Kemper - 10-K annual report

- --------------------------------------------------------------------------------



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)



[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange

Act of 1934. For the fiscal year ended December 31, 2002.



[_]  Transition report pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934. For the transition period from N/A to N/A.

---    ----



Commission file number 001-18298



UNITRIN, INC.



(Exact Name of Registrant as Specified in its Charter)

Delaware                                     95-4255452

(State or other jurisdiction of                       (I.R.S. Employer

incorporation or organization)                      Identification No.)



One East Wacker Drive

Chicago, Illinois                              60601

(Address of principal executive offices)                 (Zip Code)





(312) 661-4600

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

Title of each class            Name of each exchange on which registered



Common Stock, $0.10 par value                New York Stock Exchange



Preferred Share Purchase Rights               New York Stock Exchange

pursuant to Rights Agreement



Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark whether the Registrant (1) has filed all reports

required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period that the

Registrant was required to file such reports), and (2) has been subject to such

filing requirements for the past 90 days.



Yes [X]                                                  No [_]



Indicate by check mark if disclosure of delinquent filers pursuant to Item

405 of Regulation S-K is not contained herein, and will not be contained, to the

best of Registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. [X]



Indicate by check mark whether the Registrant is an accelerated filer (as

defined in Rule 12b-2 of the Act).



Yes [X]                                                  No [_]



Based on the closing market price of Registrant's common stock on June 28,

2002, the aggregate market value of such stock held by non-affiliates of

Registrant was approximately $2.35 billion as of the last business day of

Registrant's most recently completed second fiscal quarter. Solely for purposes

of this calculation, all executive officers and directors of Registrant are

considered affiliates.





Registrant had 67,596,409 shares of common stock outstanding as of January 27,

2003.



Documents Incorporated by Reference



Part of the Form 10-K

Document                           into which incorporated



Portions of Proxy Statement for 2003 Annual             Part III

Meeting of Shareholders



- --------------------------------------------------------------------------------



1

PART I



Item 1. Business.



Unitrin, Inc. ("Unitrin" or the "Company") was incorporated in Delaware in

1990. Unitrin's subsidiaries serve the basic financial needs of individuals,

families and small businesses by providing property and casualty insurance, life

and health insurance, and consumer finance services.



The Company files annual reports on Form 10-K, quarterly reports on Form

10-Q, current reports on Form 8-K, amendments to those reports, and other

information with the Securities and Exchange Commission (the "SEC"). The public

can obtain copies of these materials by visiting the SEC's Public Reference Room

at 450 Fifth Street, NW, Washington DC 20549, or by calling the SEC at

1-800-SEC-0330, or by accessing the SEC's website at http://www.sec.gov. In

addition, as soon as reasonably practicable after such materials are filed with

or furnished to the SEC, the Company makes copies available to the public free

of charge on or through its website at http://www.unitrin.com.



(a) General development of business



..   Acquisition of Kemper Personal Lines Insurance Business



On June 28, 2002, the Company closed its acquisition of the personal lines

property and casualty insurance business of the Kemper Insurance Companies

("KIC") in a cash transaction. The Individual and Family Group business unit

acquired from KIC, referred to herein as "Kemper Auto and Home" or "KAH,"

specializes in the sale of personal lines automobile and homeowners' insurance

through independent agents. The acquisition includes the purchase of the assets

of Kemper Auto and Home, but all pre-acquisition liabilities of Kemper Auto and

Home, including policy reserves and unearned premium reserves, are excluded and

remain with KIC. In connection with the acquisition, as described below, the

Company also acquired the stock of KIC's direct distribution personal lines

subsidiaries ("Kemper Direct"), which sell personal lines automobile insurance

to consumers over the Internet. Pursuant to the provisions of the stock

acquisition agreement between the Company and KIC, the Company is indemnified

for 90% of any adverse loss development for policy losses incurred by Kemper

Direct prior to the acquisition date while KIC is entitled to 90% of any

favorable loss reserve development on such policy losses.



The purchase price is $42.3 million plus (i) 1% of premiums written by KAH

over a three-year period beginning January 1, 2003, and (ii) potential

performance bonuses if the KAH business meets certain loss ratio criteria over

such three-year period. For further details regarding the acquisition and

purchase price, please refer to (i) Note 3 to Unitrin's Consolidated Financial

Statements, which financial statements are further described in Item 15(a)1, and

filed as Exhibit 13.1, and incorporated by reference into Item 8 of this Annual

Report on Form 10-K (the "Financial Statements"), and (ii) Management's

Discussion and Analysis of Results of Operations and Financial Condition, which

is filed as Exhibit 13.2, and incorporated by reference into Item 7, of this

Annual Report on Form 10-K (the "MD&A").



KIC retains all liabilities for policies issued by Kemper Auto and Home

prior to the closing, while Trinity Universal Insurance Company ("Trinity"), a

subsidiary of Unitrin, is entitled to premiums written for substantially all

policies issued or renewed by Kemper Auto and Home after the closing and is

liable for losses and expenses incurred thereon. For policies issued by Kemper

Direct prior to the acquisition date, the Company is liable for policy losses

incurred thereon, subject to the loss indemnification described above, and is

liable for unearned premiums as of the acquisition date. Kemper Auto and Home's

and Kemper Direct's personal lines net written premiums were approximately $700

million in 2001.



At the acquisition date, Unitrin's property and casualty insurance

subsidiaries were not licensed in all the states where the KAH business is

written nor were certain computer and data processing modifications completed to

allow for the migration of the KAH business to the Company's property and

casualty insurance subsidiaries. Accordingly, Trinity and KIC entered into a

quota share reinsurance agreement whereby Trinity assumed 100% of the KAH

business written or renewed by KIC after the acquisition date in order to

provide a transitional period for Unitrin's property and casualty insurance

subsidiaries to obtain licenses in the necessary states and other insurance

regulatory authorizations and to complete the required computer and data

processing modifications. The Company anticipates that its property and casualty

insurance subsidiaries will begin directly issuing insurance policies for new

business in certain states beginning in the first quarter of 2003 and will begin

issuing renewal insurance policies mid-year 2003. Accordingly, the Company

anticipates that the migration of the KAH business to the Company's property and

casualty insurance subsidiaries will be substantially completed no earlier than

the end of 2004.



In December 2002, A.M. Best & Co., the principal insurance company rating

agency, lowered its rating for KIC from "A-" (excellent) to "B+" (very good).

While the rating action on KIC did not have an impact on the "A" (excellent)

ratings from A.M. Best & Co. of Unitrin's property and casualty insurance

subsidiaries, it may adversely impact the willingness of independent agents to

renew their customers' insurance policies with KIC, even though they are

reinsured by Trinity. In particular, homeowners' insurance is ratings-sensitive

due to minimum rating standards imposed by certain residential mortgage lenders.

Should KIC suffer further downgrades, these effects could be magnified.



Accordingly, the Company is implementing certain plans in an effort to

preserve agent relationships and enhance the prospects for an orderly transition

of the KAH business to Unitrin's property and casualty insurance subsidiaries.

In connection with such plans, Unitrin acquired two inactive, or "shell,"

insurance companies with insurance licenses in many of the required states from

SCOR Reinsurance Company on December 31, 2002. The Company is also continuing to

pursue necessary state licenses and other insurance regulatory authorizations,

which may or may not include the acquisition of additional shell insurance

companies.



In addition, on January 8, 2003, Trinity and KIC amended the quota share

reinsurance agreement between the parties to provide for a "cut-through"

provision whereby Trinity will be required to pay claims directly to reinsured

policyholders (or their mortgagees or loss payees, as the case may be) who have

been issued new or renewal policies since July 1, 2002, in the event that KIC

becomes insolvent. In accordance with the amendment, Trinity's liability under

the reinsurance would be reduced by such payments made directly by Trinity to

claimants. The Company cannot presently predict what impact these plans to

preserve the KAH business will ultimately have on the ability of the Company to

write the KAH business, nor can the Company predict what impact these

developments will ultimately have on the contingent purchase price or

performance bonuses described above.



2

Unitrin Stock Repurchases



During 2002, Unitrin repurchased and retired 293,800 shares of its common

stock in open market transactions at an aggregate cost of approximately $9.4

million. Since its inception in 1990, Unitrin has repurchased, on a post-split

basis, approximately 54.6 million shares of its common stock, or nearly half of

Unitrin's shares originally outstanding, for an aggregate cost of approximately

$1.5 billion. At December 31, 2002, approximately 3.6 million shares of Unitrin

common stock remained under Unitrin's outstanding repurchase authorizations.



Stock repurchases may be made from time to time at prevailing prices in the

open market or in privately negotiated transactions, subject to market

conditions and other factors. Repurchases are financed through Unitrin's general

corporate funds. Unitrin may also borrow funds under an existing bank credit

facility to fund common stock repurchases.



(b) Business segment financial data



Financial information about Unitrin's business segments for the years ended

December 31, 2002, 2001, and 2000 is contained in the following portions of this

2002 Annual Report on Form 10-K of Unitrin, Inc. and is incorporated herein by

reference: (i) Note 17 to the Financial Statements, and (ii) the MD&A.



(c) Description of business



The Company is engaged, through its subsidiaries, in the property and

casualty insurance, life and health insurance and consumer finance businesses.

The Company conducts its operations through six operating segments: Multi Lines

Insurance, Specialty Lines Insurance, Kemper Auto and Home, Life and Health

Insurance, Consumer Finance, and Unitrin Direct Sales.



Unitrin's subsidiaries employ over 8,700 full-time associates of which

approximately 1,150 are employed in the Multi Lines Insurance segment, 800 in

the Specialty Lines Insurance segment, 1,000 in the Kemper Auto and Home

segment, 4,570 in the Life and Health Insurance segment, 690 in the Consumer

Finance segment, and 500 in the Unitrin Direct Sales segment.



.   Property and Casualty Insurance Business



Unitrin's property and casualty insurance business operations are conducted

through the following segments: Multi Lines Insurance, Specialty Lines

Insurance, Kemper Auto and Home, and Unitrin Direct Sales. The Unitrin companies

operating in these segments provide automobile, homeowners, commercial

multi-peril, motorcycle, boat and watercraft, fire, casualty, workers

compensation, and other types of property and casualty insurance to individuals

and businesses. Automobile insurance accounted for 50%, 41%, and 34% of

Unitrin's consolidated insurance premiums earned for the years ended December

31, 2002, 2001, and 2000, respectively.



