Kemper Reports Strong First Quarter 2019 Operating Results

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    CHICAGO–(BUSINESS WIRE)–Kemper Corporation (NYSE: KMPR)
    reported net income of $155.3 million, or $2.35 per diluted share, for
    the first quarter of 2019, compared to $53.8 million, or $1.02 per
    diluted share, for the first quarter of 2018. In the first quarter of
    2019, net income included a $50.9 million after-tax gain, or $0.77 per
    diluted share, attributable to the change in fair value of equity and
    convertible securities. As adjusted for the acquisition of Infinity
    Property and Casualty Corporation1, net income was $153.2
    million, or $2.32 per diluted share, for the first quarter of 2019,
    compared to $73.9 million, or $1.13 per diluted share, for the first
    quarter of 2018.

    Adjusted consolidated net operating income1 was $98.9
    million, or $1.50 per diluted share, for the first quarter of 2019,
    compared to $57.5 million, or $1.10 per diluted share, for the first
    quarter of 2018. These results increased primarily from the continued
    profitable growth in Specialty Property & Casualty Insurance segment.

    Highlights of the quarter include:

    • Consolidated earned premiums increased by 76 percent, or $465.0
      million in the quarter, as reported, 12 percent, or $111.0 million, as
      adjusted
      1
    • Specialty Property & Casualty Insurance segment’s earned premiums
      increased by 162 percent, or $450.9 million in the quarter, as
      reported, or 15 percent, or $96.9 million, as adjusted
      1

    Kemper delivered strong growth and earnings this quarter with solid
    operating performance in our core businesses, including significant
    increases in earned premiums, net income, earnings per share and book
    value per share,” said Joseph P. Lacher, Jr., President and CEO. “Our
    focus on growing, niche and underserved markets and ability to meet the
    needs of our customers is driving growth in revenues and profitability.”

       

    Three Months Ended

    (Dollars in Millions, Except Per Share Amounts) (Unaudited)

    Mar 31,
    2019

        Mar 31,
    2018
    Net Income $ 155.3 $ 53.8
    Income from Continuing Operations $ 155.3 $ 53.6
    Adjusted Consolidated Net Operating Income1 $ 98.9 $ 57.5
     
    Impact of Catastrophe Losses and Related Loss Adjustment Expense
    (LAE) on Net Income
    $ (13.8 ) $ (6.1 )
     
    Diluted Net Income Per Share From:
    Net Income $ 2.35 $ 1.02
    Income from Continuing Operations $ 2.35 $ 1.02
    Adjusted Consolidated Net Operating Income1 $ 1.50 $ 1.10
     
    Impact of Catastrophe Losses and Related LAE on Net Income Per
    Share
    $ (0.21 ) $ (0.12 )
     

    1 Non-GAAP financial measure. All Non-GAAP financial measures
    are denoted with footnote 1 throughout this release. See “Use of
    Non-GAAP Financial Measures” for additional information.

    Capital

    Total Shareholders’ Equity at the end of the quarter was $3,320.1
    million, an increase of $270.0 million, or 9 percent, since year-end
    2018 driven by net income and unrealized gain on fixed maturity
    portfolio, partially offset by dividends paid to shareholders. Kemper
    ended the quarter with cash and investments at the holding company of
    $118.6 million, and the $300 million revolving credit agreement was
    undrawn.

    During the first quarter of 2019, Kemper paid dividends of $16.2 million.

    Kemper ended the quarter with a book value per share of $51.13, an
    increase of 9 percent from $47.10 at the end of 2018. Book value per
    share excluding net unrealized gains on fixed maturities1 was
    $47.41, up 4 percent from $45.40 at the end of 2018, driven by net
    income, partially offset by dividends paid to shareholders.

    Revenues

    Total revenues for the first quarter of 2019 increased $543.3 million,
    or 78 percent, to $1,236.3 million, compared to the first quarter of
    2018, driven by $450.9 million of higher Specialty P&C earned premiums
    and by $63.7 million of higher revenues from the increase in the fair
    values of equity and convertible securities. Net investment income
    increased $3.5 million to $82.7 million in the first quarter of 2019,
    primarily from a $14.0 million increase in interest on fixed income
    securities primarily from the addition of Infinity’s investment
    portfolio, partially offset by a $12.0 million reduction in net
    investment income on the alternative investments portfolio. Net realized
    investment gains were $16.1 million in the first quarter of 2019,
    compared to $2.6 million last year. Other income increased $0.7 million
    to $1.9 million in the first quarter of 2019.

