UNITRIN INC (Form: 10-Q, Received: 05/04/2011 17:04:49)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended March 31, 2011

¨	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 x 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):

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

60,452,971 shares of common stock, $0.10 par value, were outstanding as of May 2, 2011.

UNITRIN, INC.

INDEX


		Page
PART I.	FINANCIAL INFORMATION.

Item 1.	Financial Statements.

	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010 (Unaudited).		1

	Condensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010.		2

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited).		3

	Notes to the Condensed Consolidated Financial Statements (Unaudited).		4-28

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		29-52

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		52-54

Item 4.	Controls and Procedures.		54

	Caution Regarding Forward-Looking Statements.		54-56

PART II.	OTHER INFORMATION.

Item 1.	Legal Proceedings.		56

Item 1A.	Risk Factors.		56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		56

Item 5.	Other Information.		56

Item 6.	Exhibits.		57-59

Signatures			59

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31, 2011			March 31, 2010
Revenues:
Earned Premiums	$	546.0		$	581.5
Automobile Finance Revenues		15.5			30.6
Net Investment Income		81.6			80.8
Other Income		0.2			0.3
Net Realized Gains on Sales of Investments		14.5			4.5

Other-than-temporary Impairment Losses:
Total Other-than-temporary Impairment Losses		(0.4	)		(6.2	)
Portion of Losses Recognized in Other Comprehensive Income		—			3.0

Net Impairment Losses Recognized in Earnings		(0.4	)		(3.2	)


Total Revenues		657.4			694.5


Expenses:
Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses		392.3			417.1
Insurance Expenses		161.9			168.5
Automobile Finance Expenses (Recoveries)		(2.9	)		18.4
Interest Expense on Certificates of Deposits		7.1			7.9
Interest and Other Expenses		19.7			16.4

Total Expenses		578.1			628.3


Income from Continuing Operations before Income Taxes and Equity in Net Income of Investee		79.3			66.2
Income Tax Expense		(23.5	)		(19.2	)

Income from Continuing Operations before Equity in Net Income of Investee		55.8			47.0
Equity in Net Income of Investee		—			0.7


Income from Continuing Operations		55.8			47.7


Discontinued Operations:
Income (Loss) from Discontinued Operations before Income Taxes		(2.6	)		0.8
Income Tax Benefit (Expense)		0.9			(0.3	)


Income (Loss) from Discontinued Operations		(1.7	)		0.5


Net Income	$	54.1		$	48.2


Income from Continuing Operations Per Unrestricted Share:
Basic	$	0.92		$	0.76

Diluted	$	0.92		$	0.76


Net Income Per Unrestricted Share:
Basic	$	0.89		$	0.77

Diluted	$	0.89		$	0.77


Dividends Paid to Shareholders Per Share	$	0.24		$	0.22

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

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)


	March 31, 2011		December 31, 2010
	(Unaudited)
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized Cost: 2011 - $4,262.7; 2010 - $4,240.8)	$	4,491.9	$	4,475.3
Equity Securities at Fair Value (Cost: 2011 - $431.4; 2010 - $449.2)		511.7		550.4
Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings		326.0		328.0
Short-term Investments at Cost which Approximates Fair Value		415.8		402.9
Other Investments		496.0		494.2

Total Investments		6,241.4		6,250.8


Cash		77.5		117.2
Automobile Loan Receivables at Cost and Net of Reserve for Loan Losses (Fair Value: 2011 - $279.1; 2010 - $340.0)		278.1		337.6
Other Receivables		619.9		606.7
Deferred Policy Acquisition Costs		530.2		525.2
Goodwill		311.8		311.8
Current and Deferred Income Tax Assets		1.9		39.6
Other Assets		169.2		169.6

Total Assets	$	8,230.0	$	8,358.5


Liabilities and Shareholders’ Equity:
Insurance Reserves:
Life and Health	$	3,073.6	$	3,063.7
Property and Casualty		1,095.8		1,118.7

Total Insurance Reserves		4,169.4		4,182.4


Certificates of Deposits at Cost (Fair Value: 2011 - $180.1; 2010 - $336.6)		172.7		321.4
Unearned Premiums		680.4		678.6
Liabilities for Income Taxes		8.6		15.1
Notes Payable at Amortized Cost (Fair Value: 2011 - $646.0; 2010 - $628.0)		610.0		609.8
Accrued Expenses and Other Liabilities		472.4		437.8

Total Liabilities		6,113.5		6,245.1


Shareholders’ Equity:
Common Stock, $0.10 Par Value, 100 Million Shares Authorized; 60,452,971 Shares Issued and Outstanding at March 31, 2011 and 61,066,587 Shares Issued and Outstanding at December 31, 2010		6.0		6.1
Paid-in Capital		743.3		751.1
Retained Earnings		1,225.6		1,198.8
Accumulated Other Comprehensive Income		141.6		157.4

Total Shareholders’ Equity		2,116.5		2,113.4

Total Liabilities and Shareholders’ Equity	$	8,230.0	$	8,358.5

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

UNITRIN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)


	Three Months Ended
	March 31, 2011			March 31, 2010
Operating Activities:
Net Income	$	54.1		$	48.2
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities:
Increase in Deferred Policy Acquisition Costs		(5.0	)		(0.6	)
Equity in Net Income of Investee before Taxes		—			(1.0	)
Equity in Earnings of Equity Method Limited Liability Investments		(10.0	)		(9.4	)
Amortization of Investment Securities and Depreciation of Investment Real Estate		4.6			4.1
Net Realized Gains on Sales of Investments		(14.5	)		(4.5	)
Net Impairment Losses Recognized in Earnings		0.4			3.2
Provision for Loan Losses		(13.8	)		2.9
Depreciation of Property and Equipment		3.4			3.0
Decrease (Increase) in Other Receivables		(13.4	)		12.7
Decrease in Insurance Reserves		(13.4	)		(22.9	)
Increase (Decrease) in Unearned Premiums		1.8			(10.0	)
Change in Income Taxes		39.5			(2.1	)
Increase (Decrease) in Accrued Expenses and Other Liabilities		28.7			(4.5	)
Other, Net		10.8			6.4

Net Cash Provided by Operating Activities		73.2			25.5

Investing Activities:
Sales and Maturities of Fixed Maturities		176.6			116.1
Purchases of Fixed Maturities		(197.7	)		(141.5	)
Sales of Equity Securities		37.3			5.9
Purchases of Equity Securities		(8.8	)		(7.1	)
Acquisition and Improvements of Investment Real Estate		(1.9	)		(1.4	)
Sales of Investment Real Estate		0.2			—
Return of Investment of Equity Method Limited Liability Investments		14.2			10.6
Acquisitions of Equity Method Limited Liability Investments		(2.3	)		(15.0	)
Decrease (Increase) in Short-term Investments		(12.9	)		35.2
Receipts from Automobile Loan Receivables		73.6			103.5
Increase in Other Investments		(2.4	)		(2.1	)
Other, Net		(7.3	)		(11.3	)

Net Cash Provided by Investing Activities		68.6			92.9

Financing Activities:
Repayments of Certificates of Deposits		(149.1	)		(88.4	)
Common Stock Repurchases		(18.3	)		—
Cash Dividends Paid to Shareholders		(14.7	)		(13.7	)
Cash Exercise of Stock Options		0.1			—
Excess Tax Benefits from Share-based Awards		0.1			—
Other, Net		0.4			0.9

Net Cash Used by Financing Activities		(181.5	)		(101.2	)

Increase (Decrease) in Cash		(39.7	)		17.2
Cash, Beginning of Year		117.2			143.7

Cash, End of Period	$	77.5		$	160.9

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

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. The Company accounts for its former Unitrin Business Insurance operations as discontinued operations. 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 for interim financial reporting 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 Company’s Consolidated Financial Statements and related notes included in Unitrin’s Annual Report on Form 10-K, filed with the SEC for the year ended December 31, 2010 (the “2010 Annual Report”).

Adoption of New Accounting Standards and Accounting Standards Not Yet Adopted

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASUs”) to amend the authoritative literature in the FASB Accounting Standards Codification™ (“ASC”). The Company has not adopted any new accounting standards in 2011. There have been three ASUs issued in 2011 that amend the original text of ASC. None of the ASUs is expected to have a significant impact on the Company.

In October 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts . The standard is effective for interim and annual reporting periods beginning after December 15, 2011, with earlier adoption permitted. The provisions of the new standard can be applied either prospectively or retrospectively. The standard amends ASC Topic 944, Financial Services—Insurance , and modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The Company has not yet determined the impact of the new standard on the Company or the method or date of adoption.

Note 2 - Investments

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2011 were:


	Amortized Cost		Gross Unrealized					Fair Value
(Dollars in Millions)	Amortized Cost		Gains		Losses			Fair Value
U.S. Government and Government Agencies and Authorities	$	515.5	$	26.1	$	(0.3	)	$	541.3
States and Political Subdivisions		1,727.7		50.8		(16.4	)		1,762.1
Corporate Securities:
Bonds and Notes		1,928.1		170.9		(8.0	)		2,091.0
Redeemable Preferred Stocks		83.3		5.7		—			89.0
Mortgage and Asset-backed		8.1		1.6		(1.2	)		8.5

Investments in Fixed Maturities	$	4,262.7	$	255.1	$	(25.9	)	$	4,491.9

Included in the fair value of Mortgage and Asset-backed investments at March 31, 2011 are $5.1 million of collateralized debt obligations, $2.3 million of non-governmental residential mortgage-backed securities, $1.0 million of other asset-backed securities and $0.1 million of commercial mortgage-backed securities.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

The amortized cost and estimated fair values of the Company’s Investments in Fixed Maturities at December 31, 2010 were:


	Amortized Cost		Gross Unrealized					Fair Value
(Dollars in Millions)	Amortized Cost		Gains		Losses			Fair Value
U.S. Government and Government Agencies and Authorities	$	508.6	$	28.4	$	(0.1	)	$	536.9
States and Political Subdivisions		1,760.0		53.5		(20.7	)		1,792.8
Corporate Securities:
Bonds and Notes		1,880.3		178.8		(10.1	)		2,049.0
Redeemable Preferred Stocks		83.4		4.9		—			88.3
Mortgage and Asset-backed		8.5		1.1		(1.3	)		8.3

Investments in Fixed Maturities	$	4,240.8	$	266.7	$	(32.2	)	$	4,475.3

Included in the fair value of Mortgage and Asset-backed investments at December 31, 2010 are $5.0 million of collateralized debt obligations, $1.9 million of non-governmental residential mortgage-backed securities, $1.2 million of other asset-backed securities and $0.2 million of commercial mortgage-backed securities.

The estimated fair values of the Company’s Investments in Fixed Maturities at March 31, 2011, by contractual maturity, were:


(Dollars in Millions)
Due in One Year or Less	$	152.1
Due after One Year to Five Years		483.7
Due after Five Years to Ten Years		913.6
Due after Ten Years		2,651.0
Asset-backed Securities Not Due at a Single Maturity Date		291.5

Investments in Fixed Maturities	$	4,491.9

The expected maturities of the Company’s Investments in Fixed Maturities may differ from the contractual maturities because issuers 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 March 31, 2011 consisted of securities issued by the Government National Mortgage Association with a fair value of $249.1 million, securities issued by the Federal National Mortgage Association with a fair value of $32.7 million, securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $1.2 million and securities of other issuers with a fair value of $8.5 million.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at March 31, 2011 were:


			Gross Unrealized
(Dollars in Millions)	Cost		Gains		Losses			Fair Value
Preferred Stocks:
Finance, Insurance and Real Estate	$	94.4	$	5.3	$	(0.1	)	$	99.6
Other Industries		19.6		5.8		(0.2	)		25.2
Common Stocks:
Intermec		79.3		27.7		—			107.0
Manufacturing		63.4		13.7		(0.4	)		76.7
Other Industries		37.7		7.6		(0.3	)		45.0
Other Equity Interests:
Exchange Traded Funds		76.5		7.1		—			83.6
Limited Liability Companies and Limited Partnerships		60.5		15.3		(1.2	)		74.6

Investments in Equity Securities	$	431.4	$	82.5	$	(2.2	)	$	511.7

Gross unrealized gains and gross unrealized losses on the Company’s Investments in Equity Securities at December 31, 2010 were:


			Gross Unrealized
(Dollars in Millions)	Cost		Gains		Losses			Fair Value
Preferred Stocks:
Finance, Insurance and Real Estate	$	94.4	$	3.5	$	(0.2	)	$	97.7
Other Industries		20.0		7.6		(0.2	)		27.4
Common Stocks:
Intermec		86.9		50.6		—			137.5
Manufacturing		75.3		14.6		(0.3	)		89.6
Other Industries		37.3		6.6		(0.1	)		43.8
Other Equity Interests:
Exchange Traded Funds		76.5		2.7		—			79.2
Limited Liability Companies and Limited Partnerships		58.8		17.6		(1.2	)		75.2

Investments in Equity Securities	$	449.2	$	103.2	$	(2.0	)	$	550.4

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at March 31, 2011 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	$	21.2	$	(0.3	)	$	—	$	—		$	21.2	$	(0.3	)
States and Political Subdivisions		370.8		(13.6	)		17.6		(2.8	)		388.4		(16.4	)
Corporate Securities:
Bonds and Notes		134.3		(3.1	)		89.4		(4.9	)		223.7		(8.0	)
Redeemable Preferred Stocks		0.1		—			—		—			0.1		—
Mortgage and Asset-backed		0.1		—			4.6		(1.2	)		4.7		(1.2	)

Total Fixed Maturities		526.5		(17.0	)		111.6		(8.9	)		638.1		(25.9	)


Preferred Stocks:
Finance, Insurance and Real Estate		—		—			2.8		(0.1	)		2.8		(0.1	)
Other Industries		2.6		(0.1	)		2.4		(0.1	)		5.0		(0.2	)
Common Stocks:
Manufacturing		10.7		(0.4	)		—		—			10.7		(0.4	)
Other Industries		9.5		(0.3	)		—		—			9.5		(0.3	)
Other Equity Interests:
Limited Liability Companies and Limited Partnerships		—		—			7.0		(1.2	)		7.0		(1.2	)

Total Equity Securities		22.8		(0.8	)		12.2		(1.4	)		35.0		(2.2	)


Total	$	549.3	$	(17.8	)	$	123.8	$	(10.3	)	$	673.1	$	(28.1	)

Unrealized losses on fixed maturities, which the Company has determined to be temporary at March 31, 2011, were $25.9 million, of which $8.9 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses related to securities for which the Company has recognized credit losses in earnings in the preceding table under either the heading “Less Than 12 Months” or the heading “12 Months or Longer.” Included in the preceding table under the heading “12 Months or Longer” are unrealized losses of $0.1 million related to securities for which the Company has previously recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $23.1 million and below-investment-grade fixed maturity investments comprised $2.8 million of the unrealized losses on investments in fixed maturities at March 31, 2011. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.1 million for one issuer that the Company previously recognized foreign currency impairment losses in earnings. For the other remaining below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 4% of the amortized cost basis of the investment. At March 31, 2011, 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 at maturity. The Company concluded that these impairments were temporary at March 31, 2011.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

For equity securities, the Company considers various factors when determining whether a decline in the fair value is other than temporary, including, but not limited to:

•

The financial condition and prospects of the issuer;

•

The length of time and magnitude of the unrealized loss;

•

The volatility of the investment;

•

Analyst recommendations and near term 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 until recovery.

