10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period Ended June 30, 2009

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from              to             

Commission file number 0-18298

Unitrin, Inc.

(Exact name of registrant as specified in its charter)

Delaware	95-4255452
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

62,392,453 shares of common stock, $0.10 par value, were outstanding as of July 31, 2009.

UNITRIN, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION.
Item 1.	Financial Statements.
	Condensed Consolidated Statements of Income for the Six and Three Months Ended June 30, 2009 and 2008 (Unaudited).	1
	Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008.	2
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited).	3
	Notes to the Condensed Consolidated Financial Statements (Unaudited).	4-42
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	43-69
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	70-71
	Caution Regarding Forward-Looking Statements.	72-73
Item 4.	Controls and Procedures.	73-74
PART II.	OTHER INFORMATION.
Item 1.	Legal Proceedings.	74
Item 1A.	Risk Factors.	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	75
Item 4.	Submission of Matters to a Vote of Security Holders.	75
Item 6.	Exhibits.	76-78
Signatures		79

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions, except per share amounts)

(Unaudited)

	Six Months Ended						Three Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Revenues:
Earned Premiums	$	1,238.8		$	1,172.2		$	626.3		$	596.3
Automobile Finance Revenues		100.3			125.5			47.4			62.1
Net Investment Income		141.4			127.3			94.4			81.4
Other Income		0.9			1.4			0.5			0.9
Net Realized Gains on Sales of Investments		5.2			38.0			4.4			23.3
Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses		(35.3	)		(26.8	)		(10.3	)		(18.3	)
Portion of Losses Recognized in Other Comprehensive Income		0.6			—			0.6			—
Net Impairment Losses Recognized in Earnings		(34.7	)		(26.8	)		(9.7	)		(18.3	)
Total Revenues		1,451.9			1,437.6			763.3			745.7
Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses		893.2			858.9			453.8			448.2
Insurance Expenses		366.7			355.1			183.8			182.8
Automobile Finance Expenses		82.4			123.5			36.0			69.6
Interest Expense on Certificates of Deposit		24.5			30.7			11.9			15.0
Goodwill		1.5			—			1.5			—
Interest and Other Expenses		32.0			31.7			16.8			15.0
Total Expenses		1,400.3			1,399.9			703.8			730.6
Income from Continuing Operations before Income Taxes and Equity in Net Income (Loss) of Investee		51.6			37.7			59.5			15.1
Income Tax Benefit (Expense)		(16.4	)		(3.3	)		(16.8	)		0.8
Income before Equity in Net Income (Loss) of Investee		35.2			34.4			42.7			15.9
Equity in Net Income (Loss) of Investee		(0.1	)		3.3			(1.3	)		1.1
Income from Continuing Operations		35.1			37.7			41.4			17.0
Discontinued Operations:
Income (Loss) from Discontinued Operations (Including Gain of $8.1 on Disposal in 2008—See Notes 1 and 3)		2.1			(11.8	)		0.9			(1.6	)
Income Tax Benefit (Expense)		(0.9	)		0.3			(0.4	)		(4.4	)
Income (Loss) from Discontinued Operations		1.2			(11.5	)		0.5			(6.0	)
Net Income	$	36.3		$	26.2		$	41.9		$	11.0
Basic Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.59		$	0.66		$	0.62		$	0.26
Unrestricted Common Stock	$	0.56		$	0.59		$	0.66		$	0.27
Basic Net Income Per Share:
Restricted Common Stock	$	0.61		$	0.48		$	0.62		$	0.16
Unrestricted Common Stock	$	0.58		$	0.41		$	0.67		$	0.18
Diluted Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.59		$	0.66		$	0.62		$	0.26
Unrestricted Common Stock	$	0.56		$	0.59		$	0.66		$	0.27
Diluted Net Income Per Share:
Restricted Common Stock	$	0.61		$	0.48		$	0.62		$	0.16
Unrestricted Common Stock	$	0.58		$	0.41		$	0.67		$	0.17
Dividends Paid Per Share	$	0.67		$	0.94		$	0.20		$	0.47

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

1

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

	June 30, 2009			December 31, 2008
	(Unaudited)
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized Cost: 2009—$4,229.4; 2008—$4,174.4)	$	4,247.8		$	4,135.9
Equity Securities at Fair Value (Cost: 2009—$237.2; 2008—$255.4)		227.6			221.8
Investee (Intermec) at Cost Plus Cumulative Undistributed Comprehensive Earnings (Fair Value: 2009—$163.3; 2008—$168.1)		92.5			102.2
Short-term Investments at Cost which Approximates Fair Value		563.6			548.6
Other		729.0			714.9
Total Investments		5,860.5			5,723.4
Cash		97.2			184.2
Automobile Loan Receivables at Cost (Fair Value: 2009—$898.1; 2008—$1,099.6)		887.1			1,078.6
Other Receivables		670.5			686.5
Deferred Policy Acquisition Costs		524.4			489.2
Goodwill		331.8			334.6
Current and Deferred Income Taxes		225.2			201.4
Other Assets		128.2			120.9
Total Assets	$	8,724.9		$	8,818.8
Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health	$	3,005.1		$	2,972.6
Property and Casualty		1,299.2			1,268.7
Total Insurance Reserves		4,304.3			4,241.3
Certificates of Deposits at Cost (Fair Value: 2009—$952.1; 2008—$1,148.7)		909.5			1,110.8
Unearned Premiums		764.8			733.5
Liabilities for Income Taxes		15.4			68.2
Notes Payable at Amortized Cost (Fair Value: 2009—$441.0; 2008—$433.9)		561.1			560.8
Accrued Expenses and Other Liabilities		476.2			455.6
Total Liabilities		7,031.3			7,170.2
Shareholders’ Equity:
Common Stock, $0.10 par value, 100 million Shares Authorized; 62,392,453 Shares Issued and Outstanding at June 30, 2009 and 62,314,503 Shares Issued and Outstanding at December 31, 2008		6.2			6.2
Paid-in Capital		766.6			764.7
Retained Earnings		983.2			985.8
Accumulated Other Comprehensive Loss		(62.4	)		(108.1	)
Total Shareholders’ Equity		1,693.6			1,648.6
Total Liabilities and Shareholders’ Equity	$	8,724.9		$	8,818.8

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

2

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

	Six Months Ended
	June 30, 2009			June 30, 2008
Operating Activities:
Net Income	$	36.3		$	26.2
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Increase in Deferred Policy Acquisition Costs		(7.9	)		(9.2	)
Equity in Net (Income) Loss of Investee before Taxes		0.3			(5.0	)
Equity in (Income) Losses of Limited Liability Investment Companies and Limited Partnerships		(3.8	)		19.1
Distribution of Accumulated Earnings of Limited Liability Investment Companies and Limited Partnerships		—			0.9
Amortization of Investment Securities and Depreciation of Investment Real Estate		8.6			5.3
Provision for Loan Losses		35.7			73.2
Depreciation of Property and Equipment		9.2			9.9
Decrease in Other Receivables		57.2			14.3
Increase (Decrease) in Insurance Reserves		(45.1	)		15.6
Decrease in Unearned Premiums		(17.5	)		(30.2	)
Change in Income Taxes		(51.4	)		(62.0	)
Increase in Accrued Expenses and Other Liabilities		8.0			7.8
Net Realized Gains on Sales of Investments		(5.2	)		(38.0	)
Net Impairment Losses Recognized in Earnings		34.7			26.8
Gain on Disposition of Business		—			(8.1	)
Other, Net		27.8			17.2
Net Cash Provided by Operating Activities		86.9			63.8
Investing Activities:
Sales and Maturities of Fixed Maturities		348.4			710.6
Purchases of Fixed Maturities		(302.4	)		(657.1	)
Sales of Equity Securities		28.6			143.5
Purchases of Equity Securities		(1.6	)		(145.0	)
Acquisition and Improvements of Investment Real Estate		(4.3	)		(15.6	)
Sales of Investment Real Estate		0.2			3.2
Return of Investment of Limited Liability Investment Companies and Limited Partnerships		7.0			2.1
Acquisitions of Limited Liability Investment Companies and Limited Partnerships		(13.2	)		(54.8	)
Disposition of Business, Net of Cash Disposed		0.2			67.0
Acquisition of Business, Net of Cash Acquired		(190.0	)		(95.8	)
Decrease in Short-term Investments		56.0			115.9
(Increase) Decrease in Automobile Loan Receivables		153.7			(51.3	)
Increase in Other Investments		(4.5	)		(1.8	)
Other, Net		(10.8	)		(14.6	)
Net Cash Provided by Investing Activities		67.3			6.3
Financing Activities:
Change in Certificates of Deposits		(201.3	)		(72.0	)
Cash Dividends Paid		(41.8	)		(59.7	)
Note Payable Proceeds		220.0			181.0
Note Payable Payments		(220.0	)		(108.0	)
Common Stock Repurchases		—			(57.4	)
Cash Exercise of Stock Options		—			1.6
Excess Tax Benefits from Share-based Awards		0.1			0.2
Other, Net		1.8			1.8
Net Cash Used by Financing Activities		(241.2	)		(112.5	)
Decrease in Cash		(87.0	)		(42.4	)
Cash, Beginning of Year Including Cash Reported in Discontinued Operations		184.2			104.5
Cash, End of Period	$	97.2		$	62.1

The Notes to the Condensed Consolidated Financial Statements are an integral part of these financial statements.

3

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and include the accounts of Unitrin, Inc. (“Unitrin”) and its subsidiaries (individually and collectively referred to herein as the “Company”) and are unaudited. All significant intercompany accounts and transactions have been eliminated. Certain financial information that is normally included in annual financial statements, including certain financial statement footnote disclosures, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is not required by the rules and regulations of the SEC and has been condensed or omitted. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation. The preparation of interim financial statements relies heavily on estimates. This factor and certain other factors, such as the seasonal nature of some portions of the insurance business, as well as market conditions, call for caution in drawing specific conclusions from interim results. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K, filed with the SEC for the year ended December 31, 2008 (the “2008 Annual Report”).

Discontinued Operations

The Company accounts for its former Unitrin Business Insurance operations as discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (see Note 3, “Discontinued Operations,” to the Condensed Consolidated Financial Statements).

Accounting Changes

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. On January 1, 2009, the Company adopted SFAS No. 141(R). Accordingly, SFAS No. 141(R) was applied by the Company to the acquisition of Direct Response Corporation and its subsidiaries (“Direct Response”) (see Note 2, “Acquisition of Businesses,” to the Condensed Consolidated Financial Statements). In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP SFAS 141(R)-1 amends and clarifies SFAS No. 141(R) with respect to the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The Company applied FSP SFAS 141(R)-1 to its acquisition of Direct Response.

4

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards that require: that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially adopted, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. On January 1, 2009, the Company adopted SFAS No. 160. The Company does not have a noncontrolling interest in one or more subsidiaries. Accordingly, the initial application of SFAS No. 160 had no impact on the Company.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, with the intent to provide users of financial statements with enhanced understanding of how and why an entity uses derivative securities; how derivatives and hedges are being accounted for under SFAS No. 133; and how derivatives and hedges affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 161. The initial application of SFAS No. 161 had no impact on the Company.

In April 2008, the FASB issued FSP SFAS 142-3, Determination of the Useful Life of Intangible Assets. FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. Previously, under the provisions of SFAS No. 142, an entity was precluded from using its own assumptions about renewal or extension of an arrangement where there was likely to be substantial cost or material modifications. FSP SFAS 142-3 removes the requirement of SFAS No. 142 for an entity to consider whether an intangible asset can be renewed without substantial cost or material modification to the existing terms and conditions and requires an entity to consider its own experience in renewing similar arrangements. FSP SFAS 142-3 also increases the disclosure requirements for a recognized intangible asset to enable a user of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent or ability to renew or extend the arrangement. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. On January 1, 2009, the Company adopted FSP SFAS 142-3. The guidance for determining the useful life of a recognized intangible asset is applied prospectively to intangible assets acquired after the effective date. Accordingly, the Company initially applied FSP SFAS 142-3 to intangible assets acquired on or after January 1, 2009. The disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts (“GIC’s”), including the recognition and measurement of premium revenue and claim liabilities and requires expanded disclosures about GIC’s. SFAS No. 163 does not apply to a GIC that is accounted for as a derivative instrument within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Except for certain disclosure requirements regarding insurance

5

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

enterprise risk-management activities, SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and all interim periods within those fiscal years. On January 1, 2009, the Company adopted SFAS No. 163. The Company does not issue GIC’s. Accordingly, the initial application of SFAS No. 163 had no impact on the Company.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 concluded that all outstanding share-based payment awards that contain a right to receive non-forfeitable dividends participate in the undistributed earnings with common shareholders, and therefore, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share, pursuant to SFAS No. 128, Earnings per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Upon adoption, all prior-period earnings per share data presented must be adjusted retrospectively to conform to FSP EITF 03-6-1. On January 1, 2009, the Company adopted FSP EITF 03-6-1. Basic Net Income per Share from Continuing Operations decreased by less than $0.01 per unrestricted common share on an annual basis on the initial and retrospective application of FSP EITF 03-6-1 to prior periods.

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment (“OTTI”) has occurred. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and must be applied prospectively. The Company adopted FSP EITF 99-20-1 on January 1, 2009. The initial application of FSP EITF 99-20-1 had no impact on the Company.

In April 2009, FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. FSP SFAS 115-2 and SFAS 124-2 amends the OTTI guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. FSP SFAS 115-2 and SFAS 124-2 does not amend existing recognition and measurement guidance related to OTTI of equity securities. FSP SFAS 115-2 and SFAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009. On April 1, 2009, the Company adopted FSP SFAS 115-2 and SFAS 124-2. In accordance with FSP SFAS 115-2 and SFAS 124-2, the provisions of FSP SFAS 115-2 and SFAS 124-2 are not permitted to be applied retrospectively to periods prior to the date of adoption, but rather must be applied prospectively. Accordingly, the Company recognized the cumulative effect of adoption as an increase of $2.9 million, net of tax of $1.6 million, to the Company’s Retained Earnings with an offsetting amount to the Company’s Accumulated Other Comprehensive Loss at the date of adoption. The effect of adoption had no impact on Total Shareholders’ Equity.

The following individual line items in the Condensed Consolidated Balance Sheet at June 30, 2009 were affected by the change in accounting principle resulting from the adoption of FSP SFAS 115-2 and SFAS 124-2:

(Dollars in Millions)	As Computed Without Change in Accounting Principle			As Reported With Change in Accounting Principle			Effect of Change
Impact on Shareholders’ Equity:
Retained Earnings	$	981.0		$	983.2		$	2.2
Accumulated Other Comprehensive Loss		(60.2	)		(62.4	)		(2.2	)

6

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

The following individual line items in the Condensed Consolidated Statement of Income for the six months ended June 30, 2009 were affected by the change in accounting principle resulting from the adoption of FSP SFAS 115-2 and SFAS 124-2:

(Dollars in Millions, Except Per Share Amounts)	As Computed Without Change in Accounting Principle			As Reported With Change in Accounting Principle			Effect of Change
Revenues:
Earned Premiums	$	1,238.8		$	1,238.8		$	—
Automobile Finance Revenues		100.3			100.3			—
Net Investment Income		141.2			141.4			0.2
Other Income		0.9			0.9			—
Net Realized Gains on Sales of Investments		7.0			5.2			(1.8	)
Total Other-than-temporary Impairment Losses		(35.3	)		(35.3	)		—
Portion of Losses Recognized in Other Comprehensive Income		—			0.6			0.6
Net Impairment Losses Recognized in Earnings		(35.3	)		(34.7	)		0.6
Total Revenues		1,452.9			1,451.9			(1.0	)
Total Expenses		1,400.3			1,400.3			—
Income before Income Taxes and Equity in Net Income (Loss) of Investee		52.6			51.6			(1.0	)
Income Tax Benefit (Expense)		(16.7	)		(16.4	)		0.3
Income before Equity in Net Income (Loss) of Investee		35.9			35.2			(0.7	)
Equity in Net Income (Loss) of Investee		(0.1	)		(0.1	)		—
Income from Continuing Operations		35.8			35.1			(0.7	)
Income from Discontinued Operations		1.2			1.2			—
Net Income	$	37.0		$	36.3		$	(0.7	)
Basic Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.60		$	0.59		$	(0.01	)
Unrestricted Common Stock	$	0.57		$	0.56		$	(0.01	)
Basic Net Income Per Share:
Restricted Common Stock	$	0.62		$	0.61		$	(0.01	)
Unrestricted Common Stock	$	0.59		$	0.58		$	(0.01	)
Diluted Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.60		$	0.59		$	(0.01	)
Unrestricted Common Stock	$	0.57		$	0.56		$	(0.01	)
Diluted Net Income Per Share:
Restricted Common Stock	$	0.62		$	0.61		$	(0.01	)
Unrestricted Common Stock	$	0.59		$	0.58		$	(0.01	)

7

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

The following individual line items in the Condensed Consolidated Statement of Income for the three months ended June 30, 2009 were affected by the change in accounting principle resulting from the adoption of FSP SFAS 115-2 and SFAS 124-2:

(Dollars in Millions, Except Per Share Amounts)	As Computed Without Change in Accounting Principle			As Reported With Change in Accounting Principle			Effect of Change
Revenues:
Earned Premiums	$	626.3		$	626.3		$	—
Automobile Finance Revenues		47.4			47.4			—
Net Investment Income		94.2			94.4			0.2
Other Income		0.5			0.5			—
Net Realized Gains on Sales of Investments		6.2			4.4			(1.8	)
Total Other-than-temporary Impairment Losses		(10.3	)		(10.3	)		—
Portion of Losses Recognized in Other Comprehensive Income		—			0.6			0.6
Net Impairment Losses Recognized in Earnings		(10.3	)		(9.7	)		0.6
Total Revenues		764.3			763.3			(1.0	)
Total Expenses		703.8			703.8			—
Income before Income Taxes and Equity in Net Income (Loss) of Investee		60.5			59.5			(1.0	)
Income Tax Benefit (Expense)		(17.1	)		(16.8	)		0.3
Income before Equity in Net Income (Loss) of Investee		43.4			42.7			(0.7	)
Equity in Net Income (Loss) of Investee		(1.3	)		(1.3	)		—
Income from Continuing Operations		42.1			41.4			(0.7	)
Income from Discontinued Operations		0.5			0.5			—
Net Income	$	42.6		$	41.9		$	(0.7	)
Basic Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.63		$	0.62		$	(0.01	)
Unrestricted Common Stock	$	0.67		$	0.66		$	(0.01	)
Basic Net Income Per Share:
Restricted Common Stock	$	0.63		$	0.62		$	(0.01	)
Unrestricted Common Stock	$	0.68		$	0.67		$	(0.01	)
Diluted Income Per Share from Continuing Operations:
Restricted Common Stock	$	0.63		$	0.62		$	(0.01	)
Unrestricted Common Stock	$	0.67		$	0.66		$	(0.01	)
Diluted Net Income Per Share:
Restricted Common Stock	$	0.63		$	0.62		$	(0.01	)
Unrestricted Common Stock	$	0.68		$	0.67		$	(0.01	)

8

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

The following individual line items in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2009 were affected by the change in accounting principle resulting from the adoption of FSP SFAS 115-2 and SFAS 124-2:

(Dollars in Millions)	As Computed Without Change in Accounting Principle			As Reported With Change in Accounting Principle			Effect of Change
Impact on Operating Activities:
Net Income	$	37.0		$	36.3		$	(0.7	)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Amortization of Investment Securities and Depreciation of Investment Real Estate		8.8			8.6			(0.2	)
Change in Income Taxes		(51.1	)		(51.4	)		(0.3	)
Net Realized Gains on Sales of Investments		(7.0	)		(5.2	)		1.8
Net Impairment Losses Recognized in Earnings		35.3			34.7			(0.6	)

In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP SFAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP SFAS 107-1 and APB 28-1 also amends Accounting Principles Board (“APB”) Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP SFAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009. On April 1, 2009, the Company adopted FSP SFAS 107-1 and APB 28-1 and, accordingly, the interim disclosure requirements are applicable to these condensed consolidated financial statements.

In April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP SFAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. FSP SFAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 must be applied prospectively and is effective for interim and annual reporting periods ending after June 15, 2009. On April 1, 2009, the Company adopted FSP SFAS 157-4 and applied its provisions prospectively.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which provides guidance on management’s general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009. SFAS No. 165 does not apply to subsequent events or transactions that are within the scope of other applicable GAAP standards that provide different guidance on the accounting treatment for subsequent events or transactions. The initial application of SFAS No. 165 had no impact on the Company. The Company evaluates subsequent events through the date and time of the filing of the applicable periodic report with the SEC.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets. SFAS No. 166 amends the derecognized guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement 125. SFAS No. 166 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS No. 166 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and for interim periods within that first annual reporting period. SFAS No. 166 must be applied to transfers occurring on or after the effective date. Additionally, the disclosure provisions of SFAS No. 166 should be applied to transfers that occurred both before and after the effective date of SFAS No. 166. The Company does not anticipate that the adoption of SFAS No. 166 will have an impact on the Company.

9

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation (continued)

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) which amends the consolidation guidance that applies to variable interest entities. SFAS No. 167 amends FASB Interpretation No. (“FIN”) 46(R), Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51, to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. SFAS No. 167 also amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and for interim periods within that first annual reporting period. The Company does not anticipate that the adoption of SFAS No. 167 will have an impact on the Company.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. SFAS No. 168 does not change GAAP, but rather establishes the FASB Accounting Standards Codification™ as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of SFAS No. 168 should have no impact on the Company.

Note 2 - Acquisition of Businesses

On February 13, 2009, Unitrin’s subsidiary, Trinity Universal Insurance Company (“Trinity”) completed its acquisition of Direct Response in a cash transaction for a total purchase price of $201.6 million. The results of Direct Response are included in the Company’s financial statements from the date of acquisition and are reported in the Company’s Unitrin Direct segment.

At March 31, 2009, the Company had not yet completed the process of estimating the fair value of assets acquired and liabilities assumed. In particular, the Company was in the process of completing a review of all open claim files and the acquired federal net operating loss carry forward. Accordingly, the amounts reported for Insurance Reserves, including related amounts recoverable from reinsurers or indemnification, Deferred Income Taxes and Goodwill were based on the Company’s preliminary estimates. During the second quarter of 2009, the Company completed the process of estimating the fair value of these assets and liabilities acquired. A comparison of the preliminary and final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed is presented below:

(Dollars in Millions)	Preliminary Estimate			Impact of Changes to Estimate			Final Allocation
Investments	$	211.3		$	—		$	211.3
Cash		11.6			—			11.6
Other Receivables		33.7			6.7			40.4
Value of Insurance In force (Reported in Deferred Policy Acquisition Costs)		26.2			—			26.2
Value of Licenses Acquired		20.1			—			20.1
Goodwill		2.7			(1.2	)		1.5
Current and Deferred Income Taxes		49.9			3.7			53.6
Other Assets		2.5			—			2.5
Property and Casualty Insurance Reserves		(100.4	)		(9.2	)		(109.6	)
Unearned Premiums		(48.8	)		—			(48.8	)
Accrued Expenses and Other Liabilities		(7.2	)		—			(7.2	)
Total Purchase Price	$	201.6		$	—		$	201.6

10

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Acquisition of Businesses (continued)

In accordance with SFAS 141(R), changes, if any, to the preliminary estimates and allocation must be reported in the Company’s financial statements retroactively. Except for changes to the Company’s Condensed Consolidated Balance Sheet at March 31, 2009, there was no impact to the reported amounts in the Company’s Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2009 resulting from the retroactive application of the final allocation. The impact of the retroactive application to individual financial statement lines in the Company’s Condensed Consolidated Balance Sheet at March 31, 2009 is presented below.

(Dollars in Millions)	As Reported		As Adjusted		Impact of Adjustment
Other Receivables	$	688.8	$	695.5	$	6.7
Goodwill		334.5		333.3		(1.2	)
Current and Deferred Income Taxes		281.3		285.0		3.7
Total Assets		8,882.1		8,891.3		9.2
Property and Casualty Insurance Reserves		1,314.0		1,304.8		(9.2	)
Total Liabilities		7,317.4		7,308.2		(9.2	)
Total Liabilities and Shareholders’ Equity		1,564.7		1,555.5		(9.2	)

On April 1, 2008, the Company completed its acquisition of Primesco, Inc. and its wholly-owned subsidiaries, Mutual Savings Life Insurance Company (“Mutual Savings Life”) and Mutual Savings Fire Insurance Company (“Mutual Savings Fire”), (together “Primesco”). At December 31, 2008, the Company had not yet completed the process of estimating the fair value of insurance in force acquired and Insurance Reserves. The Company completed this process and finalized the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in the first quarter of 2009. Goodwill decreased by $2.8 million due to the finalization of the allocation of the purchase price.

Note 3 - Discontinued Operations

On June 3, 2008, the Company completed the sale of its Unitrin Business Insurance operations to AmTrust Financial Services, Inc. The Company retained Property and Casualty Insurance Reserves for unpaid insured losses that occurred prior to June 1, 2008, the effective date of the sale. Pursuant to the provisions of SFAS No. 144, changes in the Company’s estimate of such retained liabilities after the sale are reported as a separate component of the results of discontinued operations.

11

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 - Discontinued Operations (Continued)

Summary financial information included in Income (Loss) from Discontinued Operations before Income Taxes for the six and three months ended June 30, 2009 and 2008 is presented below:

	Six Months Ended					Three Months Ended
(Dollars in Millions, Except Per Share Amounts)	June 30, 2009		June 30, 2008			June 30, 2009		June 30, 2008
Total Earned Premiums	$	—	$	70.8		$	—	$	27.6
Net Investment Income		—		6.6			—		4.2
Total Revenues	$	—	$	77.4		$	—	$	31.8
Income (Loss) from Discontinued
Operations before Income Taxes:
Results of Operations	$	—	$	(19.9	)	$	—	$	(9.7	)
Gain on Disposition		—		8.1			—		8.1
Change in Estimate of Retained Liabilities Arising from Discontinued Operations		2.1		—			0.9		—
Income (Loss) from Discontinued Operations before Income Taxes	$	2.1	$	(11.8	)	$	0.9	$	(1.6	)
Basic Income (Loss) Per Share from Discontinued Operations:
Restricted Common Stock	$	0.02	$	(0.18	)	$	0.01	$	(0.09	)
Unrestricted Common Stock	$	0.02	$	(0.18	)	$	0.01	$	(0.09	)
Diluted Income (Loss) Per Share from Discontinued Operations:
Restricted Common Stock	$	0.02	$	(0.18	)	$	0.01	$	(0.09	)
Unrestricted Common Stock	$	0.02	$	(0.18	)	$	0.01	$	(0.09	)

Note 4 - Investments

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at June 30, 2009 were:

(Dollars in Millions)	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
U.S. Government and Government Agencies and Authorities	$	790.8	$	27.9	$	(1.8	)	$	816.9
States, Municipalities and Political Subdivisions		1,398.1		49.8		(10.0	)		1,437.9
Corporate Securities:
Bonds and Notes		1,847.3		63.4		(95.0	)		1,815.7
Redeemable Preferred Stocks		176.6		0.4		(15.2	)		161.8
Mortgage and Asset Backed		16.6		0.1		(1.2	)		15.5
Investments in Fixed Maturities	$	4,229.4	$	141.6	$	(123.2	)	$	4,247.8

Included in the fair value of Mortgage and Asset Backed investments at June 30, 2009 are $2.4 million of non-governmental residential mortgage-backed securities, $3.2 million of commercial mortgage-backed securities, $6.9 million of collateralized debt obligations and $3.0 million of other asset-backed securities.

12

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Investments (Continued)

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2008 were:

(Dollars in Millions)	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
U.S. Government and Government Agencies and Authorities	$	934.6	$	44.9	$	(0.4	)	$	979.1
States, Municipalities and Political Subdivisions		1,295.6		34.2		(21.3	)		1,308.5
Corporate Securities:
Bonds and Notes		1,750.2		46.9		(128.2	)		1,668.9
Redeemable Preferred Stocks		179.2		0.3		(13.7	)		165.8
Mortgage and Asset Backed		14.8		0.1		(1.3	)		13.6
Investments in Fixed Maturities	$	4,174.4	$	126.4	$	(164.9	)	$	4,135.9

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at June 30, 2009, by contractual maturity, were:

(Dollars in Millions)	Amortized Cost		Fair Value
Due in One Year or Less	$	119.4	$	124.7
Due after One Year to Five Years		556.5		566.3
Due after Five Years to Fifteen Years		1,784.2		1,805.0
Due after Fifteen Years		1,359.8		1,331.3
Asset-backed Securities Not Due at a Single Maturity Date		409.5		420.5
Investments in Fixed Maturities	$	4,229.4	$	4,247.8

The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. Investments in Asset-backed Securities Not Due at a Single Maturity Date at June 30, 2009 consisted of securities issued by the Government National Mortgage Association (“Ginnie Mae”) with a fair value of $351.5 million, securities issued by the Federal National Mortgage Association (“Fannie Mae”) with a fair value of $50.6 million, securities issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) with a fair value of $2.9 million and securities of other issuers with a fair value of $15.5 million.

Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at June 30, 2009 were:

(Dollars in Millions)	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
Preferred Stocks	$	138.0	$	2.2	$	(18.4	)	$	121.8
Common Stocks		59.2		7.9		(1.6	)		65.5
Other Equity Interests		40.0		5.4		(5.1	)		40.3
Investments in Equity Securities	$	237.2	$	15.5	$	(25.1	)	$	227.6

13

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Investments (continued)

Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at December 31, 2008 were:

(Dollars in Millions)	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
Preferred Stocks	$	150.1	$	2.1	$	(32.3	)	$	119.9
Common Stocks		54.4		4.3		(0.9	)		57.8
Other Equity Interests		50.9		0.4		(7.2	)		44.1
Investments in Equity Securities	$	255.4	$	6.8	$	(40.4	)	$	221.8

An aging, based on the length of time securities have been in an unrealized loss position, of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at June 30, 2009 is presented below:

	Less Than 12 Months					12 Months or Longer					Total
(Dollars in Millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	44.3	$	(0.5	)	$	56.8	$	(1.3	)	$	101.1	$	(1.8	)
States, Municipalities and Political Subdivisions		118.5		(1.4	)		117.1		(8.6	)		235.6		(10.0	)
Corporate Securities:
Bonds and Notes		285.2		(29.6	)		457.6		(65.4	)		742.8		(95.0	)
Redeemable Preferred Stocks		44.8		(8.8	)		85.6		(6.4	)		130.4		(15.2	)
Mortgage and Asset Backed		1.8		(0.3	)		9.8		(0.9	)		11.6		(1.2	)
Total Fixed Maturities		494.6		(40.6	)		726.9		(82.6	)		1,221.5		(123.2	)
Equity Securities:
Preferred Stocks		47.0		(5.0	)		58.3		(13.4	)		105.3		(18.4	)
Common Stocks		8.8		(1.6	)		—		—			8.8		(1.6	)
Other Equity Interests		5.5		(0.8	)		3.1		(4.3	)		8.6		(5.1	)
Total Equity Securities		61.3		(7.4	)		61.4		(17.7	)		122.7		(25.1	)
Total	$	555.9	$	(48.0	)	$	788.3	$	(100.3	)	$	1,344.2	$	(148.3	)

14

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Investments (continued)

An aging, based on the length of time securities have been in an unrealized loss position, of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at December 31, 2008 is presented below:

	Less Than 12 Months					12 Months or Longer					Total
(Dollars in Millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	57.2	$	(0.4	)	$	4.0	$	—		$	61.2	$	(0.4	)
States, Municipalities and Political Subdivisions		314.9		(10.1	)		102.5		(11.2	)		417.4		(21.3	)
Corporate Securities:
Bonds and Notes		762.0		(104.8	)		138.4		(23.4	)		900.4		(128.2	)
Redeemable Preferred Stocks		132.4		(13.7	)		—		—			132.4		(13.7	)
Mortgage and Asset Backed		4.5		(0.6	)		7.3		(0.7	)		11.8		(1.3	)
Total Fixed Maturities		1,271.0		(129.6	)		252.2		(35.3	)		1,523.2		(164.9	)
Equity Securities:
Preferred Stocks		87.3		(30.8	)		5.5		(1.5	)		92.8		(32.3	)
Common Stocks		4.1		(0.9	)		—		—			4.1		(0.9	)
Other Equity Interests		14.7		(3.8	)		3.9		(3.4	)		18.6		(7.2	)
Total Equity Securities		106.1		(35.5	)		9.4		(4.9	)		115.5		(40.4	)
Total	$	1,377.1	$	(165.1	)	$	261.6	$	(40.2	)	$	1,638.7	$	(205.3	)

Unrealized losses on fixed maturities, which the Company has determined to be temporary at June 30, 2009, were $123.2 million, of which $82.6 million related to fixed maturities that have continued in an unrealized loss position for 12 months or longer. Included in the second preceding table are fixed maturities with a fair value of $5.4 million and an unrealized loss of $1.4 million at June 30, 2009 for which the Company has recognized credit losses of $1.3 million before tax in earnings for the three months ended June 30, 2009 and credit losses of $2.5 million before tax in Retained Earnings for the portion of the impairment that was determined to be other-than-temporary on the adoption of FSP FAS 115-2 and FAS 124-2. The vast majority of the remaining fixed maturities presented in the second preceding table are concentrated in states, municipalities and political subdivisions and investment-grade corporate bonds and notes which the Company does not expect the issuers to settle at a price less than the amortized cost basis of the security. At June 30, 2009 the Company did not have the intent to sell these investments and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost basis, which may be maturity. Accordingly, these investments are not considered to be other-than-temporarily impaired at June 30, 2009.

Unrealized losses on fixed maturities, which the Company determined to be temporary at December 31, 2008, were $164.9 million, of which $35.3 million related to fixed maturities that have continued in an unrealized loss position for 12 months or longer. These fixed maturities were concentrated in states, municipalities and political subdivisions and investment-grade corporate bonds and notes at December 31, 2008, which the Company expected to fully recover.

The Company regularly reviews its investment portfolio for factors that may indicate that a decline in fair value of an investment is other-than-temporary. The portion of the declines in the fair values of investments that are determined to be other-than-temporary are reported as losses in the Condensed Consolidated Statement of Income in the period when such determination is made. Based on the Company’s evaluations at June 30, 2009 and December 31, 2008 of the prospects of the issuers, including, but not limited to, the credit ratings of the issuers of the investments in the fixed maturities shown in the preceding two tables, and the Company’s intention to not sell or be required to sell before recovery of the amortized cost of such investments at June 30, 2009, or its ability and intent to hold to recovery at December 31, 2008, the Company concluded that the declines in the fair values of the Company’s investments in fixed maturities presented in the preceding two tables were temporary at the respective evaluation dates.

15

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Investments (continued)

The Company considers various factors when considering if a decline in the fair value of an equity security is other than temporary including, but not limited to:

• The length of time and magnitude of the unrealized loss;

• The volatility of the investment;

• Analyst recommendations and price targets;

• Opinions of the Company’s external investment managers;

• Market liquidity;

• Debt-like characteristics of perpetual preferred stocks and issuer ratings; and

• The Company’s intentions to sell or ability to hold the investments.

The vast majority of the Company’s equity securities at June 30, 2009 and December 31, 2008 presented in the preceding two tables are perpetual preferred stocks of financial institutions. The Company considers the debt-like characteristics of these perpetual preferred stocks along with issuer ratings when evaluating impairment. All such preferred stocks paid dividends at the stated dividend rate during the three month period preceding the evaluation date. The Company concluded that the declines in the fair values of the perpetual preferred stocks of these financial institutions presented in the preceding two tables were temporary in nature, largely driven by current market conditions, and since the Company intends to hold the securities until recovery, the impairments should not be recognized in the Condensed Consolidated Statement of Income. Based on evaluations at June 30, 2009 and December 31, 2008 of the factors in the preceding paragraph, the Company concluded that the declines in the fair values of the Company’s investments in equity securities presented in the preceding two tables were temporary at the respective evaluation dates.

The carrying value, fair value and approximate voting percentage for the Company’s investment in the common stock of Intermec, Inc. (“Intermec”), which is accounted for under the equity method of accounting and reported as Investment in Investee in the Company’s Condensed Consolidated Balance Sheets, at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009			Dec. 31, 2008
Carrying Value	$	92.5		$	102.2
Fair Value	$	163.3		$	168.1
Approximate Voting Percentage		20.4	%		20.5	%

The carrying values of the Company’s Other Investments at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Loans to Policyholders	$	214.5	$	209.9
Real Estate		257.1		257.7
Limited Liability Investment Companies and Limited Partnerships		252.4		242.3
Other		5.0		5.0
Total	$	729.0	$	714.9

16

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 - Automobile Loan Receivables

Automobile Loan Receivables consists primarily of sub-prime loans, which are secured by automobiles, to residents of California and other Western and Midwestern states. Automobile Loan Receivables is stated net of unearned discount, loan fees and reserve for loan losses.

The components of Automobile Loan Receivables at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009			Dec. 31, 2008
Sales Contracts and Loans Receivable	$	1,004.6		$	1,213.1
Unearned Discounts and Deferred Fees		(9.2	)		(14.4	)
Net Automobile Loan Receivables Outstanding		995.4			1,198.7
Reserve for Loan Losses		(108.3	)		(120.1	)
Automobile Loan Receivables	$	887.1		$	1,078.6

The status of loan balances included in Net Automobile Loan Receivables Outstanding at June 30, 2009 and December 31, 2008 is presented below:

	Amount			As a Percentage of Net Automobile Loan Receivables Outstanding		Amount			As a Percentage of Net Automobile Loan Receivables Outstanding
(Dollars in Millions)	June 30, 2009					December 31, 2008
Current Loan Balances	$	648.5		65.2	%	$	738.3		61.6	%
Delinquent Loan Balances:
Less than 30 Days Delinquent		247.0		24.8	%		312.6		26.1	%
30 Days to 59 Days Delinquent		72.9		7.3	%		103.0		8.6	%
60 Days to 89 Days Delinquent		20.9		2.1	%		32.8		2.7	%
Delinquent 90 Days and Greater		6.1		0.6	%		12.0		1.0	%
Net Automobile Loan Receivables Outstanding		995.4		100.0	%		1,198.7		100.0	%
Reserve for Loan Losses		(108.3	)				(120.1	)
Automobile Loan Receivables	$	887.1				$	1,078.6

17

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 - Automobile Loan Receivables (Continued)

Activity in the Reserve for Loan Losses for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Reserve for Loan Losses—Beginning of Period	$	120.1		$	148.4		$	113.6		$	136.6
Provision for Loan Losses		35.7			73.2			15.7			46.0
Net Charge-off:
Automobile Loan Receivables Charged-off		(66.9	)		(90.8	)		(30.6	)		(40.5	)
Automobile Loan Receivables Recovered		19.4			21.4			9.6			10.1
Net Charge-off		(47.5	)		(69.4	)		(21.0	)		(30.4	)
Reserve for Loan Losses—End of Period	$	108.3		$	152.2		$	108.3		$	152.2

Note 6 - Goodwill

Goodwill at June 30, 2009 and December 31, 2008 by business segment was:

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Kemper Segment	$	49.6	$	49.6
Unitrin Specialty Segment		42.8		42.8
Life and Health Insurance Segment		239.4		242.2
Total Goodwill	$	331.8	$	334.6

The Company tests goodwill for recoverability on an annual basis in the first quarter and, if circumstances or events indicate that the fair value of a reporting unit may have declined below its carrying value, such tests are performed at intervening interim periods. The quoted value of Unitrin’s common stock was significantly below the book value per share of the Company at June 30, 2009. Accordingly, the Company tested goodwill for each of its reporting units for recoverability at June 30, 2009. Based on the tests for recoverability at June 30, 2009, the Company determined that the entire amount of goodwill arising from its February 13, 2009 acquisition of Direct Response, included in the Unitrin Direct segment, was not recoverable and, accordingly, recognized a charge of $1.5 million before tax and $1.0 million after tax to write off the goodwill related to the acquisition. See Note 2, “Acquisition of Businesses,” to the Condensed Consolidated Financial Statements for additional information pertaining to the acquisition of Direct Response. No other goodwill was associated with the Unitrin Direct segment at June 30, 2009. The Company used discounted projections of future cash flows to estimate fair value of all reporting units included in the table above as well as the goodwill arising from the acquisition of Direct Response. No goodwill is associated with Fireside Bank. Accordingly, no testing was required for Fireside Bank. Except for the goodwill arising from the acquisition of Direct Response, for each reporting unit tested, the estimated fair value exceeded the carrying value of the reporting unit, and the Company concluded that the reported goodwill was recoverable. Goodwill for the Life and Health Insurance segment includes goodwill of $14.8 million related to the Company’s Reserve National Insurance Company (“Reserve National”) reporting unit. Reserve National specializes in limited benefit medical and Medicare supplement products. Accordingly, its ability to conduct its operations in the same manner as they are currently conducted could be impacted by various national healthcare proposals currently being discussed by the United States Congress. The Company cannot presently predict what effect, if any, such proposals might have on Reserve National’s operations and the recoverability of its goodwill if any such proposals were to become law. Goodwill for the Life and Health Insurance segment decreased in 2009 by $2.8 million due to the finalization of the allocation of the purchase price of the Primesco acquisition. See Note 2, “Acquisition of Businesses,” to the Condensed Consolidated Financial Statements for additional information pertaining to the acquisition of Primesco.

18

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 - Property and Casualty Insurance Reserves

Property and Casualty Insurance Reserve activity for the six months ended June 30, 2009 and 2008 was:

	Six Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008
Property and Casualty Insurance Reserves -
Gross of Reinsurance at Beginning of Year	$	1,268.7		$	1,322.9
Less Reinsurance Recoverables at Beginning of Year		84.6			84.8
Property and Casualty Insurance Reserves -
Net of Reinsurance at Beginning of Year		1,184.1			1,238.1
Property and Casualty Insurance Reserves Acquired, Net of Reinsurance		94.7			0.2
Incurred Losses and LAE Related to:
Current Year:
Continuing Operations		744.4			714.7
Discontinued Operations		—			62.7
Total Incurred Losses and LAE related to Current Year		744.4			777.4
Prior Years:
Continuing Operations		(41.3	)		(36.9	)
Discontinued Operations		(1.1	)		(1.0	)
Total Incurred Losses and LAE related to Prior Years		(42.4	)		(37.9	)
Total Incurred Losses and LAE		702.0			739.5
Paid Losses and LAE Related to:
Current Year:
Continuing Operations		411.8			384.8
Discontinued Operations		—			19.8
Total Paid Losses and LAE related to Current Year		411.8			404.6
Prior Years:
Continuing Operations		323.4			291.9
Discontinued Operations		24.8			41.3
Total Paid Losses and LAE related to Prior Years		348.2			333.2
Total Paid Losses and LAE		760.0			737.8
Property and Casualty Insurance Reserves -
Net of Reinsurance at End of Period		1,220.8			1,240.0
Plus Reinsurance Recoverable at End of Period		78.4			75.2
Property and Casualty Insurance Reserves -
Gross of Reinsurance at End of Period	$	1,299.2		$	1,315.2

19

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 - Property and Casualty Insurance Reserves (continued)

Property and Casualty Insurance Reserves are estimated based on historical experience patterns and current economic trends. Actual loss experience and loss trends are likely to differ from these historical experience patterns and economic conditions. Loss experience and loss trends emerge over several years from the dates of loss inception. The Company monitors such emerging loss trends. Upon concluding, based on the data available, that an emerging loss trend will continue, the Company adjusts its property and casualty insurance reserves to recognize such a trend. Changes in such estimates are included in the Condensed Consolidated Statement of Income in the period of change.

For the six months ended June 30, 2009, the Company reduced its property and casualty insurance reserves by $42.4 million to recognize favorable development of losses and loss adjustment expenses (“LAE”) from prior accident years. For the six months ended June 30, 2009, personal lines insurance losses and LAE reserves developed favorably by $38.0 million and commercial lines insurance losses and LAE reserves developed favorably by $4.4 million. The personal lines insurance losses and LAE reserves developed favorably due primarily to the emergence of more favorable loss trends than expected for the 2007, 2006 and 2005 accident years due to improvements in the Company’s claims handling procedures. For the six months ended June 30, 2008, the Company reduced its property and casualty insurance reserves by $37.9 million to recognize favorable development of losses and LAE from prior accident years. For the six months ended June 30, 2008, personal lines insurance losses and LAE developed favorably by $33.9 million and commercial lines insurance losses and LAE developed favorably by $4.0 million. The personal lines insurance losses and LAE reserves developed favorably due primarily to the emergence of more favorable loss trends than expected for the 2006 and 2005 accident years, partially due to the improvements in the Company’s claims handling procedures.

The Company cannot predict whether losses and LAE will or will not develop favorably or unfavorably from the amounts reported in the Company’s condensed consolidated financial statements. However, the Company believes that such development will not have a material effect on the Company’s consolidated financial position, but could have a material effect on the Company’s consolidated financial results for a given period.

Note 8 - Notes Payable

Total debt outstanding at June 30, 2009 and December 31, 2008 was:

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Senior Notes at Amortized Cost:
6.00% Senior Notes due May 15, 2017	$	355.6	$	355.5
4.875% Senior Notes due November 1, 2010		199.6		199.4
Mortgage Note Payable at Amortized Cost		5.9		5.9
Total Debt Outstanding	$	561.1	$	560.8

The Company has a five-year, $325 million, unsecured, revolving credit agreement, expiring June 30, 2010, with a group of financial institutions. The Company had no outstanding advances under the agreement at both June 30, 2009 and December 31, 2008. Undrawn letters of credit issued pursuant to this agreement were $13.1 million at both June 30, 2009 and December 31, 2008. Accordingly, the amount available for future borrowing was $311.9 million at both June 30, 2009 and December 31, 2008, respectively.

20

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 - Notes Payable (continued)

Interest Expense, including facility fees and accretion of discount, for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009		June 30, 2008
Notes Payable under Revolving Credit Agreement	$	0.7		$	0.9		$	0.4	$	0.8
6.00% Senior Notes due May 15, 2017		11.0			11.0			5.5		5.5
4.875% Senior Notes due November 1, 2010		5.0			5.0			2.5		2.5
Mortgage Note Payable		0.2			0.2			0.1		0.1
Interest Expense before Capitalization of Interest		16.9			17.1			8.5		8.9
Capitalization of Interest		(0.2	)		(0.5	)		—		(0.3	)
Total Interest Expense	$	16.7		$	16.6		$	8.5	$	8.6

Interest Paid, including facility fees, for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended				Three Months Ended
(Dollars in Millions)	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Notes Payable under Revolving Credit Agreement	$	0.6	$	0.7	$	0.5	$	0.6
6.00% Senior Notes due May 15, 2017		10.8		10.8		10.8		10.8
4.875% Senior Notes due November 1, 2010		4.9		4.9		4.9		4.9
Mortgage Note Payable		0.2		0.2		0.1		0.1
Total Interest Paid	$	16.5	$	16.6	$	16.3	$	16.4

Note 9 - Income from Investments

Net Investment Income for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended					Three Months Ended
(Dollars in Millions)	June 30, 2009		June 30, 2008			June 30, 2009		June 30, 2008
Investment Income (Loss):
Interest and Dividends on Fixed Maturities	$	121.2	$	117.3		$	61.9	$	65.9
Dividends on Equity Securities		6.5		17.0			3.2		9.8
Short-term Investments		0.7		8.3			0.3		2.8
Loans to Policyholders		7.5		7.1			3.8		3.6
Real Estate		14.6		15.5			7.4		8.0
Other		0.3		—			0.2		—
Limited Partnerships and Limited Liability Companies		4.5		(18.7	)		24.8		1.7
Total Investment Income		155.3		146.5			101.6		91.8
Investment Expenses:
Real Estate		13.8		11.8			7.1		5.8
Other Investment Expenses		0.1		0.8			0.1		0.4
Total Investment Expenses		13.9		12.6			7.2		6.2
Net Investment Income Including Discontinued Operations		141.4		133.9			94.4		85.6
Net Investment Income Reported in Discontinued Operations		—		(6.6	)		—		(4.2	)
Net Investment Income	$	141.4	$	127.3		$	94.4	$	81.4

21

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 - Income from Investments (continued)

The components of Net Realized Gains on Sales of Investments for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Fixed Maturities:
Gains on Dispositions	$	3.4		$	4.5		$	3.0		$	4.0
Losses on Dispositions		(0.1	)		(1.2	)		(0.1	)		(1.1	)
Equity Securities:
Gains on Dispositions		1.5			39.4			1.0			23.3
Losses on Dispositions		—			(5.6	)		—			(4.3	)
Real Estate:
Gains on Dispositions		—			1.5			—			1.5
Other Investments:
Losses on Dispositions		—			(0.2	)		—			—
Trading Securities Net Gains (Losses)		0.4			(0.4	)		0.5			(0.1	)
Net Realized Gains on Sales of Investments	$	5.2		$	38.0		$	4.4		$	23.3

The components of Net Impairment Losses Recognized in Earnings in the Condensed Consolidated Statement of Income for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Fixed Maturities	$	(26.7	)	$	(1.7	)	$	(5.1	)	$	(1.1	)
Equity Securities		(8.0	)		(25.1	)		(4.6	)		(17.2	)
Net Impairment Losses Recognized in Earnings	$	(34.7	)	$	(26.8	)	$	(9.7	)	$	(18.3	)

See Note 1, “Basis of Presentation,” to the Condensed Consolidated Financial Statements for a discussion of a change in accounting principle adopted in the second quarter of 2009 which impacts the determination of the amount of OTTI losses on Investments in Fixed Maturities that are recognized in earnings on and subsequent to April 1, 2009.

The following table sets forth the pre-tax amount of OTTI credit losses, recognized in Retained Earnings for Investments in Fixed Maturities held by the Company as of the dates indicated, for which a portion of the OTTI loss has been recognized in Accumulated Other Comprehensive Loss, and the corresponding changes in such amounts.

(Dollars in Millions)
Balance at April 1, 2009	$	39.8
Additions for Previously Unrecognized OTTI Credit Losses		1.7
Increases to Previously Recognized OTTI Credit Losses		0.1
Reduction for Investments Sold During the Period		(1.5	)
Balance at June 30, 2009	$	40.1

22

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10 - Pension Benefits and Postretirement Benefits Other Than Pensions

The components of Pension Expense for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Service Cost Benefits Earned	$	5.0		$	6.2		$	2.4		$	2.7
Interest Cost on Projected Benefit Obligation		10.7			10.4			5.3			5.1
Expected Return on Plan Assets		(12.1	)		(12.6	)		(6.0	)		(6.4	)
Net Amortization and Deferral		(0.1	)		—			(0.1	)		(0.2	)
Total Pension Expense	$	3.5		$	4.0		$	1.6		$	1.2

The components of Postretirement Benefits Other than Pensions Expense for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Service Cost on Benefits Earned	$	0.1		$	0.1		$	0.1		$	0.1
Interest Cost on Projected Benefit Obligation		1.0			1.0			0.5			0.5
Net Amortization and Deferral		(0.9	)		(1.1	)		(0.4	)		(0.6	)
Total Postretirement Benefits Other than Pensions Expense	$	0.2		$	—		$	0.2		$	—

Note 11 - Long-term Equity Compensation Plans

As of June 30, 2009, the Company has three stock option plans, all of which have been approved by Unitrin’s shareholders. Stock options to purchase Unitrin’s common stock are granted at prices equal to the fair value of Unitrin’s common stock on the date of grant. Employee options generally vest over a period of three and one-half years and expire ten years from the date of grant. Beginning in 2003, options granted to employees were coupled with tandem stock appreciation rights (“SAR”), settled in Unitrin common stock. Options granted to directors are exercisable one year from the date of grant and expire ten years from the date of grant. At June 30, 2009, options to purchase 4,849,798 shares of Unitrin’s common stock were outstanding. Original options to purchase shares of Unitrin common stock were available for future grant under only two of the plans, the 1995 Non-employee Director Stock Option Plan and the 2002 Stock Option Plan, at June 30, 2009. Options to purchase 1,560,981 shares of Unitrin’s common stock were available for future grants under such stock option plans at June 30, 2009.

Prior to February 3, 2009, all of the Company’s stock option plans included provisions, subject to certain limitations, to automatically grant restorative, or reload stock options (“Restorative Options”), to replace shares of previously owned Unitrin common stock that an exercising option holder surrenders, either actually or constructively, to satisfy the exercise price and/or tax withholding obligations relating to the exercise. Restorative Options are subject to the same terms and conditions as the original options, including the expiration date, except that the exercise price is equal to the fair value of Unitrin common stock on the date of grant and cannot be exercised until six months after the date of grant. The grant of a Restorative Option does not result in an increase in the total number of shares and options held by an employee, but changes the mix of the two. Beginning February 3, 2009, the 1995 Non-employee Director Stock Option Plan and the 2002 Stock Option Plan were amended to eliminate the restorative feature in the plans prospectively. Accordingly, Restorative Options will no longer be included in original option awards made on or after February 3, 2009. At June 30, 2009, Restorative Options may still be granted under all the plans in connection with the exercise of original options granted before February 3, 2009, subject to the limitations on certain equity awards as described below.

23

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 - Long-term Equity Compensation Plans (continued)

For original awards granted in 2006 through 2008 and Restorative Options granted thereunder, Restorative Options will be granted only if, on the date of exercise of the option giving rise to the Restorative Option, the market price of Unitrin common stock exceeds such option’s exercise price by 15%. Further, no Restorative Options will be granted if the option giving rise to the Restorative Option is set to expire within twelve months.

In addition to the stock option plans, the Company has a restricted stock plan, which has been approved by Unitrin’s shareholders. Under this plan, restricted stock and restricted stock units may be granted to all eligible employees. Recipients of restricted stock are entitled to full dividend and voting rights on the same basis as all other outstanding shares of Unitrin common stock and all awards are subject to forfeiture until certain restrictions have lapsed. As of June 30, 2009, 473,200 shares of restricted stock having a weighted-average grant-date fair value of $36.06 per share have been awarded, of which 92,488 shares were forfeited and 32,901 were tendered to satisfy tax withholding obligations. As of June 30, 2009, there were 652,189 common shares available for future grants.

Prior to February 3, 2009, only awards of time-vested restricted stock had been granted under the restricted stock plan. On February 3, 2009, in addition to time-vested restricted stock granted to certain employees and officers, the Company awarded performance-based restricted stock to certain officers and employees under the restricted stock plan. The initial number of shares awarded to each participant represents the shares that would vest if the performance goals were achieved at the “target” performance level. The final payout of these awards will be determined based on Unitrin’s total shareholder return over a three-year performance period relative to a peer group comprised of companies in the S&P Supercomposite Insurance Index (“Peer Group”). The three-year performance period began on January 1, 2009 and will end on December 31, 2011. If, at the end of the performance period, the Company’s relative performance exceeds the “target” performance level, additional shares of performance-based restricted stock will be issued to the award recipient. If, at the end of the performance period, the Company’s relative performance is below the “target” performance level, only a portion of the shares of performance-based restricted stock originally issued to the award recipient will vest. If, at the end of the performance period, the Company’s relative performance is below a “minimum” performance level, none of the shares of performance-based restricted stock originally issued to the award recipient will vest.

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option on the date of grant. The expected terms of options are developed by considering the Company’s historical share option exercise experience, demographic profiles, historical share retention practices of employees and assumptions about their propensity for early exercise in the future. Further, the Company aggregates individual awards into relatively homogenous groups that exhibit similar exercise behavior to obtain a more refined estimate of the expected term of options. Expected volatility is estimated using weekly historical volatility. The Company believes that historical volatility is currently the best estimate of expected volatility. The dividend yield assumed was the annualized yield on Unitrin common stock on the date of grant for original grants made in 2008, 2007 and 2006. In light of the current economic environment, the Company changed its dividend yield assumption prospectively for original options granted in 2009. For original option grants made in 2009, the dividend yield assumed is the average, annualized dividend yield computed over the twenty consecutive quarters preceding the date of grant. Each quarterly dividend yield is calculated by dividing the amount of declared dividend per share during each quarter by the closing price of Unitrin common stock at the end of such quarter. The quarterly yields are then annualized and averaged to arrive at the dividend yield assumed. In light of current economic conditions, the Company believes basing dividend yield over a longer historical period of time is likely to be more consistent with the actual yield during the expected life of the option rather than the current dividend yield. For Restorative Options, the annualized dividend yield on Unitrin common stock for the month prior to the grant of the Restorative Option is used for all restorative grants made in 2008 and 2007. No Restorative Options have been granted in 2009. The risk free interest rate is the yield on the grant date of U.S. Treasury zero coupon issues with a maturity comparable to the expected term of the option.

24

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 - Long-term Equity Compensation Plans (continued)

The assumptions used in the Black-Scholes pricing model for options granted during the six months ended June 30, 2009 and 2008 were as follows:

	Six Months Ended
	June 30, 2009	June 30, 2008
Range of Valuation Assumptions
Expected Volatility	33.08% - 40.30%	22.36% - 24.52%
Risk Free Interest Rate	1.63% - 2.76%	2.18% - 3.39%
Expected Dividend Yield	4.59% - 5.07%	3.86% - 5.49%
Weighted-Average Expected Life
Employee Grants	4 - 7.5 years	2.5 - 7.5 years
Director Grants	7 years	4 - 6.5 years

Option and SAR activity for the six months ended June 30, 2009 is presented below:

	Shares Subject to Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value ($ in Millions)
Outstanding at Beginning of the Year	5,125,249		$	46.17
Granted	304,125			13.78
Exercised	—			—
Forfeited or Expired	(579,576	)		45.95
Outstanding at June 30, 2009	4,849,798		$	44.17	4.77	$	—
Vested and Expected to Vest at June 30, 2009	4,809,435		$	44.22	4.74	$	—
Exercisable at June 30, 2009	3,958,610		$	46.60	3.94	$	—

The weighted-average grant-date fair values of options granted during the six months ended June 30, 2009 and 2008 were $3.07 per option and $4.81 per option, respectively. No options were exercised during the six months ended June 30, 2009. Total intrinsic value of stock options exercised was $0.4 million for the six months ended June 30, 2008. Cash received from option exercises was $1.6 million for the six months ended June 30, 2008. Total tax benefits realized for tax deductions from option exercises were $0.2 million for the six months ended June 30, 2008.