    On an as adjusted basis1, Specialty P&C earned premiums for
    the first quarter of 2019 increased $96.9 million, or 15 percent, to
    $729.3, compared to the first quarter of 2018, primarily from higher
    policies in-force.

    Segment Results

    Unless otherwise noted, (i) the segment results discussed below are
    presented on an after-tax basis, (ii) prior-year development includes
    both catastrophe and non-catastrophe losses and LAE, (iii) catastrophe
    losses and LAE exclude the impact of prior-year development, (iv) loss
    ratio includes loss and LAE, and (v) all comparisons are made to the
    prior year quarter unless otherwise stated.

       
    Three Months Ended
    (Dollars in Millions) (Unaudited) Mar 31,
    2019
        Mar 31,
    2018
    Segment Net Operating Income:
    Preferred Property & Casualty Insurance $ 2.8 $ 13.5
    Specialty Property & Casualty Insurance 79.6 23.4
    Life & Health Insurance 23.1   24.1  
    Total Segment Net Operating Income 105.5 61.0
    Corporate and Other Net Operating Loss (6.6 ) (3.5 )
    Adjusted Consolidated Net Operating Income1 98.9 57.5
    Net Income (Loss) From:
    Change in Fair Value of Equity and Convertible Securities 50.9 0.6
    Net Realized Gains on Sales of Investments 12.7 2.1
    Net Impairment Losses Recognized in Earnings (2.8 ) (0.4 )
    Acquisition Related Transaction, Integration and Other Costs (4.4 ) (6.2 )
    Income from Continuing Operations $ 155.3   $ 53.6  
     

    The Preferred Property & Casualty Insurance segment reported net
    operating income of $2.8 million for the first quarter of 2019, compared
    to $13.5 million in 2018. Results decreased primarily from an elevated
    level of catastrophe losses, a reduction in net investment income and
    some above normal large loss activity. The Preferred Property & Casualty
    Insurance segment’s combined ratio increased 4.4 percentage points to
    102.7 percent, while the underlying combined ratio1 increased
    1.1 percentage points to 96.0 percent in the first quarter of 2019,
    driven by an increase in the underlying loss ratio1 in
    Homeowners associated with the aforementioned loss activity.

    The Specialty Property & Casualty Insurance segment reported net
    operating income of $79.6 million for the first quarter of 2019,
    compared to $23.4 million in 2018. Results increased primarily from
    strong Personal Automobile growth and profitability. On an as adjusted
    basis1, the segment’s net operating income was $75.9 million
    in the first quarter of 2019, compared to $49.8 million in 2018. The
    segment’s underlying combined ratio1 improved 1.7 percentage
    points to 91.7 percent in the first quarter of 2019, primarily from an
    improvement in the underlying loss ratio1 in both Personal
    Automobile and Commercial Automobile.

    The Life & Health Insurance segment reported net operating income of
    $23.1 million for the first quarter of 2019, compared to $24.1 million
    in 2018. Income was lower primarily due to a reduction in net investment
    income. Higher sales volumes in both the Life and Health business lines
    resulted in increased earned premiums and corresponding variable
    compensation expense. The benefits ratio also improved relative to the
    first quarter of 2018 which was negatively impacted by a severe flu
    season.

    Unaudited condensed consolidated statements of income for the three
    months ended March 31, 2019 and 2018 are presented below.

       
    Three Months Ended
    (Dollars in Millions, Except Per Share Amounts) Mar 31,
    2019
        Mar 31,
    2018
    Revenues:
    Earned Premiums $ 1,074.8 $ 609.8
    Net Investment Income 82.7 79.2
    Other Income 1.9 1.2
    Income from Change in Fair Value of Equity and Convertible Securities 64.4 0.7
    Net Realized Gains on Sales of Investments 16.1 2.6
    Other-than-temporary Impairment Losses:
    Total Other-than-temporary Impairment Losses (3.5 ) (0.5 )
    Portion of Losses Recognized in Other Comprehensive Income (0.1 )  
    Net Impairment Losses Recognized in Earnings (3.6 ) (0.5 )
    Total Revenues 1,236.3   693.0  
    Expenses:
    Policyholders’ Benefits and Incurred Losses and Loss Adjustment
    Expenses
    765.4 436.9
    Insurance Expenses 234.8 160.1
    Interest and Other Expenses 41.4   29.0  