The vast majority of the Company’s preferred stocks in an unrealized loss position at March 31, 2011 are perpetual preferred stocks of financial institutions and public utilities. The Company considers the debt-like characteristics of perpetual preferred stocks along with issuer ratings when evaluating impairment. All such preferred stocks paid dividends at the stated dividend rate during the twelve-month period preceding the evaluation date. The Company concluded that the declines in the fair values of these perpetual preferred stocks were temporary in nature, largely driven by market conditions, and since the Company intends to hold the securities until recovery, these investments were not considered to be other-than-temporarily impaired at March 31, 2011. The Company concluded that the unrealized losses on its investments in common stocks at March 31, 2011 were temporary based on the relative short length and magnitude of the losses. The Company’s investments in other equity interests are investments in limited liability partnerships that primarily invest in distressed debt, mezzanine debt and secondary transactions. By the nature of their underlying investments, the Company believes that its investments in the limited liability partnerships also exhibit debt-like characteristics which, among other factors, the Company considers when evaluating these investments for impairment. Based on evaluations 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 were temporary at March 31, 2011.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

An aging of unrealized losses on the Company’s Investments in Fixed Maturities and Equity Securities at December 31, 2010 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	$	18.5	$	(0.1	)	$	0.1	$	—		$	18.6	$	(0.1	)
States and Political Subdivisions		455.6		(16.9	)		16.5		(3.8	)		472.1		(20.7	)
Corporate Securities:
Bonds and Notes		123.0		(3.7	)		87.8		(6.4	)		210.8		(10.1	)
Redeemable Preferred Stocks		0.7		—			—		—			0.7		—
Mortgage and Asset-backed		—		—			4.6		(1.3	)		4.6		(1.3	)

Total Fixed Maturities		597.8		(20.7	)		109.0		(11.5	)		706.8		(32.2	)


Preferred Stocks:
Finance, Insurance and Real Estate		3.0		—			2.6		(0.2	)		5.6		(0.2	)
Other Industries		0.7		(0.1	)		2.8		(0.1	)		3.5		(0.2	)
Common Stocks:
Manufacturing		7.9		(0.3	)		1.7		—			9.6		(0.3	)
Other Industries		6.3		(0.1	)		—		—			6.3		(0.1	)
Other Equity Interests:
Limited Liability Companies and Limited Partnerships		2.2		(0.3	)		6.1		(0.9	)		8.3		(1.2	)

Total Equity Securities		20.1		(0.8	)		13.2		(1.2	)		33.3		(2.0	)


Total	$	617.9	$	(21.5	)	$	122.2	$	(12.7	)	$	740.1	$	(34.2	)

Unrealized losses on fixed maturities, which the Company determined to be temporary at December 31, 2010, were $32.2 million, of which $11.5 million is related to fixed maturities that were in an unrealized loss position for 12 months or longer. There were no unrealized losses at December 31, 2010 related to securities for which the Company has recognized credit losses in earnings in the preceding table under either the heading “Less Than 12 Months” or the heading “12 Months or Longer.” Included in the preceding table under the heading “12 Months or Longer” are unrealized losses of $0.1 million at December 31, 2010 related to securities for which the Company has recognized foreign currency losses in earnings. Investment-grade fixed maturity investments comprised $28.1 million and below-investment-grade fixed maturity investments comprised $4.1 million of the unrealized losses on investments in fixed maturities at December 31, 2010. Unrealized losses for below-investment-grade fixed maturities included unrealized losses totaling $0.1 million for one issuer that the Company recognized foreign currency impairment losses in earnings for the year ended December 31, 2010. For the other remaining below-investment-grade fixed maturity investments in an unrealized loss position, the unrealized loss amount, on average, was less than 4% of the amortized cost basis of the investment. At December 31, 2010, 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 at maturity. The Company concluded that these impairments were temporary at December 31, 2010.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 - Investments (continued)

The vast majority of the Company’s preferred stocks in an unrealized loss position at December 31, 2010 are perpetual preferred stocks of financial institutions and public utilities. The Company considers the debt-like characteristics of perpetual preferred stocks along with issuer ratings when evaluating impairment. All such preferred stocks paid dividends at the stated dividend rate during the twelve-month period preceding the evaluation date. The Company concluded that the declines in the fair values of these perpetual preferred stocks were temporary in nature, largely driven by market conditions, and since the Company intends to hold the securities until recovery, these investments were not considered to be other-than-temporarily impaired at December 31, 2010. The Company concluded that the unrealized losses on its investments in common stocks at December 31, 2010 were temporary based on the relative short length and magnitude of the losses. The Company’s investments in other equity interests are investments in limited liability partnerships that primarily invest in distressed debt, mezzanine debt and secondary transactions. By the nature of their underlying investments, the Company believes that its investments in the limited liability partnerships also exhibit debt-like characteristics which, among other factors, the Company considers when evaluating these investments for impairment. Based on evaluations of the factors described above that the Company considers when determining whether a decline in the fair value of an investment in equity securities is other than temporary, the Company concluded that the declines in the fair values of the Company’s investments in equity securities were temporary at December 31, 2010.

The following table sets forth the pre-tax amount of other-than-temporary-impairment (“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 Income, and the corresponding changes in such amounts.


	Three Months Ended March 31,
(Dollars in Millions)	2011			2010
Balance at Beginning of Period	$	2.4		$	3.7
Additions for Previously Unrecognized OTTI Credit Losses		—			3.1
Increases to Previously Recognized OTTI Credit Losses		—			0.1
Reductions to Previously Recognized OTTI Credit Losses		(0.1	)		(1.3	)

Balance at End of Period	$	2.3		$	5.6

The carrying values of the Company’s Other Investments at March 31, 2011 and December 31, 2010 were:


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Loans to Policyholders at Unpaid Principal	$	240.7	$	238.4
Real Estate at Depreciated Cost		249.3		249.9
Trading Securities		5.2		5.1
Other		0.8		0.8

Total	$	496.0	$	494.2

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 - Automobile Loan Receivables

Automobile Loan Receivables consists 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 maximum original term for Sales Contracts and Loans at March 31, 2011 is approximately 72 months. The maximum remaining term of Sales Contracts and Loans at March 31, 2011 is approximately 50 months. There were no sales contracts originated in 2011 or 2010.

The components of Automobile Loan Receivables at March 31, 2011 and December 31, 2010 were:


(Dollars in Millions)	March 31, 2011			Dec. 31, 2010
Sales Contracts and Loans Receivable	$	311.3		$	382.9
Unearned Discounts and Deferred Fees		(1.1	)		(1.6	)

Net Automobile Loan Receivables Outstanding		310.2			381.3
Reserve for Loan Losses		(32.1	)		(43.7	)

Automobile Loan Receivables	$	278.1		$	337.6

Activity in the Reserve for Loan Losses for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Reserve for Loan Losses - Beginning of Period	$	43.7		$	83.3
Provision for Loan Losses		(13.8	)		2.9
Net Recovery (Charge-off):
Automobile Loan Receivables Charged Off		(9.8	)		(22.4	)
Automobile Loan Receivables Recovered		12.0			10.9

Net Recovery (Charge-off)		2.2			(11.5	)

Reserve for Loan Losses - End of Period	$	32.1		$	74.7

The Company used several quality indicators, including, but not limited to, Fair Isaac Corporation (“FICO”) credit scores, loan-to-value (“LTV”) ratios and residency of customers to underwrite its automobile loans and uses these indicators to monitor its automobile loan portfolio. The FICO score is a measure of the creditworthiness of a borrower. A lower FICO score, compared to a higher FICO score, represents a higher likelihood of default. The LTV ratio is a measure of the value of a loan to the value of the collateral at the time a loan is originated. In the event of default, loans with higher initial LTV ratios are more likely to result in greater charge-off, compared to loans with lower initial LTV ratios, because a greater portion of the loan is unsecured. Economic conditions may vary by state and impact the ability of borrowers to repay their loans. For example, the unemployment rate in the state of California has been higher than the national average for the past several years. The Company does not update the initial quality indicators periodically, but rather monitors changes in the mix of its automobile loan portfolio by such quality indicators to assess whether or not its historical charge-off and recovery patterns used to estimate future charge-offs and recoveries should be adjusted.

Automobile Loan Receivables outstanding at March 31, 2011 and December 31, 2010 by initial FICO score were:


	March 31, 2011			Dec. 31, 2010
Score Lower than 580		38.4	%		38.9	%
Score Greater than or Equal to 580 and Lower than 620		29.8	%		29.6	%
Score Greater than or Equal to 620		31.8	%		31.5	%

Total		100.0	%		100.0	%

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 - Automobile Loan Receivables (continued)

Automobile Loan Receivables outstanding at March 31, 2011 and December 31, 2010 by initial LTV ratio were:


	March 31, 2011			Dec. 31, 2010
LTV Ratio Lower than 100%		21.6	%		21.4	%
LTV Ratio Greater than or Equal to 100% and Lower than 120%		47.7	%		47.7	%
LTV Ratio Greater than 120%		30.7	%		30.9	%

Total		100.0	%		100.0	%

Approximately two-thirds of Fireside Bank’s automobile loan portfolio was concentrated in loans to borrowers residing in California at both March 31, 2011 and December 31, 2010.

Note 4 - Property and Casualty Insurance Reserves

Property and Casualty Insurance Reserve activity for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Property and Casualty Insurance Reserves -
Gross of Reinsurance at Beginning of Year	$	1,118.7		$	1,211.3
Less Reinsurance Recoverables at Beginning of Year		78.1			77.4

Property and Casualty Insurance Reserves -
Net of Reinsurance at Beginning of Year		1,040.6			1,133.9

Incurred Losses and LAE Related to:
Current Year - Continuing Operations		309.0			331.3
Prior Years:
Continuing Operations		(3.9	)		(10.7	)
Discontinued Operations		2.2			(0.8	)

Total Incurred Losses and LAE Related to Prior Years		(1.7	)		(11.5	)

Total Incurred Losses and LAE		307.3			319.8


Paid Losses and LAE Related to:
Current Year - Continuing Operations		134.0			137.6
Prior Years:
Continuing Operations		189.4			203.4
Discontinued Operations		12.3			13.7

Total Paid Losses and LAE Related to Prior Years		201.7			217.1

Total Paid Losses and LAE		335.7			354.7


Property and Casualty Insurance Reserves -
Net of Reinsurance at End of Period		1,012.2			1,099.0
Plus Reinsurance Recoverable at End of Period		83.6			71.7

Property and Casualty Insurance Reserves -
Gross of Reinsurance at End of Period	$	1,095.8		$	1,170.7

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 on a quarterly basis. Changes in such estimates are included in the Condensed Consolidated Statements of Income in the period of change.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Property and Casualty Insurance Reserves (continued)

For the three months ended March 31, 2011, the Company reduced its property and casualty insurance reserves by $1.7 million to recognize favorable development of losses and loss adjustment expenses (“LAE”) from prior accident years. Personal lines insurance losses and LAE reserves developed favorably by $2.9 million and commercial lines insurance losses and LAE reserves developed adversely by $1.2 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 2010 and 2008 accident years.

For the three months ended March 31, 2010, the Company reduced its property and casualty insurance reserves by $11.5 million to recognize favorable development of losses and LAE from prior accident years. Personal lines insurance losses and LAE reserves developed favorably by $11.0 million and commercial lines insurance losses and LAE reserves developed favorably by $0.5 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 2009, 2008 and 2007 accident years.

The Company cannot predict whether losses and LAE will develop favorably or unfavorably from the amounts reported in the Company’s Condensed Consolidated Financial Statements. The Company believes that any such development will not have a material effect on the Company’s consolidated shareholders’ equity, but could have a material effect on the Company’s consolidated financial results for a given period.

Note 5 - Certificates of Deposits

In the first quarter of 2011, Fireside Bank paid $0.6 million in incentives, in lieu of future interest, to certificate holders to voluntarily close their accounts in advance of their scheduled maturity dates. Fireside Bank redeemed $12.4 million of certificates of deposits in connection with such incentive offers.

In the first quarter of 2011, Fireside Bank also paid $85.2 million, plus $3.6 million of future interest payable through the respective maturity dates, to redeem and close certain certificates of deposits. In April 2011, Fireside Bank paid $172.7 million, plus future interest payable of $6.9 million through the respective maturity dates, to redeem and close all certificates of deposits that remained outstanding at March 31, 2011.

Note 6 - Long-term Equity-based Compensation Plans

Unitrin has adopted a number of long-term equity-based compensation plans to attract, motivate and retain key employees and/or directors of the Company. Share-based compensation expense for all of the Company’s long-term equity-based compensation plans was $1.3 million and $1.1 million for the three months ended March 31, 2011 and 2010, respectively. Total unamortized compensation expense related to nonvested awards of such plans at March 31, 2011 was $8.8 million, which is expected to be recognized over a weighted-average period of 1.6 years.

At March 31, 2011, the Company had three stock option plans, all of which have been approved by Unitrin’s shareholders. The Company uses the Black-Scholes option pricing model to estimate the fair value of each option on the date of grant. The assumptions used in the Black-Scholes pricing model for options granted during the three months ended March 31, 2011 and 2010 were as follows:


	Three Months Ended March 31,
Range of Valuation Assumptions	2011	2010
Expected Volatility	41.34% - 55.16%	40.55% - 50.51%
Risk-free Interest Rate	1.30% - 2.87%	1.91% - 3.20%
Expected Dividend Yield	3.38%	3.33% - 3.39%

Weighted-Average Expected Life
Employee Grants	3.5 - 7 Years	4 - 7 Years
Director Grants	NA	6 Years

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 - Long-term Equity-based Compensation Plans (continued)

Option and stock appreciation right activity for the three months ended March 31, 2011 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		4,004,546		$	42.34
Granted		276,750			27.89
Exercised		(8,000	)		16.48
Forfeited or Expired		(101,870	)		48.06

Outstanding at March 31, 2011		4,171,426		$	41.29		4.38	$	7.5

Vested and Expected to Vest at March 31, 2011		4,134,607		$	41.42		4.33	$	7.3

Exercisable at March 31, 2011		3,416,550		$	44.80		3.36	$	2.8

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2011 and 2010 were $9.06 per option and $7.60 per option, respectively. Total intrinsic value of stock options exercised was $0.1 million for the three months ended March 31, 2011. Cash received from option exercises and the total tax benefits realized for tax deductions from option exercises were insignificant for the three months ended March 31, 2011. No options were exercised during the three months ended March 31, 2010.

In addition to the stock option plans, the Company had 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 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. From inception of the plan through March 31, 2011, 717,175 shares of restricted stock having a weighted-average grant-date fair value of $34.40 per share had been awarded, of which 135,517 shares were forfeited and 75,721 shares were tendered to satisfy tax withholding obligations. As of March 31, 2011, there were 494,063 common shares available for future grants under the restricted stock plan, of which 176,200 were reserved for future grants under outstanding performance-based restricted stock awards if performance levels exceed “target” levels.

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 values of the performance-based restricted stock awards are determined using the Monte Carlo simulation method.

Activity related to nonvested restricted stock for the three months ended March 31, 2011 is presented below:


	Restricted Shares			Weighted- Average Grant-Date Fair Value Per Share
Nonvested Balance at Beginning of the Year		218,156		$	23.72
Granted		117,075			34.57
Forfeited		(363	)		20.97

Nonvested Balance at March 31, 2011		334,868		$	27.52

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 - Long-term Equity-based Compensation Plans (continued)

Restricted stock granted during the three months ended March 31, 2011 includes 51,600 shares of time-vested restricted stock and 65,475 shares of performance-based restricted stock. The nonvested balance of restricted stock at March 31, 2011 was comprised of 158,668 shares of time-vested restricted stock and 176,200 shares of performance-based restricted stock. The number of additional shares that would be granted if the Company were to meet or exceed the maximum performance levels related to the outstanding performance-based shares was 176,200 shares at March 31, 2011. No restricted stock vested during the three months ended March 31, 2011. The total fair value of restricted stock that vested during the three months ended March 31, 2010 and the tax benefits for tax deductions realized from the vesting of such restricted stock was insignificant.