25

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 - Long-term Equity Compensation Plans (continued)

The grant-date fair values of time-based restricted stock awards are determined using the closing price of Unitrin common stock on the date of grant. The grant date fair value of the performance-based restricted stock awards was determined using the Monte Carlo simulation method. The Monte Carlo simulation model produces a risk-neutral simulation of the daily returns on the common stock of Unitrin and each of the other companies included in the Peer Group. Returns generated by the simulation depend on the risk-free interest rate used and the volatilities of, and the correlation between, these stocks. The model simulates stock prices and dividend payouts to the end of the three-year performance period. Total shareholder returns are generated for each of these stocks based on the simulated prices and dividend payouts. The total shareholder returns are then ranked, and Unitrin’s simulated ranking is converted to a payout percentage based on the terms of the performance-based restricted stock awards. The payout percentage is applied to the simulated stock price at the end of the performance period, reinvested dividends are added back, and the total is discounted to the valuation date at the risk-free rate. This process is repeated approximately ten thousand times, and the grant date fair value is equal to the average of the results from these trials. Activity related to nonvested restricted stock for the six months ended June 30, 2009 is presented below:

	Restricted Shares		Weighted- Average Grant-Date Fair Value Per Share
Nonvested Balance at Beginning of the Year	196,307		$	42.66
Granted	127,800			13.81
Vested	—			—
Forfeited	(49,850	)		37.99
Nonvested Balance at June 30, 2009	274,257		$	30.06

For equity compensation awards with a graded vesting schedule, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the awards as if each award were, in substance, multiple awards. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations. Share-based compensation expense for all of the Company’s long-term equity-based compensation plans was $2.7 million and $5.0 million for the six months ended June 30, 2009 and 2008, respectively. Total unamortized compensation expense related to nonvested awards of such plans at June 30, 2009 was $5.5 million, which is expected to be recognized over a weighted-average period of 1.4 years.

Note 12 - Restructuring Expenses

On March 24, 2009, Fireside Bank suspended all new lending activity and ceased opening new certificate of deposit accounts as part of a plan to exit the automobile finance business. The exit plan envisions an orderly wind-down of Fireside Bank’s operations over the next several years. Fireside Bank will continue to collect outstanding loan balances and make interest payments and redemptions on outstanding certificates of deposit in the ordinary course of business.

As discussed in Note 2, “Acquisition of Businesses,” to the Condensed Consolidated Financial Statements, Unitrin’s subsidiary, Trinity, completed its acquisition of Direct Response on February 13, 2009. The Company is in the process of combining Direct Response’s back-office operations with the Company’s existing Unitrin Direct operations.

26

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 - Restructuring Expenses (continued)

Activity related to restructuring costs for the six months ended June 30, 2009 are presented below.

(Dollars in Millions)	Fireside Bank		Unitrin Direct		All Other Segments		Total
Liability at Beginning of Year:
Employee Termination Costs	$	0.1	$	0.1	$	—	$	0.2
Early Lease Termination Costs		1.0		0.3		—		1.3
Other Associated Costs		—		—		—		—
Liability at Beginning of Year		1.1		0.4		—		1.5
Expenses Incurred:
Employee Termination Costs		6.0		5.0		1.3		12.3
Early Lease Termination Costs		1.1		0.9		—		2.0
Other Associated Costs		1.7		—		0.2		1.9
Total Expenses Incurred		8.8		5.9		1.5		16.2
Payments of:
Employee Termination Costs		4.5		1.5		1.2		7.2
Early Lease Termination Costs		1.1		0.3		—		1.4
Other Associated Costs		1.6		—		0.2		1.8
Total Payments		7.2		1.8		1.4		10.4
Liability at June 30, 2009:
Employee Termination Costs		1.6		3.6		0.1		5.3
Early Lease Termination Costs		1.0		0.9		—		1.9
Other Associated Costs		0.1		—		—		0.1
Liability at June 30, 2009	$	2.7	$	4.5	$	0.1	$	7.3

In addition to the amounts presented above, Fireside Bank expects to incur early lease termination costs ranging from $4.0 million to $7.0 million before tax and employee termination costs ranging from $7.0 million to $12.0 million before tax during the next several years in connection with the exit plan.

In addition to the amounts presented above, Unitrin Direct expects to incur early lease termination costs of approximately $1 million before tax and employee termination costs of approximately $1 million before tax during the next two years in connection with its plan to combine back-office operations.

Note 13 - Income Taxes

The current and deferred income tax assets at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009			Dec. 31, 2008
Current Income Tax Assets	$	6.4		$	0.2
Deferred Income Tax Assets		229.2			204.8
Valuation Allowance for State Income Taxes		(10.4	)		(3.6	)
Current and Deferred Income Tax Assets	$	225.2		$	201.4

27

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 - Income Taxes (continued)

The components of Liabilities for Income Taxes at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Current Income Taxes	$	—	$	51.2
Unrecognized Tax Benefits		15.4		17.0
Liabilities for Income Taxes	$	15.4	$	68.2

Deferred Income Tax Assets include federal net operating loss carryforwards of $67.7 million and $12.7 million at June 30, 2009 and December 31, 2008, respectively. The federal net operating loss at June 30, 2009 included a federal net operating loss acquired in connection with the acquisition of Direct Response. The federal net operating loss carryforwards are scheduled to expire in years 2010 through 2026. The Company expects to fully utilize these federal net operating loss carryforwards before they expire. Deferred Income Tax Assets include state net operating loss carryforwards of $3.7 million and $2.6 million at June 30, 2009 and December 31, 2008, respectively. The state net operating loss carryforwards, the majority of which are scheduled to expire in 2030, relate to Fireside Bank. Deferred tax asset valuation allowances of $10.4 million and $3.6 million were required at June 30, 2009 and December 31, 2008, respectively, related to state income taxes for Fireside Bank.

Income taxes paid were $68.5 million and $66.6 million for the six months ended June 30, 2009 and 2008, respectively.

The statute of limitations related to Unitrin and its eligible subsidiaries’ consolidated Federal income tax returns, Primesco’s consolidated Federal income tax returns and Direct Response’s consolidated Federal income tax returns is closed for all tax years up to and including 2004. The expiration of the statute of limitations related to the various state income tax returns that Unitrin and its subsidiaries file varies by state. Unitrin’s consolidated Federal income tax returns, Primesco’s consolidated Federal income tax returns and Direct Response’s consolidated Federal income tax returns are not currently under examination. During the first quarter of 2009, the California Franchise Tax Board completed its audit of Fireside Bank’s 2004, 2005 and 2006 California tax returns and accepted the returns as filed.

28

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 - Income Per Share from Continuing Operations

The Company’s awards of restricted common stock contain a right to receive non-forfeitable dividends and participate in the undistributed earnings with common shareholders. Accordingly, pursuant to FSP EITF 03-6-1, the Company is required to apply the two-class method of computing basic and diluted earnings per share, pursuant to SFAS No. 128. A reconciliation of the numerator and denominator used in the calculation of Basic Income Per Share from Continuing Operations and Diluted Income Per Share from Continuing Operations for the six months ended June 30, 2009 is as follows:

	Six Months Ended June 30, 2009
(Dollars in Millions)	Restricted Common Stock		Unrestricted Common Stock		Total
Income from Continuing Operations	$	0.2	$	34.9	$	35.1
Dilutive Effect on Income of:
Investee’s Equivalent Shares		—		—		—
Unitrin Share-based Compensation Equivalent Shares		—		—		—
Diluted Income from Continuing Operations	$	0.2	$	34.9	$	35.1
(Shares in Thousands)
Weighted-Average Common Shares Outstanding		285.8		62,118.2
Unitrin Share-based Compensation Equivalent Shares		—		—
Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution		285.8		62,118.2
(Per Share in Whole Dollars)
Basic Income Per Share from Continuing Operations	$	0.59	$	0.56
Diluted Income Per Share from Continuing Operations	$	0.59	$	0.56

Options outstanding to purchase 5.1 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution for the six months ended June 30, 2009 because the exercise price exceeded the average market price.

29

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 - Income Per Share from Continuing Operations (continued)

A reconciliation of the numerator and denominator used in the calculation of Basic Income Per Share from Continuing Operations and Diluted Income Per Share from Continuing Operations for the three months ended June 30, 2009 is as follows:

	Three Months Ended June 30, 2009
(Dollars in Millions)	Restricted Common Stock		Unrestricted Common Stock		Total
Income from Continuing Operations	$	0.2	$	41.2	$	41.4
Dilutive Effect on Income of:
Investee’s Equivalent Shares		—		—		—
Unitrin Share-based Compensation Equivalent Shares		—		—		—
Diluted Income from Continuing Operations	$	0.2	$	41.2	$	41.4
(Shares in Thousands)
Weighted-Average Common Shares Outstanding		303.4		62,118.2
Unitrin Share-based Compensation Equivalent Shares		—		—
Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution		303.4		62,118.2
(Per Share in Whole Dollars)
Basic Income Per Share from Continuing Operations	$	0.62	$	0.66
Diluted Income Per Share from Continuing Operations	$	0.62	$	0.66

Options outstanding to purchase 4.8 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended June 30, 2009 because the exercise price exceeded the average market price.

30

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 - Income Per Share from Continuing Operations (continued)

A reconciliation of the numerator and denominator used in the calculation of Basic Income Per Share from Continuing Operations and Diluted Income Per Share from Continuing Operations for the six months ended June 30, 2008 is as follows:

	Six Months Ended June 30, 2008
(Dollars in Millions)	Restricted Common Stock		Unrestricted Common Stock		Total
Income from Continuing Operations	$	0.2	$	37.5	$	37.7
Dilutive Effect on Income of:
Investee’s Equivalent Shares		—		—		—
Unitrin Share-based Compensation Equivalent Shares		—		—		—
Diluted Income from Continuing Operations	$	0.2	$	37.5	$	37.7
(Shares in Thousands)
Weighted-Average Common Shares Outstanding		239.5		63,078.1
Unitrin Share-based Compensation Equivalent Shares		—		42.1
Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution		239.5		63,120.2
(Per Share in Whole Dollars)
Basic Income Per Share from Continuing Operations	$	0.66	$	0.59
Diluted Income Per Share from Continuing Operations	$	0.66	$	0.59

At June 30, 2008, options outstanding to purchase 5.1 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution for the six months ended June 30, 2008 because the exercise price exceeded the average market price.

31

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 - Income Per Share from Continuing Operations (continued)

A reconciliation of the numerator and denominator used in the calculation of Basic Income Per Share from Continuing Operations and Diluted Income Per Share from Continuing Operations for the three months ended June 30, 2008 is as follows:

	Three Months Ended June 30, 2008
(Dollars in Millions)	Restricted Common Stock		Unrestricted Common Stock		Total
Income from Continuing Operations	$	0.1	$	16.9	$	17.0
Dilutive Effect on Income of:
Investee’s Equivalent Shares		—		—		—
Unitrin Share-based Compensation Equivalent Shares		—		—		—
Diluted Income from Continuing Operations	$	0.1	$	16.9	$	17.0
(Shares in Thousands)
Weighted-Average Common Shares Outstanding		260.3		62,505.8
Unitrin Share-based Compensation Equivalent Shares		—		31.0
Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution		260.3		62,536.8
(Per Share in Whole Dollars)
Basic Income Per Share from Continuing Operations	$	0.26	$	0.27
Diluted Income Per Share from Continuing Operations	$	0.26	$	0.27

At June 30, 2008, options outstanding to purchase 5.1 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Common Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended June 30, 2008 because the exercise price exceeded the average market price.

32

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 15 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

Other Comprehensive Income (Loss) for the six and three months ended June 30, 2009 and 2008, was:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Other Comprehensive Income (Loss) Before Income Taxes:
Unrealized Holding Gains (Losses) Arising During the Period Before Reclassification Adjustment	$	53.8		$	(242.1	)	$	145.7		$	(173.5	)
Reclassification Adjustment for Amounts Included in Net Income (Loss)		30.0			(11.3	)		7.0			(4.6	)
Unrealized Holding Gains (Losses)		83.8			(253.4	)		152.7			(178.1	)
Foreign Currency Translation Adjustments Arising During the Period Before Reclassification Adjustment		1.6			—			2.3			—
Reclassification Adjustment for Amounts Included in Net Income (Loss)		(0.1	)		—			(1.3	)		—
Foreign Currency Translation Adjustments		1.5			—			1.0			—
Equity in Other Comprehensive Income (Loss) of Investee		(9.4	)		5.3			(0.6	)		1.0
Amortization of Unrecognized Postretirement Benefit Costs		(0.9	)		(1.1	)		(0.4	)		(0.8	)
Other Comprehensive Income (Loss) Before Income Taxes		75.0			(249.2	)		152.7			(177.9	)
Income Tax Benefit (Expense):
Unrealized Holding Gains and Losses Arising During the Period Before Reclassification Adjustment		(19.0	)		85.3			(51.4	)		61.1
Reclassification Adjustment for Amounts Included in Net Income (Loss)		(10.5	)		3.9			(2.5	)		1.6
Unrealized Holding Gains and Losses		(29.5	)		89.2			(53.9	)		62.7
Foreign Currency Translation Adjustments Arising During the Period Before Reclassification Adjustment		(0.5	)		—			(0.7	)		—
Reclassification Adjustment for Amounts Included in Net Income (Loss)		—			—			0.4			—
Foreign Currency Translation Adjustments		(0.5	)		—			(0.3	)		—
Equity in Other Comprehensive Income of Investee		3.3			(1.9	)		0.2			(0.4	)
Amortization of Unrecognized Postretirement Benefit Costs		0.3			0.4			0.1			0.3
Income Tax Benefit (Expense)		(26.4	)		87.7			(53.9	)		62.6
Other Comprehensive Income (Loss)	$	48.6		$	(161.5	)	$	98.8		$	(115.3	)

Total Comprehensive Income was $84.9 million and $140.7 million for the six and three months ended June 30, 2009, respectively. Total Comprehensive Loss was $135.3 million and $104.3 million for the six and three months ended June 30, 2008, respectively.

33

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 15 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss (continued)

The components of Accumulated Other Comprehensive Loss at June 30, 2009 and December 31, 2008 were:

(Dollars in Millions)	June 30, 2009			Dec. 31, 2008
Unrealized Gains (Losses) on Investments, Net of Income Taxes:
Available for Sale Fixed Maturities with Portion of OTTI Recognized in Earnings	$	1.8		$	—
Other Unrealized Gains (Losses) on Investments		4.1			(45.5	)
Equity in Accumulated Other Comprehensive Loss of Investee, Net of Income Taxes		(6.6	)		(0.5	)
Foreign Currency Translation Adjustments, Net of Income Taxes		(0.3	)		(1.3	)
Net Unrecognized Postretirement Benefit Costs, Net of Income Taxes		(61.4	)		(60.8	)
Total Accumulated Other Comprehensive Loss	$	(62.4	)	$	(108.1	)

Note 16 - Business Segments

The Company is engaged, through its subsidiaries, in the property and casualty insurance, life and health insurance and automobile finance businesses. The Company conducts its continuing operations through five operating segments: Kemper, Unitrin Specialty, Unitrin Direct, Life and Health Insurance and Fireside Bank.

NOTE: The Company uses the registered trademark, “Kemper,” under license, for personal lines insurance only, from Lumbermens Mutual Casualty Company (“Lumbermens”), which is not affiliated with the Company. Lumbermens continues to use the name, “Kemper Insurance Companies,” in connection with its operations, which are distinct from, and not to be confused with, Unitrin’s Kemper business segment.

The Kemper segment provides preferred and standard risk personal automobile and homeowners insurance through networks of independent agents. The Unitrin Specialty segment provides automobile insurance to individuals and businesses in the non-standard and specialty markets through networks of independent agents. The non-standard automobile insurance market consists of individuals and companies that have difficulty obtaining standard or preferred risk insurance, usually because of their driving records. Unitrin Direct markets personal automobile insurance through direct mail, radio and the Internet through web insurance portals, click-thrus and its own website. In addition, the Unitrin Direct segment specializes in the sale of personal automobile and homeowners insurance through employer-sponsored voluntary benefit programs. The Life and Health Insurance segment provides individual life, accident, health and hospitalization insurance. The Company’s Life and Health Insurance employee-agents also market property insurance products under common management. The Fireside Bank segment made sub-prime automobile loans primarily for the purchase of pre-owned automobiles and offered certificates of deposits. On March 24, 2009, Fireside Bank suspended all new lending activity and ceased opening new certificate of deposit accounts as part of a plan to exit the automobile finance business.

It is the Company’s management practice to allocate certain corporate expenses to its insurance operations. In accordance with SFAS No. 144, the Company is not permitted to allocate certain corporate expenses to discontinued operations. Accordingly, such amounts that the Company is not permitted to allocate to discontinued operations are reported in Other Expense, Net. The Company does not allocate Net Realized Gains on Sales of Investments and Net Impairment Losses Recognized in Earnings to its operating segments.

34

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 16 - Business Segments (continued)

Segment Revenues for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Revenues:
Kemper:
Earned Premiums	$	466.2		$	459.0		$	235.3		$	229.4
Net Investment Income		14.8			15.7			12.5			10.9
Other Income		0.2			0.2			0.1			0.1
Total Kemper		481.2			474.9			247.9			240.4
Unitrin Specialty:
Earned Premiums		267.3			237.2			134.7			122.4
Net Investment Income		7.4			7.0			6.3			4.8
Other Income		0.1			0.1			0.1			0.1
Total Unitrin Specialty		274.8			244.3			141.1			127.3
Unitrin Direct:
Earned Premiums		176.6			145.9			94.0			73.8
Net Investment Income		6.4			3.7			5.6			2.6
Other Income		0.1			0.2			0.1			0.1
Total Unitrin Direct		183.1			149.8			99.7			76.5
Life and Health Insurance:
Earned Premiums		328.7			330.1			162.3			170.7
Net Investment Income		106.5			90.0			65.3			57.4
Other Income		0.5			0.7			0.2			0.5
Total Life and Health Insurance		435.7			420.8			227.8			228.6
Fireside Bank:
Interest, Loan Fees and Earned Discounts		98.2			122.7			46.4			60.9
Other Automobile Finance Revenues		2.1			2.8			1.0			1.2
Automobile Finance Revenues		100.3			125.5			47.4			62.1
Net Investment Income		1.7			2.8			0.8			1.0
Total Fireside Bank		102.0			128.3			48.2			63.1
Total Segment Revenues		1,476.8			1,418.1			764.7			735.9
Unallocated Dividend Income		0.7			6.8			0.4			3.5
Net Realized Gains on Sales of Investments		5.2			38.0			4.4			23.3
Net Impairment Losses Recognized in Earnings		(34.7	)		(26.8	)		(9.7	)		(18.3	)
Other		3.9			1.5			3.5			1.3
Total Revenues	$	1,451.9		$	1,437.6		$	763.3		$	745.7

35

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 16 - Business Segments (continued)

Segment Operating Profit for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Segment Operating Profit (Loss):
Kemper	$	34.7		$	11.0		$	21.7		$	2.3
Unitrin Specialty		10.8			10.2			10.8			7.2
Unitrin Direct		(19.0	)		(22.7	)		(10.5	)		(12.8	)
Life and Health Insurance		71.1			61.7			47.7			37.3
Fireside Bank		(4.9	)		(25.9	)		0.3			(21.5	)
Total Segment Operating Profit		92.7			34.3			70.0			12.5
Unallocated Dividend Income		0.7			6.8			0.4			3.5
Net Realized Gains on Sales of Investments		5.2			38.0			4.4			23.3
Net Impairment Losses Recognized in Earnings		(34.7	)		(26.8	)		(9.7	)		(18.3	)
Other Expense, Net		(12.3	)		(14.6	)		(5.6	)		(5.9	)
Income from Continuing Operations before Income Taxes and Equity in Net Income (Loss) of Investee	$	51.6		$	37.7		$	59.5		$	15.1

Segment Net Income for the six and three months ended June 30, 2009 and 2008 was:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Segment Net Income (Loss):
Kemper	$	26.5		$	11.5		$	16.1		$	3.7
Unitrin Specialty		9.0			8.6			8.0			5.7
Unitrin Direct		(11.0	)		(13.7	)		(6.1	)		(7.8	)
Life and Health Insurance		46.0			39.2			31.0			24.2
Fireside Bank		(9.7	)		(15.2	)		0.2			(12.6	)
Total Segment Net Income		60.8			30.4			49.2			13.2
Net Income (Loss) From:
Unallocated Dividend Income		0.6			5.9			0.3			3.0
Net Realized Gains on Sales of Investments		3.4			24.7			2.9			15.2
Net Impairment Losses Recognized in Earnings		(22.6	)		(17.4	)		(6.4	)		(11.9	)
Other Expense, Net		(7.0	)		(9.2	)		(3.3	)		(3.6	)
Income from Continuing Operations before Equity in Net Income (Loss) of Investee		35.2			34.4			42.7			15.9
Equity in Net Income (Loss) of Investee		(0.1	)		3.3			(1.3	)		1.1
Income from Continuing Operations	$	35.1		$	37.7		$	41.4		$	17.0

36

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 16 - Business Segments (continued)

Earned Premiums by product line for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended				Three Months Ended
(Dollars in Millions)	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Life	$	201.1	$	197.6	$	100.4	$	103.4
Accident and Health		78.8		79.2		39.4		40.1
Property and Casualty:
Personal Lines:
Automobile		704.3		628.2		360.3		319.3
Homeowners		149.3		145.2		76.0		72.9
Other Personal		75.4		78.7		35.8		39.9
Total Personal Lines		929.0		852.1		472.1		432.1
Commercial Automobile		29.9		43.3		14.4		20.7
Total Earned Premiums	$	1,238.8	$	1,172.2	$	626.3	$	596.3

Note 17 - Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS No. 157, which, among other matters, requires enhanced disclosures about assets and liabilities that are measured and reported at fair value on a recurring basis. The Company classifies its Investments in Fixed Maturities and Investments in Equity Securities as available for sale and reports these investments at fair value. The Company classifies certain investments in mutual funds included in Other Investments as trading securities and reports these investments at fair value. The Company has no material liabilities that are measured and reported at fair value.

SFAS No. 157 defines fair value and establishes a hierarchal framework which prioritizes and ranks the market price observability used in fair value measurements. Market price observability is affected by a number of factors, including the type of asset or liability and the characteristics specific to the asset or liability being measured. Assets and liabilities with readily available, active, quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Under SFAS No. 157, the inputs used to measure fair value must be classified into one of three levels as follows:

• Level 1—Quoted prices in an active market for identical assets or liabilities;

• Level 2—Observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

• Level 3—Assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment. In accordance with SFAS No. 157, the Company is not permitted to adjust quoted market prices in an active market, even if the Company owns a large investment, the sale of which could reasonably impact the quoted price.

37

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 17 - Fair Value Measurements (continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at June 30, 2009 is summarized below:

	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value June 30, 2009
Available for Sale Securities:
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	245.1	$	571.8	$	—	$	816.9
States, Municipalities and Political Subdivisions		—		1,437.9		—		1,437.9
Corporate Securities:
Bonds and Notes		6.1		1,695.1		114.5		1,815.7
Redeemable Preferred Stocks		—		93.1		68.7		161.8
Asset Backed		—		9.4		6.1		15.5
Total Investments in Fixed Maturities		251.2		3,807.3		189.3		4,247.8
Equity Securities:
Preferred Stocks		—		114.0		7.8		121.8
Common Stocks		55.0		1.1		9.4		65.5
Other Equity Interests		—		—		40.3		40.3
Total Equity Securities		55.0		115.1		57.5		227.6
Total Available for Sale Securities		306.2		3,922.4		246.8		4,475.4
Trading Securities:
Other Investments		3.9		—		—		3.9
Total	$	310.1	$	3,922.4	$	246.8	$	4,479.3

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at December 31, 2008 is summarized below:

	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Dec. 31, 2008
Available for Sale Securities:
Fixed Maturities	$	254.0	$	3,677.1	$	204.8	$	4,135.9
Equity Securities		47.8		114.6		59.4		221.8
Total Available for Sale Securities		301.8		3,791.7		264.2		4,357.7
Trading Securities:
Other Investments		3.8		—		—		3.8
Total	$	305.6	$	3,791.7	$	264.2	$	4,361.5

38

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 17 - Fair Value Measurements (continued)

Additional information pertaining to the Company’s investments in Fixed Maturities and Equity Securities classified as Level 3 at December 31, 2008 is presented below:

(Dollars in Millions)	Fair Value Dec. 31, 2008
Fixed Maturities:
Corporate Bonds and Notes Due at a Single Maturity Date	$	134.2
Redeemable Preferred Stocks		70.6
Total Fixed Maturities Classified as Level 3		204.8
Equity Securities:
Common Stocks		10.4
Preferred Stocks		4.9
Other Equity Interests		44.1
Total Equity Securities Classified as Level 3		59.4
Total Investments Classified as Level 3	$	264.2

The Company’s investments in available for sale securities reported as Fixed Maturities and classified as Level 1 in the three preceding tables primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in available for sale securities reported as Equity Securities and classified as Level 1 in the three preceding tables primarily consist of investments in publicly-traded common stocks. The Company’s investments in available for sale securities reported as Fixed Maturities and classified as Level 2 in the three preceding tables primarily consist of investments in corporate bonds and redeemable preferred stocks, state and municipal bonds, and bonds and mortgage-backed securities of U.S. government agencies. The Company’s investments in available for sale securities reported as Equity Securities and classified as Level 2 in the three preceding tables primarily consist of investments in preferred stocks. The Company uses a leading, nationally recognized provider of market data and analytics to price the vast majority of the Company’s Level 2 measurements. The provider utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Because many fixed maturity securities do not trade on a daily basis, the provider’s evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to prepare evaluations. In addition, the provider uses model processes to develop prepayment and interest rate scenarios. The pricing provider’s models and processes also take into account market convention. For each asset class, teams of its evaluators gather information from market sources and integrate relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The Company generally validates the measurements obtained from its primary pricing provider by comparing them with measurements obtained from one additional pricing provider that provides either prices from recent market transactions or quotes in inactive markets or evaluations based on its own proprietary models.

The Company investigates significant differences related to the values provided. On completion of its investigation, management exercises judgment to determine the price selected and whether adjustments, if any, to the price obtained from the Company’s primary pricing provider would warrant classification of the price as Level 3. In instances where a measurement cannot be obtained from either pricing provider, the Company generally will evaluate bid prices from one or more binding quotes obtained from market makers to value investments in inactive markets and classified by the Company as Level 2. The Company generally classifies securities when it receives non-binding quotes or indications as Level 3 securities unless the Company can validate the quote or indication against recent transactions in the market. For securities classified as Level 3, the Company either uses valuations provided by third party fund managers or the Company’s own internal valuations. These valuations typically employ valuation techniques including earnings multiples based on comparable public securities, industry specific non-earnings based multiples, and discounted cash flow models. Valuations classified as Level 3 by the Company generally consist of investments in various private placement securities of non-rated entities. In rare cases, if the private placement security has only been outstanding for a short amount of time, the Company, after considering the initial assumptions used in acquiring an investment, will rely on the original purchase price as representative of the fair value.

39

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Summary information pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the six and three months ended June 30, 2009 and 2008 is presented below:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Balance at Beginning of Period	$	264.2		$	218.9		$	240.5		$	231.0
Total Gains (Losses):
Included in Statement of Income		(20.5	)		(0.1	)		0.3			2.4
Included in Other Comprehensive Income (Loss)		15.5			(3.2	)		14.2			(2.2	)
Purchases, Sales and Settlements, Net		(14.1	)		45.8			(9.1	)		30.2
Transfers in and/or out of Level 3		1.7			11.1			0.9			11.1
Balance at End of Period	$	246.8		$	272.5		$	246.8		$	272.5

Additional information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the six months ended June 30, 2009 is presented below:

	Fixed Maturities									Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks			Mortgage and Asset Backed			Preferred and Common Stocks			Other Equity Interests
Balance at Beginning of Period	$	128.6		$	70.6		$	5.6		$	15.3		$	44.1
Total Gains (Losses):
Included in Statement of Income		(16.6	)		—			—			(2.7	)		(1.2	)
Included in Other Comprehensive Income (Loss)		7.3			(2.5	)		(0.2	)		3.7			7.2
Purchases, Sales and Settlements, Net		(4.8	)		0.6			(0.1	)		—			(9.8	)
Transfers in and/or out of Level 3		—			—			0.8			0.9			—
Balance at End of Period	$	114.5		$	68.7		$	6.1		$	17.2		$	40.3

Additional information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended June 30, 2009 is presented below:

	Fixed Maturities									Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks			Mortgage and Asset Backed			Preferred and Common Stocks			Other Equity Interests
Balance at Beginning of Period	$	114.1		$	69.4		$	6.2		$	13.5		$	37.3
Total Gains (Losses):
Included in Statement of Income		0.8			—			—			(0.5	)		—
Included in Other Comprehensive Income (Loss)		6.6			(1.0	)		(0.1	)		3.3			5.4
Purchases, Sales and Settlements, Net		(7.0	)		0.3			—			—			(2.4	)
Transfers in and/or out of Level 3		—			—			—			0.9			—
Balance at End of Period	$	114.5		$	68.7		$	6.1		$	17.2		$	40.3

40

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 18 - Related Parties

One of Unitrin’s directors, Mr. Fayez Sarofim, is the Chairman of the Board, President and the majority shareholder of Fayez Sarofim & Co. (“FS&C”), a registered investment advisory firm. Unitrin’s subsidiary, Trinity, and FS&C were parties to an agreement under which FS&C provided investment management services to Trinity during 2008. During October 2008, FS&C sold all of the investments it managed for Trinity, and FS&C ceased providing investment management services to Trinity. In addition, FS&C provides investment management services with respect to certain funds of the Company’s pension plans. Such agreement is terminable by either party at any time upon 30 days advance written notice.

