Fitch Ratings today announced the following ratings actions related to Unitrin, Inc. (Unitrin) and its insurance subsidiaries:
Unitrin
--Issuer Default Rating (IDR) downgraded to 'BBB' from 'BBB+';
--$560 million senior notes downgraded to 'BBB-' from 'BBB'.
United Insurance Co. of America
Union National Life Insurance Co.
Reliable Life Insurance Co.
--IFS rating downgraded to 'A' from 'A+'.
In addition, Fitch has affirmed the following ratings:
Trinity Universal Insurance Co.
--Insurer Financial Strength (IFS) rating at 'A-'.
The Rating Outlook is revised to Negative.
The ratings downgrade of Unitrin's life subsidiaries reflects a capital profile no longer consistent with Fitch's view for the 'A+' rating category. Almost $500 million was transferred outside of the life insurance subsidiaries over the past three years and income has been modest over that time period.
While Fitch expects continued stability in profit margins, growth is expected to be limited given Unitrin's focus on the home service niche market. Consequently, its life operations are more closely aligned with Fitch's universe of 'A' rated companies.
Fitch's ratings downgrade of Unitrin's IDR and debt reflects the reduction in financial strength at the life subsidiaries and adverse results in the company's consumer finance business. The rating action also reflects a significant equity investment concentration in Northrop Grumman along with concerns that deterioration in property/ casualty insurance underwriting results will continue as market conditions become more challenging.
Unitrin's Negative Rating Outlook reflects Fitch's negative view of the subprime auto lending market, which is the focus of Unitrin's consumer finance business (Fireside Bank). Fireside Bank suffered significant losses in 2007 and Fitch expects additional losses in 2008 given deteriorating macro-economic trends. If loan losses materially increase for a prolonged period, it could lead to an additional ratings downgrade. Also, further losses in consumer finance could lead to more capital transferred from the insurance companies to Fireside Bank.
Favorably, Unitrin's ratings continue to reflect the company's strong capitalization at the property/casualty operating companies, its diversified business profile, moderate financial leverage, adequate interest coverage and reasonable financial flexibility.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Contacts:
Dafina M. Dunmore, CFA, +1-312-368-3136 (Chicago)
Greg
Dickerson, +1-212-908-0220 (New York)
Media Relations
Kenneth
Reed, +1-212-908-0540 (New York)
