2020 is presented below.

|  | Three Months Ended |  |
(Dollars in Millions and Net of Income Taxes) |  | Mar 31, 2021 |  | Mar 31, 2020 |  | Increase (Decrease) |  |  |  |  |  |
Net Income |  | $ | 123.2 |  |  | $ | 64.0 |  |  | $ | 59.2 |  |  |  |  |  |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | 41.2 |  |  | (93.1) |  |  | 134.3 |  |  |  |  |  |  |
Net Realized Gains on Sales of Investments |  | 10.9 |  |  | 13.0 |  |  | (2.1) |  |  |  |  |  |  |
Impairment Losses |  | (3.2) |  |  | (9.5) |  |  | 6.3 |  |  |  |  |  |  |
Acquisition Related Transaction, Integration and Other Costs |  | (12.9) |  |  | (9.3) |  |  | (3.6) |  |  |  |  |  |  |
Adjusted Consolidated Net Operating Income (Loss) |  | $ | 87.2 |  |  | $ | 162.9 |  |  | $ | (75.7) |  |  |  |  |  |  |
Components of Adjusted Consolidated Net Operating Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |
Segment Net Operating Income (Loss): |  |  |  |  |  |  |  |  |  |  |  |
Specialty Property & Casualty Insurance |  | $ | 80.1 |  |  | $ | 60.1 |  |  | $ | 20.0 |  |  |  |  |  |  |
Preferred Property & Casualty Insurance |  | 9.6 |  |  | 18.4 |  |  | (8.8) |  |  |  |  |  |  |
Life & Health Insurance |  | 7.3 |  |  | 22.3 |  |  | (15.0) |  |  |  |  |  |  |
Total Segment Net Operating Income (Loss) |  | 97.0 |  |  | 100.8 |  |  | (3.8) |  |  |  |  |  |  |
Corporate and Other Net Operating Income (Loss) From: |  |  |  |  |  |  |  |  |  |  |  |
Partial Satisfaction of Judgment |  | — |  |  | 70.6 |  |  | (70.6) |  |  |  |  |  |  |
Other |  | (9.8) |  |  | (8.5) |  |  | (1.3) |  |  |  |  |  |  |
Corporate and Other Net Operating Income (Loss) |  | (9.8) |  |  | 62.1 |  |  | (71.9) |  |  |  |  |  |  |
Adjusted Consolidated Net Operating Income |  | $ | 87.2 |  |  | $ | 162.9 |  |  | $ | (75.7) |  |  |  |  |  |  |

Net Income
Net Income increased by $59.2 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to income from change in fair value of equity and convertible securities, partially offset by lower Adjusted Consolidated Net Operating Income. Adjusted Consolidated Net Operating Income decreased by $75.7 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower Corporate and Other Net Operating Income, Life & Health Insurance Segment Net Operating Income, and Preferred Property & Casualty Insurance Segment Net Operating Income, partially offset by higher Specialty Property & Casualty Segment Insurance Net Operating Income. See MD&A, “Specialty Property & Casualty Insurance”, “Preferred Property & Casualty Insurance” and “Life & Health Insurance,” for discussion of each respective segment’s results. Corporate and Other Net Operating Income
36

Summary of Results (continued)
decreased due primarily to a gain recognized in 2020 for the satisfaction of the remaining balance of a final judgment received by the Company against CSC in connection with an arbitration award against Computer Sciences Corporation(the “CSC Judgment”). The Company’s investment results were favorable in 2021, compared to 2020, by a $134.3 million after-tax increase from the change in fair value of the equity and convertible securities and a $6.3 million after-tax decrease from impairment losses, partially offset by a $2.1 million after-tax decrease from net realized gains on sales of investments. See MD&A, “Investment Results,” for additional discussion.
Revenues
Earned Premiums were $1,200.8 million for the three months ended March 31, 2021, compared to $1,166.4 million for the same period in 2020, an increase of $34.4 million. Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $55.1 million for the three months ended March 31, 2021, compared to the same period in 2020. Earned Premiums in the Preferred Property & Casualty Insurance segments decreased by $18.7 million for the three months ended March 31, 2021, compared to the same period in 2020. See MD&A, “Specialty Property & Casualty Insurance” and “Preferred Property & Casualty Insurance”, for discussion of the changes in each segment’s earned premiums.
Net Investment Income increased by $17.5 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to an increase in return from Alternative Investments and higher levels of investments in fixed income securities, partially offset by lower yields on fixed income securities.
Loss from the change in value of Alternative Energy Partnership Investments was $15.4 million for the three months ended March 31, 2021.
Limited Liability Investments increased by $20.7 million due primarily to a recovery in value that deteriorated in the first half of 2020. Net Investment Income from Alternative Investments related to limited liability investments included in either Equity Securities at Fair Value or Equity Securities at Modified Cost increased by $0.7 million.
Other Income was $1.5 million for the three months ended March 31, 2021, compared to $90.3 million for the same period in 2020. Other Income for the three months ended March 31, 2020 included a gain of $89.4 million related to the satisfaction of the CSC Judgment.
Net Realized Gains on Sales of Investments were $13.8 million for the three months ended March 31, 2021, compared to $16.5 million for the same period in 2020.
Impairment Losses were $4.0 million for the three months ended March 31, 2021, compared to $12.0 million for the same period in 2020.
See MD&A, “Investment Results,” under the sub-captions “Net Realized Gains on Sales of Investments” and “Impairment Losses” for additional discussion. The Company cannot predict if or when similar investment gains or losses may occur in the future.
Non-GAAP Financial Measures
Underlying Losses and LAE and Underlying Combined Ratio
The following discussion of segment results uses the non-GAAP financial measures of (i) Underlying Losses and LAE and (ii) Underlying Combined Ratio. Underlying Losses and LAE (also referred to in the discussion as “Current Year Non-catastrophe Losses and LAE”) exclude the impact of catastrophe losses and loss and LAE reserve development from prior years from the Company’s Incurred Losses and LAE, which is the most directly comparable GAAP financial measure.
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
37

Non-GAAP Financial Measures (continued)
significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on incurred losses and LAE and the Combined Ratio. Prior-year reserve developments are caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses from earlier periods, it has no bearing
on the performance of the Company’s insurance products in the current period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company’s underwriting performance.
Adjusted Consolidated Net Operating Income
Adjusted Consolidated Net Operating Income is an after-tax, non-GAAP financial measure and is computed by excluding from Income from Continuing Operations the after-tax impact of:
(i) Income (Loss) from Change in Fair Value of Equity and Convertible Securities;
(ii) Net Realized Gains on Sales of Investments;
(iii) Impairment Losses;
(iv) Acquisition Related Transaction, Integration and Other Costs;
(v) Debt Extinguishment, Pension and Other Charges; and
(vi) Significant non-recurring or infrequent items that may not be indicative of ongoing operations
Significant non-recurring items are excluded when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, and (b) there has been no similar charge or gain within the prior two years. The most directly comparable GAAP financial measure is Income from Continuing Operations. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating Income for the three months ended March 31, 2021 or 2020.
The Company believes that Adjusted Consolidated Net Operating Income provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded. Income (Loss) from Change in Fair Value of Equity and Convertible Securities, Net Realized Gains on Sales of Investments and Impairment Losses related to investments included in the Company’s results may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions that impact the values of the Company’s investments, the timing of which is unrelated to the insurance underwriting process. Acquisition Related Transaction and Integration Costs may vary significantly between periods and are generally driven by the timing of acquisitions and business decisions which are unrelated to the insurance underwriting process. Debt Extinguishment, Pension and Other Charges relate to (i) loss from early extinguishment of debt, which is driven by the Company’s financing and refinancing decisions and capital needs, as well as external economic developments such as debt market conditions, the timing of which is unrelated to the insurance underwriting process; (ii) settlement of pension plan obligations which are business decisions are made by the Company, the timing of which is unrelated to the underwriting process; and (iii) other charges that are non-standard, not part of the ordinary course of business, and unrelated to the
insurance underwriting process. Significant non-recurring items are excluded because, by their nature, they are not indicative of the Company’s business or economic trends. The preceding non-GAAP financial measures should not be considered a substitute for the comparable GAAP financial measures, as they do not fully recognize the overall profitability of the Company’s businesses.
38

