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| UTR > SEC Filings for UTR > Form 10-Q on 4-May-2009 | All Recent SEC Filings |
4-May-2009
Quarterly Report
Summary of Results
The Company reported Net Loss of $5.6 million ($0.09 per unrestricted common share) for the three months ended March 31, 2009, compared to Net Income of $15.2 million ($0.24 per unrestricted common share) for the same period in 2008. The Company reported Loss from Continuing Operations of $6.3 million ($0.10 per unrestricted common share) for the three months ended March 31, 2009, compared to Income from Continuing Operations of $20.7 million ($0.32 per unrestricted common share) for the same period in 2008. As discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), results from continuing operations decreased for the three months ended March 31, 2009, due primarily to lower operating results in the Unitrin Specialty and Fireside Bank segments and higher realized investment losses from sales and write-downs of investments, partially offset by improved operating results in the Kemper segment. Included in the segment results were restructuring charges of $8.1 million and $2.3 million for the three months ended March 31, 2009 and 2008, respectively (see Note 12, "Restructuring Expense," to the Condensed Consolidated Financial Statements and the individual segment MD&A's for more information regarding restructuring charges. Loss from Continuing Operations for the three months ended March 31, 2009 also included an income tax provision of $6.8 million to increase the valuation allowance for deferred state income taxes, net of federal benefit, related to the Fireside Bank segment. Catastrophe losses from continuing operations were $14.4 million and $13.9 million before tax for the three months ended March 31, 2009 and 2008, respectively. The Company reported Income from Discontinued Operations of $0.7 million and Loss from Discontinued Operations of $5.5 million for the three months ended March 31, 2009 and 2008, respectively. There were no catastrophe losses reported from discontinued operations for the three months ended March 31, 2009, compared to catastrophe losses of $2.2 million before tax for the three months ended March 31, 2008.
Total Revenues were $688.6 million and $691.9 million for the three months ended March 31, 2009 and 2008, respectively, a decrease of $3.3 million. Total Revenues decreased due primarily to an increase in net realized investment losses and a decrease in Automobile Finance Revenues, partially offset by an increase in Earned Premiums.
Earned Premiums were $612.5 million and $575.9 million for the three months ended March 31, 2009 and 2008, respectively, an increase of $36.6 million. Earned premiums increased in all four insurance segments.
Automobile Finance Revenues decreased by $10.5 million for the three months ended March 31, 2009 compared to the same period in 2008, due primarily to lower average levels of loans outstanding and slightly lower yields on loans outstanding.
Net Investment Income increased by $1.1 million for the three months ended March 31, 2009 compared to the same period in 2008. See "Investment Results" of the MD&A for a discussion of Net Investment Income.
Net Realized Investment Gains (Losses) were losses of $24.2 million for the three months ended March 31, 2009 compared to gains of $6.2 million for the same period in 2008. Realized investment gains from the sales of a portion of the Company's investment in Northrop Grumman Corporation ("Northrop") common stock were $10.3 million for the three months ended March 31, 2008. There were no such sales of Northrop for the three months ended March 31, 2009. Net Realized Investment Gains (Losses) includes pretax losses of $25.0 million and $8.5 million for the three months ended March 31, 2009 and 2008, respectively, resulting from other than temporary declines in the fair values of investments. 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 pension 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 pension benefit obligations are described in the MD&A included in the 2008 Annual Report. There has been no material change, subsequent to December 31, 2008, to information previously disclosed in the 2008 Annual Report with respect to the Company's critical accounting policies.
