S&P Announces Research Update: Unitrin Inc.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- On Oct 22, 2004, Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. affirmed its 'BBB+' counterparty credit rating on Unitrin Inc. (NYSE NYSE See: New York Stock Exchange :UTR UTR Untranslated Region (genetics) UTR Unicode Technical Report UTR Unique Taxpayer Reference (UK Inland Revenue) UTR Unable to Reach UTR Unable to Reproduce UTR University Technical Representative ). At the same time, Standard & Poor's affirmed its 'A+' counterparty credit and financial strength ratings on Unitrin's life and health subsidiaries and its 'A' counterparty credit and financial strength ratings on Unitrin's property/casualty subsidiaries. In addition, Standard & Poor's revised its outlook on the property/casualty subsidiaries to stable from negative. The outlook on the holding company and the life and health subsidiaries remains stable. The rating reflects the group's strong, improved, and balanced earnings; strong diversified business position; very strong holding-company liquidity; and conservative balance sheet. Offsetting these strengths is the company's continued, though diminished, concentrations in equity holdings. Outlook The outlook on the group's property/casualty insurance businesses was revised because of increased capitalization levels, improved operating performance, and the virtual resolution of uncertainty relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the transference TRANSFERENCE, Scotch law. The name of an action by which a suit, which was pending at the time the parties died, is transferred from the deceased to his representatives, in the same condition in which it stood formerly. of Kemper business to Unitrin policies. Unitrin's 2004 earnings are benefiting from a number of factors, including a return to profitability of the core property/casualty insurance business; an improving loss position in the start-up direct marketing operations; solid, profitable growth of the consumer finance business; and continued strong, stable performance of the life/health insurance units. Standard & Poor's expects the company to post a property/casualty combined ratio of 100% or less as of year-end 2004. Sales growth for life/health is expected to continue at 1%-3%, with aggregate growth of about 5%-10% in the property/casualty segments. Consolidated capital adequacy is expected to remain strong at at least 150%, and GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). interest coverage is expected to be maintained in excess of 8x for full-year 2004. Financial leverage is expected to remain at less than 30%. Major Rating Factors --Improved operating performance in property/casualty operations. The property/casualty operations posted underwriting losses in each of the past five years and pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. in three of the past five years. Nevertheless, they have shown continued improvement in the past two years, as demonstrated by a statutory combined ratio of 114.8% in 2002 and 104% in 2003, down from a 10-year high of 120.4% in 2001. The high combined ratio in 2001 was because of reserve strengthening and poor operating performance. As of June 30, 2004, the company has shown further improvement, and Standard & Poor's estimates that the company's GAAP combined ratio for consolidated property/casualty operations was 99%. The company's improvement in operating results has been broad-based and spans all major property/casualty reporting segments. As of June 30, 2004, the company's three main operating segments--multi-lines, specialty lines, and Kemper Auto and Home (KAH KAH Korea Association of Health KAH Kaspersky anti Hacker )--had estimated GAAP combined ratios of 98%, 95%, and 99%, respectively. These three segments account for more than 90% of revenues. The balance of the business is written out of the Unitrin Direct segment and exhibited a 109% combined ratio as of June 30, 2004, compared with 121% for the same period in 2003. Offsetting the positive trends and improvement in the combined ratio are the continuing high statutory expense of 31.2% as of Dec. 31, 2003, and the fact though greatly improved, the company's operating performance through Dec. 31, 2003, trailed that of the industry. Standard & Poor's expects the company to maintain pricing and reserving discipline, as measured by a combined ratio of 100% or less in its property/casualty operations for full-year 2004. --Resolution of execution risk associated with KAH renewal rights. On June 28, 2002, Unitrin acquired the renewal rights to the Kemper Insurance Cos.'s (Kemper) personal lines book of business. Subsequent to the transaction, Kemper's financial condition rapidly deteriorated and Standard & Poor's expressed concern that potential regulatory action against Kemper could significantly disrupt the business being ceded to Trinity. Such action could have led to cancellation of Kemper policies prior to being rewritten by Unitrin, potentially leading to a significant loss of business, adverse selection, and increased expenses for Trinity. As of June 30, 2004, Trinity has obtained all the necessary licenses and achieved the necessary IT modifications that have resulted in the transition of substantially all KAH business to the Trinity companies. Through June 30, 2004, pretax operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the KAH segment was $16.2 million, which showed a marked improvement over a pretax loss pretax loss A loss reported before tax benefits are considered. of $25 million for the same period in 2003. Standard & Poor's considers the transference of policies from the troubled Kemper group of companies to Trinity licenses to be a significant stabilizing development for Trinity. --Strong competitive positions in niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. . Unitrin has strong and diversified business positions in several regional niche markets, including personal lines property/casualty insurance, nonstandard non·stan·dard adj. 1. Varying from or not adhering to the standard: nonstandard lengths of board. 2. automobile insurance, life and health insurance targeted at lower-income markets, and consumer finance, focused on the sub-prime automobile market. Unitrin is a super-regional company that maintains a regional focus via a highly localized independent agency structure. Offsetting the company's strong business position is the expense burden associated with maintaining a local presence along with the fact that the company operates in many mature markets. However, many of the company's target markets are generally underserved, with relatively strong margins and high barriers to entry. --Strong capital adequacy. Unitrin's operating companies operating company A business that engages in transactions with outsiders. have strong to very strong capital adequacy based on an estimated consolidated capital adequacy ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. of 165% at year-end 2003. As of year-end 2003, Unitrin had trimmed its underwriting losses in the property/casualty operations to $83.3 million, down from a five-year high of $282.3 million in 2002, which was because of prior reserve strengthening and poor underlying underwriting performance. Though capital adequacy levels have declined from prior levels because of property/casualty underwriting losses and the need to support growth because of the acquisition of the KAH book in 2002, capital is supportive of the rating level, and Standard and Poor's Noun 1. Standard and Poor's - a broadly based stock market index Standard and Poor's Index expects consolidated capital to remain strong. --Strong investment portfolio. Unitrin's investment portfolio is considered strong, with above-average equity risk and several large concentrations offset by much-lower-than-average credit risk. At mid-year, the company had $3.8 billion of fixed-income investments, nearly half of which were U.S. government and agency securities. An additional $1.1 billion was invested in equity securities, with a single large concentration of $711 million invested in Northrop Grumman Northrop Grumman Corporation (NYSE: NOC) is an aerospace and defense conglomerate that is the result of the 1994 purchase of Grumman by Northrop. The company is the third largest defense contractor for the U.S. Corp. common and preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. , down from $855 million at year-end 2003. The concentration is reflected in the capital model by a charge of 49% versus the normal common stock factor of 15%.
Ratings List
Unitrin Inc.
Counterparty credit rating BBB+/Stable/--
Senior debt rating BBB+
United Insurance Co. of America
Reliable Life Insurance Co. (MO)
Reserve National Insurance Co.
Union National Life Insurance Co. (LA)
Counterparty credit rating A+/Stable/--
Financial strength rating A+/Stable
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United Casualty Insurance Co. of America
Unitrin Direct Insurance Co.
Valley Insurance Co.
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Counterparty credit rating A/Stable/-- A/Negative/--
Financial strength rating A/Stable A/Negative
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