    Total Expenses

    1,041.6   626.0  
    Income from Continuing Operations before Income Taxes 194.7 67.0
    Income Tax Expense (39.4 ) (13.4 )
    Income from Continuing Operations 155.3 53.6
    Income from Discontinued Operations   0.2  
    Net Income $ 155.3   $ 53.8  
     
    Income from Continuing Operations Per Unrestricted Share:
    Basic $ 2.38   $ 1.03  
    Diluted $ 2.35   $ 1.02  
     
    Net Income Per Unrestricted Share:
    Basic $ 2.38   $ 1.03  
    Diluted $ 2.35   $ 1.02  
     
    Weighted-average Outstanding (Shares in Thousands):
    Unrestricted Shares – Basic 64,815.0   51,502.9  
    Unrestricted Shares and Equivalent Shares – Diluted 65,606.0   51,868.2  
     

    Unaudited business segment revenues for the three months ended
    March 31, 2019 and 2018 are presented below.

       
    Three Months Ended
    (Dollars in Millions) Mar 31,
    2019
        Mar 31,
    2018
    REVENUES:
    Preferred Property & Casualty Insurance:
    Earned Premiums:
    Preferred Automobile $ 115.4 $ 104.9
    Homeowners 60.3 61.8
    Other Personal 9.9   10.1  
    Total Earned Premiums 185.6 176.8
    Net Investment Income 8.3   13.7  
    Total Preferred Property & Casualty Insurance Revenues 193.9   190.5  
    Specialty Property & Casualty Insurance:
    Earned Premiums:
    Specialty Personal Automobile 669.6 266.2
    Commercial Automobile Insurance 59.7   12.2  
    Total Earned Premiums 729.3 278.4
    Net Investment Income 21.5 9.9
    Other Income 0.8   0.3  
    Total Specialty Property & Casualty Insurance Revenues 751.6   288.6  
    Life & Health Insurance:
    Earned Premiums:
    Life 95.8 93.7
    Accident & Health 46.9 43.3
    Property 17.2   17.6  
    Total Earned Premiums 159.9 154.6
    Net Investment Income 51.7 53.7
    Other Income 1.1   0.8  
    Total Life & Health Insurance Revenues 212.7   209.1  
    Total Segment Revenues 1,158.2 688.2
    Income from Change in Fair Value of Equity and Convertible Securities 64.4 0.7
    Net Realized Gains on Sales of Investments 16.1 2.6
    Net Impairment Losses Recognized in Earnings (3.6 ) (0.5 )
    Other 1.2   2.0  
    Total Revenues $ 1,236.3   $ 693.0  
     
    KEMPER CORPORATION AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Dollars in Millions)
    (Unaudited)
       

    Mar 31,
    2019

        Dec 31,
    2018
    Assets:
    Investments:
    Fixed Maturities at Fair Value $ 6,573.1 $ 6,424.2
    Equity Securities at Fair Value 916.9 684.4
    Equity Securities at Modified Cost 39.2 41.5
    Equity Method Limited Liability Investments at Cost Plus Cumulative
    Undistributed Earnings
    197.8 187.0
    Convertible Securities at Fair Value 33.8 31.5
    Short-term Investments at Cost which Approximates Fair Value 350.4 286.1
    Other Investments 425.6   414.8
    Total Investments 8,536.8   8,069.5
    Cash 107.0 75.1
    Receivables from Policyholders 1,048.6 1,007.1
    Other Receivables 254.6 245.4
    Deferred Policy Acquisition Costs 499.2 470.0
    Goodwill 1,111.5 1,112.4
    Current Income Tax Assets 19.7 38.9
    Other Assets 604.8   526.5
    Total Assets $ 12,182.2   $ 11,544.9
    Liabilities and Shareholders’ Equity:
    Insurance Reserves:
    Life & Health $ 3,568.5 $ 3,558.7
    Property & Casualty 1,868.7   1,874.9
    Total Insurance Reserves 5,437.2   5,433.6
    Unearned Premiums 1,499.5 1,424.3
    Deferred Income Tax Liabilities 82.6 26.2
    Liabilities for Unrecognized Tax Benefits 3.9 4.4
    Collateralized Investment Borrowings at Cost 187.7 10.0
    Debt at Amortized Cost 908.5 909.0
    Accrued Expenses and Other Liabilities 742.7   687.3
    Total Liabilities 8,862.1   8,494.8
    Shareholders’ Equity:
    Common Stock 6.5 6.5
    Paid-in Capital 1,673.0 1,666.3
    Retained Earnings 1,489.7 1,355.5
    Accumulated Other Comprehensive Income 150.9   21.8
    Total Shareholders’ Equity 3,320.1   3,050.1
    Total Liabilities and Shareholders’ Equity $ 12,182.2   $ 11,544.9
     

