Unitrin, Inc. Reports Third Quarter Results
CHICAGO--(BUSINESS WIRE)--Unitrin, Inc. (NYSE: UTR) reported today a loss from continuing operations of $43.7 million ($0.70 per common share) for the third quarter of 2008, compared to income from continuing operations of $57.6 million ($0.89 per common share) for the third quarter of 2007. Unitrin reported a net loss, including discontinued operations, of $39.3 million ($0.63 per common share) for the third quarter of 2008, compared to net income of $64.3 million ($0.99 per common share) for the third quarter of 2007.
Don Southwell, Unitrin’s President and Chief Executive Officer, commented, “Our third quarter results were impacted by catastrophe losses and net losses from the sales and write-downs of investments. Catastrophe losses from continuing operations were $83.1 million before tax for the third quarter of 2008, compared to $7.3 million for the third quarter of 2007. Catastrophe losses for the third quarter of 2008 include losses of $70.5 million from Hurricanes Dolly, Gustav and Ike. We recognized net realized investment losses of $44.6 million for the third quarter of 2008, compared to net realized investment gains of $12.5 million for the third quarter of 2007.”
Mr. Southwell further commented, “Today we have adequate capital at our subsidiaries to operate our businesses, approximately $165 million of investments at the parent company level and we have $311 million of undrawn capacity in our revolving credit facility.
While the capital markets have changed dramatically since the end of the third quarter, we have at the same time substantially reduced our equity investment risk. During the third quarter, we had already sold 2.3 million shares of our stake in Northrop generating $162 million in pre-tax cash proceeds. In October, we sold an additional 4.0 million shares generating $177 million in additional pre-tax cash proceeds, which leaves us with a balance of 2.2 million shares. In October, we also sold other equity securities generating $221 million in pre-tax cash proceeds. We do not participate in securities lending programs. We have little direct investment exposure to subprime residential mortgage-backed securities, “Alt–A” investments, commercial mortgage-backed securities, collateralized debt obligations, credit derivatives, enhanced money market funds, or commercial paper investments. We have not written credit default swaps nor do we write investment-based life insurance products.
In addition to reducing investment risk, we made several changes to reduce operating risk. We have discontinued the sale of dwelling policies by our life and health insurance segment’s career agents. We have slowed marketing expenditures and reduced staff at Unitrin Direct which should both improve short-term results and give us the opportunity to adequately price the Unitrin Direct book of business. We are also exploring strategic alternatives associated with Fireside Bank.”
Shareholders’ Equity
Shareholders’ equity decreased by $246.4 million during the third quarter of 2008 and was $1,798.6 million at September 30, 2008. Total comprehensive loss, which includes the unrealized decline in the value of investments, was $206.0 million for the three months ended September 30, 2008. Dividends and repurchases of the Company’s common stock reduced shareholders’ equity by $29.4 million and $11.6 million, respectively, during the third quarter of 2008.
Total Revenues
Total revenues were $688.9 million for the third quarter of 2008, compared to $735.4 million for the third quarter of 2007. Total revenues decreased due primarily to net realized investment losses and lower automobile finance revenues, partially offset by higher earned premiums.
Earned premiums were $599.5 million and $579.9 million for the third quarter of 2008 and 2007, respectively, an increase of $19.6 million. Earned premiums increased primarily in the Unitrin Specialty segment, with the Kemper, Unitrin Direct and Life and Health Insurance segments each posting modest increases. Automobile finance revenues in the Fireside Bank segment decreased by $6.4 million for the third quarter of 2008, compared to the same period in 2007.
Net investment income decreased by $3.3 million for the third quarter of 2008, compared to the same period in 2007, due primarily to lower net investment income from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. The Company reported a net investment loss of $0.9 million from its investments in limited liability investment companies and limited partnerships for the third quarter of 2008, compared to net investment income of $6.4 million for the same period in 2007. Each of the Company’s insurance segments reported lower net investment income as a result of these investments.
