A.M. Best Affirms Ratings of Unitrin Inc.'s Property/Casualty and Life/Health Insurance Companies.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) of the Unitrin Property and Casualty Insurance Group (Unitrin) (Dallas, TX). The rating outlook is negative.

A.M. Best has also affirmed the financial strength ratings of A (Excellent) of United Insurance Company of America (UICA) (Chicago, IL) and its two wholly-owned subsidiaries, Union National Life Insurance Company (Baton Rouge, LA) and The Reliable Life Insurance Company (Webster Groves, MO) and three career agent life/health insurance companies of Unitrin, Inc. (NYSE: UTR) (Chicago, IL). These ratings have a negative outlook. Additionally, A.M. Best has affirmed the financial strength rating of A- (Excellent) of Reserve National Insurance Company (RNIC) (Oklahoma City, OK), Unitrin, Inc.'s, independent agent life/health insurance company. The rating outlook is stable.

Concurrently, A.M. Best has affirmed the debt ratings of "bbb" on Unitrin, Inc.'s $300 million 5.75% senior notes due 2007 and its $200 million 4.875% senior notes due 2010. These ratings have a negative outlook.

The ratings of Unitrin reflect its strong capitalization, improved underwriting performance and balanced book of business among personal and commercial lines. Unitrin's positive rating attributes are derived from a diversified product offering, strong regional market presence, long-standing independent agency relationships and benefits from prudent catastrophe exposure management.

The ratings also acknowledge that management's actions to improve profitability, which have included implementation of rate increases, geographical diversification and the re-underwriting of select books of business, have resulted in improved operating results in 2003 and 2004. Furthermore, Unitrin benefits from the financial flexibility and operational support of its publicly-traded parent, Unitrin, Inc.

The negative outlook is reflective of Unitrin's unfavorable operating performance prior to 2003, which resulted in steadily declining capitalization. The unfavorable operating results were driven by deterioration in the group's core business segments, attributable to the costs associated with the Kemper renewal rights acquisition, inadequate premium rates, increasing loss costs, weather-related losses, elevated expenses and adverse loss reserve development. However, Unitrin's operating results have improved since 2003 due to corrective actions implemented by management and firm market conditions, which resulted in strengthened capitalization. Unitrin has recently consolidated some insurance operations, which will help improve underwriting performance by lowering costs through increased efficiencies. Also, Unitrin maintains exposure to fluctuating market values due to a large, concentrated, common stock portfolio.

The rating action of UICA reflects its significant presence within the Unitrin group, its strong market niche in the home service life insurance market, overall profitable operating performance and high credit quality fixed-income portfolio.

The rating action also recognizes UICA's adequate risk-adjusted capitalization on a stand-alone basis despite large dividend payments made to Unitrin, Inc. over the past several years to be reinvested in its property/casualty affiliates. Partially offsetting these factors is A.M. Best's belief that UICA may be challenged to sustain premium growth and operating performance given the limited growth potential in the mature home service market and lower investment income results due primarily to reduced levels of invested assets and the continuing low interest rate environment. In response, cost control initiatives have been implemented to increase overall efficiency and cost effectiveness. While A.M. Best notes that unaffiliated and affiliated common stock levels have been reduced in UICA, A M. Best believes that the remaining common stock levels continue to expose it to potential market volatility, which may impact UICA's capital and surplus position. Management has implemented strategies to further reduce the exposure to the equity markets.

The rating action on RNIC reflects improved accident and health premium written trends, overall profitable operating performance and adequate risk-adjusted capitalization on a stand-alone basis despite a significant dividend payment made in conjunction with the reorganization of certain life/health insurance subsidiaries. Partially offsetting these factors is the challenge for RNIC to sustain its profitable operating performance due to reduced levels of invested assets and the low interest rate environment, limited success in cross-selling opportunities and its narrow business profile. In response, management has implemented strategies focused on expanding regional territories, increasing its independent agency field force and further emphasizing its supplemental product portfolio. Unitrin, Inc.'s other independent agent life/heath insurance entity, NationalCare Insurance Company (Oklahoma), was recently merged into UICA.

A.M. Best has also affirmed the financial strength ratings of B++ (Very Good) of Unitrin's affiliates, Capitol County Mutual Fire Insurance Company (Texas) and Old Reliable Casualty Company (Missouri). The rating outlook is stable. These ratings reflect the long-standing local market presence of these companies and the operating, managerial and reinsurance support provided by Unitrin, Inc.

For a complete listing of Unitrin, Inc.'s financial strength and debt ratings, please visit http://www.ambest.com/press/021801unitrin.pdf.

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.