Note 7 - Restructuring Expenses

Activity related to restructuring costs for the three months ended March 31, 2011 is presented below:


(Dollars in Millions)	Fireside Bank		Unitrin Direct		All Other Segments		Total
Liability at Beginning of Year:
Employee Termination Costs	$	5.7	$	0.6	$	—	$	6.3
Early Lease Termination Costs		—		0.1		—		0.1

Liability at Beginning of Year		5.7		0.7		—		6.4


Expenses Incurred:
Employee Termination Costs		1.7		0.5		0.4		2.6
Early Lease Termination Costs		—		—		—		—

Total Expenses Incurred		1.7		0.5		0.4		2.6


Payments of:
Employee Termination Costs		0.3		0.2		0.4		0.9
Early Lease Termination Costs		—		0.1		—		0.1

Total Payments		0.3		0.3		0.4		1.0


Liability at March 31, 2011:
Employee Termination Costs		7.1		0.9		—		8.0
Early Lease Termination Costs		—		—		—		—

Liability at March 31, 2011	$	7.1	$	0.9	$	—	$	8.0

Employee termination costs are accrued and recognized as expense over the employee’s expected service period. Unrecognized employee termination costs were $5.2 million at March 31, 2011, of which $2.5 million is expected to be expensed in the remainder of 2011 and $2.7 million is expected to be expensed in 2012 and thereafter.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 - Restructuring Expenses (continued)

Activity related to restructuring costs for the three months ended March 31, 2010 is presented below:


(Dollars in Millions)	Fireside Bank		Unitrin Direct		All Other Segments		Total
Liability at Beginning of Year:
Employee Termination Costs	$	2.8	$	1.4	$	0.2	$	4.4
Early Lease Termination Costs		0.2		0.6		—		0.8
Other Associated Costs		—		—		—		—

Liability at Beginning of Year		3.0		2.0		0.2		5.2


Expenses Incurred:
Employee Termination Costs		1.0		0.1		0.1		1.2
Early Lease Termination Costs		—		—		—		—
Other Associated Costs		0.1		—		—		0.1

Total Expenses Incurred		1.1		0.1		0.1		1.3


Payments of:
Employee Termination Costs		0.3		0.7		0.1		1.1
Early Lease Termination Costs		0.2		—		—		0.2
Other Associated Costs		0.1		—		—		0.1

Total Payments		0.6		0.7		0.1		1.4


Liability at March 31, 2010:
Employee Termination Costs		3.5		0.8		0.2		4.5
Early Lease Termination Costs		—		0.6		—		0.6
Other Associated Costs		—		—		—		—

Liability at March 31, 2010	$	3.5	$	1.4	$	0.2	$	5.1

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 - Income from Continuing Operations Per Unrestricted Share

The Company’s awards of restricted stock contain a right to receive non-forfeitable dividends and participate in the undistributed earnings with common shareholders. Accordingly, the Company is required to apply the two-class method of computing basic and diluted earnings per share. A reconciliation of the numerator and denominator used in the calculation of Basic Income from Continuing Operations Per Unrestricted Share and Diluted Income from Continuing Operations Per Unrestricted Share for the three months ended March 31, 2011 and 2010 is as follows:


	Three Months Ended March 31,
(Dollars in Millions)	2011		2010
Income from Continuing Operations	$	55.8	$	47.7
Less Income from Continuing Operations Attributed to Restricted Shares		0.2		0.2

Income from Continuing Operations Attributed to Unrestricted Shares	$	55.6	$	47.5
Dilutive Effect on Income of Unitrin Share-based Compensation Equivalent Shares		—		—

Diluted Income from Continuing Operations Attributed to Unrestricted Shares	$	55.6	$	47.5


(Shares in Thousands)
Weighted-Average Unrestricted Shares Outstanding		60,677.5		62,154.8
Unitrin Share-based Compensation Equivalent Shares		104.4		81.3

Weighted-Average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution		60,781.9		62,236.1


(Per Unrestricted Share in Whole Dollars)
Basic Income from Continuing Operations Per Unrestricted Share	$	0.92	$	0.76

Diluted Income from Continuing Operations Per Unrestricted Share	$	0.92	$	0.76

Options outstanding to purchase 3.5 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended March 31, 2011 because the exercise price exceeded the average market price. Options outstanding to purchase 4.5 million shares of Unitrin common stock were excluded from the computation of Unitrin Share-based Compensation Equivalent Shares and Weighted-Average Unrestricted Shares and Equivalent Shares Outstanding Assuming Dilution for the three months ended March 31, 2010 because the exercise price exceeded the average market price.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income

Other Comprehensive Income (Loss) for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Other Comprehensive Income (Loss) Before Income Taxes:
Unrealized Holding Gains (Losses) Arising During the Period Before Reclassification Adjustment	$	(12.9	)	$	44.3
Reclassification Adjustment for Amounts Included in Net Income		(13.7	)		(1.0	)

Unrealized Holding Gains (Losses)		(26.6	)		43.3

Foreign Currency Translation Adjustments Arising During the Period Before Reclassification Adjustment		0.4			(0.8	)
Equity in Other Comprehensive Income (Loss) of Investee		—			(4.4	)
Amortization of Unrecognized Postretirement Benefit Costs		1.9			—

Other Comprehensive Income (Loss) Before Income Taxes		(24.3	)		38.1


Income Tax Benefit (Expense):
Unrealized Holding Gains and Losses Arising During the Period Before Reclassification Adjustment		4.5			(15.8	)
Reclassification Adjustment for Amounts Included in Net Income		4.8			0.3

Unrealized Holding Gains and Losses		9.3			(15.5	)

Foreign Currency Translation Adjustments Arising During the Period Before Reclassification Adjustment		(0.1	)		0.3
Equity in Other Comprehensive Income of Investee		—			1.5
Amortization of Unrecognized Postretirement Benefit Costs		(0.7	)		—

Income Tax Benefit (Expense)		8.5			(13.7	)

Other Comprehensive Income (Loss)	$	(15.8	)	$	24.4

Total Comprehensive Income was $38.3 million for the three months ended March 31, 2011. Total Comprehensive Income was $72.6 million for the three months ended March 31, 2010.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 - Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (continued)

The components of Accumulated Other Comprehensive Income at March 31, 2011 and December 31, 2010 were:


(Dollars in Millions)	March 31, 2011			Dec. 31, 2010
Unrealized Gains on Investments, Net of Income Taxes:
Available for Sale Fixed Maturities with Portion of OTTI Recognized in Earnings	$	1.4		$	0.8
Other Unrealized Gains on Investments		198.9			216.8
Foreign Currency Translation Adjustments, Net of Income Taxes		(0.3	)		(0.6	)
Net Unrecognized Postretirement Benefit Costs, Net of Income Taxes		(58.4	)		(59.6	)

Accumulated Other Comprehensive Income	$	141.6		$	157.4

Note 10 - Income Taxes

Current and Deferred Income Tax Assets at March 31, 2011 and December 31, 2010 were:


(Dollars in Millions)	March 31, 2011			Dec. 31, 2010
Current Income Tax Assets	$	—		$	39.3
Deferred Income Tax Assets		9.8			9.4
Valuation Allowance for State Income Taxes		(7.9	)		(9.1	)

Current and Deferred Income Tax Assets	$	1.9		$	39.6

The components of Liabilities for Income Taxes at March 31, 2011 and December 31, 2010 were:


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Current Income Tax Liabilities	$	1.1	$	—
Deferred Income Tax Liabilities		—		7.3
Unrecognized Tax Benefits		7.5		7.8

Liabilities for Income Taxes	$	8.6	$	15.1

Refunds, net of income taxes paid of $7.8 million, were $17.1 million for the three months ended March 31, 2011. Income taxes paid were $21.8 million for the three months ended March 31, 2010.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 - Pension Benefits and Postretirement Benefits Other Than Pensions

The components of Pension Expense for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Service Cost on Benefits Earned	$	2.6		$	2.5
Interest Cost on Projected Benefit Obligation		5.7			5.5
Expected Return on Plan Assets		(6.1	)		(5.9	)
Net Amortization and Deferral		2.1			0.4

Total Pension Expense	$	4.3		$	2.5

The components of Postretirement Benefits Other than Pensions Expense for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Interest Cost on Projected Benefit Obligation	$	0.5		$	0.5
Net Amortization and Deferral		(0.2	)		(0.4	)

Total Postretirement Benefits Other than Pensions Expense	$	0.3		$	0.1

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 - Business Segments

Segment Revenues for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Revenues:
Kemper:
Earned Premiums	$	211.9		$	222.4
Net Investment Income		14.1			12.4
Other Income		0.1			0.1

Total Kemper		226.1			234.9


Unitrin Specialty:
Earned Premiums		112.4			122.4
Net Investment Income		6.3			6.1
Other Income		0.1			0.2

Total Unitrin Specialty		118.8			128.7


Unitrin Direct:
Earned Premiums		59.9			76.0
Net Investment Income		5.4			5.3

Total Unitrin Direct		65.3			81.3


Life and Health Insurance:
Earned Premiums		161.8			160.7
Net Investment Income		53.0			53.3

Total Life and Health Insurance		214.8			214.0


Fireside Bank:
Interest, Loan Fees and Earned Discounts		15.4			30.2
Other Automobile Finance Revenues		0.1			0.4

Automobile Finance Revenues		15.5			30.6
Net Investment Income		0.4			0.5

Total Fireside Bank		15.9			31.1


Total Segment Revenues		640.9			690.0

Net Realized Gains on Sales of Investments		14.5			4.5
Net Impairment Losses Recognized in Earnings		(0.4	)		(3.2	)
Other		2.4			3.2

Total Revenues	$	657.4		$	694.5

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 - Business Segments (continued)

Segment Operating Profit (Loss) for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Segment Operating Profit (Loss):
Kemper	$	14.2		$	19.3
Unitrin Specialty		5.1			7.5
Unitrin Direct		(7.4	)		(1.1	)
Life and Health Insurance		50.8			40.5
Fireside Bank		11.7			4.8

Total Segment Operating Profit		74.4			71.0

Net Realized Gains on Sales of Investments		14.5			4.5
Net Impairment Losses Recognized in Earnings		(0.4	)		(3.2	)
Other Expense, Net		(9.2	)		(6.1	)

Income from Continuing Operations before Income Taxes and Equity in Net Income of Investee	$	79.3		$	66.2

Segment Net Income (Loss) for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Segment Net Income (Loss):
Kemper	$	11.3		$	14.6
Unitrin Specialty		4.2			5.8
Unitrin Direct		(3.8	)		0.1
Life and Health Insurance		32.7			26.4
Fireside Bank		8.0			3.0

Total Segment Net Income		52.4			49.9
Net Income (Loss) From:
Net Realized Gains on Sales of Investments		9.4			2.9
Net Impairment Losses Recognized in Earnings		(0.3	)		(2.1	)
Other Expense, Net		(5.7	)		(3.7	)

Income from Continuing Operations before Equity in Net Income of Investee		55.8			47.0
Equity in Net Income of Investee		—			0.7

Income from Continuing Operations	$	55.8		$	47.7

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 - Business Segments (continued)

Earned Premiums by product line for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011		March 31, 2010
Life	$	99.4	$	99.5
Accident and Health		41.2		39.9
Property and Casualty:
Personal Lines:
Automobile		287.1		322.2
Homeowners		74.1		74.1
Other Personal		34.4		34.3

Total Personal Lines		395.6		430.6


Commercial Automobile		9.8		11.5

Total Earned Premiums	$	546.0	$	581.5

Note 13 - Fair Value Measurements

The Company classifies its Investments in Fixed Maturities and 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.

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 - Fair Value Measurements (continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at March 31, 2011 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 March 31, 2011
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	220.5	$	320.8	$	—	$	541.3
States and Political Subdivisions		—		1,762.1		—		1,762.1
Corporate Securities:
Bonds and Notes		—		1,922.8		168.2		2,091.0
Redeemable Preferred Stocks		—		83.6		5.4		89.0
Mortgage and Asset-backed		—		8.1		0.4		8.5

Total Investments in Fixed Maturities		220.5		4,097.4		174.0		4,491.9

Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate		—		99.6		—		99.6
Other Industries		—		17.0		8.2		25.2
Common Stocks:
Intermec		107.0		—		—		107.0
Manufacturing		70.8		4.5		1.4		76.7
Other Industries		42.8		—		2.2		45.0
Other Equity Interests:
Exchange Traded Funds		83.6		—		—		83.6
Limited Liability Companies and Limited Partnerships		—		—		74.6		74.6

Total Investments in Equity Securities		304.2		121.1		86.4		511.7

Other Investments:
Trading Securities		5.2		—		—		5.2

Total	$	529.9	$	4,218.5	$	260.4	$	5,008.8

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 - Fair Value Measurements (continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at December 31, 2010 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, 2010
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	281.0	$	255.9	$	—	$	536.9
States and Political Subdivisions		—		1,792.8		—		1,792.8
Corporate Securities:
Bonds and Notes		—		1,902.8		146.2		2,049.0
Redeemable Preferred Stocks		—		83.8		4.5		88.3
Mortgage and Asset-backed		—		7.9		0.4		8.3

Total Investments in Fixed Maturities		281.0		4,043.2		151.1		4,475.3

Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate		—		97.7		—		97.7
Other Industries		—		17.0		10.4		27.4
Common Stocks:
Intermec		137.5		—		—		137.5
Manufacturing		82.9		4.7		2.0		89.6
Other Industries		41.5		—		2.3		43.8
Other Equity Interests:
Exchange Traded Funds		79.2		—		—		79.2
Limited Liability Companies and Limited Partnerships		—		—		75.2		75.2

Total Investments in Equity Securities		341.1		119.4		89.9		550.4

Other Investments:
Trading Securities		5.1		—		—		5.1

Total	$	627.2	$	4,162.6	$	241.0	$	5,030.8

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 - Fair Value Measurements (continued)

The Company’s investments in Fixed Maturities that are classified as Level 1 in the two preceding tables primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities that are classified as Level 1 in the two preceding tables consist of either investments in publicly-traded common stocks, or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 in the two preceding tables primarily consist of investments in corporate bonds and redeemable preferred stocks, states and political subdivisions, and bonds and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities that are classified as Level 2 in the two 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, third party appraisers 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 or 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, considers the original purchase price as representative of the fair value.

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 March 31, 2011 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			Total
Balance at Beginning of Period	$	146.2		$	4.5	$	0.4	$	14.7		$	75.2		$	241.0
Total Gains (Losses):
Included in Condensed Consolidated Statement of Income		—			—		—		1.5			—			1.5
Included in Other Comprehensive Income		1.2			0.9		—		(2.3	)		(2.3	)		(2.5	)
Purchases		32.4			—		—		0.3			7.5			40.2
Settlements		(11.1	)		—		—		—			(5.8	)		(16.9	)
Sales		(0.5	)		—		—		(2.4	)		—			(2.9	)
Transfers in and/or out of Level 3		—			—		—		—			—			—

Balance at March 31, 2011	$	168.2		$	5.4	$	0.4	$	11.8		$	74.6		$	260.4

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 - Fair Value Measurements (continued)

The Company’s policy is to recognize transfers between levels as of the end of the reporting period. There were no transfers into or out of Levels 1, 2 or 3 for the three months ended March 31, 2011. Included in Other Equity Interests at March 31, 2011 in the preceding table is $58.9 million of private equity funds and mezzanine debt funds which the Company has unfunded commitments of $67.0 million. These funds cannot be redeemed; instead distributions are received through the liquidation of the underlying investments of the fund. It is estimated that the assets of these funds will be liquidated and distributed to the Company between 2011 and 2021.

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 March 31, 2010 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			Total
Balance at Beginning of Period	$	124.8		$	70.1		$	4.9		$	14.0		$	39.1		$	252.9
Total Gains (Losses):
Included in Condensed Consolidated Statement of Income		(0.7	)		(1.8	)		—			—			0.1			(2.4	)
Included in Other Comprehensive Income		(0.5	)		(1.7	)		(0.8	)		2.2			1.3			0.5
Purchases		0.4			0.2			—			—			7.1			7.7
Settlements		(1.0	)		—			(0.1	)		(0.4	)		(0.5	)		(2.0	)

Balance at March 31, 2010	$	123.0		$	66.8		$	4.0		$	15.8		$	47.1		$	256.7

There were no transfers into or out of Levels 1, 2 or 3 for the three months ended March 31, 2010.

Note 14 - Contingencies

In the ordinary course of their businesses, Unitrin and its subsidiaries are involved in legal proceedings, including lawsuits, regulatory examinations and inquiries. Some of these proceedings involve 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 environments 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.

Certain subsidiaries of Unitrin, like many property and casualty insurers, are defending a significant volume of lawsuits in southern coastal states arising out of property damage caused by catastrophes and storms, including major hurricanes. In these matters, the plaintiffs seek compensatory and punitive damages, and equitable relief. The Company believes its relevant subsidiaries have meritorious defenses to assert in these proceedings, and will vigorously contest these matters.