Under these investment advisory arrangements, FS&C is entitled to a fee calculated and payable quarterly based on the fair market value of the assets under management. At June 30, 2009, the Company’s pension plans had $69.6 million in investments managed by FS&C. For the six months ended June 30, 2009, the Company’s pension plans paid $0.1 million to FS&C. For the six and three months ended June 30, 2008, Trinity and the Company’s pension plans paid $0.4 million and $0.2 million, respectively, in the aggregate to FS&C.

With respect to the Company’s defined contribution plans, one of the investment choices afforded to participants is the Dreyfus Appreciation Fund, an open-end, diversified managed investment fund. FS&C provides investment management services to the Dreyfus Appreciation Fund as a sub-investment advisor. According to published reports filed by FS&C with the SEC, the Dreyfus Appreciation Fund pays monthly fees to FS&C according to a graduated schedule computed at an annual rate based on the value of the Dreyfus Appreciation Fund’s average daily net assets. The Company does not compensate FS&C for services provided to the Dreyfus Appreciation Fund. As of June 30, 2009, participants in the Company’s defined contribution plans had allocated $14.6 million for investment in the Dreyfus Appreciation Fund, representing 6.7% of the total amount invested by participants in the Company’s defined contribution plans.

The Company believes that the transactions described above have been entered into on terms no less favorable to the Company than could have been negotiated with non-affiliated third parties.

Eric J. Draut, Unitrin’s Chief Financial Officer and a member of Unitrin’s Board of Directors, is a director of Intermec, the Company’s investee.

As described in Note 19, “Relationships with Mutual Insurance Companies,” to the Condensed Consolidated Financial Statements, the Company also has certain relationships with mutual insurance companies. Such companies are owned by the policyholders of such companies.

Note 19 - Relationships with Mutual Insurance Companies

Trinity and Capitol County Mutual Fire Insurance Company (“Capitol”), and Trinity and Capitol’s wholly-owned subsidiary, Old Reliable Casualty Company (“ORCC”), are parties to quota share reinsurance agreements whereby Trinity assumes 100% of the business written by Capitol and ORCC. Capitol is a mutual insurance company and, accordingly, is owned by its policyholders. Five employees of the Company serve as directors of Capitol’s five-member board of directors. Nine employees of the Company also serve as directors of ORCC’s nine-member board of directors.

The Reliable Life Insurance Company (“Reliable”), a wholly-owned subsidiary of Unitrin, provides certain administrative services to Capitol and ORCC. In addition, agents appointed by Reliable and employed by Unitrin’s subsidiary, United Insurance Company of America (“United”), are also appointed by Capitol and ORCC to sell property insurance products. United also provides claims administration services to ORCC. The Company also provides certain investment services to Capitol and ORCC.

41

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 20 - Contingencies

In the ordinary course of their businesses, Unitrin and its subsidiaries are involved in a number of legal proceedings including lawsuits and regulatory examinations and inquiries. Some of these proceedings include matters particular to the Company or one or more of its subsidiaries, while others pertain to business practices in the industries in which Unitrin or its subsidiaries operate. Some lawsuits seek class action status that, if granted, could expose Unitrin or its subsidiaries to potentially significant liability by virtue of the size of the putative classes. These matters can raise complicated issues and may be subject to many uncertainties, including but not limited to: (i) the underlying facts of the matter; (ii) unsettled questions of law; (iii) issues unique to the jurisdiction where the matter is pending; (iv) damage claims, including claims for punitive damages, that are disproportionate to the actual economic loss incurred; and (v) the legal, regulatory and political environment faced by large corporations generally and the insurance and banking sectors specifically. Accordingly, the outcomes of these matters are difficult to predict, and the amounts or ranges of potential loss at particular points in time are in most cases difficult or impossible to ascertain.

Unitrin and certain of its subsidiaries, like many property and casualty insurers, are defending numerous individual lawsuits, mass actions and statewide putative class actions in Louisiana and Texas arising out of a number of catastrophes and storms, including Hurricanes Katrina, Rita and Ike. In these matters, the plaintiffs seek compensatory and punitive damages, and equitable relief. The Company and its relevant subsidiaries believe they have meritorious defenses to these proceedings and are defending them vigorously.

Fireside Bank is defending two class action lawsuits in California state court alleging that its post-repossession notices to defaulting borrowers failed to comply with certain aspects of California law. The plaintiffs seek compensatory and punitive damages, and equitable relief. Statewide classes have been certified in these matters, which are being treated on a coordinated basis. During the second quarter of 2009, the court gave final approval to a settlement covering certain members of these classes. The remaining, non-settling class members are former Fireside Bank customers against whom the bank previously obtained deficiency judgments in separate legal proceedings. The trial court granted Fireside Bank’s motion to strike the plaintiffs’ allegations seeking to set aside these judgments, which ruling plaintiffs have appealed. Fireside Bank believes that the trial court’s ruling is in accordance with California law and should be upheld on appeal. Accordingly, the Company does not believe that the remaining issues in these lawsuits represent a significant exposure.

The Company believes that resolution of its pending legal proceedings will not have a material adverse effect on the Company’s financial position. However, given the unpredictability of the legal environment, there can be no assurance that one or more of these matters will not produce a loss which could have a material adverse effect on the Company’s financial results for any given period.

The legal and regulatory environment within which Unitrin and its subsidiaries conduct their business is often unpredictable. Industry practices that were considered legally-compliant and reasonable for years may suddenly be deemed unacceptable by virtue of an unexpected court or regulatory ruling. Anticipating such shifts in the law and the impact they may have on the Company and its operations is a difficult task and there can be no assurances that the Company will not encounter such shifts in the future.

42

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary of Results

The Company reported Net Income of $36.3 million ($0.58 per unrestricted common share) and $41.9 million ($0.67 per unrestricted common share) for the six and three months ended June 30, 2009, respectively, compared to Net Income of $26.2 million ($0.41 per unrestricted common share) and $11.0 million ($0.18 per unrestricted common share) for the same periods in 2008. The Company reported Income from Continuing Operations of $35.1 million ($0.56 per unrestricted common share) and $41.4 million ($0.66 per unrestricted common share) for the six and three months ended June 30, 2009, compared to Income from Continuing Operations of $37.7 million ($0.59 per unrestricted common share) and $17.0 million ($0.27 per unrestricted common share) for the same periods in 2008. As discussed throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), Income from Continuing Operations decreased by $2.6 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower Net Realized Gains on Sales of Investments, higher Net Impairment Losses Recognized in Earnings, and lower unallocated dividend income due to lower levels of investments in Northrop Grumman Corporation (“Northrop”) common stock, partially offset by higher Segment Net Income. Income from Continuing Operations increased by $24.4 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher Segment Net Income and lower Net Impairment Losses Recognized in Earnings, partially offset by lower Net Realized Gains on Sales of Investments and lower unallocated dividend income due to lower levels of investments in Northrop common stock. Segment Net Income increased by $30.4 million and $36.0 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due to improved results in all segments, most notably the Kemper, Life and Health Insurance and Fireside Bank segments. Income from Continuing Operations for the six and three months ended June 30, 2009 and 2008 included restructuring charges of $16.2 million before tax and $8.1 million before tax, respectively, compared to $5.0 million before tax and $2.7 million before tax in the same periods of 2008. See Note 12, “Restructuring Expenses,” to the Condensed Consolidated Financial Statements and the individual segment MD&A for more information regarding restructuring charges. Income from Continuing Operations for the six months ended June 30, 2009 also included an income tax provision of $6.8 million to increase the valuation allowance for deferred state income taxes, net of federal benefit, related to the Fireside Bank segment. Catastrophe losses from continuing operations were $36.0 million before tax and $21.7 million before tax for the six and three months ended June 30, 2009, compared to $63.3 million before tax and $49.4 million before tax for same periods in 2008. The Company reported Income from Discontinued Operations of $1.2 million and $0.5 million for the six and three months ended June 30, 2009 respectively, compared to Loss from Discontinued Operations of $11.5 million and $6.0 million for the same periods in 2008. There were no catastrophe losses from discontinued operations for either the six and three months ended June 30, 2009, compared to catastrophe losses of $9.5 million before tax and $7.3 million before tax for the six and three months ended June 30, 2008, respectively.

Total Revenues were $1,451.9 million and $1,437.6 million for the six months ended June 30, 2009 and 2008, respectively, an increase of $14.3 million. Total Revenues increased for the six months ended June 30, 2009 due primarily to higher Earned Premiums and Net Investment Income, partially offset by lower Net Realized Gains on Sales of Investments, lower Automobile Finance Revenues and higher Net Impairment Losses Recognized in Earnings. Total Revenues were $763.3 million and $745.7 million for the three months ended June 30, 2009 and 2008, respectively, an increase of $17.6 million. Total Revenues increased for the three months ended June 30, 2009 due primarily to higher Earned Premiums and Net Investment Income and lower Net Impairment Losses Recognized in Earnings, partially offset by lower Net Realized Gains on Sales of Investments and lower Automobile Finance Revenues.

Earned Premiums were $1,238.8 million and $1,172.2 million for the six months ended June 30, 2009 and 2008, respectively, an increase of $66.6 million. Earned Premiums were $626.3 million and $596.3 million for the three months ended June 30, 2009 and 2008, respectively, an increase of $30.0 million. Earned premiums increased, for both the six and three months ended June 30, 2009, in the Unitrin Specialty, Unitrin Direct and Kemper segments, partially offset by lower earned premiums in the Life and Health Insurance segment.

43

Summary of Results (continued)

Automobile Finance Revenues decreased by $25.2 and $14.7 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to the Company’s decision to exit the automobile finance business.

Net Investment Income increased by $14.1 million and $13.0 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008. See “Investment Results” of the MD&A for a discussion of Net Investment Income.

Net Realized Gains on Sales of Investments were $5.2 million and $4.4 million for the six and three months ended June 30, 2009, respectively, compared to $38.0 million and $23.3 million for the same periods in 2008. Realized investment gains from sales of a portion of the Company’s investment in Northrop common stock were $12.1 million and $1.8 million for the six and three months ended June 30, 2008, respectively. There were no such sales of Northrop common stock for the six and three months ended June 30, 2009. Net Impairment Losses Recognized in Earnings were $34.7 million and $9.7 million for the six and three months ended June 30, 2009, respectively, compared to $26.8 million and $18.3 million in the same periods of 2008 resulting from other than temporary declines in the fair values of investments. The Company cannot anticipate when or if similar net investment gains and losses may occur in the future.

Critical Accounting Estimates

Unitrin’s subsidiaries conduct their businesses in three industries: property and casualty insurance, life and health insurance and automobile finance. Accordingly, the Company is subject to several industry-specific accounting principles under GAAP. The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The process of estimation is inherently uncertain. Accordingly, actual results could ultimately differ materially from the estimated amounts reported in a company’s financial statements. Different assumptions are likely to result in different estimates of reported amounts.

The Company’s critical accounting policies most sensitive to estimates include the valuation of investments, the valuation of reserves for property and casualty insurance incurred losses and LAE, the valuation of the reserve for loan losses, the assessment of recoverability of goodwill, and the valuation of pension benefit obligations. The Company’s critical accounting policies with respect to the valuation of investments, the valuation of reserves for property and casualty insurance incurred losses and LAE, the valuation of the reserve for loan losses, the assessment of recoverability of goodwill, and the valuation of pension benefit obligations are described in the MD&A included in the 2008 Annual Report. There has been no material change, subsequent to December 31, 2008, to information previously disclosed in the 2008 Annual Report with respect to the Company’s critical accounting policies.

44

Kemper

Selected financial information for the Kemper segment follows:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Earned Premiums:
Automobile	$	294.1		$	291.6		$	148.0		$	145.4
Homeowners		145.7			142.1			74.1			71.3
Other Personal		26.4			25.3			13.2			12.7
Total Earned Premiums		466.2			459.0			235.3			229.4
Net Investment Income		14.8			15.7			12.5			10.9
Other Income		0.2			0.2			0.1			0.1
Total Revenues		481.2			474.9			247.9			240.4
Incurred Losses and LAE		311.7			334.4			160.6			173.6
Insurance Expenses		134.8			129.5			65.6			64.5
Operating Profit		34.7			11.0			21.7			2.3
Income Tax Benefit (Expense)		(8.2	)		0.5			(5.6	)		1.4
Net Income	$	26.5		$	11.5		$	16.1		$	3.7
Ratios Based On Earned Premiums
	Six Months Ended						Three Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Incurred Loss and LAE Ratio (excluding Catastrophes)		62.0	%		61.7	%		61.5	%		58.8	%
Incurred Catastrophe Loss and LAE Ratio		4.9	%		11.2	%		6.8	%		16.9	%
Total Incurred Loss and LAE Ratio		66.9	%		72.9	%		68.3	%		75.7	%
Incurred Expense Ratio		28.9	%		28.2	%		27.9	%		28.1	%
Combined Ratio		95.8	%		101.1	%		96.2	%		103.8	%

Insurance Reserves

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Insurance Reserves:
Personal Automobile	$	312.5	$	336.3
Homeowners		99.4		103.0
Other Personal		37.1		36.8
Insurance Reserves	$	449.0	$	476.1
Insurance Reserves:
Loss Reserves:
Case	$	268.1	$	273.3
Incurred but Not Reported		103.3		125.9
Total Loss Reserves		371.4		399.2
LAE Reserves		77.6		76.9
Insurance Reserves	$	449.0	$	476.1

45

Kemper (Continued)

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Favorable Loss and LAE Reserve Development, Net (excluding Catastrophes)	$	26.3		$	33.7		$	15.4		$	18.9
Favorable Catastrophe Loss and LAE Reserve Development, Net		11.6			4.9			4.3			2.7
Total Favorable Loss and LAE Reserve Development, Net	$	37.9		$	38.6		$	19.7		$	21.6
Loss and LAE Reserve Development as a Percentage of Insurance Reserves at Beginning of Year		8.0	%		7.7	%		4.1	%		4.3	%

Earned Premiums in the Kemper segment increased by $7.2 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher volume, partially offset by an increase in the cost of reinsurance. Earned Premiums in the Kemper segment increased by $5.9 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher volume. Earned premiums on homeowners insurance increased by $3.6 million for the six months ended June 30, 2009, due primarily to higher average premium rates and higher volume, partially offset by an increase in the cost of reinsurance. Earned premiums on homeowners insurance increased by $2.8 million for the three months ended June 30, 2009, due primarily to higher average premium rates and higher volume. Earned premiums on automobile insurance increased by $2.5 million and $2.6 million for the six and three months ended June 30, 2009, respectively, due primarily to higher volume, partially offset by lower average premium rates. Earned premiums on other personal insurance increased by $1.1 million and $0.5 million for the six and three months ended June 30, 2009, respectively, due primarily to higher volume.

Net Investment Income decreased by $0.9 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower levels of investments, partially offset by higher yields on investments. Net Investment Income increased by $1.6 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher yields on investments, partially offset by lower levels of investments. The increase in investment yield was due primarily to higher investment income from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting.

Operating Profit in the Kemper segment increased by $23.7 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower incurred catastrophe losses and LAE, partially offset by higher insurance expenses. Operating Profit in the Kemper segment increased by $19.4 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to lower incurred catastrophe losses and LAE.

Homeowners insurance incurred losses and LAE were $100.0 million for the six months ended June 30, 2009, compared to $121.7 million for the same period in 2008. Homeowners insurance incurred losses and LAE decreased due primarily to lower catastrophe losses and LAE. Catastrophe losses and LAE (excluding development) on homeowners insurance were $27.8 million for the six months ended June 30, 2009, compared to $46.2 million for the same period in 2008. Catastrophe loss and LAE reserve development on homeowners insurance had a favorable effect of $11.0 million for the six months ended June 30, 2009, compared to a favorable effect of $4.4 million for the same period in 2008. Catastrophe loss and LAE reserve development for the six months ended June 30, 2009 included favorable development of $7.4 million on Hurricanes Ike and Gustav, both of which occurred in the third quarter of 2008.

Homeowners insurance incurred losses and LAE were $55.0 million for the three months ended June 30, 2009, compared to $70.7 million for the same period in 2008. Homeowners insurance incurred losses and LAE decreased due primarily to lower catastrophe losses and LAE. Catastrophe losses and LAE (excluding development) on homeowners insurance were $16.9 million for the three months ended June 30, 2009, compared to $33.7 million for the same period in 2008. Catastrophe loss and LAE reserve development on homeowners insurance had a favorable effect of $3.9 million for the three months ended June 30, 2009, compared to a favorable effect of $2.5 million for the same period in 2008. Catastrophe loss and LAE reserve development for the three months ended June 30, 2009 included favorable development of $2.5 million on Hurricanes Ike and Gustav, both of which occurred in the third quarter of 2008.

46

Kemper (Continued)

Automobile insurance incurred losses and LAE were $196.8 million for the six months ended June 30, 2009, compared to $197.0 million for the same period in 2008. Automobile insurance incurred losses and LAE decreased slightly as lower non-catastrophe loss and LAE (excluding development) and lower catastrophe losses and LAE (excluding development) were mostly offset by lower favorable loss and LAE reserve development. Non-catastrophe loss and LAE (excluding development) decreased by $5.4 million due primarily to lower average, estimated severity of losses, partially offset by higher frequency of losses. Catastrophe losses and LAE (excluding development) on automobile insurance were $5.1 million for the six months ended June 30, 2009, compared to $8.6 million for the same period in 2008. Loss and LAE reserve development on automobile insurance had a favorable effect of $20.6 million for the six months ended June 30, 2009, compared to a favorable effect of $29.3 million for the same period in 2008.

Automobile insurance incurred losses and LAE were $96.2 million for the three months ended June 30, 2009, compared to $93.9 million for the same period in 2008. Automobile insurance incurred losses and LAE increased due primarily to lower favorable loss and LAE reserve development and higher non-catastrophe loss and LAE (excluding development), partially offset by lower catastrophe losses and LAE (excluding development). Loss and LAE reserve development on automobile insurance had a favorable effect of $11.9 million for the three months ended June 30, 2009, compared to a favorable effect of $15.4 million for the same period in 2008. Non-catastrophe loss and LAE (excluding development) increased by $3.1 million due primarily to higher frequency of losses, partially offset by lower average, estimated severity of losses. Catastrophe losses and LAE on automobile insurance were $2.2 million for the three months ended June 30, 2009, compared to $6.5 million for the same period in 2008.

See MD&A, “Critical Accounting Estimates,” in the 2008 Annual Report for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE, estimated variability of property and casualty insurance reserves for losses and LAE, and a discussion of some of the variables that may impact development of property and casualty insurance losses and LAE and the estimated variability of property and casualty insurance reserves for losses and LAE.

Insurance Expenses increased by $5.3 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher commission expenses, higher premium-based state assessments and certain employee termination costs. Commission expenses increased due primarily to the higher amount of Earned Premiums. Insurance Expenses increased by $1.1 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher premium-based state assessments.

Net Income in the Kemper segment increased by $15.0 million and $12.4 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to the changes in Operating Profit. The Kemper segment’s effective income tax rate differs from the federal statutory income tax rate due primarily to tax-exempt investment income and dividends received deductions. Tax-exempt investment income and dividends received deductions were $11.7 million and $5.9 million for the six and three months ended June 30, 2009, compared to $12.9 million and $6.5 million for the same periods in 2008.

47

Unitrin Specialty

Selected financial information for the Unitrin Specialty segment follows:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Earned Premiums:
Personal Automobile	$	237.4		$	193.9		$	120.3		$	101.7
Commercial Automobile		29.9			43.3			14.4			20.7
Total Earned Premiums		267.3			237.2			134.7			122.4
Net Investment Income		7.4			7.0			6.3			4.8
Other Income		0.1			0.1			0.1			0.1
Total Revenues		274.8			244.3			141.1			127.3
Incurred Losses and LAE		214.7			187.7			106.1			96.2
Insurance Expenses		49.3			46.4			24.2			23.9
Operating Profit		10.8			10.2			10.8			7.2
Income Tax Benefit (Expense)		(1.8	)		(1.6	)		(2.8	)		(1.5	)
Net Income	$	9.0		$	8.6		$	8.0		$	5.7
Ratios Based On Earned Premiums
	Six Months Ended						Three Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Incurred Loss and LAE Ratio (excluding Catastrophes)		79.7	%		78.6	%		78.3	%		77.7	%
Incurred Catastrophe Loss and LAE Ratio		0.6	%		0.5	%		0.5	%		0.9	%
Total Incurred Loss and LAE Ratio		80.3	%		79.1	%		78.8	%		78.6	%
Incurred Expense Ratio		18.4	%		19.6	%		18.0	%		19.5	%
Combined Ratio		98.7	%		98.7	%		96.8	%		98.1	%

Insurance Reserves

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Insurance Reserves:
Personal Automobile	$	182.5	$	175.7
Commercial Automobile		95.4		107.2
Other		8.5		10.2
Insurance Reserves	$	286.4	$	293.1
Insurance Reserves:
Loss Reserves:
Case	$	175.3	$	179.6
Incurred but Not Reported		74.5		76.3
Total Loss Reserves		249.8		255.9
LAE Reserves		36.6		37.2
Insurance Reserves	$	286.4	$	293.1

48

Unitrin Specialty (continued)

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Favorable Loss and LAE Reserve Development, Net (excluding Catastrophes)	$	2.9		$	3.6		$	2.7		$	2.9
Adverse Catastrophe Loss and LAE Reserve Development, Net		(0.1	)		—			—			—
Total Favorable Loss and LAE Reserve Development, Net	$	2.8		$	3.6		$	2.7		$	2.9
Loss and LAE Reserve Development as a Percentage of Insurance Reserves at Beginning of Year		1.0	%		1.3	%		1.0	%		1.0	%

Earned Premiums in the Unitrin Specialty segment increased by $30.1 million and $12.3 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due to higher earned premiums on personal automobile insurance, partially offset by lower earned premiums on commercial automobile insurance. Personal automobile insurance earned premiums increased by $43.5 million and $18.6 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due to higher volume, partially offset by lower average earned premium rates. Personal automobile insurance volume increased due primarily to a higher level of renewal policies resulting from significant growth in 2008 in California. Unitrin Specialty expects that its rate of growth in personal automobile insurance volume will begin to slow due to recently implemented rate increases, its decision to focus on states where it is more profitable, its withdrawal from three states which were unprofitable for Unitrin Specialty and its decision to terminate its relationship with two multi-state agencies that had been acquired by a competing insurer. Unitrin Specialty has recently implemented personal automobile insurance rate increases in various states, including its two largest markets, California and Texas, which account for approximately 58.5% of Unitrin Specialty’s personal automobile insurance earned premiums. Commercial automobile insurance earned premiums decreased by $13.4 million and $6.3 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to lower volume. In the fourth quarter of 2008, Unitrin Specialty implemented in certain key states several initiatives targeted to stabilize commercial automobile premium volume, including the introduction of a new commercial insurance product for light commercial vehicles, a reduction in down payment requirements for certain commercial automobile insurance risks and the introduction of improved internet-enabled commercial lines rating technology. While these initiatives appear to have stabilized new business production in these states, commercial automobile insurance premium volume decreased for the six and three months ended June 30, 2009, compared to the same periods in 2008, due primarily to a lower level of renewal policies. Unitrin Specialty is continuing to implement these initiatives in the remaining states where it writes commercial automobile insurance.

Net Investment Income increased by $0.4 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower net investment losses from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. The Unitrin Specialty segment reported net investment losses of $1.1 million from these investments for the six months ended June 30, 2009, compared to net investment losses of $1.5 million for the same period in 2008.

Net Investment Income increased by $1.5 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher net investment income from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. The Unitrin Specialty segment reported net investment income of $1.9 million from these investments for the three months ended June 30, 2009, compared to net investment income of $0.5 million for the same period in 2008.

Operating Profit in the Unitrin Specialty segment increased by $0.6 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower incurred losses and LAE as a percentage of earned premiums in commercial automobile insurance, lower insurance expenses as a percentage of earned premiums and the higher Net Investment Income, partially offset by higher incurred losses and LAE as a percentage of earned premiums in personal automobile insurance and lower favorable loss and LAE reserve development (which recognizes changes in estimates of prior year loss and LAE reserves in the current period) on certain reinsurance pools in run-off, which are included in other insurance. Operating Profit in the Unitrin Specialty segment increased by $3.6 million for the three

49

Unitrin Specialty (continued)

months ended June 30, 2009, compared to the same period in 2008, due primarily to lower incurred losses and LAE as a percentage of earned premiums in commercial automobile insurance, lower insurance expenses as a percentage of earned premiums and the higher Net Investment Income, partially offset by lower favorable loss and LAE reserve development on certain reinsurance pools in run-off, which are included in other insurance.

For both the six and three months ended June 30, 2009, commercial automobile insurance incurred losses and LAE as a percentage of earned premiums decreased due primarily to higher favorable loss and LAE reserve development. Commercial automobile insurance loss and LAE reserve development had a favorable effect of $3.1 million for the six months ended June 30, 2009, compared to a favorable effect of $0.6 million for the same period in 2008. Commercial automobile insurance loss and LAE reserve development had a favorable effect of $2.2 million for the three months ended June 30, 2009, compared to a favorable effect of $0.4 million for the same period in 2008.

For the six months ended June 30, 2009, personal automobile insurance incurred losses and LAE as a percentage of earned premiums increased due primarily to the significant growth in new personal automobile insurance volume in California in 2008, the unfavorable effects of loss and LAE reserve development and higher catastrophe losses and LAE. Historically, incurred losses and LAE as a percentage of earned premiums for personal automobile insurance have been higher for new business than they have been for renewal business. As the newer California book of business written in 2008 renews in 2009 and premium rate increases take effect in Unitrin Specialty’s major markets, California and Texas, Unitrin Specialty anticipates that incurred losses and LAE as a percentage of earned premiums will decrease during the second half of 2009. For the six months ended June 30, 2009, personal automobile insurance loss and LAE reserve development had an adverse effect of $0.5 million, compared to a favorable effect of $0.6 million for the same period in 2008. For the three months ended June 30, 2009, personal automobile insurance loss and LAE reserve development had a favorable effect of $0.3 million, compared to a favorable effect of $0.1 million for the same period in 2008.

Loss and LAE reserve development on certain reinsurance pools in run-off, which are included in other insurance, had a favorable effect of $0.2 million for both the six and three months ended June 30, 2009, compared to a favorable effect of $2.4 million for both periods in 2008.

See MD&A, “Critical Accounting Estimates,” of the 2008 Annual Report for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE and estimated variability of property and casualty insurance reserves for losses and LAE.

Insurance expenses as a percentage of earned premiums decreased for the six and three months ended June 30, 2009, compared to the same periods in 2008, due primarily to greater economies of scale.

Net Income in the Unitrin Specialty segment increased by $0.4 million and $2.3 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to the higher operating profit. The Unitrin Specialty segment’s effective tax rate differs from the statutory tax rate due primarily to tax-exempt investment income and dividends received deductions. Tax-exempt investment income and dividends received deductions were $5.8 million and $3.0 million for the six and three months ended June 30, 2009, respectively, compared to $5.7 million and $2.9 million for the same periods in 2008.

