UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________________________________________ FORM 10-Q ______________________________________________________ ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended June 30, 2019 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission file number 001-18298 Kemper Corporation (Exact na ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________________________________________ FORM 10-Q ______________________________________________________ x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended March 31, 2019 OR ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission file number 001-18298 ___________________________ ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Kemper is a diversified insurance holding company that expanded its Specialty P&C segment through the $1.5 billion acquisition of Infinity - On July 2, 2018, Kemper acquired Infinity Property and Casualty Corporation for approximately **$1.5 billion**, a key strategic move to expand its specialty insurance business[32](index=32&type=chunk) - The company operates through three primary segments: **Preferred Property & Casualty Insurance**, **Specialty Property & Casualty Insurance**, and **Life & Health Insurance**[33](index=33&type=chunk) Employee Distribution by Segment | Segment | Number of Employees | | :--- | :--- | | Preferred Property & Casualty | ~1,300 | | Specialty Property & Casualty | ~2,600 | | Life & Health Insurance | ~3,300 | | Corporate & Other | Remainder of 8,100 total | [Property and Casualty Insurance Business](index=6&type=section&id=Property%20and%20Casualty%20Insurance%20Business) The P&C business operates through Preferred and Specialty segments, managing catastrophe risk via diversification and reinsurance - The P&C business provides automobile, homeowners, and other personal and commercial insurance through two main segments: **Preferred** and **Specialty**[36](index=36&type=chunk)[38](index=38&type=chunk) - The company manages catastrophe risk through geographic diversification, underwriting restrictions, and a comprehensive reinsurance program covering events up to **$275 million** in excess of a **$50 million** retention[50](index=50&type=chunk)[51](index=51&type=chunk)[59](index=59&type=chunk) P&C Insurance Segment Premium Contribution (2018) | Segment | % of Consolidated Premiums | | :--- | :--- | | Preferred P&C | 22% | | Specialty P&C | 60% | Property and Casualty Insurance Reserves by Segment (2018 vs 2017) | Business Segment | 2018 ($M) | 2017 ($M) | | :--- | :--- | :--- | | Preferred Property & Casualty | $452.9 | $461.9 | | Specialty Property & Casualty | $1,387.0 | $514.4 | | Life & Health Insurance | $4.4 | $4.1 | | **Total Business Segments** | **$1,844.3** | **$980.4** | [Life and Health Insurance Business](index=11&type=section&id=Life%20and%20Health%20Insurance%20Business) This segment provides individual life and supplemental health products through a network of career and independent agents - The Life & Health segment focuses on individual life and supplemental accident and health products, primarily for customers with modest incomes[72](index=72&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - Earned premiums from life insurance accounted for **11%** of the company's consolidated insurance premiums in 2018, down from 16% in 2017[72](index=72&type=chunk) - The lapse ratio for individual life insurance has remained stable at **6%** for 2018, 2017, and 2016[81](index=81&type=chunk) [Investments](index=13&type=section&id=Investments) The company pursues a total return investment strategy focused on yield and liquidity to meet its insurance obligations - The company employs a total return investment strategy with an emphasis on yield, while maintaining liquidity to meet insurance obligations[88](index=88&type=chunk) [Regulation](index=13&type=section&id=Regulation) The company's insurance operations are subject to extensive state and federal regulations governing solvency, rates, and market conduct - Kemper's insurance subsidiaries are subject to extensive state-level regulation covering policy forms, rates, licensing, market conduct, investments, solvency, and dividend payments[90](index=90&type=chunk)[93](index=93&type=chunk) - As a holding company, Kemper relies on dividends from its insurance subsidiaries to meet its obligations, which are subject to regulatory restrictions[97](index=97&type=chunk) - The company is also subject to federal regulations, including the Dodd-Frank Act, the Affordable Care Act, and HIPAA, which impact financial services, health insurance, and data privacy[101](index=101&type=chunk)[103](index=103&type=chunk)[105](index=105&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from regulation, catastrophe losses, reserve estimation uncertainty, and investment volatility - The evolving legal and regulatory landscape could **increase operating costs** and limit growth[108](index=108&type=chunk)[109](index=109&type=chunk) - Catastrophe losses from events like hurricanes and wildfires are unpredictable and could **materially affect results**, liquidity, and financial condition[116](index=116&type=chunk) - Estimating property and casualty loss reserves is complex and inherently uncertain; **inadequate reserves** could materially impact operating results[122](index=122&type=chunk)[123](index=123&type=chunk) - A downgrade in financial strength ratings below 'A-' could result in a **substantial loss of business**[125](index=125&type=chunk) - The investment portfolio is exposed to interest rate, equity price, and liquidity risks, which can impact investment income and cause **realized/unrealized losses**[135](index=135&type=chunk) - As a holding company, Kemper's ability to service debt and pay dividends depends on receiving sufficient dividends from its **regulated insurance subsidiaries**[146](index=146&type=chunk) [Properties](index=23&type=section&id=Item%202.