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

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 972.0 |  |  | $ | 911.2 |  |  |  |  |
Earned Premiums |  | $ | 877.6 |  |  | $ | 822.5 |  |  |  |  |
Net Investment Income |  | 35.0 |  |  | 28.8 |  |  |  |  |
Change in Value of Alternative Energy Partnership Investments |  | (7.3) |  |  | — |  |  |  |  |
Other Income |  | 0.9 |  |  | 0.9 |  |  |  |  |
Total Revenues |  | 906.2 |  |  | 852.2 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 650.0 |  |  | 619.8 |  |  |  |  |
Catastrophe Losses and LAE |  | 1.7 |  |  | 0.2 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | (1.4) |  |  | 5.3 |  |  |  |  |
Catastrophe Losses and LAE |  | 0.4 |  |  | 0.2 |  |  |  |  |
Total Incurred Losses and LAE |  | 650.7 |  |  | 625.5 |  |  |  |  |
Insurance Expenses |  | 170.3 |  |  | 152.1 |  |  |  |  |
Other Expenses |  | — |  |  | (0.4) |  |  |  |  |
Operating Income (Loss) |  | 85.2 |  |  | 75.0 |  |  |  |  |
Income Tax Benefit (Expense) |  | (5.1) |  |  | (14.9) |  |  |  |  |
Segment Net Operating Income (Loss) |  | $ | 80.1 |  |  | $ | 60.1 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 74.1 | % |  | 75.4 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 0.2 |  |  | — |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | (0.2) |  |  | 0.6 |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | — |  |  | — |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 74.1 |  |  | 76.0 |  |  |  |  |
Insurance Expense Ratio |  | 19.4 |  |  | 18.5 |  |  |  |  |
Combined Ratio |  | 93.5 | % |  | 94.5 | % |  |  |  |
Underlying Combined Ratio |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 74.1 | % |  | 75.4 | % |  |  |  |
Insurance Expense Ratio |  | 19.4 |  |  | 18.5 |  |  |  |  |
Underlying Combined Ratio |  | 93.5 | % |  | 93.9 | % |  |  |  |
Non-GAAP Measure Reconciliation |  |  |  |  |  |  |  |
Combined Ratio |  | 93.5 | % |  | 94.5 | % |  |  |  |
Less: |  |  |  |  |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 0.2 |  |  | — |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | (0.2) |  |  | 0.6 |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | — |  |  | — |  |  |  |  |
Underlying Combined Ratio |  | 93.5 | % |  | 93.9 | % |  |  |  |

39

Specialty Property & Casualty Insurance (continued)
Insurance Reserves

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Insurance Reserves: |  |  |  |
Non-Standard Automobile |  | $ | 1,304.7 |  |  | $ | 1,308.3 |
Commercial Automobile |  | 257.2 |  |  | 236.5 |
Insurance Reserves |  | $ | 1,561.9 |  |  | $ | 1,544.8 |
Insurance Reserves: |  |  |  |
Loss and Allocated LAE Reserves: |  |  |  |
Case and Allocated LAE |  | $ | 799.7 |  |  | $ | 744.6 |
Incurred But Not Reported |  | 614.1 |  |  | 653.6 |
Total Loss and LAE Reserves |  | 1,413.8 |  |  | 1,398.2 |
Unallocated LAE Reserves |  | 148.1 |  |  | 146.6 |
Insurance Reserves |  | $ | 1,561.9 |  |  | $ | 1,544.8 |

See MD&A, “Critical Accounting Estimates,” of the 2020 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, 2021 Compared to the Same Period in 2020
The Specialty Property & Casualty Insurance segment reported Segment Net Operating Income of $80.1 million for the three months ended March 31, 2021, compared to $60.1 million for the same period in 2020. Segment Net Operating Income increased by $20.0 million due primarily to an improvement in underlying losses and LAE as a percentage of earned premiums, favorable loss reserve development, and higher net investment income, partially offset by the impact of higher insurance expense and loss from change in value of Alternative Energy Partnership Investments. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development.
Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $55.1 million for the three months ended March 31, 2021, compared to the same period in 2020, driven primarily by higher volume. Both of the segment’s product lines had higher volume, driving the period over period earned premiums growth.
Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $6.2 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to a higher return on Alternative Investments and a higher level of investments, partially offset by lower yields on fixed income securities.
Loss related to Alternative Energy Partnership Investments was $7.3 million for the three months ended March 31, 2021.
Underlying losses and LAE as a percentage of earned premiums were 74.1% in 2021, an improvement of 1.3 percentage points, compared to 2020, due primarily to improvements in claim frequency. Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Favorable loss and LAE reserve development (including catastrophe reserve development) was $1.0 million in 2021, compared to adverse development of $5.5 million in 2020. Catastrophe losses and LAE (excluding reserve development) were $1.7 million in 2021, compared to $0.2 million in 2020, a deterioration of $1.5 million.
40

Specialty Property & Casualty Insurance (continued)
Insurance Expenses were $170.3 million, or 19.4% of earned premiums, in 2021, a deterioration of 0.9 percentage points compared to 2020.
The Specialty Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to investment tax credits, tax-exempt investment income and dividends received deductions.
Specialty Personal Automobile Insurance
Selected financial information for the specialty personal automobile insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 861.5 |  |  | $ | 830.3 |  |  |  |  |
Earned Premiums |  | $ | 785.4 |  |  | $ | 753.2 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | $ | 586.4 |  |  | $ | 576.0 |  |  |  |  |
Catastrophe Losses and LAE |  | 1.6 |  |  | 0.2 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | (4.4) |  |  | 17.8 |  |  |  |  |
Catastrophe Losses and LAE |  | 0.4 |  |  | 0.2 |  |  |  |  |
Total Incurred Losses and LAE |  | $ | 584.0 |  |  | $ | 594.2 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 74.7 | % |  | 76.5 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 0.2 |  |  | — |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | (0.6) |  |  | 2.4 |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | 0.1 |  |  | — |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 74.4 | % |  | 78.9 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums from specialty personal automobile insurance increased by $32.2 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to higher volume. Incurred losses and LAE were $584.0 million, or 74.4% of earned premiums in 2021, compared to $594.2 million, or 78.9% of earned premiums, in 2020. Incurred losses and LAE as a percentage of earned premiums improved due primarily to an improvement in underlying losses and LAE as a percentage of earned premiums and less adverse loss reserve development. Underlying losses and LAE as a percentage of related earned premiums were 74.7% in 2021, compared to 76.5% in 2020, an improvement of 1.8% points due primarily to improvements in claim frequency. Favorable loss and LAE reserve development was $4.0 million in 2021, compared to adverse development of $18.0 million in 2020. Catastrophe losses and LAE (excluding reserve development) were $1.6 million in 2021, compared to $0.2 million in 2020.
41

Specialty Property & Casualty Insurance (continued)
Commercial Automobile Insurance
Selected financial information for the commercial automobile insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 110.5 |  |  | $ | 80.9 |  |  |  |  |
Earned Premiums |  | $ | 92.2 |  |  | $ | 69.3 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | $ | 63.6 |  |  | $ | 43.8 |  |  |  |  |
Catastrophe Losses and LAE |  | 0.1 |  |  | — |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 3.0 |  |  | (12.5) |  |  |  |  |
Catastrophe Losses and LAE |  | — |  |  | — |  |  |  |  |
Total Incurred Losses and LAE |  | $ | 66.7 |  |  | $ | 31.3 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 68.9 | % |  | 63.2 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 0.1 |  |  | — |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 3.3 |  |  | (18.0) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | — |  |  | — |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 72.3 | % |  | 45.2 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums from commercial automobile insurance increased by $22.9 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to higher volume. Incurred losses and LAE were $66.7 million, or 72.3% of earned premiums in 2021, compared to $31.3 million, or 45.2% of earned premiums in 2020. Incurred losses and LAE as a percentage of earned premiums increased due primarily to a deterioration in underlying losses and LAE as a percentage of earned premiums as well as adverse loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums were 68.9% in 2021, compared to 63.2% in 2020, a deterioration of 5.7 percentage points due primarily to higher claim frequency. Adverse loss and LAE reserve development was $3.0 million in 2021, compared to favorable reserve development of $12.5 million in 2020.
42

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

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 154.4 |  |  | $ | 164.1 |  |  |  |  |
Earned Premiums |  | $ | 162.2 |  |  | $ | 180.9 |  |  |  |  |
Net Investment Income |  | 15.9 |  |  | 9.7 |  |  |  |  |
Changes in Value of Alternative Energy Partnership Investments |  | (4.1) |  |  | — |  |  |  |  |
Other Income |  | — |  |  | — |  |  |  |  |
Total Revenues |  | 174.0 |  |  | 190.6 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 96.2 |  |  | 108.5 |  |  |  |  |
Catastrophe Losses and LAE |  | 24.0 |  |  | 4.8 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 0.1 |  |  | (3.3) |  |  |  |  |
Catastrophe Losses and LAE |  | (0.3) |  |  | (1.1) |  |  |  |  |
Total Incurred Losses and LAE |  | 120.0 |  |  | 108.9 |  |  |  |  |
Insurance Expenses |  | 51.0 |  |  | 58.7 |  |  |  |  |
Operating Income (Loss) |  | 3.0 |  |  | 23.0 |  |  |  |  |
Income Tax Benefit (Expense) |  | 6.6 |  |  | (4.6) |  |  |  |  |
Segment Net Operating Income (Loss) |  | $ | 9.6 |  |  | $ | 18.4 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 59.3 | % |  | 59.9 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 14.8 |  |  | 2.7 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 0.1 |  |  | (1.8) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | (0.2) |  |  | (0.6) |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 74.0 |  |  | 60.2 |  |  |  |  |
Insurance Expense Ratio |  | 31.4 |  |  | 32.4 |  |  |  |  |
Combined Ratio |  | 105.4 | % |  | 92.6 | % |  |  |  |
Underlying Combined Ratio |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 59.3 | % |  | 59.9 | % |  |  |  |
Insurance Expense Ratio |  | 31.4 |  |  | 32.4 |  |  |  |  |
Underlying Combined Ratio |  | 90.7 | % |  | 92.3 | % |  |  |  |
Non-GAAP Measure Reconciliation |  |  |  |  |  |  |  |
Combined Ratio |  | 105.4 | % |  | 92.6 | % |  |  |  |
Less: |  |  |  |  |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 14.8 |  |  | 2.7 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 0.1 |  |  | (1.8) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | (0.2) |  |  | (0.6) |  |  |  |  |
Underlying Combined Ratio |  | 90.7 | % |  | 92.3 | % |  |  |  |

