Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Non-GAAP Financial Measures
Summary of Results
Catastrophes
Loss and LAE Reserve Development
Specialty Property & Casualty Insurance
Life Insurance
Investment Results
Investment Quality and Concentrations
Investments in Limited Liability Companies and Limited Partnerships
Insurance, Interest and Other Expenses
Income Taxes
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Estimates
Recently Issued Accounting Pronouncements
NON-GAAP FINANCIAL MEASURES
Pursuant to the rules and regulations of the SEC, the Company is required to file consolidated financial statements prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”). The Company is permitted to include non-GAAP financial measures in its filings provided that they are defined along with an explanation of their usefulness to investors, are no more prominent than the comparable GAAP financial measures and are reconciled to such GAAP financial measures.
In this report, the Company presents certain measures of its performance on a consolidated and segment basis that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business. Segment-specific financial measures are calculated using only the portion of consolidated results attributable to that specific segment.
These 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.
Adjusted Consolidated Net Operating Income (Loss)
The Company believes that the non-GAAP financial measure of Adjusted Consolidated Net Operating Income (Loss) provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded. The most directly comparable GAAP financial measure is Net Income (Loss) attributable to Kemper Corporation.
Adjusted Consolidated Net Operating Income (Loss) is an after-tax, non-GAAP financial measure and is computed by excluding from Net Income (Loss) attributable to Kemper Corporation the after-tax impact of:
(i) Change in Fair Value of Equity and Convertible Securities;
(ii) Net Realized Investment Gains (Losses);
(iii) Impairment Losses;
(iv) Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs;
(v) Debt Extinguishment, Pension Settlement and Other Charges;
(vi) Goodwill Impairment Charges;
(vii) Non-Core Operations; and
(viii) Significant non-recurring or infrequent items that may not be indicative of ongoing operations
Significant non-recurring items are excluded when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years, and (b) there has been no similar charge or gain within the prior two years. There were no applicable significant non-recurring items that the Company excluded from the calculation of Adjusted Consolidated Net Operating Income (Loss) for the years ended December 31, 2025, 2024 or 2023.
Change in Fair Value of Equity and Convertible Securities, Net Realized Investment Gains (Losses) and Impairment Losses related to investments included in the Company’s results may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions that impact the values of the Company’s investments, the timing of which is unrelated to the insurance underwriting process. Acquisition and Disposition Related Transaction Costs, Integration Costs, and Restructuring and Other Costs may vary significantly between periods and are generally driven by the timing of acquisitions and business decisions which are unrelated to the insurance underwriting process. In the third quarter of 2025, a restructuring program was launched to achieve operational and organizational efficiencies. The Company will continue to evaluate additional efficiency opportunities through 2027. Debt Extinguishment, Pension Settlement and Other Charges relate to (i) loss from early extinguishment of debt, which is driven by the Company’s financing and refinancing decisions and capital needs, as well as external economic developments such as debt market conditions, the timing of which is unrelated to the insurance underwriting process; (ii) settlement of pension plan obligations which are business decisions made by the Company, the timing of which is unrelated to the underwriting process; and (iii) other charges that are non-standard, not part of the ordinary course of business, and unrelated to the insurance underwriting process.
NON-GAAP FINANCIAL MEASURES (Continued)
Goodwill Impairment Charges are excluded because they are infrequent and non-recurring charges. Non-Core Operations includes the results of our Preferred Insurance business which we expect to fully exit. These results are excluded because they are irrelevant to our ongoing operations and do not qualify for Discontinued Operations under GAAP. Significant non-recurring items are excluded because, by their nature, they are not indicative of the Company’s business or economic trends.
Underlying Losses and Loss Adjustment Expense (“LAE”) and Underlying Combined Ratio
The following discussion of segment results uses the non-GAAP financial measures of (i) Underlying Losses and LAE and (ii) Underlying Combined Ratio. Underlying Losses and LAE (also referred to in the discussion as “Current Year Non-catastrophe Losses and LAE”) exclude the impact of catastrophe losses and loss and LAE reserve development from prior years from the Company’s Incurred Losses and LAE, which is the most directly comparable GAAP financial measure.
The Underlying Combined Ratio is computed by adding the Current Year Non-catastrophe Losses and LAE Ratio with the Insurance Expense Ratio. The most directly comparable GAAP financial measure is the Combined Ratio, which is computed by adding Total Incurred Losses and LAE Ratio, including the impact of catastrophe losses and loss and LAE reserve development from prior years, with the Insurance Expense Ratio.
The Company believes Underlying Losses and LAE and the Underlying Combined Ratio are useful to investors and uses these financial measures to reveal the trends in the Company’s Property & Casualty Insurance segment that may be obscured by catastrophe losses and prior-year reserve development. These catastrophe losses may cause the Company’s loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on incurred losses and LAE and the Combined Ratio. Prior-year reserve developments are caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses from earlier periods, it has minimal bearing on the performance of the Company’s insurance products in the current period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company’s underwriting performance.
The preceding non-GAAP financial measures should not be considered a substitute for the comparable GAAP financial measures, as they do not fully recognize the overall profitability of the Company’s businesses.
SUMMARY OF RESULTS
Net Income attributable to Kemper Corporation was $143.3 million ($2.31 per unrestricted common share) for the year ended December 31, 2025, compared to Net Income attributable to Kemper Corporation of $317.8 million ($4.95 per unrestricted common share) for the year ended December 31, 2024.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SUMMARY OF RESULTS (Continued)
A reconciliation of Net Income (Loss) attributable to Kemper Corporation to Adjusted Consolidated Net Operating Income (Loss) (a non-GAAP financial measure) for the years ended December 31, 2025, 2024 and 2023 is presented below.
DOLLARS IN MILLIONS
Change
from 2024
Change from 2023
Net Income (Loss) attributable to Kemper Corporation
Less:
Change in Fair Value of Equity and Convertible Securities
Net Realized Investment Gains (Losses)
Impairment Losses
Acquisition and Disposition Related Transaction,
Integration, Restructuring and Other Costs
Debt Extinguishment, Pension Settlement and Other
Charges
Goodwill Impairment Charge
Non-Core Operations
Adjusted Consolidated Net Operating Income (Loss)
Components of Adjusted Consolidated Net Operating Income:
Segment Adjusted Net Operating Income:
Specialty Property & Casualty Insurance
Life Insurance
Total Segment Adjusted Net Operating Income
Corporate and Other Adjusted Net Operating Loss
Less: Net Loss attributable to Noncontrolling Interest
Adjusted Consolidated Net Operating Income
Net Income (Loss) attributable to Kemper Corporation
2025 Compared with 2024
Net Income (Loss) attributable to Kemper Corporation decreased by $174.5 million in 2025, compared to 2024, due primarily to lower Adjusted Consolidated Net Operating Income.
Adjusted Consolidated Net Operating Income (Loss) decreased by $156.0 million in 2025, compared to 2024, due primarily to a deterioration in the Specialty Property & Casualty Insurance segment’s Underlying Combined Ratio and higher adverse prior year development on bodily injury coverages within commercial automobile insurance, partially offset by higher average earned premiums per exposure resulting from rate increases. This was partially offset by increased Life Insurance segment earnings driven by higher net investment income and a reduction in insurance expenses. Life Insurance segment results for the year December 31, 2024 included an $11.9 million after-tax loss from an investment valuation adjustment on one real estate investment from our alternative investment portfolio.
The loss from Non-Core Operations increased by $3.7 million in 2025, compared to 2024, primarily due to reduced net investment income and earned premiums outpacing reduced expenses as the business continues to run off. Additionally, the Company recognized $21.7 million of impairment losses in 2025 on Internal-Use Software assets reported as Other Assets on the Consolidated Balance Sheets. These were partially offset by a reduction in catastrophe losses and lower adverse prior year development. Separately, on August 1, 2025, certain Non-Core Operations subsidiaries entered into a renewal rights agreement with a third party and certain of its affiliates (collectively, the “Third Party”) whereby the Third Party will offer replacement policies for certain policies written by these subsidiaries in New York after the expiration of their current term. Execution of the terms of the agreement is contingent upon the granting of regulatory approvals by the New York Department of Financial Services.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SUMMARY OF RESULTS (Continued)
Corporate and Other Adjusted Net Operating Loss decreased $9.5 million in 2025, compared to 2024, primarily driven by lower interest expense due to the redemption of $450 million of 4.350% senior notes.
Revenues
2025 Compared with 2024
Total Revenues increased by $151.1 million to $4,789.7 million in 2025, compared to $4,638.6 million in 2024. The increase was primarily driven by higher earned premiums.