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

UNITRIN, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 - Contingencies (continued)

The legal and regulatory environments within which Unitrin and its subsidiaries conduct their businesses are 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.

Note 15 - 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. In the second quarter of 2010, Unitrin’s subsidiary, Trinity Universal Insurance Company (“Trinity”), entered into an agreement with FS&C whereby FS&C provides investment management services with respect to certain assets of Trinity for a fee based on the fair market value of the assets under management. Such agreement is terminable by either party at any time upon 30 days advance written notice. Trinity had $107.8 million in assets managed by FS&C at March 31, 2011. Investment expenses incurred in connection with such agreement were $0.1 million for the three months ended March 31, 2011.

FS&C also provides investment management services with respect to certain funds of the Company’s defined benefit pension plan. At March 31, 2011, the Company’s pension plan had $103.7 million in assets managed by FS&C. Investment expenses in connection with such agreement were $0.1 million for each of the three month periods ended March 31, 2011 and 2010.

With respect to the Company’s defined contribution plans, one of the alternative investment choices afforded to participating employees 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. Participants in the Company’s defined contribution plans had allocated $18.9 million for investment in the Dreyfus Appreciation Fund at March 31, 2011, representing 6.2% of the total amount invested in the Company’s defined contribution plans at March 31, 2011.

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

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

Summary of Results

Net Income was $54.1 million ($0.89 per unrestricted common share) for the three months ended March 31, 2011 compared to Net Income of $48.2 million ($0.77 per unrestricted common share) for the same period in 2010. Income from Continuing Operations was $55.8 million ($0.92 per unrestricted common share) for the three months ended March 31, 2011, compared to $47.7 million ($0.76 per unrestricted common share) for the same period in 2010.

The impact of changes in segment net income on Income from Continuing Operations is presented below:


	Three Months Ended						Increase (Decrease) in Income From Continuing Operations
(Dollars in Millions)	March 31, 2011			March 31, 2010			Increase (Decrease) in Income From Continuing Operations
Segment Net Income (Loss):
Kemper	$	11.3		$	14.6		$	(3.3	)
Unitrin Specialty		4.2			5.8			(1.6	)
Unitrin Direct		(3.8	)		0.1			(3.9	)
Life and Health Insurance		32.7			26.4			6.3
Fireside Bank		8.0			3.0			5.0

Total Segment Net Income		52.4			49.9			2.5
Net Income (Loss) From:
Net Realized Gains on Sales of Investments		9.4			2.9			6.5
Net Impairment Losses Recognized in Earnings		(0.3	)		(2.1	)		1.8
Other Expense, Net		(5.7	)		(3.7	)		(2.0	)

Income from Continuing Operations before Equity in Net Income of Investee		55.8			47.0			8.8
Equity in Net Income of Investee		—			0.7			(0.7	)

Income from Continuing Operations	$	55.8		$	47.7		$	8.1

The Company reported Loss from Discontinued Operations of $1.7 million for the three months ended March 31, 2011, compared to Income from Discontinued Operations of $0.5 million for the same period in 2010.

Earned Premiums were $546.0 million and $581.5 million for the three months ended March 31, 2011 and 2010, respectively, a decrease of $35.5 million. Earned Premiums decreased in the Unitrin Direct, Kemper and Unitrin Specialty segments.

Automobile Finance Revenues decreased by $15.1 million for the three months ended March 31, 2011, compared to the same period in 2010, due to Fireside Bank’s execution of its ongoing plan to exit the automobile finance business.

Net Investment Income increased by $0.8 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher net investment income from Dividends on Equity Securities and, to a lesser extent, higher investment income from certain Equity Method Limited Liability Investments, partially offset by lower interest and dividends from Investments in Fixed Maturities.

Net Realized Gains on Sales of Investments were $14.5 million for the three months ended March 31, 2011, compared to $4.5 million for the same period in 2010. Net Impairment Losses Recognized in Earnings were $0.4 million for the three months ended March 31, 2011, compared to $3.2 million for the same period in 2010, resulting from other than temporary declines in fair values of investments. The Company cannot predict if or when similar investment gains or losses may occur in the future.

Catastrophes

Catastrophe losses and LAE from continuing operations were $9.6 million for the three months ended March 31, 2011, compared to $14.0 million for the same period in 2010. Catastrophe losses and LAE (including development) by business segment for the three months ended March 31, 2011 and 2010 is presented below:


	Three Months Ended
(Dollars in Millions)	March 31, 2011		March 31, 2010
Kemper	$	8.7	$	14.0
Unitrin Specialty		0.2		0.2
Unitrin Direct		0.4		0.4
Life and Health Insurance		0.3		(0.6	)

Total Catastrophe Losses and LAE	$	9.6	$	14.0

In April 2011, the United States experienced a high volume of spring storms, including a record level of tornadoes. The Company is in the early stages of investigating and settling claims from these spring storms, some of which are classified as catastrophes. Based on initial reports, the Company currently believes that these spring storms and catastrophes will have a material effect on the Company’s results for the second quarter of 2011, but are not expected to have a material effect on the Company’s Consolidated shareholders’ equity.

Non-GAAP Financial Measures

The following discussions for the Kemper, Unitrin Specialty and Unitrin Direct segments use the non-GAAP financial measures of (i) Underlying Losses and LAE and (ii) Underlying Combined Ratio. Underlying Losses and LAE (also referred to in the discussion as “Current Year Non-catastrophe Losses and LAE”) exclude the impact of catastrophe losses, and loss and LAE reserve development from the Company’s Incurred Losses and LAE, which is the most directly comparable GAAP financial measure. The Underlying Combined Ratio is computed by adding the Current Year Non-catastrophe Losses and LAE Ratio with the Incurred Expense Ratio. The most directly comparable GAAP financial measure is the combined ratio, which uses total incurred losses and LAE, including the impact of catastrophe losses, and loss and LAE reserve development. The Company believes Underlying Losses and LAE and the Underlying Combined Ratio is useful to investors and is used by management to reveal the trends in our Property and Casualty businesses that may be obscured by catastrophe losses and prior year reserve development. These catastrophe losses may cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on incurred losses and LAE and the combined ratio. Prior year reserve developments are caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses from earlier periods, it has no bearing on the performance of our insurance products in the current period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. The discussion of the Unitrin Direct segment also uses the non-GAAP financial measure of Underwriting Profit. Underwriting Profit is a measure of profitability before tax commonly used by insurance companies to measure the profits directly related to earned premiums. Accordingly, Underwriting Profit excludes net investment income, whereas Operating Profit, the directly comparable GAAP financial measure includes net investment income.

These non-GAAP financial measures should not be considered a substitute for the comparable GAAP financial measures as they do not fully recognize the overall underwriting profitability of our business.

Kemper

Selected financial information for the Kemper segment follows:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Net Premiums Written	$	199.6		$	207.3


Earned Premiums:
Automobile	$	126.9		$	137.4
Homeowners		71.9			72.1
Other Personal		13.1			12.9

Total Earned Premiums		211.9			222.4
Net Investment Income		14.1			12.4
Other Income		0.1			0.1

Total Revenues		226.1			234.9


Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE		145.5			147.0
Catastrophe Losses and LAE		9.0			15.6
Prior Years:
Non-catastrophe Losses and LAE		(1.1	)		(6.6	)
Catastrophe Losses and LAE		(0.3	)		(1.6	)

Total Incurred Losses and LAE		153.1			154.4
Insurance Expenses		58.8			61.2

Operating Profit		14.2			19.3
Income Tax Expense		(2.9	)		(4.7	)

Net Income	$	11.3		$	14.6


Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio		68.7	%		66.1	%
Current Year Catastrophe Losses and LAE Ratio		4.2	%		7.0	%
Prior Years Non-catastrophe Losses and LAE Ratio		-0.5	%		-3.0	%
Prior Years Catastrophe Losses and LAE Ratio		-0.1	%		-0.7	%

Total Incurred Loss and LAE Ratio		72.3	%		69.4	%
Incurred Expense Ratio		27.7	%		27.5	%

Combined Ratio		100.0	%		96.9	%


Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio		68.7	%		66.1	%
Incurred Expense Ratio		27.7	%		27.5	%

Underlying Combined Ratio		96.4	%		93.6	%


Non-GAAP Measure Reconciliation
Underlying Combined Ratio		96.4	%		93.6	%
Current Year Catastrophe Losses and LAE Ratio		4.2	%		7.0	%
Prior Years Non-catastrophe Losses and LAE Ratio		-0.5	%		-3.0	%
Prior Years Catastrophe Losses and LAE Ratio		-0.1	%		-0.7	%

Combined Ratio as Reported		100.0	%		96.9	%

Kemper (continued)

Insurance Reserves


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Insurance Reserves:
Automobile	$	277.3	$	286.2
Homeowners		101.0		97.6
Other Personal		37.6		36.7

Insurance Reserves	$	415.9	$	420.5


Insurance Reserves:
Loss Reserves:
Case	$	263.6	$	261.5
Incurred but Not Reported		82.6		88.0

Total Loss Reserves		346.2		349.5
LAE Reserves		69.7		71.0

Insurance Reserves	$	415.9	$	420.5

Earned Premiums in the Kemper segment decreased by $10.5 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to lower volume, partially offset by higher average premium rates. Volume decreased due, in part, to Kemper’s decision to maintain its underwriting discipline and increase premium rates while facing increased competition in a soft personal lines insurance market. Kemper expects earned premiums to decrease in the short term as lower volume is partially offset by higher average premium rates. Earned premiums on automobile insurance decreased by $10.5 million for the three months ended March 31, 2011, compared to 2010, due to lower volume, partially offset by higher average premium rates. The weighted-average number of automobile insurance policies in force decreased by approximately 8.9% for the three months ended March 31, 2011, compared to 2010. Earned premiums on homeowners insurance decreased by $0.2 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to lower volume, partially offset by higher average premium rates. The weighted-average number of homeowners insurance policies in force decreased by approximately 5.2% for the three months ended March 31, 2011, compared to the same period in 2010. Earned premiums on other personal insurance increased by $0.2 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher average premium rates, partially offset by lower volume.

Net Investment Income in the Kemper segment increased by $1.7 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher net investment income from Equity Method Limited Liability Investments and a higher level of investments. The Kemper segment reported net investment income of $3.8 million from Equity Method Limited Liability Investments for the three months ended March 31, 2011, compared to $2.8 million for the same period in 2010.

Operating Profit in the Kemper segment decreased by $5.1 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to the impact of lower favorable loss and LAE reserve development and higher underlying losses and LAE as a percentage of earned premiums partially offset by lower incurred catastrophe losses and LAE (excluding development) and higher Net Investment Income. Underlying incurred losses and LAE exclude the impact of catastrophes, and loss and LAE reserve development. Favorable loss and LAE reserve development was $1.4 million for the three months ended March 31, 2011, compared to $8.2 million in 2010. Underlying losses and LAE as a percentage of earned premiums was 68.7% for the three months ended March 31, 2011, compared to 66.1% in 2010. Catastrophe losses and LAE were $9.0 million (excluding development), compared to $15.6 million (excluding development) for the same period in 2010.

Automobile insurance incurred losses and LAE were $89.0 million for the three months ended March 31, 2011, compared to $97.2 million for the same period in 2010. Automobile insurance incurred losses and LAE decreased by $8.2 million due primarily to lower claim volume resulting principally from fewer automobile insurance policies in force and lower underlying losses and LAE as a percentage of earned premiums on automobile insurance, partially offset by the impact of lower favorable loss and LAE reserve development. Underlying losses and LAE as a percentage

Kemper (continued)

of earned premiums on automobile insurance was 69.2% for the three months ended March 31, 2011, compared to 72.9% for the same period in 2010. Underlying losses and LAE as a percentage of automobile insurance earned premiums decreased due primarily to lower average frequency of losses and higher average earned premiums. Unfavorable Loss and LAE reserve development was $1.0 million for the three months ended March 31, 2011, compared to favorable development of $3.9 million for the same period in 2010.

Homeowners insurance incurred losses and LAE were $56.4 million for the three months ended March 31, 2011, compared to $50.8 million for the same period in 2010. Homeowners insurance incurred losses and LAE increased by $5.6 million for the three months ended March 31, 2011, compared to 2010, due primarily to higher underlying losses and LAE and the impact of lower favorable loss and LAE reserve development, partially offset by lower catastrophe losses and LAE (excluding development). Underlying losses and LAE were $50.9 million for the three months ended March 31, 2011, compared to $40.5 million for the same period in 2010. Underlying losses and LAE increased due primarily to higher average estimated severity and frequency of losses. Average estimated severity increased due in part to losses from fires. The higher frequency of losses was largely due to winter storms. Favorable loss and LAE reserve development was $2.7 million for the three months ended March 31, 2011, compared to favorable development of $3.7 million for the same period in 2010. Catastrophe losses and LAE (excluding development) on homeowners insurance were $8.2 million for the three months ended March 31, 2011, compared to $14.0 million in 2010.

Other personal insurance incurred losses and LAE were $7.7 million for the three months ended March 31, 2011, compared to $6.4 million for the same period in 2010. Other personal insurance incurred losses and LAE increased by $1.3 million due primarily to the impact of lower favorable loss and LAE reserve development and higher underlying losses and LAE. Adverse loss and LAE reserve development (including catastrophe development) was $0.3 million for the three months ended March 31, 2011, compared to favorable development of $0.6 million in the same period in 2010. Underlying losses and LAE increased by $0.4 million due to higher average frequency of losses.

See Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “Critical Accounting Estimates,” of the 2010 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 decreased by $2.4 million for the three months ended March 31, 2011, compared to the same period in 2010 due primarily to lower acquisition expenses, largely due to lower earned premiums.

Net Income in the Kemper segment decreased by $3.3 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to the lower 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 $6.2 million for the three months ended March 31, 2011, compared to $6.1 million for the same period in 2010.

Unitrin Specialty

Selected financial information for the Unitrin Specialty segment follows:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Net Premiums Written	$	123.1		$	126.6


Earned Premiums:
Personal Automobile	$	102.6		$	110.9
Commercial Automobile		9.8			11.5

Total Earned Premiums		112.4			122.4
Net Investment Income		6.3			6.1
Other Income		0.1			0.2

Total Revenues		118.8			128.7

Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE		92.8			95.8
Catastrophe Losses and LAE		0.1			0.1
Prior Years:
Non-catastrophe Losses and LAE		(1.9	)		1.3
Catastrophe Losses and LAE		0.1			0.1

Total Incurred Losses and LAE		91.1			97.3
Insurance Expenses		22.6			23.9

Operating Profit		5.1			7.5
Income Tax Expense		(0.9	)		(1.7	)

Net Income	$	4.2		$	5.8


Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio		82.5	%		78.2	%
Current Year Catastrophe Losses and LAE Ratio		0.1	%		0.1	%
Prior Years Non-catastrophe Losses and LAE Ratio		-1.7	%		1.1	%
Prior Years Catastrophe Losses and LAE Ratio		0.1	%		0.1	%

Total Incurred Loss and LAE Ratio		81.0	%		79.5	%
Incurred Expense Ratio		20.1	%		19.5	%

Combined Ratio		101.1	%		99.0	%


Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio		82.5	%		78.2	%
Incurred Expense Ratio		20.1	%		19.5	%

Underlying Combined Ratio		102.6	%		97.7	%


Non-GAAP Measure Reconciliation
Underlying Combined Ratio		102.6	%		97.7	%
Current Year Catastrophe Losses and LAE Ratio		0.1	%		0.1	%
Prior Years Non-catastrophe Losses and LAE Ratio		-1.7	%		1.1	%
Prior Years Catastrophe Losses and LAE Ratio		0.1	%		0.1	%

Combined Ratio as Reported		101.1	%		99.0	%

Unitrin Specialty (continued)

Insurance Reserves


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Insurance Reserves:
Personal Automobile	$	179.7	$	181.9
Commercial Automobile		58.7		61.7
Other		8.3		7.2

Insurance Reserves	$	246.7	$	250.8


Insurance Reserves:
Loss Reserves:
Case	$	147.3	$	151.9
Incurred but Not Reported		63.1		63.4

Total Loss Reserves		210.4		215.3
LAE Reserves		36.3		35.5

Insurance Reserves	$	246.7	$	250.8

Earned Premiums in the Unitrin Specialty segment decreased by $10.0 million for the three months ended March 31, 2011, compared to the same period in 2010, due to lower earned premiums for both personal and commercial automobile insurance. Personal automobile insurance earned premiums decreased by $8.3 million for the three months ended March 31, 2011, compared to 2010, due primarily to lower volume. Throughout 2010, Unitrin Specialty’s personal automobile insurance policies in force decreased due to economic conditions, increased competition and higher premium rates, particularly in California. Personal automobile policies in force were approximately 329,000 at the beginning of the first quarter of 2011, compared to approximately 351,000 at the beginning of 2010. Unitrin Specialty expects that personal automobile insurance policies in force will flatten in the second quarter of 2011 and remain flat throughout the second half of 2011. Commercial automobile insurance earned premiums decreased by $1.7 million for the three months ended March 31, 2011, compared to 2010, due primarily to lower volume. Commercial automobile insurance volume has decreased due primarily to a smaller renewal book of business, partially offset by higher retention rates.

