KEMPER Corp

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -Basis of Presentation and Accounting Policies

The unaudited Condensed Consolidated Financial Statements include the accounts of Kemper Corporation (“Kemper”) and its subsidiaries which include property and casualty insurance subsidiaries, life insurance subsidiaries (collectively referred to herein as the “Company”), and a variable interest entity (“VIE”) in which the Company is considered the primary beneficiary.

The unaudited Condensed Consolidated Financial Statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) on a basis consistent with reporting interim financial information pursuant to the rules and regulations for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and include the accounts of Kemper Corporation, its subsidiaries, and a VIE in which the Company is considered the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Certain financial information that is included in the 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 periods presented. The preparation of 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, annualizing the results of operations for the three months ended March 31, 2025 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, 2024.

Adoption of New Accounting Guidance

The Company has adopted all recently issued accounting pronouncements with effective dates prior to April 1, 2025. There were no adoptions of such accounting pronouncements during the three months ended March 31, 2025 that had a material impact on the Company’s interim Condensed Consolidated Financial Statements.

Guidance Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. For SEC registrants, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but does not anticipate the adoption of the new guidance will have a material impact on the Company’s Condensed Consolidated Financial Statements. The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures, which improves the transparency of income tax disclosures by requiring companies to use consistent categories and greater disaggregation of information in the tax rate reconciliation as well as requiring disaggregation of income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Disaggregation of Income Statement Expenses, which requires companies to disclose, within the financial statement footnotes, the amount of inventory purchases, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities that contribute to each income statement expense line item, as well as the amount of selling expenses incurred during each reporting period. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Note 2 -Net Income Per Unrestricted 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, 2025 and 2024 is presented below.

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 because the effect of inclusion would be anti-dilutive was 0.9 million and 1.7 million for the three months ended March 31, 2025 and 2024, respectively.

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 throughtwo operating segments: Specialty Property & Casualty Insurance and Life Insurance.

The Specialty Property & Casualty Insurance segment’s principal products are specialty personal automobile and commercial automobile insurance. These products are distributed primarily through independent agents and brokers. The Life Insurance segment’s principal products are individual life, accident, supplemental health and property insurance. Career agents employed by the Company distribute these products. Corporate and Other operations include interest expense, board of directors’ fees, and general corporate expenses incurred by the Company which are not allocated to other businesses. Non-Core Operations includes the results of our Preferred Insurance business which the Company expects to fully exit.

Segment Adjusted Net Operating Income

The Company analyzes the operating performance of each segment using segment adjusted net operating income. Segment adjusted net operating income does not equate to “net income” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss used by the Company’s Chief Operating Decision Maker (“CODM”) to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is the measure of segment performance presented below. Segment adjusted net operating income is calculated by adjusting each segment’s income after income taxes for the following items:

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

(ii) Net Realized Investment Gains;

(iii) Impairment Losses;

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

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

(vi) Goodwill Impairment Charges;

(vii) Non-Core Operations; and

(viii) Significant non-recurring or infrequent items that may not be indicative of ongoing operations

These items are important to an understanding of overall results of operations. Segment adjusted netoperating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of segment adjusted netoperating income may differ from that used by other companies. The Company, however, believes that the presentation of segment adjusted netoperating income, as measured for management purposes, enhances the understanding of results of operations by highlighting the underlying profitability factors of its businesses.

Total Segment, Non-Core Operations, and Corporate and Other assets at March 31, 2025 and December 31, 2024 were:

Earned Premiums by product line, including a reconciliation to Total Earned Premiums, for the three months ended March 31, 2025 and 2024 were:

Segment Revenues, including a reconciliation to Total Revenues, for the three months ended March 31, 2025 and 2024 were:

Significant Segment Expenses that were regularly provided to the CODM for the three months ended March 31, 2025 and 2024 were:

Total Segment Adjusted Net Operating Income, including a reconciliation to Net Income attributable to Kemper Corporation, for the three months ended March 31, 2025 and 2024 was:

Note 4 -Property and Casualty Insurance Reserves

Property and Casualty Insurance Reserve activity for the three months ended March 31, 2025 and 2024 was:

Property and Casualty Insurance Reserves are estimated based on historical experience patterns and current economic trends. Actual loss experience and loss trends may 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. Additionally, the Company reviews if any premium revisions are appropriate as a result of any incurred losses and loss adjustment expenses (“LAE”) related to prior years recorded in the current period. For the three months ended March 31, 2025 and 2024, no additional premiums or return premiums were recorded.