Net realized investment losses were $44.6 million for the third quarter of 2008, compared to net realized investment gains of $12.5 million for the same period in 2007. Net realized investment losses for the third quarter of 2008 and 2007 included pretax losses of $72.1 million and $7.0 million, respectively, resulting from other-than-temporary declines in the fair values of investments. The Company recognized net realized investment gains on sales of investments of $27.5 million in the third quarter of 2008, compared to $19.5 million in 2007. (See “Net Realized Investment Gains (Losses)” below for additional information.) The Company cannot anticipate when or if similar net investment gains and losses may occur in the future.
Quarterly Segment Results
Unitrin is engaged, through its subsidiaries, in the property and casualty insurance, life and health insurance and automobile finance businesses. The Company conducts its continuing operations through five operating segments: Kemper, Unitrin Specialty, Unitrin Direct, Life and Health Insurance and Fireside Bank.
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.
Kemper
Earned premiums in the Kemper segment increased by $2.4 million for the third quarter of 2008, compared to the same period in 2007, due primarily to higher average premium rates and higher volume on homeowners insurance and higher volume of other personal lines insurance, partially offset by lower average premium rates on automobile insurance.
Kemper reported an operating loss of $21.5 million for the third quarter of 2008, compared to operating profit of $35.0 million for the same period in 2007. Operating results decreased due primarily to higher incurred losses and loss adjustment expenses (LAE). Incurred losses and LAE increased due primarily to higher catastrophe losses and LAE from Hurricanes Dolly, Gustav, and Ike.
Unitrin Specialty
Earned premiums in the Unitrin Specialty segment increased by $11.9 million for the third quarter of 2008, compared to the same period in 2007, due primarily to higher volume of personal automobile insurance, partially offset by lower volume of commercial automobile insurance. Operating profit in the Unitrin Specialty segment decreased by $4.6 million for the third quarter of 2008, compared to the same period in 2007, due primarily to higher incurred losses and LAE and lower net investment income.
Unitrin Direct
Earned premiums in the Unitrin Direct segment increased by $2.4 million for the third quarter of 2008, compared to the same period in 2007, due primarily to higher volume of insurance. The Unitrin Direct segment reported an operating loss of $13.3 million for the third quarter of 2008, compared to an operating loss of $7.3 million for the same period in 2007. Unitrin Direct’s operating loss increased due primarily to higher incurred losses and LAE and higher insurance expenses.
Life and Health Insurance
Earned premiums in the Life and Health Insurance segment increased by $2.9 million for the third quarter of 2008, compared to the same period in 2007. Earned premiums included $12.6 million resulting from the acquisition of Primesco, Inc. (“Primesco”). Primesco was acquired on April 1, 2008 and its results of operations are included in the Company’s results of operations from the date of acquisition. Excluding the impact of the Primesco acquisition, earned premiums decreased by $9.7 million for the third quarter of 2008, compared to the same period in 2007, due primarily to lower volume, partially offset by higher average premium rates on accident and health insurance products.
Operating profit in the Life and Health Insurance segment decreased by $36.4 million for the third quarter of 2008, compared to the same period in 2007, due primarily to higher catastrophe losses on the property insurance sold by the Life and Health Insurance segment’s career agents. Catastrophe losses were $30.5 million for third quarter of 2008, compared to $4.6 million for the third quarter of 2007. Catastrophe losses for the third quarter of 2008 included $22.7 million, net of reinsurance, from Hurricanes Dolly, Gustav and Ike. Operating profit in the third quarter of 2008 included $1.5 million operating profit from the Primesco acquisition.
Fireside Bank
Automobile finance revenues for the third quarter of 2008 decreased by $6.4 million, compared to the same period in 2007, due primarily to lower yields on loans outstanding and lower average levels of loans outstanding. Automobile loan originations were $110.7 million for the third quarter of 2008, compared to $202.7 million for the third quarter of 2007. Loan originations declined due primarily to Fireside Bank’s more stringent underwriting requirements and overall decline in automobile sales. Fireside Bank does not make loans secured by real estate; it derives its interest income solely from automobile loans.
