One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 661-4600
Fax: (312) 661-4690
Operating Revenues: $1.45 billion (1995)
Stock Exchanges: NASDAQ
SICs: 6311 Life Insurance; 6331 Marine & Casualty Insurance; 6361 Title Insurance
Although Chicago-based Unitrin has only existed as a stand-alone company since 1990, when it was spun off from conglomerate Teledyne Inc., the firm has become a leader in the insurance industry, providing auto, casualty, property, life, and health policies to individuals and groups, as well as offering an array of consumer financial services. Rated by A. M. Best in the top 100 largest insurance providers in the United States, Unitrin's capital and surplus have placed it as high as No. 28 among its competitors. Unitrin's success in the home service market and consumer finance, coupled with a strong, conservative management, made it a major takeover target in the 1994. Yet Unitrin rallied to its own defense&mdashopting a poison pill strategy and repurchasing enough of its own stock to fend off takers then and in the future. Determined to maintain its independence, Unitrin not only retained control of its considerable assets but strengthened its bottom line at the same time.
Teledyne Gives Birth to Unitrin, 1990
Unitrin was founded as a subsidiary of Teledyne Inc. Best known for the Water Pik dental aid and ubiquitous Shower Massage, Teledyne began business in 1960 as a semiconductor manufacturer. Before the decade was over, Teledyne began acquiring undervalued companies of various sizes; pursuing this strategy aggressively into the 1970s and 1980s, Teledyne became one the most successful and recognized corporations in the United States under the leadership of legendary entrepreneur Henry E. Singleton.
By the late 1980s Singleton began to break up his extensive and increasingly unwieldy empire. In 1986 he spun off the Argonaut Group Inc., a worker's compensation insurance provider, with great success: Argonaut's original $20 per share stock appreciated 240 percent by 1990. Shortly before Unitrin's slated debut, Teledyne (with $4.6 billion in revenue for 1989) treated stockholders to a five-for-one stock split in March 1990. Believing Unitrin could duplicate Argonaut's good fortune, Singleton (who remained chairman of both new ventures) spun Unitrin off to shareholders in April 1990 at $31.25 per share, trading on NASDAQ. Beginning its independent corporate life as a holding company for several insurance carriers, Unitrin divided its business into three major categories: life and health insurance; property and casualty insurance; and consumer finance, which covered a variety of services including automobile and industrial loans.
Unitrin's Insurance Divisions
Unitrin's life and health division comprised three large wholly owned subsidiaries: United Insurance Company of America, rated A+ by A. M. Best; Union National Life Insurance Company, also rated A+ by Best; and the Pyramid Life Insurance Company, rated A− by Best. In addition to its high industry ratings, Unitrin differentiated itself from a slew of health and life insurance carriers (which numbered about 1,800 in the United States by 1995) not by offering an unusual mix of products, but instead by providing typical policies with an unusual method of marketing these products. Life insurance policies were offered in standard increments of up to $250,000 for individuals and groups (such as employees of large companies and credit unions) in permanent and term policies; health insurance was sold to both individuals and groups on either a limited-benefit or major medical coverage basis with a maximum risk of $500,000 in any one calendar year.
Yet what drew many customers to Unitrin's insurance packages was the old-fashioned concept of selling services door-to-door with some 4,000 sales representatives (out of a total of 5,300 in the division), who visited middle- and lower-income suburban and rural communities. As a convenience, agents then returned monthly to pick up premium payments, omitting postal services and delays. Although there were two-and-a-half dozen competitors in the "home service" market, Unitrin carved out a comfortable niche in 26 states and the District of Columbia, and within five years this segment generated almost 80 percent of the life and health insurance division's premiums.
Unitrin's second major insurance segment in property and casualty policies covered automobiles and motorcycles, homes, watercraft, and commercial businesses from fire, theft, and other property damage. Worker's compensation policies were also available to small and medium-sized companies. The property/casualty division worked through five subsidiaries: Financial Indemnity Company, rated A+ by Best; the Milwaukee Insurance Companies (including Alpha Property & Casualty, Milwaukee Guardian, and Milwaukee Safeguard Insurance companies--all part of a 1995 merger), rated A−; Trinity Universal Insurance Company, rated A++; Union National Fire Insurance Company, rated A; and United Casualty Insurance Company of America (rated A+ by Best) with 1,700 divisional employees and approximately 15,000 independent agents across the nation. Premium sales were concentrated in the South (predominantly Louisiana, with six percent of the division's sales), Midwest (especially Illinois, Minnesota, and Wisconsin for a combined total of 19 percent), Texas (32 percent), and California (12 percent of premiums). Geographic hazards included hurricanes in the South (generally worse in the fall), windstorms, tornadoes, and flooding in the Midwest (in the spring), and fires in the West. Much like the weather, profitability in the casualty and property insurance companies tended to be cyclical and easily riven by pricing competition and a flooded marketplace.
