Schedule 2 - Parent Company Financial Statements

12 Months Ended

Dec. 31, 2022

Condensed Financial Information Disclosure [Abstract]

Parent Company Financial Statements

KEMPER CORPORATION

PARENT COMPANY BALANCE SHEETS

(Dollars in Millions)

	December 31,
	2022		2021
ASSETS
Investments in Subsidiaries	$	3,621.6	$	4,729.1
Fixed Maturities at Fair Value (Amortized Cost: 2022 – $122.5; 2021 - $0.3)	120.0		0.4
Equity Securities at Fair Value (Cost: 2022 - $39.3; 2021 - $106.8)	24.1		107.4
Short-term Investments	67.7		96.9
Cash	66.3		27.7
Other Receivables	5.6		2.3
Current Income Taxes	12.0		—
Right-of-Use Assets	12.2		12.8
Other Assets	35.6		18.9
Total Assets	$	3,965.1	$	4,995.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Senior Notes Payable, 4.350% due 2025 (Fair Value: 2022 – $438.5; 2021 – $481.4)	$	449.3	$	449.0
Senior Notes Payable, 2.400% due 2030 (Fair Value: 2022 – $310.3; 2021 – $387.8)	396.6		396.2
Senior Notes Payable, 3.800% due 2032 (Fair Value: 2022 - $336.2; 2021 - $0.0)	395.5		—
Fixed-Rate Reset Junior Subordinated Debentures, 5.875% due 2062 (Fair Value: 2022 - $110.1; 2021 - $0.0)	145.5		—
Current Income Tax Liability	—		18.5
Deferred Income Tax Liability	49.1		46.5
Liabilities for Benefit Plans	35.4		42.3
Right-of-Use Liabilities	24.4		25.8
Accrued Expenses and Other Liabilities	26.1		9.5
Total Liabilities	1,521.9		987.8
Shareholders’ Equity:
Common Stock	6.4		6.4
Additional Paid-in Capital	1,812.7		1,790.7
Retained Earnings	1,380.1		1,762.5
Accumulated Other Comprehensive (Loss) Income	(756.0)		448.1
Total Shareholders’ Equity	2,443.2		4,007.7
Total Liabilities and Shareholders’ Equity	$	3,965.1	$	4,995.5

See Accompanying Report of Independent Registered Public Accounting Firm.

KEMPER CORPORATION

PARENT COMPANY STATEMENTS OF (LOSS) INCOME

(Dollars in Millions)

	For the Year Ended December 31,
	2022		2021		2020
Net Investment Income	$	16.6	$	3.4	$	1.4
(Loss) Income from Change in Fair Value of Equity Securities	(14.8)		10.0		4.3
Net Realized Investment Gains	3.0		10.6		0.1
Impairment Losses	(0.2)		—		—
Other Income	1.1		—		—
Total Revenues	5.7		24.0		5.8
Interest Expense	52.6		32.0		24.2
Pension Settlement Expense	—		—		64.1
Other Operating Expenses (Benefits)	6.6		5.9		(3.6)
Total Operating Expenses	59.2		37.9		84.7
Loss before Income Taxes and Equity in Net (Loss) Income of Subsidiaries	(53.5)		(13.9)		(78.9)
Income Tax Benefit (Expense)	14.0		(0.6)		13.4
Loss before Equity in Net Loss of Subsidiaries	(39.5)		(14.5)		(65.5)
Equity in Net (Loss) Income of Subsidiaries	(261.7)		(106.0)		475.4
Net (Loss) Income	$	(301.2)	$	(120.5)	$	409.9

See Accompanying Report of Independent Registered Public Accounting Firm.

KEMPER CORPORATION

PARENT COMPANY STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in Millions)

