Unitrin, Inc. Reports $53.8 Million Increase in Net Income

CHICAGO--(BUSINESS WIRE)-- Unitrin, Inc. (NYSE: UTR) reported today net income of $48.2 million ($0.77 per unrestricted common share) for the first quarter of 2010, compared to a net loss of $5.6 million ($0.09 per unrestricted common share) for the first quarter of 2009, an improvement of $53.8 million. Net income from continuing operations was $48.3 million ($0.77 per unrestricted common share) for the first quarter of 2010, compared to a net loss from continuing operations of $7.5 million ($0.12 per unrestricted common share) for the first quarter of 2009.

Highlights

• First quarter 2010 pre-tax segment operating profit of $72.4 million, compared to $21.2 million for the first quarter of 2009.
• Book value per share increases to $31.66 as debt-to-total capitalization ratio declines to 22.1%.
• Fireside Bank reports operating profit of $4.8 million for the quarter; exit plan exceeding target and Tier 1 capital ratio increases to 23.7%.
• Unitrin Direct reports break-even results.

Don Southwell, Unitrin’s Chairman, President and Chief Executive Officer, commented, “We are pleased with our strong first quarter operating and bottom line results and with the continued strengthening of our balance sheet. The substantial improvement in our results was driven largely by higher investment returns and lower operating expenses. In light of the current turbulence in the European Union, it is worth noting that we do not have any investments in sovereign debt issued by foreign governments. Operating results improved in each of our business segments compared to the prior year. Unitrin Direct reported positive bottom line results for the third consecutive quarter. Our Career Agency, Kemper and Unitrin Specialty segments all continue to report solid operating results. Earned premiums declined in line with our expectations as a result of the actions we took in 2009 and also due to the continuing soft property and casualty insurance market.”

Mr. Southwell also commented, “Our plan to exit the automobile finance business and fully return to Unitrin the $237 million of capital that we have invested in Fireside Bank is going extremely well. We now expect that Fireside Bank will report positive results over the remaining course of the exit plan. We have also made the decision to substantially exit the health insurance business and are seeking a buyer for Reserve National. Reserve National has performed well for us over the years, but we believe it would be better positioned within an organization for which health insurance is a core business. We now report Reserve National as a discontinued operation.”

Total Revenues

Total revenues were $661.4 million for the first quarter of 2010, compared to $655.8 million for the first quarter of 2009. Total revenues increased due primarily to higher net investment income, lower net impairment losses recognized in earnings and higher net realized gains on sales of investments, partially offset by lower earned premiums and lower automobile finance revenues.

Earned premiums were $549.7 million and $581.2 million for the first quarters of 2010 and 2009, respectively, a decrease of $31.5 million. Earned premiums decreased in each of the segments comprising the Company’s insurance operations due primarily to planned reductions. Automobile finance revenues decreased by $22.3 million for the first quarter of 2010, compared to the same period in 2009, as Fireside Bank executes its plan to exit the automobile finance business.

Net investment income increased by $33.8 million for the first quarter of 2010, compared to the same period in 2009, due primarily to higher investment income from investments in equity method limited liability investments. Net investment income from equity method limited liability investments increased due primarily to higher investment returns.

Net realized gains on sales of investments were $4.5 million for the first quarter of 2010, compared to $0.8 million for the same period in 2009. (See the “Net Realized Gains on Sales of Investments” table below for additional information.) The Company cannot anticipate when or if net realized gains or losses on sales of investments may occur in the future.

Net impairment losses recognized in earnings were $3.2 million for the first quarter of 2010, compared to $25.0 million for the same period in 2009. (See the “Net Impairment Losses Recognized in Earnings” table below for additional information.) The Company cannot anticipate when or if similar net impairment losses may occur in the future.

Quarterly Segment Results

Unitrin is engaged, through its subsidiaries, in the property and casualty insurance, life insurance and automobile finance businesses. The Company conducts its continuing operations through five operating segments: Kemper, Unitrin Specialty, Unitrin Direct, Career Agency and Fireside Bank. Reserve National, now classified and reported as a discontinued operation, and Career Agency previously had comprised the Company’s Life and Health Insurance segment.

NOTE: The Company uses the registered trademark, “Kemper,” under license, for personal lines insurance only, from Lumbermens Mutual Casualty Company (“Lumbermens”), which is not affiliated with the Company. Lumbermens continues to use the name, “Kemper Insurance Companies,” in connection with its operations, which are distinct from, and not to be confused with, Unitrin’s Kemper business segment.

The increase in net investment income in each of the operating segments described below is largely attributable to net investment gains from investments in Equity Method Limited Liability Investments in the first quarter of 2010, compared to losses from those same investments in the first quarter of 2009.

Kemper

Operating profit in the Kemper segment increased by $6.3 million for the first quarter of 2010, compared to the same period in 2009, due primarily to higher net investment income and lower insurance expenses, partially offset by lower favorable loss and loss adjustment expenses (“LAE”) reserve development.

Earned premiums in the Kemper segment decreased by $8.5 million for the first quarter of 2010, compared to the same period in 2009, due primarily to lower volume, partially offset by higher average premium rates. Volume decreased due, in part, to planned decreases related to certain initiatives implemented in 2009 to improve profitability and the return on required capital.