Property insurance indemnifies an insured with an interest in physical

property for loss of such property or the loss of its income-producing

abilities. Casualty insurance primarily covers liability for damage to property

of, or injury to, a person or entity other than the insured.



Multi Lines Insurance Segment



The Unitrin Multi Lines Insurance segment principally is comprised of 9

insurance companies operating mainly in the southern, midwestern, western and

northwestern regions of the United States. With operations located in 31 states,

the Multi Lines Insurance segment has over 375,000 policies in force. The states

which provided the largest amount of premium for the Multi Lines Insurance

segment in 2002 were Texas (40%), Oregon (9%), Wisconsin (5%), Illinois (5%),

Louisiana (5%) and Washington (5%).



Insurance products provided by the Multi Lines Insurance segment primarily

consist of preferred and standard risk automobile, homeowners, fire, commercial

liability and workers compensation insurance. Multi Lines Insurance products are

marketed by over 1,400 independent insurance agents in over 2,000 locations.

These personal and commercial products are designed and priced for those

individuals and businesses that have demonstrated favorable risk characteristics

and loss history.



Trinity Universal Insurance Company ("Trinity") and certain of Unitrin's

other subsidiaries (Milwaukee Casualty Insurance Co., Milwaukee Safeguard

Insurance Company, Security National Insurance Company, Trinity Universal

Insurance Company of



3

Kansas, Inc., Valley Insurance Company and Valley Property & Casualty Insurance

Company) and affiliates (Milwaukee Mutual Insurance Company, Charter County

Mutual Insurance Company and Trinity Lloyd's Insurance Company) principally

provide the Unitrin Multi Lines Insurance segment's preferred and standard

products. These products accounted for approximately 48% of the aggregate

insurance premium revenue of Unitrin's property and casualty insurance business

in 2002.



The Company is evaluating strategic alternatives available to its

commercial lines business. While evaluating these alternatives, the Company

expects to continue the following measures: (1) reduce policies in force in

certain commercial lines through extensive re-underwriting of contractors and

related industries, program business, workers compensation and product

liability, (2) intensify aggressive pricing on commercial lines on selected

portions of the book, (3) implement certain premium rate increases in most other

product lines, subject to regulatory approvals where applicable, and (4) review

underwriting guidelines in certain markets and other product lines and implement

certain underwriting changes as it writes and renews its business, including

placing a moratorium on new business in certain markets where adequate premium

rates cannot be obtained.



Specialty Lines Insurance Segment



Unitrin's Specialty Lines Insurance segment principally is comprised of 4

insurance companies operating in the southern, western, midwestern and

northwestern regions of the United States. With operations located in 25 states,

the Specialty Lines Insurance segment has over 346,000 policies in force. The

states which provided the largest amount of premium in 2002 were California

(30%), Texas (24%), and Washington (7%).



The Specialty Lines Insurance segment's products are provided primarily by

Financial Indemnity Company, Alpha Property & Casualty Insurance Company,

Charter Indemnity Company and Charter County Mutual Insurance Company, and

include nonstandard personal and commercial automobile, motorcycle, and

specialty watercraft insurance. Nonstandard automobile insurance is provided for

individuals and businesses that have had difficulty obtaining standard or

preferred risk insurance, usually because of their driving records. Nonstandard

automobile insurance products are marketed through approximately 10,000

independent agents in 13,000 locations. Specialty Lines Insurance products

accounted for approximately 37% of the aggregate insurance premium revenue of

Unitrin's property and casualty insurance business in 2002.



Kemper Auto and Home Segment



On June 28, 2002, the Company closed its previously announced asset

purchase transaction with the Kemper Insurance Companies ("KIC") in which the

Company acquired certain assets comprising the personal lines property and

casualty insurance business of KIC known as Kemper Auto and Home.



Unitrin's Kemper Auto and Home segment primarily conducts business in 30

states. The states which provided the largest amount of premium for Kemper Auto

and Home in 2002 were New York (24%), North Carolina (15%), California (11%),

Texas (6%) and Connecticut (6%).



Insurance products provided by the Kemper Auto and Home segment mainly

consist of preferred and standard risk automobile and homeowners insurance.

Kemper Auto and Home products are marketed by approximately 1,500 independent

insurance agents. These personal lines products are designed and priced for

those individuals who have demonstrated favorable risk characteristics and loss

history. Typical customers include middle to upper income individuals and

families in urban, suburban and rural communities.



As described above in Item 1(a), all new business, and all renewals of

existing business, issued by Kemper Auto and Home on and after July 1, 2002 is

presently being written on KIC insurance policy forms and 100% reinsured by

Trinity. The Company plans that certain of its insurance subsidiaries will begin

writing KAH business on their own policies in certain states during the first

quarter of 2003. Kemper Independence Insurance Company and two recently acquired

shell insurance companies will be dedicated to KAH and principally will provide

the segment's preferred and standard products. In addition, certain of Unitrin's

other property and casualty insurance subsidiaries may be made available to

write Kemper Auto and Home products as needed in states in which these companies

are not currently licensed.



Unitrin Direct Sales Segment



On January 3, 2000, Unitrin established Unitrin Direct, a direct marketing

automobile insurance unit, to market personal automobile insurance primarily

through direct mail and television advertising and, to a lesser extent, the

Internet. This business unit primarily utilizes Unitrin's wholly owned

subsidiary, Unitrin Direct Insurance Company, but has other subsidiaries of

Unitrin available for utilization as needed in states in which Unitrin Direct

Insurance Company is not currently licensed. Unitrin Direct began actively

marketing personal automobile insurance in the State of Pennsylvania at the

beginning of 2001 and currently has



4

sales in six states.



On June 28, 2002, the Company closed its previously announced acquisition

of the insurance companies comprising the Kemper Insurance Companies' direct

marketing unit ("Kemper Direct") in a cash transaction. Kemper Direct

established operations in 1997 and currently has sales in 19 states. Kemper

Direct's business model is based on selling automobile insurance over the

Internet through web insurance portals, click-thrus and its own e-Kemper

website.



Due to the similarity of Unitrin Direct's and Kemper Direct's business

models, products and back-office operations, the Company is in the process of

combining the operations of the two businesses into the single business unit,

Unitrin Direct Sales. The Company believes that such a combination provides an

opportunity to achieve economies of scale in a shorter time frame than would

have been possible if both businesses were operated as stand-alone units.



Unitrin Direct Sales offers a wide range of standard, preferred and

nonstandard private passenger auto insurance products, and competes with

companies that sell insurance directly to the consumer, as well as with

companies that sell through agents. Irrespective of the sales methods used by a

company, personal auto insurance is a highly competitive business, particularly

in the areas of price and customer service. The overall business strategy of

Unitrin Direct Sales places great emphasis on competitive pricing and quality

customer service.



Building a direct marketing insurance operation requires a significant

investment resulting in up-front costs and expenses associated with marketing

products and acquiring new policies. Although the Company believes that the

Unitrin Direct Sales segment is positioned to achieve economies of scale over

the next few years, the Company expects that Unitrin Direct Sales will continue

to produce operating losses until such economies of scale are achieved. The

Company expects such operating losses to decrease in 2003.



Property and Casualty Loss and Loss Adjustment Expense Reserves



Property and casualty insurance companies establish reserves to cover their

estimated ultimate liability for losses and loss adjustment expenses with

respect to claims under their insurance policies. The reserves of the Unitrin

property and casualty insurance companies reflect management's estimate of these

amounts based on its judgment regarding a variety of factors, including the

facts and circumstances of the claims, past claims experience, current claim

trends, and relevant legal, economic and social conditions.



The objective of the Unitrin property and casualty companies is to set

reserves that are adequate; that is, the amounts recorded as reserves should at

least equal the ultimate net cost to investigate and settle claims. However, the

process of establishing adequate reserves is inherently uncertain, and the

ultimate net cost of a claim may vary materially from the amounts reserved. The

reserving process is particularly imprecise for claims involving asbestos,

environmental, mold, construction defect and other emerging and/or long-tailed

exposures now confronting property and casualty insurers. The Unitrin property

and casualty insurance companies regularly monitor and evaluate loss and loss

adjustment expense reserve development to verify reserve adequacy. Any

adjustment to reserves is reflected in net income for the accounting period in

which the adjustment is made.



For the year ended December 31, 2002, the Company increased its property

and casualty insurance reserves by $82.3 million to reflect adverse development

of losses from prior accident years. The reserve increases reflect developing

loss trends primarily related to construction defect, mold, automobile liability

and product liability loss exposures in its commercial lines of business as well

as personal automobile liability. For further information on reserves, please

refer to the MD&A and Notes 1, 2, 7 and 19 to the Financial Statements.



Storms/Catastrophe Losses



Catastrophe losses are inherent risks of the property insurance business.

Catastrophes are caused by various natural events including hurricances,

tornadoes, earthquakes, hailstorms, wildfires, high winds and winter storms.

Such catastrophic occurrences result in insurance losses that are and will

continue to be a material factor in the results of operations and financial

position of Unitrin's property and casualty insurance companies. Further,

because the level of these insurance losses experienced in any year cannot be

predicted, these losses contribute to the year-to-year fluctuations in the

results of operations and financial position of these companies. As a

consequence, management has implemented certain strategies intended to reduce

exposure to catastrophe losses, including, as described below, geographic

diversification of property insurance risk and catastrophe reinsurance

arrangements. Although management believes that such strategies have reduced or

will reduce the exposure of the property and casualty insurance operations to

storm and catastrophe losses over time, the extent of such reduction is

uncertain.



5

With respect to storm losses, the frequency and occurrence of severe

weather are difficult to predict in any year. However, geographic location can

have an impact on a property insurer's exposure to losses from storms. Moreover,

these storms add an element of seasonality to property insurance claims,

since certain natural events, such as winter storms, tornadoes and hurricanes,

typically occur more frequently at certain times of the year than others.

Management has endeavored to reduce its aggregate insurance exposures in certain

regions prone to natural event catastrophes through a combination of geographic

expansion outside of these areas and restrictions on the amount and location of

new business production.