50

Unitrin Direct

Selected financial information for the Unitrin Direct segment follows:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Earned Premiums:
Automobile	$	172.8		$	142.7		$	92.0		$	72.2
Homeowners		3.6			3.1			1.9			1.6
Other		0.2			0.1			0.1			—
Total Earned Premiums		176.6			145.9			94.0			73.8
Net Investment Income		6.4			3.7			5.6			2.6
Other Income		0.1			0.2			0.1			0.1
Total Revenues		183.1			149.8			99.7			76.5
Incurred Losses and LAE		142.6			121.1			78.6			63.4
Insurance Expenses		59.5			51.4			31.6			25.9
Operating Loss		(19.0	)		(22.7	)		(10.5	)		(12.8	)
Income Tax Benefit		8.0			9.0			4.4			5.0
Net Loss	$	(11.0	)	$	(13.7	)	$	(6.1	)	$	(7.8	)

Ratios Based On Earned Premiums

	Six Months Ended				Three Months Ended
	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Incurred Loss and LAE Ratio (excluding Catastrophes)	79.5	%	81.8	%	82.0	%	83.9	%
Incurred Catastrophe Loss and LAE Ratio	1.2	%	1.2	%	1.6	%	2.0	%
Total Incurred Loss and LAE Ratio	80.7	%	83.0	%	83.6	%	85.9	%
Incurred Expense Ratio	33.7	%	35.2	%	33.6	%	35.1	%
Combined Ratio	114.4	%	118.2	%	117.2	%	121.0	%

Insurance Reserves

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Insurance Reserves:
Personal Automobile	$	261.1	$	159.3
Homeowners		3.1		3.1
Other		1.6		0.7
Insurance Reserves	$	265.8	$	163.1
Insurance Reserves:
Loss Reserves:
Case	$	140.2	$	97.9
Incurred but Not Reported		80.0		37.5
Total Loss Reserves		220.2		135.4
LAE Reserves		45.6		27.7
Insurance Reserves	$	265.8	$	163.1

51

Unitrin Direct (continued)

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Favorable (Adverse) Loss and LAE Reserve Development, Net (excluding Catastrophes)	$	7.5		$	(1.7	)	$	3.5		$	(2.2	)
Adverse Catastrophe Loss and LAE Reserve Development, Net		(0.2	)		—			—			—
Total Favorable (Adverse) Loss and LAE Reserve Development, Net	$	7.3		$	(1.7	)	$	3.5		$	(2.2	)
Loss and LAE Reserve Development as a Percentage of Insurance Reserves at Beginning of Year		4.5	%		-1.2	%		2.1	%		-1.5	%

On February 13, 2009, the Company completed its acquisition of Direct Response in a cash transaction. Direct Response specializes in the sale of personal automobile insurance through direct mail and the Internet through web insurance portals and its own websites, Response.com and Teachers.com. The results for Direct Response are included in the Unitrin Direct business segment from the date of acquisition. Direct Response had earned premiums of $50.8 million since the date of acquisition through June 30, 2009. For the three months ended June 30, 2009, Direct Response had earned premiums of $33.6 million. Unitrin Direct is in the process of combining its existing back office operations with those of Direct Response to further improve Unitrin Direct’s operating efficiencies over time.

Excluding the impact of the Direct Response acquisition, Earned Premiums in the Unitrin Direct segment decreased by $20.1 million and $13.4 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008. During the second half of 2008, Unitrin Direct began to moderate its marketing spending while modifying its direct mail marketing program to target a better response rate and place greater emphasis on improving Losses and LAE as a percentage of Earned Premiums through improved premium rate adequacy and improved insurance risk selection. The Unitrin Direct segment has implemented and continues to implement rate increases in most states. The Unitrin Direct segment plans to continue to further reduce its marketing spending for the remainder of 2009 and, accordingly, expects earned premiums, excluding the impact of the Direct Response acquisition, to continue to decline in 2009 compared to 2008.

Net Investment Income increased by $2.7 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher levels of investments allocated to the Unitrin Direct segment, due in part to the acquisition of Direct Response and to a lesser extent lower net investment losses from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. Net Investment Income increased by $3.0 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher levels of investments allocated to the Unitrin Direct segment, due in part to the acquisition of Direct Response and higher net investment income from certain investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting. For the six months ended June 30, 2009, the Unitrin Direct segment reported a net investment loss of $0.5 million from investments in limited liability investment companies and limited partnerships, compared to a net investment loss of $0.8 million for the same period in 2008. For the three months ended June 30, 2009, the Unitrin Direct segment reported net investment income of $1.7 million from investments in limited liability investment companies and limited partnerships, compared to net investment income of $0.3 million for the same period in 2008.

The Unitrin Direct segment reported Operating Losses of $19.0 million and $10.5 million for the six and three months ended June 30, 2009, respectively, compared to $22.7 million and $12.8 million for the same periods in 2008. Operating Loss for Direct Response was $12.1 million since the date of acquisition through June 30, 2009 and included restructuring costs of $5.5 million and a charge of $1.5 million to write off goodwill. Operating Loss for Direct Response was $10.0 million for the three months ended June 30, 2009 and included restructuring costs of $4.2 million and a charge of $1.5 million to write off goodwill. Excluding the operating losses from Direct Response, the Unitrin Direct segment’s Operating Loss was $6.9 million and $0.5 million for the six and three months ended June 30, 2009, respectively, compared to $22.7 million and $12.8 million for the same periods in 2008. Excluding the impact of the acquisition of Direct Response, operating results in the Unitrin Direct segment improved due primarily to lower volume of unprofitable business, lower Incurred Losses and LAE and lower Insurance Expenses for both the six and three months ended June 30, 2009, compared to the same periods in 2008.

52

Unitrin Direct (continued)

Incurred Losses and LAE as a percentage of earned premiums for the Unitrin Direct segment’s book of business was significantly higher than that required to produce a profit for the six and three months ended June 30, 2009 and 2008. Incurred Losses and LAE (excluding development and the impact of the Direct Response acquisition) as a percentage of earned premiums were 80.8% and 80.1% for the six and three months ended June 30, 2009, respectively, compared to 81.8% and 82.9% for the same periods in 2008. Incurred Losses and LAE (excluding development and the impact of the Direct Response acquisition) as a percentage of earned premiums improved in 2009 due primarily to the impact of the premium rate increases implemented in 2008. Incurred Losses and LAE, excluding the impact of the Direct Response acquisition, decreased by $26.7 million and $18.5 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to the lower volume of earned premiums and the impact of higher favorable loss reserve development (which recognizes changes in estimates of prior year reserves in the current period) in 2009, compared to 2008. Favorable loss and LAE reserve development for the Unitrin Direct segment was $7.3 million and $3.5 million for the six and three months ended June 30, 2009, respectively, compared to adverse development of $1.7 million and $2.2 million for the same periods in 2008. See MD&A, “Critical Accounting Estimates,” in the 2008 Annual Report for additional information pertaining to the Company’s process of estimating property and casualty insurance reserves for losses and LAE, development of property and casualty insurance losses and LAE and estimated variability of property and casualty insurance reserves for losses and LAE. Catastrophe losses and LAE, excluding the impact of the Direct Response acquisition, for the Unitrin Direct segment were $1.4 million and $1.0 million for the six and three months ended June 30, 2009, respectively, compared to $1.6 million and $1.3 million for the same periods in 2008.

Insurance Expenses were $59.5 million and $31.6 million for the six and three months ended June 30, 2009, respectively, compared to $51.4 million and $25.9 million for the same periods in 2008. Insurance Expenses for Direct Response, including restructuring costs and the charge to write off goodwill, were $17.1 million and $12.1 million since the date of acquisition through June 30, 2009 and for the three months ended June 30, 2009, respectively. Insurance Expenses, excluding the impact of the Direct Response acquisition, decreased by $9.0 million and $6.4 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to lower marketing expense and the benefits derived from restructuring initiatives. Marketing spending, excluding the impact of the Direct Response acquisition, decreased by $6.7 million and $4.1 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008. Direct marketing initiatives, particularly in 2008, contributed to the Unitrin Direct segment’s relatively higher Insurance Expenses as a percentage of Earned Premiums, compared to the Kemper and Unitrin Specialty segments, which market their insurance products through independent agents. Direct marketing, as compared to independent agency marketing, initially results in higher expenses as a percentage of earned premiums because up-front marketing costs, to the extent they are not deferrable, are expensed as incurred, generally prior to when premiums are written and subsequently earned. Written premiums are recognized as earned premiums over the terms of the respective policies; therefore, premiums from the sales of policies resulting from marketing spending typically take several months to be earned.

Unitrin Direct reported Net Losses of $11.0 million and $6.1 million for the six and three months ended June 30, 2009, respectively, compared to Net Losses of $13.7 million and $7.8 million for the same periods in 2008. Excluding a Net Loss of $7.6 million from Direct Response since the date of the acquisition through June 30, 2009 and a Net Loss of $6.4 million from Direct Response for the three months ended June 30, 2009, the Unitrin Direct segment recorded a Net Loss of $3.4 million for the six months ended June 30, 2009 and Net Income of $0.3 million for the three months ended June 30, 2009, compared to Net Losses of $13.7 million and $7.8 million for the six and three months ended June 30, 2008, respectively. Unitrin Direct’s effective income tax rate differs from the federal statutory income tax rate due primarily to tax-exempt investment income and dividends received deductions. Tax-exempt investment income and dividends received deductions were $4.7 million and $2.7 million for the six and three months ended June 30, 2009, respectively, compared to $3.0 million and $1.5 million for the same periods in 2008.

The Unitrin Direct segment continues to implement several initiatives to improve its operating results. Over the remainder of 2009, excluding the impact of the Direct Response acquisition, these initiatives will result in a decrease in new business. Accordingly, the Unitrin Direct segment’s book of business is expected to have more renewal business as a percentage of its total book of business. Typically, incurred losses and LAE as a percentage of earned premiums for personal automobile insurance are higher for new business than they are for renewal business. As the Unitrin Direct book of business matures and premium rate increases are implemented at renewal and earned over the terms of the policies, the Company expects losses and LAE as a percentage of Earned Premiums for the renewal book of business to

53

Unitrin Direct (continued)

decrease. Unitrin Direct anticipates its marketing spending will remain significantly lower in 2009 compared to 2008, due to the moderation of its marketing efforts. Due to this moderation and the acquisition of Direct Response, the Unitrin Direct segment continues to adjust its operating scale by eliminating redundant back office operations and reducing staff. Unitrin Direct expects to reduce staff, including staff at Direct Response, by approximately 30% in 2009 and to close certain office locations in 2009. Total restructuring costs related to these expense savings initiatives are currently estimated to range between $7 million and $8 million, of which $5.9 million and $4.6 million was expensed in the six and three months ended June 30, 2009, respectively.

The Unitrin Direct segment anticipates that these initiatives will significantly improve its operating results for the remainder of 2009, compared to the same period in 2008. However, given the level of improvement required to be profitable and the operating losses expected from the Direct Response acquisition, the Company does not anticipate that the Unitrin Direct segment will be profitable in 2009.

Life and Health Insurance

Selected financial information for the Life and Health Insurance segment follows:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Earned Premiums:
Life	$	201.1		$	197.6		$	100.4		$	103.4
Accident and Health		78.8			79.2			39.4			40.1
Property		48.8			53.3			22.5			27.2
Total Earned Premiums		328.7			330.1			162.3			170.7
Net Investment Income		106.5			90.0			65.3			57.4
Other Income		0.5			0.7			0.2			0.5
Total Revenues		435.7			420.8			227.8			228.6
Policyholders’ Benefits and Incurred Losses and LAE		224.1			215.8			108.5			115.0
Insurance Expenses		140.5			143.3			71.6			76.3
Operating Profit		71.1			61.7			47.7			37.3
Income Tax Expense		(25.1	)		(22.5	)		(16.7	)		(13.1	)
Net Income	$	46.0		$	39.2		$	31.0		$	24.2

Insurance Reserves

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Insurance Reserves:
Future Policyholder Benefits	$	2,937.7	$	2,912.5
Incurred Losses and LAE:
Life		42.0		36.6
Accident and Health		25.4		23.6
Property		26.8		23.0
Total Incurred Losses and LAE		94.2		83.2
Insurance Reserves	$	3,031.9	$	2,995.7

54

Life and Health Insurance (continued)

On April 1, 2008, Unitrin completed its acquisition of Primesco in a cash merger transaction. Primesco’s wholly-owned subsidiaries, Mutual Savings Life and Mutual Savings Fire, specialize in the sale of life, health and fire insurance products to persons of modest financial means primarily in the states of Alabama, Georgia and Mississippi. Results for Primesco and its subsidiaries are included in the Company’s results of operations from the date of acquisition.

Earned Premiums in the Life and Health Insurance segment decreased by $1.4 million for the six months ended June 30, 2009, compared to the same period in 2008. Earned Premiums in the Life and Health Insurance segment for the six months ended June 30, 2009 included earned premiums of $12.6 million in the first quarter of 2009 (consisting of $9.8 million from life insurance, $1.9 million from accident and health insurance and $0.9 million from property insurance, resulting) from the Primesco acquisition with no corresponding amount in the first quarter of 2008.

Excluding the impact of the Primesco acquisition, Earned Premiums in the Life and Health Insurance segment decreased by $14.0 million and $8.4 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008. Earned premiums on life insurance decreased by $6.3 million and $3.0 million for the six and three months ended June 30, 2009, respectively, due primarily to lower volume. Earned premiums on accident and health insurance decreased by $2.3 million and $0.7 million for the six and three months ended June 30, 2009, respectively, as the volume of limited benefit medical and Medicare supplement products declined by $4.5 million and $2.2 million, respectively, while higher average premium rates for those same products increased earned premiums by $2.2 million and $1.5 million, respectively. Earned premiums on property insurance sold by the Life and Health Insurance segment’s career agents decreased by $5.4 million and $4.7 million for the six and three months ended June 30, 2009, respectively, due primarily to lower volume, due in part to the Life and Health Insurance segment’s strategy to reduce its catastrophe exposure through the non-renewal of dwelling coverage in certain coastal areas and the continued run-off of dwelling coverage in all other markets, partially offset by lower catastrophe reinsurance premiums.

Catastrophe reinsurance premiums, which reduce the Life and Health Insurance segment’s earned premiums on property insurance, decreased by $0.9 million and $0.5 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to lower premium volume resulting in part from reduced coastal exposures and a decrease in the Life and Health Insurance segment’s upper retention limits. The Life and Health Insurance segment purchased catastrophe reinsurance coverage of $32.0 million in excess of a retention of $8.0 million under its 2009 catastrophe reinsurance program, compared to reinsurance coverage of $74.0 million in excess of a retention of $6.0 million under its 2008 catastrophe reinsurance program. The Life and Health Insurance segment’s property insurance products provide fire and allied lines coverage for modest value dwellings and personal property. Dwelling coverage represented approximately 43% of the segment’s property insurance premiums in 2008. In January 2006, the Life and Health Insurance segment halted new sales of dwelling coverage in coastal areas. In the third quarter of 2007, the Life and Health Insurance segment non-renewed dwelling coverage in certain coastal areas of the Gulf and southeastern United States. In the fourth quarter of 2008, the Life and Health Insurance segment halted new sales of dwelling coverage in all markets. In the first quarter of 2009, the Life and Health Insurance segment began non-renewing dwelling coverage in additional coastal areas of Texas and Louisiana located farther inland from the areas in which dwelling coverage was non-renewed in 2007 and began non-renewing dwelling coverage in certain coastal areas of South Carolina. The non-renewals were substantially completed in the second quarter of 2009. The Life and Health Insurance segment believes that these actions have substantially reduced its exposure to catastrophe risks and will continue to reduce its exposure to catastrophe risks over time.

Net Investment Income increased by $16.5 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher net investment income from investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting and $5.4 million of net investment income from Primesco in the first quarter of 2009 with no corresponding amount in same period in 2008, partially offset by lower net investment income from investments in fixed maturities and short term investments. Net Investment Income increased by $7.9 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher net investment income from investments in limited liability investment companies and limited partnerships which the Company accounts for under the equity method of accounting, partially offset by lower net investment income from investments in fixed maturities and short term investments. The Life and Health Insurance segment reported net investment income of $9.2 million and $15.8 million from its investments in limited liability investment companies and limited partnerships for the six and three months ended June 30, 2009, respectively, compared to net investment losses of $11.1 million and $0.6 million for the same periods in 2008.

55

Life and Health Insurance (continued)

Operating Profit in the Life and Health Insurance segment increased by $9.4 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to the higher net investment income, partially offset by higher policyholders’ benefits as a percentage of earned premiums on life insurance and higher incurred losses and LAE as a percentage of earned premiums on property insurance sold by the Life and Health Insurance segment’s career agents. Operating Profit in the Life and Health Insurance segment increased by $10.4 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to the higher net investment income, lower catastrophe losses and LAE, net of reinsurance, on property insurance sold by the Life and Health Insurance segment’s career agents and lower insurance expenses, partially offset by higher policyholders’ benefits as a percentage of earned premiums on life insurance.

Policyholders’ Benefits and Incurred Losses and LAE increased by $8.3 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to the inclusion in the first quarter of 2009 of Policyholders’ Benefits and Incurred Losses and LAE resulting from the acquisition of Primesco with no corresponding amount in the first quarter of 2008 and higher mortality on life insurance, partially offset by lower incurred losses and LAE on accident and health insurance and property insurance. Excluding the impact of the acquisition of Primesco, incurred losses and LAE on accident and health insurance decreased by $1.1 million due primarily to lower volume of earned premiums. Excluding the impact of the acquisition of Primesco, incurred losses and LAE (excluding development) on property insurance decreased by $4.4 million due to lower non-catastrophe losses and to a lesser extent lower catastrophe losses. Adverse loss reserve development on property insurance was $6.7 million (including adverse development of $3.8 million on catastrophes) for the six months ended June 30, 2009, compared to adverse development of $3.7 million (including adverse development of $2.0 million on catastrophes) in the same period in 2008. The Life and Health Insurance segment has a number of pending legal matters related to catastrophes and storms, including Hurricanes Rita, Katrina and Ike, and could continue to report either favorable or unfavorable catastrophe reserve development in future periods depending on the resolution of these matters.

Policyholders’ Benefits and Incurred Losses and LAE decreased by $6.5 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to lower catastrophe losses and LAE on property insurance, partially offset by higher mortality on life insurance. Catastrophe losses and LAE for the three months ended June 30, 2009 were $3.2 million and included favorable reserve development of $0.7 million. Catastrophe losses and LAE in the same period in 2008 were $8.5 million and included adverse reserve development of $3.3 million. Catastrophe reserve development for the three months ended June 30, 2009 and 2008 was due primarily to various legal matters related to the catastrophe and storm events referred to above.

Insurance Expenses decreased by $2.8 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to lower commission expense and lower expense related to home and field office operations, partially offset by the inclusion of insurance expense from Primesco in the first quarter of 2009 with no corresponding amount in the first quarter of 2008. Insurance Expenses decreased by $4.7 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to lower commission expense and lower expense related to home office operations. Since the 2008 acquisition of Primesco, the Life and Health Insurance segment has incurred certain redundant expenses associated with maintaining Primesco’s home office and has focused on eliminating these redundant expenses by consolidating the Primesco home office operations into the Career Agency Companies home office. The consolidation of the two home offices was substantially completed during the first quarter of 2009 and will result in lower home office expenses as a percentage of earned premiums from the additional scale provided by the acquisition. Because the redundant home office expenses, which were incurred throughout 2008, were substantially eliminated by the end of the first quarter of 2009, the Life and Health Insurance segment anticipates that its home office expenses will continue to decrease during the remainder of 2009, compared to the same period in 2008. For a period of time following major hurricanes such as Ike and Gustav in 2008, certain employees, whose compensation is typically classified as Insurance Expenses, temporarily assist the Life and Health Insurance segment’s claim function and a proportionate amount of their compensation is then classified as LAE instead of as Insurance Expenses. Other insurance expenses decreased for the six months ended June 30, 2009 in part due to a greater proportion of such compensation classified as LAE in the first quarter of 2009, compared to the same period in 2008.

Net Income in the Life and Health Insurance segment was $46.0 million and $31.0 million for the six and three months ended June 30, 2009, respectively, compared to $39.2 million and $24.2 million, for the same periods in 2008.

56

Fireside Bank

Selected financial information for the Fireside Bank segment follows:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Interest, Loan Fees and Earned Discount	$	98.2		$	122.7		$	46.4		$	60.9
Other Automobile Finance Revenues		2.1			2.8			1.0			1.2
Total Automobile Finance Revenues		100.3			125.5			47.4			62.1
Net Investment Income		1.7			2.8			0.8			1.0
Total Revenues		102.0			128.3			48.2			63.1
Provision for Loan Losses		35.7			73.2			15.7			46.0
Interest Expense on Certificates of Deposits		24.5			30.7			11.9			15.0
General and Administrative Expenses		46.7			50.3			20.3			23.6
Operating Profit (Loss)		(4.9	)		(25.9	)		0.3			(21.5	)
Income Tax Benefit (Expense)		(4.8	)		10.7			(0.1	)		8.9
Net Income (Loss)	$	(9.7	)	$	(15.2	)	$	0.2		$	(12.6	)
Automobile Loan Originations	$	77.0		$	364.9		$	1.9		$	186.7
Weighted-Average Interest Yield on Certificates of Deposits		4.8	%		4.9	%

Automobile Loan Receivables

(Dollars in Millions)	June 30, 2009			Dec. 31, 2008
Sales Contracts and Loans Receivable	$	1,004.6		$	1,213.1
Unearned Discounts and Deferred Fees		(9.2	)		(14.4	)
Net Automobile Loan Receivables Outstanding		995.4			1,198.7
Reserve for Loan Losses		(108.3	)		(120.1	)
Automobile Loan Receivables	$	887.1		$	1,078.6

	Amount			As a Percentage of Net Automobile Loan Receivables Outstanding		Amount			As a Percentage of Net Automobile Loan Receivables Outstanding
(Dollars in Millions)	June 30, 2009					December 31, 2008
Current Loan Balances	$	648.5		65.2	%	$	738.3		61.6	%
Delinquent Loan Balances:
Less than 30 Days Delinquent		247.0		24.8	%		312.6		26.1	%
30 Days to 59 Days Delinquent		72.9		7.3	%		103.0		8.6	%
60 Days to 89 Days Delinquent		20.9		2.1	%		32.8		2.7	%
Delinquent 90 Days and Greater		6.1		0.6	%		12.0		1.0	%
Net Automobile Loan Receivables Outstanding		995.4		100.0	%		1,198.7		100.0	%
Reserve for Loan Losses		(108.3	)				(120.1	)
Automobile Loan Receivables	$	887.1				$	1,078.6
Ratio of Reserve for Loan Losses to Net Automobile Loan Receivables Outstanding		10.9	%				10.0	%

57

Fireside Bank (continued)

Reserve For Loan Losses

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Reserve for Loan Losses—Beginning of Period	$	120.1		$	148.4		$	113.6		$	136.6
Provision for Loan Losses		35.7			73.2			15.7			46.0
Net Charge-off:
Automobile Loan Receivables Charged-off		(66.9	)		(90.8	)		(30.6	)		(40.5	)
Automobile Loan Receivables Recovered		19.4			21.4			9.6			10.1
Net Charge-off		(47.5	)		(69.4	)		(21.0	)		(30.4	)
Reserve for Loan Losses—End of Period	$	108.3		$	152.2		$	108.3		$	152.2

Capital

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
Capital	$	229.9	$	239.6

On March 24, 2009, Unitrin announced that Fireside Bank would be suspending all new lending activity as part of a plan to exit the automobile finance business. The exit plan envisions an orderly wind-down of Fireside Bank’s operations over the next several years. Fireside Bank will continue to collect outstanding loan balances and make interest payments and redemptions on outstanding certificates of deposits in the ordinary course of business. Following the announcement, Fireside Bank ceased accepting new loan applications. Fireside Bank also has ceased opening new certificate of deposit accounts. Fireside Bank intends to close its remaining branch offices by the end of the third quarter of 2009, after which time its remaining operations will be conducted from its home office in California and a collection call center in Arizona. In addition to restructuring costs of $5.1 million after tax incurred in the first six months of 2009, Fireside Bank expects to incur early lease termination costs ranging from $2.0 million to $4.0 million after tax and employee termination costs ranging from $4.0 million to $7.0 million after tax during the next several years in connection with the exit plan.

While in its early stages, the exit plan thus far has met the Company’s expectations. Net Automobile Loan Receivables Outstanding declined to $995.4 million at June 30, 2009 from $1,125.2 million at March 31, 2009, while Certificates of Deposits declined to $909.5 million at June 30, 2009 from $1,054.4 million at March 31, 2009. The Bank’s Cash and Investments totaled $198.8 million at June 30, 2009, or 21.9% of Certificates of Deposits, compared to $204.7 million, or 19.4% of Certificates of Deposits at March 31, 2009. The Company expects that the Fireside Bank segment will record approximately break-even results for the remainder of 2009. Fireside Bank’s ratio of Tier 1 capital to total average assets increased from 15.6% at March 31, 2009 to 16.7% at June 30, 2009. The Company expects that Fireside Bank’s ratio of Tier 1 capital to total average assets will continue to increase for the remainder of 2009.

Interest, Loan Fees and Earned Discounts in the Fireside Bank segment decreased by $24.5 million and $14.5 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to lower levels of Sales Contracts and Loan Receivables. Sales, Contracts and Loans Receivable were $1,004.6 million at June 30, 2009, compared to $1,367.0 million at June 30, 2008. Fireside Bank has no loans outstanding that are secured by real estate. Fireside Bank has not sold or securitized any portion of its loan portfolio.

The Fireside Bank segment reported an Operating Loss of $4.9 million and Operating Profit of $0.3 million for the six and three months ended June 30, 2009, respectively, compared to Operating Losses of $25.9 million and $21.5 million, respectively, for the same periods in 2008. Operating results improved due primarily to lower Provision for Loan Losses, Interest Expense on Certificates of Deposits, and General and Administrative Expenses, partially offset by lower Interest, Loan Fees and Earned Discounts.

58

Fireside Bank (continued)

The Provision for Loan Losses decreased by $37.5 million and $30.3 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to the reduced level of Automobile Loan Originations, partially offset by additions to the Reserve for Loan Losses for automobile loans originated in 2007 and 2008. The Reserve for Loan Losses is maintained at a level that considers such factors as actual and expected loss experience, regulatory environment and economic conditions to provide for estimated loan losses. Any change in these factors will result in either an addition or reduction to the Provision for Loan Losses in future quarters. Net Charge-off decreased by $21.9 million and $9.4 million for the six and three months ended June 30, 2009, compared to the same periods in 2008, due to the lower level of Net Automobile Loan Receivables Outstanding, improved collection results and improvements in the quality of Fireside Bank’s loan portfolio. The improved collection results were partially the result of Fireside Bank’s maintaining a higher ratio of collectors to the number of delinquent customer accounts than in prior periods. Approximately 65% of Net Automobile Loan Receivables are concentrated in the state of California, where the unemployment rate has been higher than the national average during the current recession.

Fireside Bank’s loan portfolio delinquency typically follows a seasonal pattern in which quarter-end delinquency is at its highest point at the end of the year, at its lowest point at the end of the first quarter, and then trends higher at the end of the second and third quarters. Loan portfolio delinquency has continued to follow that same pattern for the first two quarters of 2009. The Company believes that loan portfolio delinquency will likely follow a similar pattern for the remainder of 2009. At the same time, Fireside Bank also expects that while delinquent accounts measured in dollars will continue to decline as the loan portfolio declines, delinquency as a percentage of loans outstanding may increase compared to the same periods in prior years. Fireside Bank has historically had many customers who have fallen behind one or two loan payments, but have continued to make regular monthly payments. Fireside Bank expects that the number of these delinquent, but regularly paying, customers will decline at a slower pace than the overall loan portfolio and, accordingly, will comprise a greater percentage of the loan portfolio over time.

Interest Expense on Certificates of Deposits decreased by $6.2 million and $3.1 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008, due primarily to lower levels of deposits.

General and Administrative Expenses decreased by $3.6 million and $3.3 million for the six and three months ended June 30, 2009, respectively, compared to the same periods in 2008. Fireside Bank incurred $8.8 million and $3.4 million of pre-tax restructuring charges for the six and three months ended June 30, 2009, respectively, related to its plan to exit the automobile finance business. Fireside Bank incurred $5.0 million and $2.7 million of pre-tax restructuring charges for the six and three months ended June 30, 2008, respectively, related to the consolidation of its branch operations from 26 California branches at December 31, 2007 to eight California branches at June 30, 2008 and the centralization of its collection operations into two call centers.

The Fireside Bank segment reported a Net Loss of $9.7 million and Net Income of $0.2 million for the six and three months ended June 30, 2009, respectively, compared to Net Losses of $15.2 million and $12.6 million in the same periods in 2008. Income tax expense for the six months ended June 30, 2009 included a $6.8 million increase in the valuation allowance for deferred state income taxes, net of federal benefit, due to the decision to exit the automobile finance business. Income tax expense increased for the three months ended June 30, 2009, compared to same period in 2008, due primarily to an increase in pre-tax income. The Fireside Bank segment’s effective tax rate differs from the Federal statutory tax rate due primarily to state income taxes.

Investment Results

Net Investment Income increased by $14.1 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher investment income from investments in limited partnerships and limited liability companies, partially offset by lower dividend income from investments in equity securities and lower investment income from short-term investments. Net investment income from limited partnerships and limited liability companies increased due primarily to an increase in yield, partially offset by a lower level of investments. Dividend income from investments in equity securities decreased due primarily to sales of the vast majority of the Company’s investments in Northrop common stock and other publicly-traded common stocks during 2008. Net Investment Income from short-term investments decreased due primarily to substantially lower yields and, to a lesser extent, a lower level of short term investments.

