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| UTR > SEC Filings for UTR > Form 10-Q on 4-Aug-2008 | All Recent SEC Filings |
4-Aug-2008
Quarterly Report
Summary of Results
Net Income was $19.6 million ($0.31 per common share) for the six months ended June 30, 2008, compared to $134.6 million ($2.03 per common share) for the same period in 2007. The Company reported a Net Loss of $2.9 million ($0.05 per common share) for the three months ended June 30, 2008, compared to Net Income of $62.2 million ($0.94 per common share) for the same period in 2007. Income from Continuing Operations was $31.7 million ($0.50 per common share) and $4.5 million ($0.07 per common share) for the six and three months ended June 30, 2008, compared to $126.1 million ($1.90 per common share) and $58.7 million ($0.89 per common share) for the same periods in 2007. As discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), Income from Continuing Operations decreased for the six and three months ended June 30, 2008, due primarily to lower operating results in the aggregate, including higher catastrophe Losses, lower Net Investment Income and lower Net Realized Investment Gains. Catastrophe losses from continuing operations were $63.3 million and $49.4 million before tax for the six and three months ended June 30, 2008, compared to $20.5 million and $18.4 million for the same periods in 2007. The Company reported a Loss from Discontinued Operations of $12.1 million and $7.4 million for the six and three months ended June 30, 2008, compared to Income from Discontinued Operations of $8.5 million and $3.5 million for the same periods in 2007. Catastrophe losses from discontinued operations were $9.5 million and $7.3 million before tax for the six and three months ended June 30, 2008, compared to $3.2 million and $2.4 million for the same periods in 2007.
Total Revenues were $1,428.4 million and $1,461.1 million for the six months ended June 30, 2008 and 2007, respectively, a decrease of $32.7 million. Total Revenues were $726.5 million and $733.5 million for the three months ended June 30, 2008 and 2007, respectively, a decrease of $7.0 million. Total Revenues decreased due primarily to lower Net Investment Income and lower Net Realized Investment Gains, partially offset by an increase in Earned Premiums.
Earned Premiums were $1,172.2 million and $1,132.7 million for the six months ended June 30, 2008 and 2007, respectively, an increase of $39.5 million. Earned premiums increased in the Unitrin Direct and Unitrin Specialty segments, partially offset by lower earned premiums in the Life and Health Insurance and Kemper segments. Earned Premiums were $596.3 million and $570.2 million for the three months ended June 30, 2007 and 2006, respectively, an increase of $26.1 million. Earned premiums increased in the Unitrin Direct, Unitrin Specialty and Life and Health Insurance segments, partially offset by lower earned premiums in the Kemper segment.
Automobile Finance Revenues decreased by $2.4 million and $2.8 million for the six and three months ended June 30, 2008, compared to the same periods in 2007, due primarily to lower yields on loans outstanding, partially offset by higher average levels of loans outstanding.
Net Investment Income decreased by $40.7 million and $18.0 million for the six and three months ended June 30, 2008, compared to the same periods 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 and lower short-term investment income. The Company reported net investment losses of $28.9 million and $19.8 million from its investments in limited liability investment companies and limited partnerships for the six and three months ended June 30, 2008, compared to net investment income of $12.4 million and $4.0 million for the same periods in 2007. Each of the Company's insurance segments reported lower net investment income as a result of these investments.
Net Realized Investment Gains were $11.2 million and $5.0 million for the six and three months ended June 30, 2008, compared to $39.5 million and $17.0 million for the same periods in 2007. Realized Investment Gains from the sales of a portion of the Company's investment in Northrop common stock were $12.1 million and $1.8 million for the six and three months ended June 30, 2008, compared to $26.6 million and $7.7 million for the same periods in 2007. Net Realized Investment Gains includes pretax losses of $26.8 million and $18.3 million for the six and three months ended June 30, 2008, respectively, resulting from other than temporary declines in the fair values of investments, compared to pretax losses of $1.0 million and $0.2 million for the same periods in 2007. The Company cannot anticipate when or if similar net investment gains and losses may occur in the future.
Critical Accounting Estimates
Unitrin's subsidiaries conduct their businesses in three industries: property and casualty insurance, life and health insurance and automobile finance. Accordingly, the Company is subject to several industry-specific accounting principles under GAAP. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The process of estimation is inherently uncertain. Accordingly, actual results could ultimately differ materially from the estimated amounts reported in a company's financial statements. Different assumptions are likely to result in different estimates of reported amounts.