As a part of the overall reinsurance program covering Unitrin's property

and casualty insurance companies, management acquires excess of loss reinsurance

coverage designed specifically to protect against losses arising from

catastrophic events such as storms. The catastrophe reinsurance program is

typically purchased annually and is structured according to a series of coverage

layers based on geographic region. For example, the 2002 catastrophe reinsurance

program covering Unitrin's Multi Lines and Specialty Lines property and casualty

insurance companies provided for $6 million in reinsurance protection for losses

in excess of $4 million occurring in Washington, Oregon, California, Idaho,

Nevada, Montana, Wyoming, Utah, Colorado and Arizona. With respect to New

Mexico, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Minnesota, Iowa,

Missouri, Arkansas, Mississippi, Georgia, Tennessee, Kentucky, Ohio, Indiana,

Illinois and Wisconsin, the program provided for $5 million in reinsurance

protection for losses in excess of $5 million. The program provided $45 million

in reinsurance coverage for losses in excess of $10 million in all states in

which these companies operated, including the Gulf states of Texas, Louisiana

and Alabama. In addition, the 2002 program provided a further layer of

protection in the amount of 95% of $55 million for losses in excess of $55

million in all states in which these companies operated. This layer also was

shared with the Life and Health Insurance segment's property insurance

companies, but at a different attachment point and coverage level. Based on

external modeling studies, the estimated probable maximum loss of the Unitrin

Multi Lines and Specialty Lines property and casualty insurance companies for

storms occurring in all states with a statistical frequency of occurrence of

once per 100 years is approximately $29 million. For further discussion of the

reinsurance program, see discussion below and Note 18 to the Financial

Statements.



In addition to the catastrophe loss exposures caused by natural events

described above, the Company's property and casualty insurance companies are

exposed to catastrophic events that are not the result of acts of nature, such

as certain acts of terrorism, the nature and level of which in any period cannot

be predicted. While there were no reported losses experienced by the Company's

property and casualty insurance companies in relation to the terrorist attacks

on September 11, 2001, the Company has obtained catastrophe coverage to address

exposure to potential future terrorist attacks. For example, at present, the

Company has aggregate terrorist coverage in the amount of $9 million in excess

of a $1 million retention for personal and commercial lines business. The

Company's property and casualty insurance companies are in the process of

completing actions to comply with the federal Terrorism Risk Insurance Act of

2002 which, among other things, provides for the partial reimbursement of

covered terrorism losses for commercial lines, subject to certain deductible

amounts specified in the legislation.



Reinsurance



In addition to the catastrophe reinsurance program described above,

Unitrin's property and casualty insurance companies utilize reinsurance

arrangements to limit their maximum loss, provide greater diversification of

risk and minimize exposures on larger risks. Under such arrangements, these

companies are indemnified by reinsurers for losses incurred under insurance

policies issued by the companies. As indemnity reinsurance does not discharge an

insurer from its direct obligations to policyholders on risks insured, Unitrin's

property and casualty insurance companies remain contingently liable. However,

so long as the reinsurers meet their obligations, these companies' net liability

is limited to the amount of risk that they retain. See Note 18 to the Financial

Statements.



Pricing



Pricing levels for property and casualty insurance are influenced by many

factors, including the frequency and severity of claims, state regulation and

legislation, competition, general business conditions, inflation, expense

levels, and judicial decisions. In addition, many state regulators require

consideration of investment income when approving or setting rates, which

reduces underwriting margins. See MD&A regarding the Multi Lines Insurance,

Specialty Lines Insurance, Kemper Auto and Home, and Unitrin Direct Sales

segments.



Competition



Based on the most recent data published by A.M. Best Company ("A.M. Best")

as of the end of 2001, there were approximately 900 property and casualty

insurance groups in the United States, made up of nearly 2,400 companies.

Unitrin's property and casualty insurance companies ranked among the 65 largest

property and casualty insurance company organizations in the United States,

measured by net premiums written (54th), and policyholders' surplus (65th). With

respect to admitted assets,



6

Unitrin's property and casualty insurance companies ranked 70th relative to

industry peers.



In 2001, the industry's estimated net premiums written were over $310

billion, more than 82% of which were accounted for by 50 groups of companies.

Unitrin's property and casualty insurance companies wrote less than 1% of the

industry's estimated 2001 premium volume.



Property and casualty insurance is a highly competitive business,

particularly with respect to personal automobile insurance. Unitrin's property

and casualty insurance companies compete on the basis of, among other measures,

(i) using appropriate pricing, (ii) maintaining underwriting discipline, (iii)

selling to selected markets, (iv) utilizing technological innovations for the

marketing and sale of insurance, (v) controlling expenses, (vi) maintaining

adequate ratings from A.M. Best and other ratings agencies, (vii) providing

quality services to agents and policyholders, and (viii) making strategic

acquisitions of suitable property and casualty insurers.



.    Life and Health Insurance Business



Unitrin conducts its life and health insurance business through its wholly

owned subsidiaries, United Insurance Company of America ("United"), The Reliable

Life Insurance Company ("Reliable"), Union National Life Insurance Company

("Union National Life"), and Reserve National Insurance Company ("Reserve

National").



The Unitrin Life and Health Insurance companies mainly focus on providing

individual life and health insurance products to customers who desire

fundamental protection for themselves and their families. The leading product of

the Unitrin Life and Health Insurance segment is ordinary life insurance,

including permanent and term insurance, with an average face amount of

approximately $8,600. Premiums are typically charged on a monthly basis and

average approximately $14 per policy per month. Permanent policies are offered

primarily on a non-participating, guaranteed-cost basis. This product accounted

for 21%, 25%, and 27% of Unitrin's consolidated insurance premiums for the years

ended December 31, 2002, 2001, and 2000, respectively. The states which provided

the largest amount of premium for the Life and Health Insurance companies were

Texas (21%), Louisiana (13%), Florida (6%), California (6%), North Carolina

(5%), and Mississippi (5%).



Career Agents



Approximately 82% of the Unitrin Life and Health Insurance segment's

premiums result from insurance products offered and distributed by the segment's

career agents. United, along with Reliable and Union National Life, employ over

2,900 career agents to distribute traditional whole life insurance products in

25 states. These career agents are full-time employees who call on customers in

their homes to sell life and health insurance products, provide services related

to policies in force and collect premiums, typically monthly. Property insurance

products written by United's subsidiaries, United Casualty Insurance Company of

America ("United Casualty") and Union National Fire Insurance Company ("Union

National Fire"), are also distributed by the segment's career agents.



Customers of Unitrin's career agency companies generally are families with

an annual income of less than $25,000. According to figures assembled by the

U.S. Bureau of the Census as of 2001, there are nearly 32 million households in

the United States with less than $25,000 of annual income, representing about

29% of all U.S. households.



Unitrin's career agency companies, United, Reliable and Union National

Life, are certified members of the Insurance Marketplace Standards Association

("IMSA"). IMSA is a voluntary membership organization whose purpose is to

promote high ethical standards in the sale of individual life insurance and

individual annuity products. IMSA membership must be renewed every three years.



In 2000, the Unitrin Life and Health Insurance segment's career agency

companies, including United, Reliable, Union National Life, United Casualty and

Union National Fire, initiated a plan to consolidate administrative operations.

Under the plan, certain duplicative back office functions of the career agency

companies based in Chicago, St. Louis and Baton Rouge have substantially been

combined at centralized locations. By eliminating operational redundancies, the

consolidation is intended to increase the overall efficiency and cost

effectiveness of the career agency companies.



Independent Agents



Reserve National has approximately 250 independent agents appointed to

market and distribute health insurance products. These agents typically

represent Reserve National only. Licensed in 31 states throughout the south,

southwest and midwest, Reserve National specializes in the sale of limited

benefit accident and health insurance products and Medicare Supplement

insurance, primarily to individuals living in rural areas where health

maintenance organizations and preferred provider organizations are less

prevalent.



7

Pricing



Premiums for life and health insurance products are based on assumptions

with respect to mortality, morbidity, investment yields, expenses, and lapses

and are also affected by state laws and regulations, as well as competition.

Pricing assumptions are based on the experience of the Unitrin Life and Health

Insurance companies, as well as the industry in general, depending upon the

factor being considered. The actual profit or loss produced by a product will

vary from the anticipated profit if the actual experience differs from the

assumptions used in pricing the product.



Premiums for policies sold through the Unitrin Life and Health Insurance

companies' career agents are set at levels designed to cover the relatively

higher cost of this method of distribution. As a result of such higher expenses,

incurred claims as a percentage of premium income tend to be lower for companies

utilizing this method of distribution than the insurance industry average.



Premiums for Medicare Supplement and other accident and health policies

must take into account the rising costs of medical care. The annual rate of

medical cost inflation has historically been higher than the general rate of

inflation, necessitating frequent rate increases, most of which are subject to

approval by state regulatory agencies.



Reinsurance



Consistent with insurance industry practice, the Unitrin Life and Health

Insurance companies utilize reinsurance arrangements to limit their maximum

loss, provide greater diversification of risk and minimize exposures on larger

risks. Under these arrangements, the Unitrin Life and Health Insurance companies

are indemnified by reinsurers for losses incurred under insurance policies

issued by the segment's companies. Included among the segment's reinsurance

arrangements is excess of loss reinsurance coverage specifically designed to

protect against losses arising from catastrophic events such as storms under the

property insurance policies written by United Casualty and Union National Fire.



As reinsurance does not discharge the Unitrin Life and Health Insurance

companies from their direct obligations to policyholders on risks insured, these

companies remain contingently liable. However, so long as the reinsurers meet

their obligations, the Unitrin Life and Health Insurance companies' net

liability is limited to the amount of risk that they retain. For descriptions of

certain of the reinsurance arrangements of the Unitrin Life and Health Insurance

segment, see Note 18 to the Financial Statements.



Lapse Ratio



The lapse ratio is a measure reflecting a life insurer's loss of existing

business. For a given year, this ratio is commonly computed as the total face

amount of individual life insurance policies lapsed, surrendered, expired and

decreased during such year, less policies increased and revived during such

year, divided by the total face amount of policies at the beginning of the year

plus the face amount of policies issued and reinsurance assumed in the prior

year. The Unitrin Life and Health Insurance segment's lapse ratios for

individual life insurance were 9.5%, 9%, and 10% for the years 2002, 2001, and

2000, respectively.