Fireside Bank reported an operating loss of $1.3 million for the third quarter of 2008, compared to an operating loss of $8.9 million for the same period in 2007. Fireside Bank’s operating results improved due primarily to a lower provision for loan losses and lower general and administrative expenses.
Consolidated results for the three and nine months ended September 30, 2008 and 2007 are as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||
| (Dollars and Shares in Millions, | Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | ||||||||
| Except Per Share Amounts) | 2008 | 2007 | 2008 | 2007 | ||||||||
| Revenues: | ||||||||||||
| Earned Premiums | $ 599.5 | $ 579.9 | $ 1,771.7 | $ 1,712.6 | ||||||||
| Automobile Finance Revenues | 60.1 | 66.5 | 185.6 | 194.4 | ||||||||
| Net Investment Income | 72.7 | 76.0 | 190.8 | 234.8 | ||||||||
| Other Income | 1.2 | 0.5 | 2.6 | 2.7 | ||||||||
| Net Realized Investment Gains (Losses) | (44.6 | ) | 12.5 | (33.4 | ) | 52.0 | ||||||
| Total Revenues | 688.9 | 735.4 | 2,117.3 | 2,196.5 | ||||||||
| Expenses: | ||||||||||||
| Policyholders’ Benefits and Incurred | ||||||||||||
| Losses and Loss Adjustment Expenses | 494.3 | 383.6 | 1,353.2 | 1,168.0 | ||||||||
| Insurance Expenses | 190.8 | 179.6 | 545.9 | 525.4 | ||||||||
| Automobile Finance Expenses | 47.8 | 61.5 | 171.3 | 147.3 | ||||||||
| Interest Expense on Certificates of Deposit | 14.2 | 15.2 | 44.9 | 43.0 | ||||||||
| Interest and Other Expenses | 14.6 | 16.1 | 46.3 | 52.2 | ||||||||
| Total Expenses | 761.7 | 656.0 | 2,161.6 | 1,935.9 | ||||||||
| Income (Loss) from Continuing Operations before | ||||||||||||
| Income Taxes and Equity in Net Income of Investee | (72.8 | ) | 79.4 | (44.3 | ) | 260.6 | ||||||
| Income Tax Benefit (Expense) | 28.1 | (22.7 | ) | 28.0 | (77.6 | ) | ||||||
| Income (Loss) from Continuing Operations before | ||||||||||||
| Equity in Net Income of Investee | (44.7 | ) | 56.7 | (16.3 | ) | 183.0 | ||||||
| Equity in Net Income of Investee | 1.0 | 0.9 | 4.3 | 0.7 | ||||||||
| Income (Loss) from Continuing Operations | (43.7 | ) | 57.6 | (12.0 | ) | 183.7 | ||||||
| Discontinued Operations: | ||||||||||||
| Income (Loss) from Discontinued | ||||||||||||
| Operations Before Income Taxes | 6.7 | 8.7 | (6.1 | ) | 18.2 | |||||||
| Income Tax Benefit (Expense) | (2.3 | ) | (2.0 | ) | (1.6 | ) | (3.0 | ) | ||||
| Income (Loss) from Discontinued Operations | 4.4 | 6.7 | (7.7 | ) | 15.2 | |||||||
| Net Income (Loss) | $ (39.3 | ) | $ 64.3 | $ (19.7 | ) | $ 198.9 | ||||||
| Income (Loss) Per Share from Continuing Operations | $ (0.70 | ) | $ 0.89 | $ (0.19 | ) | $ 2.79 | ||||||
| Income (Loss) Per Share from Discontinued Operations | 0.07 | 0.10 | (0.12 | ) | 0.23 | |||||||
| Net Income (Loss) Per Share | $ (0.63 | ) | $ 0.99 | $ (0.31 | ) | $ 3.02 | ||||||
| Income (Loss) Per Share from Continuing | ||||||||||||
| Operations Assuming Dilution | $ (0.70 | ) | $ 0.88 | $ (0.19 | ) | $ 2.77 | ||||||
