News Details

CHICAGO--(BUSINESS WIRE)-- Unitrin, Inc. (NYSE: UTR) reported today net income of $62.9 million ($1.03 per unrestricted common share) for the fourth quarter of 2010, compared to $66.3 million ($1.06 per unrestricted common share) for the fourth quarter of 2009.

Net income for the full year of 2010 was $184.6 million ($2.98 per unrestricted common share), compared to $164.7 million ($2.64 per unrestricted common share) for the full year of 2009.

Income from continuing operations was $61.5 million ($1.00 per unrestricted common share) for the fourth quarter of 2010, compared to $66.1 million ($1.06 per unrestricted common share) for the fourth quarter of 2009.

Income from continuing operations was $183.8 million ($2.97 per unrestricted common share) for the full year of 2010 and included an after-tax charge of $14.8 million to write off goodwill related to the Company’s health insurance operation, Reserve National, compared to $162.2 million ($2.60 per unrestricted common share) for the full year of 2009.

Don Southwell, Unitrin’s Chairman, President and Chief Executive Officer commented, “Unitrin demonstrated solid overall operating performance during the fourth quarter. The business lines continue to take a disciplined approach to growth amidst an ongoing soft property and casualty market.”

“The current period was impacted by some unusual weather events, though underlying these events, our actions to reduce certain exposures, maintain margins and efficiently manage capital are delivering positive results. Collectively, these actions position Unitrin well for 2011,” said Mr. Southwell.

Fourth Quarter Highlights

• Kemper’s underlying combined ratio¹ declined to 95.1% in the current quarter, a 2.0 percentage point improvement versus the fourth quarter of 2009
• Unitrin Specialty introduced an enhanced version of its personal auto product which is designed to deliver better risk and pricing segmentation
• Unitrin Direct launched Insurance for the i Generation™ using its innovative social networking, insurance platform - iMingle™
• As a result of ongoing efforts to improve agency performance, the Life and Health segment reduced the percentage of open agencies² to 5%, the lowest percentage in the last twelve quarters
• Fireside Bank earned net income of $5.8 million during the fourth quarter. The tier 1 capital ratio to average assets at December 31, 2010 was 37%; a 16 percentage point improvement over December 31, 2009
• Successful offering of $250 million, 5-year, 6% senior notes
• Common stock repurchases for the fourth quarter were 0.4 million shares at a cost of $9.9 million, completing Unitrin’s prior stock repurchase program; a new $300 million stock repurchase program was announced on February 2, 2011
• Book value per share at December 31, 2010 was $34.61; an increase of 13% over December 31, 2009

Segment Results

The segment results discussed below are presented on an after tax basis unless otherwise noted. Catastrophe losses exclude the impact of prior year development unless otherwise noted.

Unallocated Net Income consists of realized gains (losses) on sales of investments, net impairment losses recognized in earnings, other expenses, dividend income and equity in net income (loss) of Investee. A more detailed reconciliation of Total Segment Net Income to Income from Continuing Operations is provided at the end of this press release.

Kemper® reported net income of $9.0 million for the fourth quarter of 2010 compared to $18.0 million for 2009. The current quarter included $12.9 million unfavorable impact of accident year catastrophe losses, $8.4 million of which was from an unusual hail event in Arizona. Catastrophe losses of $0.5 million were reported in the fourth quarter of 2009. Partially offsetting the impact of catastrophe losses was favorable improvement in the underlying combined ratio of 2.0 percentage points or $2.7 million. This improvement is the result of actions taken to optimize certain geographic exposures and shift the business mix toward Kemper’s packaged auto and home product offerings. Favorable reserve development³ for the fourth quarter of 2010 was $3.0 million, or $0.7 million less favorable than 2009.

Unitrin Specialty reported net income of $2.2 million for the fourth quarter of 2010, a decline of $4.5 million from 2009. This decline is partially attributable to a net unfavorable change in reserve development of $1.1 million ($3.4 million unfavorable change in prior year development, when compared to prior year development in 2009, partially offset by $2.3 million favorable change in current year development, when compared to current year development in 2009). The remaining decline in net income was primarily driven by unusual non-catastrophe weather related events in the fourth quarter.

Unitrin Direct reported a net loss of $1.9 million for the fourth quarter of 2010, compared to net income of $4.4 million for 2009. In the fourth quarter of 2010, Unitrin Direct experienced an increase in claim frequency in its liability lines of insurance, without a corresponding increase in its physical damage lines. This increase was outside the normal range of expected frequency for these lines, and resulted in an 11 percentage point increase in the underlying combined ratio.

Life and Health reported net income of $34.6 million for the fourth quarter of 2010, essentially flat compared to 2009. Net investment income benefitted in both periods due to above average returns for equity method investments. These investments generated $4.2 million and $6.0 million of net income for the three months ended December 31, 2010 and 2009, respectively.

Fireside Bank reported net income of $5.8 million for the fourth quarter of 2010, compared to $2.0 million for 2009. The current quarter benefitted from a $6.8 million reduction in loan loss reserves, partially offset by incentives paid to close certain deposit accounts early. The reduction in loan loss reserves reflects both improved current period recoveries on previously charged off loans and lower estimated future losses in the portfolio. (See the “Fireside Bank Key Metrics” table at the end of this release for information related to Fireside Bank's run-off plan.)