%20Properties) Kemper owns eleven buildings and leases numerous other facilities for its corporate and operational needs across the country - The company owns eleven buildings totaling approximately **400,000 square feet**[153](index=153&type=chunk) - Leased facilities include the corporate headquarters in Chicago (~65,000 sq ft), P&C operations (~490,000 sq ft), and Life & Health operations (~450,000 sq ft)[155](index=155&type=chunk) [Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding pending legal proceedings is incorporated by reference from the Consolidated Financial Statements - Details on legal proceedings are found in **Note 23** of the financial statements[157](index=157&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on the NYSE, with consistent quarterly dividends paid and significant capacity remaining under its share repurchase program - The Board of Directors authorized a **$300.0 million** share repurchase program, with **$243.7 million** remaining available as of December 31, 2018[164](index=164&type=chunk) Quarterly Dividends Paid Per Share | Year | Q1 | Q2 | Q3 | Q4 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | 2018 | $0.24 | $0.24 | $0.24 | $0.24 | $0.96 | | 2017 | $0.24 | $0.24 | $0.24 | $0.24 | $0.96 | [Selected Financial Data](index=27&type=section&id=Item%206.%20Selected%20Financial%20Data) Financial performance grew significantly in 2018, driven by the Infinity acquisition, with substantial increases in revenues, net income, and total assets Selected Financial Data (2016-2018) | Metric ($ in Millions, except per share) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total Revenues | $3,725.1 | $2,723.4 | $2,521.9 | | Net Income | $190.1 | $120.9 | $16.8 | | Net Income Per Share (Diluted) | $3.22 | $2.33 | $0.33 | | Total Assets | $11,544.9 | $8,376.2 | $8,210.5 | | Shareholders' Equity | $3,050.1 | $2,115.6 | $1,975.2 | | Book Value Per Share | $47.10 | $41.11 | $38.52 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income increased in 2018 due to improved P&C segment performance and the Infinity acquisition, supported by strong liquidity - The increase in 2018 net income was primarily due to a **$71.1 million** improvement in the Preferred P&C segment and a **$59.5 million** increase in the Specialty P&C segment[179](index=179&type=chunk)[180](index=180&type=chunk) - Earned premiums surged by **$1,034.4 million** in 2018, primarily driven by growth in the Specialty P&C segment following the acquisition of Infinity[183](index=183&type=chunk) Net Income and Adjusted Consolidated Net Operating Income (2017 vs 2018) | Metric ($ in Millions) | 2018 | 2017 | | :--- | :--- | :--- | | Net Income | $190.1 | $120.9 | | Income from Continuing Operations | $188.4 | $119.9 | | Adjusted Consolidated Net Operating Income | $258.4 | $92.5 | [Preferred Property & Casualty Insurance](index=36&type=section&id=Preferred%20Property%20%26%20Casualty%20Insurance) The segment's performance improved significantly due to a sharp reduction in catastrophe losses and favorable reserve development - The segment's significant improvement in 2018 was driven by an **$86.2 million decrease** in catastrophe losses and LAE[212](index=212&type=chunk)[215](index=215&type=chunk) - The segment experienced **favorable loss and LAE reserve development of $8.3 million** in 2018, a significant turnaround from the $15.7 million of adverse development in 2017[215](index=215&type=chunk) Preferred P&C Segment Performance (2017 vs 2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Segment Net Operating Income (Loss) ($M) | $25.7 | $(45.4) | | Combined Ratio | 104.6% | 118.7% | | Underlying Combined Ratio | 93.8% | 92.7% | | Catastrophe Losses and LAE ($M) | $87.3 | $173.5 | [Specialty Property & Casualty Insurance](index=43&type=section&id=Specialty%20Property%20%26%20Casualty%20Insurance) The Infinity acquisition drove substantial growth in earned premiums and improved the underlying loss ratio - The acquisition of Infinity was the primary driver of growth, contributing **$758.1 million** to the increase in earned premiums for 2018[240](index=240&type=chunk)[242](index=242&type=chunk) - The underlying loss and LAE ratio **improved by 3.8 percentage points** in 2018, driven by the inclusion of Infinity's lower-loss-ratio business[244](index=244&type=chunk) Specialty P&C Segment Performance (2017 vs 2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Segment Net Operating Income ($M) | $115.8 | $56.3 | | Earned Premiums ($M) | $2,027.4 | $1,005.7 | | Combined Ratio | 96.0% | 96.0% | | Underlying Combined Ratio | 95.7% | 95.1% | [Life & Health Insurance](index=48&type=section&id=Life%20%26%20Health%20Insurance) Segment net operating income remained stable as lower