Unitrin's consumer finance division, which conducted business through the Fireside Thrift Co., located in Newark, California, was chiefly involved in financing used automobiles from dealerships. Fireside also sold consumers personal loans using automobiles as collateral, and offered timely service and flexible terms to win clients over its competition. Fireside's activities were financed by thrift investment certificates (ranging from 31 days to five years), money market accounts, and IRAs, products routinely offered by banks, savings and loans, and other industrial loan providers.
Dollars and Cents: The 1990s
Following its earlier success while still part of Teledyne, Inc., Unitrin posted sales of $1 billion from premiums and consumer finance loans in its first independent year. Total revenue was over $1.25 billion for 1991, with net income of $136 million. The following year, premiums and consumer finance services increased to $1.1 billion and total revenues to $1.36 billion, but net income fell to $123 million due to a one-time accounting charge of $40 million.
By 1993 the life and health insurance segment generated about half of Unitrin's revenues ($688 million), property and casualty brought in $570.8 million, and consumer finance $81.3 million. The following year (1994) consumer finance performed better than its siblings, climbing more than 12 percent to $91.4 million, while property/casualty was up 10 percent to $575.6 million, and the life/health division fell to $667.6 million due to a lower sales volume, except in individual traditional life insurance, which increased in volume. Operating profits dropped for property/casualty, falling from 1993's $76 million to $65.5 million, but the other two segments saw healthy increases: consumer finance rose from 1993's $25.8 million to $31 million, and life/health reached $68.7 million from 1993's $54.5 million--all this despite a serious threat to the company's well-being by a hostile takeover attempt.
Fighting off an Unwanted Suitor, 1994-95
Unitrin spent the second part of 1994 fending off a $2.6 billion takeover bid by American General Corp., an insurance carrier headquartered in Houston, whose business was very similar to its own. Though American General said it originally broached the subject of a merger to Unitrin's management in January 1994, the aggressor went public with its intentions in early June. Hoping to swallow Unitrin's home service business, American General was also attracted to Unitrin's $1.4 billion in excess capital and undervalued assets (major shares in Litton Industries Inc., Curtiss-Wright Corp., and Western Atlas Inc.) which were listed on Unitrin's books at cost rather than stock value. If the takeover succeeded, American General stood to gain combined assets of $50 billion with a customer base over eight million.
On June 26th Unitrin unequivocally rejected the $50.38 per share offer and adopted a poison pill defense. Despite American General's hints of sweetening the offer or paying with stock instead of cash (for shareholder tax purposes), Unitrin remained steadfast and initiated a stock buyback plan of ten million shares, or 19 percent of its stock (51.8 million shares outstanding), to placate frustrated shareholders and increase the board's controlling interest. American General then took Unitrin to court and argued that such a repurchase plan would prove harmful to shareholders of both companies, as Unitrin's board could effectively block any acquisition regardless of shareholders' best interests. A Delaware Chancery Court judge agreed and issued a restraining order against Unitrin's proposed stock buyback until September 27, 1994.
Having gained the advantage and still hoping Unitrin's board would reconsider, American General extended its merger offer from October through November 30th, then again to February 7th, 1995. Unitrin continued to resist, and on December 13th the Delaware Supreme Court overturned the lower court's injunction, freeing Unitrin to repurchase its stock. As the tumultuous 1994 ended, Unitrin's total revenues climbed to $1.37 billion, just slightly over the previous year's $1.36 billion. Yet the big news was in net income: 1993's figure of $95 million was surpassed by a whopping $148 million for 1994.