The customer base served by the Unitrin Life and Health Insurance segment's

career agents and competing life insurance companies tends to have a higher

incidence of lapse than other demographic segments of the population. Thus, to

maintain or increase the level of its business, the Unitrin Life and Health

Insurance segment's career agents must continue to write a high volume of new

policies.



Competition



Based on the most recent data published by A.M. Best as of the end of 2001,

there were approximately 460 life and health insurance company groups in the

United States, made up of nearly 1,000 companies. The Unitrin Life and Health

Insurance segment ranked among the 100 largest life and health insurance company

groups, as measured by admitted assets (79th), net premiums written (93rd), and

capital and surplus (48th).



Unitrin's insurance subsidiaries generally compete using appropriate

pricing, selling to selected markets, controlling expenses, maintaining adequate

ratings from A.M. Best, and providing competitive services to agents and

policyholders.



.    Consumer Finance Business



8

Unitrin's subsidiary, Fireside Thrift Co. ("Fireside Thrift"), is engaged

in the consumer finance business. Fireside Thrift is organized under California

law as an industrial bank and is a member of the Federal Deposit Insurance

Corporation (the "FDIC").



Fireside Thrift's principal business is the financing of used automobiles

through the purchase of retail installment contracts from automobile dealers.

The borrowers under these contracts and loans typically have marginal credit

histories.



Fireside Thrift has 36 branches in California and loan production offices

in Arizona, Colorado, Kansas, Oregon and Washington. Fireside Thrift does

business with nearly 3,750 automobile dealers in California, Arizona, Colorado,

Idaho, Kansas, Missouri, Oregon and Washington, and is one of the largest

non-prime automobile lenders in California. Fireside Thrift has over 115,000

loans outstanding totaling in excess of $800 million.



Strong loan underwriting and collection practices are key elements to

successful operating performance in the non-prime automobile finance business.

Nearly 80% of Fireside Thrift's general and administrative expenses are devoted

to underwriting and collection activities. Fireside Thrift individually

underwrites each loan application and historically has declined to extend credit

to more than two-thirds of its loan applicants. See the discussion of Fireside

Thrift's loan loss reserves under the heading "Consumer Finance" in the MD&A and

Note 6 to the Financial Statements. Fireside Thrift competes for loans primarily

on the basis of timely service to its customers and by offering competitive loan

terms. Principal competitors include banks, finance companies, and "captive"

credit subsidiaries of automobile manufacturers.



Fireside Thrift's financing activities are funded primarily by FDIC-insured

deposits, including term certificates ranging from one to ten years in maturity

and savings accounts. Fireside Thrift competes for funds primarily with other

banks and savings and loan associations.



Investments



The quality, nature, and amount of the various types of investments which

can be made by insurance companies are regulated by state laws. Depending on the

state, these laws permit investments in qualified assets, including municipal,

state and federal government obligations, corporate bonds, real estate,

preferred and common stocks, and mortgages where the value of the underlying

real estate exceeds the amount of the loan.



Unitrin's investment strategy is based on current market conditions and

other factors that it reviews from time to time. Unitrin's consolidated

investment portfolio is concentrated in obligations of United States Government

Agencies and Authorities, investment-grade fixed maturities, Northrop Grumman

Corporation common and preferred stock, Baker Hughes Incorporated common stock,

and UNOVA, Inc. common stock and fixed maturity investments. See the discussions

of Unitrin's investments under the headings "Corporate Investments,"

"Investees," "Investment Results," "Quantitative and Qualitative Disclosures

about Market Risk," and "Liquidity and Capital Resources" in the MD&A and Notes

4, 5 and 13 to the Financial Statements.



Regulation



Insurance Regulation



Unitrin is subject to the insurance holding company laws of several states.

Certain dividends and distributions by an insurance subsidiary are subject to

approval by the insurance regulators of the state of incorporation of such

subsidiary. Other significant transactions between an insurance subsidiary and

its holding company or other subsidiaries of the holding company may require

approval by insurance regulators in the state of incorporation of each of the

insurance subsidiaries participating in such transactions.



Unitrin's insurance subsidiaries are subject to regulation in the states in

which they do business. Such regulation pertains to matters such as approving

policy forms and various premium rates, licensing agents, granting and revoking

licenses to transact business and regulating trade practices. The majority of

Unitrin's insurance operations are in states requiring prior approval by

regulators before proposed rates for property, casualty, or health insurance

policies may be implemented. However, rates proposed for life insurance

generally become effective immediately upon filing with a state, even though the

same state may require prior rate approval for other types of insurance.

Insurance regulatory authorities perform periodic examinations of an insurer's

market conduct and other affairs.



Insurance companies are required to report their financial condition and

results in accordance with statutory accounting principles prescribed or

permitted by state insurance regulators in conjunction with the National

Association of Insurance



9

Commissioners (the "NAIC"). State insurance regulators also prescribe the form

and content of statutory financial statements, perform periodic financial

examinations of insurers, set minimum reserve and loss ratio requirements,

establish standards for the types and amounts of investments and require minimum

capital and surplus levels. Such statutory capital and surplus requirements

include risk-based capital ("RBC") rules promulgated by the NAIC. These RBC

standards are intended to assess the level of risk inherent in an insurance

company's business and consider items such as asset risk, credit risk,

underwriting risk and other business risks relevant to its operations. In

accordance with RBC formulas, a company's RBC requirements are calculated and

compared to its total adjusted capital to determine whether regulatory

intervention is warranted. At December 31, 2002, the total adjusted capital of

each of Unitrin's insurance subsidiaries exceeded the minimum levels required

under RBC rules and had excess capacity to write additional premiums in relation

to these requirements.



The NAIC annually calculates certain statutory financial ratios for most

insurance companies in the United States. These calculations are known as the

Insurance Regulatory Information System ("IRIS") ratios. There presently are

thirteen IRIS ratios for life and health insurers and twelve IRIS ratios for

property and casualty insurers. The primary purpose of the ratios is to provide

an "early warning" of any negative developments. The NAIC reports the ratios to

state regulators who may then contact the companies if three or more ratios fall

outside the NAIC's "usual ranges." Based on calculations as of December 31,

2001, two of Unitrin's property and casualty insurance companies, including

Trinity, had three IRIS ratios outside of the usual ranges. With respect to

Trinity, such IRIS ratios were due primarily to operating losses incurred in

2001 and reserve strengthening measures taken during such period.



Unitrin's insurance subsidiaries are required under the guaranty fund laws

of most states in which they transact business to pay assessments up to

prescribed limits to fund policyholder losses or liabilities of insolvent

insurance companies. Unitrin's insurance subsidiaries also are required to

participate in various involuntary pools, principally involving workers

compensation and windstorms. In most states, the involuntary pool participation

of Unitrin's insurance subsidiaries is in proportion to their voluntary writings

of related lines of business in such states.



In addition to the regulatory requirements described above, a number of

current and pending legislative and regulatory measures may significantly affect

the insurance business in a variety of ways. These measures include, among other

things, tort reform, consumer privacy requirements, and financial services

deregulation initiatives. For example, at the federal level, the

Gramm-Leach-Bliley Act of 1999 removed many federal and state law barriers to

affiliations between insurers, banks, securities firms and other financial

services providers. This legislation and similar initiatives may lead to

increased consolidation and competition in the insurance industry.



State insurance laws intended primarily for the protection of policyholders

contain certain requirements that must be met prior to any change of control of

an insurance company or insurance holding company that is domiciled or, in some

cases, having such substantial business that it is deemed commercially

domiciled, in that state. These requirements may include the advance filing of

specific information with the state insurance regulators, a public hearing on

the matter, and review and approval of the change of control by such regulators.

The Company has insurance subsidiaries domiciled in a number of states,

including California, Illinois, Kansas, Louisiana, Missouri, New York, Oklahoma,

Oregon, Pennsylvania, Texas and Wisconsin. In these states, "control" generally

is presumed to exist through the direct or indirect ownership of 10% or more of

the voting securities of an insurance company. Any purchase of the Company's

shares that would result in the purchaser owning 10% or more of the Company's

voting securities would be presumed to result in the acquisition of control of

the Company's insurance subsidiaries. Such an acquisition generally would

require the prior approval of the insurance regulatory authorities in each state

in which the Company's insurance subsidiaries are domiciled or deemed to be

commercially domiciled. In addition, many states require pre-acquisition

notification to the state insurance regulators of a change of control of an

insurance company licensed in that state if specific market concentration

thresholds would be triggered by the acquisition. While those pre-acquisition

notification statutes generally do not authorize the state insurance regulators

to disapprove the change of control, they do authorize the issuance of a cease

and desist order with respect to the insurance company if certain conditions,

such as undue market concentration, would result from the acquisition. These

insurance regulatory requirements may deter, delay or prevent transactions

effecting control of the Company or the ownership of the Company's voting

securities, including transactions that could be advantageous to the Company's

shareholders.



Consumer Finance Regulation



Fireside Thrift is an industrial bank regulated by the California Department of

Financial Institutions. Under California banking law, Fireside Thrift is

permitted to engage in the activities of a commercial bank, except the activity

of accepting demand deposits, and is generally subject to the same laws and

regulations to which commercial banks are subject under the California banking

law, which imposes minimum capitalization requirements and limits dividends,

among other things. In addition, since Fireside Thrift is a member of the FDIC,

it is subject to a broad scheme of regulation under the Federal Deposit

Insurance Act and the regulations of the FDIC. Fireside Thrift is also subject

to a large number of federal and state laws of general applicability, including

Federal Reserve Board consumer credit regulations.



Item 2.  Properties.



10

Owned Properties



Unitrin owns the 41-story office building at One East Wacker Drive,

Chicago, Illinois, that houses the executive offices of Unitrin. Unitrin

occupies approximately 82,600 square feet of the 527,000 rentable square feet in

the building. In addition, Unitrin subsidiaries together own 12 buildings

located in 9 states consisting of approximately 307,000 square feet in the

aggregate.



Leased Facilities



The Unitrin Life and Health Insurance segment leases facilities with

aggregate square footage of approximately 363,000 at 162 locations in 24 states.

The latest expiration date of the existing leases is December 31, 2007.



The Unitrin Multi Lines Insurance segment leases facilities with an

aggregate square footage of approximately 257,000 at 9 locations in 7 states.

The latest expiration date of the existing leases is January 1, 2008.



The Unitrin Specialty Lines Insurance segment leases facilities with an

aggregate square footage of approximately 148,000 at 3 locations in 3 states.

The latest expiration date of the existing leases is June 30, 2013.



The Kemper Auto and Home segment leases facilities with an aggregate

square footage of approximately 274,000 at 12 locations in 9 states. The latest

expiration date of the existing leases is in June 2008.



The Unitrin Direct Sales segment leases facilities with an aggregate

square footage of approximately 87,000 at 5 locations in 3 states. The latest

expiration date of the existing leases is in June 2005.



Fireside Thrift occupies 38 leased facilities with an aggregate square

footage of approximately 145,000 in 6 states (including consumer finance

branches and main office buildings). The latest expiration date of the existing

leases is July 22, 2008.



The properties described above are in good condition and suitable for

all presently anticipated requirements of Unitrin and its subsidiaries.



Item 3.  Legal Proceedings.



In December 1999, a purported nationwide class action lawsuit was filed

against the Company's subsidiary, United Insurance Company of America ("United")

in the United States District Court for the Middle District of Florida on behalf

of "all African-American persons who have (or have had at the time of the

Policy's termination), an ownership interest in one or more Industrial Life

Insurance Policies issued, serviced, administered or purchased from United."

Plaintiffs alleged discrimination in life insurance premium rates in violation

of 42 U.S.C. Sections 1981 and 1982 in addition to various state law claims;

unspecified compensatory and punitive damages were sought together with

equitable relief. At least twenty similar lawsuits were filed in other

jurisdictions against the Company and/or its career agency life insurance

subsidiaries, and the Judicial Panel on Multi-District Litigation ordered that

substantially all of these lawsuits be consolidated for pretrial purposes.



In May 2002, the Company announced a settlement to resolve issues relating

to the use of race as a factor in the underwriting and pricing of life insurance

by United and its subsidiaries. The settlement resolved all pending class action

lawsuits on this issue, as well as other issues in the litigation unrelated to

race-based underwriting. At the same time, the Company announced the completion

of a settlement agreement concerning these matters with the Illinois Department

of Insurance on behalf of insurance regulators nationwide. On September 19,

2002, a court order was entered giving final approval to the settlement and the

Company is now in the process of implementing the terms of the settlement

agreement. The Company has received approximately 1,800 confirmed opt-outs from

the settlement, out of a class of more than 465,000 policies.



In 2000, the Company recorded an after-tax charge of $32.4 million for the

then estimated cost to settle these matters. In 2002, the Company recorded an

after-tax charge of $2.1 million to cover certain additional costs associated

with the implementation of the settlement. The precise cost to fully implement

the settlement may vary from these charges based on a variety of factors and

will not be known until a final accounting of settlement benefits is concluded,

which is expected to occur in mid-2003. However, the Company believes that such

difference, if any, will not have a material adverse effect on the Company's

financial position, but could have a material adverse effect on the Company's

financial results for a given period.



The Company and its subsidiaries are defendants in various other legal actions

incidental to their businesses. Many of these



11

actions are pending in jurisdictions that permit damages, including punitive

damages, that are disproportionate to the actual economic damages alleged to

have been incurred. The plaintiffs in certain of these suits seek class action

status that, if granted, could expose the Company and its subsidiaries to

potentially significant liability by virtue of the size of the purported

classes. The State of Mississippi, where the Company and some of its

subsidiaries are defendants in a number of lawsuits, has received national

attention for the large number of multi-million dollar jury verdicts and

settlements against corporations in a variety of industries. Although

Mississippi law does not permit class actions, case law there allows for

unlimited joinder of plaintiffs in a single action, thereby simulating a class

action lawsuit, and the Company and some of its subsidiaries are defendants in

such quasi-class action lawsuits. The Company and its subsidiaries believe that

there are meritorious defenses to the cases referenced in this paragraph and are

defending them vigorously. Although the Company believes that resolution of

these cases will not have a material adverse effect on the Company's financial

position, the frequency of large damage awards, including punitive damage awards

having little or no relationship to the actual economic damages allegedly

incurred, means that there can be no assurance that one or more of these cases

will not produce a damage award which could have a material adverse effect on

the Company's financial results for any given period.



Item 4.  Submission of Matters to a Vote of Security Holders.



During the quarter ended December 31, 2002, no matters were submitted to a

vote of shareholders.



PART II



Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.



Unitrin's common stock is traded on the New York Stock Exchange under the

symbol of "UTR." Prior to becoming listed on the New York Stock Exchange in May

2001, Unitrin's common stock traded on the National Market Tier of the Nasdaq

Stock Market. The high and low prices for Unitrin's common stock during each

quarterly period in 2002 and 2001 are incorporated herein by reference to Note

21 to the Financial Statements, captioned "Quarterly Financial Information

(Unaudited)."



Information as to the amount and frequency of cash dividends declared by

Unitrin on its common stock during 2002 and 2001 is incorporated herein by

reference to the following portions of the Financial Statements:



(a) Consolidated Statements of Shareholders' Equity and Comprehensive

Income; and



(b) Dividends Paid to Shareholders (Per Share) included in Note 21 under

the caption "Quarterly Financial Information (Unaudited)."



Information as to restrictions on the ability of Unitrin's subsidiaries to

transfer funds to Unitrin in the form of cash dividends, loans, or advances is

incorporated herein by reference to the following items:



(a) Note 9 to the Financial Statements, captioned "Shareholders' Equity;"

and



(b) The "Liquidity and Capital Resources" section of the MD&A.



As of December 31, 2002, the approximate number of record holders of

Unitrin's common stock was 7,500.



Item 6.  Selected Financial Data.



Selected consolidated financial data for the five years ended December 31,

2002 is incorporated herein by reference to the data captioned "Financial

Highlights" and filed as Exhibit 13.3 hereto.



Item 7.  Management's Discussion and Analysis of Financial Condition and Results

of Operations.



The MD&A is incorporated herein by reference and filed as Exhibit 13.2

hereto.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.



These disclosures are contained in the section of the MD&A entitled

"Quantitative and Qualitative Disclosures About Market Risk" which is

incorporated herein by reference and filed as Exhibit 13.2 hereto.



12

Item 8.  Financial Statements and Supplementary Data.



The Financial Statements (including their related notes and the respective

reports of Deloitte & Touche LLP and KPMG LLP) are incorporated herein by

reference and filed as Exhibit 13.1 hereto, (with the exception of the reports

of KPMG LLP, which are filed as Exhibit 23.3 hereto).



Item 9.  Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure.



The change in Unitrin's certifying accountant was previously reported in a

Current Report on Form 8-K on November 15, 2001.



PART III



Item 10. Directors and Executive Officers of the Registrant.



Information regarding directors and executive officers, including, to the

extent applicable, information required by Item 405 of Regulation S-K, is

incorporated herein by reference to the sections captioned "Election of

Directors" and "Unitrin Executive Officers" in the Proxy Statement for the 2003

Annual Meeting of Shareholders of Unitrin. Unitrin plans to file such proxy

statement within 120 days after December 31, 2002, the end of Unitrin's fiscal

year.



Item 11. Executive Compensation.



Information regarding compensation of executive officers is incorporated

herein by reference to the section captioned "Executive Officer Compensation and

Benefits" in the Proxy Statement for the 2003 Annual Meeting of Shareholders of

Unitrin. Neither the report by the Compensation Committee of Unitrin's Board of

Directors nor the Unitrin stock performance graph to be included in such Proxy

Statement shall be deemed to be incorporated herein by this reference.



Item 12. Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters.



This information is incorporated herein by reference to the section

captioned "Ownership of Unitrin Common Stock" in the Proxy Statement for the

2003 Annual Meeting of Shareholders of Unitrin.



Item 13. Certain Relationships and Related Transactions.



This information is incorporated herein by reference to the section

captioned "Compensation Committee Interlocks and Insider Participation" in the

Proxy Statement for the 2003 Annual Meeting of Shareholders of Unitrin.



Item 14. Controls and Procedures.



(a) Evaluation and Control Procedures.



The Company's Chief Executive Officer and Chief Financial Officer have

evaluated the effectiveness of the Company's disclosure controls and procedures

(as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities

Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90

days prior to the filing date of this annual report (the "Evaluation Date").

Based on such evaluation, such officers have concluded that, as of the

Evaluation Date, the Company's disclosure controls and procedures are effective

in alerting them on a timely basis to material information relating to the

Company (including its consolidated subsidiaries) required to be included in the

Company's periodic filings under the Exchange Act.



(b) Changes in Internal Controls.



Since the Evaluation Date, there have not been any significant changes in

the Company's internal controls or in other factors that could significantly

affect such controls.



PART IV



13

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



(a) Documents filed as part of this Report:



1.  Financial Statements. The following financial statements, in response to

Item 8 of the Form 10-K, have been filed as Exhibit 13.1 (except the reports

of KPMG LLP which have been filed as Exhibit 23.3) and together are

incorporated by reference into Item 8 hereof:



The consolidated balance sheets of Unitrin and subsidiaries as of December

31, 2002 and 2001, and the consolidated statements of income, cash flows and

shareholders' equity and comprehensive income for the years ended December

31, 2002, 2001 and 2000, together with the notes thereto and the respective

reports of Deloitte & Touche LLP and KPMG LLP thereon.



2.  Financial Statement Schedules. The following four financial statement

schedules are included on the following pages hereof. Schedules not listed

here have been omitted because they are not applicable or not material or

the required information is included in the Financial Statements.



Schedule I:       Investments Other Than Investments in Related Parties

Schedule II:      Parent Company Financial Statements

Schedule III:     Supplementary Insurance Information

Schedule IV:      Reinsurance Schedule



3.  Exhibits. The following exhibits are either filed as a part hereof or are

incorporated by reference. Exhibit numbers correspond to the numbering

system in Item 601 of Regulation S-K. Exhibits 10.1 through 10.9 relate to

compensatory plans filed or incorporated by reference as exhibits hereto

pursuant to Item 15(c) of Form 10-K.



2        Asset Purchase Agreement, dated as of April 19, 2002, by and among

Trinity Universal Insurance Company, Unitrin Services Company and

Lumbermens Mutual Casualty Company and certain of its subsidiaries

and affiliates (incorporated herein by reference to Exhibit 2.1 to

the Company's Quarterly Report on Form 10-Q for the quarter ended

March 31, 2002)



3.1      Certificate of Incorporation (incorporated herein by reference to

Exhibit 3.1 to the Company's Registration Statement on Form S-3

filed May 9, 2002, Registration No. 333-87866)



3.2      Amended and Restated By-Laws (incorporated herein by reference to

Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the

quarter ended March 31, 2002)



4.1      Rights Agreement, dated as of August 3, 1994, as amended October

12, 2000, between Unitrin, Inc. and First Union National Bank as

Rights Agent, which includes: as Exhibit A thereto, the Form of

Certificate of Amendment of Certificate of Designation, Preferences

and Rights of Series A Preferred Stock of Unitrin, Inc.; as Exhibit

B thereto, the Form of Rights Certificate; and, as Exhibit C

thereto, the Summary of Rights to Purchase Series A Preferred Stock

(incorporated herein by reference to Exhibit 4.10 to the Company's

Registration Statement on Form S-3 filed May 9, 2002, Registration

No. 333-87866)



4.2      Senior Indenture, dated as of June 26, 2002, by and between

Unitrin, Inc. and BNY Midwest Trust Company as Trustee

(incorporated herein by reference to Exhibit 4.1 to the Company's

Current Report on Form 8-K dated July 1, 2002)



4.3      Form of Subordinated Indenture (incorporated herein by reference to

Exhibit 4.2 to the Company's Registration Statement on Form S-3

filed May 9, 2002, Registration No. 333-87866)



4.4      Officer's Certificate, including form of Senior Note with respect

to the Company's 5.75% Senior Notes due July 1, 2007 (incorporated

herein by reference to Exhibit 4.2 to the Company's Current Report

on Form 8-K filed July 1, 2002)



10.1     Unitrin, Inc. 1990 Stock Option Plan, as amended and restated

(incorporated herein by reference to Exhibit 10.1 to the Company's

Annual Report on Form 10-K for the year ended December 31, 2001)



10.2     Unitrin, Inc. 1997 Stock Option Plan, as amended and restated

(incorporated herein by reference to Exhibit 10.2 to the Company's

Annual Report on Form 10-K for the year ended December 31, 2001)



14

10.3     Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, as

amended and restated (incorporated herein by reference to Exhibit

10.3 to the Company's Annual Report on Form 10-K for the year ended

December 31, 2001)



10.4     Unitrin, Inc. 2002 Stock Option Plan (incorporated herein by

reference to Exhibit A of the Company's Proxy Statement, dated

March 25, 2002, in connection with the Company's 2002 Annual

Meeting of Shareholders)



10.5     Unitrin, Inc. Pension Equalization Plan (incorporated herein by

reference to Exhibit 10.4 to Unitrin's Annual Report on Form 10-K

for the year ended December 31, 1994), as amended by First and

Second Amendments to the Unitrin, Inc. Pension Equalization Plan

(incorporated herein by reference to Exhibit 10.4 to the Company's

Annual Report on Form 10-K for the year ended December 31, 2001)



10.6     Unitrin is a party to individual severance agreements (the form of

which is incorporated herein by reference to Exhibit 10.5 to the

Company's Annual Report on Form 10-K for the year ended December

31, 2002), with the following executive officers:



Richard C. Vie (Chairman and Chief Executive Officer)

Donald G. Southwell (President and Chief Operating Officer)

David F. Bengston (Vice President)

John M. Boschelli (Treasurer)

Eric J. Draut (Executive Vice President and Chief Financial

Officer)

Edward J. Konar (Vice President)

Scott Renwick (Senior Vice President, General Counsel and

Secretary)

Richard Roeske (Vice President and Chief Accounting Officer)



Each of the foregoing agreements is identical except that the

severance compensation multiple is 3.00 for Mr. Vie and 2.0 for the

other executive officers.



10.7     Unitrin, Inc. Severance Plan (incorporated herein by reference to

Exhibit 10.6 to the Company's Annual Report on Form 10-K for the

year ended December 31, 2001)



10.8     1998 Unitrin, Inc. Bonus Plan for Senior Executives (incorporated

herein by reference to Exhibit A to the Proxy Statement, dated

April 9, 1998, in connection with the Company's 1998 Annual Meeting

of Shareholders)



10.9     Unitrin, Inc. Non-Qualified Deferred Compensation Plan

(incorporated herein by reference to Exhibit 10.9 to the Company's

Annual Report on Form 10-K for the year ended December 31, 2001)



10.10    Credit Agreement, dated August 30, 2002, among Unitrin, Inc., the

Lenders party thereto, Bank One, N.A., as administrative agent and

Wachovia Bank, N.A., as syndication agent (incorporated herein by

reference to Exhibit 10.1 to Unitrin's Current Report on Form 8-K

filed September 4, 2002)



10.11    Registration Rights Agreement, dated as of January 23, 2001, by and

among, Northrop Grumman Corporation, NNG, Inc., a direct wholly

owned subsidiary of Northrop Grumman Corporation, and Unitrin, Inc.

(incorporated by reference to Exhibit 2.1 to Unitrin's Schedule 13D

with respect to Northrop Grumman Corporation dated April 13, 2001)



10.12    Second Amended and Restated Distribution Agreement, dated as of

August 17, 2001, between Unitrin, Inc. and Curtiss-Wright

Corporation (incorporated by reference to Exhibit 99.1 to Unitrin's

Amendment No. 6 to its Schedule 13D with respect to Curtiss-Wright

Corporation dated August 17, 2001)



12       Ratios of Earnings to Fixed Charges



13.1     Financial Statements



13.2     MD&A



13.3     Financial Highlights



15

21      Subsidiaries of Unitrin, Inc.



23.1    Reports of Deloitte & Touche LLP (included in Exhibit 13.1 and

filed as Exhibit 23.1 hereof)



23.2    Consent of Deloitte & Touche LLP



23.3    Reports of KPMG LLP



23.4    Consent of KPMG LLP



24      Power of Attorney (included on the signature page hereof)



99.1    Certification of Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.



99.2    Certification of Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.



(b) Reports on Form 8-K.



During the quarter ended December 31, 2002, the Company filed a Current

Report on Form 8-K dated October 17, 2002 reporting under Items 7 and 9

an increase in the Company's property and casualty insurance reserves in

the third quarter of 2002 to reflect development of prior accident year

losses.



(c) Exhibits. Included in Item 15(a)3 above



(d) Financial Statement Schedules. Included in Item 15(a)2 above





Caution Regarding Forward-Looking Statements



This 2002 Annual Report on Form 10-K, and the accompanying Financial

Statements and MD&A, contain forward-looking statements which usually include

words such as "believe(s)," "goal(s)," "target(s)," "estimate(s),"

"anticipate(s)," "expect(s)," "forecast(s)," "intend(s)," "plan(s)" and similar

expressions. Readers are cautioned not to place undue reliance on such

statements, which speak only as of the date of this 2002 Annual Report on Form

10-K. Forward-looking statements are subject to risks and uncertainties which

could cause actual results to differ materially from those contemplated in such

statements. Such risks and uncertainties include, but are not limited to, those

described in the MD&A, the accompanying Financial Statements, changes in

economic factors (such as interest rates, unemployment rates, and stock market

fluctuations), changes in competitive conditions (including availability of

labor with required technical or other skills), the number and severity of

insurance claims (including those associated with catastrophe losses),

regulatory approval of insurance premium rates and policy forms, license

applications and similar matters, governmental actions (including new laws or

regulations or court decisions interpreting existing laws and regulations),

adverse judgments in litigation to which Unitrin or its subsidiaries are

parties, realization of economies of scale, and the successful migration of the

Kemper Auto and Home business. No assurances can be given that the results

contemplated in any forward-looking statements will be achieved or will be

achieved in any particular timetable. The Company assumes no obligation to

release publicly any revisions to any forward-looking statements as a result of

events or developments subsequent to the date of this 2002 Annual Report on Form

10-K.



16

POWER OF ATTORNEY



Each person whose signature appears below hereby appoints each of

Richard C. Vie, Chairman of the Board and Chief Executive Officer, Eric J.

Draut, Executive Vice President and Chief Financial Officer, and Scott Renwick,

Senior Vice President, General Counsel and Secretary, his true and lawful

attorney-in-fact with authority together or individually to execute in the name

of each such signatory, and with authority to file with the Securities and

Exchange Commission, any and all amendments to this Annual Report on Form 10-K

of Unitrin, Inc., together with any and all exhibits thereto and other documents

therewith, necessary or advisable to enable Unitrin, Inc. to comply with the

Securities Exchange Act of 1934, as amended, and any rules, regulations, and

requirements of the Securities and Exchange Commission in respect thereof, which

amendments may make such other changes in the Annual Report on Form 10-K as the

aforesaid attorney-in-fact executing the same deems appropriate.



SIGNATURES



Pursuant to the requirements of Section 13 of the Securities Exchange

Act of 1934, Unitrin, Inc. has duly caused this Annual Report on Form 10-K for

the fiscal year ended December 31, 2002 to be signed on its behalf by the

undersigned, thereunto duly authorized, in the City of Chicago, State of

Illinois, on January 29, 2003.



UNITRIN, INC.

(Registrant)



By:  /s/ Richard C. Vie

---------------------------

Richard C. Vie

Chairman of the Board and

Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934,

this report has been signed below by the following persons on behalf of Unitrin,

Inc. in the capacities indicated on January 29, 2003.



<TABLE>

<CAPTION>

Signature                                                      Title

---------                                                      -----

<S>                                                   <C>

/s/ Richard C. Vie                                    Chairman of the Board, Chief Executive

- -----------------------------------                   Officer and Director

Richard C. Vie



/s/ Donald G. Southwell                               President, Chief Operating Officer

- -----------------------------------                   and Director

Donald G. Southwell



/s/ Eric J. Draut                                     Executive Vice President,

- -----------------------------------                   Chief Financial Officer and Director

Eric J. Draut                                         (principal financial officer)



/s/ Richard Roeske                                    Vice President and Chief Accounting Officer

- -----------------------------------                   (principal accounting officer)

Richard Roeske



/s/ James E. Annable                                  Director

- -----------------------------------

James E. Annable



/s/ Douglas G. Geoga                                  Director

- -----------------------------------

Douglas G. Geoga



/s/ Reuben L. Hedlund                                 Director

- -----------------------------------

Reuben L. Hedlund



/s/ Jerrold V. Jerome                                 Director

- -----------------------------------

Jerrold V. Jerome



/s/ William E. Johnston, Jr.                          Director

- -----------------------------------

William E. Johnston, Jr.



