Pursuant to the rules and regulations of the SEC, the Company is required to file consolidated financial statements prepared in accordance with the accounting principals generally accepted in the United States (“GAAP”). The Company is permitted to include non-GAAP financial measures in its filings provided that they are defined along with an explanation of their usefulness to investors, are no more prominent than the comparable GAAP financial measures and are reconciled to such GAAP financial measures.
Net Investment Income in the Kemper Specialty segment increased by $2.8 million for the year ended December 31, 2013, compared to 2012, due primarily to higher net investment income from Equity Method Limited Liability Investments and higher dividends on equity securities, partially offset by lower yields on fixed maturities. The Kemper Specialty segment reported net investment income of $4.0 million from Equity Method Limited Liability Investments in 2013, compared to $1.7 million for 2012.
In 2012, the Company announced that the Kemper Direct segment would continue to solicit business for its worksite and affinity programs and would place its direct-to-consumer operations in run-off. Kemper Direct policies in-force declined 25% in 2013 and is expected to decline 25% to 35% in 2014 as a result of this and other actions. Kemper Direct believes that it should be able to manage its underlying loss and LAE ratio, but believes there is upward pressure on the expense ratio as fixed expenses will be spread over a declining premium base. Earned Premiums in the Kemper Direct segment decreased by $44.6 million for the year ended December 31, 2013, compared to 2012, due primarily to lower volume, partially offset by higher average premium.
Estimated cash disbursements pertaining to the Company’s contractual obligations at December 31, 2013 are as follows:
Changes in these factors from their December 31, 2013 evaluation date could result in the Company determining that a temporary decline in the fair value of an investment held and evaluated at December 31, 2013 is no longer temporary at a subsequent evaluation date. Such determination would result in an impairment loss recognized in earnings in the period such determination is made.
Development in the Kemper Preferred segment comprised the largest portion of the Company’s development reported in continuing operations in 2013 and 2011. Additional information regarding the Kemper Preferred development is discussed below. Development in the Kemper Direct segment comprised a significant portion of the Company’s development in 2013 and the largest portion of the Company’s development reported in 2012. Kemper Direct’s operations have undergone significant changes, including changes in underwriting, claims handling and mix of business by state and distribution channel, over the last several years. The effect of these and other changes on the historical development factors used to estimate Kemper Direct’s loss and LAE reserves is difficult to quantify and predict. Development in the Life and Health Insurance segment in 2011 is due primarily to development on certain hurricanes. See MD&A, “Life and Health Insurance.”
The carrying values of the Company’s Other Investments at December 31, 2013 and 2012 were:
In 2013, the Company reduced its property and casualty insurance reserves by $64.6 million to recognize favorable development of losses and LAE from prior accident years. Personal lines insurance loss and LAE reserves developed favorably by $56.8 million and commercial lines insurance loss and LAE reserves developed favorably by $7.8 million. Personal automobile insurance loss and LAE reserves developed favorably by $30.1 million, homeowners insurance loss and LAE reserves developed favorably by $20.1 million and other personal lines loss and LAE reserves developed favorably by $6.6 million. The personal lines insurance losses and LAE reserves developed favorably due primarily to the emergence of more favorable loss patterns than expected for the four most recent accident years. Commercial lines insurance loss and LAE reserves included favorable development of $3.0 million from continuing operations and $4.8 million from discontinued operations. Commercial lines insurance losses and LAE reserves developed favorably from continuing operations due primarily to the emergence of more favorable loss patterns than expected for the 2011, 2010 and 2009 accident years, partially offset by less favorable loss patterns than expected for the 2012 accident year.
Future minimum lease payments under capital and operating leases at December 31, 2013 were:
All of the Company’s prior stock option plans included provisions, subject to certain limitations, to automatically grant restorative, or reload stock options (“Restorative Options”), to replace shares of previously owned Kemper common stock that an exercising option holder surrenders, either actually or constructively, to satisfy the exercise price and/or tax withholding obligations relating to the exercise. The restorative feature was eliminated prospectively for original option awards granted on or after February 3, 2009. Restorative Options may still be granted, subject to certain limitations, in connection with the
The components of AOCI at December 31, 2013 and 2012 were:
Total Pension Expense Recognized in the Consolidated Statements of Income as presented in the preceding table includes service cost benefits earned and reported in discontinued operations of $0.5 million and $0.6 million for the years ended December 31, 2012 and 2011, respectively.
Amortization of Deferred Policy Acquisition Costs by Operating Segment for the years ended December 31, 2013, 2012 and 2011 was:
Earned Premiums by product line for the years ended December 31, 2013, 2012 and 2011 were: