Kemper’s subsidiaries together own and occupy eleven buildings located in seven states consisting of approximately 400,000 square feet in the aggregate. Kemper’s subsidiaries hold, solely for investment purposes, additional properties that are not occupied by Kemper or its subsidiaries.
Other Investments primarily include loans to policyholders, real estate and mortgage loans. Loans to policyholders are carried at unpaid principal balance. Real estate is carried at cost, net of accumulated depreciation. Real estate is depreciated over the estimated useful life of the asset using the straight-line method of depreciation. Real estate is evaluated for impairment when events or circumstances indicate the carrying value may not be recoverable. An impairment loss on real estate is recognized when the carrying value exceeds the sum of undiscounted projected future cash flows as well as the fair value, or, in the case of a property classified as held for sale, when the carrying value exceeds the fair value, net of costs to sell. Mortgage loans are carried at amortized cost, net of a reserve for expected credit losses.
In August 2018, the SEC issued Final Rule Release No. 33-10532, “Disclosure Update and Simplification,” which made a number of changes meant to simplify interim disclosures. The new rule required a presentation of changes in stockholders’ equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. In July 2019, the FASB issued ASU 2019-07, “Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update).” ASU 2019-07 codifies Final Rule Release No. 33-10532 and was effective immediately. The additional elements of this release did not have a material impact on the Company’s overall Consolidated Financial Statements.
Based on the Company’s final allocation of the purchase price, the fair value of the assets acquired and liabilities assumed were:
The claim counts in the preceding tables are cumulative reported claim counts as of December 31, 2019 and are equal to the sum of cumulative open and cumulative closed claims, including claims closed without payment. Certain product lines, particularly the Company’s specialty personal automobile insurance, tend to have a higher percentage of claims closed without payment.
Significant judgments and assumptions for determining lease asset and liability as December 31, 2019 are presented below.
During the second quarter of 2019, the Company’s stockholders approved the adoption of the Kemper Employee Stock Purchase Plan (“ESPP”) and the reservation of 1,300,000 shares for issuance under the ESPP. The purpose of the ESPP is to provide eligible employees of the Company and its subsidiaries with the opportunity to purchase shares of common stock at a discounted price through payroll deductions with the goal of enhancing employees’ sense of participation in the Company and further align employee interests with those of the Company’s shareholders.
Kemper’s insurance subsidiaries are required to file financial statements prepared on the basis of statutory insurance accounting practices, a comprehensive basis of accounting other than GAAP. Statutory capital and surplus for the Company’s life and health insurance subsidiaries was $408.0 million and $454.7 million at December 31, 2019 and 2018, respectively. Statutory net income for the Company’s life and health insurance subsidiaries was $90.4 million, $143.9 million and $84.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Statutory capital and surplus for the Company’s property and casualty insurance subsidiaries was $1.6 billion and $1.4 billion at December 31, 2019 and 2018, respectively. Statutory net income for the Company’s property and casualty insurance subsidiaries was $347.6 million, $236.4 million and $56.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. Statutory capital and surplus and statutory net income exclude parent company operations.
In 2019, Kemper paid dividends of $67.8 million to its shareholders. Except for certain financial covenants under Kemper’s credit agreement or during any period in which Kemper elects to defer interest payments, there are no restrictions on Kemper’s ability to pay dividends to its shareholders. Certain financial covenants, namely minimum net worth and a maximum debt to total capitalization ratio, under Kemper’s credit agreement could limit the amount of dividends that Kemper may pay to shareholders at December 31, 2019. Kemper had the ability to pay without restrictions $1.3 billion in dividends to its shareholders and still be in compliance with all financial covenants under its credit agreement at December 31, 2019.
Fifty percent of the PSU awards granted to employees and officers in 2019, 2018 and 2017 are measured solely using a Company-specific metric. Final payout for these awards, and any forfeitures of shares for performance below the “target” performance level, will be determined based on Kemper’s adjusted return on equity over a three-year performance period. The three-year performance periods for the 2019, 2018 and 2017 awards end on December 31, 2021, December 31, 2020 and December 31, 2019, respectively. Fair value for these awards was determined using the closing price of Kemper common stock on the date of grant. Accruals of compensation cost for these awards are estimated based on the probable outcome of the performance condition.
The tax effects of temporary differences that give rise to significant portions of the Company’s Net Deferred Income Tax Assets and Deferred Income Tax Liabilities at December 31, 2019 and 2018 were:
We tested the effectiveness of controls related to property and casualty insurance reserves, including those controls related to the estimation of and management’s review of the property and casualty insurance reserves.