For the three months ended March 31, 2025, the Company recognized $4.9 million of favorable reserve development on prior accident years attributable to improved loss patterns related to personal injury protection, property damage, and bodily injury coverages in the Specialty Personal Automobile product line. Additionally, the Company experienced $1.4 million of favorable development driven by improved prior year catastrophe loss experience and lower prior year claim administrative costs within Non-Core Operations. This development was partially offset by adverse development on the Commercial Automobile product line of $5.3 million, which was primarily attributable to evolving loss patterns and higher defense costs associated with attorney-represented bodily injury coverages.

For the three months ended March 31, 2024, the Company recognized $7.1 million of adverse development within the Specialty Personal Automobile product line, primarily driven by higher than expected settlements for extra-contractual demands related to prior year claims. In addition, the Company experienced adverse development of $2.9 million within Non-Core Operations due primarily to higher than expected losses associated with third quarter of 2023 catastrophe events and a higher than expected large loss emergence. This development was partially offset by favorable development on the Commercial Automobile product of $1.1 million, which was primarily attributable to favorable emergence in loss patterns related to bodily injury coverages.

The Company cannot predict whether loss and LAE reserves will develop favorably or unfavorably from the amounts reported in the Condensed Consolidated Financial Statements. The Company believes that any such development will not have a material effect on the Company’s Shareholders’ Equity, but could have a material effect on the Company’s consolidated financial results for a given period.

Note 5 -Liability for Future Policyholder Benefits

The Company’s Life Insurance Reserves are reported using the Company’s estimate of its liability for future policyholder benefits. The liability for future policyholder benefits is grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability. Significant assumption inputs to the calculation of the liability for future policyholder benefits include mortality, lapses, and discount rates (both accretion and current). The Company’s actuaries review assumptions used to measure the liability for future policyholder benefits for nonparticipating traditional and limited pay long-duration contracts at least annually. If there is a change, assumptions are updated with the recognition and remeasurement recorded in the Company’s Condensed Consolidated Statements of Income. The Company’s actuaries use a variety of generally accepted actuarial methodologies, in accordance with Actuarial Standards of Practice, in determining the assumptions.

A key assumption in these estimation methodologies is that patterns observed in prior periods are indicative of how policyholder benefits are expected to develop in the future and that such historical data can be used to predict and estimate future losses. However, changes in the Company’s business processes and the macroeconomic environment, by their very nature, are likely to affect the actual to expected experience which generally results in the historical experience factors becoming less reliable over time in predicting how cash flows will ultimately develop. The Company’s actuaries use professional judgment in determining how much weight to place on the actual to expected experience based on the older historical data and how much weight to place on more recent experience data. In some cases, the Company’s actuaries make adjustments to the assumptions to estimate losses. These assumptions are reviewed by the Company’s actuaries and corporate management who apply their collective judgment and determine the appropriate assumptions to adopt for the underlying business. Numerous factors are considered in this determination process, including, but not limited to, the assessed reliability of key assumptions that may be significantly influencing the current actuarial indications, changes in pricing and product offerings, changes in customer base, changes in agency operations or other changes that affect the timing of payments, the policyholder behaviors observed over the recent past, the level of volatility within a particular line of business, and the improvement or deterioration of actuarial indications in the current period as compared to prior periods. Changes in the Company’s assumptions underlying these liabilities over time will occur and may be material.