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

       
    Three Months Ended
    (Dollars in Millions) Mar 31,
    2019
        Mar 31,
    2018

    Results of Operations

    Net Premiums Written $ 179.6   $ 170.5  
     
    Earned Premiums $ 185.6 $ 176.8
    Net Investment Income 8.3   13.7  
    Total Revenues 193.9   190.5  
    Incurred Losses and LAE related to:
    Current Year:
    Non-catastrophe Losses and LAE 120.8 114.2
    Catastrophe Losses and LAE 16.6 7.3
    Prior Years:
    Non-catastrophe Losses and LAE (5.1 ) 4.2
    Catastrophe Losses and LAE 1.0   (5.4 )
    Total Incurred Losses and LAE 133.3 120.3
    Insurance Expenses 57.3   53.6  
    Operating Income 3.3 16.6
    Income Tax Expense (0.5 ) (3.1 )
    Segment Net Operating Income $ 2.8   $ 13.5  
     

    Ratios Based On Earned Premiums

    Current Year Non-catastrophe Losses and LAE Ratio 65.1 % 64.6 %
    Current Year Catastrophe Losses and LAE Ratio 8.9 4.1
    Prior Years Non-catastrophe Losses and LAE Ratio (2.7 ) 2.4
    Prior Years Catastrophe Losses and LAE Ratio 0.5   (3.1 )
    Total Incurred Loss and LAE Ratio 71.8 68.0
    Insurance Expense Ratio 30.9   30.3  
    Combined Ratio 102.7 % 98.3 %
     

    Underlying Combined Ratio1

    Current Year Non-catastrophe Losses and LAE Ratio 65.1 % 64.6 %
    Insurance Expense Ratio 30.9   30.3  
    Underlying Combined Ratio1 96.0 % 94.9 %
     

    Non-GAAP Measure Reconciliation

    Combined Ratio 102.7 % 98.3 %
    Current Year Catastrophe Losses and LAE Ratio 8.9 4.1
    Prior Years Non-catastrophe Losses and LAE Ratio (2.7 ) 2.4
    Prior Years Catastrophe Losses and LAE Ratio 0.5   (3.1 )
    Underlying Combined Ratio1 96.0 % 94.9 %
     

    Unaudited selected financial information for the Specialty Property &
    Casualty Insurance segment follows.

       
    Three Months Ended
    (Dollars in Millions) Mar 31,
    2019
        Mar 31,
    2018

    Results of Operations

    Net Premiums Written $ 809.1   $ 318.4  
     
    Earned Premiums $ 729.3 $ 278.4
    Net Investment Income 21.5 9.9

    Other Income

    0.8   0.3  
    Total Revenues 751.6   288.6  
    Incurred Losses and LAE related to:
    Current Year:
    Non-catastrophe Losses and LAE 544.3 212.3
    Catastrophe Losses and LAE 0.6 0.2
    Prior Years:
    Non-catastrophe Losses and LAE (18.3 ) (0.5 )
    Catastrophe Losses and LAE 0.2   (0.3 )
    Total Incurred Losses and LAE 526.8 211.7
    Insurance Expenses 124.8 47.9
    Other Expenses 0.6    
    Operating Income 99.4 29.0
    Income Tax Benefit (19.8 ) (5.6 )
    Segment Net Operating Income $ 79.6   $ 23.4  
     

