Fitch Affirms Unitrin's Debt Rating; Assigns IFS Ratings to Life & P/C Ops

Business Wire, August 26, 2004

CHICAGO -- Fitch Ratings has affirmed its 'BBB' long-term and senior debt ratings on Unitrin, Inc. (Unitrin). Additionally, Fitch has assigned an 'A-' insurer financial strength (IFS) rating to Unitrin's lead property/casualty subsidiary, Trinity Universal (Trinity), and 'A ' IFS rating to Unitrin's life/health subsidiaries United Insurance Company of America (United), Union National Life (Union) and Reliable National Life (Reliable). All Rating Outlooks are Stable.

Positive factors supporting Unitrin's ratings include the company's diversified business profile, moderate financial leverage and reasonable financial flexibility. The ratings also reflect the life insurance subsidiaries' stable earnings, and Trinity's improving underwriting results.

Partially offsetting these positives is the potential impact of the company's concentrated investment focus primarily in Northrop Grumman and Baker Hughes equity investments and the mature nature and limited growth opportunities of its life insurance operations.

Unitrin is a holding company with subsidiaries that conduct operations in property/casualty insurance, life insurance, and consumer finance.

In 2003, Unitrin's mix of operating revenues was approximately 67% property/casualty, 25% life, and 7% consumer finance. Unitrin acquired the renewal rights to Kemper's personal auto business in 2002 and as a result property/casualty revenues have become an increasingly large portion of the company's revenue base. Fitch views this favorably due to the lack of growth opportunities in Unitrin's life operations.

In recent years Unitrin's life insurance operation have generated the majority of its operating earnings by marketing relatively small face amount life insurance policies in the home service market. Fitch believes that the profitability and stability of products sold in the home-service market are favorable from a credit perspective. However, Fitch also believes that the home service market's growth potential is limited.

Fitch views Unitrin's consumer-finance operation's consistent operating earnings and its ability to self-fund loan originations favorably. However, a significant portion of the consumer finance operation's loan originations are made in the sub-prime market and Fitch generally views the consumer finance industry as having lower credit-quality than the insurance industry. As a result, Fitch believes that support for Unitrin's ratings from its consumer-finance operation is limited.

Unitrin utilizes a moderate amount of financial leverage and Fitch believes the company has reasonable financial flexibility. Unitrin has approximately $496 million of debt outstanding which equates to a debt-to-capital ratio of 21% as of June 30, 2004. Operating earnings based interest coverage has 8.7 times (x) as of June 30, 2004.

Note: These ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on publicly available information.

Entity/Issue/Type                  Action        Rating/Outlook

Unitrin, Inc.

-- Long-term                       Affirm        'BBB'/Stable;

-- 5.75% senior debt due 2007      Affirm        'BBB'/Stable;

-- 4.875% senior debt due 2010     Affirm        'BBB'/Stable.

Trinity Universal

-- Insurer financial strength      Assign        'A-'/Stable.

United Insurance Co of America

-- Insurer financial strength      Assign        'A '/Stable.

Union National Life

-- Insurer financial strength      Assign        'A '/Stable.

Reliable National Life

-- Insurer financial strength      Assign        'A '/Stable.