Earned Premiums increased by $180.4 million to $4,396.3 million in 2025, compared to $4,215.9 million in 2024, primarily driven by a $349.3 million increase from the Specialty Property & Casualty Insurance segment due to higher average earned premiums per exposure resulting from rate increases and higher commercial automobile volumes, partially offset by a $168.4 million reduction from our Preferred Insurance business, reported as Non-Core Operations, due primarily to lower volumes resulting from the exit and run-off of the business. Additionally, since Florida insurance reform was enacted in 2023, Kemper has experienced lower loss costs within its personal auto business, and this has led to ongoing favorable loss reserve development and expected profits on the current accident year. During the fourth quarter, the Company concluded that it is probable Florida personal auto underwriting profit for the three most recent years ended December 31, 2025, will exceed the profit limit imposed by a Florida insurance statute. During the fourth quarter of 2025 Kemper recorded a $35.0 million reduction to earned premiums, which represents a current estimate of the Florida personal auto profit that will be earned during the three-year period in excess of the permitted profit limit. This estimate will be updated through the first quarter of 2026 for development related to the three most recent years ended December 31, 2025. The statute requires that excess profits be returned to policyholders active as of December 31, 2025. The Company expects to fund credits to eligible policyholders in 2026.
Net Investment Income decreased by $2.5 million in 2025, compared to 2024, primarily driven by lower average Short-term invested assets, partially offset by higher earnings on common stock, Company-Owned Life Insurance, and mortgage loan assets.
Other (Loss) Income decreased by $12.5 million in 2025, compared to 2024, primarily driven by a $13.3 million loss from the fair market value adjustment of a tax credit equity investment.
Net Realized Investment Gains (Losses) decreased by $7.7 million in 2025, compared to 2024, due primarily to decreased gains on sales of fixed maturity and equity securities, partially offset by the absence of net realized losses on ultra-long treasury future derivatives transactions that did not qualify for hedge accounting.
Impairment losses increased by $5.0 million in 2025, compared to 2024, primarily driven by an increase in the allowance for credit losses on fixed maturity securities.
CATASTROPHES
Catastrophes and natural disasters are inherent risks of the property and casualty insurance business. These catastrophic events and natural disasters include, without limitation, hurricanes, tornadoes, earthquakes, hailstorms, wildfires, high winds and winter storms. Such events result in insured losses that are and may be a material factor in the results of operations and financial position of the Company’s property and casualty insurance companies. Further, because the level of these insured losses occurring in any one year cannot be accurately predicted, these losses may contribute to material year-to-year fluctuations in the results of operations and financial position of these companies. Specific types of catastrophic events are more likely to occur at certain times within the year than others. This factor adds an element of seasonality to property and casualty insurance claims. The Company has adopted the industry-wide catastrophe classifications of storms and other events promulgated by ISO to track and report losses related to catastrophes. ISO classifies a disaster as a catastrophe when the event causes $25.0 million or more in direct insured losses to property and affects a significant number of policyholders and insurers. ISO-classified catastrophes are assigned a unique serial number recognized throughout the insurance industry.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CATASTROPHES (Continued)
The number of ISO-classified catastrophic events and catastrophe losses and LAE, net of reinsurance recoveries, (excluding loss and LAE reserve development) by range of loss and business segment for the years ended December 31, 2025, 2024 and 2023 are presented below.
Year Ended
Dec 31, 2025
Dec 31, 2024
Dec 31, 2023
DOLLARS IN MILLIONS
Number of Events
Losses and LAE
Number of Events
Losses and LAE
Number of Events
Losses and LAE
Range of Losses and LAE Per Event:
Below $5
Greater Than $25
Total
Specialty Property & Casualty Insurance
Life Insurance
Non-Core Operations
Total Catastrophe Losses and LAE
Catastrophe Reinsurance
The Company primarily manages its exposure to catastrophes and other natural disasters through a combination of geographical diversification, restrictions on the amount and location of new business production in such regions, modifications of, and/or limitations to coverages and deductibles for certain perils in such regions and a catastrophe reinsurance program for the Company’s Property & Casualty Insurance business. Coverage under the catastrophe reinsurance program is provided in various contracts and layers. The Company’s Property & Casualty Insurance business also purchases reinsurance from the FHCF for hurricane losses in Florida at retentions lower than its catastrophe reinsurance program.
The Company had no material recoveries under its catastrophe reinsurance treaties for the years ended December 31, 2025, 2024 and 2023. See the “Reinsurance” subsection of the “Property and Casualty Insurance Business” and “Life Insurance Business” sections of Item 1(c), “Description of Business,” and Note 25, “Catastrophe Reinsurance,” to the Consolidated Financial Statements for additional information on the Company’s reinsurance programs.
LOSS AND LAE RESERVE DEVELOPMENT
Increases (decreases) in the Company’s property and casualty loss and LAE reserves for the years ended December 31, 2025, 2024 and 2023 to recognize adverse (favorable) loss and LAE reserve development from prior accident years in continuing operations, hereinafter also referred to as “reserve development” in the discussion of segment results, are presented below .
DOLLARS IN MILLIONS
Increase in Total Loss and LAE Reserves Related to Prior Years:
Non-catastrophe
Catastrophe
Increase in Total Loss and LAE Reserves Related to Prior Years
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
LOSS AND LAE RESERVE DEVELOPMENT (Continued)
See MD&A, “Specialty Property & Casualty Insurance,” MD&A, “Life Insurance,” and Note 5, “Property and Casualty Insurance Reserves,” to the Consolidated Financial Statements for additional information on the Company’s reserve development. See MD&A, “Critical Accounting Estimates,” of this 2025 Annual Report for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, and the estimated variability thereof, development of property and casualty insurance losses and LAE, and a discussion of some of the variables that may impact them.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE
Selected financial information for the Specialty Property & Casualty Insurance segment is presented below.
(Dollars in Millions)
Net Premiums Written
Earned Premiums
Net Investment Income
Other Income
Total Revenues
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Prior Years:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Total Incurred Losses and LAE
Insurance Expenses
Segment Adjusted Operating Income (Loss)
Income Tax Expense (Benefit)
Total Segment Adjusted Net Operating Income (Loss)
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Total Incurred Loss and LAE Ratio
Insurance Expense Ratio
Combined Ratio
Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio
Insurance Expense Ratio
Underlying Combined Ratio
Non-GAAP Measure Reconciliation
Combined Ratio
Less:
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Underlying Combined Ratio
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
INSURANCE RESERVES
(Dollars in Millions)
Dec 31,
Dec 31,
Insurance Reserves:
Personal Automobile
Commercial Automobile
Total Insurance Reserves
Insurance Reserves:
Loss and Allocated LAE Reserves:
Case and Allocated LAE
Incurred But Not Reported
Total Loss and LAE Reserves
Unallocated LAE Reserves
Total Insurance Reserves 1
1 Includes $29.4 million and $9.4 million attributable to Kemper Reciprocal as of December 31, 2025 and 2024, which is reported as a consolidated variable interest entity.
See MD&A, “Critical Accounting Estimates,” under the caption “Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses” 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
2025 Compared with 2024
The Specialty Property & Casualty Insurance segment reported Total Segment Adjusted Net Operating Income of $187.1 million for the year ended December 31, 2025, compared to Total Segment Adjusted Net Operating Income of $376.3 million in 2024. Segment adjusted net operating results decreased by $189.2 million which included a $166.2 million decrease from personal automobile insurance and a $23.0 million decrease from commercial automobile insurance. The decrease in personal automobile Adjusted Net Operating Income was primarily driven by higher underlying losses. The decrease in commercial automobile insurance Adjusted Net Operating Income was primarily driven by higher adverse prior year development.
Earned Premiums in the Specialty Property & Casualty Insurance segment increased by $349.3 million in 2025, compared to 2024, due to higher average earned premiums per exposure resulting from rate increases and higher commercial automobile volumes.
Net Investment Income in the Specialty Property & Casualty Insurance segment increased by $21.6 million in 2025, compared to 2024, due primarily to higher levels of invested assets resulting from growth.
Incurred Loss and LAE were $3,077.2 million or 78.4% of earned premiums for the year ended December 31, 2025, compared to $2,541.7 million or 71.1% of earned premiums, in 2024. Incurred losses and LAE as a percentage of earned premiums increased primarily due to a deterioration in the underlying loss and LAE ratio and adverse prior year development in commercial automobile. Underlying losses and LAE as a percentage of earned premiums were 76.2% in 2025, a deterioration of 5.9 percentage points, compared to 2024, due to higher claim severity primarily related to bodily injury and property damage coverages, partially offset by higher average earned premiums per exposure (10.8% increase year over year). Underlying losses and LAE exclude the impact of catastrophes and loss and LAE reserve development. Adverse loss and LAE reserve development (including catastrophe reserve development) was $74.6 million for 2025 compared to adverse development of $7.0 million for 2024 an increase of $67.6 million due primarily to evolving loss patterns on bodily injury coverages in commercial automobile and higher than expected development
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
on litigated matters. Catastrophe losses and LAE (excluding reserve development) were $11.5 million for 2025 compared to $19.9 million for 2024, a decrease of $8.4 million due to fewer catastrophe events and lower severity per event in 2025.
