Net Investment Income in the Property & Casualty Insurance segment decreased by $0.9 million in 2016, compared to 2015, due primarily to lower investment income from Alternative Investments and a lower level of non-alternative investments, partially offset by investment income from the investments acquired from the acquisition of, and the capital contributed to, Alliance United and higher yields on non-alternative investments. The Property & Casualty Insurance segment reported Net Investment Income from Alternative Investments of $20.2 million in 2016, compared to $25.3 million in 2015.
Earned premiums in other personal insurance decreased by $1.7 million in 2016, compared to 2015, as lower volume accounted for a decrease of $2.6 million, while higher average earned premium accounted for an increase of $0.9 million. Incurred losses and LAE were $16.6 million, or 36.9% of earned premiums, in 2016, compared to $23.5 million, or 50.3% of earned premiums, in 2015. Incurred losses and LAE as a percentage of earned premiums decreased due to a higher level of favorable loss and LAE reserve development and, to a lesser extent, lower underlying losses and LAE as a percentage of earned premiums. Underlying losses and LAE as a percentage of earned premiums were 49.1% in 2016, compared to 50.1% in 2015, which was an improvement of 1.0 percentage points due primarily to lower frequency of non-umbrella claims and lower severity of losses on most coverages, partially offset by higher frequency of umbrella claims and lower average earned premium. Catastrophe losses and LAE (excluding reserve development) were $2.5 million in 2016, compared to $2.2 million in 2015. Favorable loss and LAE reserve development was $8.0 million in 2016, compared to $2.1 million in 2015.
In the third quarter of 2016, the Company’s Life & Health segment voluntarily began implementing a comprehensive process under which it cross-references its life insurance policies against the DMF and other death verification databases to identify potential situations where the beneficiaries may not have filed a claim following the death of an insured and initiate an outreach process to identify and contact beneficiaries and settle claims. Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses for the year ended December 31, 2016 include a pre-tax charge of $77.8 million to recognize the initial impact of using death verification databases in the Company’s operations, including to determine its IBNR liability for unpaid claims and claims adjustment expenses for life insurance products. See Note 2, “Summary of Accounting Policies and Accounting Changes.” to the Consolidated Financial Statements under the sub-caption “Insurance Reserves” for additional discussion.
relative to the Life & Health Insurance segment’s fixed income portfolio, could adversely impact the weighted-average book yield on these subsidiaries’ investments in fixed maturities. For example, the weighted-average book yield on the subsidiaries’ investments in fixed maturities will decline if new money is invested at yields below the portfolio rate. Also, the weighted-average book yield on the subsidiaries’ investments in fixed maturities will decline, to the extent that investments maturing are not used for such purposes as paying claims and expenses, if the reinvested portion is at a yield that is lower than the book yield of the maturing investment. To help illustrate the potential impact, the subsidiaries’ investments in fixed maturities that are maturing over the next five years totaled $751.7 million at December 31, 2017. The weighted-average book yield on such investments was 6.7% at December 31, 2017. The reinvestment rate for the subsidiaries’ investments in fixed maturities was approximately 5.6% in 2017 with an average duration of 7.6 years at December 31, 2017.
Net Cash Used by Investing Activities was $238.1 million for the year ended December 31, 2016, compared to $28.6 million in 2015. Net cash used by acquisitions of short-term investments was $18.0 million for the year ended December 31, 2016, compared to net cash provided by dispositions of short-term investments of $104.9 million in 2015. Fixed Maturities investing activities used net cash of $318.0 million for the year ended December 31, 2016, compared to $53.5 million in 2015. Equity Securities investing activities provided net cash of $68.8 million for the year ended December 31, 2016, compared to $104.4 million in 2015. Equity Method Limited Liability Investments investing activities provided net cash of $6.4 million for the year ended December 31, 2016, compared to $0.5 million in 2015. Net cash provided by Fair Value Option Investments investing activities was $51.2 million for the year ended December 31, 2016, compared to net cash used of $111.0 million in 2015. Net cash used to acquire Alliance United was $57.6 million for the year ended December 31, 2015. Purchases of Corporate-owned Life Insurance were $7.5 million for both the year ended December 31, 2016 and the year ended December 31, 2017.