43

Preferred Property & Casualty Insurance (continued)
Catastrophe Frequency and Severity

|  | Three Months Ended
|  | Mar 31, 2021 |  | Mar 31, 2020
(Dollars in Millions) |  | Number of Events |  | Losses and LAE |  | Number of Events |  | Losses and LAE
Range of Losses and LAE Per Event: |  |  |  |  |  |  |  |
Below $5 |  | 11 |  |  | $ | 8.9 |  |  | 7 |  |  | $ | 4.8 |
$5 - $10 |  | — |  |  | — |  |  | — |  |  | — |
$10 - $15 |  | — |  |  | — |  |  | — |  |  | — |
$15 - $20 |  | 1 |  |  | 15.1 |  |  | — |  |  | — |
$20 - $25 |  | — |  |  | — |  |  | — |  |  | — |
Greater Than $25 |  | — |  |  | — |  |  | — |  |  | — |
Total |  | 12 |  |  | $ | 24.0 |  |  | 7 |  |  | $ | 4.8 |

Insurance Reserves

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Insurance Reserves: |  |  |  |
Preferred Automobile |  | $ | 275.9 |  |  | $ | 281.3 |
Homeowners |  | 107.6 |  |  | 104.0 |
Other |  | 30.7 |  |  | 26.3 |
Insurance Reserves |  | $ | 414.2 |  |  | $ | 411.6 |
Insurance Reserves: |  |  |  |
Loss and Allocated LAE Reserves: |  |  |  |
Case and Allocated LAE |  | $ | 282.0 |  |  | $ | 262.2 |
Incurred But Not Reported |  | 105.6 |  |  | 122.0 |
Total Loss and LAE Reserves |  | 387.6 |  |  | 384.2 |
Unallocated LAE Reserves |  | 26.6 |  |  | 27.4 |
Insurance Reserves |  | $ | 414.2 |  |  | $ | 411.6 |

See MD&A, “Critical Accounting Estimates,” of the 2020 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, 2021 Compared to the Same Period in 2020
The Preferred Property & Casualty Insurance segment reported Segment Net Operating Income of $9.6 million for the three months ended March 31, 2021, compared to Segment Net Operating Income of $18.4 million for the same period in 2020. Segment Net Operating Income decreased by $8.8 million due primarily to higher catastrophe losses and LAE (excluding loss reserve development) and the impact of adverse loss and LAE reserve development, partially offset by an improvement in underlying losses and LAE as a percentage of earned premiums and higher net investment income.
Earned Premiums in the Preferred Property & Casualty Insurance segment decreased by $18.7 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower volume. All lines experienced an overall decline in volume, although the overall impact was driven primarily by preferred personal automobile insurance.
44

Preferred Property & Casualty Insurance (continued)
Net Investment Income in the Preferred Property & Casualty Insurance segment increased by $6.2 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to a higher return on Alternative Investments, partially offset by lower yields on fixed income securities.
Loss related to Alternative Energy Partnership Investments was $4.1 million for the three months ended March 31, 2021.
Underlying losses and LAE as a percentage of earned premiums were 59.3% in 2021, an improvement of 0.6 percentage points, compared to 2020. Catastrophe losses and LAE (excluding reserve development) were $24.0 million in 2021, compared to $4.8 million in 2020, an increase of $19.2 million. Catastrophe losses and LAE (excluding reserve development) increased due primarily to an increase in both frequency and severity of catastrophic events in 2021, compared to 2020. There was one catastrophic event above $15 million in 2021, compared to no catastrophic events above $15 million in 2020. Favorable loss and LAE reserve development (including catastrophe reserve development) was $0.2 million in 2021, compared to favorable development of $4.4 million in 2020.
Insurance expenses were $51.0 million, or 31.4% of earned premiums in 2021, an improvement of 1.0% percentage points compared to 2020.
The Preferred Property & Casualty Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to investment tax credits, tax-exempt investment income and dividends received deductions.
Preferred Personal Automobile Insurance
Selected financial information for the preferred personal automobile insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 100.4 |  |  | $ | 105.9 |  |  |  |  |
Earned Premiums |  | $ | 103.0 |  |  | $ | 114.9 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | $ | 67.8 |  |  | $ | 75.9 |  |  |  |  |
Catastrophe Losses and LAE |  | 0.6 |  |  | 0.2 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 1.2 |  |  | 2.2 |  |  |  |  |
Catastrophe Losses and LAE |  | 0.1 |  |  | (0.1) |  |  |  |  |
Total Incurred Losses and LAE |  | $ | 69.7 |  |  | $ | 78.2 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 65.8 | % |  | 66.1 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 0.6 |  |  | 0.2 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 1.2 |  |  | 1.9 |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | 0.1 |  |  | (0.1) |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 67.7 | % |  | 68.1 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums on preferred automobile insurance decreased by $11.9 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower volume. Incurred losses and LAE were $69.7 million, or 67.7% of earned premiums, in 2021, compared to $78.2 million, or 68.1% of earned premiums, in 2020. Incurred losses and LAE as a percentage of earned premiums increased due primarily to a deterioration in the underlying loss and LAE ratio, partially offset by less adverse change in loss and LAE reserve development. Underlying losses and LAE as a percentage of earned premiums
45

Preferred Property & Casualty Insurance (continued)
were 65.8% in 2021, compared to 66.1% in 2020, an improvement of 0.3 percentage points. Adverse loss and LAE reserve development (including catastrophe loss reserve development) was $1.3 million in 2021, compared to adverse development of $2.1 million in 2020. Catastrophe losses and LAE (excluding reserve development) were $0.6 million in 2021, compared to $0.2 million in 2020.
Homeowners Insurance
Selected financial information for the homeowners insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 46.1 |  |  | $ | 49.9 |  |  |  |  |
Earned Premiums |  | $ | 50.8 |  |  | $ | 56.8 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | $ | 24.2 |  |  | $ | 28.7 |  |  |  |  |
Catastrophe Losses and LAE |  | 22.0 |  |  | 4.5 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | (2.5) |  |  | (4.3) |  |  |  |  |
Catastrophe Losses and LAE |  | (0.1) |  |  | (0.7) |  |  |  |  |
Total Incurred Losses and LAE |  | $ | 43.6 |  |  | $ | 28.2 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 47.6 | % |  | 50.5 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 43.3 |  |  | 7.9 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | (4.9) |  |  | (7.6) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | (0.2) |  |  | (1.2) |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 85.8 | % |  | 49.6 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums in homeowners insurance decreased by $6.0 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower volume. Incurred losses and LAE were $43.6 million, or 85.8% of earned premiums, in 2021, compared to $28.2 million, or 49.6% of earned premiums, in 2020. Incurred losses and LAE as a percentage of earned premiums increased due primarily to higher incurred catastrophe losses (excluding loss reserve development) and lower favorable catastrophe loss 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 47.6% in 2021, compared to 50.5% in 2020, an improvement of 2.9 percentage points. Catastrophe losses and LAE (excluding reserve development) were $22.0 million in 2021, compared to $4.5 million in 2020. Favorable loss and LAE reserve development (including catastrophe loss reserve development) was $2.6 million in 2021, compared to $5.0 million in 2020.
46