Insurance Expenses were $836.6 million, or 21.3% of earned premiums, for the year ended December 31, 2025, compared to $759.5 million, or 21.2% of earned premiums in 2024. Insurance Expenses increased $77.1 million due to higher expenses associated with increased business volumes.
The Specialty Property & Casualty Insurance segment’s 2025 effective tax rate was 19.4%, compared to 20.1% in 2024. The effective income tax rate for 2025 and 2024 differs from the federal statutory income tax rate primarily due to investments in Company-Owned Life Insurance, tax-exempt investment income and an increase in nondeductible executive compensation.
Specialty Personal Automobile Insurance
Selected financial information for the specialty personal automobile insurance product line for the years ended December 31, 2025, 2024, and 2023 is presented below.
DOLLARS IN MILLIONS
Net Premiums Written
Earned Premiums
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Prior Years:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Total Incurred Losses and LAE
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Total Incurred Loss and LAE Ratio
Insurance Expense Ratio
Combined Ratio
Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio
Insurance Expense Ratio
Underlying Combined Ratio
Non-GAAP Measure Reconciliation
Combined Ratio as Reported
Less:
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Underlying Combined Ratio
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
2025 Compared with 2024
Earned Premiums in personal automobile insurance increased by $173.5 million in 2025, compared to 2024, primarily due to higher average earned premiums per exposure resulting from rate increases. Incurred losses and LAE were $2,343.7 million, or 77.5% of earned premiums, in 2025, compared to $1,999.0 million, or 70.1% of earned premiums, in 2024. Incurred losses and LAE as a percentage of earned premiums increased due to deterioration in the underlying loss and LAE ratio. Underlying losses and LAE as a percentage of related earned premiums were 77.2% in 2025, compared to 69.6% in 2024, a deterioration of 7.6 percentage points driven by higher claim severity and frequency primarily related to bodily injury and property damage coverages that were offset by higher average earned premiums per exposure (10.1% increase year over year). Favorable loss and LAE reserve development was $1.9 million in 2025, compared to favorable loss and LAE reserve development of $0.2 million in 2024, an improvement of $1.7 million due primarily to stabilization of loss patterns in bodily injury coverages, partially offset by less favorable development on personal injury protection and collision coverages and higher losses associated with litigated matters. Catastrophe losses and LAE (excluding reserve development) were $8.7 million in 2025 compared to $14.5 million in 2024, an improvement of $5.8 million due to fewer catastrophe events and lower severity in 2025.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
Commercial Automobile Insurance
Selected financial information for the commercial automobile insurance product line is presented below.
DOLLARS IN MILLIONS
Net Premiums Written
Earned Premiums
Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Prior Years:
Non-catastrophe Losses and LAE
Catastrophe Losses and LAE
Total Incurred Losses and LAE
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Total Incurred Loss and LAE Ratio
Insurance Expense Ratio
Combined Ratio
Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio
Insurance Expense Ratio
Underlying Combined Ratio
Non-GAAP Measure Reconciliation
Combined Ratio as Reported
Less:
Current Year Catastrophe Losses and LAE Ratio
Prior Years Non-catastrophe Losses and LAE Ratio
Prior Years Catastrophe Losses and LAE Ratio
Underlying Combined Ratio
2025 Compared with 2024
Earned premiums from commercial automobile insurance increased by $175.8 million in 2025, compared to 2024, due primarily to higher average earned premiums per exposure resulting from rate increases and targeted mix shifts, and higher business volumes. Incurred losses and LAE were $733.5 million, or 81.4% of earned premiums, in 2025, compared to $542.7 million, or 74.9% of earned premiums, in 2024. Incurred losses and LAE as a percentage of earned premiums increased primarily due to adverse prior year development. Underlying losses and LAE as a percentage of earned premiums were 72.6% in 2025, compared to 73.2% in 2024, an improvement of 0.6 percentage points driven by lower claim frequency and higher average earned premium (8.2% increase year over year), partially offset by increased claim severity, primarily related to bodily injury coverages. Adverse loss and LAE reserve development was $76.5 million in 2025, compared to adverse development of
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
SPECIALTY PROPERTY & CASUALTY INSURANCE (Continued)
$7.2 million in 2024, an increase of $69.3 million due primarily to evolving loss patterns and higher defense costs associated with attorney-represented bodily injury coverages. Catastrophe losses and LAE (excluding reserve development) were $2.8 million for the year ended December 31, 2025, compared to $5.4 million for the same period in 2024 a decrease of $2.6 million due to few catastrophe events and lower severity per event in 2025.
LIFE INSURANCE
Selected financial information for the Life Insurance segment is presented below.
(Dollars in Millions)
Earned Premiums
Net Investment Income
Other Income
Total Revenues
Policyholders’ Benefits and Incurred Losses and LAE
Insurance Expenses
Segment Adjusted Operating Income
Income Tax Expense
Total Segment Adjusted Net Operating Income
INSURANCE RESERVES
(Dollars in Millions)
Dec 31,
Dec 31,
Insurance Reserves:
Future Policyholder Benefits
Incurred Losses and LAE Reserves:
Life
Accident and Health
Property
Total Incurred Losses and LAE Reserves
Total Insurance Reserves
See Note 2 “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements under the sub-caption “Insurance Reserves” for additional discussion.
2025 Compared with 2024
The Life Insurance Segment reported Total Segment Adjusted Net Operating Income of $68.5 million in 2025, compared to $50.2 million in 2024. The increase in segment net operating results was primarily due to an increase in net investment income, lower Insurance Expenses, and lower incurred losses and LAE on property insurance products.
Earned Premiums decreased by $0.5 million for the year ended December 31, 2025, compared to 2024, due primarily to changes in assumptions as part of the annual assumption update for Deferred Profit Liability in 2025 ($6.3 million reduction in Earned Premiums) as compared to 2024 ($4.8 million reduction in Earned Premiums). Excluding this impact, Earned Premiums increased by $1.0 million due primarily to higher average premiums per policy on life insurance products.
Net Investment Income increased by $17.6 million in 2025, compared to 2024, due primarily to lower losses on alternative investments and higher earnings on Company-Owned Life Insurance. The year ended December 31, 2024 included a $15.1 million pre-tax loss on an investment valuation adjustment of a real estate investment in our alternative investment portfolio.
Policyholders’ Benefits and Incurred Losses and LAE increased by $4.2 million in 2025, compared to 2024. Changes in assumptions from the annual assumption update reduced Policyholders’ Benefits and Incurred Losses and LAE by $9.3 million
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
LIFE INSURANCE (Continued)
and $11.9 million in 2025 and 2024, respectively. Excluding this impact, Policyholders’ Benefits and Incurred Losses and LAE increased $1.6 million.
Insurance Expenses decreased by $7.7 million in 2025, compared to 2024, due primarily to lower commission expense.
The Life Insurance segment’s 2025 effective income tax rate was 14.6% compared to 14.9% in 2024. The effective income tax rate for 2025 and 2024 differs from the federal statutory income tax rate primarily due to investments in Company-Owned Life
Insurance and Tax-Exempt Investment Income. The decrease in the effective tax rate from 2024 was driven by an increase in income from Company-Owned Life Insurance, partially offset by an increase in pre-tax income.
INVESTMENT RESULTS
Net Investment Income
Net Investment Income for the years ended December 31, 2025, 2024 and 2023 is presented below.
(Dollars in Millions)
Investment Income:
Interest on Fixed Income Securities 1
Dividends on Equity Securities Excluding Alternative Investments
Alternative Investments:
Equity Method Limited Liability Investments
Limited Liability Investments Included in Equity Securities
Total Alternative Investments
Short-term Investments
Loans to Policyholders
Real Estate
Company-Owned Life Insurance
Other
Total Investment Income
Investment Expenses:
Real Estate
Other Investment Expenses 1
Total Investment Expenses
Net Investment Income
1 Reduced by interest expense incurred on FHLB borrowings used for spread lending purposes of $18.7 million, $20.3 million and $22.7 million for the year ended December 31, 2025, 2024, and 2023, respectively.
2025 Compared with 2024
Net Investment Income was $405.0 million and $407.5 million for the years ended December 31, 2025 and 2024, respectively. Net Investment Income decreased by $2.5 million in 2025, mostly driven by lower levels and yields from Short-term investments and fixed maturity securities, partially offset by higher earnings on Company-Owned Life Insurance and dividends on equity securities.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INVESTMENT RESULTS (Continued)
Change in Unrealized Gains and Losses on Investments
Unrealized losses on investments decreased $163.0 million for the year ended December 31, 2025, primarily due to decreases in interest rates.
Change in Fair Value of Equity and Convertible Securities
The components of Change in Fair Value of Equity and Convertible Securities for the years ended December 31, 2025 and 2024 are presented below.
(Dollars in Millions)
Preferred Stocks
Common Stocks
Other Equity Interests:
Exchange Traded Funds
Limited Liability Companies and Limited Partnerships
Total Other Equity Interests
Change in Fair Value of Equity Securities
Change in Fair Value of Convertible Securities
Change in Fair Value of Equity and Convertible Securities
Net Realized Gains (Losses) on Sales of Investments
The components of Net Realized Investment Gains (Losses) for the year ended December 31, 2025, 2024 and 2023 are presented below.