59

Investment Results (continued)

Net Investment Income increased by $13.0 million for the three months ended June 30, 2009, compared to the same period in 2008, due primarily to higher investment income from investments in limited partnerships and limited liability companies, partially offset by lower dividend income from investments in equity securities. Net investment income from limited partnerships and limited liability companies increased due primarily to an increase in yield, partially offset by a lower level of investments. Dividend income from investments in equity securities decreased due primarily to sales of the vast majority of the Company’s investments in Northrop common stock and other publicly-traded common stocks during 2008.

Total Comprehensive Investment Gains (Losses) are comprised of Net Realized Gains on Sales of Investments and Net Impairment Losses Recognized in Earnings that are reported in the Condensed Consolidated Statement of Income and unrealized investment gains and losses that are not reported in the Condensed Consolidated Statement of Income, but rather are reported in the Statement of Comprehensive Income (Loss). The components of Total Comprehensive Investment Gains (Losses) for the six and three months ended June 30, 2009 and 2008 were:

	Six Months Ended						Three Months Ended
(Dollars in Millions)	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Fixed Maturities:
Recognized in Statement of Income:
Gains on Sales	$	3.4		$	4.5		$	3.0		$	4.0
Losses on Sales		(0.1	)		(1.2	)		(0.1	)		(1.1	)
Net Impairment Losses Recognized in Earnings		(26.7	)		(1.7	)		(5.1	)		(1.1	)
Total Recognized in Statement of Income		(23.4	)		1.6			(2.2	)		1.8
Recognized in Other Comprehensive Gains (Losses)		61.3			(80.0	)		105.3			(70.1	)
Total Comprehensive Investment Gains (Losses) on Fixed Maturities		37.9			(78.4	)		103.1			(68.3	)
Equity Securities:
Recognized in Statement of Income:
Gains on Sales		1.5			39.4			1.0			23.3
Losses on Sales		—			(5.6	)		—			(4.3	)
Net Impairment Losses Recognized in Earnings		(8.0	)		(25.1	)		(4.6	)		(17.2	)
Total Recognized in Statement of Income		(6.5	)		8.7			(3.6	)		1.8
Recognized in Other Comprehensive Gains (Losses)		24.0			(173.4	)		48.4			(108.0	)
Total Comprehensive Investment Gains (Losses) on Equity Securities		17.5			(164.7	)		44.8			(106.2	)
Other Investments:
Recognized in Statement of Income:
Gains on Sales		—			1.5			—			1.5
Losses on Sales		—			(0.2	)		—			—
Trading Securities Net Gains (Losses)		0.4			(0.4	)		0.5			(0.1	)
Total Recognized in Statement of Income		0.4			0.9			0.5			1.4
Total Comprehensive Investment Gains (Losses)	$	55.8		$	(242.2	)	$	148.4		$	(173.1	)
Recognized in Statement of Income	$	(29.5	)	$	11.2		$	(5.3	)	$	5.0
Recognized in Other Comprehensive Income (Loss)		85.3			(253.4	)		153.7			(178.1	)
Total Comprehensive Investment Gains (Losses)	$	55.8		$	(242.2	)	$	148.4		$	(173.1	)

Total Comprehensive Investment Gains for the six and three months ended June 30, 2009 included unrealized gains of $83.8 million and $152.7 million before tax, respectively, and gains from foreign currency translation adjustments on investments of $1.5 million and $1.0 million before tax, respectively.

60

Investment Quality and Concentrations

The Company’s fixed maturity investment portfolio is comprised primarily of high grade bonds due at a single maturity date. At June 30, 2009, nearly 95% of the Company’s fixed maturity investment portfolio was rated investment grade, which is defined as a security having a rating of AAA, AA, A or BBB from Standard & Poor’s (“S & P”); a rating of Aaa, Aa, A or Baa from Moody’s; or a rating from the National Association of Insurance Commissioners (“NAIC”) of 1 or 2. The Company has not made significant investments in securities that are directly related to sub-prime mortgage loans including, but not limited to, collateralized debt obligations and structured investment vehicles.

The following table summarizes the credit quality of the fixed maturity investment portfolio at June 30, 2009 and December 31, 2008:

		June 30, 2009				December 31, 2008
NAIC Rating	Standard & Poor’s Equivalent Rating	Fair Value in Millions		Percentage of Total		Fair Value in Millions		Percentage of Total
1	AAA, AA, A	$	3,433.1	80.8	%	$	3,464.5	83.7	%
2	BBB		544.2	12.8	%		449.5	10.9	%
3	BB		136.3	3.2	%		89.3	2.2	%
4	B		47.9	1.1	%		42.9	1.0	%
5	CCC		53.8	1.3	%		76.9	1.9	%
6	In or Near Default		32.5	0.8	%		12.8	0.3	%
	Total Investments in Fixed Maturities	$	4,247.8	100.0	%	$	4,135.9	100.0	%

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $29.8 million and $33.4 million at June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, the Company had $1,437.9 million of investments in obligations of states, municipalities and political subdivisions, of which $569.0 million were enhanced with insurance from monoline bond insurers. The Company’s municipal bond investment strategy has always been to focus on the underlying credit rating of the issuer and not to rely upon the credit enhancement provided by the monoline bond insurer when making investment decisions. To that end, the average underlying rating of the Company’s investments in obligations of states, municipalities and political subdivisions, is AA, the majority of which consists of direct obligations of a state.

The following table summarizes the credit enhanced ratings and underlying ratings of the Company’s investments in obligations of states, municipalities and political subdivisions, which are included in the preceding table of the credit quality of the Company’s entire portfolio of investments in fixed maturities, at June 30, 2009:

	Credit Enhanced Rating				Underlying Rating
	Fair Value in Millions		Percentage of Total		Fair Value in Millions		Percentage of Total
AAA	$	263.0	18.3	%	$	258.8	18.0	%
AA		1,034.2	72.0	%		1,008.5	70.2	%
A		127.0	8.8	%		156.9	10.9	%
BBB		11.8	0.8	%		11.8	0.8	%
Below Investment Grade		1.9	0.1	%		1.9	0.1	%
Total Investments in States, Municipalities and Political Subdivisions	$	1,437.9	100.0	%	$	1,437.9	100.0	%

61

Investment Quality and Concentrations (continued)

The following table summarizes the fair value of the Company’s investments in Fixed Maturities by industry at June 30, 2009 and December 31, 2008:

(Dollars in Millions)	June 30, 2009		Dec. 31, 2008
States, Municipalities and Political Subdivisions	$	1,437.9	$	1,308.5
U.S. Government and Government Agencies and Authorities		816.9		979.1
Manufacturing		952.8		877.2
Banking, Finance, Insurance and Real Estate		555.3		546.6
Transportation, Communication and Utilities		222.3		193.0
Services		131.1		119.6
Mining		52.7		44.3
Wholesale Trade		37.1		30.5
Retail Trade		27.2		25.4
Other		14.5		11.7
Total Investments in Fixed Maturities	$	4,247.8	$	4,135.9

Fifty-six companies comprised over 75% of the Company’s fixed maturity exposure to the Manufacturing industry at June 30, 2009, with the largest single exposure, United Technologies Corporation, comprising 2.5%, or $23.7 million, of the Company’s fixed maturity exposure to such industry. Twenty-five companies comprised over 75% of the Company’s exposure to the Banking, Finance, Insurance and Real Estate industry at June 30, 2009, with the largest single exposure, Special Value Opportunity Fund auction rate preferred stocks, comprising 11.6%, or $64.6 million, of the Company’s exposure to such industry.

The Company also has exposure to the Banking, Finance, Insurance and Real Estate industries by virtue of its investments in perpetual preferred stocks of issuers in these industries. Unrealized losses on these investments, which are classified as Investments in Equity Securities in the Condensed Consolidated Balance Sheet, were $17.3 million at June 30, 2009. The Company considers the debt-like characteristics of these perpetual preferred stocks along with issuer ratings when evaluating impairment and considers the Company’s ability and intent to hold these securities to recovery when assessing whether the decline in fair value of any particular investment in a perpetual preferred stock is other than temporary. All such perpetual preferred stocks paid dividends at the stated dividend rate during the three months ended June 30, 2009. Based on evaluation of these factors as well as other factors at June 30, 2009, the Company concluded that the declines in the fair values of the perpetual preferred stocks of these banking institutions were temporary in nature, largely driven by current market conditions, and since the Company intends to hold the securities until recovery, the impairments should not be recognized in the Condensed Consolidated Statement of Income for the three months ended June 30, 2009.

62

Investment Quality and Concentrations (continued)

The following table summarizes the fair value of the Company’s ten largest investment exposures at June 30, 2009:

(Dollars in Millions)
U.S. Treasury Bonds, Notes and Bills:
Fixed Maturities	$	250.0
Short Term		161.4
Total U.S. Treasuries		411.4
Ginnie Mae:
Fixed Maturities		351.5
Tennebaum Capital Partners Sponsored Entities:
Fixed Maturities		64.6
Limited Liability Investment Companies and Limited Partnerships		158.5
Total Tennebaum Capital Partners Sponsored Entities		223.1
Intermec:
Investment in Investee		163.3
Fannie Mae:
Fixed Maturities		111.5
Short Term		0.2
Total Fannie Mae		111.7
State of Louisiana and Political Subdivisions Thereof:
Fixed Maturities		95.1
State of Georgia and Political Subdivisions Thereof:
Fixed Maturities		68.8
State of Illinois and Political Subdivisions Thereof:
Fixed Maturities		68.4
State of Texas and Political Subdivisions Thereof:
Fixed Maturities		68.4
Goldman Sachs and its Sponsored Entities:
Fixed Maturities		9.1
Equity Securities—Preferred Stocks		2.7
Equity Securities—Other Equity Interests		14.8
Mutual Funds		0.2
Limited Liability Investment Companies and Limited Partnerships		40.8
Total Goldman Sachs and its Sponsored Entities		67.6
Total	$	1,629.3

At June 30, 2009, the Company’s fixed maturity investments in U.S. Treasury securities consisted of various maturities principally ranging from less than one year to 21 years with an effective duration of approximately five years. The Company’s short-term investments in U.S. Treasury securities consisted of $139.9 million of U.S. Treasury Bills typically with maturities of less than one week and $21.5 million of U.S. Treasury Bonds and Notes with a maturity of less than one year at the date of purchase. In addition to these investments, the Company had $186.4 million invested in

63

Investment Quality and Concentrations (continued)

overnight repurchase agreements, primarily collateralized by securities issued by the U.S. government, and $196.2 million invested in money market funds which principally invest in U.S. Treasury securities. At the time of borrowing, the repurchase agreements generally require the borrower to provide to the Company collateral at least equal to the amount borrowed. The Company bears some investment risk in the event that a borrower defaults and the value of collateral falls below the amount borrowed. While money market fund managers strive to maintain a stable fund price equal to the amounts invested in their funds, investors in such funds bear investment risk, to the extent that the investments are not insured under the U.S. Treasury Department Temporary Guarantee Program for Money Market Funds (the “Money Market Guarantee Program”), in the event that the funds’ investments decline in value. At June 30, 2009, 80% of the Company’s investments in money market funds were insured under the Money Market Guarantee Program.

The Company has exposure to the residential mortgage industry primarily by virtue of its investments in Ginnie Mae, Fannie Mae, the Federal Home Loan Banks (“FHLB”) and Freddie Mac. The fair value of the Company’s investments in fixed maturities issued by Ginnie Mae, Fannie Mae, FHLB and Freddie Mac were $351.5 million, $111.5 million, $64.4 million and $10.0 million, respectively, at June 30, 2009. Fannie Mae, FHLB and Freddie Mac are each U.S. government sponsored and federally chartered entities, which are privately capitalized, whereas Ginnie Mae is a U.S. government-owned corporation. Securities issued by Ginnie Mae are backed by the full faith and credit of the U.S. government. On September 7, 2008, Fannie Mae and Freddie Mac were placed in conservatorship. Approximately 71% of the Company’s investments in the fixed maturities of Fannie Mae, FHLB and Freddie Mac are in general obligations issued by Fannie Mae, FHLB and Freddie Mac, with the balance invested in various mortgage-backed securities (“MBS”). While each general obligation is fixed in its maturity, 87% of the Company’s investments in these general obligations are callable by the issuer prior to their maturity. In contrast, principal payments of MBS securities vary with the underlying mortgages associated with them. The Company has no exposures to interest-only or principal-only investment strips. The Company’s investments in Ginnie Mae securities consist of various mortgage pools and pass-through certificates. Ginnie Mae guarantees the payment of principal and interest on these securities, which vary with the underlying mortgages. In addition to the Company’s investments in Fannie Mae, Ginnie Mae, FHLB and Freddie Mac securities, the Company had investments in other U.S. government sponsored or owned corporations totaling $29.5 million at June 30, 2009. At June 30, 2009, the Company also owned $5.7 million of MBS issued by private companies, of which $2.5 million may be considered sub-prime.

The Company had $292.7 million invested in various limited liability investment companies and limited partnerships at June 30, 2009, of which $40.3 million was included in the Company’s Investments in Equity Securities and $252.4 million was included in Other Investments. As limited liability investment companies and limited partnerships, these entities are required to follow certain specialized industry accounting rules which require that unrealized gains and losses be included in the results of their operations. The Company is required to account for some of its investments in these entities, namely those entities in which the Company’s interest is not deemed minor, under the equity method of accounting. This specialized accounting, along with the requirement to account for some of these investments under the equity method of accounting, adds a degree of volatility to the Company’s net investment income. The Company had ownership interests totaling $158.5 million in such entities sponsored by Tennenbaum Capital Partners, LLC (“TCP”) included in Other Investments at June 30, 2009. The Company’s Investments in Fixed Maturities included an investment of $64.6 million in two redeemable, auction rate preferred stocks, rated AA by S&P and issued by one of the TCP-sponsored entities at June 30, 2009. The Company owns no other auction rate preferred stocks. TCP is a private investment firm that specializes in investing in companies undergoing change due to industry trends, economic cycles or specific company circumstances. As such, the TCP-sponsored entities in which the Company invests employ a long-term investment strategy focused on opportunities investments that may include holdings in illiquid securities such as distressed debt or leveraged loans. From time to time, the Company may also invest directly in some of the companies in which the TCP-sponsored entities invest. Such direct investments had a fair value of $26.7 million at June 30, 2009. The Company has no commitments to make future investments in TCP-sponsored entities at June 30, 2009. Goldman Sachs Group, Inc. (“Goldman Sachs”), a bank holding company and a leading global investment banking, securities and investment management firm, sponsors certain other limited partnerships in which the Company invests. The Company’s investments in Goldman Sachs-sponsored entities focus on two distinct investment strategies. One strategy focuses on providing liquidity or partnering solutions for investors in existing private equity assets and providing capital or partnering solutions for portfolio managers, commonly referred to as secondary transactions. The other strategy

64

Investment Quality and Concentrations (continued)

focuses on investments in mezzanine securities, which principally include fixed income securities, such as debt and preferred stock, and may also include an equity component, such as warrants, options or common stock. Equity Securities and Other Investments include $14.8 million and $40.8 million, respectively, related to the Company’s investments in Goldman Sachs-sponsored entities at June 30, 2009. The Company is also committed to making future contributions of $65.7 million to Goldman Sachs-sponsored entities to fund future investments. In addition, Equity Securities includes $2.7 million related to the Company’s investments in Goldman Sachs preferred stock at June 30, 2009.

The Company’s Investments in Fixed Maturities included investments in the obligations of 47 states, and municipalities and political subdivisions therein, with a fair value of $1,437.9 million at June 30, 2009, of which $1,389.5 million are callable prior to their maturity at or above par. Certain states provide premium tax incentives to insurance companies that invest in their states. The Company has large investment concentrations in Louisiana and Georgia securities as a result of premium tax incentives.

The Company has significant exposure to changes in the fair value of one public company, Intermec, by virtue of its investment in the common stock of this company. Intermec has described itself as a leader in global supply chain solutions and in the design, development, manufacture and integration of wired and wireless automated data collection, mobile computing systems, bar code printers, label media and RFID (radio frequency identification). Intermec’s products and services are used by customers in many industries to improve productivity, quality and responsiveness of business operations, from supply chain management and enterprise resource planning to field sales and service. Intermec’s products and services are sold globally to a diverse set of customers in markets such as manufacturing, warehousing, direct store delivery, retail, consumer goods, field services, government, security, healthcare, transportation and logistics. Based on the outstanding shares of common stock reported in Intermec’s quarterly report on Form 10-Q for the quarter ended March 29, 2009, the Company owned 20.4% of Intermec’s common stock at June 30, 2009. Accordingly, the Company accounts for its investment in Intermec under the equity method of accounting. The Company reports its investment in Intermec at cost plus accumulated undistributed earnings, rather than at fair value, in the Condensed Consolidated Balance Sheets. The fair value of the Company’s investment in Intermec exceeded this carrying value by $70.8 million at June 30, 2009.

Securities Lending, Credit Default Swaps, Hedging Activities

The Company does not directly participate, as either a lender or borrower of securities, in any securities lending program. The Company does not participate directly in credit default swaps. The Company does not engage directly in hedging activities including, but not limited to, activities involving interest rate swaps, forward foreign currency contracts, commodities contracts, exchange traded and over-the-counter options or warrants. As discussed below, the Company has limited exposure to such programs and activities by virtue of its investments in Highbridge Capital LP (“Highbridge”).

Highbridge is a limited partnership that specializes in arbitrage and absolute return investment strategies in the global equity and corporate debt securities markets and indirectly invests in funds that purchase and sell equities, futures, swaps, forward currency contracts, exchange traded and over-the-counter options, warrants, and both convertible and non-convertible corporate bonds. On October 23, 2008, the Company submitted a full redemption notice to the Highbridge general partner. On November 21, 2008, the general partner notified the Company that the general partner was imposing a restriction on the redemption of certain assets representing 70% of the Company’s investment in Highbridge and that such assets would not be currently redeemed, but rather would be redeemed over several periods. The Company’s investment in Highbridge, which is reported in Equity Securities in the Condensed Consolidated Balance Sheet, was $17.7 million at December 31, 2008. During the six months ended June 30, 2009, the Company received redemption proceeds from the Highbridge general partner totaling $9.7 million, of which $5.4 million were proceeds representing the Company’s share of the unrestricted assets of Highbridge and $4.3 million were proceeds representing the Company’s share of the restricted assets of Highbridge. The Company’s unrealized holding gain in Highbridge arising during the six months ended June 30, 2009 was $1.3 million. The Company’s remaining investment in Highbridge was $9.3 million at June 30, 2009 and consisted solely of restricted assets.

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Distressed and Mezzanine Debt and Secondary Transactions Investments

The Company owns investments in various limited liability investment companies and limited partnerships that primarily invest in distressed debt, mezzanine debt and secondary transactions. The Company’s investments in these limited liability investment companies and limited partnerships, which are accounted for under the equity method of accounting and reported in Other Investments at June 30, 2009 and December 31, 2008, are summarized below:

(Dollars in Millions)	Asset Class	Unfunded Commitment		Carrying Value				Stated Fund
		June 30, 2009		June 30, 2009		Dec. 31, 2008		Maturity Date
Special Value Opportunity Fund, LLC	Distressed Debt	$	—	$	74.3	$	69.9	7/13/2014
Tennenbaum Opportunities Fund V, LLC	Distressed Debt		—		65.3		43.3	10/10/2016
Goldman Sachs Vintage Fund IV, L.P.	Secondary Transactions		28.8		40.8		53.4	12/31/2016
Special Value Continuation Fund, LLC	Distressed Debt		—		18.9		19.1	6/30/2016
NY Life Investment Management Mezzanine Partners II, LP	Mezzanine Debt		6.6		16.5		18.9	7/31/2016
BNY Mezzanine Partners L.P.	Mezzanine Debt		3.8		13.2		12.7	4/17/2016
Other Funds			11.3		23.4		25.0	2015-2016
Total		$	50.5	$	252.4	$	242.3

In addition, the Company has unfunded commitments of $67.5 million for investments in limited liability investment companies and limited partnerships that are not accounted for under the equity method of accounting.

Interest and Other Expenses

Interest and Other Expenses was $32.0 million and $16.8 million for the six and three months ended June 30, 2009, respectively, compared to $31.7 million and $15.0 million for the same periods in 2008. Interest and Other Expenses increased for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to an increase in employee retirement costs.

Income Taxes

The Company’s effective income tax rate from continuing operations differs from the Federal statutory income tax rate due primarily to the effects of tax-exempt investment income and dividends received deductions and the net effects of state income taxes. Tax-exempt investment income and dividends received deductions were $27.6 million and $14.3 million for the six and three months ended June 30, 2009, respectively, compared to $27.8 million and $14.6 million for the same periods in 2008. Tax-exempt investment income and dividends received deductions decreased slightly for the six and three months ended June 30, 2009, compared to the same periods in 2008, due primarily to lower dividend income from the Company’s investment in Northrop common stock, partially offset by the increase in tax-exempt investment income. State income tax expense, net of federal benefit, was $7.2 million and $0.6 million for the six and three months ended June 30, 2009, respectively. The $7.2 million of state income tax for the six months ended June 30, 2009 includes expense of $6.8 million for an increase in the deferred tax asset valuation allowance related to Fireside Bank. State income tax benefit, net of federal expense, was $1.4 million and $1.3 million for the six and three months ended June 30, 2008, respectively.

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Liquidity and Capital Resources

The Company had no outstanding advances under its $325 million, unsecured, revolving credit agreement at December 31, 2008. During the first quarter of 2009, the Company borrowed a net amount of $105.0 million under the agreement. Proceeds from the borrowings were used to fund a $25.0 million contribution to Unitrin’s subsidiary, United, to make certain income tax payments and for general corporate purposes.

During the second quarter of 2009 Unitrin’s subsidiary, Primesco, sold its subsidiary, Mutual Savings Life, to United. Primesco then paid a $64.3 million dividend to Unitrin. Also during the second quarter of 2009, Unitrin’s subsidiaries United, Reliable and Union National Life Insurance Company (“Union National”), transferred certain postretirement employee benefit liabilities and cash totaling $41.2 million to Unitrin. Following these intercompany transactions, Unitrin repaid in full the advances outstanding under the credit agreement. There were no advances outstanding under the credit agreement at June 30, 2009. Unitrin directly held cash and investments totaling $17.4 million at June 30, 2009.

Undrawn letters of credit issued pursuant to the credit agreement were $13.1 million at both June 30, 2009 and December 31, 2008. The amount available for future borrowing was $311.9 million at June 30, 2009. The current credit agreement expires on June 30, 2010 and contains various financial and other covenants, including minimum risk-based capital ratios for Unitrin’s two largest insurance subsidiaries, United and Trinity. Management estimates that it could borrow the full amount under the credit agreement and still meet the financial covenants contained therein. Management intends to begin negotiations for a new revolving credit agreement during the third quarter of 2009 and estimates that total commitments under the new agreement will be greater than $200 million but less than the $325 million available under the existing credit agreement. The lenders participating in Unitrin’s existing credit agreement and their aggregate commitments are presented below:

Lender	Commitment in Millions
JPMorgan Chase Bank, N.A.	$	65.0
Wells Fargo Bank, National Association		65.0
Wachovia Bank, National Association		50.0
The Bank of New York		30.0
The Northern Trust Company		30.0
Union Bank of California, N.A.		30.0
Fifth Third Bank (Chicago), a Michigan Banking Corporation		15.0
U.S. Bank, N.A.		15.0
Regions Bank		10.0
William Street Commitment Corporation		10.0
UMB Bank, N.A.		5.0
Total Commitment	$	325.0

Unitrin had $200 million of its 4.875% senior notes, due November 1, 2010 (the “4.875% Notes”), and $360 million of its 6.00% senior notes, due May 15, 2017 (the “6.00% Senior Notes”), outstanding at June 30, 2009. To provide an additional source of liquidity to Fireside Bank during the orderly wind-down of its operations, Unitrin and Fireside Bank entered into a line of credit agreement on April 20, 2009, whereby Unitrin has agreed to advance up to $20 million to Fireside Bank. Other than the renegotiation of its credit agreement discussed above, Unitrin does not anticipate making significant changes to its capital structure in 2009.

During the second quarter of 2009, United entered into a series of agreements with Reliable and Union National whereby, effective May 1, 2009, Reliable and Union National co-insure 100% of their existing and new business into United. In connection with these co-insurance transactions, Reliable and Union National received regulatory approval to pay extraordinary dividends to Unitrin in such amounts as to reduce each company’s statutory capital and surplus to $10 million, effectively the minimum statutory level. The Company expects that Reliable and Union National will pay the dividends, estimated to be approximately $95 million, to Unitrin during the third quarter of 2009. As a result of these intercompany dividends management expects that Unitrin would be able to pay dividends to its shareholders at the current quarterly rate of $0.20 per share, meet its debt service obligations and remain undrawn under its existing or any new revolving credit agreement for the remainder of 2009.

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Liquidity and Capital Resources (continued)

Sources available for future shareholder dividend payments, capital contributions to subsidiaries, advances under the letter of credit to Fireside Bank and the payment of interest on Unitrin’s senior notes include the receipt of dividends from Unitrin’s subsidiaries and additional borrowings under Unitrin’s credit agreement. Various state insurance laws restrict the ability of Unitrin’s insurance subsidiaries to pay dividends without regulatory approval. Such insurance laws generally restrict the amount of dividends paid in an annual period to the greater of statutory net income from the previous year or 10% of statutory capital and surplus. Unitrin’s non-insurance subsidiaries paid cash dividends of $66.0 million to Unitrin in the first six months of 2009, including the $64.3 million dividend paid from Primesco to Unitrin described above. Unitrin’s direct insurance subsidiaries paid dividends of $0.9 million to Unitrin during the first six months of 2009. Other than the $95 million in total dividends that Unitrin expects to receive from Reliable and Union National described above, Unitrin does not expect to receive dividends from its direct life insurance subsidiaries for the remainder of 2009. United could, however, pay dividends totaling up to $19.0 million to Unitrin without regulatory approval during the second half of 2009.

On February 13, 2009, Unitrin’s subsidiary, Trinity, completed its acquisition of Direct Response in a cash transaction for a total purchase price of $201.6 million. The acquisition was funded using Trinity’s internal resources. While Unitrin estimates that its property and casualty insurance subsidiary, Trinity, would be able to pay $82.8 million in dividends to Unitrin during the second half of 2009 without regulatory approval, the Company currently does not expect Trinity to pay a dividend to Unitrin in 2009, due in part to the acquisition of Direct Response. Fireside Bank has agreed not to pay dividends without the prior approval of the Federal Deposit Insurance Corporation and the California Department of Financial Institutions. The Company does not expect Fireside Bank to pay a dividend in 2009.

Quantitative measures established by bank regulations to ensure capital adequacy require Fireside Bank to maintain minimum amounts of capital. Bank regulations define capital calculations for Tier 1 capital, total risk-weighted assets and total risk-based capital. To be “well-capitalized,” a financial institution must have traditionally maintained a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total average assets of 5% or greater. At June 30, 2009, Fireside Bank had ratios of total capital to total risk-weighted assets of 22.8%, a ratio of Tier 1 capital to total risk-weighted assets of 21.4% and a ratio of Tier 1 capital to total average assets of 16.7%. Higher levels of capital, while undefined, are generally more prudent for Fireside Bank’s sub-prime automobile loan business than would be required for lower risk businesses. Fireside Bank has agreed with its regulators to maintain a ratio of Tier 1 capital to total average assets of 15% or greater. On March 24, 2009, Unitrin announced that Fireside Bank would be suspending all new lending activity as part of a plan to exit the automobile finance business. The exit plan envisions an orderly wind-down of Fireside Bank’s operations over the next several years. Fireside Bank will continue to collect outstanding loan balances and make interest payments and redemptions on outstanding certificates of deposits in the ordinary course of business. Following the announcement, Fireside Bank ceased accepting new loan applications, but continued to process loan applications that had been submitted prior to the announcement. Fireside Bank also has ceased opening new certificate of deposit accounts. Unitrin currently expects to recover its investment in Fireside Bank over the next several years.

The primary sources of funds for Unitrin’s insurance subsidiaries are premiums and investment income. The primary uses of funds are the payment of policyholder benefits under life insurance contracts, claims under property and casualty insurance contracts and accident and health insurance contracts, the payment of commissions and general expenses and the purchase of investments. Generally, there is a time lag between when premiums are collected and when policyholder benefits and insurance claims are paid. Accordingly, during periods of growth, insurance companies typically experience positive operating cash flows and are able to invest a portion of their operating cash flows to fund future policyholder benefits and claims. During periods in which premium revenues decline, insurance companies may experience negative cash flow from operations and may need to sell investments to fund payments to policyholders and claimants. In addition, if the Company’s property and casualty insurance subsidiaries experience several significant catastrophic events over a relatively short period of time, investments may have to be sold in advance of their maturity dates to fund payments, which could either result in investment gains or losses. Management believes that its property and casualty insurance subsidiaries maintain adequate levels of liquidity in the event that they experience several future catastrophic events over a relatively short period of time. The primary sources of funds for Fireside Bank are the repayments of automobile loans, interest on automobile loans and investment income. The primary uses of funds for Fireside Bank are the repayment of customer deposits, interest paid to depositors and general expenses.