The Company's critical accounting policies most sensitive to estimates include the valuation of investments, the valuation of reserves for property and casualty insurance incurred losses and LAE, the valuation of the reserve for loan losses, the assessment of recoverability of goodwill, and the valuation of postretirement benefit obligations. The Company's critical accounting policies with respect to the valuation of investments, the valuation of reserves for property and casualty insurance incurred losses and LAE, the valuation of the reserve for loan losses, the assessment of recoverability of goodwill, and the valuation of postretirement benefit obligations are described in the MD&A presented in the 2007 Annual Report. Except additional disclosures required by SFAS No. 157 and presented in Note 14, "Fair Value Measurements," to the Condensed Consolidated Financial Statements, there has been no material change, subsequent to December 31, 2007, to information previously disclosed with respect to the Company's critical accounting policies.
Kemper
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
(Dollars in Millions) 2008 2007 2008 2007
Earned Premiums:
Automobile $ 291.6 $ 296.9 $ 145.4 $ 149.1
Homeowners 142.1 140.7 71.3 70.7
Other Personal 25.3 23.5 12.7 11.8
Total Earned Premiums 459.0 461.1 229.4 231.6
Net Investment Income 13.4 23.3 6.0 11.0
Other Income 0.2 0.2 0.1 0.1
Total Revenues 472.6 484.6 235.5 242.7
Incurred Losses and LAE 334.4 317.0 173.6 163.6
Insurance Expenses 129.5 131.2 64.5 65.9
Operating Profit (Loss) 8.7 36.4 (2.6 ) 13.2
Income Tax Benefit (Expense) 1.3 (8.5 ) 3.1 (2.6 )
Net Income $ 10.0 $ 27.9 $ 0.5 $ 10.6
Ratios Based On Earned Premiums
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Incurred Loss and LAE Ratio (excluding
Catastrophes) 61.7 % 65.2 % 58.8 % 63.8 %
Incurred Catastrophe Loss and LAE Ratio 11.2 % 3.5 % 16.9 % 6.8 %
Total Incurred Loss and LAE Ratio 72.9 % 68.7 % 75.7 % 70.6 %
Incurred Expense Ratio 28.2 % 28.5 % 28.1 % 28.5 %
Combined Ratio 101.1 % 97.2 % 103.8 % 99.1 %
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Kemper (continued)
INSURANCE RESERVES
June 30, Dec. 31,
(Dollars in Millions) 2008 2007
Insurance Reserves:
Personal Automobile $ 350.8 $ 378.8
Homeowners 102.5 91.1
Other Personal 33.3 32.5
Insurance Reserves $ 486.6 $ 502.4
Insurance Reserves:
Loss Reserves:
Case $ 266.0 $ 274.1
Incurred but Not Reported 141.7 145.3
Total Loss Reserves 407.7 419.4
LAE Reserves 78.9 83.0
Insurance Reserves $ 486.6 $ 502.4
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Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
(Dollars in Millions) 2008 2007 2008 2007
Favorable Loss and LAE Reserve
Development, Net (excluding
Catastrophes) $ 33.7 $ 25.2 $ 18.9 $ 14.0
Favorable Catastrophe Loss and LAE
Reserve Development, Net 4.9 6.4 2.7 3.0
Total Favorable Loss and LAE Reserve
Development, Net $ 38.6 $ 31.6 $ 21.6 $ 17.0
Loss and LAE Reserve Development as a
Percentage of Insurance Reserves at
Beginning of Year 7.7 % 5.9 % 4.3 % 3.2 %
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Earned Premiums in the Kemper segment decreased by $2.1 million and $2.2 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due to lower earned premiums on automobile insurance, partially offset by higher earned premiums on homeowners insurance and other personal lines. Earned premiums on automobile insurance decreased by $5.3 million and $3.7 million for the six and three months ended June 30, 2008, respectively, due primarily to lower volume. Earned premiums on homeowners insurance increased by $1.4 million and $0.6 million for the six and three months ended June 30, 2008, respectively, due primarily to higher average premium rates, partially offset by lower volume. Other personal insurance earned premiums increased by $1.8 million and $0.9 million for the six and three months ended June 30, 2008, respectively, due primarily to higher volume.
Net Investment Income decreased by $9.9 million and $5.0 million for the six and three months ended June 30, 2008, respectively, compared to the same periods 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 Kemper segment reported net investment losses of $5.8 million and $3.9 million from these investments for the six and three months ended June 30, 2008, respectively, compared to net investment income of $2.9 million and $1.0 million, respectively, for the same periods in 2007.
Kemper (continued)
Operating Profit in the Kemper segment decreased by $27.7 million for the six months ended June 30, 2008, compared to the same period in 2007, due primarily to higher incurred losses and LAE and to a lesser extent the lower Net Investment Income. Kemper reported an Operating Loss of $2.6 million for the three months ended June 30, 2008, compared to Operating Profit of $13.2 million for the same period in 2007. Operating results for the three months ended June 30, 2008 decreased due primarily to higher incurred losses and LAE and to a lesser extent the lower Net Investment Income.