Operating Profit in the Unitrin Specialty segment decreased by $2.4 million for the three months ended March 31, 2011, compared to the same period in 2010, due to lower operating profit in personal automobile insurance, partially offset by higher operating profit in commercial automobile insurance and other insurance.

Personal automobile insurance operating profit decreased by $3.5 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher underlying incurred losses and LAE as a percentage of personal automobile insurance earned premiums. Underlying incurred losses and LAE exclude the impact of catastrophes, and loss and LAE reserve development. Underlying incurred losses and LAE as a percentage of personal automobile insurance earned premiums increased due primarily to higher frequency, and to a lesser extent higher severity. Loss and LAE reserve development had a favorable effect of $0.7 million for the three months ended March 31, 2011, compared to an adverse effect of $0.4 million in 2010. See MD&A, “Critical Accounting Estimates,” of the 2010 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.

Commercial automobile insurance operating profit increased by $0.5 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to the effects of loss and LAE reserve development, partially offset by higher underlying incurred losses and LAE as a percentage of commercial automobile insurance earned premiums and higher insurance expenses as a percentage of commercial automobile insurance earned premiums. Loss and LAE reserve development on commercial automobile insurance had a favorable effect of $1.0 million for the three months ended March 31, 2011, compared to an adverse effect of $0.3 million in 2010. Underlying incurred losses and

Unitrin Specialty (continued)

LAE as a percentage of commercial automobile insurance earned premiums increased for the three months ended March 31, 2011, compared to 2010, due primarily to higher frequency, partially offset by lower severity of losses. Insurance expenses as a percentage of commercial automobile insurance earned premiums increased due primarily to employee termination costs and reduced economies of scale.

Other insurance operating profit increased by $0.6 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to the impact of adverse loss and LAE reserve development in 2010. Adverse loss and LAE reserve development on other insurance in 2010 was almost entirely related to two liability claims, one from 2003 and the other from 2005.

Net Income in the Unitrin Specialty segment decreased by $1.6 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to the lower operating profit. Unitrin Specialty’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 $2.8 million for the three months ended March 31, 2011, compared to $3.0 million in 2010.

Unitrin Direct

Selected financial information for the Unitrin Direct segment follows:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Net Premiums Written	$	60.9		$	74.8

Earned Premiums:
Automobile	$	57.6		$	73.9
Homeowners		2.2			2.0
Other Personal		0.1			0.1

Total Earned Premiums		59.9			76.0
Net Investment Income		5.4			5.3

Total Revenues		65.3			81.3


Incurred Losses and LAE related to:
Current Year:
Non-catastrophe Losses and LAE		52.3			62.0
Catastrophe Losses and LAE		0.1			0.2
Prior Years:
Non-catastrophe Losses and LAE		(0.1	)		(3.8	)
Catastrophe Losses and LAE		0.3			0.2

Total Incurred Losses and LAE		52.6			58.6
Insurance Expenses		20.1			23.8

Operating Loss		(7.4	)		(1.1	)
Income Tax Benefit		3.6			1.2

Net Income (Loss)	$	(3.8	)	$	0.1

Unitrin Direct (continued)


	Three Months Ended
	March 31, 2011			March 31, 2010
Ratios Based On Earned Premiums
Current Year Non-catastrophe Losses and LAE Ratio		87.3	%		81.5	%
Current Year Catastrophe Losses and LAE Ratio		0.2	%		0.3	%
Prior Years Non-catastrophe Losses and LAE Ratio		-0.2	%		-5.0	%
Prior Years Catastrophe Losses and LAE Ratio		0.5	%		0.3	%

Total Incurred Loss and LAE Ratio		87.8	%		77.1	%
Incurred Expense Ratio		33.6	%		31.3	%

Combined Ratio		121.4	%		108.4	%


Underlying Combined Ratio
Current Year Non-catastrophe Losses and LAE Ratio		87.3	%		81.5	%
Incurred Expense Ratio		33.6	%		31.3	%

Underlying Combined Ratio		120.9	%		112.8	%


Non-GAAP Measure Reconciliation
Underlying Combined Ratio		120.9	%		112.8	%
Current Year Catastrophe Losses and LAE Ratio		0.2	%		0.3	%
Prior Years Non-catastrophe Losses and LAE Ratio		-0.2	%		-5.0	%
Prior Years Catastrophe Losses and LAE Ratio		0.5	%		0.3	%

Combined Ratio as Reported		121.4	%		108.4	%

Insurance Reserves


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Insurance Reserves:
Automobile	$	230.5	$	229.5
Homeowners		5.4		3.7
Other		2.5		2.4

Insurance Reserves	$	238.4	$	235.6


Insurance Reserves:
Loss Reserves:
Case	$	150.8	$	144.9
Incurred but Not Reported		54.9		56.8

Total Loss Reserves		205.7		201.7
LAE Reserves		32.7		33.9

Insurance Reserves	$	238.4	$	235.6

Earned Premiums in the Unitrin Direct segment decreased by $16.1 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to lower volume, partially offset by higher average rates.

Unitrin Direct continues to modify its marketing program to target better response and conversion rates from customers with more favorable risk characteristics and place greater emphasis on improving premium rate adequacy and insurance risk selection. Unitrin Direct is in the early stages of introducing a newly-designed product that is intended to improve policyholder retention, loss ratios and per policy acquisition costs.

The Unitrin Direct segment has implemented and continues to implement rate increases across its book of business. These actions have led to a decrease in the overall premium volume, with the number of policies in force at March 31, 2011 decreasing by approximately 20% from the level at March 31, 2010. The Unitrin Direct segment expects that

Unitrin Direct (continued)

earned premiums, on a sequential quarter basis, will continue to decrease for the remainder of 2011.

The Unitrin Direct segment reported an Operating Loss of $7.4 million for the three months ended March 31, 2011, compared to an Operating Loss of $1.1 million for the same period in 2010. Operating results declined in the Unitrin Direct segment for the three months ended March 31, 2011, compared to 2010, due primarily to the impact of lower favorable loss and LAE reserve development and higher underlying losses and LAE as a percentage of earned premiums. Underlying incurred losses and LAE exclude the impact of catastrophes, and loss and LAE reserve development.

Incurred Losses and LAE as a percentage of earned premiums was 87.8% for the three months ended March 31, 2011, compared to 77.1% for the same period in 2010. Incurred Losses and LAE as a percentage of earned premiums increased due primarily to the impact of lower favorable loss and LAE reserve development and higher underlying losses and LAE as a percentage of earned premiums. Loss and LAE reserve development was unfavorable by $0.2 million for the three months ended March 31, 2011, compared to favorable development of $3.6 million for the same period in 2010. Underlying losses and LAE as a percentage of earned premiums was 87.3% for the three months ended March 31, 2011, compared to 81.5% for the same period in 2010. Underlying losses and LAE as a percentage of earned premiums increased for the three months ended March 31, 2011, compared to 2010, due primarily to increased severity on homeowners insurance and increased frequency on automobile insurance.

Incurred Losses and LAE as a percentage of earned premiums for the three months ended March 31, 2011 was significantly higher than the level required to produce an underwriting profit. Underwriting profit is a non-GAAP measure of profitability before tax used by insurance companies to measure the profits directly related to earned premiums. Accordingly, underwriting profit excludes net investment income, whereas Operating Profit, a GAAP measure, includes net investment income.

See MD&A, “Critical Accounting Estimates,” of the 2010 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 in the Unitrin Direct segment were 33.6% of earned premiums for the three months ended March 31, 2011, compared to 31.3% of earned premiums for the same period in 2010. Insurance Expenses as a percentage of earned premiums increased for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher amortization expense related to the acquisition of Direct Response Corporation and higher restructuring costs. Restructuring costs were $0.5 million for the three months ended March 31, 2011, compared to $0.1 million for the same period in 2010.

Unitrin Direct reported a Net Loss of $3.8 million for the three months ended March 31, 2011, compared to a Net Income of $0.1 million for the same period in 2010. 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 $2.4 million for the three months ended March 31, 2011, compared to $2.6 million for the same period in 2010.

Life and Health Insurance

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


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Earned Premiums:
Life	$	99.4		$	99.5
Accident and Health		41.2			39.9
Property		21.2			21.3

Total Earned Premiums		161.8			160.7
Net Investment Income		53.0			53.3

Total Revenues		214.8			214.0

Policyholders’ Benefits and Incurred Losses and LAE		95.5			106.8
Insurance Expenses		68.5			66.7

Operating Profit		50.8			40.5
Income Tax Expense		(18.1	)		(14.1	)

Net Income	$	32.7		$	26.4

Insurance Reserves


(Dollars in Millions)	March 31, 2011		Dec. 31, 2010
Insurance Reserves:
Future Policyholder Benefits	$	3,014.7	$	3,004.8
Incurred Losses and LAE Reserves:
Life		36.0		35.3
Accident and Health		22.9		23.6
Property		16.9		20.8

Total Incurred Losses and LAE Reserves		75.8		79.7

Insurance Reserves	$	3,090.5	$	3,084.5

Earned Premiums in the Life and Health Insurance segment increased by $1.1 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher accident and health insurance earned premiums. Earned premiums on accident and health insurance increased by $1.3 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher average premium rates, partially offset by lower volume of insurance.

Approximately 50% of the Life and Health Insurance segment’s accident and health insurance earned premiums for the three months ended March 31, 2011 were derived from health insurance products that may be adversely impacted by the Patient Protection and Affordable Care Act (“PPACA”). These insurance products are sold by Reserve National. Reserve National has begun to transition its sales to other health insurance products that are not expected to be as severely impacted by PPACA.

Operating Profit in the Life and Health Insurance segment was $50.8 million for the three months ended March 31, 2011, compared to $40.5 million for the same period in 2010. Operating Profit increased due primarily to lower Policyholders’ Benefits and Incurred Losses and LAE, partially offset by higher insurance expenses.

Life and Health Insurance (continued)

Policyholders’ Benefits and Incurred Losses and LAE decreased by $11.3 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to lower policyholders’ benefits on life insurance, lower accident and health losses as a percentage of accident and health earned premiums and lower incurred losses and LAE on property insurance. Policyholders’ benefits on life insurance were $63.2 million for the three months ended March 31, 2011, compared to $69.5 million in 2010, a decrease of $6.3 million. Policyholder benefits on life insurance decreased due primarily to a reserve adjustment associated with correcting expiry dates for certain extended term life insurance policies. Incurred accident and health losses were $24.0 million, or 58.2% of accident and health insurance earned premiums, for the three months ended March 31, 2011, compared to $27.0 million, or 67.7%, in 2010. Incurred accident and health losses decreased due primarily to lower frequency and severity of health claims. Incurred Losses and LAE, net of reinsurance, on property insurance were $8.3 million for the three months ended March 31, 2011, compared to $10.3 million in 2010. Incurred Losses and LAE, net of reinsurance, on property insurance decreased due primarily to lower frequency and severity of non-catastrophe losses and LAE (excluding development) and higher favorable loss and LAE reserve development, partially offset by high catastrophe losses and LAE (excluding development). Catastrophe losses and LAE, net of reinsurance (excluding development), were $0.5 million for the three months ended March 31, 2011, compared to $0.1 million in 2010. Favorable loss reserve development on property insurance was $0.9 million (including favorable development of $0.2 million on catastrophes) for the three months ended March 31, 2011, compared to favorable development of $0.3 million (including favorable development of $0.7 million on catastrophes) in 2010.

Insurance Expenses in the Life and Health Insurance segment increased $1.8 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher commission and fringe benefit expenses attributed to an increase in the number of career agents employed.

Net Income in the Life and Health Insurance segment was $32.7 million for the three months ended March 31, 2011, compared to $26.4 million for the same period in 2010.

Fireside Bank

Selected financial information for the Fireside Bank segment follows:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Interest, Loan Fees and Earned Discounts	$	15.4		$	30.2
Other Automobile Finance Revenues		0.1			0.4

Total Automobile Finance Revenues		15.5			30.6
Net Investment Income		0.4			0.5

Total Revenues		15.9			31.1

Provision for Loan Losses		(13.8	)		2.9
Interest Expense on Certificates of Deposits		7.1			7.9
Incentives to Close Deposit Accounts Early		0.6			0.3
General and Administrative Expenses		10.3			15.2

Operating Profit		11.7			4.8
Income Tax Expense		(3.7	)		(1.8	)

Net Income	$	8.0		$	3.0

Fireside Bank (continued)

Automobile Loan Receivables


(Dollars in Millions)	March 31, 2011			Dec. 31, 2010
Sales Contracts and Loans Receivable	$	311.3		$	382.9
Unearned Discounts and Deferred Fees		(1.1	)		(1.6	)

Net Automobile Loan Receivables Outstanding		310.2			381.3
Reserve for Loan Losses		(32.1	)		(43.7	)

Automobile Loan Receivables	$	278.1		$	337.6

Delinquencies


	Amount			As a Percentage of Net Automobile Loan Receivables Outstanding			Amount			As a Percentage of Net Automobile Loan Receivables Outstanding
(Dollars in Millions)	March 31, 2011						December 31, 2010
Current Loan Balances	$	203.9			65.8	%	$	229.7			60.2	%
Delinquent Loan Balances:
Less than 30 Days Delinquent		97.5			31.4	%		132.3			34.7	%
30 Days to 59 Days Delinquent		8.0			2.6	%		16.3			4.3	%
60 Days to 89 Days Delinquent		0.7			0.2	%		2.6			0.7	%
Delinquent 90 Days or Greater		0.1			0.0	%		0.4			0.1	%

Net Automobile Loan Receivables Outstanding		310.2			100.0	%		381.3			100.0	%

Reserve for Loan Losses		(32.1	)		10.3	%		(43.7	)		11.5	%

Automobile Loan Receivables	$	278.1					$	337.6

Automobile Loan Receivables at March 31, 2011 by Year of Origination


	(Dollars in Millions)												Delinquent 30 Days and Greater as a Percentage of Originated Net
Year of Origination	Current Loan Balance		Less than 30 Days Delinquent		30 Days to 59 Days Delinquent		60 Days to 89 Days Delinquent		90 Days and Greater Delinquent		Total		Automobile Loan Receivables Outstanding
2009	$	27.9	$	9.3	$	0.4	$	0.1	$	—	$	37.7		1.3	%
2008		107.7		49.2		3.8		0.3		0.1		161.1		2.6	%
2007		55.9		30.6		2.9		0.2		—		89.6		3.5	%
2006		12.0		8.1		0.9		0.1		—		21.1		4.7	%
2005		0.4		0.3		—		—		—		0.7		0.0	%

Total	$	203.9	$	97.5	$	8.0	$	0.7	$	0.1	$	310.2

Fireside Bank (continued)

Reserve for Loan Losses


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Reserve for Loan Losses - Beginning of Period	$	43.7		$	83.3
Provision for Loan Losses		(13.8	)		2.9
Net Recovery (Charge-off):
Automobile Loan Receivables Charged Off		(9.8	)		(22.4	)
Automobile Loan Receivables Recovered		12.0			10.9

Net Recovery (Charge-off)		2.2			(11.5	)

Reserve for Loan Losses - End of Period	$	32.1		$	74.7

Capital


(Dollars in Millions)	March 31, 2011			Dec. 31, 2010
Capital	$	257.7		$	249.4


Ratio of Tier 1 Capital to Total Average Assets		45.7	%		37.3	%

Near the end of the first quarter of 2009, Fireside Bank began a plan to exit the automobile finance business and wind down its operations in an orderly fashion. Net Automobile Loan Receivables Outstanding and Certificates of Deposits have declined steadily since the inception of the exit plan, while liquidity has steadily increased. Cash and investments totaled $150.3 million, or 87.0% of Certificates of Deposits, at March 31, 2011. In April 2011, Fireside Bank used its cash and investments, cash flow from operations and proceeds from its line of credit with Unitrin to redeem all remaining certificates of deposits, plus future interest of $6.9 million, that were outstanding at March 31, 2011. Fireside Bank intends to begin the process of surrendering its industrial bank charter in the second quarter of 2011.