Director

- -----------------------------------

Fayez S. Sarofim



/s/ Ann E. Ziegler                                    Director

- -----------------------------------

Ann E. Ziegler

</TABLE>



17

CERTIFICATIONS



I, Richard C. Vie, certify that:



1. I have reviewed this annual report on Form 10-K of Unitrin, Inc.;



2. Based on my knowledge, this annual report does not contain any

untrue statement of a material fact or omit to state a material fact necessary

to make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by this

annual report;



3. Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of the

registrant as of, and for, the periods presented in this annual report;



4. The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



(a)  designed such disclosure controls and procedures to ensure that

material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within

those entities, particularly during the period in which this

annual report is being prepared;



(b)  evaluated the effectiveness of the registrant's disclosure

controls and procedures as of a date within 90 days prior to the

filing date of this annual report (the "Evaluation Date"); and



(c)  presented in this annual report our conclusions about the

effectiveness of the disclosure controls and procedures based on

our evaluation as of the Evaluation Date;



5. The registrant's other certifying officers and I have disclosed,

based on our most recent evaluation, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing the

equivalent functions):



(a)  all significant deficiencies in the design or operation of

internal controls which could adversely affect the registrant's

ability to record, process, summarize and report financial data

and have identified for the registrant's auditors any material

weaknesses in internal controls; and



(b)  any fraud, whether or not material, that involves management or

other employees who have a significant role in the registrant's

internal controls; and



6. The registrant's other certifying officers and I have indicated in

this annual report whether there were significant changes in internal controls

or in other factors that could significantly affect internal controls subsequent

to the date of our most recent evaluation, including any corrective actions with

regard to significant deficiencies and material weaknesses.



Date: January 29, 2003



/s/ Richard C. Vie

------------------------------

Richard C. Vie

Chairman of the Board and

Chief Executive Officer



18

CERTIFICATIONS



I, Eric J. Draut, certify that:



1. I have reviewed this annual report on Form 10-K of Unitrin, Inc.;



2. Based on my knowledge, this annual report does not contain any

untrue statement of a material fact or omit to state a material fact necessary

to make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by this

annual report;



3. Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of the

registrant as of, and for, the periods presented in this annual report;



4. The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



(a)  designed such disclosure controls and procedures to ensure that

material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within

those entities, particularly during the period in which this

annual report is being prepared;



(b)  evaluated the effectiveness of the registrant's disclosure

controls and procedures as of a date within 90 days prior to the

filing date of this annual report (the "Evaluation Date"); and



(c)  presented in this annual report our conclusions about the

effectiveness of the disclosure controls and procedures based on

our evaluation as of the Evaluation Date;



5. The registrant's other certifying officers and I have disclosed,

based on our most recent evaluation, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing the

equivalent functions):



(a)  all significant deficiencies in the design or operation of

internal controls which could adversely affect the registrant's

ability to record, process, summarize and report financial data

and have identified for the registrant's auditors any material

weaknesses in internal controls; and



(b)  any fraud, whether or not material, that involves management or

other employees who have a significant role in the registrant's

internal controls; and



6. The registrant's other certifying officers and I have indicated in

this annual report whether there were significant changes in internal controls

or in other factors that could significantly affect internal controls subsequent

to the date of our most recent evaluation, including any corrective actions with

regard to significant deficiencies and material weaknesses.



Date: January 29, 2003



/s/ Eric J. Draut

----------------------------

Eric J. Draut

Executive Vice President and

Chief Financial Officer



19

SCHEDULE I



UNITRIN, INC. AND SUBSIDIARIES

INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 2002

(Dollars in Millions)



<TABLE>

<CAPTION>

Amount

Amortized               Fair                Carried in

Cost                 Value              Balance Sheet

-------------------   ------------------    --------------------

<S>                                                             <C>                   <C>                   <C>

Fixed Maturities:

Bonds and Notes:

United States Government and

Government Agencies and Authorities                      $           1,260.4   $          1,298.3    $            1,298.3

States, Municipalities

and Political Subdivisions                                             608.2                629.8                   629.8

Corporate Securities:

Other Bonds and Notes                                                    957.4              1,031.6                 1,031.6

Redemptive Preferred Stocks                                               61.7                 63.3                    63.3

-------------------   ------------------    --------------------

Total Investments in Fixed Maturities                                2,887.7              3,023.0                 3,023.0

-------------------   ------------------    --------------------



Northrop Grumman Corporation Preferred Stock                                  177.5                218.9                   218.9

Northrop Grumman Corporation Common Stock                                     661.5                743.6                   743.6

Other Equity Securities:

Common Stocks                                                              286.9                333.7                   333.7

Preferred Stocks                                                            97.6                 98.1                    98.1

-------------------   ------------------    --------------------

Total Investments in Other Equity Securities                           384.5                431.8                   431.8

-------------------   ------------------    --------------------



Investees (A)

UNOVA, Inc.                                                                 64.9                 75.9                    64.9

-------------------   ------------------    --------------------

Total Investees                                                         64.9                 75.9                    64.9

-------------------   ------------------    --------------------



Loans, Real Estate and Short-term Investments                                 821.6                XXX.X                   821.6

-------------------                         --------------------



Total Investments                                        $           4,997.7                         $            5,303.8

===================                         ====================

</TABLE>





(A) - Amortized Cost = Cost Plus Cumulative Undistributed Earnings.





See Accompanying Independent Auditors' Report.

SCHEDULE II



UNITRIN, INC.

PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Millions)



<TABLE>

<CAPTION>

Years Ended December 31,

------------------------------------------------

2002             2001             2000

--------------    --------------    ------------

<S>                                                                           <C>               <C>               <C>

Net Income (Loss)                                                             $         (8.2)   $        380.9    $       91.0



Other Comprehensive Income (Loss):

Gross Unrealized Holding Gains (Losses) Arising During Year:

Securities Held by Subsidiaries                                                (11.3)            108.4           311.5

Securities Held by Parent                                                       (2.7)             35.0             0.1

Cumulative Translation Adjustment                                                2.4               3.7            (6.8)

--------------    --------------    ------------

Gross Unrealized Holding Gains (Losses) Arising During Year                    (11.6)            147.1           304.8

Income Tax Benefit (Expense)                                                     4.1             (51.6)         (107.0)

--------------    --------------    ------------

Unrealized Holding Gains (Losses) Arising During Year, Net                      (7.5)             95.5           197.8

--------------    --------------    ------------



Reclassification Adjustment for Gross (Gains) Losses Realized in

Net Income:

Securities Held by Subsidiaries                                                 20.8             (10.5)         (132.9)

Income Tax Expense (Benefit)                                                    (7.3)              3.7            46.5

--------------    --------------    ------------

Reclassification Adjustment for (Gains) Losses Realized in

Net Income (Loss), Net                                                        13.5              (6.8)          (86.4)

--------------    --------------    ------------

Other Comprehensive Income                                                               6.0              88.7           111.4

--------------    --------------    ------------



Total Comprehensive Income (Loss)                                             $         (2.2)   $        469.6    $      202.4

==============    ==============    ============

</TABLE>







See Accompanying Independent Auditors' Reports.

SCHEDULE II



UNITRIN, INC.

PARENT COMPANY BALANCE SHEETS

DECEMBER 31, 2002 AND 2001

(Dollars in Millions)



<TABLE>

<CAPTION>

December 31,

-----------------------------

2002            2001

-------------   -------------

<S>                                                                                         <C>             <C>

ASSETS

- ------



Investment in Subsidiaries and Investee                                                      $    1,981.8    $    2,364.5

Northrop Grumman Preferred Stock at Fair Value (Cost: 2002 - $186.9; 2001 $146.2)                   218.9           181.3

Northrop Grumman Common Stock at Fair Value (Cost: 2002 - $112.1)                                     111             0.0

Other Equity Securities at Fair Value (Cost: 2002 - $0.7; 2001 - $0.3)                                0.8             0.5

Short Term Investments                                                                               13.0             0.0

Other Investments                                                                                    70.0             0.0

Other Assets                                                                                          3.7             2.6

-------------   -------------



Total Assets                                                                                 $    2,399.2    $    2,548.9

=============   =============



LIABILITIES AND SHAREHOLDERS' EQUITY

- ------------------------------------



Senior Notes Payable, 5.75% Due 2007 (Fair Value: 2002 - $315.0)                             $      297.1    $        0.0

Notes Payable under Revolving Credit Agreement                                                       80.0           254.0

Notes Payable to Subsidiary, 6.75% Due 2008                                                           0.0           155.0

Accrued Expenses and Other Liabilities                                                              219.7           223.1

-------------   -------------



Total Liabilities                                                                                   596.8           632.1

-------------   -------------



Shareholders' Equity:

Common Stock                                                                                        6.8             6.7

Additional Paid-in Capital                                                                        512.9           488.8

Retained Earnings                                                                               1,086.4         1,231.0

Accumulated Other Comprehensive Income                                                            196.3           190.3

-------------   -------------



Total Shareholders' Equity                                                                        1,802.4         1,916.8

-------------   -------------



Total Liabilities and Shareholders' Equity                                                   $    2,399.2    $    2,548.9

=============   =============

</TABLE>



See Accompanying Independent Auditors' Reports.

SCHEDULE II



UNITRIN, INC.