income tax expense offset higher benefits and lower investment income - Segment net operating income remained stable, decreasing by only **$0.4 million** in 2018, as lower income tax expense offset other pressures[181](index=181&type=chunk)[269](index=269&type=chunk) - In 2016, this segment took a pre-tax charge of **$77.8 million** related to death verification databases, which significantly impacted year-over-year comparisons with 2017[265](index=265&type=chunk) Life & Health Segment Performance (2017 vs 2018) | Metric ($ in Millions) | 2018 | 2017 | | :--- | :--- | :--- | | Segment Net Operating Income | $91.5 | $91.9 | | Total Earned Premiums | $626.3 | $614.0 | | Net Investment Income | $210.9 | $223.2 | [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) The company utilized new credit facilities and cash to fund the Infinity acquisition and maintains significant dividend capacity from its subsidiaries - To facilitate the Infinity acquisition, the company increased its credit facility to **$300.0 million** and added a **$250.0 million** term loan[331](index=331&type=chunk) - The Infinity acquisition was funded with **$564.6 million in cash** and the issuance of **13.2 million shares** of Kemper stock[340](index=340&type=chunk) - In 2019, Kemper's direct insurance subsidiaries are estimated to be able to pay **$351 million** in dividends to the parent holding company without prior regulatory approval[338](index=338&type=chunk) [Critical Accounting Estimates](index=65&type=section&id=Critical%20Accounting%20Estimates) Key estimates involve valuing investments, P&C reserves, goodwill, and pension obligations, with P&C reserves being inherently uncertain - Key critical accounting estimates include the valuation of investments, estimation of **property and casualty insurance reserves**, and assessment of **goodwill recoverability**[358](index=358&type=chunk) - The process of estimating P&C reserves is inherently uncertain; at year-end 2018, gross P&C reserves stood at **$1,874.9 million**[368](index=368&type=chunk)[369](index=369&type=chunk)[371](index=371&type=chunk) - Goodwill is tested for impairment annually; qualitative assessments in 2018 indicated that the **fair value of each unit significantly exceeded its carrying value**[382](index=382&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate and equity price changes, with significant potential fair value impact from adverse movements Market Risk Sensitivity Analysis (as of Dec 31, 2018) | Financial Instrument | Fair Value ($M) | Pro Forma Decrease from 100bp Rate Rise ($M) | Pro Forma Decrease from 30% Equity Price Drop ($M) | | :--- | :--- | :--- | :--- | | Investments in Fixed Maturities | $6,424.2 | $(393.5) | — | | Investments in Equity Securities | $684.4 | $(7.4) | $(175.6) | [Financial Statements and Supplementary Data](index=74&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements and supplementary data for the fiscal year ended December 31, 2018 Consolidated Statement of Income Highlights (2018) | Metric | Amount ($M) | | :--- | :--- | | Total Revenues | $3,725.1 | | Total Expenses | $3,526.0 | | Income from Continuing Operations | $188.4 | | Net Income | $190.1 | | Diluted EPS | $3.22 | Consolidated Balance Sheet Highlights (as of Dec 31, 2018) | Metric | Amount ($M) | | :--- | :--- | | Total Investments | $8,069.5 | | Total Assets | $11,544.9 | | Total Insurance Reserves | $5,433.6 | | Total Liabilities | $8,494.8 | | Total Shareholders' Equity | $3,050.1 | [Controls and Procedures](index=148&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2018 - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the fiscal year[693](index=693&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2018, based on the COSO framework[696](index=696&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=150&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement - Required information is **incorporated by reference** from the 2019 Proxy Statement[702](index=702&type=chunk) [Executive Compensation](index=150&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the 2019 Proxy Statement - Required information is **incorporated by reference** from the 2019 Proxy Statement[704](index=704&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=150&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2019 Proxy Statement - Required information is **incorporated by reference** from the 2019 Proxy Statement[705](index=705&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=151&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related person transactions and director independence is incorporated by reference from the 2019 Proxy Statement - Required information is **incorporated by reference** from the 2019 Proxy Statement[710](index=710&type=chunk) [Principal Accounting Fees and Services](index=151&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from the 2019 Proxy Statement - Required information is **incorporated by reference** from the 2019 Proxy Statement[711](index=711&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=151&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section includes the consolidated financial statements, four financial statement schedules, and an index of all exhibits filed with the report[713](index=713&type=chunk)[714](index=714&type=chunk)[715](index=715&type=chunk)