Incurred Losses and LAE increased for the six and three months ended June 30, 2008 due primarily to higher catastrophe losses and LAE, partially offset by lower non-catastrophe losses and LAE and higher favorable loss and LAE reserve development (which recognizes changes in estimates of prior year loss and LAE reserves in the current period). Catastrophe losses and LAE (including development) were $51.3 million and $38.7 million for the six and three months ended June 30, 2008, respectively, compared to $16.1 million and $15.8 million, respectively, for the same periods in 2007. Loss and LAE reserve development had favorable effects of $38.6 million (including favorable development of $4.9 million for catastrophes) and $21.6 million (including favorable development of $2.7 million for catastrophes) for the six and three months ended June 30, 2008, respectively, compared to favorable effects of $31.6 million (including favorable development of $6.4 million for catastrophes) and $17.0 million (including favorable development of $3.0 million for catastrophes), respectively, for the same periods in 2007.
Automobile insurance incurred losses and LAE decreased by $18.3 million and $10.7 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due primarily to the impact of higher favorable loss and LAE reserve development and lower non-catastrophe losses and LAE, partially offset by higher catastrophe losses and LAE. Loss and LAE reserve development on automobile insurance had favorable effects of $29.3 million and $15.4 million for the six and three months ended June 30, 2008, respectively, compared to favorable effects of $16.2 million and $10.7 million, respectively, for the same periods in 2007. Catastrophe losses and LAE (including development) on automobile insurance were $8.2 million and $6.5 million for the six and three months ended June 30, 2008, respectively, compared to $2.2 million and $2.1 million, respectively, for the same periods in 2007. Non-catastrophe losses on automobile insurance decreased for the six and three months ended June 30, 2008, compared to the same periods in 2007, due primarily to lower severity.
Homeowners insurance incurred losses and LAE increased by $31.7 million for the six months ended June 30, 2008, compared to the same period in 2007, due primarily to higher catastrophe losses and LAE, and to a lesser extent the impact of lower favorable loss and LAE reserve development. Catastrophe losses and LAE (excluding development) on homeowners insurance were $46.2 million for the six months ended June 30, 2008, compared to $19.5 million for the same period in 2007. Loss and LAE reserve development on homeowners insurance had a favorable effect of $9.7 million (including favorable development of $4.4 million for catastrophes) for the six months ended June 30, 2008, compared to a favorable effect of $14.9 million (including favorable development of $5.9 million for catastrophes) in 2007.
Homeowners insurance incurred losses and LAE increased by $17.6 million for the three months ended June 30, 2008, compared to the same period in 2007, due primarily to higher catastrophe losses and LAE, partially offset by the impact of higher favorable loss and LAE reserve development. Catastrophe losses and LAE (excluding development) on homeowners insurance were $33.7 million for the three months ended June 30, 2008, compared to $16.3 million for the same period in 2007. Loss and LAE reserve development on homeowners insurance had a favorable effect of $6.4 million (including favorable development of $2.5 million for catastrophes) for the three months ended June 30, 2008, compared to a favorable effect of $5.8 million (including favorable development of $2.8 million for catastrophes) in 2007.
Other insurance incurred losses and LAE increased by $4.0 million and $3.1 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due primarily to higher catastrophe losses and LAE, the impact of loss and LAE reserve development and higher non-catastrophe losses and LAE as a percentage of earned premiums. Catastrophe losses and LAE (including development) on other insurance were $1.3 million and $1.0 million for the six and three months ended June 30, 2008, respectively, compared to $0.3 million and $0.2 million, respectively,
Kemper (continued)
for the same periods in 2007. Loss and LAE reserve development on other insurance had unfavorable effects of $0.4 million and $0.2 million for the six and three months ended June 30, 2008, respectively, compared to favorable effects of $0.5 million and $0.5 million, respectively, for the same periods in 2007.
See MD&A, "Critical Accounting Estimates," of the 2007 Annual Report for information pertaining to the Company's process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE, estimated variability of property and casualty insurance reserves for losses and LAE and a discussion of some of the variables that may impact development of property and casualty insurance losses and LAE and the estimated variability of property and casualty insurance reserves for losses and LAE.
Insurance Expenses decreased by $1.7 million and $1.4 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due primarily to lower other underwriting expenses.
Net Income in the Kemper segment decreased by $17.9 million and $10.1 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due primarily to the decrease in Operating Profit. The Kemper segment's effective income tax rate differs from the federal statutory income tax rate due primarily to tax-exempt investment income and dividends received deductions. Tax-exempt investment income and dividends received deductions were $12.9 million and $6.5 million for the six and three months ended June 30, 2008, respectively, compared to $12.4 million and $6.1 million for the same periods in 2007.