Kemper
Selected financial information for the Kemper segment follows:
Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Earned Premiums:
Automobile $ 146.1 $ 146.2
Homeowners 71.6 70.8
Other Personal 13.2 12.6
Total Earned Premiums 230.9 229.6
Net Investment Income 2.3 4.8
Other Income 0.1 0.1
Total Revenues 233.3 234.5
Incurred Losses and LAE 151.1 160.8
Insurance Expenses 69.2 65.0
Operating Profit 13.0 8.7
Income Tax Expense (2.6 ) (0.9 )
Net Income $ 10.4 $ 7.8
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RATIOS BASED ON EARNED PREMIUMS
Three Months Ended
March 31, March 31,
2009 2008
Incurred Loss and LAE Ratio (excluding Catastrophes) 62.3 % 64.5 %
Incurred Catastrophe Loss and LAE Ratio 3.1 % 5.5 %
Total Incurred Loss and LAE Ratio 65.4 % 70.0 %
Incurred Expense Ratio 30.0 % 28.3 %
Combined Ratio 95.4 % 98.3 %
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Kemper (continued)
INSURANCE RESERVES
March 31, Dec. 31,
(Dollars in Millions) 2009 2008
Insurance Reserves:
Personal Automobile $ 320.6 $ 336.3
Homeowners 99.3 103.0
Other Personal 33.0 36.8
Insurance Reserves $ 452.9 $ 476.1
Insurance Reserves:
Loss Reserves:
Case $ 262.8 $ 273.3
Incurred but Not Reported 113.2 125.9
Total Loss Reserves 376.0 399.2
LAE Reserves 76.9 76.9
Insurance Reserves $ 452.9 $ 476.1
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Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Favorable Loss and LAE Reserve
Development, Net (excluding Catastrophes) $ 10.9 $ 14.8
Favorable Catastrophe Loss and LAE
Reserve Development, Net 7.3 2.2
Total Favorable Loss and LAE Reserve Development, Net $ 18.2 $ 17.0
Loss and LAE Reserve Development as a Percentage of
Insurance Reserves at Beginning of Year 3.8 % 3.4 %
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Earned Premiums in the Kemper segment increased by $1.3 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to higher earned premiums on homeowners insurance and other personal lines. Earned premiums on homeowners insurance increased by $0.8 million due primarily to higher average premium rates and higher volume, partially offset by the increased cost of reinsurance. Earned premiums on other personal insurance increased by $0.6 million due primarily to higher volume. Earned premiums on automobile insurance decreased by $0.1 million due primarily to lower average premium rates, partially offset by higher volume.
Net Investment Income decreased by $2.5 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to higher net investment losses from investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. The Kemper segment reported a net investment loss of $6.2 million from these investments for three months ended March 31, 2009, compared to a net investment loss of $4.5 million for the same period in 2008.
Operating Profit in the Kemper segment increased by $4.3 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to lower incurred losses and LAE, partially offset by higher insurance expenses and lower Net Investment Income.
Kemper (continued)
Homeowners insurance incurred losses and LAE were $45.0 million for the three months ended March 31, 2009, compared to $51.0 million for the same period in 2008. Homeowners insurance incurred losses and LAE decreased due primarily to higher favorable catastrophe loss and LAE reserve development, partially offset by higher non-catastrophe, weather-related losses and LAE. Catastrophe loss and LAE reserve development on homeowners insurance had a favorable effect of $7.1 million for the three months ended March 31, 2009, compared to a favorable effect of $1.9 million for the same period in 2008. Catastrophe loss and LAE reserve development for the three months ended March 31, 2009 included favorable development of $4.9 million on Hurricanes Ike and Gustav, both of which occurred in the third quarter of 2008.
Automobile insurance incurred losses and LAE were $100.6 million for the three months ended March 31, 2009, compared to $103.1 million for the same period in 2008. Automobile insurance incurred losses and LAE decreased due primarily to the lower non-catastrophe loss and LAE (excluding development), partially offset by lower favorable loss and LAE reserve development. Non-catastrophe loss and LAE (excluding development) decreased due primarily to lower average, estimated severity of losses. Loss and LAE reserve development on automobile insurance had a favorable effect of $8.7 million for the three months ended March 31, 2009, compared to a favorable effect of $13.9 million for the same period in 2008.
See MD&A, "Critical Accounting Estimates," of the 2008 Annual Report for additional 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 increased by $4.2 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to higher commission expenses and certain employee termination costs.