(Dollars in Millions)
Fixed Maturities:
Gains on Sales
Losses on Sales
Losses on Hedging Activity 1
Equity Securities:
Gains on Sales
Losses on Sales
Other Investments:
Gains on Sales
Losses on Sales
Net Realized Investment Gains (Losses)
Gross Gains on Sales
Gross Losses on Sales
Gains (Losses) on Hedging Activity
Net Realized Investment Gains (Losses)
1 Includes Ultra-Long Treasury Future derivative securities which do not qualify for hedge accounting treatment.
Impairment Losses
The Company regularly reviews its investment portfolio to determine whether a decline in the fair value of an investment has occurred from credit or other, non-credit related factors. If the decline in fair value is due to credit factors and the Company does not expect to receive cash flows sufficient to support the entire amortized cost basis, the credit loss is reported in the Consolidated Statements of Income (Loss) in the period that the declines are evaluated. Conversely, an increase in the fair value
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INVESTMENT RESULTS (Continued)
or disposal of an investment with a previously established credit allowance will result in the reversal of impairment losses reported in the Consolidated Statements of Income (Loss) in the period.
The components of Impairment Losses in the Consolidated Statements of Income (Loss) for the year ended December 31, 2025, 2024, 2023 were:
(Dollars in Millions)
Amount
Number of Issuers
Amount
Number of Issuers
Amount
Number of Issuers
Fixed Maturities
Equity Securities at Modified Cost
Real Estate
Other
Impairment Losses 1
I Includes losses from intent-to-sell securities and direct write-down securities of $1.1 million, $3.3 million and $2.0 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Fixed Maturities
Impairment Losses recognized in the Consolidated Statements of Income (Loss) for the year ended December 31, 2025 related primarily to investments in securities with direct write-downs and in Fixed Maturities where the Company established an allowance for expected credit losses.
Impairment Losses recognized in the Consolidated Statements of Income (Loss) for the year ended December 31, 2024 related primarily to investments in securities with direct write-downs and in Fixed Maturities where the Company established an allowance for expected credit losses.
INVESTMENT QUALITY AND CONCENTRATIONS
The Company’s fixed maturity investment portfolio is comprised primarily of high-grade corporate, municipal and agency bonds. At December 31, 2025, approximately 93.8% of the Company’s fixed maturity investment portfolio was rated investment-grade, which the Company defines as a security issued by a high quality obligor with at least a relatively stable credit profile and where it is highly likely that all contractual payments of principal and interest will timely occur and carry a rating from the National Association of Insurance Commissioners (“NAIC”) of 1 or 2. Securities with a rating of 1 or 2 from the NAIC typically are rated by one or more Nationally Recognized Statistical Rating Organizations and either have a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”); a rating of Aaa, Aa, A or Baa from Moody’s Investors Service (“Moody’s”); or a rating of AAA, AA, A or BBB from Fitch Ratings.
The following table summarizes the credit quality of the Company’s fixed maturity investment portfolio at December 31,2025 and 2024.
DOLLARS IN MILLIONS
Dec 31, 2025
Dec 31, 2024
NAIC
Rating
Rating
Amortized Cost
Fair Value
Percentage
of Total
Amortized Cost
Fair Value
Percentage
of Total
AAA, AA, A
BBB
CCC or Lower
Total Investments in Fixed Maturities
Gross unrealized losses, net of CECL allowance, on the Company’s investments in below-investment-grade fixed maturities were $13.6 million and $14.2 million at December 31, 2025 and 2024, respectively.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INVESTMENT QUALITY AND CONCENTRATIONS (Continued)
The following table summarizes the fair value of the Company’s investments in governmental fixed maturities at December 31, 2025 and 2024.
Dec 31, 2025
Dec 31, 2024
DOLLARS IN MILLIONS
Fair Value
Percentage
of Total
Investments
Fair Value
Percentage
of Total
Investments
U.S. Government and Government Agencies and Authorities
States and Political Subdivisions:
Revenue Bonds
States
Political Subdivisions
Foreign Governments
Total Investments in Governmental Fixed Maturities
The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by industry at December 31, 2025 and 2024.
Dec 31, 2025
Dec 31, 2024
DOLLARS IN MILLIONS
Fair Value
Percentage
of Total
Investments
Fair Value
Percentage
of Total
Investments
Finance, Insurance and Real Estate
Manufacturing
Transportation, Communication and Utilities
Services
Mining
Retail Trade
Construction
Other
Total Investments in Non-governmental Fixed Maturities
The following table summarizes the fair value of the Company’s investments in non-governmental fixed maturities by range of amount invested at December 31,2025.
DOLLARS IN MILLIONS
Number of Issuers
Aggregate Fair Value
Below $5
Greater Than $30
Total
The Company’s short-term investments primarily consist of U.S. Treasury bills, short-term bonds, and money market funds. At December 31, 2025, the Company had $94.4 million invested in U.S. Treasury bills and short-term bonds and $233.4 million invested in money market funds, which primarily invest in U.S. Treasury securities.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INVESTMENT QUALITY AND CONCENTRATIONS (Continued)
The following table summarizes the fair value of the Company’s ten largest investment exposures in a single issuer, excluding investments in U.S. Government, Government Agencies and Authorities, and Short-term Investments, at December 31, 2025.
DOLLARS IN MILLIONS
Fair
Value
Percentage
of Total
Investments
Fixed Maturities:
States including their Political Subdivisions:
California
Texas
Michigan
Georgia
New York
Florida
Pennsylvania
Virginia
Louisiana
Colorado
Total
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(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 senior debt and mezzanine 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 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 December 31, 2025 and 2024 is presented below.
Unfunded
Commitment
in Millions
Reported Value in Millions
Asset Class
Dec 31,
Dec 31,
Dec 31,
Reported as Equity Method Limited Liability Investments:
Senior Debt
Mezzanine Debt
Secondary Transactions
Leveraged Buyout
Real Estate
Distressed Debt
Other
Total Equity Method Limited Liability Investments
Reported as Other Equity Interests at Fair Value:
Mezzanine Debt
Leveraged Buyout
Distressed Debt
Senior Debt
Growth Equity
Secondary Transactions
Real Estate
Other
Total Reported as Other Equity Interests at Fair Value
Reported as Other Investments:
Other Equity Investments 1
Total Investments in Limited Liability Companies and Limited Partnerships
1 In 2025, the Company elected to change the presentation of Alternative Energy Partnership Investments and Equity Securities at Modified Costs by including them within Other Equity Investments. Prior-period amounts have been recast to conform to the current-period presentation.
The Company expects that it will be required to fund its commitments over the next several years. The Company expects that the proceeds from distributions from these investments will be the primary source of funding of such commitments.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INSURANCE, INTEREST AND OTHER EXPENSES
Expenses for the year ended December 31, 2025, 2024 and 2023 were:
DOLLARS IN MILLIONS
Insurance and Other Expenses:
Insurance Expenses:
Policy Acquisition Costs
Business Unit Operating Costs
Corporate Overhead Costs
Insurance Expenses
Other Expenses:
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs
Pension Settlement
Other Corporate Costs
Other Expenses
Insurance and Other Expenses
Interest Expense
Goodwill Impairment
Total Insurance, Interest, and Other Expenses
Insurance and Other Expenses
Insurance Expenses were $1,167.4 million for the year ended December 31, 2025 compared to $1,113.9 million for the year ended December 31, 2024. Policy acquisition costs increased $36.6 million compared to the same period in 2024, primarily due to growth in the Specialty Property & Casualty Insurance segment from higher business volumes, partially offset by reductions due to lower volumes resulting from the exit and run-off of the Preferred Insurance business. Business Unit Operating Costs increased $33.3 million compared to the same period in 2024, primarily due to impairment losses recognized on Internal-Use Software assets related to the run-off of the Preferred Insurance business as well as increased bad debt expense resulting from business volumes in the Specialty Property & Casualty Insurance segment. Corporate Overhead Costs decreased $16.4 million in 2025 compared to 2024 primarily due to lower employee-related costs.
Other Expenses decreased by $18.6 million in 2025, compared to 2024, primarily due to lower Other Corporate Costs driven by reduced legal and pension-related expenses, as well as lower Acquisition and Disposition Related Transactions, Integration, Restructuring, and Other Costs following the completion of certain strategic initiatives. These decreases were slightly offset by a reduction in pension settlement gains.
Acquisition and Disposition Related Transaction, Integration, Restructuring and Other Costs for the year ended December 31, 2025 included $17.4 million of integration expenses related to continued investments in information technology and $20.6 million of restructuring charges to achieve operational and organizational efficiencies. The Company will continue to evaluate additional efficiency opportunities through 2027.