Note 5 - Liability for Future Policyholder Benefits (Continued)

The following tables summarize balances and changes in the present value of expected net premiums, present value of expected future policyholder benefits and net liability for future policyholder benefits as of and for the three months ended March 31, 2025 and 2024:

The weighted-average liability duration of the liability for future policyholder benefits as calculated under current rates is as follows:

Note 5 - Liability for Future Policyholder Benefits (Continued)

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

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

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

The weighted-average interest rate is as follows:

Significant assumption inputs to the calculation of the liability for future policyholder benefits include mortality, lapses, and discount rates (both accretion and current). The Company did not make any changes to mortality and lapse assumptions during the three months ended March 31, 2025 and 2024. Market data that underlies current discount rates was updated as of March 31, 2025.

The balances of and changes in Deferred Profit Liability as of and for the periods indicated are as follows:

Note 6 -Investments

Fixed Maturities

The amortized cost and fair values of the Company’s Investments in Fixed Maturities at March 31, 2025 were:

The amortized cost and fair values of the Company’s Investments in Fixed Maturities at December 31, 2024 were:

Other Receivables included $3.9 million and $1.8 million of unsettled sales of Investments in Fixed Maturities at March 31, 2025 and December 31, 2024, respectively. There were $60.0 million and $11.6 million of unsettled purchases of Investments in Fixed Maturities included in Accrued Expenses and Other Liabilities as of March 31, 2025 and December 31, 2024, respectively.

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2025 by contractual maturity were:

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, 2025 consisted of securities issued by the Government National Mortgage Association with a fair value of $217.9 million, securities issued by the Federal National Mortgage Association with a fair value of $99.5 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $76.0 million and securities of other non-governmental issuers with a fair value of $1,179.9 million.

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at March 31, 2025 is presented below.

Investment-grade fixed maturity investments comprised $807.7 million and below-investment-grade fixed maturity investments comprised $14.0 million of the unrealized losses on investments in fixed maturities at March 31, 2025. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 3.7% of the amortized cost basis of the investment.

An aging of unrealized losses on the Company’s Investments in Fixed Maturities at December 31, 2024 is presented below.

Investment-grade fixed maturity investments comprised $875.3 million and below-investment-grade fixed maturity investments comprised $14.2 million of the unrealized losses on investments in fixed maturities at December 31, 2024. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was approximately 4.9% of the amortized cost basis of the investment.

Fixed Maturities - Expected Credit Losses

The following table sets forth the change in allowance for credit losses on fixed maturities available-for-sale by major security type for three months ended March 31, 2025. Accrued interest excluded from the amortized cost of fixed income securities total $68.6 million and $70.9 million as of March 31, 2025 and December 31, 2024, respectively, and is reported within the Other Receivables line of the Condensed Consolidated Balance Sheets. The Company monitors accrued interest and writes off amounts when they are not expected to be received.

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, 2024.

Equity Securities

Investments in Equity Securities at Fair Value were $232.3 million and $218.5 million at March 31, 2025 and December 31, 2024, respectively. Net unrealized (losses) gains arising during the three months ended March 31, 2025 and 2024 and recognized in earnings, related to such investments still held as of March 31, 2025 and March 31, 2024, were $(0.5) million and $3.9 million, respectively.

There wereno unsettled purchases of Investments in Equity Securities at Fair Value at March 31, 2025 or December 31, 2024. There were $0.1 million and $0.3 million in unsettled sales of Investments in Equity Securities at Fair Value at March 31, 2025 and December 31, 2024, respectively.

Equity Method Limited Liability Investments

Equity Method Limited Liability Investments include investments in limited liability investment companies and limited partnerships in which the Company’s interests are not deemed minor and are accounted for under the equity method of accounting. The Company’s investments in Equity Method Limited Liability Investments are generally of a passive nature in that the Company does not take an active role in the management of the investment entity.

The Company’s maximum exposure to loss at March 31, 2025 is limited to the total carrying value of $185.1 million. In addition, the Company had outstanding commitments totaling approximately $91.8 million to fund Equity Method Limited Liability Investments at March 31, 2025. At March 31, 2025,2.9% of Equity Method Limited Liability Investments were reported without a reporting lag,3.7% of the total carrying value were reported with a one-month lag, and the remainder were reported with a greater than one-month but less than or equal to three-month lag.