Net Income in the Kemper segment increased by $2.6 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to the changes 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 $5.8 million in the first quarter of 2009, compared to $6.4 million for the same period in 2008.
Unitrin Specialty
Selected financial information for the Unitrin Specialty segment follows:
Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Earned Premiums:
Personal Automobile $ 117.1 $ 92.2
Commercial Automobile 15.5 22.6
Total Earned Premiums 132.6 114.8
Net Investment Income 1.1 2.2
Total Revenues 133.7 117.0
Incurred Losses and LAE 108.6 91.5
Insurance Expenses 25.1 22.5
Operating Profit - 3.0
Income Tax Benefit (Expense) 1.0 (0.1 )
Net Income $ 1.0 $ 2.9
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RATIOS BASED ON EARNED PREMIUMS
Three Months Ended
March 31, March 31,
2009 2008
Incurred Loss and LAE Ratio (excluding Catastrophes) 81.3 % 79.5 %
Incurred Catastrophe Loss and LAE Ratio 0.6 % 0.2 %
Total Incurred Loss and LAE Ratio 81.9 % 79.7 %
Incurred Expense Ratio 18.9 % 19.6 %
Combined Ratio 100.8 % 99.3 %
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Unitrin Specialty (continued)
INSURANCE RESERVES
March 31, Dec. 31,
(Dollars in Millions) 2009 2008
Insurance Reserves:
Personal Automobile $ 177.6 $ 175.7
Commercial Automobile 104.4 107.2
Other 10.1 10.2
Insurance Reserves $ 292.1 $ 293.1
Insurance Reserves:
Loss Reserves:
Case $ 176.3 $ 179.6
Incurred but Not Reported 77.5 76.3
Total Loss Reserves 253.8 255.9
LAE Reserves 38.3 37.2
Insurance Reserves $ 292.1 $ 293.1
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Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Favorable Loss and LAE Reserve Development, Net
(excluding Catastrophes) $ 0.2 $ 0.7
Adverse Catastrophe Loss and LAE Reserve Development,
Net (0.1 ) -
Total Favorable Loss and LAE Reserve Development, Net $ 0.1 $ 0.7
Loss and LAE Reserve Development as a Percentage of
Insurance Reserves at Beginning of Year 0.0 % 0.3 %
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Earned Premiums in the Unitrin Specialty segment increased by $17.8 million for the three months ended March 31, 2009, compared to the same period in 2008, 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 $24.9 million due 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 $7.1 million due primarily to lower volume resulting from increased competition. In the fourth quarter of 2008, Unitrin Specialty implemented in certain key states several initiatives targeted to stabilize commercial automobile premium volume, including introducing a new commercial insurance product for light commercial vehicles, lowering down payment requirements for certain commercial automobile insurance risks and introducing improved internet-enabled commercial lines rating technology. While these initiatives appear to have stabilized new business production in these states, commercial automobile insurance premium volume decreased in the first quarter of 2009, compared to the first quarter of 2008, due primarily to a lower level of renewal policies. In 2009, Unitrin Specialty expects to continue to implement these initiatives in the remaining states where it writes commercial automobile insurance.
Net Investment Income decreased by $1.1 million for the three months ended March 31, 2009, compared to the same period in 2008, 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 $3.0 million from these investments for the three months ended March 31, 2009, compared to net investment losses of $2.0 million for the same period in 2008.
Unitrin Specialty (continued)
The Unitrin Specialty segment reported break-even operating results for the three months ended March 31, 2009, compared to an Operating Profit of $3.0 million for the same period in 2008. Operating results decreased due primarily to higher incurred losses and LAE as a percentage of earned premiums in personal automobile insurance and the lower Net Investment Income, partially offset by lower incurred losses and LAE as a percentage of earned premiums in commercial automobile insurance and lower insurance expenses as a percentage of earned premiums.