Interest, Loan Fees and Earned Discounts in the Fireside Bank segment decreased by $14.8 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to collections of Sales Contracts and Loans Receivable. Sales Contracts and Loans Receivable was $311.3 million at March 31, 2011, compared to $634.8 million at March 31, 2010. 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.

Operating Profit in the Fireside Bank segment increased by $6.9 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to a negative provision for loan losses of $13.8 million for the three months ended March 31, 2011, compared with a positive provision of $2.9 million in 2010, lower General and Administrative Expenses and lower Interest Expense on Certificates of Deposits, partially offset by lower Interest Income, Loan Fees and Earned Discounts and higher Incentives to Close Deposit Accounts Early. The negative provision for loan losses in 2011 was primarily due to recoveries of loans that had been previously charged off.

Fireside Bank’s loan portfolio delinquency has typically followed 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 followed the historical pattern and trended lower during the first quarter of 2011. Fireside Bank cannot currently predict whether a new pattern will emerge in 2011, or if loan portfolio delinquency as measured as a percentage of loans outstanding will continue the seasonal pattern that it has typically followed. Fireside Bank does, however, expect 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.

Fireside Bank (continued)

The Reserve for Loan Losses as a percentage of Net Automobile Loan Receivables was 10.3% at March 31, 2011, compared to 11.5% at December 31, 2010. The Reserve for Loan Losses was $32.1 million at March 31, 2011, while Delinquent Loan Balances 30 Days or Greater totaled $8.8 million. The Reserve for Loan Losses was $43.7 million at December 31, 2010, while Delinquent Loan Balances 30 Days or Greater totaled $19.3 million.

Interest Expense on Certificates of Deposits decreased by $0.8 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to lower levels of deposits, partially offset by the payment of future interest in connection with redeeming certificates of deposits in advance of their respective scheduled maturity dates. Fireside Bank redeemed $85.2 million of deposits earlier than their scheduled maturity dates and paid the entire future interest of $3.6 million for these early redemptions in the first quarter of 2011. Fireside Bank also offered incentives, in lieu of future interest, to certain depositors to voluntarily redeem their certificates of deposits earlier than their scheduled maturity dates. Fireside Bank redeemed $12.4 million of certificates of deposits for the three months ended March 31, 2011 and paid incentives of $0.6 million in connection with such offers.

General and Administrative Expenses decreased by $4.9 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to changes in estimates for certain employment and legal matters and lower costs associated with administering and collecting a smaller loan portfolio.

Net Income in the Fireside Bank segment was $8.0 million and $3.0 million for the three months ended March 31, 2011 and 2010, respectively. Income tax expense for the three months ended March 31, 2011 included a tax benefit of $1.2 million for a decrease in the valuation allowance for deferred state income taxes, net of federal taxes. Income tax expense for the three months ended March 31, 2010 included a tax benefit of $0.2 million for a decrease in the valuation allowance for deferred state income taxes, net of federal taxes. The Fireside Bank segment’s effective tax rate differs from the Federal statutory tax rate due primarily to state income taxes.

Investment Results

Investment Income

Net Investment Income for the three months ended March 31, 2011 and 2010 was:


	Three Months Ended
(Dollars in Millions)	March 31, 2011		March 31, 2010
Investment Income:
Interest and Dividends on Fixed Maturities	$	60.4	$	63.0
Dividends on Equity Securities		7.1		4.3
Short-term Investments		0.1		0.1
Loans to Policyholders		4.4		4.1
Real Estate		6.4		6.6
Equity Method Limited Liability Investments		10.0		9.4

Total Investment Income		88.4		87.5
Investment Expenses:
Real Estate		6.4		6.5
Other Investment Expenses		0.4		0.2

Total Investment Expenses		6.8		6.7

Net Investment Income	$	81.6	$	80.8

Net Investment Income was $81.6 million and $80.8 million for the three months ended March 31, 2011 and 2010, respectively. Net Investment Income increased by $0.8 million for the three months ended March 31, 2011, compared to the same period in 2010, due primarily to higher Dividends on Equity Securities and, to a lesser extent, higher net investment income from Equity Method Limited Liability Investments, partially offset by lower Interest and Dividends on Fixed Maturities. Dividends on Equity Securities increased by $2.8 million in 2011, compared to 2010, due primarily to higher levels of dividend paying common stocks. Investment income from Equity Method Limited Liability Investments increased by $0.6 million in 2011, compared to 2010, due primarily to increased investment returns.

Investment Results (continued)

Interest and Dividends on Fixed Maturities decreased by $2.6 million in 2011, compared to 2010, due primarily to a lower level of fixed maturities.

Net Realized Gains on Sales of Investments

The components of Net Realized Gains on Sales of Investments for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011		March 31, 2010
Fixed Maturities:
Gains on Sales	$	3.1	$	2.5
Equity Securities:
Gains on Sales		11.2		1.7
Real Estate:
Gains on Sales		0.1		—
Other Investments:
Trading Securities Net Gains		0.1		0.3

Net Realized Gains on Sales of Investments	$	14.5	$	4.5


Gross Gains on Sales	$	14.4	$	4.2
Trading Securities Net Gains		0.1		0.3

Net Realized Gains on Sales of Investments	$	14.5	$	4.5

Net Impairment Losses Recognized in Earnings

The components of Net Impairment Losses Recognized in Earnings in the Condensed Consolidated Statements of Income for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Fixed Maturities	$	—		$	(3.2	)
Equity Securities		(0.4	)		—

Net Impairment Losses Recognized in Earnings	$	(0.4	)	$	(3.2	)

The Company regularly reviews its investment portfolio for factors that may indicate that a decline in the fair value of an investment is other-than-temporary. Losses arising from other-than-temporary declines in fair values are reported in the Condensed Consolidated Statements of Income in the period that the declines are determined to be other-than-temporary. Net Impairment Losses recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2011 and 2010 include OTTI losses of $0.4 million and $3.2 million, respectively, from other-than-temporary declines in the fair values of investments. Net Impairment Losses Recognized in Earnings on Investments in Equity Securities includes losses of $0.4 million for the three months ended March 31, 2011 related to three issuers. Net Impairment Losses Recognized in Earnings on Investments in Fixed Maturities includes credit losses of $3.1 million for the three months ended March 31, 2010 due to the deterioration of the business prospects of a single issuer in the waste management business.

Investment Results (continued)

Total Comprehensive Investment Gains (Losses)

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 Statements of Income and other investment gains and losses that are not reported in the Condensed Consolidated Statements of Income, but rather are reported in a consolidated statement of comprehensive income. The components of Total Comprehensive Investment Gains (Losses) for the three months ended March 31, 2011 and 2010 were:


	Three Months Ended
(Dollars in Millions)	March 31, 2011			March 31, 2010
Fixed Maturities:
Recognized in Condensed Consolidated Statements of Income:
Gains on Sales	$	3.1		$	2.5
Net Impairment Losses Recognized in Earnings		—			(3.2	)

Total Recognized in Condensed Consolidated Statements of Income		3.1			(0.7	)
Recognized in Other Comprehensive Gains (Losses)		(5.3	)		32.0

Total Comprehensive Investment Gains (Losses) on Fixed Maturities		(2.2	)		31.3


Equity Securities:
Recognized in Condensed Consolidated Statements of Income:
Gains on Sales		11.2			1.7
Net Impairment Losses Recognized in Earnings		(0.4	)		—

Total Recognized in Condensed Consolidated Statements of Income		10.8			1.7
Recognized in Other Comprehensive Gains (Losses)		(20.9	)		10.5

Total Comprehensive Investment Gains (Losses) on Equity Securities		(10.1	)		12.2


Real Estate:
Recognized in Condensed Consolidated Statements of Income:
Gains on Sales		0.1			—


Other Investments:
Recognized in Condensed Consolidated Statements of Income:
Trading Securities Net Gains		0.1			0.3


Total Comprehensive Investment Gains (Losses)	$	(12.1	)	$	43.8


Recognized in Condensed Consolidated Statements of Income	$	14.1		$	1.3
Recognized in Other Comprehensive Income (Loss)		(26.2	)		42.5

Total Comprehensive Investment Gains (Losses)	$	(12.1	)	$	43.8

Investment Quality and Concentrations

The Company’s fixed maturity investment portfolio is comprised primarily of high-grade municipal, corporate and agency bonds. At March 31, 2011, nearly 94% 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 & Poors (“S&P”); a rating of Aaa, Aa, A or Baa from Moody’s Investors Services (“Moody’s”); a rating of AAA, AA, A or BBB from Fitch Ratings (“Fitch”) 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 or indirectly related to sub-prime mortgage loans including, but not limited to, collateralized debt obligations and structured investment vehicles.

Investment Quality and Concentrations (continued )

The following table summarizes the credit quality of the Company’s fixed maturity investment portfolio at March 31, 2011 and December 31, 2010:


		March 31, 2011					December 31, 2010
NAIC Rating	S & P Equivalent Rating	Fair Value in Millions		Percentage of Total			Fair Value in Millions		Percentage of Total
1	AAA, AA, A	$	3,478.3		77.4	%	$	3,493.7		78.1	%
2	BBB		732.3		16.3	%		733.1		16.4	%
3	BB		114.4		2.5	%		105.3		2.3	%
4	B		56.9		1.3	%		52.3		1.2	%
5	CCC		93.4		2.1	%		76.6		1.7	%
6	In or Near Default		16.6		0.4	%		14.3		0.3	%

Total Investments in Fixed Maturities		$	4,491.9		100.0	%	$	4,475.3		100.0	%

Gross unrealized losses on the Company’s investments in below-investment-grade fixed maturities were $2.8 million and $4.0 million at March 31, 2011 and December 31, 2010, respectively. At March 31, 2011, the Company had $415.4 million of bonds issued by states and political subdivisons that had been pre-refunded with U. S. Government and Government Agencies and Authorities obligations held in trust for the full payment of principal and interest. At March 31, 2011, the Company had $1,346.7 million of investments in bonds issued by states and political subdivsions, commonly referred to as “municipal bonds,” that had not been pre-refunded, of which $329.4 million were enhanced with insurance from monoline bond insurers. The Company’s municipal bond investment credit-risk strategy is to focus on the underlying credit rating of the issuer and not to rely on the credit enhancement provided by the monoline bond insurer when making investment decisions. To that end, the underlying rating of over 92% of the Company’s entire municipal bond portfolio that has not been pre-refunded is AA or higher, the majority of which are direct obligations of states.

The following table summarizes the fair value of the Company’s Investments in governmental fixed maturities at March 31, 2011 and December 31, 2010:


(Dollars in Millions)	March 31, 2011		Percentage of Total Investments			Dec. 31, 2010		Percentage of Total Investments
U.S. Government and Government Agencies and Authorities (“U.S. Govt”)	$	541.3		8.7	%	$	536.9		8.6	%
Pre-refunded with U.S. Govt Held in Trust		415.4		6.7	%		449.0		7.2	%
States		789.4		12.6	%		808.4		12.9	%
Political Subdivisions		181.6		2.9	%		163.7		2.6	%
Revenue Bonds		375.7		6.0	%		371.7		6.0	%

Total Investments in Governmental Fixed Maturities	$	2,303.4		36.9	%	$	2,329.7		37.3	%

Investment Quality and Concentrations (continued )

The Company’s short-term investments consist of U.S. Treasury securities, overnight repurchase agreements and money market funds. The Company’s short-term investments in U.S. Treasury securities consisted of $61.6 million of U.S. Treasury Bills with maturities, typically, of less than one week and $10.0 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 $163.3 million invested in overnight repurchase agreements primarily collateralized by securities issued by the U.S. government and $148.1 million invested in money market funds which primarily invest in U.S. Treasury securities. At the time of borrowing, the repurchase agreements generally require the borrower to provide collateral to the Company at least equal to the amount borrowed from the Company. The Company bears some investment risk in the event that a borrower defaults and the value of collateral falls below the amount borrowed. The Company does not have any investments in sovereign debt securities issued by foreign governments.

The following table summarizes the fair value of the Company’s Investments in non-governmental fixed maturities by industry at March 31, 2011 and December 31, 2010:


(Dollars in Millions)	March 31, 2011		Percentage of Total Investments			Dec. 31, 2010		Percentage of Total Investments
Manufacturing	$	1,028.9		16.5	%	$	1,023.6		16.4	%
Finance, Insurance and Real Estate		581.0		9.3	%		566.4		9.1	%
Transportation, Communication and Utilities		228.2		3.7	%		229.7		3.7	%
Services		195.2		3.1	%		186.3		3.0	%
Mining		64.5		1.0	%		52.0		0.8	%
Wholesale Trade		37.8		0.6	%		36.5		0.6	%
Retail Trade		35.3		0.6	%		33.5		0.5	%
Agriculture, Forestry and Fishing		17.0		0.3	%		17.0		0.3	%
Other		0.6		0.0	%		0.6		0.0	%

Total Investments in Non-governmental Fixed Maturities	$	2,188.5		35.1	%	$	2,145.6		34.4	%

Sixty-two companies comprised over 75% of the Company’s fixed maturity exposure to the Manufacturing industry at March 31, 2011, with the largest single exposure, Caterpillar, Inc., comprising 2.6%, or $26.2 million, of the Company’s fixed maturity exposure to such industry. Twenty-eight companies comprised over 75% of the Company’s exposure to the Finance, Insurance and Real Estate industry at March 31, 2011, with the largest single exposure, Wells Fargo Corporation, comprising 6.3%, or $36.6 million, of the Company’s exposure to such industry.