Unitrin Specialty

Operating profit in the Unitrin Specialty segment increased by $7.5 million for the first quarter of 2010, compared to the same period in 2009, due primarily to higher net investment income and lower personal automobile losses and LAE as a percentage of earned premiums. Losses and LAE as a percentage of earned premiums decreased on personal automobile insurance due primarily to lower frequency, partially offset by higher severity.

Earned premiums in the Unitrin Specialty segment decreased by $10.2 million for the first quarter of 2010, compared to the same period in 2009, due primarily to lower volume of personal automobile insurance and commercial automobile insurance, partially offset by higher average premium rates on personal automobile insurance.

Unitrin Direct

The Unitrin Direct segment reported an operating loss of $1.1 million for the first quarter of 2010, compared to an operating loss of $8.5 million for the same period in 2009. Operating results for the Unitrin Direct segment improved due primarily to higher net investment income, lower insurance expenses and, to a lesser extent, lower incurred losses and LAE as a percentage of earned premiums. Unitrin Direct reported net income of $0.1 million for the first quarter of 2010, as the impact of tax-exempt investment income swung the operating loss to slightly positive net income.

Earned premiums in the Unitrin Direct segment decreased by $6.6 million for the first quarter of 2010, compared to the same period in 2009, due primarily to lower volume resulting, in part, from initiatives to improve profitability and insurance risk selection, partially offset by the impact of the Direct Response acquisition.

Career Agency

Operating profit in the Career Agency segment increased by $20.0 million for the first quarter of 2010, compared to the same period in 2009, due primarily to higher net investment income and lower losses and LAE on property insurance, partially offset by the impact of lower volume of insurance in force.

Earned premiums in the Career Agency segment decreased by $6.2 million for the first quarter of 2010, compared to the same period in 2009, due primarily to lower volume resulting from a strategy to reduce the segment’s catastrophe exposure through the non-renewal of dwelling coverage in certain coastal areas and the continued run-off of dwelling coverage in all other markets.

Fireside Bank

Near the end of the first quarter of 2009, Fireside Bank began executing its plan to exit the automobile finance business and wind down its operations in an orderly fashion over the next several years.

The first year of the exit plan has favorably exceeded the Company’s expectations. On a stand-alone basis, Fireside Bank had capital of $236.7 million at March 31, 2010, all of which it expects to return to Unitrin over the next several years. Since the Company announced the plan to exit the automobile finance business at the end of the first quarter of 2009, the Tier 1 capital to total average assets ratio at Fireside Bank has increased from 15.6% to a strong 23.7% at the end of the first quarter of 2010. Automobile loan receivables have declined steadily to $630.8 million at March 31, 2010 from $1,125.2 million at March 31, 2009, while certificates of deposits have declined to $596.1 million at March 31, 2010 from $1,054.4 million at March 31, 2009. The reserve for loan losses remains strong at 11.8% of loans outstanding. Cash and U.S. Treasury and Agency investments now represent 40.7% of certificates of deposits outstanding. The Company expects that the amount of automobile loan receivables and certificates of deposits outstanding will decline substantially in 2010 while the Fireside Bank segment reports slightly positive bottom line results. (See the “Fireside Bank Exit Plan Key Metrics” table below for additional information.)

Fireside Bank reported operating profit of $4.8 million for the first quarter of 2010, compared to an operating loss of $5.2 million for the same period in 2009. Automobile finance revenues decreased by $22.3 million for the first quarter of 2010, compared to the same period in 2009, due to the lower levels of loans outstanding as a result of the exit plan.

Consolidated results for the three months ended March 31, 2010 and 2009 are as follows:

Business segment revenues for the three months ended March 31, 2010 and 2009 are as follows:

Fireside Bank Exit Plan Key Metrics

Key metrics for the Fireside Bank exit plan are set forth in the table below, which compares the status of the plan at the end of the first quarter of 2010, with the end of 2009 and with the plan’s approximate inception date.

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.

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 determining 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;

• The impact of residual market assessments and 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 insurance policy coverage 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 and the Health Care and Education Reconciliation Act of 2010, financial services regulatory reform, 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;

• The degree of success in identifying a buyer for Reserve National and effecting a sale that results in a complete recovery of goodwill associated with Reserve National;

• Changes in general economic conditions, including performance of financial markets, interest rates, unemployment rates and fluctuating values of particular investments held by the Company;

• 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 made 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 and homeowners 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
• Career Agency, which specializes in the sale of life insurance products to persons of modest incomes through a network of employee agents.

Additional information about Unitrin, including a copy of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, is available by visiting its website (www.unitrin.com).

Unitrin’s 2010 annual meeting of shareholders will be held on May 5, 2010 at 10:00 (CDT) at the Chase Auditorium, Chase Tower, 10 S. Dearborn Street in Chicago, IL. A link to the live webcast is posted on Unitrin’s website.

Unitrin plans to issue a news release discussing its second quarter results and file its quarterly report on Form 10-Q after the market closes on Monday, August 2, 2010.

Unitrin, Inc.
Frank J. Sodaro, (312) 661-4930
[email protected]

Source: Unitrin, Inc.