Other Corporate Costs for the year ended December 31, 2025 decreased $18.8 million compared to 2024, primarily due to lower legal expenses and absence of pension plan related expenses, following the termination and wind down of the Company’s pension trust.
Interest Expense
Interest expense decreased by $18.4 million in 2025 compared to 2024 primarily due to redemption of $450 million of 4.350% senior notes.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
INCOME TAXES
The federal corporate statutory income tax rate was 21% for the year ended December 31, 2025, 2024 and 2023. The Company’s effective income tax rate, which was 17.5%, 19.6% and 21.6% for 2025, 2024, and 2023 respectively, differs from the federal corporate income tax rate due primarily to (1) the effects of tax-exempt investment income, (2) nontaxable income associated with the change in cash surrender value on Company-Owned Life Insurance, (3) general business tax credits, (4) a permanent difference between the amount of long-term equity-based compensation expense recognized under GAAP and the amount deductible for Federal tax purposes, (5) a permanent difference associated with nondeductible executive compensation, (6) an impairment of non-tax deductible goodwill, (7) impact of deferred taxes in foreign jurisdictions, and (8) a change in valuation allowance related to foreign deferred assets.
In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed, enacting significant changes to federal tax law. The OBBBA includes, among other provisions, extension and modifications of various provisions from the 2017 Tax Cuts and Jobs Act, immediate expensing of domestic research and experimental costs, accelerated depreciation, compensation-related items, and the repeal of certain clean energy tax credits. The Company has evaluated the impacts of the OBBBA, which were not material to the consolidated financial statements, and will continue to monitor developments as further information becomes available.
On December 27, 2023, legislation implementing a corporate income tax (“CIT”) in Bermuda was enacted into law. The CIT imposes a 15% income tax that applies to Bermuda businesses which are part of multinational enterprise groups with annual revenue of €750 million or more and will be effective for fiscal years beginning on or after January 1, 2025, with a five-year deferred effective date for certain groups with a limited international footprint. Kemper has recorded, as part of its total income tax provision, the estimated impact of the Bermuda CIT on its Bermuda based reinsurance company at the effective date.
Tax-exempt investment income and dividends received deductions were $15.0 million in 2025, compared to $16.0 million in 2024.
The nontaxable increase in cash surrender value on Company-Owned Life Insurance was $42.9 million in 2025, compared to $35.6 million in 2024.
The Company realized investment tax credits and other federal income tax credits of $3.3 million in 2025, compared to realized investment tax credits and other federal tax credits of $12.0 million in 2024.
The amount of expense recognized for long-term equity-based compensation expense under GAAP was $3.0 million lower than the amount that would be deductible under the IRC in 2025, compared to $0.5 million lower in 2024.
The amount of nondeductible executive compensation was $32.0 million in 2025, compared to $16.8 million in 2024.
Tax expense of $0.7 million was recorded in 2025, compared to a tax benefit of $11.3 million in 2024 related to income taxes imposed in the foreign jurisdiction in which the Company operates.
The Company recorded a decrease in valuation allowance of $0.7 million in 2025, compared to an increase of $11.3 million in 2024 for those foreign deferred tax assets it determined were not more-likely-than-not to be realized.
LIQUIDITY AND CAPITAL RESOURCES
Shelf Registration Statement
The Company filed a universal shelf registration statement with the Securities and Exchange Commission in the first quarter of 2023. Under this shelf registration, the Company may issue an undetermined amount of securities including common stock, preferred stock, depository shares, debt securities, warrants, subscription rights, purchase contracts, and purchase units. Specific terms of any securities issued under this registration will be included in each applicable prospectus supplement.
Amended and Extended Credit Agreement
On March 15, 2022, the Company entered into an amended and extended credit agreement. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $600.0 million and extended the maturity date to March 15, 2027. Furthermore, the amended and extended credit agreement provides for an accordion feature whereby the Company can increase the revolving credit borrowing capacity by an additional $200.0 million for a total of maximum capacity of $800.0 million.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Financial covenants within the agreement may limit the Company from accessing the maximum capacity. The amount available as of December 31, 2025 was $600.0 million, the maximum capacity. There we re no outstanding borrowings under the credit agreement as of either December 31, 2025 or December 31, 2024.
The Company incurred $2.2 million of debt issuance costs in relation to the amended agreement. As of December 31, 2025 there were $0.6 million of remaining unamortized costs under the credit agreement, which will be amortized under the remaining term of the credit agreement.
Common Stock Offering
Kemper is authorized to issue 20 million shares of $0.10 par value preferred stock and 100 million shares of $0.10 par value common stock. No preferred shares were issued or outstanding at December 31, 2025 and 2024. There were 58,666,644 shares and 63,840,442 shares of common stock outstanding at December 31, 2025 and 2024, respectively.
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 December 31, 2025 and December 31, 2024 was:
(Dollars in Millions)
Dec 31,
Dec 31,
Senior Notes
Current:
4.350% Senior Notes due February 15, 2025
Non-Current
2.400% Senior Notes due September 30, 2030
3.800% Senior Notes due February 23, 2032
5.875% Fixed-Rate Reset Junior Subordinated Debentures due 2062
Total Long-term Debt Outstanding
See Note 23, “Debt,” to the Consolidated Financial Statements for more information regarding the Company’s long-term debt.
Federal Home Loan Bank Agreements
Kemper’s subsidiaries, United Insurance Company of America (“United Insurance”), Trinity Universal Insurance Company (“Trinity”), and American Access Casualty Company (“AAC”) are members of the Federal Home Loan Banks (“FHLBs”) of Chicago, Dallas and Chicago, respectively. AAC became a member of the FHLB of Chicago in May 2022. United Insurance and Trinity became members of the FHLBs of Chicago and Dallas, respectively, in 2013. Under their memberships, United Insurance, Trinity and AAC may borrow through the advance program of their respective FHLB. The Company’s investments in FHLB common stock are reported at cost and included in Other Investments. The carrying value of FHLB of Chicago common stock was $17.7 million and $16.9 million at December 31, 2025 and December 31, 2024, respectively. The carrying value of FHLB of Dallas common stock was $2.1 million and $8.8 million at December 31, 2025 and December 31, 2024, 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 2025, United Insurance received advances of $30.0 million from the FHLB of Chicago and made repayments of $57.4 million. United Insurance had outstanding advances from the FHLB of Chicago totaling $513.8 million at December 31, 2025. These advances were made in connection with the Company’s spread lending program. The proceeds related to these advances were used to purchase fixed maturity securities to earn incremental net investment income.
For these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $661.3 million at December 31, 2025. 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 22, “Policyholder Obligations,” to the Consolidated Financial Statements for additional information about the United Insurance advances and related funding agreements.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 a previous authorization in 2014 (the “2014 Repurchase Program”). Additionally, on August 5, 2025, Kemper’s Board of Directors approved a new share repurchase authorization, under which the Company can repurchase up to $500.0 million of its common stock (the “2025 Repurchase Program”). For the year ended December 31, 2025, the Company repurchased $301.9 million of shares of its common stock. As of December 31, 2025, the 2014 Repurchase Program has been completed and the remaining share repurchase authorization under the 2025 Repurchase Program was $304.2 million. The amount and timing of any future share repurchases under the 2025 Repurchase Program will depend on various factors, including market conditions, the Company’s financial condition, results of operations, available liquidity, particular circumstances and other considerations.
In August 2025, the Company entered into an accelerated share repurchase agreement (the “ASR agreement”) with Goldman Sachs & Co. LLC to repurchase an aggregate amount of $150.0 million of shares of the Company’s common stock. The transactions under the ASR agreement were settled and immediately retired during the third and fourth quarters of 2025.
Dividends to Shareholders
Kemper paid a quarterly dividend of $0.32 per common share for each quarter of 2025 and $0.31 per common share for each quarter of 2024, respectively. Dividends and dividend equivalents paid were $79.6 million, $80.1 million and $80.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Subsidiary Dividends and Capital Contributions
Various insurance laws restrict the ability of Kemper’s insurance subsidiaries to pay dividends without regulatory approval. Such insurance laws applicable to the Company’s US based insurance subsidiaries generally restrict the amount of dividends paid in an annual period to the greater of statutory net income from the previous year or 10% of statutory capital and surplus. Kemper’s US based insurance subsidiaries collectively paid $448.9 million, $213.3 million and $640.9 million in dividends to Kemper in 2025, 2024 and 2023, respectively. As of the filing date, Kemper’s US based insurance subsidiaries capacity to pay dividends to Kemper without prior regulatory approval is estimated to be $8.6 million.
Kemper made capital contributions to consolidated insurance subsidiaries and variable interest entity of $91.4 million, $18.0 million and $489.1 million during 2025, 2024 and 2023, respectively.
Sources and Uses of Funds
The Company directly held cash and investments totaling $145.4 million at December 31, 2025, compared to $547.6 million at December 31, 2024.
The primary sources of funds available for repayment of Kemper’s indebtedness, repurchases of common stock, future shareholder dividend payments, and the payment of interest on Kemper’s senior notes, include cash and investments directly held by Kemper, receipt of dividends from Kemper’s insurance subsidiaries and borrowings under the credit agreement and from subsidiaries.