Preferred Property & Casualty Insurance (continued)
Other Personal Insurance
Other personal insurance products include umbrella, dwelling fire, inland marine, earthquake, boat owners and other liability coverages. Selected financial information for other personal insurance product lines follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Net Premiums Written |  | $ | 7.9 |  |  | $ | 8.3 |  |  |  |  |
Earned Premiums |  | $ | 8.4 |  |  | $ | 9.2 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | $ | 4.2 |  |  | $ | 3.9 |  |  |  |  |
Catastrophe Losses and LAE |  | 1.4 |  |  | 0.1 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 1.4 |  |  | (1.2) |  |  |  |  |
Catastrophe Losses and LAE |  | (0.3) |  |  | (0.3) |  |  |  |  |
Total Incurred Losses and LAE |  | $ | 6.7 |  |  | $ | 2.5 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 50.0 | % |  | 42.4 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 16.7 |  |  | 1.1 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 16.7 |  |  | (13.0) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | (3.6) |  |  | (3.3) |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 79.8 | % |  | 27.2 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums on other personal insurance decreased by $0.8 million for the three months ended March 31, 2021, compared to the same period in 2020. Incurred losses and LAE were $6.7 million, or 79.8% of earned premiums, in 2021, compared to $2.5 million, or 27.2% of earned premiums, in 2020. Underlying losses and LAE as a percentage of earned premiums were 50.0% in 2021, compared to 42.4% in 2020, an deterioration of 7.6 percentage points. Catastrophe losses and LAE (excluding loss reserve development) were $1.4 million in 2021, compared to $0.1 million in 2020. Adverse loss and LAE reserve development (including catastrophe losses development) was $1.1 million in 2021, compared to favorable development of $1.5 million in 2020.
47

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

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Earned Premiums |  | $ | 161.0 |  |  | $ | 163.0 |  |  |  |  |
Net Investment Income |  | 51.1 |  |  | 51.0 |  |  |  |  |
Changes in Value of Alternative Energy Partnership Investments |  | (4.0) |  |  | — |  |  |  |  |
Other Income |  | 0.1 |  |  | 0.1 |  |  |  |  |
Total Revenues |  | 208.2 |  |  | 214.1 |  |  |  |  |
Policyholders’ Benefits and Incurred Losses and LAE |  | 118.7 |  |  | 100.7 |  |  |  |  |
Insurance Expenses |  | 90.3 |  |  | 86.9 |  |  |  |  |
Operating Income (Loss) |  | (0.8) |  |  | 26.5 |  |  |  |  |
Income Tax Benefit (Expense) |  | 8.1 |  |  | (4.2) |  |  |  |  |
Segment Net Operating Income (Loss) |  | $ | 7.3 |  |  | $ | 22.3 |  |  |  |  |

Insurance Reserves

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Insurance Reserves: |  |  |  |
Future Policyholder Benefits |  | $ | 3,448.0 |  |  | $ | 3,440.5 |
Incurred Losses and LAE Reserves: |  |  |  |
Life |  | 68.1 |  |  | 61.1 |
Accident and Health |  | 25.5 |  |  | 25.9 |
Property |  | 5.4 |  |  | 4.6 |
Total Incurred Losses and LAE Reserves |  | 99.0 |  |  | 91.6 |
Insurance Reserves |  | $ | 3,547.0 |  |  | $ | 3,532.1 |

Use of Death Verification Databases
In the third quarter of 2016, the Company’s Life & Health segment voluntarily began implementing a comprehensive process under which it cross-references its life insurance policies against the Death Master File maintained by the Social Security Administration and other death verification databases to identify potential situations where the beneficiaries may not have filed a claim following the death of an insured and initiate an outreach process to identify and contact beneficiaries and settle claims. Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses for the year ended December 31, 2016 included a pre-tax charge of $77.8 million to recognize the initial impact of using death verification databases in the Company’s operations, including to determine its IBNR liability for unpaid claims and claims adjustment expenses for life insurance products. Subsequently, the Company has reduced its estimate of the initial impact of using death verification databases by $30.3 million, of which $4.5 million and $4.8 million was recognized during the first and second quarters of 2020, respectively, and $15.0 million and $6.0 million was recognized during the third and fourth quarters of 2019, respectively.
Overall
Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned Premiums in the Life & Health Insurance segment decreased by $2.0 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower volume on accident and health insurance products and property insurance sold, partially offset by higher persistency on life insurance products.
Net Investment Income increased by $0.1 million in 2021, compared to 2020, due primarily to a higher return on Alternative Investments and higher levels of investments in Fixed Income securities, partially offset by lower yields on fixed income securities.
48

Life & Health Insurance (continued)
Loss related to Alternative Energy Partnership Investments was $4.0 million for the three months ended March 31, 2021.
Policyholders’ Benefits and Incurred Losses and LAE increased by $18.0 million in 2021, compared to 2020, due primarily to higher mortality for life insurance claims related to COVID-19, the impact of reducing the Company’s estimate of the ultimate cost of using death verification databases in the Company’s operations in 2020, and higher property insurance
catastrophe losses. This was partially offset by lower frequency of accident and health insurance claims primarily due to COVID-19.
Insurance Expenses in the Life & Health Insurance segment increased by $3.4 million in 2021, compared to 2020, due primarily to investments made to modernize and strengthen the distribution channel and enhance the capabilities of the business, partially offset by lower amortization of commission-related expenses due primarily to higher persistency on life insurance products.
Segment Net Operating Income in the Life & Health Insurance segment was $7.3 million for the three months ended March 31, 2021, compared to $22.3 million in 2020.
The Life & Health Insurance segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to investment tax credits, tax-exempt investment income and dividends received deductions.
Life Insurance
Selected financial information for the life insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Earned Premiums |  | $ | 98.1 |  |  | $ | 97.2 |  |  |  |  |
Net Investment Income |  | 49.6 |  |  | 48.7 |  |  |  |  |
Changes in Value of Alternative Energy Partnership Investments |  | (3.8) |  |  | — |  |  |  |  |
Total Revenues |  | 143.9 |  |  | 145.9 |  |  |  |  |
Policyholders’ Benefits and Incurred Losses and LAE |  | 87.9 |  |  | 68.1 |  |  |  |  |
Insurance Expenses |  | 58.0 |  |  | 60.3 |  |  |  |  |
Operating Income (Loss) |  | (2.0) |  |  | 17.5 |  |  |  |  |
Income Tax Benefit (Expense) |  | 8.0 |  |  | (2.3) |  |  |  |  |
Total Product Line Net Operating Income (Loss) |  | $ | 6.0 |  |  | $ | 15.2 |  |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned premiums from life insurance increased by $0.9 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to higher persistency. Policyholders’ Benefits and Incurred Losses and LAE on life insurance were $87.9 million in 2021, compared to $68.1 million in 2020. The increase of $19.8 million is due primarily to higher mortality for life insurance claims related to COVID-19 and the impact of reducing the Company’s estimate of the ultimate cost of using death verification databases in the Company’s operations in 2020.
Insurance Expenses decreased by $2.3 million in 2021, compared to 2020, due primarily to lower amortization of commission-related expenses primarily due to higher persistency, partially offset by investments made to modernize and strengthen the distribution channel and enhance the capabilities of the business.
49

Life & Health Insurance (continued)
Accident and Health Insurance
Selected financial information for the accident and health insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Earned Premiums |  | $ | 47.4 |  |  | $ | 49.4 |  |  |  |  |
Net Investment Income |  | 1.0 |  |  | 2.0 |  |  |  |  |
Changes in Value of Alternative Energy Partnership Investments |  | (0.1) |  |  | — |  |  |  |  |
Other Income |  | 0.1 |  |  | 0.1 |  |  |  |  |
Total Revenues |  | 48.4 |  |  | 51.5 |  |  |  |  |
Policyholders’ Benefits and Incurred Losses and LAE |  | 24.5 |  |  | 28.1 |  |  |  |  |
Insurance Expenses |  | 24.4 |  |  | 20.1 |  |  |  |  |
Operating Income (Loss) |  | (0.5) |  |  | 3.3 |  |  |  |  |
Income Tax Expense (Benefit) |  | 0.2 |  |  | (0.7) |  |  |  |  |
Total Product Line Net Operating Income (Loss) |  | $ | (0.3) |  |  | $ | 2.6 |  |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned premiums from accident and health insurance decreased by $2.0 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to lower volume on accident and health insurance products. Incurred accident and health insurance losses were $24.5 million, or 51.7% of accident and health insurance earned premiums in 2021, compared to $28.1 million, or 56.9% of accident and health insurance earned premiums, in 2020, a decrease of 5.2 percentage points, due primarily to lower frequency of claims primarily due to COVID-19. Insurance Expenses increased by $4.3 million in 2021, compared to 2020, due primarily to investments made to enhance the capabilities of the business.
50

Life & Health Insurance (continued)
Property Insurance
Selected financial information for the property insurance product line follows.