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Liquidity and Capital Resources (continued)

Net Cash Provided by Operating Activities increased by $23.1 million for the six months ended June 30, 2009, compared to the same period in 2008, due primarily to higher operating results.

Net Cash Used by Financing Activities increased by $128.7 million for the six months ended June 30, 2009, compared to the same period in 2008. The Company funds its Automobile Loan Receivables through the issuance of Certificates of Deposits. Net cash used by Certificates of Deposits withdrawals, net of Certificates of Deposits issued, was $201.3 million for the six months ended June 30, 2009, compared to net cash used of $72.0 million for the same period in 2008. The Company did not repurchase shares of its common stock during the first six months of 2009, compared to using $57.4 million of cash during the first six months of 2008 to repurchase shares of its common stock. There were no net borrowings under the Company’s unsecured, revolving credit agreement for the six months ended June 30, 2009, compared to net cash provided from borrowings of $73.0 million for the same period in 2008.

Cash available for investment activities in total is dependent on cash flow from Operating Activities and Financing Activities and the level of cash the Company elects to maintain at the end of the year. Net Cash Provided by Investing Activities increased by $61.0 million for the six months ended June 30, 2009, compared to the same period in 2008. Automobile Loan Originations used $77.0 million of cash in the first six months of 2009, compared to using $364.9 million of cash in the same period in 2008. The repayment of automobile loan receivables provided $230.7 million in the first six months of 2009, compared to providing $313.6 million of cash in the same period in 2008. Sales of Fixed Maturities exceeded Purchases of Fixed Maturities by $46.0 million for the first six months of 2009, compared to $53.5 million in the same period in 2008. Net cash provided by dispositions of short-term investments was $56.0 million for the six months ended June 30, 2009, compared to net cash provided by dispositions of short-term investments of $115.9 million for the same period in 2008. Cash used to acquire investments in limited liability investment companies and limited partnerships decreased by $41.6 million in the first six months of 2009, compared to the same period in 2008. Cash received from dispositions of equity securities, net of cash paid to acquire equity securities was $27.0 million in the first six months of 2009, compared to net cash paid to acquire equity securities, net of cash received from dispositions, of $1.5 million in the same period in 2008. The Company used $190.0 million of cash to acquire Direct Response in the first six months of 2009, compared to $95.8 million used to purchase Primesco during the same period of 2008. The Company received proceeds of $67.0 million related to the disposition of its Unitrin Business Insurance operations during the first six months of 2008.

Recently Issued Accounting Pronouncements

The accounting standards issued recently that are most critical to the Company are discussed in Note 1, “Basis of Presentation,” to the Condensed Consolidated Financial Statements under the heading “Accounting Changes” and include the following pronouncements:

• SFAS No. 141(R), Business Combinations;

• SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51;

• SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133;

• SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60;

• SFAS No. 165, Subsequent Events;

• SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140;

• SFAS No. 167, Amendments to FASB Interpretation No. 46(R);

• SFAS No. 168, The FASB Accounting Standards Codification^™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162;

• FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments;

• FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments;

• FSP SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies;

• FSP SFAS 142-3, Determination of the Useful Life of Intangible Assets;

• FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly;

• FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20; and

• FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to the rules and regulations of the SEC, the Company is required to provide the following disclosures about Market Risk.

Quantitative Information About Market Risk

The Company’s Condensed Consolidated Balance Sheets include five types of financial instruments subject to material market risk disclosures required by the SEC:

1) Investments in Fixed Maturities;

2) Investments in Equity Securities;

3) Automobile Loan Receivables;

4) Certificates of Deposits; and

5) Notes Payable.

Investments in Fixed Maturities, Automobile Loan Receivables, Certificates of Deposits and Notes Payable are subject to material interest rate risk. The Company’s investments in Equity Securities include common and preferred stocks and, accordingly, are subject to material equity price risk and interest rate risk, respectively.

For purposes of this disclosure, market risk sensitive financial instruments are divided into two categories: financial instruments acquired for trading purposes and financial instruments acquired for purposes other than trading. The Company’s market risk sensitive financial instruments are generally classified as held for purposes other than trading. The Company has no significant holdings of financial instruments acquired for trading purposes. The Company has no significant holdings of derivatives.

The Company measures its sensitivity to market risk by evaluating the change in its financial assets and liabilities relative to fluctuations in interest rates and equity prices. The evaluation is made using instantaneous changes in interest rates and equity prices on a static balance sheet to determine the effect such changes would have on the Company’s market value at risk and the resulting pretax effect on Shareholders’ Equity. The changes chosen represent the Company’s view of adverse changes which are reasonably possible over a one-year period. The selection of the changes chosen should not be construed as the Company’s prediction of future market events, but rather an illustration of the impact of such events.

For the interest rate sensitivity analysis presented below, the Company assumed an adverse and instantaneous increase of 100 basis points in the yield curve at both June 30, 2009 and December 31, 2008 for Investments in Fixed Maturities. Such 100 basis point increase in the yield curve may not necessarily result in a corresponding 100 basis point increase in the interest rate for all investments in fixed maturities. For example, a 100 basis point increase in the yield curve for risk-free, taxable investments in fixed maturities may not result in a 100 basis point increase for tax-exempt investments in fixed maturities. For Investments in Fixed Maturities, the Company also anticipated changes in cash flows due to changes in the likelihood that investments would be called or pre-paid prior to their contractual maturity. All other variables were held constant. For preferred stock equity securities and Automobile Loan Receivables, the Company assumed an adverse and instantaneous increase of 100 basis points in market interest rates from their levels at both June 30, 2009 and December 31, 2008. All other variables were held constant. For Certificates of Deposits and Notes Payable, the Company assumed an adverse and instantaneous decrease of 100 basis points in market interest rates from their levels at both June 30, 2009 and December 31, 2008. All other variables were held constant. The Company measured equity price sensitivity assuming an adverse and instantaneous 30% decrease in the Standard and Poor’s Stock Index (the “S&P 500”) from its levels at June 30, 2009 and December 31, 2008, respectively, with all other variables held constant. The Company’s investments in common stock equity securities were correlated with the S&P 500 using the portfolio’s weighted-average beta of 1.04 and 1.05 at June 30, 2009 and December 31, 2008, respectively. The portfolio’s weighted-average beta was calculated using each security’s beta for the five-year periods ended June 30, 2009 and December 31, 2008, respectively, and weighted on the fair value of such securities at June 30, 2009 and December 31, 2008, respectively. Beta measures a stock’s relative volatility in relation to the rest of the stock market, with the S&P 500 having a beta coefficient of 1.00.

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Quantitative Information About Market Risk (continued)

The estimated adverse effects on the fair value of the Company’s financial instruments using these assumptions were:

			Pro Forma Increase (Decrease)
(Dollars in Millions)	Fair Value		Interest Rate Risk			Equity Price Risk			Total Market Risk
June 30, 2009
Assets
Investments in Fixed Maturities	$	4,247.8	$	(286.2	)	$	—		$	(286.2	)
Investments in Equity Securities		227.6		(5.4	)		(35.1	)		(40.5	)
Automobile Loan Receivables		898.1		(9.3	)		—			(9.3	)
Liabilities
Certificates of Deposits	$	952.1	$	14.7		$	—		$	14.7
Notes Payable		441.0		16.7			—			16.7
December 31, 2008
Assets
Investments in Fixed Maturities	$	4,135.9	$	(277.1	)	$	—		$	(277.1	)
Investments in Equity Securities		221.8		(5.7	)		(33.8	)		(39.5	)
Automobile Loan Receivables		1,099.6		(13.5	)		—			(13.5	)
Liabilities
Certificates of Deposits	$	1,148.7	$	19.3		$	—		$	19.3
Notes Payable		433.9		18.7			—			18.7

The market risk sensitivity analysis assumes that the composition of the Company’s interest rate sensitive assets and liabilities, including, but not limited to, credit quality, and the equity price sensitive assets existing at the beginning of the period remains constant over the period being measured. It also assumes that a particular change in interest rates is uniform across the yield curve regardless of the time to maturity. Interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Also, any future correlation, either in the near term or the long term, between the Company’s common stock equity securities portfolio and the S&P 500 may differ from the historical correlation as represented by the weighted-average historical beta of the common stock equity securities portfolio. Accordingly, the market risk sensitivity analysis may not be indicative of, is not intended to provide, and does not provide, a precise forecast of the effect of changes in market rates on the Company’s income or shareholders’ equity. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates or equity prices.

To the extent that any adverse 100 basis point change occurs in increments over a period of time instead of instantaneously, the adverse impact on fair values would be partially mitigated because some of the underlying financial instruments would have matured. For example, proceeds from any maturing assets could be reinvested and any new liabilities would be incurred at the then current interest rates.

Market risk is a broad term related to economic losses due to adverse changes in the fair value of a financial instrument and is inherent to all financial instruments. SEC disclosure rules focus on only one element of market risk—price risk. Price risk relates to changes in the level of prices due to changes in interest rates, equity prices, foreign exchange rates or other factors that relate to market volatility of the rate, index, or price underlying the financial instrument. The Company’s primary market risk exposures are to changes in interest rates and equity prices.

The Company manages its interest rate exposures with respect to Investments in Fixed Maturities by investing primarily in investment-grade securities of moderate effective duration. The interest rate risks with respect to the fair value of Automobile Loan Receivables should be partially offset by the impact of interest rate movements on Certificates of Deposits which were issued to fund these receivables.

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Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including MD&A, Quantitative and Qualitative Disclosures About Market Risk and the accompanying unaudited Condensed Consolidated Financial Statements (including the notes thereto) may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give expectations or forecasts of future events. The reader can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “believe(s),” “goal(s),” “target(s),” “estimate(s),” “anticipate(s),” “forecast(s),” “project(s),” “plan(s),” “intend(s),” “expect(s),” “might,” “may” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Forward-looking statements, in particular, include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.

Any or all forward-looking statements may turn out to be wrong, and, accordingly, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the Company’s actual future results. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance; actual results could differ materially from those expressed or implied in the forward-looking statements.

Among the general factors that could cause actual results to differ materially from estimated results are:

• Changes in general economic conditions, including performance of financial markets, interest rates, unemployment rates and fluctuating values of particular investments held by the Company;

• Heightened competition, including, with respect to pricing, entry of new competitors and the development of new products by new and existing competitors;

• The number and severity of insurance claims (including those associated with catastrophe losses) and their impact on the adequacy of loss reserves;

• The impact of inflation on insurance claims, including, but not limited to, the effects attributed to scarcity of resources available to rebuild damaged structures, including labor and materials and the amount of salvage value recovered for damaged property;

• Orders, interpretations or other actions by regulators that impact the reporting, adjustment and payment of claims;

• Changes in the pricing or availability of reinsurance;

• Changes in the financial condition of reinsurers and amounts recoverable therefrom;

• Changes in industry trends and significant industry developments;

• Regulatory approval of insurance rates, policy forms, license applications and similar matters;

• Developments related to insurance policy claims and coverage issues, including, but not limited to, interpretations or decisions by courts or regulators that may govern or influence insurance policy coverage issues arising with respect to losses incurred in connection with hurricanes and other catastrophes;

• Governmental actions, including, but not limited to, national health care reform, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions;

• Adverse outcomes in litigation or other legal or regulatory proceedings involving Unitrin or its subsidiaries or affiliates;

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Caution Regarding Forward-Looking Statements (continued)

• Regulatory, accounting or tax changes that may affect the cost of, or demand for, the Company’s products or services;

• The impact of residual market assessments and assessments for insurance industry insolvencies;

• Changes in distribution channels, methods or costs resulting from changes in laws or regulations, lawsuits or market forces;

• Changes in ratings by credit rating agencies, including A.M. Best Co., Inc. ;

• Changes in laws or regulations governing or affecting the regulatory status of industrial banks, such as Fireside Bank, and their parent companies, including minimum capital requirements and restrictions on the non-financial activities and equity investments of companies that acquire control of industrial banks;

• Changes in the estimated rates of automobile loan receivables net charge-off used to estimate Fireside Bank’s reserve for loan losses, including, but not limited to, the impact of changes in the value of collateral held;

• The degree of success in effecting an orderly wind-down of the operations of Fireside Bank and the recovery of Unitrin’s investment in Fireside Bank;

• The degree of success and costs expended in realizing economies of scale and implementing significant business consolidations and technology initiatives;

• Increased costs and risks related to data security;

• Absolute and relative performance of the Company’s products or services; and

• Other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

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 publicly correct or update any forward-looking statements as a result of events or developments subsequent to the date of this Quarterly Report on Form 10-Q. The reader is advised, however, to consult any further disclosures the Company makes on related subjects in filings made with the SEC.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Item 4. Controls and Procedures (continued)

(b) Changes in internal controls.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Items not listed here have been omitted because they are inapplicable or the answer is negative.

Item 1. Legal Proceedings

Information concerning pending legal proceedings is incorporated herein by reference to Note 20, “Contingencies” to the Condensed Consolidated Financial Statements (Unaudited) in Part I of this Form 10-Q.

Item 1A. Risk Factors

There were no significant changes in the risk factors included in Item 1A. of Part II of the 2008 Annual Report except for a change to the risk factor entitled “Fireside Bank’s automobile loan receivable portfolio is subject to default risk,” which is restated in its entirety in the paragraph below, and the addition of a risk factor entitled “Reserve National’s business model may be vulnerable to federal health care reform initiatives,” which is presented the second paragraph below.

Fireside Bank’s automobile loan receivable portfolio is subject to default risk.

The results of operations and financial condition of Fireside Bank and the success of the Company’s plan to exit the automobile finance business, including, but not limited to, the recovery of Unitrin’s investment in Fireside Bank depend, to a large extent, on the performance of its automobile loan receivable portfolio. Automobile loan borrowers may default during the terms of their loans. Fireside Bank bears the full risk of losses resulting from defaults. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding loan balance and costs of recovery. A substantial portion of Fireside Bank’s automobile loan receivable portfolio is considered sub-prime. The risk of default for sub-prime loans is higher than for prime loans and has been accentuated by recent economic conditions. Approximately 65% of Fireside Bank’s automobile loan portfolio is concentrated in loans to borrowers residing in California, where the unemployment rate has been higher than the national average during the current recession. Continued economic stress in the California economy could result in increases over time in loan delinquencies and loan charge-offs in Fireside Bank’s loan portfolio and consequent adverse effects on the execution of Fireside Bank’s plan to exit the automobile finance business. Fireside Bank maintains an allowance for loan losses that represents management’s best estimate of the inherent losses in Fireside Bank’s automobile loan receivable portfolio. If the allowance is inadequate, Fireside Bank would recognize the losses in excess of that allowance as an expense and the Company’s results of operations would be adversely affected. A material increase to the allowance for loan losses could also result in Fireside Bank’s ratio of Tier 1 capital to total assets falling below 15%, the minimum ratio level at which Fireside Bank has agreed with its regulators to maintain. In such a case, the Company would likely contribute additional amounts of capital to Fireside Bank. Such contributions could impact Unitrin’s liquidity and capital resources available for other corporate purposes.

Reserve National’s business model may be vulnerable to federal health care reform initiatives.

As has been widely reported in the press, a number of proposals are currently pending in the U. S. Congress, including proposals for a government-sponsored national health plan that would compete with private insurers. In the event that such a plan were to be established, Reserve National’s business model, which focuses on providing limited health insurance coverages to persons who lack access to traditional private options, could be adversely affected. Depending on the actual parameters of such a government-sponsored plan, Reserve National might suffer significant loss of revenue and might not be able to compete in the markets that it has historically has served. A significant loss of business could have a material adverse effect on the financial condition and results of operations of Reserve National and could adversely impact the Company’s ability to fully realize its investment in Reserve National, including the recoverability of $14.8 million of goodwill. Reserve National reported earned premiums of $63.0 million and net income of $2.4 million for the six months ended June 30, 2009.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s stock repurchase program was first announced on August 8, 1990 and has been subsequently expanded several times, most recently in November 2006, when the Board of Directors expanded the Company’s authority to repurchase the Company’s common stock by an aggregate number of 6,000,000 shares (in addition to approximately 750,000 shares remaining under its prior authorization). A total of 1,378,454 shares remain available for repurchase under the repurchase program which does not have an expiration date.

The Company did not repurchase any shares in the second quarter of 2009.

During the quarter ended June 30, 2009, no shares were withheld or surrendered, either actually or constructively, to satisfy the exercise price and/or tax withholding obligations relating to the exercise of stock options or stock appreciation rights under the Company’s four stock option plans or shares withheld to satisfy tax withholding obligations on the vesting of awards under the Company’s restricted stock plan.

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

The Annual Meeting of Shareholders of Unitrin, Inc. was held on May 6, 2009 for the purpose of electing ten directors, to consider and act on a proposal to ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2009, to consider and act on a proposal to approve the material terms of the performance goals under the Company’s 2009 Performance Incentive Plan (“Performance Incentive Plan”) and to approve the material terms of the performance goals under the Company’s 2005 Restricted Stock and Restricted Stock Unit Plan (“Restricted Stock Plan”).

The final tabulation for each of the ten nominees for director is as follows:

Nominee	Votes For	Votes Withheld
James E. Annable	54,703,054	949,663
Eric J. Draut	53,037,062	2,615,655
Douglas G. Geoga	54,769,292	883,425
Reuben L. Hedlund	54,688,317	964,400
William E. Johnston, Jr.	54,694,049	958,668
Wayne Kauth	54,751,141	901,576
Fayez S. Sarofim	53,226,640	2,426,077
Donald G. Southwell	54,199,479	1,453,238
Richard C. Vie	54,065,961	1,586,756
Ann E. Ziegler	54,796,977	855,740

Shareholders ratified the selection of Deloitte & Touche LLP by the following votes: 55,300,669 votes for ratification, 215,818 votes against and 136,230 votes abstained.

Shareholders approved the material terms of the performance goals under the Performance Incentive Plan by the following votes: 52,839,888 votes for approval, 2,237,529 votes against and 575,300 votes abstained.

Shareholders approved the material terms of the performance goals under the Restricted Stock Plan by the following votes: 51,004,480 votes for approval, 4,057,463 votes against and 590,774 votes abstained.

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Item 6. Exhibits

3.1	Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s 2007 Annual Report on Form 10-K filed February 4, 2008.)
3.2	Amended and Restated Bylaws (Incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 12, 2008.)
4.1	Rights Agreement between Unitrin, Inc. and Computershare Trust Company, N.A. as successor Rights Agent, including the Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, the Form of Rights Certificate and the Summary of Rights to Purchase Preferred Stock, dated as of August 4, 2004 and amended May 4, 2006 and October 9, 2006.
4.2	Indenture dated as of June 26, 2002, by and between Unitrin, Inc. and The Bank of New York Trust Company, N.A., as successor trustee to BNY Midwest Trust Company, as Trustee (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed May 14, 2007.)
4.3	Officer’s Certificate, including form of Senior Note with respect to the Company’s 6.00% Senior Notes due May 15, 2017 (Incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed May 14, 2007.)
4.4	Officer’s Certificate, including form of Senior Note with respect to the Company’s 4.875% Senior Notes due November 1, 2010 (Incorporated herein by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q filed November 3, 2008.)
10.1	Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, as amended and restated effective February 3, 2009 (Incorporated herein by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.2	Unitrin, Inc. 1997 Stock Option Plan, as amended and restated effective February 1, 2006 (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 6, 2006.)
10.3	Unitrin, Inc. 2002 Stock Option Plan, as amended and restated effective February 3, 2009 (Incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.4	2005 Restricted Stock and Restricted Stock Unit Plan, as amended and restated effective February 3, 2009 (Incorporated herein by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.5	Form of Stock Option Agreement under the Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, as of February 1, 2006 (Incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed February 6, 2006.)
10.6	Form of Stock Option Agreement under the Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.7	Form of Stock Option Agreement (including stock appreciation rights) under the Unitrin, Inc. 1997 Stock Option Plan, as of February 1, 2006 (Incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed February 6, 2006.)
10.8	Form of Stock Option Agreement (including stock appreciation rights) under the Unitrin, Inc. 2002 Stock Option Plan, as of February 1, 2006 (Incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed February 6, 2006.)
10.9	Form of Stock Option Agreement (including stock appreciation rights) under the Unitrin, Inc. 2002 Stock Option Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.10	Form of Time-Vested Restricted Stock Award Agreement under the 2005 Restricted Stock and Restricted Stock Unit Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)

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10.11	Form of Performance-Based Restricted Stock Award Agreement under the 2005 Restricted Stock and Restricted Stock Unit Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 9, 2009.)
10.12	Unitrin, Inc. Pension Equalization Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.13	Unitrin, Inc. Defined Contribution Supplemental Retirement Plan, effective January 1, 2008 (Incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.14	Unitrin, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.15	Unitrin is a party to individual severance agreements (the form of which is incorporated herein by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed December 12, 2008), with the following executive officers:
	Richard C. Vie (Chairman) Donald G. Southwell (President and Chief Executive Officer) John M. Boschelli (Vice President and Chief Investment Officer) Eric J. Draut (Executive Vice President and Chief Financial Officer) Lisa M. King (Vice President – Human Resources) Edward J. Konar (Vice President) Christopher L. Moses (Vice President and Treasurer) Scott Renwick (Senior Vice President, General Counsel and Secretary) Richard Roeske (Vice President and Chief Accounting Officer) Frank J. Sodaro (Vice President – Planning and Analysis)
	Each of the foregoing agreements is identical except that the severance compensation multiple is 3.0 for Messrs. Vie and Southwell and 2.0 for the other executive officers.
10.16	Unitrin, Inc. Severance Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed February 4, 2009.)
10.17	Unitrin, Inc. 2009 Performance Incentive Plan, effective February 3, 2009 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 9, 2009.)
10.18	Form of Annual Incentive Award Instrument under the Unitrin, Inc. 2009 Performance Incentive Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed February 10, 2009.)
10.19	Form of Multi-Year Incentive Award Agreement under the Unitrin, Inc. 2009 Performance Incentive Plan, as of February 3, 2009 (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A filed February 10, 2009.)
10.20	Unitrin, Inc. Incentive Bonus Plan, dated February 3, 2004 (Incorporated herein by reference to Appendix A to the Company’s Proxy Statement, dated March 29, 2004, in connection with the Company’s 2004 Annual Meeting of Shareholders.)
10.21	Unitrin is a party to individual Indemnification and Expense Advancement Agreements (the form of which is incorporated herein by reference to Exhibit 99.01 to the Company’s Current Report on Form 8-K filed March 27, 2009), with each of its directors.
10.22	Credit Agreement, dated as of June 24, 2005, by and among Unitrin, Inc., the lenders party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent, letter of credit issuer and swing line lender, Wells Fargo Bank, National Association, individually and as syndication agent, and Wachovia Bank, N.A., individually and as documentation agent (Incorporated herein by reference to Exhibit 10.1 to Unitrin’s Current Report on Form 8-K filed June 27, 2005.)
31.1	Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a).

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31.2	Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a).
32.1	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 (furnished pursuant to Item 601(b)(32) of Regulation S-K.)
32.2	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 (furnished pursuant to Item 601(b)(32) of Regulation S-K.)

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Unitrin, Inc.
Date: August 3, 2009	/s/ Donald G. Southwell
	Donald G. Southwell
	President and
	Chief Executive Officer
Date: August 3, 2009	/s/ Eric J. Draut
	Eric J. Draut
	Executive Vice President and
	Chief Financial Officer
Date: August 3, 2009	/s/ Richard Roeske
	Richard Roeske
	Vice President and Chief Accounting Officer (Principal Accounting Officer)

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EX-4.1

Exhibit 4.1

UNITRIN, INC.

and

WACHOVIA BANK, NATIONAL ASSOCIATION,

Rights Agent

Rights Agreement

Dated as of August 4, 2004

TABLE OF CONTENTS

		Page
Section 1.	Certain Definitions	1
Section 2.	Appointment of Rights Agent	6
Section 3.	Issuance of Rights Certificates	6
Section 4.	Form of Rights Certificates	8
Section 5.	Countersignature and Registration	9
Section 6.	Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates	9
Section 7.	Exercise of Rights; Purchase Price; Expiration Date of Rights	10
Section 8.	Cancellation and Destruction of Rights Certificates	12
Section 9.	Reservation and Availability of Capital Stock	13
Section 10.	Preferred Stock Record Date	14
Section 11.	Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights	14
Section 12.	Certificate of Adjusted Purchase Price or Number of Shares	23
Section 13.	Consolidation, Merger or Sale or Transfer of Assets Cash Flow or Earning Power	23
Section 14.	Fractional Rights and Fractional Shares	26
Section 15.	Rights of Action	27
Section 16.	Agreement of Rights Holders	27
Section 17.	Rights Certificate Holder Not Deemed a Stockholder	28
Section 18.	Concerning the Rights Agent	28
Section 19.	Merger or Consolidation or Change of Name of Rights Agent	29
Section 20.	Duties of Rights Agent	29
Section 21.	Change of Rights Agent	31
Section 22.	Issuance of New Rights Certificates	32
Section 23.	Redemption and Termination	33
Section 24.	Exchange	33
Section 25.	Notice of Certain Events	34
Section 26.	Notices	35
Section 27.	Supplements and Amendments	36
Section 28.	Successors	36
Section 29.	Determinations and Actions by the Board of Directors, etc	36
Section 30.	Benefits of this Agreement	37
Section 31.	Severability	37
Section 32.	Governing Law	37
Section 33.	Counterparts	37
Section 34.	Descriptive Headings	38

EXHIBITS

Exhibit A — Form of Certificate of Designation, Preferences and Rights

Exhibit B — Form of Rights Certificates

Exhibit C — Form of Summary of Rights

RIGHTS AGREEMENT

RIGHTS AGREEMENT, dated as of August 4, 2004 (the “Agreement”), between Unitrin, Inc., a Delaware corporation (the “Company”), and Wachovia Bank, National Association (the “Rights Agent”).

W I T N E S S E T H

WHEREAS, in August 1994 the Board of Directors of the Company approved and adopted a Rights Agreement (the “1994 Agreement”)pursuant to which preferred stock purchase rights were distributed to the stockholders of the Company; and

WHEREAS, the rights issued pursuant to the 1994 Agreement expired on August 3, 2004; and

WHEREAS, on August 4, 2004 (the “Rights Dividend Declaration Date”), the Board of Directors of the Company determined to extend the protections provided by the 1994 Agreement by authorizing and declaring a dividend distribution of one new Right (as hereinafter defined) for each share of common stock, par value $0.10 per share, of the Company (the “Common Stock”) outstanding at the close of business on August 16, 2004 (the “Record Date”) to replace the rights previously issued pursuant to the 1994 Agreement, which have expired, and the Board of Directors of the Company has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock of the Company issued between the Record Date (whether originally issued or delivered from the Company’s treasury) and the Distribution Date (as hereinafter defined) each Right initially representing the right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company (the “Preferred Stock”) having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the “Rights”);

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated:

(a) “Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company, or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (iv) any Person who becomes the Beneficial Owner of fifteen percent (15%) (or, with respect to an Exempt Person, twenty-two percent (22%)) or more of the shares of Common Stock then outstanding as a result of a reduction in the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by the Company unless and until such Person, after becoming aware

that such Person has become the Beneficial Owner of fifteen percent (15%) (or, with respect to an Exempt Person, twenty-two percent (22%)) or more of the then outstanding shares of Common Stock, acquires beneficial ownership of additional shares of Common Stock representing one percent (1%) or more of the shares of Common Stock then outstanding, (v) any such Person who has reported or is required to report such ownership (but less than 20%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such schedule (other than the disposition of the Common Stock) and, within 10 Business Days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired shares of Common Stock in excess of 14.9% (or, with respect to an Exempt Person, twenty-two percent (22%)) inadvertently or without knowledge of the terms of the Rights and who or which, together with all Affiliates and Associates, thereafter does not acquire additional shares of Common Stock while the Beneficial Owner of 15% (or, with respect to an Exempt Person, twenty-two percent (22%)) or more of the shares of Common Stock then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 Business Days, then such Person shall become an Acquiring Person immediately after such 10-Business-Day period, or (vi) an Exempt Person.

(b) “Act” shall mean the Securities Act of 1933, as amended.

(c) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

(d) A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

(i) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange, (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event (as hereinafter defined), or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date (as hereinafter defined) or pursuant to Section 3(a) or Section 22 hereof (the “Original Rights”) or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights;

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(ii) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or

(iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Company;

provided, however, that nothing in this paragraph (d) shall cause a Person engaged in business as an underwriter of securities to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition, and then only if such securities continue to be owned by such Person at such expiration of forty days.

(e) “Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

(f) “Close of business” on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business Day, it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day.

(g) “Common Stock” shall mean the common stock, par value $0.10 per share, of the Company, except that “Common Stock” when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person.

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(h) “Common Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.

(i) “Current Market Price” shall have the meaning set forth in Section 11(d)(i) hereof.

(j) “Current Value” shall have the meaning set forth in Section 11(a)(iii) hereof.