As Unitrin entered its fifth year of independence, the company continued buying back its stock to keep American General and other rumored suitors at bay. Unitrin's maneuvers paid off: American General's takeover bid quietly expired on February 7th and was not renewed. During the time Unitrin was facing off against American General, former parent Teledyne Inc. underwent a similar battle with WHX Corp., run by Ron LaBow, previously of junk bond haven Drexel Burnham Lambert. That two of Henry Singleton's companies were waging a fierce battle for survival struck many Wall Streeters as the ultimate irony. Many analysts believed that it was only a matter of time before Singleton's other spin-off, the Argonaut Group Inc., became a takeover target.
Staying Strong and Looking to the Future,the Late 1990s
The remainder of 1995 brought several highs for Unitrin, including an agreement between subsidiary Financial Indemnity Company and Allstate of California to market Unitrin automobile insurance policies throughout the state. In a move Unitrin's management found "too good a business fit to pass up," Unitrin's wholly owned subsidiary, Dallas-based Trinity Universal Insurance Company, merged with the Milwaukee Insurance Group, Inc. ($186 million in 1994 for net premiums written), for $92.6 million in cash. Milwaukee Insurance, rated B++ at the time of acquisition due to some recent financial difficulties, nicely complemented Trinity's property and casualty operations (the only state in which the two companies were in direct competition was Illinois) and was a holding company of Milwaukee Mutual Insurance Company, a venerable family-owned business founded in 1917 to fill the needs of new auto owners and drivers.
By the end of 1995, Unitrin had bought back 8.7 million of its shares for $416 million, raising the total number of repurchased shares from August 1994 to 13.5 million or $661 million, in hopes of preventing future hostile takeover attempts. Year-end total revenues were $1.45 billion ($649.7 million from the life and health division, $631.5 million from property/casualty, and $106.5 million from consumer finance). With over five million policies in force across the United States, $5 billion in assets, and a growing number of consumer finance clients (100,000 in 1995), Unitrin had proved its mettle to both the insurance industry and the enclaves of Wall Street.
Principal Subsidiaries: Fireside Thrift Co.; Financial Indemnity Company; Milwaukee Insurance Group, Inc. (Alpha Property & Casualty Insurance Company, Milwaukee Guardian Insurance, Inc., and Milwaukee Safeguard Insurance Company); Pyramid Life Insurance Company; Trinity Universal Insurance Company; Union National Fire Insurance Company; Union National Life Insurance Company; United Casualty Insurance Company of America; United Insurance Company of America (United Insurance's Home Service Division and Worksite Marketing Division).
"American General Gains against Unitrin Buyback," Wall Street Journal, October 14, 1994, p. A4.
Buckler, Arthur, and Scism, Leslie, "Unitrin Counters American General on Takeover Bid," Wall Street Journal, August 5, 1994, pp. A2, A10.
"Divorce Singleton Style," Forbes, June 25, 1990, p. 142.
"Judge Temporarily Blocks Unitrin from Buying Back 19% of Stock," Wall Street Journal, August 29, 1994, p. B6.
Lazo, Shirley A., "Unitrin Increases Its Quarterly by 25%," Barron's, February 6, 1995, p. 37.
Mullins, Robert, "In Unitrin Deal, Milwaukee Insurance Chose Partner Carefully," Business Journal, July 15, 1995, pp. 2A, 3A.
Rees, David, "Events Swirling around Teledyne Intrigue Analysts," Los Angeles Business Journal, March 26, 1990, p. 9.
Scism, Leslie, "American General Corp. Seeks to Buy Life Insurance Unit of American Brands," Wall Street Journal, November 29, 1994, p. A3.
------, and Buckler, Arthur, "American General Makes Bid for Insurer," Wall Street Journal, August 4, 1994, p. A3.
------, and Steinmetz, Greg, "Famed Conglomerate Builder Singleton Plays a Key Role in Battle for Unitrin," Wall Street Journal, August 9, 1994, p. A3.
------, and Arthur Buckler, "Unitrin Clears Buyback of 19% of Stock; American General Files to Raise Its Stake," Wall Street Journal, August 15, 1994, pp. A2, A6.
Sloan, Allan, "Teledyne's Henry Singleton Finds Takeover Shoe on the Other Foot," Washington Post, January 24, 1995, p. D3.
Veverka, Mark, and Gornstein, Leslie, "How Insurer Plans to Battle for Its Life," Crain's Chicago Business, August 8, 1994, pp. 4, 45.
Source: International Directory of Company Histories, Vol. 16. St. James Press, 1997.