    Ratios Based On Earned Premiums

    Current Year Non-catastrophe Losses and LAE Ratio 74.6 % 76.2 %
    Current Year Catastrophe Losses and LAE Ratio 0.1 0.1
    Prior Years Non-catastrophe Losses and LAE Ratio (2.5 ) (0.2 )
    Prior Years Catastrophe Losses and LAE Ratio   (0.1 )
    Total Incurred Loss and LAE Ratio 72.2 76.0
    Insurance Expense Ratio 17.1   17.2  
    Combined Ratio 89.3 % 93.2 %
     

    Underlying Combined Ratio1

    Current Year Non-catastrophe Losses and LAE Ratio 74.6 % 76.2 %
    Insurance Expense Ratio 17.1   17.2  
    Underlying Combined Ratio1 91.7 % 93.4 %
     

    Non-GAAP Measure Reconciliation

    Combined Ratio 89.3 % 93.2 %
    Current Year Catastrophe Losses and LAE Ratio 0.1 0.1
    Prior Years Non-catastrophe Losses and LAE Ratio (2.5 ) (0.2 )
    Prior Years Catastrophe Losses and LAE Ratio   (0.1 )
    Underlying Combined Ratio1 91.7 % 93.4 %
     

    Unaudited selected financial information for the Life & Health
    Insurance segment follows.

       
    Three Months Ended
    (Dollars in Millions) Mar 31,
    2019
        Mar 31,
    2018

    Results of Operations

    Earned Premiums $ 159.9 $ 154.6
    Net Investment Income 51.7 53.7
    Other Income 1.1   0.8  
    Total Revenues 212.7   209.1  
    Policyholders’ Benefits and Incurred Losses and LAE 105.4 104.9
    Insurance Expenses 78.0   73.9  
    Operating Profit 29.3 30.3
    Income Tax Expense (6.2 ) (6.2 )
    Segment Net Operating Income $ 23.1   $ 24.1  
     

    Use of Non-GAAP Financial Measures

    Adjusted Consolidated Net Operating Income1

    Adjusted Consolidated Net Operating Income1 is an after-tax,
    non-GAAP financial measure computed by excluding from Income from
    Continuing Operations the after-tax impact of 1) loss from change in
    fair value of equity and convertible securities, 2) net realized gains
    on sales of investments, 3) net impairment losses recognized in earnings
    related to investments, 4) acquisition related transaction, integration
    and other costs, 5) loss from early extinguishment of debt and 6)
    significant non-recurring or infrequent items that may not be indicative
    of ongoing operations. Significant non-recurring items are excluded when
    (a) the nature of the charge or gain is such that it is reasonably
    unlikely to recur within two years and (b) there has been no similar
    charge or gain within the prior two years. The most directly comparable
    GAAP financial measure is Income from Continuing Operations.

    Kemper believes that Adjusted Consolidated Net Operating Income1
    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. Loss
    from Change in Fair Value of Equity and Convertible Securities, Net
    Realized Gains on Sales of Investments and Net Impairment Losses
    Recognized in Earnings 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.
    Loss from Early Extinguishment of Debt 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.
    Acquisition Related Transaction, Integration 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. Significant non-recurring items are excluded
    because, by their nature, they are not indicative of the Company’s
    business or economic trends.

    A reconciliation of Income from Continuing Operations to Adjusted
    Consolidated Net Operating Income1 for the three months ended
    March 31, 2019 and 2018 is presented below.

       
    Three Months Ended
    (Dollars in Millions) (Unaudited) Mar 31,
    2019
        Mar 31,
    2018
    Income from Continuing Operations $ 155.3 $ 53.6
    Less Net Income (Loss) From:
    Income from Change in Fair Value of Equity and Convertible Securities 50.9 0.6
    Net Realized Gains on Sales of Investments 12.7 2.1
    Net Impairment Losses Recognized in Earnings (2.8 ) (0.4 )
    Acquisition Related Transaction, Integration and Other Costs (4.4 ) (6.2 )
    Adjusted Consolidated Net Operating Income1 $ 98.9   $ 57.5  
     

    Diluted Adjusted Consolidated Net Operating Income
    Per Unrestricted Share
    1

    Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share1
    is a non-GAAP financial measure computed by dividing Adjusted
    Consolidated Net Operating Income1 attributed to unrestricted
    shares by the weighted-average unrestricted shares and equivalent shares
    outstanding. The most directly comparable GAAP financial measure is
    Diluted Income from Continuing Operations Per Unrestricted Share.