PARENT COMPANY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Millions)



<TABLE>

<CAPTION>

Years Ended December 31,

----------------------------------

2002         2001        2000

---------    ---------    --------

<S>                                                                           <C>          <C>          <C>

Operating Activities:

Net Income (Loss)                                                          $    (8.2)   $   380.9    $   91.0

Adjustment Required to Reconcile Net Income

to Net Cash Provided by Operations:

Equity in Net Income (Loss) of Subsidiaries and Investees                    8.6       (357.7)     (120.9)

Cash Dividends from Subsidiaries                                           380.9         96.0       188.0

Cash Dividends from Investee                                                   -          1.7         2.3

Net Realized Investment (Gains) Losses                                         -        (54.8)        0.7

Other, Net                                                                  (1.5)       (98.9)      158.9

---------    ---------    --------



Net Cash Provided (Used) by Operating Activities                                  379.8        (32.8)      320.0

---------    ---------    --------



Investing Activities:

Purchase of Common Stock                                                       (32.4)           -           -

Acquisition of Businesses                                                      (55.2)           -           -

Intercompany Sale of Subsidiary                                                    -        207.0

Change in Short-term Investments                                               (13.0)       173.1      (144.1)

Capital Contributed to Subsidiaries                                           (133.0)       (10.0)      (25.0)

Other, Net                                                                      (0.7)           -           -

---------    ---------    --------



Net Cash Provided (Used) by Investing Activities                                 (234.3)       370.1      (169.1)

---------    ---------    --------



Financing Activities:

Notes Payable Proceeds:

Revolving Credit Agreement                                                 638.0        831.0       756.7

Senior Notes Issued                                                        296.8            -           -

Notes Payable Payments:

Revolving Credit Agreement                                                (812.0)      (756.0)     (688.7)

To Subsidiary                                                             (155.0)      (295.0)          -

Cash Dividends Paid                                                           (112.4)      (108.0)     (103.1)

Common Stock Repurchases                                                        (9.4)       (26.6)     (122.3)

Issuance of Unitrin Common Stock                                                 8.5         17.3         6.5

---------    ---------    --------



Net Cash Used by Financing Activities                                            (145.5)      (337.3)     (150.9)

---------    ---------    --------



Increase (Decrease) in Cash                                                           -            -           -

Cash, Beginning of Year                                                               -            -           -

---------    ---------    --------



Cash, End of Year                                                             $       -    $       -    $      -

=========    =========    ========

</TABLE>



See Accompanying Independent Auditors' Reports.

SCHEDULE II



UNITRIN, INC.

PARENT COMPANY STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(Dollars in Millions)



<TABLE>

<CAPTION>

Years Ended December 31,

------------------------------------------

2002           2001           2000

------------   ------------   ------------

<S>                                                             <C>            <C>            <C>

Net Investment Income                                           $       13.4   $        8.3   $        0.0

Net Realized Investment Gains (Losses)                                   0.0           54.8           (0.7)

------------   ------------   ------------

Total Revenues                                                          13.4           63.1           (0.7)

------------   ------------   ------------



Interest Expense                                                        18.3           26.8           48.7

Other Operating (Income) Expenses                                       (0.7)          (2.3)          (3.4)

------------   ------------   ------------

Total Operating Expenses                                                17.6           24.5           45.3

------------   ------------   ------------



Income (Loss) Before Income Taxes and Equity

in Net Income of Subsidiaries and Investees                          (4.2)          38.6          (46.0)



Income Tax Benefit (Expense)                                             4.6          (15.4)          16.1

------------   ------------   ------------



Income (Loss) Before Equity in

Net Income (Loss) of Subsidiaries and Investees                       0.4           23.2          (29.9)



Equity in Net Income (Loss) of Subsidiaries and Investees               (8.6)         357.7          120.9

------------   ------------   ------------



Net Income                                                      $       (8.2)  $      380.9   $       91.0

============   ============   ============

</TABLE>





See Accompanying Independent Auditors' Reports.

SCHEDULE III



UNITRIN, INC. AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION



(Dollars in Millions)



<TABLE>

<CAPTION>

Insurance     Amortization

Claims       Of Deferred

Net           and          Policy         Other

Premiums       Other     Investment   Policyholders' Acquisition   Insurance

Premiums      Written       Income       Income       Benefits        Costs       Expenses

-----------   ----------   ----------   ----------   -------------- -----------  ------------

<S>                                <C>           <C>          <C>          <C>          <C>            <C>          <C>

Year Ended December 31, 2002:

Life and Health (1)             $    653.2    $      N/A   $      4.3   $   151.6     $   387.3     $     60.7   $      273.3

Multi Lines                          584.2         590.6           --        31.6         524.8           84.9           99.3

Specialty Lines                      452.9         485.0           --        14.8         366.0           69.4           32.9

Unitrin Direct Sales                  73.6          98.5           --         0.9          65.8            1.4           42.4

Kemper Auto and Home                 114.1         331.0         31.9         2.8          88.4           20.9           58.5

Other                                   --           N/A          3.6        20.2            --             --          (13.0)

----------    ----------   ----------   ---------     ---------     ----------   ------------



Total                        $  1,878.0    $      N/A   $     39.8   $   221.9     $ 1,432.3     $    237.3   $      493.4

==========    ==========   ==========   =========     =========     ==========   ============



Year Ended December 31, 2001:

Life and Health (1)             $    635.1    $      N/A   $      4.9   $   176.9     $   371.7     $     63.0   $      275.9

Multi Lines                          570.3         579.9           --        42.0         546.2           71.5          106.9

Specialty Lines                      345.4         347.6           --        14.1         289.1           54.0           33.6

Unitrin Direct Sales                  10.4          24.1           --          --          10.1             --           22.9

Other                                   --           N/A          3.9         3.5            --             --           (3.0)

----------    ----------   ----------   ---------     ---------     ----------   ------------



Total                        $  1,561.2    $      N/A   $      8.8   $   236.5     $ 1,217.1     $    188.5   $      436.3

==========    ==========   ==========   =========     =========     ==========   ============



Year Ended December 31, 2000:

Life and Health (1)             $    678.3    $      N/A   $      3.7   $   181.4     $   423.0     $     68.3   $      304.0

Multi Lines                          548.8         564.3           --        45.0         450.2           69.7          102.7

Specialty Lines                      215.0         258.5           --        14.3         166.4           34.2           23.3

Unitrin Direct Sales (2)                --            --           --          --            --             --            6.1

Other                                   --           N/A          4.3       (19.8)           --             --            1.2

----------    ----------   ----------   ---------     ---------     ----------   ------------



Total                        $  1,442.1    $      N/A   $      8.0   $   220.9     $ 1,039.6     $    172.2   $      437.3

==========    ==========   ==========   =========     =========     ==========   ============





<CAPTION>

Deferred

Policy

Acquisition   Insurance     Unearned

Costs        Reserves     Premiums

------------  ------------  -----------

<S>                                <C>           <C>           <C>

Year Ended December 31, 2002:

Life and Health (1)             $     298.4   $    2,221.9  $      31.4

Multi Lines                            27.1          675.5        261.0

Specialty Lines                        18.9          192.1        151.6

Unitrin Direct Sales                    1.1           50.1         73.4

Kemper Auto and Home                   37.1           51.8        216.9

Other                                    --             --           --

-----------   ------------  -----------



Total                        $     382.6   $    3,191.4  $     734.3

===========   ============  ===========



Year Ended December 31, 2001:

Life and Health (1)             $     282.6   $    2,164.1  $      27.7

Multi Lines                            31.4          544.8        254.5

Specialty Lines                        14.5          143.6        119.5

Unitrin Direct Sales                                   5.1         14.7

Other                                    --             --           --

-----------   ------------  -----------



Total                        $     328.5   $    2,857.6  $     416.4

===========   ============  ===========



Year Ended December 31, 2000:

Life and Health (1)             $     273.6   $    2,108.8  $      27.6

Multi Lines                            32.9          424.5        292.0

Specialty Lines                        15.7          109.5         65.7

Unitrin Direct Sales (2)                 --             --           --

Other                                    --             --           --

-----------   ------------  -----------



Total                        $     322.2   $    2,642.8  $     385.3

===========   ============  ===========

</TABLE>



(1) The Company's Life and Health Insurance employee-agents also market

certain property and casualty insurance products under common management.

Accordingly, the Company includes the results of these property and

casualty insurance products in its Life and Health Insurance segment.



(2) Unitrin Direct Sales Other Insurance expenses include primarily start-up

costs.



See Accompanying Independent Auditors' Reports.

SCHEDULE IV



UNITRIN, INC.

REINSURANCE SCHEDULE

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000

(Dollars in Millions)



<TABLE>

<CAPTION>

Percentage

Ceded to       Assumed                       of Amount

Gross          Other       from Other        Net          Assumed to

Amount       Companies     Companies        Amount           Net

-------------   -----------   -----------   -------------   -------------

<S>                                      <C>             <C>           <C>           <C>             <C>

Year Ended December 31, 2002:

- -----------------------------

Life Insurance in Force                  $   20,497.2    $  1,153.2    $      0.0    $   19,344.0                -



Premiums

Life Insurance                       $      404.5    $      1.5    $      0.3    $      403.3                -

Accident and Health Insurance               157.9           2.3           0.0           155.6                -

Property and Liability Insurance          1,125.8          36.3         229.6         1,319.1             17.4%

------------    ----------    ----------    ------------    -------------

Total Premiums                           $    1,688.2    $     40.1    $    229.9    $    1,878.0             12.2%

============    ==========    ==========    ============    =============



Year Ended December 31, 2001:

- -----------------------------

Life Insurance in Force                  $   19,958.0    $  1,157.9    $      0.0    $   18,800.1                -



Premiums

Life Insurance                       $      398.0    $      1.4    $      0.0    $      396.6                -

Accident and Health Insurance               153.3           2.4           0.0           150.9                -

Property and Liability Insurance            939.7          32.2         106.2         1,013.7             10.5%

------------    ----------    ----------    ------------    -------------

Total Premiums                           $    1,491.0    $     36.0    $    106.2    $    1,561.2              6.8%

============    ==========    ==========    ============    =============



Year Ended December 31, 2000:

- -----------------------------

Life Insurance in Force                  $   20,990.1    $  1,389.1    $      0.0    $   19,601.0                -



Premiums

Life Insurance                       $      404.6    $      1.9    $      0.0    $      402.7                -

Accident and Health Insurance               194.7           4.3           0.0           190.4                -

Property and Liability Insurance            769.5          23.5         103.0           849.0             12.1%

------------    ----------    ----------    ------------    -------------

Total Premiums                           $    1,368.8    $     29.7    $    103.0    $    1,442.1              7.1%

============    ==========    ==========    ============    =============

</TABLE>



See Accompanying Independent Auditors' Reports.