(k) “Distribution Date” shall have the meaning set forth in Section 3(a) hereof.

(l) “Exempt Person” shall mean (i) Ms. Caroline W. Singleton identified in the Schedule 13D/A filed with respect to the Company on August 24, 2000 (“Ms. Singleton”), (ii) all descendants of Ms. Singleton and the spouse of any such descendant (the “Singleton Descendants”), (ii) the holders of record as of August 4, 2004, of membership interests in Singleton Group, LLC and the spouse of any such holder (the “Singleton Group Members”), (iv) all descendants of the Singleton Group Members and the spouse of any such descendant (the “Singleton Group Descendants” and, together with Ms. Singleton, the Singleton Descendants and the Singleton Group Members, the “Singleton Persons”), (v) all trusts of which a Singleton Person is a beneficiary or trustee and the trustees of any such trust, (vi) the estate of any Singleton Person, (vii) all partnerships, limited liability companies and other entities in which any one or more of the class consisting of the persons listed in the preceding clauses (i) though (vi) shall have in excess of fifty percent (50%) of the total voting power and the managers of any such entities (in their capacity as such), and (viii) the Affiliates and Associates of the Persons identified in the foregoing clauses (i) through (vii); provided, that such Persons shall be Exempt Persons only so long as they collectively beneficially own 22% or less of the total number of shares of Common Stock outstanding; provided further, that at such time as the foregoing Persons shall cease to collectively beneficially own 15% or more of the total number of shares of Common Stock outstanding, each of the foregoing shall cease to be an Exempt Person. For purposes of this definition, a person shall be treated as holding voting power or an equity interest to the extent such power or interest is held directly or indirectly through a corporation, partnership, estate, trust or other entity.

(m) “Equivalent Preferred Stock” shall have the meaning set forth in Section 11(b) hereof.

(n) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(o) “Exchange Ratio” shall have the meaning set forth in Section 24 hereof.

(p) “Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

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(q) “Final Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

(r) “Person” shall mean any individual, firm, corporation, partnership or other entity.

(s) “Preferred Stock” shall mean shares of Series A Junior Participating Preferred Stock, par value $0.10 per share, of the Company, and, to the extent that there are not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock.

(t) “Principal Party” shall have the meaning set forth in Section 13(b) hereof.

(u) “Purchase Price” shall have the meaning set forth in Section 4(a)(ii) hereof.

(v) “Qualified Offer” shall have the meaning set forth in Section 11(a)(ii) hereof.

(w) “Record Date” shall have the meaning set forth in the preamble of this Agreement.

(x) “Rights” shall have the meaning set forth in the preamble of this Agreement.

(y) “Rights Agent” shall have the meaning set forth in the preamble of this Agreement.

(z) “Rights Certificate” shall have the meaning set forth in Section 3(a) hereof.

(aa) “Rights Dividend Declaration Date” shall have the meaning set forth in the preamble of this Agreement.

(bb) “Section 11(a)(ii) Event” shall mean any event described in Section 11(a)(ii) hereof.

(cc) “Section 13 Event” shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof.

(dd) “Spread” shall have the meaning set forth in Section 11(a)(iii) hereof.

(ee) “Stock Acquisition Date” shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed or amended pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such other than pursuant to a Qualified Offer.

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(ff) “Subsidiary” shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.

(gg) “Substitution Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

(hh) “Summary of Rights” shall have the meaning set forth in Section 3(b) hereof.

(ii) “Trading Day” shall have the meaning set forth in Section 11(d)(i) hereof. (jj) “Triggering Event” shall mean any Section 11(a)(ii) Event or any Section 13 Event.

Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-rights agents as it may deem necessary or desirable.

Section 3. Issuance of Rights Certificates.

(a) Until the earlier of (i) the close of business on the tenth Business Day after the Stock Acquisition Date (or, if the tenth Business Day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth Business Day (or such later date as the Board shall determine) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would become an Acquiring Person, in either instance other than pursuant to a Qualified Offer (the earlier of (i) and (ii) being herein referred to as the “Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of paragraphs (b) and (c) of this Section 3) by the certificates for the Common Stock or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, registered in the names of the holders of the Common Stock (which Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of

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Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates.

(b) The Company will make available, as promptly as practicable following the Record Date, a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C (the “Summary of Rights”) to any holder of Rights who may so request from time to time prior to the Expiration Date. With respect to shares of Common Stock outstanding as of the Record Date, or issued subsequent to the Record Date, unless and until the Distribution Date, the Rights will be evidenced by the certificates for the Common Stock or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7(a) hereof), the transfer of any shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock.ute the transfer of the Rights associated with such shares of Common Stock.

(c) Rights shall be issued in respect of all shares of Common Stock that are issued (whether originally issued or delivered from the Company’s treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date or, in certain circumstances provided in Section 22 hereof, after the Distribution Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend if such certificates are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date:

This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Unitrin, Inc. (the “Company”) and the Rights Agent thereunder (the “Rights Agent”) dated as of August 4, 2004, as from time to time amended (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Rights Agent. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Rights Agent will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written

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request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.

With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates.

Section 4. Form of Rights Certificates.

(a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-thousandth of a share, the “Purchase Price”), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein.

(b) Any Rights Certificate issued pursuant to Section 3(a), Section 11(i) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend:

The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of the Rights Agreement.

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Section 5. Countersignature and Registration.

(a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

(b) Following the Distribution Date, the Rights Agent will keep, or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.

Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.

(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates (other than Rights Certificates representing Rights that may have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash

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or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitles such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section 14 hereof and Section 24 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates.

(b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate, if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.

(a) Subject to Section 7(e) hereof, at any time after the Distribution Date the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-thousandths of a share (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earliest of (i) 5:00 P.M., New York City time, on August 4, 2014, or such later date as may be established by the Board of Directors prior to the expiration of the Rights (such date, as it may be extended by the Board, the “Final Expiration Date”, or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof, or (iii) the time at which the Rights may be exchanged as provided in Section 24 hereof or (iv) the time at which all of the Rights expire pursuant to Section 13(d) hereof (the earliest of (i), (ii), (iii) and (iv) being herein referred to as the “Expiration Date”).

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(b) The Purchase Price for each one one-thousandth of a share of Preferred Stock pursuant to the exercise of a Right initially shall be $150.00, shall be subject to adjustment from time to time as provided in Section 11 and Section 13(a) hereof and shall be payable in accordance with paragraph (c) below.

(c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-thousandth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-thousandths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or, upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified bank check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.

(d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof.

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(e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or any other Person as a result of its failure to make any determinations with respect to an Acquiring Person or any of its Affiliates, Associates or transferees hereunder.

(f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.

Section 8. Cancellation and Destruction of Rights Certificates.

All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

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Section 9. Reservation and Availability of Capital Stock.

(a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights.

(b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.

(c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined pursuant to this Agreement (including in accordance with Section 11(a)(iii) hereof), or as soon as is required by law following the Distribution Date, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension has been rescinded. In addition, if the Company shall determine that a registration statement is required following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law, or a registration statement shall not have been declared effective.

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(d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-thousandths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable.

(e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificates at the time of surrender) or until it has been established to the Company’s satisfaction that no such tax is due.

Section 10. Preferred Stock Record Date. Each person in whose name any certificate for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

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(a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

(ii) In the event any Person shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price which is fair to stockholders and not inadequate (taking into account all factors which such members of the Board deem relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders (a “Qualified Offer”), then, promptly following the occurrence of such event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-thousandths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained

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by (x) multiplying the then current Purchase Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the Purchase Price for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d) hereof per share of Common Stock on the date of such first occurrence (such number of shares, the “Adjustment Shares”).

(iii) In the event that the number of shares of Common Stock which is authorized by the Company’s certificate of incorporation, but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights, is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall (A) determine the value of the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock, which the Board of Directors of the Company has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares of preferred stock being referred to as “Common Stock Equivalents”)), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term “Spread” shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the

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Company may seek shareholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the “Substitution Period”). To the extent that the Company determines that action should be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the Company (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such shareholder approval for such authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of each Adjustment Share shall be the Current Market Price per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be deemed to equal the Current Market Price per share of the Common Stock on such date.

(b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock (“Equivalent Preferred Stock”)) or securities convertible into Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or per share of Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent Preferred Stock) less than the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration, part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the

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purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

(c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation), cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or evidences of indebtedness, or of subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock, and the denominator of which shall be such Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed.

(d) (i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, however, that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and the ex dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification shall not have occurred prior to the commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or

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admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over the counter market, as reported by the National Association of Securities Dealers Automated Quotation System (“NASDAQ”) or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

(ii) For the purpose of any computation hereunder, the Current Market Price per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the Current Market Price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the Current Market Price per share of Preferred Stock shall be conclusively deemed to be an amount equal to 1,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the Current Market Price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, Current Market Price per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

(e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any

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subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten thousandth of a share of Common Stock or other share or one millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date.

(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares.

(g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

(h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one millionth) obtained by (i) multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

(i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to

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be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement.

(j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-thousandth of a share and the number of one one-thousandth of a share which were expressed in the initial Rights Certificates issued hereunder.

(k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of one one-thousandths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of one one-thousandths of a share of Preferred Stock at such adjusted Purchase Price.

(l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment.

(m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or

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subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.

(n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates.

(o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23, Section 24 or Section 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

(p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event.

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Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate and (c) if a Distribution Date has occurred, mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a Certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained.

Section 13. Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power.

(a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such one one-thousandths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence of a Section 11(a)(ii) Event), and (2) dividing that

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product (which, following the first occurrence of a Section 13 Event, shall be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event.

(b) “Principal Party” shall mean:

(i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and

(ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets, cash flow or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, “Principal Party” shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stock of two or more of which are and have been so registered, “Principal Party” shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value.

(c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act,

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with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and

(ii) take all such other action as may be necessary to enable the Principal Party to issue the securities purchasable upon exercise of the Rights, including but not limited to the registration or qualification of such securities under all requisite securities laws of jurisdictions of the various states and the listing of such securities on such exchanges and trading markets as may be necessary or appropriate; and

(iii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates, which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a).

(d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which is a Qualified Offer as such term is defined in Section 11(a)(ii) hereof (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire.

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Section 14. Fractional Rights and Fractional Shares.

(a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over the counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights, selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.

(b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-thousandth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-thousandth of a share of Preferred Stock shall be one one-thousandth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.

(c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common

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Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price per share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) on the Trading Day immediately prior to the date of such exercise.

(d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14.

Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement.

Section 16. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

(a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock;

(b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed;

(c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock, made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and

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(d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible.

Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-thousandths of a share of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof.

Section 18. Concerning the Rights Agent.

(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.

(b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the

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transfer agent for the Common Stock, or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it in good faith to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

Section 19. Merger or Consolidation or Change of Name of Rights Agent.

(a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any legal business entity succeeding to the corporate trust, stock transfer or other shareholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; but only if such legal business entity would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

(b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

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(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

(c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct.

(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only.

(e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11, Section 13 or Section 24 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable.

(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer.

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(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.

(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof.

(j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days’ notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such resignation occurs after the Distribution Date, to the registered holders of the Rights Certificates by first class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such removal occurs after the Distribution Date, to the holders of the Rights Certificates by first class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such

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notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a legal business entity organized and doing business under the laws of the United States or of the State of New York or of any other state of the United States, in good standing, having an office in the State of New York, which is authorized under such laws to exercise corporate trust, stock transfer or shareholder services powers and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an affiliate of a legal business entity described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such appointment occurs after the Distribution Date, mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.

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Section 23. Redemption and Termination.

(a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the tenth Business Day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth Business Day following the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price.” Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company’s right of redemption hereunder has expired. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Current Market Price, as defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors.

(b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder’s last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.

Section 24. Exchange.

(a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the “Exchange Ratio”). Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Stock for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Stock then outstanding.

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(b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to subsection (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights that will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

(c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute Preferred Stock (or Equivalent Preferred Stock, as such term is defined in paragraph (b) of Section 11 hereof) for Common Stock exchangeable for Rights, at the initial rate of one one-thousandth of a share of Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock, as appropriately adjusted to reflect stock splits, stock dividends and other similar transactions after the date hereof.

(d) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights.

(e) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this subsection (e), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24.

Section 25. Notice of Certain Events.

(a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock

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rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock, whichever shall be the earlier.

(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities.

Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed (until another address is filed in writing by the Rights Agent with the Company) as follows:

Unitrin, Inc.

1 East Wacker Drive

Chicago, IL 60601

Attention: Corporate Secretary

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Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed (until another address is filed in writing by the Rights Agent with the Company) as follows:

Wachovia Bank, N.A.

1525 West W.T. Harris Blvd, 3C3

Charlotte, NC 28262-8522

Attention: Equity Services Group NC1153

Stock Transfer Administration

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of shares of Common Stock) shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

Section 27. Supplements and Amendments. Prior to the Distribution Date, the Company may and, if so directed by the Company, the Rights Agent shall supplement or amend any provision of this Agreement without the approval of any holders of shares of Common Stock. From and after the Distribution Date, the Company may and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) shorten or lengthen any time period hereunder or (iv) change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person). Upon the delivery of a certificate from an appropriate officer of the Company that states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything herein to the contrary, this Agreement may not be amended (other than pursuant to clauses (i) or (ii) of the preceding sentence) at a time when the Rights are not redeemable.

Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

Section 29. Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock or any other class of capital stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d 3(d)(1)(i) of the General Rules and Regulations under the

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Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board, or any of the directors on the Board to any liability to the holders of the Rights.

Section 30. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock).

Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth Business Day following the date of such determination by the Board of Directors. Without limiting the foregoing, if any provision requiring a specific group of directors to act is held to by any court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall then be made by the Board of Directors of the Company in accordance with applicable law and the Company’s Certificate of Incorporation and By laws.

Section 32. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

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Section 34. Descriptive Headings. Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written.

Attest:		UNITRIN, INC.
By	/s/ Samuel L. Fitzpatrick	By	/s/ Scott Renwick
Name:	Samuel L. Fitzpatrick	Name:	Scott Renwick
Title:	Assistant Secretary	Title:	Senior Vice President
Attest:		WACHOVIA BANK, NATIONAL ASSOCIATION
	/s/ Patrick J. Edwards	By	/s/ Anthony G. Adams
Name:	Patrick J. Edwards	Name:	Anthony G. Adams
Title:	Assistant Vice President	Title:	Officer

Exhibit A

FORM OF

CERTIFICATE OF DESIGNATION, PREFERENCES AND

RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

UNITRIN, INC.

Pursuant to Section 151 of the General Corporation Law of the State of Delaware

We, Richard C. Vie, Chairman of the Board, and Scott Renwick, Secretary, of Unitrin, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:

That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on August 4, 2004, adopted the following resolution amending and restating the terms of said Corporation’s Series A Junior Participating Preferred Stock:

RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Certificate of Incorporation, the terms of the Corporation’s Series A Junior Participating Preferred Stock be and hereby are amended and restated in their entirety, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1. Designation, Par Value and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock,” the shares of such series shall be with par value of $0.10 per share, and the number of shares constituting such series shall be 100,000.

Section 2. Dividends and Distributions.

(A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of February, May, August and November in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an

amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $0.10 per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time after August 4, 2004 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in Paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share by share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights:

(A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 1000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of

Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a “default period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) directors.

(ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence

of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) directors or, if such right is exercised at an annual meeting, to elect two (2) directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect directors in any default period and during the continuance of such period, the number of directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock.

(iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chief Executive Officer, the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a

copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders.

(iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Preferred Stock shall have exercised their right to elect two (2) directors voting as a class, after the exercise of which right (x) the directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining directors theretofore elected by the holders of the class of stock which elected the director whose office shall have become vacant. References in this Paragraph (C) to directors elected by the holders of a particular class of stock shall include directors elected by such directors to fill vacancies as provided in clause (y) of the foregoing sentence.

(v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect directors shall cease, (y) the term of any directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the

number of directors shall be such number as may be provided for in the certificate of incorporation or by laws irrespective of any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining directors.

(D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock;

(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $1,000 per share of Series A Junior Participating Preferred Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

(B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior

Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

(C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the

preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable.

Section 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

Section 10. Amendment. At any time when any shares of Series A Junior Participating Preferred Stock are outstanding, neither the Certificate of Incorporation of the Corporation nor this Certificate of Designation shall be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class.

Section 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock.

IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this      day of             , 200  .

Chairman of the Board

Attest:

Secretary

Exhibit B

[Form of Rights Certificate]

Certificate No. R                  Rights

NOT EXERCISABLE AFTER                    , 200   OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.] (1)

Rights Certificate

UNITRIN, INC.

(1) The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence.

This certifies that                                         , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of August 4, 2004 (the “Rights Agreement”), between Unitrin, Inc., a Delaware corporation (the “Company”), and Wachovia Bank, National Association (the “Rights Agent”), to purchase from the Company at any time prior to 5:00 P.M. (New York City time) on                    , 200   (unless such date is extended prior thereto by the Board of Directors) at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-thousandth of a fully paid, non assessable share of Series A Junior Participating Preferred Stock (the “Preferred Stock”) of the Company, at a purchase price of $150.00 per one one-thousandth of a share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of                  , 200  , based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.

Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event.

As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events.

This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above mentioned office of the Rights Agent and are also available upon written request to the Rights Agent.

This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date

evidencing Rights entitling the holder to purchase a like aggregate number of one one-thousandths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $0.01 per Right at any time prior to the earlier of the close of business on (i) the tenth Business Day following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii) the Final Expiration Date. In addition, under certain circumstances following the Stock Acquisition Date, the Rights may be exchanged, in whole or in part, for shares of the Common Stock, or shares of preferred stock of the Company having essentially the same value or economic rights as such shares. Immediately upon the action of the Board of Directors of the Company authorizing any such exchange, and without any further action or any notice, the Rights (other than Rights which are not subject to such exchange) will terminate and the Rights will only enable holders to receive the shares issuable upon such exchange.

No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. The Company, at its election, may require that a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.

No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of

shares of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give consent to or withhold consent from any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of                    ,         

ATTEST:	UNITRIN, INC.
	By
Secretary	Title:

Countersigned:

WACHOVIA BANK, NATIONAL ASSOCIATION
By
	Authorized Signature

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder desires to transfer the Rights Certificate.)

FOR VALUE RECEIVED                                                                                                                                                                      

hereby sells, assigns and transfers unto                                                                                                                                                           

(Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                                          Attorney, to transfer the within Rights Certificate on the books of the within named Company, with full power of substitution.

Dated:                     ,       

Signature

Signature Guaranteed:

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) this Rights Certificate [    ] is [    ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it [    ] did [    ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated:                     ,       

Signature

Signature Guaranteed:

NOTICE

The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise Rights represented by the Rights Certificate.)

To:              CORPORATION:

The undersigned hereby irrevocably elects to exercise                      Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number

(Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

Please insert social security

or other identifying number

(Please print name and address)

Dated:                     ,       

Signature

Signature Guaranteed:

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) the Rights evidenced by this Rights Certificate [    ] are [    ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it [    ] did [    ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated:                     ,       

Signature

Signature Guaranteed:

NOTICE

The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

Exhibit C

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED STOCK

On August 4, 2004, the Board of Directors of Unitrin, Inc. (the “Company”) determined to extend for an additional ten (10) years the protections provided by its Stockholder Rights Plan which had previously been adopted in August 1994. In order to implement the extension, the Board of Directors declared a dividend distribution of one new Right for each outstanding share of Company Common Stock to stockholders of record at the close of business on August 16, 2004 (the “Record Date”). These new rights replaced the previously outstanding Rights which had expired in accordance with their terms on August 3, 2004. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series A Junior Participating Preferred Stock, par value $0.10 per share (the “Series A Junior Participating Preferred Stock”) at a Purchase Price of $150.00 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) between the Company and Wachovia Bank, National Association, as Rights Agent.

Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, and no separate Rights Certificates will be distributed. Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and a “Distribution Date” will occur upon the earlier of: (i) ten (10) business days following a

public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 15% or more (22% or more in the case of the Company’s existing stockholder, Singleton Group LLC, and certain related persons) of the outstanding shares of Common Stock (the “Stock Acquisition Date”), other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders; or (ii) ten (10) business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, and will be transferred with and only with shares of Common Stock, (ii) new Common Stock certificates issued after the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any shares of Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock. Pursuant to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.

The Rights are not exercisable until the Distribution Date and will expire at 5:00 P.M. (New York City time) on August 4, 2014, unless such date is extended or the Rights are earlier redeemed or exchanged by the Company as described below.

As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, or with respect to shares of Common Stock issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities issued by the Company after the date of the Rights Agreement, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights.

In the event that a Person becomes an Acquiring Person, except pursuant to an offer for all outstanding shares of Common Stock which the independent directors determine to be fair and not inadequate and to otherwise be in the best interests of the Company and its stockholders, after receiving advice from one or more investment banking firms (a “Qualified Offer”), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of the event set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the Rights are no longer redeemable by the Company as set forth below.

For example, at an exercise price of $150 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $300 worth of Common Stock (or other consideration, as noted above) for $150. Assuming that the Common Stock had a per share value of $50.00 at such time, the holder of each valid Right would be entitled to purchase 6 shares of Common Stock for $150.

In the event that, at any time following the Stock Acquisition Date, (i) the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation (other than with an entity which acquired the shares pursuant to a Qualified Offer), (ii) the Company engages in a merger or other business combination transaction in which the

Company is the surviving corporation and the Common Stock of the Company is changed or exchanged, or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The events set forth in this paragraph and in the second preceding paragraph are referred to as the “Triggering Events.”

At any time after a person becomes an Acquiring Person and prior to the acquisition by such person or group of fifty percent (50%) or more of the outstanding Common Stock, the Board may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of Common Stock, or one one-thousandth of a share of Preferred Stock (or of a share of a class or series of the Company’s preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment).

The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution: (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock; (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock; or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above).

With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise.

At any time until ten (10) business days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of Directors). Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price.

Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company or in the event of the redemption of the Rights as set forth above.

Any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of Rights, or to shorten or lengthen any time period under the Rights Agreement. The foregoing notwithstanding, no amendment may be made at such time as the Rights are not redeemable.

A copy of the Rights Agreement is being filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A/ Current Report on Form 8-K dated August 6, 2004. A copy of the Rights Agreement is available free of charge from the Rights Agent. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference.

AMENDMENT TO THE RIGHTS AGREEMENT

This Amendment to the Rights Agreement (this “Amendment”) dated as of May 4, 2006, between Unitrin, Inc., a Delaware corporation (the “Company”), and Wachovia Bank, National Association (the “Rights Agent”).

WHEREAS, the Company and the Rights Agent have entered into that certain Rights Agreement, dated as of August 4, 2004 (the “Rights Agreement”);

and

WHEREAS, the Company desires to amend the Rights Agreement.

NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company and the Rights Agent do hereby agree as follows:

1. Amendment to Section 21. Section 21 of the Rights Agreement is hereby amended by deleting the phrase “$50,000,000” in clause (a) of the fifth sentence and replacing it with the phrase “$10,000,000”.

2. Effect on the Rights Agreement.

(a) On and after the date hereof, each reference in the Rights

Agreement to “this Agreement”, “herein”, “hereof”, “hereunder” or words of similar import shall mean and be a reference to the Rights Agreement as amended hereby.

(b) Except as specifically amended above in connection herewith, the Rights Agreement shall remain in full force and effect and is hereby ratified and confirmed.

3. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

4. Headings. The headings in this Amendment are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.

5. Counterparts. This Amendment may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

UNITRIN, INC.
By:	/s/ Scott Renwick
Name:	Scott Renwick
Title:	Senior Vice President
WACHOVIA BANK, NATIONAL ASSOCIATION, AS RIGHTS AGENT
By:	/s/ Melissa H. Sullivan
Name:	Melissa H. Sullivan
Title:	Vice President

APPOINTMENT OF SUCCESSOR RIGHTS AGENT AND AMENDMENT OF

RIGHTS AGREEMENT

This Agreement of Appointment and Amendment (this “Amendment”) is entered into as of May 4, 2006, by and between Unitrin, Inc., a Delaware corporation (the “Company”) and American Stock Transfer and Trust Company, a New York banking corporation (“AST”).

RECITALS

A. The Company and Wachovia Bank, National Association (the “Predecessor Agent”), as rights agent, entered into that certain Rights Agreement, dated as of August 4, 2004 and amended on May 4, 2006 (the “Rights Agreement”).

B. The Company has given the Predecessor Agent notice of removal of the Predecessor Agent as rights agent pursuant to Section 21 of the Rights Agreement.

C. The Company wishes to appoint AST as Rights Agent pursuant to Section 21 of the Rights Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing and of other consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:

1. The Company hereby appoints AST as Rights Agent pursuant to Section 21 of the Rights Agreement, to serve in that capacity for the consideration and subject to all of the terms and conditions of the Rights Agreement.

2. AST hereby accepts the appointment as Rights Agent pursuant to Section 21 of the Rights Agreement and agrees to serve in that capacity for the consideration and subject to all of the terms and conditions of the Rights Agreement.

3. From and after the effective date hereof, each and every reference in the Rights Agreement to a “Rights Agent” shall be deemed to be a reference to AST.

4. Section 26 of the Rights Agreement is hereby amended by replacing the address for notices to the Rights Agent with the following:

American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 10038

Attention: Corporate Trust Department

5. On and after the date hereof, each reference in the Rights Agreement to “this Agreement”, “herein”, “hereof”, “hereunder” or words of similar import shall mean and be a reference to the Rights Agreement as amended hereby. Except as specifically amended above in connection herewith, the Rights Agreement shall remain in full force and effect and is hereby ratified and confirmed.

6. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

7. This Amendment may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the dated indicated above.

UNITRIN, INC.
By:	/s/ Scott Renwick
Name:	Scott Renwick
Title:	Senior Vice President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:	/s/ Herbert J. Lemmer
Name:	Herbert J. Lemmer
Title:	Vice President

OCTOBER 2006

AGREEMENT OF APPOINTMENT

AND AMENDMENT OF RIGHTS AGREEMENT

This OCTOBER 2006 AGREEMENT OF APPOINTMENT AND AMENDMENT OF RIGHTS AGREEMENT (this “October 2006 Appointment and Amendment”) is entered into as of October 9, 2006, by and between Unitrin, Inc., a Delaware corporation (the “Company”) and Computershare Trust Company, N.A., a national banking association (“Computershare”).

RECITALS

A. The Company and American Stock Transfer & Trust Company (“Predecessor Agent”), as rights agent, are parties to that certain Rights Agreement, dated as of August 4, 2004 and amended on May 4, 2006 (the “Rights Agreement”).

B. The Company has given the Predecessor Agent notice of removal of the Predecessor Agent as rights agent pursuant to Section 21 of the Rights Agreement.

C. The Company wishes to appoint Computershare as successor Rights Agent pursuant to Section 21 of the Rights Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing and of other consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:

1. The Company hereby appoints Computershare as Rights Agent pursuant to Section 21 of the Rights Agreement, to serve in that capacity for the consideration and subject to all of the terms and conditions of the Rights Agreement.

2. Computershare hereby accepts the appointment as Rights Agent pursuant to Section 21 of the Rights Agreement and agrees to serve in that capacity for the consideration and subject to all of the terms and conditions of the Rights Agreement.

3. From and after the effective date hereof, each and every reference in the Rights Agreement to a “Rights Agent” shall be deemed to be a reference to Computershare.

4. Section 26 of the Rights Agreement is hereby amended by replacing the address for notices to the Rights Agent with the following:

Computershare Trust Company, N.A.

2 North LaSalle Street

Chicago IL 60602

Attention: Relationship Management

5. On and after the date hereof, each reference in the Rights Agreement to “this Agreement”, “herein”, “hereof”, “hereunder” or words of similar import shall mean and be a reference to the Rights Agreement as amended hereby. Except as specifically amended above in connection herewith, the Rights Agreement shall remain in full force and effect and is hereby ratified and confirmed.

6. This October 2006 Appointment and Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

7. This October 2006 Appointment and Amendment may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties have caused this October 2006 Appointment and Amendment to be duly executed as of the dated indicated above.

UNITRIN, INC.
By:	/s/ Scott Renwick
Name:	Scott Renwick
Title:	Senior Vice President
COMPUTERSHARE TRUST COMPANY, N.A.
By:	/s/ Peter Sablich
Name:	Peter Sablich
Title:	Managing Director

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Donald G. Southwell, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2009

/s/ Donald G. Southwell

Donald G. Southwell

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Eric J. Draut, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 3, 2009

/s/ Eric J. Draut

Eric J. Draut

Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Unitrin, Inc. (the “Company”) for the quarterly period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Donald G. Southwell, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Donald G. Southwell
Name:	Donald G. Southwell
Title:	President and Chief Executive Officer
Date:	August 3, 2009

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Unitrin, Inc. (the “Company”) for the quarterly period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Eric J. Draut, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eric J. Draut
Name:	Eric J. Draut
Title:	Executive Vice President and Chief Financial Officer
Date:	August 3, 2009