Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

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:



DOLLARS IN MILLIONS	2019		2018
Deferred Income Tax Assets:
Insurance Reserves	$	16.2	$	17.0
Unearned Premium Reserves	64.5		59.1
Tax Capitalization of Policy Acquisition Costs	44.6		44.0
Payroll and Employee Benefit Accruals	35.0		49.6
Net Operating Loss Carryforwards	3.3		5.5
Other	12.5		11.2
Total Deferred Income Tax Assets	176.1		186.4
Deferred Income Tax Liabilities:
Investments	155.6		33.2
Deferred Policy Acquisition Costs	112.9		98.7
Life VIF and P&C Customer Relationships	5.3		6.0
Goodwill and Other Intangible Assets Acquired	39.3		45.2
Depreciable Assets	37.6		27.1
Other	3.6		2.4
Total Deferred Income Tax Liabilities	354.3		212.6
Net Deferred Income Tax Liabilities	$	178.2	$	26.2

The expiration of federal net operating loss (“NOL”) carryforwards and their related deferred income tax assets at December 31, 2019 is presented below by year of expiration.



DOLLARS IN MILLIONS	NOL Carry-forwards		Deferred Tax Asset
Expiring in:
2027	11.2		2.4
2028	4.4		0.9
Total All Years	$	15.6	$	3.3

The NOL carryforwards were acquired in connection with business acquisitions made in prior years and are subject to annual usage limitations under the Internal Revenue Code. The Company expects to fully utilize these federal NOL carryforwards.

A reconciliation of the beginning and ending amount of Unrecognized Tax Benefits for the years ended December 31, 2019, 2018 and 2017 is presented below.



DOLLARS IN MILLIONS	2019			2018			2017
Liabilities for Unrecognized Tax Benefits at Beginning of Year	$	4.4		$	8.1		$	5.1
Additions for Tax Positions of Current Year	—			0.7			3.1
Reductions for Tax Positions of Prior Years	(4.4		)	(4.4		)	—
Reduction for Expiration of Federal Statute of Limitations	—			—			(0.1		)
Liabilities for Unrecognized Tax Benefits at End of Year	$	—		$	4.4		$	8.1

The statute of limitations related to Kemper and its eligible subsidiaries’ consolidated Federal income tax returns is closed for all tax years up to and including 2011. As a result of the Company filing amended federal income tax returns resulting from an election to update interest rates used to compute the tax basis of reserves on life insurance contracts issued prior to 2018, tax years 2012 and 2013 are under limited examination with respect to carryback adjustments associated with the amended returns. The statute of limitations related to tax years 2014 and 2015 has been extended to June 30, 2020.

NOTE 16. INCOME TAXES (Continued)

The expiration of the statute of limitations related to the various state income tax returns that Kemper and its subsidiaries file varies by state.

There were no Unrecognized Tax Benefits at December 31, 2019. Unrecognized Tax Benefits at December 31, 2018 and 2017 include $3.7 million and $7.6 million, respectively, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred income tax accounting, other than for interest and penalties, the disallowance of the shorter deductibility period would not affect the effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

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 $0.7 million and $0.5 million at December 31, 2018 and 2017, respectively. Net interest related to unrecognized tax benefits for the years ended December 31, 2018 and 2017 were insignificant.

The components of Income Tax Expense from Continuing Operations for the years ended December 31, 2019, 2018 and 2017 were:



DOLLARS IN MILLIONS	2019			2018			2017
Current Income Tax Benefit (Expense)	$	(66.4	)	$	32.2		$	(23.1	)
Deferred Income Tax Expense	(68.5		)	(46.5		)	(15.1		)
(Increase) Decrease Unrecognized Tax Benefits	4.4			3.6			(3.0		)
Income Tax Expense	$	(130.5	)	$	(10.7	)	$	(41.2	)

Income taxes paid, net of income tax refunds received, were $68.1 million, $0.2 million, and $13.0 million in 2019, 2018, and 2017, respectively.

A reconciliation of the Statutory Federal Income Tax Expense and Rate to the Company’s Effective Income Tax Expense and Rate from Continuing Operations for the years ended December 31, 2019, 2018 and 2017 is presented below.



DOLLARS IN MILLIONS	2019					2018					2017
DOLLARS IN MILLIONS	Amount			Rate		Amount			Rate		Amount			Rate
Statutory Federal Income Tax Expense	$	(138.9	)	21.0	%	$	(41.8	)	21.0	%	$	(56.4	)	35.0	%
Tax-exempt Income and Dividends Received Deduction	4.3			(0.7	)	4.8			(2.4	)	9.8			(6.0	)
Stock-Based Compensation	4.4			(0.7	)	1.4			(0.7	)	0.4			(0.2	)
Nondeductible Executive Compensation	(2.5		)	0.4		(1.4		)	0.7		—			—
Tax Reform	—			—		26.4			(13.3	)	7.4			(4.6	)
Other, Net	2.2			(0.3	)	(0.1		)	0.1		(2.4		)	1.4
Effective Income Tax Benefit (Expense) from Continuing Operations	$	(130.5	)	19.7	%	$	(10.7	)	5.4	%	$	(41.2	)	25.6	%

Comprehensive Income Tax (Expense) Benefit included in the Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 was:



DOLLARS IN MILLIONS	2019			2018			2017
Income Tax Benefit (Expense):
Continuing Operations	$	(130.5	)	$	(10.7	)	$	(41.2	)
Discontinued Operations	—			(0.6		)	(0.5		)
Unrealized Depreciation (Appreciation) on Securities	(85.2		)	49.6			(25.9		)
Foreign Currency Translation Adjustments on Investments	—			(0.1		)	(0.6		)
Tax Effects from Postretirement Benefit Plans	1.7			1.5			(0.6		)
Tax Effects from Cash Flow Hedge	(0.1		)	(0.3		)	2.4
Comprehensive Income Tax (Expense) Benefit	$	(214.1	)	$	39.4		$	(66.4	)