The primary sources of funds for Kemper’s insurance subsidiaries are premiums, investment income, proceeds from the sales and maturity of investments, advances from the FHLBs of Chicago and Dallas, and capital contributions from Kemper. The primary uses of funds are the payment of policyholder benefits under life insurance contracts, claims under property and casualty insurance contracts and accident and health insurance contracts, the payment of commissions and general expenses, the purchase of investments and repayments of advances from the FHLBs of Chicago and Dallas.
Generally, there is a time lag between when premiums are collected and when policyholder benefits and insurance claims are paid. During periods of growth, property and casualty insurance companies typically experience positive operating cash flows and can invest a portion of their operating cash flows to fund future policyholder benefits and claims. During periods in which premium revenues decline, insurance companies may experience negative cash flows from operations and may need to sell investments to fund payments to policyholders and claimants. In addition, if the Company’s property and casualty insurance subsidiaries experience several significant catastrophic events over a relatively short period of time, investments may be sold to fund payments, which could result in investment gains or losses. Management believes that its property and casualty insurance subsidiaries maintain adequate levels of liquidity in the event that they were to experience several future catastrophic events over a relatively short period of time.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Information about the Company’s cash flows for the years ended December 31, 2025, 2024 and 2023 is presented below.
(Dollars in Millions)
Net Cash Provided by (Used in) Operating Activities
Net Cash Provided by (Used in) Investing Activities
Net Cash Used in Financing Activities
Cash available for investment activities is dependent on cash flow from Operating Activities and Financing Activities and the level of cash the Company elects to maintain.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by Operating Activities was $584.5 million in 2025, compared to $382.9 million provided in 2024, an increase of $201.6 million. The increase in cash provided by Operating Activities was primarily driven by growth from our Specialty Property & Casualty business due to higher average earned premiums per exposure resulting from rate increases and timing of claim payments. This was partially offset by lower business volumes and timing of claim payments within Non-Core Operations resulting from the exit and run-off of the Preferred Insurance business.
Net Cash Provided by (Used in) Investing Activities
Net cash provided by Investing Activities was $336.2 million in 2025, compared to $244.4 million used in in 2024, a year over year increase of $580.6 million. T he increase in cash provided by Investing Activities was primarily due to proceeds from sales of short term investments that were primarily used to fund the redemption of the $450.0 million 4.350% Senior Notes due February 15, 2025 (the “2025 Senior Notes”). This was partially offset by an increase in net purchases of Fixed Maturity investments as a result of normal portfolio management.
Net Cash Used in Financing Activities
Net cash used in Financing Activities was $860.1 million in 2025, compared to $137.2 million used in 2024, an increase of $722.9 million. This increase in net cash used by Financing Activities was primarily due to the redemption of the 2025 Senior Notes in the first quarter of 2025 and common stock repurchases made during 2025.
CONTRACTUAL OBLIGATIONS
Estimated cash disbursements pertaining to the Company’s contractual obligations at December 31, 2025 are presented below.
DOLLARS IN MILLIONS
Jan 1, 2026 to Dec 31, 2026
Jan 1, 2027 to Dec 31, 2028
Jan 1, 2029 to Dec 31, 2030
After Dec 31, 2030
Total
Long Term Debt Obligations
Life and Health Insurance Policy Benefits
Property and Casualty Insurance Reserves
Total Contractual Obligations
Amounts included in Life and Health Insurance Policy Benefits within the contractual obligations table above represent the estimated cash payments to be made to policyholders and beneficiaries. Such cash outflows are based on the Company’s current assumptions for mortality, morbidity and policy lapse, but are undiscounted with respect to interest. Policies must remain in force for the policyholder or beneficiary to receive the benefit under the policy. Depending on the terms of a particular policy, future premiums from the policyholder may be required for the policy to remain in force. The Company estimates that future cash inflows would total $4.1 billion using the same assumptions used to estimate the cash outflows. The Company’s Life Insurance Reserves in the Company’s Consolidated Balance Sheets are generally based on the historical assumptions for mortality and policy lapse rates and are on a discounted basis. Accordingly, the sum of the amounts presented above for Life and Health Insurance Policy Benefits significantly exceeds the amount of Life and Health Insurance Reserves reported on the Company’s Consolidated Balance Sheets at December 31, 2025.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CONTRACTUAL OBLIGATIONS (Continued)
In addition to the contractual obligations included above, the Company had certain investment commitments totaling $250.1 million at December 31, 2025. The funding of such investment commitments is dependent on a number of factors, the timing of which is indeterminate. The Company cannot make a reasonably reliable estimate of the amount and period of related future payments, if any, for such liability.
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES
Kemper’s subsidiaries conduct their operations in two industries: property and casualty insurance and life insurance. Accordingly, the Company is subject to several industry-specific accounting principles under GAAP. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The process of estimation is inherently uncertain. Accordingly, actual results could ultimately differ materially from the estimated amounts reported in a company’s financial statements. Different assumptions are likely to result in different estimates of reported amounts.
The Company’s critical accounting policies most sensitive to estimates include the valuation of investments, the valuation of life insurance reserves, the valuation of reserves for property and casualty insurance incurred losses and LAE, the assessment of recoverability of goodwill, and the recoverability of deferred tax assets.
Valuation of Investments
The reported value of the Company’s investments was $8,669.6 million at December 31, 2025, of which $7,050.2 million, or 82%, was reported at fair value, $176.0 million, or 2%, was reported under the equity method of accounting, $429.7 million, or 5%, was reported at unpaid principal balance and $1,013.7 million, or 11%, was reported at cost, modified cost or depreciated cost. Investments, in general, are exposed to various risks, such as interest rate risk, credit risk and overall market volatility risk. Accordingly, it is reasonably possible that changes in the fair values of the Company’s investments reported at fair value will occur in the near term and such changes could materially affect the amounts reported in the financial statements. Also, it is reasonably possible that changes in the carrying values of the Company’s Equity Method Limited Liability Investments will occur in the near term and such changes could materially affect the amounts reported in the financial statements because these issuers follow specialized industry accounting principles which require that they report all of their investments at fair value (See Item 1A., “Risk Factors” under the title “The Company’s investment portfolio is exposed to a variety of risks that may negatively impact net investment income and cause realized and unrealized losses”).
As more fully described under the heading, “Fair Value Measurements,” in Note 2, “Summary of Accounting Policies and Accounting Changes,” to the Consolidated Financial Statements, the Company uses a hierarchical framework which prioritizes and ranks the market observability used in fair value measurements.
The fair value of the Company’s investments measured and reported at fair value was $7,050.2 million at December 31, 2025, of which $6,496.3 million, or 92%, were investments that were based on quoted market prices or significant fair value inputs that are observable, $343.6 million, or 5%, were investments where at least one significant fair value inputs was unobservable and $210.3 million or 3% were investments for which fair value is measured using the net asset value (“NAV”) per share practical expedient. Fair value measurements based on readily available, active, quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment, compared to fair value measurements based on significant unobservable inputs used in measuring fair value. The prices that the Company might realize from actual sales of investments are likely to vary from their respective estimated fair values at December 31, 2025 due to changing market conditions and limitations inherent in the estimation process.
The classification of a company’s investment in a financial instrument may affect its reported results. Under GAAP, a company may elect to use the fair value option method of accounting for some or all of its investments in financial instruments. Under the fair value option method of accounting, a company is required to recognize changes in fair values into income for the period reported. The Company has elected the fair value option for investments in fixed maturities with equity conversion features. As of December 31, 2025, the Company no longer holds any investments with equity conversion features. For investments in fixed maturities classified as held to maturity, a company is required to carry the investment at amortized cost, with only amortization occurring during the period recognized into income. None of the Company’s investments in fixed maturities were classified as held to maturity at December 31, 2025. Changes in the fair value of investments in fixed maturities classified as available for sale are not recognized in income during the period, but rather are recognized as a separate component of Accumulated Other Comprehensive Loss (“AOCI”) until realized. Both the reported and fair values of the Company’s investments in fixed maturities classified as available for sale were $6,743.3 million at December 31, 2025.
Equity securities with readily determinable fair values are recorded as Equity Securities at Fair Value with changes in fair values recognized into income for the period reported. Accordingly, both the reported and fair values of the Company’s investments in Equity Securities at Fair Value were $306.4 million at December 31, 2025. The Company holds certain equity investments without readily determinable fair values at cost, less impairment, if any, plus or minus changes resulting from
Kemper Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
observable price changes in orderly transactions for identical or similar investments from the same issuer. Changes in the carrying value of Equity Securities at Modified Cost due to observable price changes are recorded into income for the period reported.
Had the Company elected the fair value option for all of its investments in financial instruments, the Company’s reported net income for the year ended December 31, 2025, would have increased by $130.3 million.