    A reconciliation of Diluted Income from Continuing Operations Per
    Unrestricted Share to Diluted Adjusted Consolidated Net Operating Income
    Per Unrestricted Share1 for the three months ended March 31,
    2019 and 2018 is presented below.

       
    Three Months Ended
    (Unaudited) Mar 31,
    2019
        Mar 31,
    2018
    Diluted Income from Continuing Operations Per Unrestricted Share $ 2.35 $ 1.02
    Less Net Income (Loss) Per Unrestricted Share From:
    Income from Change in Fair Value of Equity and Convertible Securities 0.77 0.01
    Net Realized Gains on Sales of Investments 0.19 0.04
    Net Impairment Losses Recognized in Earnings (0.04 ) (0.01 )
    Acquisition Related Transaction and Integration Costs (0.07 ) (0.12 )
    Diluted Adjusted Consolidated Net Operating Income Per Unrestricted
    Share1
    $ 1.50   $ 1.10  
     

    Book Value Per Share Excluding Net Unrealized
    Gains on Fixed Maturities
    1

    Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities1
    is a ratio that uses a non-GAAP financial measure. It is calculated by
    dividing shareholders’ equity after excluding the after-tax impact of
    net unrealized gains on fixed income securities by total Common Shares
    Issued and Outstanding. Book Value Per Share is the most directly
    comparable GAAP financial measure. Kemper uses the trends in book value
    per share, excluding the after-tax impact of net unrealized gains on
    fixed income securities, in conjunction with book value per share to
    identify and analyze the change in net worth attributable to management
    efforts between periods. Kemper believes the non-GAAP financial measure
    is useful to investors because it eliminates the effect of items that
    can fluctuate significantly from period to period and are generally
    driven by economic developments, primarily capital market conditions,
    the magnitude and timing of which are not influenced by management.
    Kemper believes it enhances understanding and comparability of
    performance by highlighting underlying business activity and
    profitability drivers.

    A reconciliation of the numerator used in the computation of Book Value
    Per Share Excluding Net Unrealized Gains on Fixed Maturities1
    and Book Value Per Share at March 31, 2019 and December 31, 2018 is
    presented below.

           
    (Dollars in Millions) (Unaudited) Mar 31,
    2019
    Dec 31,
    2018
    Shareholders’ Equity $ 3,320.1 $ 3,050.1
    Net Unrealized Gains on Fixed Maturities 241.9   110.4
    Shareholders’ Equity Excluding Net Unrealized Gains on Fixed
    Maturities1
    $ 3,078.2   $ 2,939.7
     

    Underlying Combined Ratio1

    Underlying Combined Ratio1 is a non-GAAP financial measure
    that 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, including the impact of
    catastrophe losses and loss and LAE reserve development from prior
    years, with the insurance expense ratio. Kemper believes the underlying
    combined ratio is useful to investors and is used by management to
    reveal the trends in Kemper’s property and casualty insurance businesses
    that may be obscured by catastrophe losses and prior-year reserve
    development. These catastrophe losses may cause 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 development is
    caused by unexpected loss development on historical reserves. Because
    reserve development relates to the re-estimation of losses from earlier
    periods, it has no bearing on the performance of the company’s insurance
    products in the current period. Kemper believes it is useful for
    investors to evaluate these components separately and in the aggregate
    when reviewing its underwriting performance. The underlying combined
    ratio1 should not be considered a substitute for the combined
    ratio and does not reflect the overall underwriting profitability of our
    business.

    As Adjusted for Acquisition1

    As Adjusted for Acquisition1 amounts are non-GAAP financial
    measures. For three months ended March 31, 2019, as adjusted amounts are
    computed by subtracting the impact of purchase accounting adjustments
    from the comparable consolidated GAAP financial measure reported by
    Kemper. For the three months ended March 31, 2019, as adjusted amounts
    are computed by adding the historical results of Infinity reported on a
    GAAP basis to the comparable consolidated GAAP financial measure
    reported by Kemper.

    Contacts

    Investors: Michael Marinaccio,
    312.661.4930, [email protected]

    News Media: Barbara Ciesemier,
    312.661.4521, [email protected]

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