There wereno unsettled purchases or sales of Equity Method Limited Liability Investments as of March 31, 2025 or December 31, 2024. Unsettled purchases and sales of Equity Method Limited Liability Investments are carried within Accrued Expenses and Other Liabilities and Other Receivables, respectively, on the Condensed Consolidated Balance Sheets.

Loans to Policyholders

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

The carrying values of the Company’s Loans to Policyholders at Unpaid Principal investment at March 31, 2025 and December 31, 2024 were $279.8 million and $280.7 million, respectively.

Other Investments

The carrying values of the Company’s Other Investments at March 31, 2025 and December 31, 2024 were:

Investments in Equity Securities at Modified Cost were $21.7 million and $22.5 million at March 31, 2025 and December 31, 2024, respectively. The Company performs a qualitative impairment analysis on a quarterly basis consisting of various factors such as earnings performance, current market conditions, changes in credit ratings, changes in the regulatory environment and other factors. If the qualitative analysis identifies the presence of impairment indicators, the Company estimates the fair value of the investment. If the estimated fair value is below the carrying value, the Company records an impairment in the Condensed Consolidated Statements of Income to reduce the carrying value to the estimated fair value. When the Company identifies observable transactions of the same or similar securities to those held by the Company, the Company increases or decreases the carrying value to the observable transaction price. The Company did not recognize any changes in carrying value due to observable transactions for the three months ended March 31, 2025 and 2024. The Company did not recognize any impairment on Equity Securities at Modified Cost for the three months ended March 31, 2025 as a result of the Company’s impairment analysis. The Company recognized an impairment of $0.4 million on Equity Securities at Modified Cost for three months ended March 31, 2024 as a result of the Company’s impairment analysis. The Company recognized no cumulative increases or decreases in the carrying value due to observable transactions and $3.2 million of cumulative impairments on Equity Securities at Modified Cost held as of March 31, 2025. The Company recognized no cumulative increases or decreases in the carrying value due to observable transactions and $3.2 million of cumulative impairments on Equity Securities at Modified Cost held as of December 31, 2024.

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 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, 2025 is limited to the total carrying value of $17.3 million. The Company has no outstanding commitments to fund Alternative Energy Partnership Investments as of March 31, 2025. Alternative Energy Partnership Investments are reported on a three-month lag.

Net Investment Income

Net Investment Income for the three months ended March 31, 2025 and 2024 was:

Gross gains and losses on sales of investments in fixed maturities and gains and losses associated with Ultra-Long Treasury Futures for the three months ended March 31, 2025 and 2024 were:

Note 7 -Derivatives

The Company’s earnings, cash flows, and financial position are subject to fluctuations due to changes in prevailing interest rates.

The Company entered into derivative agreements with maturity dates throughout 2025. Derivative instruments are carried at fair value on the Condensed Consolidated Balance Sheets. Derivative instruments in a gain position are presented within Other Investments and those in a loss position are included in Accrued Expenses and Other Liabilities. Changes in the fair values of derivatives are recorded on the Condensed Consolidated Statements of Income within Net Realized Investment Gains or Accumulated Other Comprehensive Loss along with the corresponding change in the designated hedge assets.

Interest Rate Risk

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

Ultra-Long Treasury Futures

The Company enters into exchange-traded ultra-long Treasury futures (“Treasury Futures”) in order to manage exposure to upcoming changes in the benchmark (Treasury) interest rate of forecasted transactions. These derivatives expire quarterly. As of March 31, 2025, all Treasury Futures held by the Company qualified for hedge accounting as a cash flow hedge. The Company utilizes a rollover hedging strategy that involves continuously establishing short-term derivatives in consecutive contract months to hedge the underlying risk exposure. Under this strategy, the complete set of derivatives are not acquired at hedge inception; rather, short-term derivatives are acquired throughout the hedging period such that maturing derivatives are replaced with new short-term derivatives.