There were no unsettled sales of Investments in Equity Securities at December 31, 2017. Other Receivables included unsettled sales of Investments in Equity Securities of $0.2 million at December 31, 2016. There were no unsettled purchases of Investments in Equity Securities at either December 31, 2017 or December 31, 2016.
Unrealized losses on fixed maturities, which the Company has determined to be temporary at December 31, 2017, were $19.5 million, of which $13.9 million was related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at December 31, 2017 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “Less Than 12 Months.” There were no unrealized losses at December 31, 2017 related to securities for which the Company has recognized credit losses in earnings in the preceding table under the heading “12 Months or Longer.” Investment-grade fixed maturity investments comprised $12.6 million and below-investment-grade fixed maturity investments comprised $6.9 million of the unrealized losses on investments in fixed maturities at December 31, 2017. For below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 4% of the amortized cost basis of the investment. At December 31, 2017, the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be at maturity. Based on the Company’s evaluation at December 31, 2017 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities, and the Company’s intention to not sell and its determination that it would not be required to sell before recovery of the amortized cost of such investments, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding table were temporary at the evaluation date.
With respect to Investments in Equity Securities, the Company concluded that the unrealized losses on its investments in preferred and common stocks at December 31, 2016 were temporary based on various factors, including the relative short length and magnitude of the losses and overall market volatility. The Company’s investments in other equity interests include investments in limited liability companies and limited partnerships that primarily invest in mezzanine debt, distressed debt, and secondary transactions. By the nature of their underlying investments, the Company believes that some of its investments in the limited liability companies and limited partnerships exhibit debt-like characteristics which, among other factors, the Company also considers when evaluating these investments for impairment. Based on evaluations of the factors in the preceding paragraph, the Company concluded that the declines in the fair values of the Company’s investments in equity securities presented in the preceding table were temporary at December 31, 2016.
The following table reconciles the net incurred and paid claims development tables presented above to the Company's liability for Property and Casualty Insurance Reserves included in the Consolidated Balance Sheet at December 31, 2017.
On May 4, 2011, Kemper’s shareholders approved the 2011 Omnibus Equity Plan (“Omnibus Plan”). The Omnibus Plan replaced the Company’s previous employee stock option plans, director stock option plan and restricted stock plan (collectively, the “Prior Plans”). Awards previously granted under the Prior Plans remain outstanding in accordance with their original terms. Beginning May 4, 2011, equity-based compensation awards may only be granted under the Omnibus Plan. A maximum number of 10,000,000 shares of Kemper common stock may be issued under the Omnibus Plan (the “Share Authorization”). As of December 31, 2017, there were 6,338,224 common shares available for future grants under the Omnibus Plan, of which 677,949 shares were reserved for future grants based on the performance results under the terms of outstanding performance-based stock unit awards.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for Unrecognized Tax Benefits included accrued interest of $0.5 million, $0.5 million and $0.5 million at December 31, 2017, 2016 and 2015, respectively. Net interest related to unrecognized tax benefits for the years ended December 31, 2017 and 2016 was insignificant. Tax expense includes interest benefit of $3.3 million related to unrecognized tax benefits for the year ended December 31, 2015.
Income taxes paid, net of income tax refunds received, were $13.0 million in 2017. Income tax refunds received, net of income taxes paid, were $0.5 million in 2016. Income taxes paid, net of income tax refunds received, were $44.4 million 2015.
Coverage for the Property & Casualty Insurance segment’s catastrophe reinsurance program effective January 1, 2015 to December 31, 2015 is provided in various layers as presented below.
To the shareholders and the Board of Directors of Kemper Corporation