Acquisition of Business (Notes)

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

Acquisition of Business

Note 2 - Acquisition of Business

On April 30, 2015, Kemper acquired 100% of the outstanding common stock of Alliance United Group and its wholly-owned subsidiaries, Alliance United Insurance Company and Alliance United Insurance Services, (individually and collectively referred to herein as “Alliance United”) in a cash transaction for a total purchase price of $71.0 million, of which $17.5 million is being held in escrow to secure the sellers’ potential indemnification obligations under the purchase agreement. After completing the transaction, Kemper contributed $75.0 million to support the book of business acquired and commuted a quota share reinsurance agreement whereby Alliance United ceded a portion of its business to an unaffiliated reinsurer. The results of Alliance United are included in the Condensed Consolidated Financial Statements from the date of acquisition and are reported in the Company’s Property & Casualty Insurance segment. Alliance United is a provider of nonstandard personal automobile insurance in California. As a result of the acquisition, the Company increased its presence in the California nonstandard automobile insurance market by gaining access to additional independent agents and brokers and by gaining expertise in serving the Hispanic market.

During the third quarter of 2015, the Company completed the allocation of the purchase price to the assets acquired and liabilities assumed. Based on the final allocation, goodwill increased by $4.5 million from the preliminary amount reported in the Company’s condensed consolidated financial statements at June 30, 2015. The final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed is presented below.

(Dollars in Millions)
Investments	$	187.0
Cash	13.4
Receivables from Policyholders	44.4
Other Receivables	52.8
Value of Intangible Assets Acquired (Reported in Other Assets)	32.6
Goodwill	11.2
Current Income Taxes	1.4
Other Assets	5.9
Property and Casualty Insurance Reserves	(155.8		)
Unearned Premiums	(85.6		)
Liabilities for Income Taxes	(1.5		)
Accrued Expenses and Other Liabilities	(34.8		)
Total Purchase Price	$	71.0

Under the purchase agreement, the Company is indemnified up to $12.5 million on an after-tax basis for, among other things, breaches of customary representations and warranties, loss and LAE reserve development and pre-closing income taxes. In addition, the Company is indemnified, up to $5.0 million on an after-tax basis, for certain employment related matters. Other Receivables in the preceding table include an indemnification receivable of $5.4 million. Other Receivables in the Condensed Consolidated Balance Sheet at September 30, 2015 include an indemnification receivable of $15.9 million.

Note 2 - Acquisition of Business (continued)

The Company’s Condensed Consolidated Statements of Income for the six and three months ended June 30, 2015 were prepared based on provisional amounts for Insurance Expenses and Income Tax Expense. During the third quarter of 2015, the Company recognized measurement period adjustments to these provisional amounts. In accordance with ASU 2015-16, these adjustments were included in earnings for the three months ended September 30, 2015. If the Company had completed the purchase price allocation as of the acquisition date and recognized these measurement period adjustments in its Condensed Consolidated Statements of Income for the six and three months ended June 30, 2015, Insurance Expenses for both the six and three months ended June 30, 2015 would have been $2.9 million lower than what was previously reported and Income Tax Expense for both the six and three months ended June 30, 2015 would have been $1.0 million higher than what was previously reported.

The carrying amount, net of accumulated amortization, of the intangible assets acquired by class at September 30, 2015 and the acquisition date are as follows:

(Dollars in Millions)	Sep 30, 2015		At Acquisition Date
Broker Relationships	$	18.4	$	18.9
Value of In Force Policies	1.3		9.2
Other	3.9		4.5
Value of Intangible Assets Acquired	$	23.6	$	32.6

Broker Relationships are being amortized over 15 years on a straight-line basis. Value of In Force Policies is being amortized pro ratably as premiums are earned over the remaining terms of the underlying policies. Other intangible assets acquired are generally being amortized on a straight-line basis over 2 years to 5 years.