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Earned Premiums |  | $ | 15.5 |  |  | $ | 16.4 |  |  |  |  |
Net Investment Income |  | 0.5 |  |  | 0.3 |  |  |  |  |
Changes in Value of Alternative Energy Partnership Investments |  | (0.1) |  |  | — |  |  |  |  |
Total Revenues |  | 15.9 |  |  | 16.7 |  |  |  |  |
Incurred Losses and LAE related to: |  |  |  |  |  |  |  |
Current Year: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 3.2 |  |  | 4.0 |  |  |  |  |
Catastrophe Losses and LAE |  | 1.9 |  |  | 0.8 |  |  |  |  |
Prior Years: |  |  |  |  |  |  |  |
Non-catastrophe Losses and LAE |  | 0.7 |  |  | (0.4) |  |  |  |  |
Catastrophe Losses and LAE |  | 0.5 |  |  | 0.1 |  |  |  |  |
Total Incurred Losses and LAE |  | 6.3 |  |  | 4.5 |  |  |  |  |
Insurance Expenses |  | 7.9 |  |  | 6.5 |  |  |  |  |
Operating Income (Loss) |  | 1.7 |  |  | 5.7 |  |  |  |  |
Income Tax Benefit (Expense) |  | (0.1) |  |  | (1.2) |  |  |  |  |
Total Product Line Net Operating Income (Loss) |  | $ | 1.6 |  |  | $ | 4.5 |  |  |  |  |
Ratios Based On Earned Premiums |  |  |  |  |  |  |  |
Current Year Non-catastrophe Losses and LAE Ratio |  | 20.6 | % |  | 24.3 | % |  |  |  |
Current Year Catastrophe Losses and LAE Ratio |  | 12.3 |  |  | 4.9 |  |  |  |  |
Prior Years Non-catastrophe Losses and LAE Ratio |  | 4.5 |  |  | (2.4) |  |  |  |  |
Prior Years Catastrophe Losses and LAE Ratio |  | 3.2 |  |  | 0.6 |  |  |  |  |
Total Incurred Loss and LAE Ratio |  | 40.6 | % |  | 27.4 | % |  |  |  |

Three Months Ended March 31, 2021 Compared to the Same Period in 2020
Earned premiums from property insurance decreased by $0.9 million for the three months ended March 31, 2021, compared to the same period in 2020, due primarily to a lower volume of insurance sold. Incurred losses and LAE on property insurance were $6.3 million, or 40.6% of earned premiums, in 2021, compared to $4.5 million, or 27.4% of earned premiums in 2020. Underlying losses and LAE were $3.2 million, or 20.6% of earned premiums in 2021, compared to $4.0 million, or 24.3% of earned premiums in 2020, a decrease of 3.7 percentage points due primarily to lower claim frequency. Catastrophe losses and LAE (excluding loss reserve development) were $1.9 million in 2021, compared to $0.8 million in 2020. Catastrophe losses and LAE increased $1.1 million due primarily to a higher frequency of catastrophe claims. Adverse loss and LAE reserve development was $1.2 million in 2021, compared to favorable development of $0.3 million in 2020. Insurance expenses increased $1.4 million in 2021, compared to 2020.
51

Investment Results
Net Investment Income
Net Investment Income for the three months ended March 31, 2021 and 2020 was:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Investment Income: |  |  |  |  |  |  |  |
Interest on Fixed Income Securities |  | $ | 69.0 |  |  | $ | 71.0 |  |  |  |  |
Dividends on Equity Securities Excluding Alternative Investments |  | 2.1 |  |  | 4.3 |  |  |  |  |
Alternative Investments: |  |  |  |  |  |  |  |
Equity Method Limited Liability Investments |  | 22.5 |  |  | 1.8 |  |  |  |  |
Limited Liability Investments Included in Equity Securities |  | 4.5 |  |  | 3.8 |  |  |  |  |
Total Alternative Investments |  | 27.0 |  |  | 5.6 |  |  |  |  |
Short-term Investments |  | 1.2 |  |  | 1.6 |  |  |  |  |
Loans to Policyholders |  | 5.5 |  |  | 5.6 |  |  |  |  |
Real Estate |  | 2.4 |  |  | 2.5 |  |  |  |  |
Other |  | 4.7 |  |  | 4.2 |  |  |  |  |
Total Investment Income |  | 111.9 |  |  | 94.8 |  |  |  |  |
Investment Expenses: |  |  |  |  |  |  |  |
Real Estate |  | 2.1 |  |  | 2.6 |  |  |  |  |
Other Investment Expenses |  | 6.7 |  |  | 6.6 |  |  |  |  |
Total Investment Expenses |  | 8.8 |  |  | 9.2 |  |  |  |  |
Net Investment Income |  | $ | 103.1 |  |  | $ | 85.6 |  |  |  |  |

Net Investment Income was $103.1 million and $85.6 million for the three months ended March 31, 2021 and 2020, respectively. Net Investment Income increased by $17.5 million in 2021 due primarily to significant increases in income from Equity Method Limited Liability Investments offset by lower yields on fixed income securities and lower dividends on Equity Securities.
Total Comprehensive Investment Gains (Losses)
The components of Total Comprehensive Investment Gains (Losses) for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Recognized in Condensed Consolidated Statements of Income: |  |  |  |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | $ | 52.2 |  |  | $ | (117.8) |  |  |  |  |
Gains on Sales |  | 14.9 |  |  | 17.8 |  |  |  |  |
Losses on Sales |  | (1.1) |  |  | (1.3) |  |  |  |  |
Impairment Losses |  | (4.0) |  |  | (12.0) |  |  |  |  |
Net Gains (Losses) Recognized in Condensed Consolidated Statements of Income |  | 62.0 |  |  | (113.3) |  |  |  |  |
Recognized in Other Comprehensive Income (Loss) |  | (366.1) |  |  | (204.8) |  |  |  |  |
Total Comprehensive Investment Gains (Losses) |  | $ | (304.1) |  |  | $ | (318.1) |  |  |  |  |

52

Investment Results (continued)
Income (Loss) from Change in Fair Value of Equity and Convertible Securities
The components of Income (Loss) from Change in Fair Value of Equity and Convertible Securities for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Preferred Stocks |  | $ | 0.5 |  |  | $ | (7.9) |  |  |  |  |
Common Stocks |  | 0.4 |  |  | (10.3) |  |  |  |  |
Other Equity Interests: |  |  |  |  |  |  |  |
Exchange Traded Funds |  | 25.9 |  |  | (95.0) |  |  |  |  |
Limited Liability Companies and Limited Partnerships |  | 23.2 |  |  | 0.4 |  |  |  |  |
Total Other Equity Interests |  | 49.1 |  |  | (94.6) |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity Securities |  | 50.0 |  |  | (112.8) |  |  |  |  |
Income (Loss) from Change in Fair Value of Convertible Securities |  | 2.2 |  |  | (5.0) |  |  |  |  |
Income (Loss) from Change in Fair Value of Equity and Convertible Securities |  | $ | 52.2 |  |  | $ | (117.8) |  |  |  |  |

Net Realized Gains on Sales of Investments
The components of Net Realized Gains on Sales of Investments for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Fixed Maturities: |  |  |  |  |  |  |  |
Gains on Sales |  | $ | 13.2 |  |  | $ | 15.9 |  |  |  |  |
Losses on Sales |  | (1.1) |  |  | (1.1) |  |  |  |  |
Equity Securities: |  |  |  |  |  |  |  |
Gains on Sales |  | 1.7 |  |  | 1.3 |  |  |  |  |
Losses on Sales |  | — |  |  | (0.2) |  |  |  |  |
Real Estate: |  |  |  |  |  |  |  |
Gains on Sales |  | — |  |  | 0.6 |  |  |  |  |
Net Realized Gains on Sales of Investments |  | $ | 13.8 |  |  | $ | 16.5 |  |  |  |  |
Gross Gains on Sales |  | $ | 14.9 |  |  | $ | 17.8 |  |  |  |  |
Gross Losses on Sales |  | (1.1) |  |  | (1.3) |  |  |  |  |
Net Realized Gains on Sales of Investments |  | $ | 13.8 |  |  | $ | 16.5 |  |  |  |  |

53

Investment Results (continued)
Impairment Losses
The Company regularly reviews its investment portfolio for factors that may indicate that a decline in the fair value of an investment has occurred from credit loss or other factors (non-credit related). Losses arising from declines in fair values are reported in the Condensed Consolidated Statements of Income in the period that the declines are evaluated. The components of Impairment Losses in the Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
|  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
(Dollars in Millions) |  | Amount |  | Number of Issuers |  | Amount |  | Number of Issuers |  |  |  |  |  |  |  |
Fixed Maturities |  | $ | (3.2) |  |  | 6 |  |  | $ | (10.0) |  |  | 15 |  |  |  |  |  |  |  |  |
Equity Securities |  | (0.8) |  |  | 1 |  |  | (2.0) |  |  | 4 |  |  |  |  |  |  |  |  |
Impairment Losses |  | $ | (4.0) |  |  |  |  | $ | (12.0) |  |  |  |  |  |  |  |  |  |  |