The Company regularly reviews its fixed maturity investment portfolio and holdings in Equity Securities at Modified Cost for factors that may indicate a decline in the fair value of an investment below its amortized cost or modified cost basis. Such reviews are inherently uncertain in that the value of the investment may not fully recover or may decline further in future periods. Some factors considered in evaluating whether or not a decline in fair value of an investment exist include, but are not limited to, the following:
Fixed Maturity Securities
• The financial condition, credit rating and prospects of the issuer;
• The magnitude of the unrealized loss;
• The ability of the issuer to make scheduled principal and interest payments;
• The volatility of the investment;
Equity Securities at Modified Cost
• Opinions of the Company’s external investment managers;
• The financial condition and prospects of the issuer;
• Current market conditions;
• Changes in credit ratings; and
• Changes in the regulatory environment.
Changes in these factors from their December 31, 2025 evaluation date could result in the Company determining that a decline in the fair value exists for an investment held and evaluated at December 31, 2025. Such determination would result in an impairment loss in the period such determination is made.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
Life Insurance Reserves
Company’s Life Insurance Reserves are reported using the Company’s estimate of its liability for future policyholder benefits.
Insurance Reserves for the Company’s life & health insurance business operations were $3,287.5 million and $3,199.7 million at December 31, 2025 and 2024, respectively.
These assumption inputs to the calculation of the liability for future policyholder benefits include mortality, lapses, and discount rates (both accretion and current). Kemper groups together policies with similar types of business for its cohorts, which typically vary by issue year. The Company’s actuaries use a variety of generally accepted actuarial methodologies, in accordance with Actuarial Standards of Practice, in determining the mortality and lapse assumptions. These assumptions are based on judgments that consider the Company’s historical experience, industry data, and other relevant factors. The Company reviews and updates its estimate of cash flows expected over the lifetime of a group of contracts using actual historical experience quarterly and current future cash flow assumptions at least annually to calculate its revised net premium ratio. The revised net premium ratios are then used to calculate an updated liability for future policyholder benefits for the current reporting period, discounted at the original contract issuance discount rate. The Company has elected to use expense assumptions that are locked in at contract inception and are not subsequently reviewed or updated. Resulting changes in the liability due to differences in actual versus expected experience, changes in current cash flow assumptions, and prefunding and payout of benefits compared to the carrying amount of the liability as of that same date are recorded as a separate component of benefit expense in the Consolidated Statements of Loss. The current discount rate assumption is an equivalent spot rate curve of annually compounded rates at monthly increments that is derived based on A-credit rated fixed-income instruments reflecting the duration characteristics of the liability. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in Accumulated Other Comprehensive Loss on the Consolidated Balance Sheets.
In estimating the Company’s Life Insurance Reserves, the Company’s actuaries exercise professional judgment and must consider, and are influenced by, many variables that are difficult to quantify and are estimating losses many years into the future. Accordingly, the process of estimating and establishing the Company’s Life Insurance Reserves is inherently uncertain. Certain variables, such as policyholder behavior, are difficult to estimate and can have a significant impact on reserves. Experience may develop adversely such that additional reserves must be established. Adverse experience could arise out of a number of factors, including, but not limited to, severe short-term events, such as a pandemic or changes to policyholder behavior during stressed economic periods, or due to misestimation of long-term assumptions such as mortality, interest rates and lapse assumptions. To illustrate the sensitivities of the Company’s Life Insurance Reserves to changes in interest rates, the Company assessed hypothetical changes due to parallel shifts in interest rates to reported amounts related to the Company’s Life Insurance Reserve. If interest rates decreased by 100 basis points, the Company’s liability for future policyholder benefits as of December 31, 2025 would increase by $404.4 million, and if interest rates increased by 100 basis points, the Company’s liability for future policyholder benefits as of December 31, 2025 would decrease by $316.0 million.
Property and Casualty Insurance Reserves for Losses and Loss Adjustment Expenses
The Company’s Property and Casualty Insurance Reserves are reported using the Company’s estimate of its ultimate liability for losses and LAE for claims that occurred prior to the end of any given accounting period but have not yet been paid. The Company had $2,910.8 million an d $2,611.9 million of gross loss and LAE reserves at December 31, 2025 and 2024, respectively.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
Property and Casualty Insurance Reserves for the Company’s business segments at December 31, 2025 and 2024 were:
DOLLARS IN MILLIONS
Business Segments:
Specialty Property & Casualty Insurance 1
Life Insurance
Total Business Segments
Non-Core Operations
Unallocated Reserves
Total Property and Casualty Insurance Reserves 1
1 Includes $29.4 million and $9.4 million attributable to Kemper Reciprocal as of December 31, 2025 and 2024, respectively, which is reported as a consolidated variable interest entity.
In estimating the Company’s Property and Casualty Insurance Reserves, the Company’s actuaries exercise professional judgment and must consider, many variables that are difficult to quantify. Accordingly, the process of estimating and establishing the Company’s Property and Casualty Insurance Reserves is inherently uncertain, and the actual ultimate cost of known and unknown claims may vary materially from the estimated amounts reserved.
The Company’s actuaries conduct a comprehensive quarterly loss reserve review for each product line of business based on a variety of methodologies in accordance with Actuarial Standards of Practice. A reasonable range of unpaid loss estimates is derived from, but not limited to, the following methodologies:
• Incurred Loss Development Methodology;
• Paid Loss Development Methodology;
• Bornhuetter-Ferguson Incurred Loss Methodology;
• Bornhuetter-Ferguson Paid Loss Methodology; and
• Frequency and Severity Methodology.
The actuarial best estimate for each product line of business for ultimate losses and LAE represents an expected value considering a range of reasonable outcomes. The actuarial best estimate includes an offset for expected salvage and subrogation recoveries.
The key assumption in these estimation methodologies is that patterns observed in prior periods are indicative of how losses and LAE are expected to develop in the future and that such historical data can be used to predict and estimate ultimate losses and LAE. However, changes in the Company’s business processes, by their very nature, are likely to affect the development patterns, which means the Company’s actuaries must routinely make assumptions about how changes in business practices would affect historical patterns.
The ultimate impact of a single change in a business process is difficult to quantify and detect, and even more difficult if several changes to business processes occur over several years. Initially after a change is implemented, there are fewer data points, as compared to the historical data, for the Company’s actuaries to analyze. With fewer data points to analyze, the Company’s actuaries cannot be certain that observed differences from the historical data trends are a result of the change in business process or merely a random fluctuation in the data. As the Company’s actuaries observe more data points following the change in business process, the Company’s actuaries can gain more confidence in whether the change in business process is affecting the development pattern. The challenge for the Company’s actuaries is how much weight to place on the development patterns based on the older historical data and how much weight to place on the development patterns based on more recent data.
For each accident quarter or year, the point estimate selected by the Company’s actuaries is not necessarily one of the points produced by any particular one of the methodologies utilized, but often is another point selected by the Company’s actuaries, using their professional judgment, that takes into consideration each of the points produced by the several loss reserving estimation methodologies used. In some cases, for a particular product, the current accident quarter or year may not have enough paid claims data to rely upon, leading the Company’s actuaries to conclude that the incurred loss development methodology provides a better estimate than the paid loss development methodology. Therefore, the Company’s actuaries may give more weight to the incurred loss development methodology for that particular accident quarter or year. As an accident quarter or year ages for that same product, the actuary may gain more confidence in the paid loss development methodology and begin to give more weight to the paid loss development methodology. The Company’s actuaries’ quarterly selections are
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
summed by product and/or coverage levels to create the actuarial indication of the ultimate losses. More often than not, the actuarial indication for a particular product line and accident quarter or year is most heavily weighted toward the incurred loss development methodology, particularly for short-tail lines such as personal automobile insurance. Historically, the incurred loss development methodology has been more reliable in predicting ultimate losses for short-tail lines, especially in the more recent accident quarters or years, compared with the paid loss development methodology. However, in some circumstances changes can occur which impact numerous variables, including, but not limited to, those variables identified below that are difficult to quantify and/or impact the predictive value of prior development patterns relied upon in the incurred loss development methodology and paid loss development methodology. In those circumstances, the Company’s actuaries must make adjustments to these loss reserving estimation methodologies or use additional generally accepted actuarial estimation methodologies. In those circumstances, the Company’s actuaries, using their professional judgment, may place more weight on the adjusted loss reserving estimation methodologies or other generally accepted actuarial estimation methodologies until the newer development patterns fully emerge and the Company’s actuaries can fully rely on the unadjusted loss reserving estimation methodologies. In the event of a wide variation among results generated by the different projection methodologies, the Company’s actuaries further analyze the data using additional techniques.
Subrogation & salvage recoveries, which predominately impact the material damage coverages, are independently evaluated each quarter using generally accepted actuarial methodologies. Since claim adjusters do not establish case reserves for potential recoveries the methodologies use paid/recovered amounts. Once this is completed, it is combined with the ultimate gross loss and LAE analyses.