	For the Year Ended December 31,
	2022		2021		2020
Net (Loss) Income	$	(301.2)	$	(120.5)	$	409.9
Other Comprehensive (Loss) Income:
Changes in Net Unrealized (Losses) Gains on Investment Securities:
Having No Credit Losses Recognized in Consolidated Statements of (Loss) Income:
Securities Held by Subsidiaries	(1,535.7)		(230.4)		378.7
Securities Held by Parent	(2.6)		—		8.0
Having Credit Losses Recognized in Consolidated Statements of (Loss) Income:
Securities Held by Subsidiaries	1.9		(2.0)		(2.6)
Reclassification Adjustment for Amounts Included in Net (Loss) Income:
Securities Held by Subsidiaries	(12.8)		(43.5)		(16.6)
Securities Held by Parent	—		(10.6)		(0.1)
Unrecognized Postretirement Benefit Costs Arising During the Year:
Securities Held by Subsidiaries	1.1		0.6		—
Securities Held by Parent	18.2		(9.5)		3.6
Reclassification Adjustments for Amounts Included in Net (Loss) Income:
Pension Settlement Cost Recognized	—		—		64.1
Amortization of Unrecognized Postretirement Benefit Costs	(0.4)		0.1		2.5
Gains on Cash Flow Hedge	5.9		0.5		0.4
Other Comprehensive (Loss) Income before Income Taxes	(1,524.4)		(294.8)		438.0
Income Tax Benefit (Expense):
Changes in Net Unrealized (Losses) Gains on Investment Securities:
Having No Credit Losses Recognized in Consolidated Statements of (Loss) Income:
Securities Held by Subsidiaries	322.7		48.4		(80.6)
Securities Held by Parent	0.5		—		(1.7)
Having Credit Losses Recognized in Consolidated Statements of (Loss) Income:
Securities Held by Subsidiaries	(0.4)		0.4		0.5
Reclassification Adjustment for Amounts Included in Net (Loss) Income:
Securities Held by Subsidiaries	2.7		9.1		3.5
Securities Held by Parent	—		2.2		—
Unrecognized Postretirement Benefit Costs Arising During the Year:
Securities Held by Subsidiaries	(0.2)		(0.1)		—
Securities Held by Parent	(3.9)		2.5		(1.3)
Reclassification Adjustments for Amounts Included in Net (Loss) Income:
Pension Settlement Cost Recognized	—		—		(13.5)
Amortization of Unrecognized Postretirement Benefit Costs	0.1		—		(0.5)
Changes in Gain on Cash Flow Hedges	(1.2)		(0.1)		—
Income Tax Benefit (Expense)	320.3		62.4		(93.6)
Other Comprehensive (Loss) Income	(1,204.1)		(232.4)		344.4
Total Comprehensive (Loss) Income	$	(1,505.3)	$	(352.9)	$	754.3

See Accompanying Report of Independent Registered Public Accounting Firm.

KEMPER CORPORATION

PARENT COMPANY STATEMENTS OF CASH FLOWS

(Dollars in Millions)

	For the Year Ended December 31,
	2022		2021		2020
Operating Activities:
Net (Loss) Income	$	(301.2)	$	(120.5)	$	409.9
Adjustment Required to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operations:
Equity in Net Loss (Income) of Subsidiaries	261.7		106.0		(475.4)
Cash Dividends from Subsidiaries	25.3		170.3		216.2
Net Realized Investment Gains	(3.0)		(10.6)		(0.1)
Settlement Costs Related to Defined Benefit Pension Plan	—		—		64.1
Impairment Losses	0.2		—		—
Loss (Income) from Change in Fair Value of Equity and Convertible Securities	14.8		(10.0)		(4.3)
Other, Net	(48.9)		(35.3)		52.2
Net Cash (Used in) Provided by Operating Activities	(51.1)		99.9		262.6
Investing Activities:
Capital Contributed to Subsidiaries	(537.8)		(36.5)		(62.0)
Proceeds from Sales, Calls and Maturities of Fixed Maturities	0.1		181.3		2.0
Proceeds from the Sales or Paydowns of Investments:
Equity Securities	71.9		28.5		2.2
Purchases of Investments:
Fixed Maturities	(40.3)		—		—
Equity Securities	(5.6)		(48.7)		(21.0)
Net Sales (Purchases) of Short-term Investments	138.9		411.3		(415.7)
Acquisition of Business	—		(370.9)		—
Other	(3.1)		—		—
Net Cash (Used in) Provided by Investing Activities	(375.9)		165.0		(494.5)
Financing Activities:
Notes Payable Proceeds:
Proceeds from Issuance of 3.800% Senior Notes due February 23, 2032	396.3		—		—
Issuance Fees from Issuance of 3.800% Senior Notes due February 23, 2032	(1.2)		—		—
Proceeds from Issuance of 5.875% Fixed-Rate Reset Junior Subordinated Debentures due 2062	145.6		—		—
Issuance Fees from Issuance of 5.875% Fixed-Rate Reset Junior Subordinated Debentures due 2062	(0.9)		—		—
Proceeds from Issuance of 2.400% Senior Notes due September 30, 2030	—		—		396.8
Issuance Fees from Issuance of 2.400% Senior Notes due September 30, 2030	—		—		(1.2)
Repayments of Long-term Debt	—		(50.0)		—
Proceeds from Shares Issued under Employee Stock Purchase Plan	4.9		5.4		4.4
Common Stock Repurchases	—		(161.7)		(110.4)
Dividends and Dividend Equivalents Paid	(79.7)		(80.6)		(78.9)
Other	0.6		3.7		5.4
Net Cash Provided by (Used in) Financing Activities	465.6		(283.2)		216.1
Increase (Decrease) in Cash	38.6		(18.3)		(15.8)
Cash, Beginning of Year	27.7		46.0		61.8
Cash, End of Year	$	66.3	$	27.7	$	46.0

See Accompanying Report of Independent Registered Public Accounting Firm.