Investment Quality and Concentrations
The Company’s fixed maturity investment portfolio is comprised primarily of high-grade municipal, corporate and agency bonds. At March 31, 2021, 94% of the Company’s fixed maturity investment portfolio was rated investment-grade, which the Company defines as a security issued by a high quality obligor with at least a relatively stable credit profile and where it is highly likely that all contractual payments of principal and interest will timely occur and carry a rating from the National Association of Insurance Commissioners (“NAIC”) of 1 or 2. Securities with a rating of 1 or 2 from the NAIC typically are rated by one of more Nationally Recognized Statistical Rating Organizations and either have a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”); a rating of Aaa, Aa, A or Baa from Moody’s Investors Service (“Moody’s”); or a rating of AAA, AA, A or BBB from Fitch Ratings.
The following table summarizes the credit quality of the Company’s fixed maturity investment portfolio at March 31, 2021 and December 31, 2020:

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
NAIC Rating |  | Rating |  | Fair Value |  | Percentage |  | Fair Value |  | Percentage
1 |  | AAA, AA, A |  | $ | 4,742.9 |  |  | 63.3 | % |  | $ | 4,759.9 |  |  | 62.6 | %
2 |  | BBB |  | 2,286.7 |  |  | 30.6 |  |  | 2,355.6 |  |  | 31.0 |
3-4 |  | BB, B |  | 318.3 |  |  | 4.3 |  |  | 353.1 |  |  | 4.6 |
5-6 |  | CCC or Lower |  | 131.5 |  |  | 1.8 |  |  | 137.3 |  |  | 1.8 |
Total Investments in Fixed Maturities |  | $ | 7,479.4 |  |  | 100.0 | % |  | $ | 7,605.9 |  |  | 100.0 | %

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $15.4 million and $23.7 million at March 31, 2021 and December 31, 2020, respectively.
54

Investment Quality and Concentrations (continued)
The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at March 31, 2021 and December 31, 2020:

|  | Mar 31, 2021 |  | Dec 31, 2020
(Dollars in Millions) |  | Fair Value |  | Percentage of Total Investments |  | Fair Value |  | Percentage of Total Investments
U.S. Government and Government Agencies and Authorities |  | $ | 532.4 |  |  | 5.4 | % |  | $ | 585.3 |  |  | 5.6 | %
States and Political Subdivisions: |  |  |  |  |  |  |  |
Revenue Bonds |  | 1,294.7 |  |  | 13.2 |  |  | 1,153.3 |  |  | 11.1 |
States |  | 268.7 |  |  | 2.7 |  |  | 333.5 |  |  | 3.2 |
Political Subdivisions |  | 104.5 |  |  | 1.1 |  |  | 102.6 |  |  | 1.0 |
Foreign Governments |  | 4.8 |  |  | — |  |  | 5.2 |  |  | — |
Total Investments in Governmental Fixed Maturities |  | $ | 2,205.1 |  |  | 22.4 | % |  | $ | 2,179.9 |  |  | 20.9 | %

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by industry at March 31, 2021 and December 31, 2020.

|  | Mar 31, 2021 |  | Dec 31, 2020
(Dollars in Millions) |  | Fair Value |  | Percentage of Total Investments |  | Fair Value |  | Percentage of Total Investments
Finance, Insurance and Real Estate |  | $ | 1,911.7 |  |  | 19.5 | % |  | $ | 1,916.3 |  |  | 18.4 | %
Manufacturing |  | 1,575.3 |  |  | 16.0 |  |  | 1,633.5 |  |  | 15.7 |
Transportation, Communication and Utilities |  | 775.5 |  |  | 7.9 |  |  | 825.5 |  |  | 7.9 |
Services |  | 552.5 |  |  | 5.6 |  |  | 581.3 |  |  | 5.6 |
Mining |  | 270.4 |  |  | 2.8 |  |  | 285.7 |  |  | 2.7 |
Retail Trade |  | 176.6 |  |  | 1.8 |  |  | 172.6 |  |  | 1.7 |
Wholesale Trade |  | 0.5 |  |  | — |  |  | 0.5 |  |  | — |
Other |  | 11.8 |  |  | 0.1 |  |  | 10.5 |  |  | 0.1 |
Total Investments in Non-governmental Fixed Maturities |  | $ | 5,274.3 |  |  | 53.7 | % |  | $ | 5,425.9 |  |  | 52.1 | %

The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amount invested at March 31, 2021.

(Dollars in Millions) |  | Number of Issuers |  | Aggregate Fair Value
Below $5 |  | 542 |  |  | $ | 1,206.1 |
$5 -$10 |  | 204 |  |  | 1,416.8 |
$10 - $20 |  | 137 |  |  | 1,802.2 |
$20 - $30 |  | 27 |  |  | 643.9 |
Greater Than $30 |  | 6 |  |  | 205.3 |
Total |  | 916 |  |  | $ | 5,274.3 |

55

Investment Quality and Concentrations (continued)
The Company’s short-term investments primarily consist of U.S. treasury bills, money market funds and overnight interest-bearing accounts. At March 31, 2021, the Company had $26.3 million invested in U.S. treasury bills and short-term bonds, $166.5 million invested in money market funds which primarily invest in U.S. Treasury securities and $4.1 million invested in overnight interest-bearing accounts with one of the Company’s custodial banks.
The following table summarizes the fair value of the Company’s ten largest investment exposures, excluding investments in U.S. Government and Government Agencies and Authorities and Short-term Investments, at March 31, 2021:

(Dollars in Millions) |  | Fair Value |  | Percentage of Total Investments
Fixed Maturities: |  |  |  |
States including their Political Subdivisions: |  |  |  |
Texas |  | $ | 136.1 |  |  | 1.4 | %
California |  | 85.1 |  |  | 0.9 |
New York |  | 83.5 |  |  | 0.9 |
Colorado |  | 83.1 |  |  | 0.8 |
Michigan |  | 75.5 |  |  | 0.8 |
Georgia |  | 71.9 |  |  | 0.7 |
Louisiana |  | 69.2 |  |  | 0.7 |
Pennsylvania |  | 65.5 |  |  | 0.7 |
Equity Securities at Fair Value—Other Equity Interests: |  |  |  |
Vanguard Total World Stock ETF |  | 205.4 |  |  | 2.1 |
iShares® Core MSCI Total International Stock ETF |  | 79.8 |  |  | 0.8 |
Total |  | $ | 955.1 |  |  | 9.8 | %

56

Investment Quality and Concentrations (continued)
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, 2021 and December 31, 2020 is presented below.

|  | Unfunded Commitment in Millions |  | Reported Value |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2021 |  | Dec 31, 2020 |  |
Reported as Equity Method Limited Liability Investments: |  |  |  |  |  |  |  |
Mezzanine Debt |  | $ | 58.8 |  |  | $ | 105.9 |  |  | $ | 102.5 |  |  |
Senior Debt |  | 22.9 |  |  | 32.9 |  |  | 28.6 |  |  |
Distressed Debt |  | — |  |  | 19.4 |  |  | 14.5 |  |  |
Secondary Transactions |  | 12.8 |  |  | 12.4 |  |  | 11.2 |  |  |
Leveraged Buyout |  | 0.1 |  |  | 3.8 |  |  | 3.5 |  |  |
Growth Equity |  | — |  |  | 0.7 |  |  | 0.7 |  |  |
Real Estate |  | — |  |  | 31.5 |  |  | 29.9 |  |  |
Other |  | — |  |  | 12.6 |  |  | 13.1 |  |  |
Total Equity Method Limited Liability Investments |  | 94.6 |  |  | 219.2 |  |  | 204.0 |  |  |
Alternative Energy Partnership Investments |  | 31.5 |  |  | 54.4 |  |  | 21.3 |  |  |
Reported as Other Equity Interests at Fair Value: |  |  |  |  |  |  |  |
Mezzanine Debt |  | 69.6 |  |  | 125.8 |  |  | 118.3 |  |  |
Senior Debt |  | 18.4 |  |  | 30.0 |  |  | 33.9 |  |  |
Distressed Debt |  | 22.0 |  |  | 34.5 |  |  | 31.8 |  |  |
Secondary Transactions |  | 6.2 |  |  | 4.0 |  |  | 4.2 |  |  |
Hedge Funds |  | — |  |  | 78.7 |  |  | 71.6 |  |  |
Leveraged Buyout |  | 7.0 |  |  | 33.8 |  |  | 30.7 |  |  |
Other |  | 0.9 |  |  | 2.2 |  |  | 1.5 |  |  |
Total Reported as Other Equity Interests at Fair Value |  | 124.1 |  |  | 309.0 |  |  | 292.0 |  |  |
Reported as Equity Securities at Modified Cost: |  |  |  |  |  |  |  |
Mezzanine Debt |  | — |  |  | — |  |  | — |  |  |
Other |  | 0.2 |  |  | 11.6 |  |  | 15.7 |  |  |
Total Reported as Equity Securities at Modified Cost |  | 0.2 |  |  | 11.6 |  |  | 15.7 |  |  |
Total Investments in Limited Liability Companies and Limited Partnerships |  | $ | 250.4 |  |  | $ | 594.2 |  |  | $ | 533.0 |  |  |