Investment Quality and Concentrations (continued)

The following table summarizes the fair value of the Company’s ten largest investment exposures excluding U.S. Government and Government Agencies and Authorities and Pre-refunded with U.S. Government and Government Agencies and Authorities Held in Trust at March 31, 2011:


(Dollars in Millions)	Fair Value		Percentage of Total Investments
Intermec:
Equity Securities - Common Stocks	$	107.0		1.7	%
Tennebaum Opportunities Fund V, LLC:
Equity Method Limited Liability Investments		95.2		1.5	%
State of Texas and Political Subdivisions Thereof:
Fixed Maturities		83.4		1.4	%
Special Value Opportunity Fund, LLC:
Equity Method Limited Liability Investments		82.2		1.3	%
State of Louisiana and Political Subdivisions Thereof:
Fixed Maturities		71.7		1.2	%
State of Ohio and Political Subdivisions Thereof:
Fixed Maturities		64.6		1.0	%
State of Washington and Political Subdivisions Thereof:
Fixed Maturities		64.5		1.0	%
State of Wisconsin and Political Subdivisions Thereof:
Fixed Maturities		63.3		1.0	%
Golman Sachs Vintage Fund IV, L.P.:
Equity Method Limited Liability Investments		56.3		0.9	%
State of Colorado and Political Subdivisions Thereof:
Fixed Maturities		54.1		0.9	%

Total	$	742.3		11.9	%

Investments in Limited Liability Investment Companies and Limited Partnerships

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 are reported either as Equity Method Limited Liability Investments, or Other Equity Interests and included in Equity Securities depending on the accounting method used to report the investment. Additional information pertaining to these investments at March 31, 2011 and December 31, 2010 is presented below:


			Unfunded Commitment		Carrying Value				Stated Fund
(Dollars in Millions)	Asset Class		March 31, 2011		March 31, 2011		December 31, 2010		End Date
Reported as Equity Method Limited Liability
Investments at Cost Plus Cumulative Undistributed Earnings:
Tennenbaum Opportunities Fund V, LLC		Distressed Debt	$	—	$	95.2	$	91.4		10/10/2016
Special Value Opportunity Fund, LLC		Distressed Debt		—		82.2		86.8		7/13/2014
Goldman Sachs Vintage Fund IV, L.P.		Secondary Transactions		23.0		56.3		58.9		12/31/2016
Special Value Continuation Fund, LLC		Distressed Debt		—		25.7		26.8		6/30/2016
NY Life Investment Management Mezzanine Partners II, LP		Mezzanine Debt		2.4		20.6		20.5		7/31/2016
BNY Mezzanine Partners L.P.		Mezzanine Debt		2.0		13.6		14.1		4/17/2016
Ziegler Meditech Equity Partners, LP		Growth Equity		2.3		13.9		10.4		1/31/2016
BNY-Alcentra Mezzanine Partners III, L.P.		Mezzanine Debt		40.2		3.8		4.5		2021-2022
Other Funds				4.3		14.7		14.6		Various

Total for Equity Method Limited Liability Investments				74.2		326.0		328.0


Reported as Other Equity Interests and Reported at Fair Value:
Highbridge Principal Strategies Fund L.P.		Mezzanine Debt		11.7		13.4		11.4		1/23/2018
Goldman Sachs Vintage Fund V, L.P.		Secondary Transaction		11.6		9.5		8.7		12/31/2018
Goldman Sachs Mezzanine Partners V, L.P.		Mezzanine Debt		15.9		7.4		8.4		12/31/2021
Other Funds				28.9		44.3		46.7		Various

Total Reported as Other Equity Interests and Reported at Fair Value				68.1		74.6		75.2

Total			$	142.3	$	400.6	$	403.2

Interest and Other Expenses

Interest and Other Expenses was $19.7 million and $16.4 million for the three months ended March 31, 2011 and 2010, respectively. Interest and Other Expenses increased by $3.3 million for the three months ended March 31, 2011 compared to the same period in 2010, due primarily to higher levels of debt outstanding and higher postretirement benefit 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 $13.0 million and $14.1 million for the three months ended March 31, 2011 and 2010, respectively. State income tax expense, net of federal benefit, was $0.5 million for the three months ended March 31, 2011. State income tax expense for the three months ended March 31, 2011 included a benefit of $1.2 million, net of federal taxes, for a decrease in the deferred tax asset valuation allowance related to Fireside Bank. State income tax expense, net of federal benefit, was $0.6 million for the three months ended March 31, 2010. State income tax expense for the three months ended March 31, 2010 included a benefit of $0.2 million, net of federal taxes, for a decrease in the deferred tax asset valuation allowance related to Fireside Bank.

Liquidity and Capital Resources

Unitrin has a three-year, $245 million, unsecured, revolving credit agreement, expiring October 30, 2012, with a group of financial institutions (the “2012 Credit Agreement”). The 2012 Credit Agreement provides for fixed and floating rate advances for periods up to six months at various interest rates. The 2012 Credit Agreement contains various financial covenants, including limits on total debt to total capitalization, consolidated net worth and minimum risk-based capital ratios for Unitrin’s largest insurance subsidiaries, United Insurance Company of America and Trinity. Proceeds from advances under the 2012 Credit Agreement may be used for general corporate purposes, including repayment of existing indebtedness. There were no outstanding borrowings under the 2012 Credit Agreement at either March 31, 2011 or December 31, 2010.

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 direct insurance subsidiaries paid dividends consisting of $45.5 million in cash to Unitrin during the first quarter of 2011. Unitrin estimates that its direct insurance subsidiaries would be able to pay $139 million in dividends to Unitrin during the remainder of 2011. Such dividends will not require prior regulatory approval.

Unitrin’s subsidiary, Fireside Bank, is chartered as an industrial bank and is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the California Department of Financial Institutions (“CDFI”). Fireside Bank has agreed not to pay dividends without the prior approval of the FDIC and the CDFI. At March 31, 2011, Fireside Bank had an $20 million undrawn line of credit with Unitrin. In April 2011, the line of credit was increased to $30 million. In April 2011, Fireside Bank used its cash and investments, cash flow from operations and $30 million of proceeds from its line of credit with Unitrin to redeem all remaining certificates of deposits, plus future interest of $6.9 million, that were outstanding at March 31, 2011. Fireside Bank has begun the process of surrendering its industrial bank charter. Upon completion of this process, Fireside Bank will cease to be regulated by the FDIC and CDFI, and accordingly, will be able to pay dividends and return capital to Unitrin without prior regulatory approval. Based on Fireside Bank’s estimated liquidity, it estimates that it will be able to fully repay the $30 million drawn under the line of credit by the end of the second quarter of 2011. Fireside Bank expects to return at least $265 million of capital to Unitrin.

On February 2, 2011, the Board of Directors approved a new repurchase program under which Unitrin is authorized to repurchase up to $300 million worth of its common stock. During the first quarter of 2011, Unitrin repurchased approximately 0.7 million shares of its common stock at an aggregate cost of $21.7 million in open market transactions.

Unitrin paid a quarterly dividend to shareholders of $0.24 per common share in the first quarter of 2011. Dividends paid were $14.7 million for the three months ended March 31, 2011.

Unitrin directly held cash and investments totaling $84.2 million at March 31, 2011, compared to $60.5 million at December 31, 2010. Sources available for the repayment of indebtedness, repurchases of common stock, future shareholder dividend payments, and the payment of interest on Unitrin’s senior notes include cash and investments directly held by Unitrin, receipt of dividends from Unitrin’s subsidiaries and borrowings under the 2012 Credit Agreement.

The primary sources of funds for Unitrin’s insurance subsidiaries are premiums, investment income and proceeds from the sales and maturity of investments. 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 flows 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

Liquidity and Capital Resources (continued)

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, investment income and proceeds from the sales and maturity of investments. The primary uses of funds for Fireside Bank are the repayment of customer deposits, interest paid to depositors, general expenses and purchase of investments.

Net Cash Provided by Operating Activities increased by $47.7 million for the three months ended March 31, 2011, compared to the same period in 2010.

Net Cash Used by Financing Activities increased by $80.3 million for the three months ended March 31, 2011, compared to the same period in 2010. The Company has funded its Automobile Loan Receivables through the issuance of Certificates of Deposits. Net cash used by Repayments of Certificates of Deposits was $149.1 million for the three months ended March 31, 2011, compared to net cash used of $88.4 million for the same period in 2010. Unitrin used $18.3 million of cash during the first quarter of 2011 to repurchase shares of its common stock. Unitrin did not repurchase shares of its common stock during the same period in 2010. Unitrin used $14.7 million of cash to pay dividends for the three months ended March 31, 2011, compared to $13.7 million of cash used to pay dividends in the same period of 2010. The quarterly dividend rate was $0.24 per common share in the first quarter of 2011, compared $0.22 per common share in the same period of 2010.

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. Net Cash Provided by Investing Activities decreased by $24.3 million for the three months ended March 31, 2011, compared to the same period of 2010. Purchases of Fixed Maturities exceeded Sales of Fixed Maturities by $21.1 million for the three months ended March 31, 2011, compared to $25.4 million in the same period of 2010. Sales of Equity Securities exceeded Purchases of Equity Securities by $28.5 million for the three months ended March 31, 2011. Purchases of Equity Securities exceeded Sales of Equity Securities by $1.2 million for the three months ended March 31, 2010. Net cash used by acquisitions of short-term investments was $12.9 million for the three months ended March 31, 2011, compared to net cash of $35.2 million provided by dispositions of short-term investments in the same period of 2010. The receipts from automobile loan receivables provided $73.6 million of cash for the three months ended March 31, 2011, compared to $103.5 million of cash provided in the same period of 2010.

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, the valuation of pension benefit obligations and the valuation of postretirement benefit obligations other than pensions. The Company’s critical accounting policies are described in the MD&A included in the 2010 Annual Report. There has been no material change, subsequent to December 31, 2010, to the information previously disclosed in the 2010 Annual Report with respect to these critical accounting estimates and the Company’s critical accounting policies.

Recently Issued Accounting Pronouncements

The Company did not adopt any new accounting standards in 2011. The Company has not yet adopted ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contract . ASU 2010-26 is discussed in Note 1, “Basis of Presentation” to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q under the heading “Adoption of New Accounting Standards and Accounting Standards Not Yet Adopted.”

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 pre-tax 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 March 31, 2011 and December 31, 2010 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 March 31, 2011 and December 31, 2010. 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 March 31, 2011 and December 31, 2010. 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 March 31, 2011 and December 31, 2010, 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 0.95 and 0.96 at March 31, 2011 and

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

December 31, 2010, respectively. The portfolio’s weighted-average beta was calculated using each security’s beta for the five-year periods ended March 31, 2011 and December 31, 2010, respectively, and weighted on the fair value of such securities at March 31, 2011 and December 31, 2010, respectively. For equity securities without observable market inputs the Company assumed a beta of 1.00 at March 31, 2011 and December 31, 2010. 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.

The estimated adverse effects on the fair values 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
March 31, 2011
Assets
Investments in Fixed Maturities	$	4,491.9	$	(322.4	)	$	—		$	(322.4	)
Investments in Equity Securities		511.7		(6.0	)		(112.6	)		(118.6	)
Automobile Loan Receivables		279.1		(2.4	)		—			(2.4	)

Liabilities
Certificates of Deposits	$	180.1	$	0.2		$	—		$	0.2
Notes Payable		646.0		31.4			—			31.4

December 31, 2010
Assets
Investments in Fixed Maturities	$	4,475.3	$	(316.9	)	$	—		$	(316.9	)
Investments in Equity Securities		550.4		(6.9	)		(125.4	)		(132.3	)
Automobile Loan Receivables		340.0		(3.1	)		—			(3.1	)

Liabilities
Certificates of Deposits	$	336.6	$	0.4		$	—		$	0.4
Notes Payable		628.0		31.6			—			31.6

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.

Qualitative Information About Market Risk

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

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.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company’s management, with the participation of Unitrin’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 Exchange Act), as of the end of the period covered by this report. Based on such evaluation, Unitrin’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 Unitrin 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 Unitrin’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(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.

Caution Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including MD&A, Quantitative and Qualitative Disclosures About Market Risk, Risk Factors 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, financial performance or financial condition. 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. 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. 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 and financial condition. The reader should consider the following list of general factors that could affect the Company’s future results and financial condition, as well as those discussed under Item 1A., Risk Factors, in the 2010 Annual Report.

Caution Regarding Forward-Looking Statements (continued)

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

•

The incidence, frequency, and severity of catastrophes occurring in any particular reporting period or geographic concentration, including natural disasters, pandemics and terrorist attacks or other man-made events;

•

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

•

Changes in facts and circumstances affecting assumptions used in determining loss and LAE 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;

•

Changes in the pricing or availability of reinsurance or the financial condition of reinsurers and amounts recoverable therefrom;

•

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

•

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

•

Changes in industry trends and significant industry developments;

•

Uncertainties related to 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 such issues arising with respect to losses incurred in connection with hurricanes and other catastrophes;

•

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

•

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

•

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

•

Governmental actions, including, but not limited to, implementation of the provisions of the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and the Dodd-Frank Act, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions;

•

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

•

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, changes in general economic conditions, unemployment rates and 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;

•

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

•

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

•

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

•

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 Unitrin’s filings with the SEC.

Caution Regarding Forward-Looking Statements (continued)

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 Unitrin makes on related subjects in its filings with the SEC.

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 14, “Contingencies,” to the Condensed Consolidated Financial Statements (Unaudited) in Part I of this Form 10-Q.

Item 1A. Risk Factors

There have been no significant changes in the risk factors included in Item 1A. of Part II of the 2010 Annual Report.

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


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars in Millions)
January 1 - January 31, 2011		—		N/A		—	$	300.0
February 1 - February 28, 2011		229,815	$	28.96		229,815	$	293.3
March 1 - March 31, 2011		506,343	$	29.70		506,343	$	278.3

(1)	On February 2, 2011, Unitrin’s Board of Directors authorized the repurchase of up to $300 million of Unitrin’s common stock. The repurchase program does not have an expiration date.

The preceding table does not include shares 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 Unitrin’s stock option plans or shares withheld to satisfy tax withholding obligations on the vesting of awards under Unitrin’s restricted stock plan. During the quarter ended March 31, 2011, 2,170 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 Unitrin’s three stock option plans. No restricted stock vested during the quarter ended March 31, 2011.

Item 5. Other Information

On May 4, 2011, the Board of Directors approved a new form of stock option award agreement for the automatic grants of initial and annual awards to Unitrin’s non-employee directors under the Unitrin, Inc. 2011 Omnibus Equity Plan approved by Unitrin’s shareholders at the 2011 Annual Meeting on May 4, 2011. The new form of agreement, filed as an exhibit to this Quarterly Report on Form 10-Q, is substantially the same as the prior form of agreement under the Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, except that it includes tandem stock appreciation rights and references to provisions of the new 2011 plan instead of the 1995 plan. In addition, the Board of Directors amended the Company’s Amended and Restated Bylaws, effective May 4, 2011, to revise Article III, Section 11 to change the minimum number of directors on board Committees from two to one.

Item 6. Exhibits


3.1		Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Unitrin’s Annual Report on Form 10-K filed February 4, 2008).

3.2		Amended and Restated Bylaws.

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. (Incorporated herein by reference to Exhibit 4.1 to Unitrin’s Quarterly Report on Form 10-Q filed August 3, 2009).

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 Unitrin’s Current Report on Form 8-K filed May 14, 2007).

4.3		Officer’s Certificate, including form of Senior Note with respect to Unitrin’s 6.00% Senior Notes due May 15, 2017 (Incorporated herein by reference to Exhibit 4.2 to Unitrin’s Current Report on Form 8-K filed May 14, 2007).

4.4		Officers’ Certificate, including the form of Senior Note with respect to Unitrin’s 6.00% Senior Notes due November 30, 2015 (Incorporated herein by reference to Exhibit 4.2 to Unitrin’s Current Report on Form 8-K filed November 24, 2010).

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 Unitrin’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.

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 Unitrin’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 Unitrin’s Annual Report on Form 10-K filed February 4, 2009).

10.5		Unitrin, Inc. 2011 Omnibus Equity Plan (Incorporated by reference to Appendix B to Unitrin’s Proxy Statement for the 2011 Annual Meeting of Shareholders filed March 28, 2011).

10.6		Form of Stock Option Agreement under the Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan, as of February 1, 2006.

10.7		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 Unitrin’s Annual Report on Form 10-K filed February 4, 2009).

10.8		Form of Stock Option and SAR Agreement under the Unitrin, Inc. 1997 Stock Option Plan, as of February 1, 2006.

10.9		Form of Stock Option and SAR Agreement under the Unitrin, Inc. 2002 Stock Option Plan, as of February 1, 2006.

10.10		Form of Stock Option Agreement (including stock appreciation rights) under the Unitrin, Inc. 2002 Stock Option Plan, as of February 1, 2011 (Incorporated herein by reference to Exhibit 10.9 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

Item 6. Exhibits (continued)


10.11		Form of Time-Vested Restricted Stock Award Agreement under the 2005 Restricted Stock and Restricted Stock Unit Plan, as of February 1, 2011 (Incorporated herein by reference to Exhibit 10.10 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

10.12		Form of Performance-Based Restricted Stock Award Agreement under the 2005 Restricted Stock and Restricted Stock Unit Plan, as of February 1, 2011 (Incorporated herein by reference to Exhibit 10.11 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

10.13		Form of Stock Option and SAR Agreement for Non-employee Directors under the Unitrin, Inc. 2011 Omnibus Equity Plan, as of May 4, 2011.

10.14		Unitrin, Inc. Pension Equalization Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.12 to Unitrin’s Annual Report on Form 10-K filed February 4, 2009).

10.15		Unitrin, Inc. Defined Contribution Supplemental Retirement Plan, effective January 1, 2008 (Incorporated herein by reference to Exhibit 10.13 to Unitrin’s Annual Report on Form 10-K filed February 4, 2009).