In estimating reserves, the Company’s actuaries exercise professional judgment and must consider, and are influenced by, many variables that are difficult to quantify, such as:
• Changes in the level of minimum case reserves, and the automatic aging of those minimum case reserves;
• Changes to claims practices, including, but not limited to, changes in the reporting and impact of large losses, timing of reported claims, changes in claims closing and re-opening patterns, adequacy of case reserves.
• Implementation of new systems for handling claims, turnover of claims department staffs, timing and depth of the audit review of claims handling procedures;
• Changes in the mix of business by state, class and policy limit within product line;
• Growth in new lines of business;
• Changes in the attachment points of the Company’s reinsurance programs;
• Medical costs, including, but not limited to, the ability to assess the extent of injuries and the impact of inflation;
• Repair costs, including, but not limited to, the impact of inflation and the availability of labor and materials;
• Changes in the judicial environment, including, but not limited to, the interpretation of policy provisions, the impact of jury awards and changes in case law; and
• Changes in state regulatory requirements.
A change in any one or more of the foregoing factors is likely to result in a projected ultimate net loss and LAE that is different from the previously estimated reserve and/or previous frequency and severity trends. Such changes in estimates may be material. For example, the Company’s actuaries review frequency (number of claims per policy or exposure), severity (dollars of loss per claim) and average premium (dollars of premium per exposure). Actual frequency and severity experienced will vary depending on changes in mix by class of insured risk. Similarly, the actual frequency and rate of recovery from reinsurance will vary depending on changes in the attachment point for reinsurance. In particular, in periods of high growth or expansion into new markets, there may be additional uncertainty in estimating the ultimate losses and LAE. The contributing factors of this potential risk are changes in the Company’s mix by policy limit and mix of business by state or jurisdiction.
Actuaries use historical experience and trends as predictors of how losses and LAE will emerge over time. However, historical experience may not necessarily be indicative of how actual losses and LAE will emerge. Changes in case reserve adequacy, changes in minimum case reserves and changes in internal claims handling procedures could impact the timing and recognition of incurred claims and produce an estimate that is either too high or too low if not adjusted for by the actuary. For example, if, due to changes in claims handling procedures, actual claims are settled more rapidly than they were settled historically, the estimate produced by the paid loss development methodology would tend to be overstated if the actuary did not identify and adjust for the impact of the changes in claims handling procedures. Similarly, if, due to changes in claims handling procedures, actual claim reserves are set at levels higher than past experience, the estimate produced by the incurred loss development methodology would tend to be overstated if the actuary did not identify and adjust for the impact of the changes in claims handling procedures.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
The final step in the quarterly loss and LAE reserving process involves a comprehensive review of the actuarial indications by the Company’s chief reserving actuary and corporate management who apply their collective judgment and determine the appropriate estimated level of reserves to record. Numerous factors are considered in this determination process, including, but not limited to, the assessed reliability of key loss trends and assumptions that may be significantly influencing the current actuarial indications, changes in claim handling practices or other changes that affect the timing of payment or development patterns, changes in the mix of business, the maturity of the accident quarter or year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, the improvement or deterioration of actuarial indications in the current period as compared to prior periods, and the amount of reserves related to third party pools for which the Company does not have access to the underlying data and, accordingly, relies on calculations provided by such pools.
The Company’s goal is to ensure that its total reserves for property and casualty insurance losses and LAE are adequate to cover all costs, while sustaining minimal variation from the time reserves for losses and LAE are initially estimated until losses and LAE are fully paid. Changes in the Company’s estimates of these losses and LAE over time, also referred to as “development,” will occur and may be material. Favorable development is recognized and reported in the Consolidated Financial Statements when the Company decreases its previous estimate of ultimate losses and LAE and results in an increase in net income in the period recognized, whereas adverse development is recognized and reported in the Consolidated Financial Statements when the Company increases its previous estimate of ultimate losses and LAE and results in a decrease in net income.
Although development will emerge in all of the Company’s product lines, development in the Company’s specialty personal automobile insurance product line could have the most significant impact due to the relative size of its loss and LAE reserves. To further illustrate the sensitivity of the Company’s reserves for specialty personal automobile insurance losses and LAE, the Company measures the standard deviation of the mean reserve estimate using a bootstrapping methodology. The Company believes that one standard deviation of variability is a reasonably likely scenario to measure variability for its loss and LAE reserves for specialty personal automobile insurance. The Company estimates that its specialty personal automobile insurance loss and LAE reserves could have varied by $50.4 million in either direction at December 31, 2025 for all accident years combined under this scenario. In addition to the factors described above, other factors may also impact loss reserve development in future periods. These factors include governmental actions, including court decisions interpreting existing laws, regulations or policy provisions, developments related to insurance policy claims and coverage issues, adverse or favorable outcomes in pending claims litigation, the number and severity of insurance claims, the impact of inflation on insurance claims and the impact of required participation in wind pools and joint underwriting associations and residual market assessments.
Although the Company’s actuaries do not make specific numerical assumptions about these factors, changes in these factors from past patterns will impact historical loss development factors and, in turn, future loss reserve development. Significant favorable changes in one or more factors will lead to favorable future loss reserve development, which could result in the actual loss developing closer to, or even below, the lower end of the Company’s estimated reserve variability. Significant unfavorable changes in one or more factors will lead to unfavorable loss reserve development, which could result in the actual loss developing closer to, or even above, the higher end of the Company’s estimated reserve variability. Accordingly, due to these factors and the other factors enumerated throughout the MD&A and the inherent limitations of the loss reserving estimation methodologies, the estimated and illustrated reserve variability may not necessarily be indicative of the Company’s future reserve variability, which could ultimately be greater than the estimated and illustrated variability. In addition, as previously noted, development will emerge in all of the Company’s product lines over time. Accordingly, the Company’s future reserve variability could ultimately be greater than the illustrated variability. Additional information pertaining to the estimation of, and development of, the Company’s Property and Casualty Insurance Reserves is contained in Item 1 of Part I of this 2025 Annual Report under the heading “Property and Casualty Loss and Loss Adjustment Expense Reserves.”
Goodwill Recoverability
The Company tests goodwill for recoverability at the reporting unit level on an annual basis, or whenever events or circumstances indicate the fair value of a reporting unit may have declined below its carrying value.
During the second quarter of 2023, the Company identified impairment indicators impacting the fair value of the Preferred Property & Casualty Insurance business in connection with ongoing evaluation of strategic alternatives for the Preferred Insurance business. As a result, the business’s fair value was determined using a combination of available market information, market comparisons and a discounted cash flow valuation method based on the present value of future earnings. The fair value calculated in the second quarter of 2023 was lower than the carrying value of the business, resulting in a pre-tax impairment
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Management’s Discussion and Analysis of Financial Condition and Results of Operations—(Continued)
CRITICAL ACCOUNTING ESTIMATES (Continued)
charge of $49.6 million and an after-tax impairment charge of $45.5 million. See Note 14, “Goodwill and Intangibles,” for more information.
The Company tests goodwill for recoverability at the reporting unit level on an annual basis, or whenever events or circumstances indicate the fair value of a reporting unit may have declined below its carrying value. The Company performed a quantitative goodwill impairment assessment for all reporting units with goodwill as of October 1, 2025. The quantitative assessment compares the estimated fair value of a reporting unit to its carrying value to determine if there is an impairment of goodwill. Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions by the Company. The estimates and assumptions included, but were not limited to, projections of future cash flows, operating results, discount rates, investment yields and market conditions. Such projections are inherently uncertain and, accordingly, actual future results may differ materially from the Company’s projections. For each reporting unit tested, the estimated fair value exceeded the carrying value of the reporting unit, and the Company concluded that the associated goodwill was recoverable. See Note 14, “Goodwill and Intangibles,” for more information.
Recoverability of Deferred Tax Assets
The evaluation of the recoverability of deferred tax assets and the need for a valuation allowance requires the Company to weigh all positive and negative evidence to reach a conclusion whether it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.
When making such determination, the Company considers various factors, including:
• the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
• the jurisdiction in which the deferred tax asset was generated;
• the length of time that carryforward can be utilized in the relevant taxing jurisdictions;
• future taxable income exclusive of reversing temporary differences and carryforwards;
• future reversals of existing taxable temporary differences;
• taxable income in prior carryback years; and
• availability of tax planning strategies.
As a result of the analysis, the Company determined that a valuation allowance was required as of December 31, 2025 against certain foreign deferred tax assets which had been recorded during 2025.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP recognized by the FASB that is applicable to the Company. The FASB issues Accounting Standards Updates (“ASUs”) to amend the authoritative literature in the FASB ASC.
The Company has adopted all recently issued accounting pronouncements with effective dates prior to January 1, 2026. See Note 2, “Summary of Accounting Policies and Accounting Changes” to the Consolidated Financial Statements for discussion on adoption of these ASUs and impacts to the Company’s financial statements. For all recently issued accounting pronouncements with effective dates after December 31, 2025, the Company is currently evaluating the impact of this guidance on its financial statements.