The Company expects that it will be required to fund its commitments over the next several years.
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Expenses
Expenses for the three months ended March 31, 2021 and 2020 were:

|  | Three Months Ended |  |
(Dollars in Millions) |  | Mar 31, 2021 |  | Mar 31, 2020 |  |  |  |
Insurance Expenses: |  |  |  |  |  |  |  |
Commissions |  | $ | 195.2 |  |  | $ | 188.8 |  |  |  |  |
General Expenses |  | 84.6 |  |  | 70.5 |  |  |  |  |
Taxes, Licenses and Fees |  | 25.4 |  |  | 24.8 |  |  |  |  |
Total Costs Incurred |  | 305.2 |  |  | 284.1 |  |  |  |  |
Policy Acquisition Costs: |  |  |  |  |  |  |  |
Deferred |  | (181.8) |  |  | (175.4) |  |  |  |  |
Amortized |  | 159.4 |  |  | 161.6 |  |  |  |  |
Net Policy Acquisition Costs Amortized (Deferred) |  | (22.4) |  |  | (13.8) |  |  |  |  |
Amortization of Value of Business Acquired (“VOBA”) |  | 0.9 |  |  | 1.3 |  |  |  |  |
Insurance Expenses |  | 283.7 |  |  | 271.6 |  |  |  |  |
Interest and Other Expenses: |  |  |  |  |  |  |  |
Interest Expense |  | 11.1 |  |  | 7.5 |  |  |  |  |
Other Expenses: |  |  |  |  |  |  |  |
Acquisition Related Transaction, Integration and Other Costs |  | 16.3 |  |  | 11.8 |  |  |  |  |
Other |  | 29.8 |  |  | 25.2 |  |  |  |  |
Other Expenses |  | 46.1 |  |  | 37.0 |  |  |  |  |
Interest and Other Expenses |  | 57.2 |  |  | 44.5 |  |  |  |  |
Total Expenses |  | $ | 340.9 |  |  | $ | 316.1 |  |  |  |  |

Insurance Expenses
Insurance Expenses were $283.7 million for the three months ended March 31, 2021, compared to $271.6 million for the same period in 2020. Insurance Expenses increased by $12.1 million in 2021 due primarily to growth in business.
Interest and Other Expenses
Interest and Other Expenses was $57.2 million for the three months ended March 31, 2021, compared to $44.5 million for the same period in 2020. Interest expense increased by $3.6 million in 2021 due primarily to the addition of the 2030 Senior Notes in 2020. Other expenses increased by $9.1 million in 2021.
Income Taxes
The federal corporate statutory income tax rate was 21% for the three months ended March 31, 2021 and March 31, 2020. 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 COLI, (3) Alternative Energy Partnership Investment tax credits, (4) a permanent difference between the amount of long-term equity-based compensation expense recognized under GAAP and the amount deductible in the computation of Federal taxable income, and (5) a permanent difference associated with nondeductible executive compensation.
Tax-exempt investment income and dividends received deductions collectively were $5.0 million for the three months ended March 31, 2021, compared to $6.2 million for the same period in 2020.
The nontaxable increase in cash surrender value on COLI was $4.6 million for the three months ended March 31, 2021, compared to $3.4 million for the same period in 2020.
The Company realized net investment tax credits of $25.4 million for the three months ended March 31, 2021. No investment tax credits were realized for the same period in 2020.
The amount of expense recognized for long-term equity-based compensation expense under GAAP was $1.5 million lower than the amount that would be deductible under the Internal Revenue Code (the “IRC”) for the three months ended March 31, 2021, compared to $6.7 million lower for the same period in 2020.
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Income Taxes (continued)
The amount of nondeductible executive compensation was $3.5 million for the three months ended March 31, 2021, compared to $3.8 million for the same period in 2020.
Recently Issued Accounting Pronouncements
The Company has adopted all other recently issued accounting pronouncements with effective dates prior to January 1, 2021. There were no adoptions of such accounting pronouncements during the three months ended March 31, 2021 that had a material impact on the Company’s Condensed Consolidated Financial Statements. See Note 1, “Basis of Presentation and Accounting Policies,” to the Condensed Consolidated Financial Statements for additional discussion of recently adopted accounting pronouncements.
Liquidity and Capital Resources
Amended and Extended Credit Agreement and Term Loan Facility
On June 8, 2018, the Company entered into an amended and extended credit agreement and term loan facility. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $300.0 million and extended the maturity date to June 8, 2023. On June 4, 2019, the Company utilized the accordion feature under the credit agreement to increase its credit borrowing capacity by $100.0 million, resulting in the available credit commitments increasing from $300.0 million to $400.0 million.
Long-term Debt
The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption. Total amortized cost of Long-term Debt outstanding at March 31, 2021 and December 31, 2020 was:

(Dollars in Millions) |  | Mar 31, 2021 |  | Dec 31, 2020
Term Loan due July 5, 2023 |  | $ | — |  |  | $ | 49.9 |
5.000% Senior Notes due September 19, 2022 |  | 277.9 |  |  | 278.3 |
4.350% Senior Notes due February 15, 2025 |  | 448.9 |  |  | 448.8 |
2.400% Senior Notes due September 30, 2030 |  | 395.8 |  |  | 395.8 |
Total Long-term Debt Outstanding |  | $ | 1,122.6 |  |  | $ | 1,172.8 |

