Kemper is a diversified insurance holding company, with subsidiaries that provide
automobile, homeowners, life, health, and other insurance products to individuals
and businesses. The Company is engaged, through its subsidiaries, in the property
and casualty insurance and life and health insurance businesses. The Company
conducts its operations through two operating segments: Property & Casualty
Insurance and Life & Health Insurance. The Company conducts its operations
solely in the United States.
The Property & Casualty Insurance segment provides automobile, homeowners,
renters, fire, umbrella and other types of property and casualty insurance to
individuals and commercial automobile insurance to businesses. Property insurance
indemnifies an insured with an interest in physical property for loss of, or
damage to, such property. Casualty insurance primarily covers liability for
damage to property of, or injury to, a person or entity other than the insured.
In most cases, casualty insurance also obligates the insurance company to provide
a defense for the insured in litigation arising out of events covered by the
policy.
The Property & Casualty Insurance segment distributes its products primarily
through independent agents and brokers who are paid commissions for their services.
The Property & Casualty Insurance segment’s direct-to-consumer operations,
which were placed into run-off in 2012, accounted for approximately 6% of the
Property & Casualty Insurance segment’s earned premiums in 2015. In
addition, the Life & Health Insurance segment’s career agents also
sell contents coverage for personal property to its customers.
Pricing levels for property and casualty insurance products are influenced
by many factors, including the frequency and severity of claims, state regulation
and legislation, competition, general business and economic conditions, including
market rates of interest, inflation, expense levels, and judicial decisions.
In addition, many state regulators require consideration of investment income
when approving or setting rates, which could reduce underwriting margins.
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 are expected to be, a material factor in the results of operations and financial
position of Kemper’s property and casualty insurance companies. Further,
because the level of insured losses that could occur in any one year cannot
be accurately predicted, these losses 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 occurrence and severity of catastrophic events
cannot be accurately predicted in any year. However, some geographic locations
are more susceptible to these events than others. The Company has endeavored
to manage its direct insurance exposures in certain regions that are prone to
naturally occurring catastrophic events through a combination of geographic
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 reinsurance. The Company has adopted
the industry-wide catastrophe classifications of storms and other events promulgated
by Insurance Services Office, Inc. (“ISO”) to track and report losses
related to catastrophes. ISO classifies a disaster as a catastrophe when the
event causes $25 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.
The Company’s Life & Health Insurance segment consists of Kemper’s
wholly-owned subsidiaries, United Insurance Company of America (“United
Insurance”), The Reliable Life Insurance Company (“Reliable”),
Union National Life Insurance Company (“Union National Life”), Mutual
Savings Life Insurance Company (“Mutual Savings Life”), United Casualty
Insurance Company of America (“United Casualty”), Union National
Fire Insurance Company (“Union National Fire”), Mutual Savings Fire
Insurance Company (“Mutual Savings Fire”) and Reserve National Insurance
Company (“Reserve National”). As discussed below, United Insurance,
Reliable, Union National Life, Mutual Savings Life, United Casualty, Union National
Fire and Mutual Savings Fire (the “Kemper Home Service Companies”)
distribute their products through a network of employee, or “career,”
agents. Reserve National distributes its products through a network of independent
agents and brokers. These career agents, independent agents and brokers are
paid commissions for their services.
Premiums for life and health insurance products are based on assumptions with
respect to mortality, morbidity, investment yields, expenses, and lapses and
are also affected by state laws and regulations, as well as competition. Pricing
assumptions are based on the experience of Kemper’s life and health insurance
subsidiaries, as well as the industry in general, depending on the factor being
considered. The actual profit or loss produced by a product will vary from the
anticipated profit if the actual experience differs from the assumptions used
in pricing the product.
Premiums for policies sold by the Kemper Home Service Companies are set at levels
designed to cover the relatively high cost of “in-home” servicing
of such policies. As a result, Kemper Home Service Companies’ premiums
have a higher load for expense than the life insurance industry average.
Premiums for Medicare supplement and other accident and health policies must
take into account the rising costs of medical care. The annual rate of medical
cost inflation has historically been higher than the general rate of inflation,
necessitating frequent rate increases, most of which are subject to approval
by state regulators.