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 in 2008, the unfavorable effects of loss and LAE reserve development (which recognizes changes in estimates of prior year loss and LAE reserves in the current period), and higher catastrophe losses and LAE. 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 written in 2008 renews in 2009 and premium rate increases take effect in the Unitrin Specialty segment's major markets, California and Texas, Unitrin Specialty anticipates that incurred losses and LAE as a percentage of earned premiums will decrease during the remainder of 2009. Personal automobile insurance loss and LAE reserve development had an adverse effect of $0.8 million in the first quarter of 2009, compared to a favorable effect of $0.5 million for the same period in 2008. Catastrophe losses and LAE on personal automobile insurance were $0.9 million for the three months ended March 31, 2009, compared to $0.2 million for the same period in 2008.
For the three months ended March 31, 2009, commercial automobile insurance incurred losses and LAE as a percentage of earned premiums decreased due primarily to higher favorable loss and LAE reserve development. Commercial automobile insurance loss and LAE reserve development had a favorable effect of $0.9 million in the first quarter of 2009, compared to a favorable effect of $0.2 million for the same period in 2008.
See MD&A, "Critical Accounting Estimates," of the 2008 Annual Report for additional 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 and estimated variability of property and casualty insurance reserves for losses and LAE.
Insurance expenses as a percentage of earned premiums decreased for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to greater economies of scale as the Unitrin Specialty segment increased its earned premiums base.
Net Income in the Unitrin Specialty segment decreased by $1.9 million for the three months ended March 31, 2009, compared to the same period in 2008, due primarily to the lower operating results. The Unitrin Specialty segment's effective tax rate differs from the statutory tax rate due primarily to tax-exempt investment income and dividends received deductions. Tax-exempt investment income and dividends received deductions were $2.8 million for both the three months ended March 31, 2009 and 2008.
Unitrin Direct
Selected financial information for the Unitrin Direct segment follows:
Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Earned Premiums:
Automobile $ 80.8 $ 70.5
Homeowners 1.7 1.5
Other 0.1 0.1
Total Earned Premiums 82.6 72.1
Net Investment Income 0.8 1.1
Other Income - 0.1
Total Revenues 83.4 73.3
Incurred Losses and LAE 64.0 57.7
Insurance Expenses 27.9 25.5
Operating Loss (8.5 ) (9.9 )
Income Tax Benefit 3.6 4.0
Net Loss $ (4.9 ) $ (5.9 )
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RATIOS BASED ON EARNED PREMIUMS
Three Months Ended
March 31, March 31,
2009 2008
Incurred Loss and LAE Ratio (excluding Catastrophes) 77.0 % 79.6 %
Incurred Catastrophe Loss and LAE Ratio 0.5 % 0.4 %
Total Incurred Loss and LAE Ratio 77.5 % 80.0 %
Incurred Expense Ratio 33.8 % 35.4 %
Combined Ratio 111.3 % 115.4 %
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Unitrin Direct (continued)
INSURANCE RESERVES
March 31, Dec. 31,
(Dollars in Millions) 2009 2008
Insurance Reserves:
Personal Automobile $ 252.6 $ 159.3
Homeowners 3.0 3.1
Other 1.0 0.7
Insurance Reserves $ 256.6 $ 163.1
Insurance Reserves:
Loss Reserves:
Case $ 139.5 $ 97.9
Incurred but Not Reported 71.1 37.5
Total Loss Reserves 210.6 135.4
LAE Reserves 46.0 27.7
Insurance Reserves $ 256.6 $ 163.1
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Three Months Ended
March 31, March 31,
(Dollars in Millions) 2009 2008
Favorable Loss and LAE Reserve Development, Net
(excluding Catastrophes) $ 4.0 $ 0.5
Favorable (Adverse) Catastrophe Loss and LAE Reserve
Development, Net (0.2 ) -
Total Favorable Loss and LAE Reserve Development, Net $ 3.8 $ 0.5
Loss and LAE Reserve Development as a Percentage of
Insurance Reserves at Beginning of Year 2.3 % 0.4 %
. . .
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