KEMPER CORPORATION

FINANCIAL INFORMATION OF KEMPER CORPORATION

NOTES TO FINANCIAL INFORMATION

(Dollars in Millions)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial information of Kemper Corporation (“Kemper” or the “Parent Company”) should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. Kemper’s subsidiaries are accounted for using the equity method of accounting. Equity in net (loss) income of these subsidiaries is presented on the Statements of Operations as Equity in Net (Loss) Income of Subsidiaries.

NOTE 2. GUARANTEES

On November 30, 2018 Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 5.000% Senior Notes due September 19, 2022 of Infinity Property and Casualty Corporation, a wholly owned subsidiary of Kemper.

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

The Company used the proceeds received from Kemper’s 2032 Senior Notes offering to repay the 2022 Senior Notes. See “3.800% Senior Notes Due 2032” in the Debt disclosure, Note 21 for additional information regarding the debt issuance.

On July 1, 2022, Kemper executed an indefinite agreement with its subsidiary, Kemper Bermuda Ltd, that provides financial guarantees of up to $300.0 million in contributed capital to maintain its minimum Enhanced Capital Requirement (“ECR”) as required by the Bermuda Monetary Authority as a Class C insurer. As of December 31, 2022, Kemper had contributed $5.0 million under this agreement.

NOTE 3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Kemper received $300.1 million and $189.0 million in non-cash dividends from subsidiaries in 2022 and 2021, respectively. Kemper made non-cash capital contributions of $156.3 million and $103.3 million to subsidiaries in 2022 and 2021, respectively.

NOTE 4. LEASES

Kemper leases certain office space for its current and former corporate headquarters under non-cancelable operating leases.

The following table presents operating lease Right-of-Use (“ROU”) assets and lease liabilities at December 31, 2022 and 2021.

DOLLARS IN MILLIONS	2022		2021
Operating Lease Right-of-Use Assets	$	12.2	$	12.8
Operating Lease Liabilities	24.4		25.8

Supplemental cash flow information related to Kemper’s operating leases for the year-ended December 31, 2022 and December 31, 2021 respectively are presented follows.

DOLLARS IN MILLIONS	2022		2021
Operating Cash Flows from Operating Leases (Fixed Payments)	$	2.4	$	2.2
Operating Cash Flows from Operating Leases (Liability Reduction)	1.4		1.1
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities	—		—

NOTE 4. LEASES (Continued)

Significant judgments and assumptions for determining lease asset and liability as December 31, 2022 and December 31, 2021 respectively are presented below.

DOLLARS IN MILLIONS	2022		2021
Weighted-average Remaining Lease Term - Operating Leases	11.0 years		11.9 years
Weighted-average Discount Rate - Operating Leases	4.0	%	4.0	%

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

Future minimum operating lease payments at December 31, 2022 were:

DOLLARS IN MILLIONS	Operating Leases
2023	$	2.4
2024	2.5
2025	2.6
2026	2.6
2027	2.7
2028 and Thereafter	17.7
Total Future Payments	$	30.5
Less Discount	6.1
Present Value of Minimum Lease Payments	$	24.4

NOTE 5. DEBT

4.350% Senior Notes Due 2025

Kemper has $450.0 million aggregate principal of 4.350% senior notes due February 15, 2025 (the “2025 Senior Notes”). Kemper initially issued $250.0 million of the notes in February of 2015 and issued an additional $200.0 million of the notes in June of 2017. The additional notes are fungible with the initial notes issued in 2015, and together are treated as part of a single series for all purposes under the indenture governing the 2025 Senior Notes. The 2025 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices.

2.400% Senior Notes Due 2030

Kemper has $400.0 million aggregate principal of 2.400% senior notes due September 30, 2030 (the “2030 Senior Notes”). The net proceeds of issuance were $395.8 million, net of discount and transaction costs for an effective yield of 2.52%. The 2030 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time, at Kemper’s option, at specified redemption prices.

3.800% Senior Notes Due 2032

On February 15, 2022, Kemper offered and sold $400.0 million aggregate principal of 3.800% senior notes due February 23, 2032 (the “2032 Senior Notes”). The net proceeds of issuance were $395.1 million, net of discount and transaction costs for an effective yield of 3.950%. The 2032 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time, at Kemper’s option, at specified redemption prices.

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

NOTE 5. DEBT (Continued)

5.875% Fixed-Rate Reset Junior Subordinated Debentures Due 2062

On March 10, 2022, Kemper issued $150.0 million aggregate principal amount of 5.875% Fixed-Rate Reset Junior Subordinated Debentures due March 15, 2062 (the “2062 Junior Debentures”). The net proceeds from issuance were $144.7 million, net of discount and transaction costs. The 2062 Junior Debentures will bear interest from and including the date of original issue to, but excluding, March 15, 2027 (the “First Reset Date”) at the fixed rate of 5.875% per annum. The interest

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

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