The following table presents the Company’s Ultra-Long Treasury Futures derivatives, primary underlying risk exposure, gross notional amount, and estimated fair value of these derivatives:

The below table reflects the amounts of Gains (Losses) deferred into AOCI before taxes, net changes in amounts in AOCI associated with current hedging transactions, and amounts subsequently reclassified into Net Income through Net Investment Income for Ultra-Long Treasury Futures qualifying as cash flow hedges for the three months ended March 31, 2025 and 2024.

Treasury Locks

During the fourth quarter of 2016 and the first quarter of 2022, in anticipation of debt issuances shortly thereafter and for risk management purposes, the Company entered into derivative transactions (the “2016 Treasury Lock” and “2022 Treasury Lock,” together the “Treasury Locks”) 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.

Note 7 - Derivatives (Continued)

The Treasury Locks have no remaining gross notional amount or fair value as the hedging relationships have been previously discontinued with the issuance of the associated debt (Senior Notes due February 15, 2025 for the 2016 Treasury Lock and Senior Notes due February 23, 2032 for the 2022 Treasury Lock). The effective portion of the gain or loss before taxes on the derivative instruments upon discontinuance was a $4.5 million loss for the 2016 Treasury Lock and a $5.9 million gain on the 2022 Treasury Lock. The gain or loss upon discontinuance is reported as a component of Accumulated Other Comprehensive Loss. Beginning with the issuance of the associated debt, such gain or loss is amortized into earnings and reported in Interest Expense in the same periods that the hedged items affect earnings.

During the first quarter of 2025, in conjunction with the redemption of the Senior Notes due February 15, 2025, the Company amortized the remaining $0.1 million of pre-tax derivative loss on the 2016 Treasury Lock into earnings. Pre-tax amortization on the 2022 Treasury Lock was $0.1 million for the three months ended March 31, 2025 and 2024. As of March 31, 2025, the remaining amount of pre-tax derivative gain on the 2022 Treasury Lock within AOCI to be amortized into earnings was $4.1 million.

Note 8 -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 (“NAV”) 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 and liabilities measured at fair value in Company’s Condensed Consolidated Balance Sheets at March 31, 2025 is summarized below.

The valuation of assets and liabilities measured at fair value in the Company’s Condensed Consolidated Balance Sheets at December 31, 2024 is summarized below.

The Company’s investments in Fixed Maturities that are classified as Level 1 primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities at Fair Value that are classified as Level 1 consist of either investments in publicly-traded common stocks or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 primarily consist of investments in corporate bonds, obligations of states and political subdivisions, collateralized loan obligations, and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities at Fair Value that are classified as Level 2 primarily consist of investments in preferred stocks. The Company’s Derivative Instruments Designated as Cash Flow Hedges that are classified as Level 2 primarily consist of hedges to manage exposure to upcoming changes in the benchmark (Treasury) interest rate of forecasted transactions. 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 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, 2025. Valuations for assets presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average yield is calculated based on fair value.

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, 2024. Valuations for assets presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average yield is calculated based on fair value.

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

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, 2025 is presented below.

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

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended March 31, 2024 is presented below.

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

The table below shows investments reported at fair value using NAV and their unfunded commitments by asset class as of March 31, 2025 and December 31, 2024.

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

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

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

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

Loans to policyholders are carried at unpaid principal balance which approximates fair value and are categorized as Level 3 within the fair value hierarchy. The nature of policy loans is to have a negligible default risk as the loans are fully collateralized by the value of the policy. Policy loans do not have a stated maturity and the balances and accrued interest are repaid either by the policyholder or with proceeds from the policy. Due to the collateralized nature of policy loans and unpredictable timing of payments, the Company believes the carrying value of policy loans approximates fair value. The fair value measurement of Short-term Investments is estimated using inputs that are considered either Level 1 or Level 2 measurements. The Mortgage Loans fair value measurement is considered equal to amortized cost given the short-term nature of the investments. The fair value measurement of Equity Securities at Modified Cost is estimated using inputs that are considered Level 3 measurements. The cash surrender value of Company-Owned Life Insurance approximates fair value and is considered to be a Level 2 investment. The fair value of Long-term Debt is estimated using quoted prices from brokers and dealers 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 9 -Variable Interest Entities

A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity's operations through voting rights or do not substantively participate in the gains and losses of the entity. The Company consolidates VIEs in which the Company is deemed the primary beneficiary. The primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect that entity's economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE.