| Income (Loss) Per Share from Discontinued | ||||||||||||
| Operations Assuming Dilution | 0.07 | 0.10 | (0.12 | ) | 0.23 | |||||||
| Net Income (Loss) Per Share Assuming Dilution | $ (0.63 | ) | $ 0.98 | $ (0.31 | ) | $ 3.00 | ||||||
| Weighted Average Common Shares | ||||||||||||
| Outstanding | 62.4 | 65.0 | 62.9 | 65.9 | ||||||||
| Weighted Average Common Shares and | ||||||||||||
| Equivalent Shares Outstanding Assuming Dilution | 62.4 | 65.3 | 62.9 | 66.3 | ||||||||
| Dividends Paid Per Share | $ 0.470 | $ 0.455 | $ 1.410 | $ 1.365 | ||||||||
Business segment revenues for the three and nine months ended September 30, 2008 and 2007 are as follows:
| Three Months Ended | Nine Months Ended | |||||||||
| Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||
| (Dollars in Millions) | 2008 | 2007 | 2008 | 2007 | ||||||
| Revenues: | ||||||||||
| Segment Revenues: | ||||||||||
| Kemper: | ||||||||||
| Earned Premiums | $ 235.2 | $ 232.8 | $ 694.2 | $ 693.9 | ||||||
| Net Investment Income | 8.8 | 12.1 | 22.2 | 35.4 | ||||||
| Other Income | 0.2 | 0.2 | 0.4 | 0.4 | ||||||
| Total Kemper | 244.2 | 245.1 | 716.8 | 729.7 | ||||||
| Unitrin Specialty: | ||||||||||
| Earned Premiums | 125.6 | 113.7 | 362.8 | 338.2 | ||||||
| Net Investment Income | 4.0 | 5.3 | 10.0 | 15.6 | ||||||
| Other Income | - | - | 0.1 | 0.1 | ||||||
| Total Unitrin Specialty | 129.6 | 119.0 | 372.9 | 353.9 | ||||||
| Unitrin Direct: | ||||||||||
| Earned Premiums | 73.7 | 71.3 | 219.6 | 186.1 | ||||||
| Net Investment Income | 2.3 | 2.6 | 5.4 | 6.8 | ||||||
| Other Income | 0.1 | 0.1 | 0.3 | 0.3 | ||||||
| Total Unitrin Direct | 76.1 | 74.0 | 225.3 | 193.2 | ||||||
| Life and Health Insurance: | ||||||||||
| Earned Premiums | 165.0 | 162.1 | 495.1 | 494.4 | ||||||
| Net Investment Income | 49.6 | 47.2 | 134.5 | 148.0 | ||||||
| Other Income | 0.2 | 0.2 | 0.9 | 0.7 | ||||||
| Total Life and Health Insurance | 214.8 | 209.5 | 630.5 | 643.1 | ||||||
| Fireside Bank: | ||||||||||
| Automobile Finance Revenues | 60.1 | 66.5 | 185.6 | 194.4 | ||||||
| Net Investment Income | 0.7 | 1.4 | 3.5 | 3.4 | ||||||
| Total Fireside Bank | 60.8 | 67.9 | 189.1 | 197.8 | ||||||
| Total Segment Revenues | 725.5 | 715.5 | 2,134.6 | 2,117.7 | ||||||
| Unallocated Dividend Income | 3.3 | 5.5 | 10.1 | 19.9 | ||||||
| Net Realized Investment Gains (Losses) | (44.6 | ) | 12.5 | (33.4 | ) | 52.0 | ||||
| Other | 4.7 | 1.9 | 6.0 | 6.9 | ||||||
| Total Revenues | $ 688.9 | $ 735.4 | $2,117.3 | $2,196.5 | ||||||
Business segment operating profit (loss) for the three and nine months ended September 30, 2008 and 2007 is as follows:
| Three Months Ended | Nine Months Ended | |||||||||||
| Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||
| (Dollars in Millions) | 2008 | 2007 | 2008 | 2007 | ||||||||
| Segment Operating Profit (Loss): | ||||||||||||
| Kemper | $ (21.5 | ) | $ 35.0 | $ (12.8 | ) | |||||||