Business segment revenues for the three months and years ended December 31, 2010 and 2009 are presented below:

Selected financial information for the Kemper segment follows:

Selected financial information for the Unitrin Specialty segment follows:

Selected financial information for the Unitrin Direct segment follows:

Selected financial information for the Life and Health Insurance segment follows:

Selected financial information for the Fireside Bank segment follows:

Use of Non-GAAP Measures

Underlying Combined Ratio is a non-GAAP measure, which is computed as the difference between three operating ratios: the combined ratio, the effect of catastrophes (excluding development of prior year catastrophes) on the combined ratio and the effect of prior year reserve development (including development on prior year catastrophes) on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe the underlying combined ratio is useful to investors and is used by management to reveal the trends in our Property and Casualty business that may be obscured by catastrophe losses and prior year reserve development. These catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year reserve developments are caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The underlying combined ratio should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.

A reconciliation of Total Segment Net Income to Income from Continuing Operations is as follows:

Cautionary Note Regarding Forward-Looking Statements

This press release may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give expectations or forecasts of future events. The reader can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “believe(s),” “goal(s),” “target(s),” “estimate(s),” “anticipate(s),” “forecast(s),” “project(s),” “plan(s),” “intend(s),” “expect(s),” “might,” “may” and other words and terms of similar meaning in connection with a discussion of future operating financial performance or financial condition. Forward-looking statements, in particular, include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.

Any or all forward-looking statements may turn out to be wrong, and, accordingly, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this press release. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance; actual results could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the Company’s actual future results and financial condition. The reader should consider the following list of general factors that could affect the Company’s future results and financial condition, as well as those discussed under Item 1A., Risk Factors, in the Company’s 2010 Annual Report on Form 10-K.

Among the general factors that could cause actual results and financial condition to differ materially from estimated results and financial condition are:

• The incidence, frequency, and severity of catastrophes occurring in any particular reporting period or geographic concentration, including natural disasters, pandemics and terrorist attacks or other man-made events;
• The number and severity of insurance claims (including those associated with catastrophe losses) and their impact on the adequacy of loss reserves;
• Changes in facts and circumstances affecting assumptions used in loss and LAE reserves;
• The impact of inflation on insurance claims, including, but not limited to, the effects attributed to scarcity of resources available to rebuild damaged structures, including labor and materials and the amount of salvage value recovered for damaged property;
• Changes in the pricing or availability of reinsurance, or in the financial condition of reinsurers and amounts recoverable therefrom;
• Orders, interpretations or other actions by regulators that impact the reporting, adjustment and payment of claims;
• Impact of residual market assessments / assessments for insurance industry insolvencies;
• Changes in industry trends and significant industry developments;
• Uncertainties related to regulatory approval of insurance rates, policy forms, license applications and similar matters;
• Developments related to insurance policy claims and coverage issues including, but not limited to, interpretations or decisions by courts or regulators that may govern or influence such issues arising with respect to losses incurred in connection with hurricanes and other catastrophes;
• Changes in ratings by credit rating agencies, including A.M. Best Co., Inc.;
• Adverse outcomes in litigation or other legal or regulatory proceedings involving Unitrin or its subsidiaries or affiliates;
• Regulatory, accounting or tax changes that may affect the cost of, or demand for, the Company’s products or services;
• Governmental actions, including, but not limited to, implementation of the provisions of the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and the Dodd-Frank Act, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions;
• Changes in distribution channels, methods or costs resulting from changes in laws or regulations, lawsuits or market forces;
• Changes in laws or regulations governing or affecting the regulatory status of industrial banks, such as Fireside Bank, and their parent companies, including minimum capital requirements and restrictions on the non-financial activities and equity investments of companies that acquire control of industrial banks;
• Changes in the estimated rates of automobile loan receivables net charge-off used to estimate Fireside Bank’s reserve for loan losses, including, but not limited to, changes in general economic conditions, unemployment rates and the impact of changes in the value of collateral held;
• The degree of success in effecting an orderly wind-down of the operations of Fireside Bank and the recovery of Unitrin’s investment in Fireside Bank;
• Changes in general economic conditions, including performance of financial markets, interest rates, unemployment rates and fluctuating values of Company investments;
• The level of success and costs expended in realizing economies of scale and implementing significant business consolidations and technology initiatives;
• Heightened competition, including, with respect to pricing, entry of new competitors and the development of new products by new and existing competitors;
• Increased costs and risks related to data security;
• Absolute and relative performance of the Company’s products or services; and
• Other risks and uncertainties described from time to time in Unitrin’s filings with the U.S. Securities and Exchange Commission (“SEC”).

No assurances can be given that the results contemplated in any forward-looking statements will be achieved or will be achieved in any particular timetable. The Company assumes no obligation to publicly correct or update any forward-looking statements as a result of events or developments subsequent to the date of this press release. The reader is advised, however, to consult any further disclosures Unitrin makes on related subjects in its filings with the SEC.

Unitrin is a diversified insurance holding company, with subsidiaries that principally provide life, auto, homeowners and other insurance products for individuals and small businesses.

Unitrin’s principal businesses are:

• Kemper, which provides auto, homeowners and other insurance products to individuals through a network of independent agents,
• Unitrin Direct, which markets auto, homeowners and renters insurance to consumers via direct mail, the Internet and employer-sponsored employee benefit programs and other affinity relationships,
• Unitrin Specialty, which provides auto insurance through a network of independent agents and brokers to individuals and small businesses which have had difficulty procuring insurance through traditional channels, usually due to adverse driving records or claim or credit histories, and
• Life and Health Insurance, which specializes in the sale of life and health insurance products to persons of modest incomes through a network of employee agents.

Kemper® is a registered service mark of Unitrin, Inc. The terms iMingle™ and Insuring the i Generation™, and the logos containing such terms, are service marks or trade marks of Unitrin Direct Insurance Company.

Additional information about Unitrin, including a copy of its Annual Report on Form 10-K for the year ended December 31, 2010, is available by visiting its website (www.unitrin.com).

Source: Unitrin, Inc.

Unitrin, Inc.

Frank J. Sodaro, (312) 661-4930

investor.relations@unitrin.com