Reciprocal Exchange

The Company has formed a management company that acts as attorney-in-fact (“AIF”) for Kemper Reciprocal (the “Reciprocal Exchange” or “Exchange”), an Illinois-domiciled reciprocal insurance exchange. The Exchange principally writes specialty personal automobile policies sold to subscribers of the Exchange. The establishment of Kemper Reciprocal was completed in the third quarter of 2023.

The Company consolidates the Exchange since (1) the AIF manages the business operations of the Exchange and therefore has the power to direct the activities that most significantly impact the economic performance of the Exchange and (2) the Company has provided capital to the Exchange and would absorb any expected losses that could potentially be significant to the Exchange. The Exchange’s anticipated economic performance is the product of its underwriting and investment results. The AIF receives a management fee for the services provided to the Reciprocal Exchange. The management fee revenues are based upon all premiums written or assumed by the Exchange. The AIF determines the management fee rate to be paid by the Exchange. The AIF can charge a management fee of up to 30% of the Exchange’s gross written and assumed premiums.

The assets of the Reciprocal Exchange can be used only to settle the obligations of the Reciprocal Exchange for which creditors and other beneficial owners have no recourse to the Company. The Company has no obligation related to any underwriting and/or investment losses experienced by the Exchange. As of December 31, 2024, the Company had contributed $22.0 million of surplus to the Reciprocal Exchange. During the first three months of 2025, the Company contributed an additional $7.0 million of surplus to the Reciprocal Exchange, resulting in a total contributed surplus of $29.0 million as of March 31, 2025. The effects of the transactions between the Company and the Reciprocal Exchange are eliminated in consolidation to derive consolidated Net Income. However, the management fee income earned by the AIF is reported in Net Income attributable to Kemper Corporation and is included in basic and diluted earnings per share.

Noncontrolling interest is the portion of equity (net assets) not attributable, directly or indirectly, to a parent. Since the Company has no ownership interest in Kemper Reciprocal, the difference between the carrying value of the Exchange’s assets and liabilities represents noncontrolling interest and any income or loss generated by the net assets of the Exchange is presented as income or loss attributable to noncontrolling interest.

Alternative Energy Partnership

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

The Company’s interest in the Alternative Energy Partnership Investment is considered an investment in a 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 Other Investments in the Condensed Consolidated Balance Sheets. The Company uses the HLBV equity method to account for earnings and losses. This method provides an earnings allocation that appropriately reflects the substantive economics of the investment. Earnings and losses on the investment are reported in Other Income and investment tax credits are recognized in Income Tax Expense on the Condensed Consolidated Statements of Income.

Note 9 - Variable Interest Entities (Continued)

The following table presents information regarding activity in the Company’s Alternative Energy Partnership Investments for the three months ended March 31, 2025 and 2024.

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 March 31, 2025 and December 31, 2024.

The Company’s maximum loss exposure in the event that all of the assets in the Alternative Energy Partnership are deemed worthless is $17.3 million and $17.6 million, which is the carrying value of the investment at March 31, 2025 and December 31, 2024, respectively.

Note 10 -Deferred Policy Acquisition Costs

The following tables present the balances and changes in Deferred Policy Acquisition Costs for the Specialty Property and Casualty Insurance segment, Life Insurance segment, and Non-Core Operations business for the three months ended March 31, 2025 and 2024:

Note 10 - Deferred Policy Acquisition Costs (Continued)

Costs directly associated with the successful acquisition of business, principally commissions and certain premium taxes and policy issuance costs, are deferred. Costs deferred on property and casualty insurance contracts are amortized over the period in which premiums are earned. Costs deferred on traditional life insurance products and other long-duration insurance contracts are amortized on a constant level basis over the expected life of the contracts in accordance with the assumptions used to estimate the liability for future policyholder benefits for nonparticipating traditional and limited-payment contracts. The underlying assumptions for deferred policy acquisition costs and the liability for future policyholder benefits are updated concurrently.