Unitrin Specialty
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
(Dollars in Millions) 2008 2007 2008 2007
Earned Premiums:
Personal Automobile $ 193.9 $ 170.0 $ 101.7 $ 87.0
Commercial Automobile 43.3 54.5 20.7 27.1
Total Earned Premiums 237.2 224.5 122.4 114.1
Net Investment Income 6.0 10.3 2.7 4.8
Other Income 0.1 0.1 0.1 0.1
Total Revenues 243.3 234.9 125.2 119.0
Incurred Losses and LAE 187.7 169.4 96.2 85.4
Insurance Expenses 46.4 45.2 23.9 22.9
Operating Profit 9.2 20.3 5.1 10.7
Income Tax Expense (1.3 ) (5.2 ) (0.8 ) (2.8 )
Net Income $ 7.9 $ 15.1 $ 4.3 $ 7.9
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RATIOS BASED ON EARNED PREMIUMS
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Incurred Loss and LAE Ratio (excluding
Catastrophes) 78.6 % 75.3 % 77.7 % 74.5 %
Incurred Catastrophe Loss and LAE Ratio 0.5 % 0.2 % 0.9 % 0.3 %
Total Incurred Loss and LAE Ratio 79.1 % 75.5 % 78.6 % 74.8 %
Incurred Expense Ratio 19.6 % 20.1 % 19.5 % 20.1 %
Combined Ratio 98.7 % 95.6 % 98.1 % 94.9 %
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Unitrin Specialty (continued)
INSURANCE RESERVES
June 30, Dec. 31,
(Dollars in Millions) 2008 2007
Insurance Reserves:
Personal Automobile $ 154.2 $ 146.9
Commercial Automobile 114.2 116.8
Other 10.9 14.9
Insurance Reserves $ 279.3 $ 278.6
Insurance Reserves:
Loss Reserves:
Case $ 164.0 $ 160.0
Incurred but Not Reported 77.1 77.5
Total Loss Reserves 241.1 237.5
LAE Reserves 38.2 41.1
Insurance Reserves $ 279.3 $ 278.6
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Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
(Dollars in Millions) 2008 2007 2008 2007
Total Favorable Loss and LAE Reserve
Development, Net $ 3.6 $ 6.0 $ 2.9 $ 3.0
Loss and LAE Reserve Development as a
Percentage of Insurance Reserves at
Beginning of Year 1.3 % 2.0 % 1.0 % 1.0 %
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Earned Premiums in the Unitrin Specialty segment increased by $12.7 million and $8.3 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due to higher earned premiums on personal automobile insurance, partially offset by lower earned premiums on commercial automobile insurance. Personal automobile insurance earned premiums increased by $23.9 million and $14.7 million for the six and three months ended June 30, 2008, respectively, due primarily to higher volume, partially offset by lower average earned premium rates. Personal automobile insurance volume increased due primarily to lower overall premium rates in the state of California. Commercial automobile insurance earned premiums decreased by $11.2 million and $6.4 million for the six and three months ended June 30, 2008, respectively, due primarily to lower volume resulting from increased competition. Unitrin Specialty is implementing several initiatives targeted to increase commercial automobile premium volume, including introducing a new commercial product for light commercial vehicles, lowering down payment requirements for certain commercial risks, and the introduction of improved internet-enabled commercial lines technology.
Net Investment Income decreased by $4.3 million and $2.1 million for the six and three months ended June 30, 2008, respectively, compared to the same periods 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 Unitrin Specialty segment reported net investment losses of $2.6 million and $1.7 million from these investments for the six and three months ended June 30, 2008, respectively, compared to net investment income of $1.3 million and $0.4 million for the same periods in 2007.
Operating Profit in the Unitrin Specialty segment decreased by $11.1 million and $5.6 million for the six and three months ended June 30, 2008, respectively, compared to the same periods in 2007, due primarily to higher incurred losses and LAE as a percentage of earned premiums in both personal automobile insurance and commercial automobile insurance and the lower Net Investment Income.
Unitrin Specialty (continued)
Personal automobile insurance incurred losses and LAE as a percentage of earned premiums increased due primarily to the significant growth in new personal automobile insurance volume in California for the six and three months ended June 30, 2008, compared to the same periods in 2007. Historically, incurred losses and LAE as a percentage of earned premiums for personal automobile insurance have been higher for new business than they have been for renewal business. As the newer California book of business matures, Unitrin Specialty anticipates that incurred losses and LAE as a percentage of earned premiums will decrease. Personal automobile insurance loss and LAE reserve development (which recognizes changes in estimates of prior year loss and LAE reserves in the current period) had a favorable effect of $0.6 million and $0.1 million for the six and three months of 2008, respectively, compared to a favorable effect of $0.5 million and $0.3 million, respectively, for the same periods in 2007. For the six and three months ended June 30, 2008, commercial automobile insurance incurred losses and LAE as a percentage of earned premiums increased due primarily to lower favorable loss and LAE reserve development. Commercial . . .
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