Term Loan Due 2023
On June 4, 2019, the Company entered into a delayed-draw term loan facility with a borrowing capacity of $50.0 million and a maturity date four years from the borrowing date (the “2023 Term Loan”). On July 5, 2019, the Company borrowed $49.9 million, net of debt issuance costs, under the 2023 Term Loan, with a final maturity date of July 5, 2023 (and a mutual option to extend the maturity date by one year). On March 16, 2021, the Company repaid all outstanding borrowings and accrued interest on the 2023 Term Loan in the amount of $50.0 million.
5.000% Senior Notes Due 2022
Infinity’s liabilities at the acquisition date included $275.0 million principal amount, 5.000% Senior Notes due September 19, 2022 (the “2022 Senior Notes”). The 2022 Senior Notes were recorded at fair value as of the acquisition date, $282.1 million, with the $7.1 million premium being amortized as a reduction to interest expense over the remaining term, resulting in an effective interest rate of 4.36%. On November 30, 2018, Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 2022 Senior Notes.
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Liquidity and Capital Resources (continued)
4.350% Senior Notes Due 2025
Kemper has $450.0 million aggregate principal of 4.350% senior notes due February 15, 2025 (the “2025 Senior Notes”) outstanding as of March 31, 2021. Kemper initially issued $250.0 million of the notes in February of 2015 and issued an additional $200 million of the notes in June of 2017. The additional notes are fungible with the initial notes issued in 2015, and together are treated as part of a single series for all purposes under the indenture governing the 2025 Senior Notes. The 2025 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices.
2.400% Senior Notes Due 2030
On September 22, 2020, Kemper offered and sold $400.0 million aggregate principal of 2.400% senior notes due September 30, 2030 (the “2030 Senior Notes”). The net proceeds of issuance were $395.8 million, net of discount and transaction costs for an effective yield of 2.52%. The 2030 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices. Kemper is using the net proceeds from the issuance for general corporate purposes.
Federal Home Loan Bank Agreements
Kemper’s subsidiaries, United Insurance, Trinity and Alliance are members of the FHLB of Chicago, Dallas and San Francisco, respectively. Alliance became a member of the FHLB of San Francisco in August 2020. United Insurance and Trinity became members of the FHLBs of Chicago and Dallas, respectively, in 2013. Under their memberships, United, Trinity and Alliance may borrow through the advance program of their respective FHLB. As a requirement of membership in the FHLB, United Insurance, Trinity and Alliance must maintain certain levels of investment in FHLB common stock and additional amounts based on the level of outstanding borrowings. The Company’s investments in FHLB common stock are reported at cost and included in Equity Securities at Modified Cost. The carrying value of FHLB of Chicago common stock was $11.8 million at March 31, 2021 and December 31, 2020, respectively. The carrying value of FHLB of Dallas common stock was $3.4 million at March 31, 2021 and December 31, 2020, respectively. The carrying value of FHLB of San Francisco common stock was $1.7 million at March 31, 2021 and December 31, 2020, 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 2021, United Insurance received advances of $60.5 million from the FHLB of Chicago and made repayments of $60.8 million. United Insurance had outstanding advances from the FHLB of Chicago totaling $407.5 million at March 31, 2021. These advances were made in connection with the Company’s spread lending program. The proceeds related to these advances were used to purchase fixed maturity securities to earn incremental net investment income.
With respect to these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $510.5 million at March 31, 2021. 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 4, “Policyholder Obligations,” to the Condensed Consolidated Financial Statements for additional information about the United Insurance advances and related funding agreements.
Common Stock Repurchases
During the three months ended March 31, 2021, Kemper repurchased and retired approximately 590,000 shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $47.1 million and average cost per share of $79.36.
On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of up to an additional $200 million of Kemper common stock, in addition to the $243.7 million remaining under the previous authorization. The Company repurchased approximately $110.4 million and $47.1 million in 2020 and 2021, respectively, so that, as of March 31, 2021, the remaining share repurchase authorization was $286.2 million under the repurchase program. The amount and timing of any future share repurchases under the authorization will depend on a variety of factors, including market conditions, the Company’s financial condition, results of operations, available liquidity, particular circumstances and other considerations.
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Liquidity and Capital Resources (continued)
Dividends to Shareholders
Kemper paid a quarterly dividend to shareholders of $0.31 per common share in the first quarter of 2021. Cash dividends paid were $21.0 million for the three months ended March 31, 2021.
Subsidiary Dividends and Capital Contributions
Various state insurance laws restrict the ability of Kemper’s insurance subsidiaries to pay dividends without regulatory approval. Such insurance laws generally restrict the amount of dividends paid in an annual period to the greater of statutory net income from the previous year or 10% of statutory capital and surplus. Kemper’s direct insurance subsidiaries collectively paid $115.0 million in dividends to Kemper during the first three months of 2021. Kemper estimates that its direct insurance subsidiaries would be able to pay approximately $296.1 million in additional dividends to Kemper during the remainder of 2021 without prior regulatory approval.
Sources and Uses of Funds
Kemper and its direct non-insurance subsidiaries directly held cash and investments totaling $607.1 million at March 31, 2021, compared to $733.2 million at December 31, 2020.
The primary sources of funds available for repayment of Kemper’s indebtedness, repurchases of common stock, future shareholder dividend payments and the payment of interest on Kemper’s senior notes and term loan, include cash and investments directly held by Kemper, receipt of dividends from Kemper’s insurance subsidiaries and borrowings under the credit agreement and from subsidiaries.
The primary sources of funds for Kemper’s insurance subsidiaries are premiums, investment income, proceeds from the sales and maturity of investments, advances from the FHLBs of Chicago, Dallas and San Francisco, and capital contributions from Kemper. The primary uses of funds are the payment of policyholder benefits under life insurance contracts, claims under property and casualty insurance contracts and accident and health insurance contracts, the payment of commissions and general expenses, the purchase of investments and repayments of advances from the FHLBs of Chicago, Dallas and San Francisco.
Generally, there is a time lag between when premiums are collected and when policyholder benefits and insurance claims are paid. During periods of growth, property and casualty insurance companies typically experience positive operating cash flows and are able to invest a portion of their operating cash flows to fund future policyholder benefits and claims. During periods in which premium revenues decline, insurance companies may experience negative cash flows from operations and may need to 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 have to be sold in advance of their maturity dates to fund payments, which could result in either investment gains or losses. Management believes that its property and casualty insurance subsidiaries maintain adequate levels of liquidity in the event that they were to experience several future catastrophic events over a relatively short period of time.
Net Cash Provided by Operating Activities was $140.6 million for the three months ended March 31, 2021, compared to $62.3 million for the same period in 2020.
Net Cash Used by Financing Activities was $111.0 million for the three months ended March 31, 2021, compared to net cash provided of $8.2 million for the same period in 2020. Repayments of long-term debt used $50.0 million of cash for the three months ended March 31, 2021. Policyholder Obligations used $0.8 million of cash for the three months ended March 31, 2021, compared to net cash provided of $120.4 million for the same period of 2020. Cash of $42.1 million for the three months ended March 31, 2021 was used to repurchase common stock, compared to $95.9 million used for the same period of 2020. Kemper used $21.0 million of cash to pay dividends for the three months ended March 31, 2021, compared to $20.0 million of cash used to pay dividends in the same period of 2020. The quarterly dividend rate was $0.31 per common share for the third quarter of 2021, compared to $0.30 per common share in the same period of 2020.
Cash available for investment activities in total is dependent on cash flow from Operating Activities and Financing Activities and the level of cash the Company elects to maintain. Net Cash Provided by Investing Activities was $311.7 million for the three months ended March 31, 2021, compared to $94.0 million for the same period in 2020. Short-term investing activities provided $677.4 million of cash for the three months ended March 31, 2021, compared to cash provided of $301.8 million for
61

Liquidity and Capital Resources (continued)
the same period in 2020. Fixed Maturities investing activities used cash of $212.0 million for the three months ended March 31, 2021, compared to $168.4 million for the same period in 2020. Investing activities associated with Equity Securities provided cash of $28.3 million for the three months ended March 31, 2021, compared to net cash used of $76.9 million for the same period in 2020. The Company used $100.0 million of cash to purchase corporate-owned life insurance during each of the three months ended March 31, 2021 and 2020. Net cash used for the acquisition and development of software and long-lived assets was $9.2 million for the three months ended March 31, 2021, compared to $20.1 million for the same period in 2020.
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 assessment of recoverability of goodwill and the valuation of pension benefit obligations. The Company’s critical accounting policies are described in the MD&A included in the 2020 Annual Report. There have been no material changes to the information disclosed in the 2020 Annual Report with respect to these critical accounting estimates and the Company’s critical accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company’s disclosures about market risk in Item 7, “Quantitative and Qualitative Disclosures About Market Risk of Part II of the 2020 Annual Report. Accordingly, no disclosures about market risk have been made in Item 3 of this Form 10-Q.
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures.
The Company’s management, with the participation of Kemper’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, Kemper’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by Kemper in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and accumulated and communicated to the Company’s management, including Kemper’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in internal control over financial reporting.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Items not listed here have been omitted because they are inapplicable or the answer is negative.
Item 1. Legal Proceedings
Information concerning pending legal proceedings is incorporated herein by reference to Note 15, “Contingencies,” to the Condensed Consolidated Financial Statements in Part I of this Form 10-Q.
Item 1A. Risk Factors
For a discussion of the Company’s significant risk factors, see Item 1A. of Part I of the 2020 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 2020 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 2020 Annual Report and on page 1 of this Quarterly Report on Form 10-Q, and to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As of January 1, 2021,the Company had $333.3 million of remaining shares authorized under the repurchase program. During the three months ended March 31, 2021, Kemper repurchased and retired approximately 590,000 shares of its common stock in open market transactions under its share repurchase authorization for an aggregate cost of $47.1 million and average cost per share of $79.36. As of March 31, 2021, the remaining share repurchase authorization was $286.2 million under the repurchase program.
Shares purchased during 2021 were as follows:

|  |  |  |  |  | Total |  | Maximum
|  |  |  |  |  | Number of Shares |  | Dollar Value of Shares
|  |  |  | Average |  | Purchased as Part |  | that May Yet Be
|  | Total |  | Price |  | of Publicly |  | Purchased Under
|  | Number of Shares |  | Paid per |  | Announced Plans |  | the Plans or Programs
Period |  | Purchased |  | Share |  | or Programs |  | (Dollars in Millions)
January 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 333.3 |
February 2021 |  | 138,868 |  |  | $ | 75.40 |  |  | 138,868 |  |  | $ | 322.8 |
March 2021 |  | 455,179 |  |  | $ | 80.57 |  |  | 455,179 |  |  | $ | 286.2 |

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Item 6. Exhibits
The Exhibit Index that follows has been filed as part of this report. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.
Exhibit Index
The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers followed by an asterisk (*) indicate exhibits that are management contracts or compensatory plans or arrangements.

|  |  |  | Incorporated by Reference |  |
Exhibit Number |  | Exhibit Description |  | Form |  | File Number |  | Exhibit |  | Filing Date |  | Filed or Furnished Herewith
31.1 |  | Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a) |  |  |  |  |  |  |  |  |  | X
31.2 |  | Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a) |  |  |  |  |  |  |  |  |  | X
32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
101.1 |  | XBRL Instance Document |  |  |  |  |  |  |  |  |  | X
101.2 |  | XBRL Taxonomy Extension Schema Document |  |  |  |  |  |  |  |  |  | X
101.3 |  | XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.4 |  | XBRL Taxonomy Extension Label Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.5 |  | XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  |  |  |  |  | X
101.6 |  | XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |  |  |  |  |  |  | X
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  |  |  |  |  |  |  |  |  | X

64

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

|  | Kemper Corporation
Date: | April 29, 2021 | /S/ JOSEPH P. LACHER, JR.
|  | Joseph P. Lacher, Jr.
|  | President and Chief Executive Officer (Principal Executive Officer)
Date: | April 29, 2021 | /S/ JAMES J. MCKINNEY
|  | James J. McKinney
|  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: | April 29, 2021 | /S/ ANASTASIOS OMIRIDIS
|  | Anastasios Omiridis
|  | Senior Vice President and Deputy Chief Financial Officer (Principal Accounting Officer)

65