The Company did not make any changes to future assumptions for the three months ended March 31, 2025 and 2024.

Note 11 -Receivables from Policyholders - Allowance for Expected Credit Losses

The following tables present the balances of Receivables from Policyholders, net of the allowance for expected credit losses, as of March 31, 2025 and 2024, and a roll forward of changes in the allowance for expected credit losses for the three months ended March 31, 2025 and 2024.

Note 12 -Other Comprehensive Income and Accumulated Other Comprehensive Loss

The tables below display the changes in Accumulated Other Comprehensive Loss by component for the three months ended March 31, 2025 and 2024.

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

Note 13 -Shareholders’ Equity

Common Stock Repurchases

On May 6, 2020, Kemper’s Board of Directors authorized the repurchase of up to an additional $200.0 million of Kemper common stock, in addition to the $133.3 million remaining under the August 6, 2014 authorization, bringing the remaining share repurchase authorization to approximately $333.3 million. As of March 31, 2025, the remaining share repurchase authorization was $128.8 million under the repurchase program.

During the three months ended March 31, 2025, Kemper repurchased and retired approximately 64,000 shares of its common stock under its share repurchase authorization for an aggregate cost of $4.0 million and an average cost per share of $62.91. Kemper didnot repurchase any shares during the three months ended March 31, 2024.

Employee Stock Purchase Plan

During the three months ended March 31, 2025 and 2024, the Company issued 12,000 and 15,000 shares under the Kemper Employee Stock Purchase Plan (“ESPP”), respectively, at an average discounted price of $56.82 and $52.63 per share. Compensation costs charged against income were $0.1 million for the three months ended March 31, 2025 and 2024.

Note 14 -Amortization of Intangible Assets

The following table presents the amortization expense on definite life intangible assets incurred by the Company for the three months ended March 31, 2025 and 2024:

Note 15 -Policyholder Obligations

Policyholder Obligations at March 31, 2025 and December 31, 2024 were as follows:

FHLB Funding Agreements

Kemper’s subsidiary, United Insurance Company of America (“United Insurance”) has entered into funding agreements with the FHLB of Chicago in exchange for cash, which it uses for spread lending purposes. During the three months ended March 31, 2025, United Insurance received advances of $20.0 million from the FHLB of Chicago and made repayments of $25.1 million under the spread lending program.

Note 15 - Policyholder Obligations (Continued)

When a funding agreement is issued, United Insurance is required to post collateral in the form of eligible securities including mortgage-backed, government, and agency debt instruments for each of the advances that are entered. The fair value of the collateral pledged must be maintained at certain specified levels above the borrowed amount, which can vary depending on the assets pledged. If the fair value of the collateral declines below these specified levels of the amount borrowed, United Insurance would be required to pledge additional collateral or repay outstanding borrowings. Upon any event of default by United Insurance, the FHLB’s recovery on the collateral is limited to the amount of United Insurance’s liability under the funding agreements to the FHLB of Chicago.

United Insurance’s liability under the funding agreements with the FHLB of Chicago, the amount of collateral pledged under such agreements and FHLB of Chicago common stock owned by United Insurance at March 31, 2025 and December 31, 2024 is presented below.

Universal Life-type Policyholder Account Balances

The Company’s weighted-average crediting rate for Universal Life-type Policyholder Account Balances was 5.1% as of March 31, 2025 and 2024. Guaranteed minimum benefit amounts in excess of the current account balances for these contracts were $272.3 million and $276.6 million as of March 31, 2025 and December 31, 2024, respectively. The cash surrender value of the Company’s policyholder obligations for these contracts was $95.8 million and $96.4 million as of March 31, 2025 and December 31, 2024, respectively.

Note 16 -Debt

Amended and Extended Credit Agreement

On March 15, 2022, the Company entered into an amended and extended credit agreement. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $600.0 million and extended the maturity date to March 15, 2027. Furthermore, the amended and extended credit agreement provides for an accordion feature whereby the Company can increase the revolving credit borrowing capacity by an additional $200.0 million for a total maximum capacity of $800.0 million. There wereno outstanding borrowings under the credit agreement at either March 31, 2025 or December 31, 2024.

