S&P Cuts Unitrin Debt

August 15, 2003

Standard & Poor’s Ratings Services lowered its counterparty credit and senior debt ratings on Chicago-based insurer Unitrin Inc. to “BBB+” from “A-” because of a decline in operating company capital adequacy related to losses in the group’s property/casualty insurance businesses as well as growth through sales and acquisitions.

At the same time, S&P affirmed its “A+” counterparty credit and financial strength ratings on Unitrin’s life and health operating subsidiaries and its “A” counterparty credit and financial strength ratings on Unitrin’s property/casualty companies. The ratings reflect the companies’ very strong capitalization, strong and diversified niche business positions, and very strong and stable operating performance in the life/health insurance and consumer finance businesses.

Somewhat offsetting these strengths is the operating performance in the property/casualty businesses, which, though improved, continues to trail peer companies.

The outlook on Unitrin Inc. is stable.

“Unitrin’s operating company ratings are viewed as having appropriate capital for the rating versus a historical position with substantial excess capital,” noted Standard & Poor’s credit analyst Rodney A. Clark. “As a result, Unitrin no longer has the excess liquidity that had justified the higher holding-company rating.”

Operating performance is expected to improve in 2003, with the multi lines and specialty segments returning to profitability, decreased losses from the start-up Unitrin Direct segment and the newly acquired Kemper Auto & Home segment, profitable growth in the consumer finance business, and continued stability in the life/health segment. Sales growth will continue to be in the low single digits in life/health, with growth of about 10% in the other segments.

Unitrin has strong and diversified business positions in several regional niche markets, including personal lines property/casualty insurance, nonstandard automobile insurance, life and health insurance targeted at lower-income markets, and consumer finance, focused on the sub-prime automobile market. With the exception of the core personal lines business, these are generally underserved markets with strong margins and high barriers to entry.

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