Long-term Debt

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance. Total amortized cost of Long-term Debt, Current and Non-Current, outstanding at March 31, 2025 and December 31, 2024 was:

Note 16 - Debt (Continued)

Redemption of 4.350% Senior Notes Due 2025

On January 15, 2025, Kemper issued a notice of redemption for the entire $450.0 million aggregate principal of 4.350% senior notes originally due February 15, 2025 (the “2025 Senior Notes”) at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest on the redemption date. On February 11, 2025, Kemper completed the redemption and the 2025 Senior Notes were repaid in full.

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.

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 forone or more optional deferral periods of up tofive consecutive years, provided that no optional deferral period shall extend beyond March 15, 2062, or any earlier accelerated maturity date arising from an event of default or any earlier redemption of the 2062 Junior Debentures.

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

Short-term Debt

Kemper’s subsidiaries, United Insurance, Trinity Universal Insurance Company (“Trinity”) and American Access Casualty Company (“AAC”), are members of the FHLBs of Chicago, Dallas and Chicago, respectively. The Company periodically uses short-term FHLB borrowings for cash management and risk management purposes, in addition to long-term FHLB borrowings for the spread lending program. The Company did not receive advances or make repayments of short-term debt during the three months ended March 31, 2025 and 2024 for cash and risk management purposes. There were no short-term debt advances from the FHLBs of Chicago or Dallas outstanding at March 31, 2025 or December 31, 2024. For information on United Insurance’s funding agreement with the FHLB of Chicago in connection with the spread lending program, see Note 15, “Policyholder Obligations,” to the Condensed Consolidated Financial Statements.

Interest Expense and Interest Paid

Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $11.4 million and $14.0 million for the three months ended March 31, 2025 and 2024, respectively. Interest paid, including facility fees, was $24.5 million and $20.0 million for the three months ended March 31, 2025 and 2024, respectively.

Note 17 -Leases

The Company leases certain office space under non-cancelable operating leases, with initial terms typically ranging fromone tofifteen years, along with options that permit renewals for additional periods. The Company also leases certain vehicles and equipment under non-cancelable operating leases, with initial terms typically ranging fromone tofive 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.

Lease expenses are included in Insurance and Other Expenses in the Condensed Consolidated Statements of Income. Additional information regarding the Company’s operating leases is presented below.

Other Information on Operating Leases

Significant judgments and assumptions for determining lease asset and liability at March 31, 2025 and 2024 are presented below.

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 to determine its lease payments’ present value.

Future minimum lease payments under operating leases at March 31, 2025 are presented below.

As of March 31, 2025 and December 31, 2024, the Company did not have any finance leases.

Note 18 -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 well as 2018 and 2019. 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 December 31, 2025. Tax years 2020 and 2022 are currently under examination and will remain open until the examination is complete. The statute of limitations for tax years 2021 and 2023 is open for three years from the extended due dates of October 15, 2022 and 2024, 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.

The interim period tax expense or benefit is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year. For the three months ended March 31, 2025, the income tax expense attributable to Kemper Corporation was $23.5 million, or 19.1% of income before income taxes, compared to an income tax benefit of $16.8 million, or 19.1% of loss before income taxes for the three months ended March 31, 2024.

There wereno Unrecognized Tax Benefits at March 31, 2025, or December 31, 2024. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in Income Tax Expense. There wereno liabilities for accrued interest and penalties for the three months ended March 31, 2025 and 2024.

For the three months ended March 31, 2025, there wereno federal income taxes paid or received. For the three months ended March 31, 2024, federal income tax refunds received, net of income taxes paid, were $10.4 million.

For the three months ended March 31, 2025 and 2024, there wereno state income taxes paid or received. No foreign income taxes were paid or refunded for the three months ended March 31, 2025 and March 31, 2024, respectively.

Note 19 -Commitments and Contingencies

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