10.16		Unitrin, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.14 to Unitrin’s Annual Report on Form 10-K filed February 4, 2009) and Amendment No. 1 thereto, dated December 22, 2010 (Incorporated by reference to Exhibit 10.14 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

10.17		Unitrin is a party to individual severance agreements (the form of which is incorporated herein by reference to Exhibit 10.1 to Unitrin’s Current Report on Form 8-K filed February 22, 2011), with the following executive officers:

		Donald G. Southwell (Chairman, President and Chief Executive Officer)
		John M. Boschelli (Vice President and Chief Investment 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)
		Dennis J. Sandelski (Vice President – Tax)
		Frank J. Sodaro (Vice President – Planning and Analysis)
		Dennis R. Vigneau (Senior Vice President and Chief Financial Officer)

		Each of the foregoing agreements is identical except that the severance compensation multiple is 3.0 for Mr. Southwell and 2.0 for the other executive officers.

10.18		Unitrin, Inc. Severance Plan, as amended and restated effective January 1, 2009 (Incorporated herein by reference to Exhibit 10.16 to Unitrin’s Annual Report on Form 10-K filed February 4, 2009).

10.19		Unitrin, Inc. 2009 Performance Incentive Plan, effective February 3, 2009 (Incorporated herein by reference to Exhibit 10.1 to Unitrin’s Current Report on Form 8-K filed February 9, 2009).

10.20		Form of Annual Incentive Award Agreement under the Unitrin, Inc. 2009 Performance Incentive Plan, as of February 1, 2011 (Incorporated herein by reference to Exhibit 10.19 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

10.21		Form of Multi-Year Incentive Award Agreement under the Unitrin, Inc. 2009 Performance Incentive Plan, as of February 1, 2011 (Incorporated herein by reference to Exhibit 10.19 to Unitrin’s Annual Report on Form 10-K filed February 3, 2011).

10.22		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 Unitrin’s Current Report on Form 8-K filed March 27, 2009) with each of its directors.

Item 6. Exhibits (continued)


10.23		Credit Agreement, dated as of October 30, 2009, by and among Unitrin, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, swing line lender and issuing lender, and JPMorgan Chase Bank, N.A., as syndication agent. (Incorporated by reference to Exhibit 10.21 to Unitrin’s Quarterly report on Form 10-Q filed November 2, 2009).

31.1		Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a).

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).

101.1		XBRL Instance

101.2		XBRL Taxonomy Extension Schema Document

101.3		XBRL Taxonomy Extension Calculation Linkbase Document

101.4		XBRL Taxonomy Extension Label Linkbase Document

101.5		XBRL Taxonomy Extension Presentation Linkbase Document

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: May 4, 2011		/s/ Donald G. Southwell
		Donald G. Southwell
		Chairman, President and
		Chief Executive Officer (Principal Executive Officer)

Date: May 4, 2011		/s/ Dennis R. Vigneau
		Dennis R. Vigneau
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: May 4, 2011		/s/ Richard Roeske
		Richard Roeske
		Vice President, Chief Accounting Officer (Principal Accounting Officer)

Exhibit 3.2

UNITRIN, INC.

AMENDED AND RESTATED BYLAWS

May 4, 2011

TABLE OF CONTENTS


		PAGE

ARTICLE I.	OFFICES		1

ARTICLE II.	MEETINGS OF STOCKHOLDERS		1

ARTICLE III.	DIRECTORS		6

ARTICLE IV.	NOTICES		9

ARTICLE V.	OFFICERS		9

ARTICLE VI.	STOCK		11

ARTICLE VII.	GENERAL PROVISIONS		13

ARTICLE VIII.	DIRECTOR’S LIABILITY AND INDEMNIFICATION		14

ARTICLE IX.	AMENDMENTS		17

UNITRIN, INC.

AMENDED AND RESTATED BYLAWS

ARTICLE I. - OFFICES

Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE II. - MEETINGS OF STOCKHOLDERS

Section 1. Any meeting of stockholders for any purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2. The annual meeting of stockholders shall be held on such date as may be fixed by resolution of the board of directors at least ten days prior to the date so fixed, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly constituted annual or special meeting of stockholders.

Section 3. Written notice of the annual meeting shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting, except as otherwise provided herein or as required from time to time by the Delaware General Corporation Law or the corporation’s certificate of incorporation. All informalities or irregularities in any notice of meeting, or in the areas of credentials, proxies, quorums, voting, and similar matters, will be deemed waived if no objection is made at the meeting.

- 1 -

Section 4. Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the corporation’s certificate of incorporation, may be called only by the Chairman of the Board or by the board of directors pursuant to a resolution adopted by a majority of directors then in office.

Section 5. Written notice of a special meeting of stockholders, stating the time, place and object thereof, shall be given to each stockholder entitled to vote thereat, not less than ten nor more than sixty days before the date fixed for the meeting, except as otherwise provided herein or as required from time to time by the Delaware General Corporation Law or the corporation’s certificate of incorporation. All informalities or irregularities in any notice of meeting, or in the areas of credentials, proxies, quorums, voting, and similar matters, will be deemed waived if no objection is made at the meeting.

Section 6. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 7. The officer or agent who has charge of the stock ledger or transfer records of the corporation shall prepare and make available, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and subject to the inspection of any stockholder who may be present.

Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum. No notice of the time and place of the adjourned meeting need be given except as required by law. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

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Section 9. (a) At a meeting at which a quorum is present, any matter to be decided by the stockholders other than an election of directors shall be decided by the majority of the votes cast with respect to such matter (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” such matter), unless the matter is one for which a different vote is required by express provision of the Delaware General Corporation Law or of the certificate of incorporation, in which case such express provision shall govern.

(b) Except as otherwise provided in Section 9(c) below, in an election of directors at a meeting at which a quorum is present, a nominee for director shall be elected to the board of directors if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” such nominee’s election). An incumbent director who is not elected at such a meeting shall tender his or her resignation to the board of directors. In such case, the Nominating & Corporate Governance Committee shall consider the matter of the resignation and make a recommendation to the board of directors on whether to accept or reject the resignation within 45 days after the date of certification of the election results by the inspector of elections. The board of directors shall then consider such recommendation and all other factors it deems relevant and shall make a decision on the matter within 90 days after the date of such certification, and the corporation shall publically disclose the board of directors’ decision. The director whose resignation was tendered shall not participate in the recommendation by the committee or the decision of the board of directors.

(c) Notwithstanding the provisions of Section 9(b) above, directors shall be elected by a plurality of the votes cast at any meeting at which a quorum is present and for which (i) the Secretary of the corporation has received one or more stockholder notices nominating at least one person for election to the board of directors in compliance with the advance notice requirements for stockholder nominations for director set forth in Article II, Section 14(b) of these Bylaws, and (ii) such nomination or nominations have not been withdrawn, so that, on the tenth (10th) day before the corporation first mails its notice for such meeting to the stockholders, the number of nominees for director is greater than the number of directors to be elected. An election by plurality vote means that the nominees receiving the greatest number of votes cast shall be elected.

Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.

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Section 11. Prior to any meeting of stockholders, the board of directors shall designate one or more inspectors of elections or votes to be taken at the annual meeting or any other meeting of the stockholders, or any adjournment thereof. The inspector or inspectors may be, in the discretion of the board of directors, officers, employees or agents of the corporation, or independent individuals, corporations, partnerships, or other forms of organization, or any combination thereof.

Section 12. Each stockholders’ meeting will be called to order and thereafter chaired by the Chairman of the Board if there then is one; or if not, or if the Chairman of the Board is absent or so requests, then by the Chief Executive Officer or the President. If all of the Chairman of the Board, the Chief Executive Officer and the President are unavailable, then the meeting will be called to order and chaired by such other officer of the corporation or such stockholder as may be appointed by the board of directors. The Secretary (or in his absence an Assistant Secretary) of the corporation will act as Secretary of each stockholders’ meeting. If neither the Secretary nor an Assistant Secretary is in attendance, the Chairman of the meeting may appoint any person (whether a stockholder or not) to act as Secretary thereat. After calling the meeting to order, the Chairman thereof may require the registration of all stockholders attending to vote in person, and the filing of all proxies with the election inspector or inspectors, if one or more has been appointed (or, if not, with the Secretary of the meeting). After the announced time for such filing of proxies has ended, no further proxies or changes, substitutions or revocations of proxies will be accepted. The Chairman of the meeting will, among other things, have absolute authority to determine the order of business to be conducted at such meeting and to establish rules for, and appoint personnel to assist in, preserving the orderly conduct of the business of the meeting (including any informal, or question and answer, portions thereof). Any informational or other informal session of stockholders conducted under the auspices of the corporation after the conclusion of, or otherwise in conjunction with, any formal business meeting of the stockholders will be chaired by the same person who chairs the formal meeting, and the foregoing authority on his or her part will extend to the conduct of such informal session.

Section 13. The board of directors may submit any contract or act for approval or ratification at any duly constituted meeting of the stockholders, the notice of which either includes mention of the proposed submittal or is waived as provided by law. If any contract or act so submitted is approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the corporation as it would be if approved and ratified by each and every stockholder of the corporation.

Section 14. (a) Nominations of persons for selection to the board of directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the corporation’s notice of meeting, (ii) by or at the direction of the board of directors or (iii) by any stockholder of

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the corporation who was a stockholder of record at the time of giving of the notice provided for in this Article II, Section 14, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Article II, Section 14.

(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Article II, Section 14, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the corporation not less than sixty days nor more than ninety days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any financial or other interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner and (2) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(c) Notwithstanding anything in the second sentence of paragraph (b) of this Article II, Section 14 to the contrary, in the event that the number of directors to be elected to the board of directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the corporation at least seventy days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Article II, Section 14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the corporation.

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(d) Only such persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposed business or nomination shall be disregarded.

(e) For purposes of these Bylaws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(f) Notwithstanding the foregoing provisions of this Article II, Section 14, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article II, Section 14. Nothing in this Bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

ARTICLE III. - DIRECTORS

GENERAL PROVISIONS

Section 1. The number of directors which shall constitute the whole board shall be not less than three nor more than twelve. Within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified or his earlier resignation or removal, or as otherwise provided in Section 9(b) of Article II.

Section 2. The board of directors shall designate one of its members Chairman of the Board to serve until his resignation or removal. The Chairman of the Board shall preside at all meetings of the stockholders and the board of directors and shall have such other duties and powers as are specified in the corporation’s certificate of incorporation and these Bylaws or as may be prescribed by the board of directors from time to time. The Chairman of the Board may be removed only by the board of directors in accordance with a resolution adopted by a majority of the directors then in office. The board of directors may designate one of its members as Vice Chairman of the Board to serve until

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his resignation or removal. The Vice Chairman shall have such duties and powers as may be specified in these Bylaws or otherwise prescribed by the board of directors from time to time.

Section 3. Subject to the rights of the holders of any class or series of Preferred Stock and the requirements of law, unless the board of directors otherwise determines, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by a majority of the directors then in office, though less than a quorum, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified or their earlier resignation or removal, or as otherwise provided in Section 9(b) of Article II.

Section 4. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

MEETINGS OF THE BOARD OF DIRECTORS

Section 5. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

Section 6. Regular meetings of the board of directors may be fixed by resolution of the board of directors.

Section 7. Special meetings of the board may be called by the Chairman of the Board, the Chief Executive Officer or the President on one day’s notice to each director, either personally or by mail or by telegram; special meetings shall be called by the Chairman of the Board, the Chief Executive Officer, or the President or Secretary in like manner and on like notice on the written request of two directors.

Section 8. At all meetings of the board a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors except as may be otherwise specifically provided by statute, by the certificate of incorporation or these Bylaws. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 9. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if prior to such

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action a written consent thereto is signed by all members of the board or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee.

Section 10. Unless otherwise provided by the certificate of incorporation or these Bylaws, members of the board of directors of the corporation, or any committee designated by the board of directors, may participate in a meeting of the board of directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting.

COMMITTEES OF DIRECTORS

Section 11. The board of directors may, by resolution passed by a majority of the directors then in office, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors.

Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

COMPENSATION OF DIRECTORS

Section 13. Subject to the requirements of applicable law and the listing requirements of the New York Stock Exchange or such other securities market or exchange on which the corporation’s common stock may from time to time be listed or qualified for trading (collectively, the “Requirements”), the directors may be compensated for their service as directors and as members of committees of the board of directors and for chairing the board or any such committee. Such compensation may take the form of board and committee retainer fees, attendance fees, fees for chairing the board or committees of the board, stock awards, stock options, stock appreciation rights and any other lawful form of compensation or consideration that is consistent with the Requirements. In addition, the directors shall be entitled to be reimbursed for their actual expenses incurred in attending all meetings of the board of directors or any committee of the board. Subject to the Requirements, no compensation paid or provided to directors under this Section shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

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ARTICLE IV. - NOTICES

Section 1. Notice to directors and stockholders shall be in writing and delivered, at the address appearing on the books of the corporation, by any of the following methods: U.S. mail; personal delivery (including by courier service or messenger); electronic transmission, as defined in and consistent with the provisions of Section 232 (or successor provision) of the General Corporation Law of the State of Delaware; or other method permissible under the General Corporation Law of the State of Delaware.

Section 2. Notice shall be deemed to be given at the time when the same shall be deposited in the mail, postage prepaid, upon delivery in the case of personal delivery or upon transmission in the case of electronic transmission.

Section 3. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance at a meeting of stockholders, Board of Directors, or such Committees as may from time to time be established, shall constitute a waiver of notice of such meeting, except when the stockholder, director or member of such Committee attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE V. - OFFICERS

GENERAL PROVISIONS

Section 1. The officers of the corporation shall be elected by the board of directors and shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer. The board of directors may also appoint one or more assistant secretaries and assistant treasurers. Any two or more offices may be held by the same person.

Section 2. The board of directors may elect or appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors.

Section 3. The compensation of all officers of the corporation shall be fixed by the board of directors or a duly authorized committee thereof.

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Section 4. The officers of the corporation shall hold office until their successors are elected or appointed. Except as otherwise provided in these Bylaws or in the certificate of incorporation, any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

CHIEF EXECUTIVE OFFICER

Section 5. The Chief Executive Officer shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. The Chief Executive Officer may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required by law to be otherwise signed and executed, and provided that the signing and execution thereof may be delegated by the board of directors to some other officer or agent of the corporation.

PRESIDENT

Section 6. The President shall be the chief operating officer and, after the Chief Executive Officer, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. The President may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required by law to be otherwise signed and executed, and provided that the signing and execution thereof may be delegated by the board of directors to some other officer or agent of the corporation. During the absence or disability of the Chief Executive Officer, or if there is no Chief Executive Officer, the President shall perform the duties and have the powers incident to the office of the Chief Executive Officer. In the event of an uncertainty or dispute as to whether the Chief Executive Officer is absent or disabled for purposes of this section, the board of directors shall make the final determination.

VICE PRESIDENTS

Section 7. The Vice Presidents shall perform such duties and have such powers as may be determined by resolution of the board of directors or, in the absence of such determination, by the Chief Executive Officer or President. During the absence or disability of the President, the Vice Presidents in the order determined by the board of directors shall perform the duties and have the powers incident to the office of the President.

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SECRETARY AND ASSISTANT SECRETARIES

Section 8. The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of such meetings in a book to be kept for that purpose, and shall perform like duties for the committees of the board of directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders, board of directors and committees thereof, and shall perform such other duties and have such other powers as may be determined by resolution of the board of directors or, in the absence of such determination, by the Chief Executive Officer or President. The Secretary shall keep in safe custody the seal of the corporation, may affix the same to any instrument requiring it and may attest thereto.

Section 9. The assistant secretary, or if there be more than one, the assistant secretaries in the order as may be determined by resolution of the board of directors or, in the absence of such determination, the Chief Executive Officer or President, shall, during the absence or disability of the Secretary, perform the duties and have the powers incident to the office of the Secretary. Any assistant secretary may affix the corporate seal and attest thereto and may attest the execution of documents on behalf of the corporation, and shall perform such other duties and have such other powers as may be determined by the Chief Executive Officer or President.

TREASURER AND ASSISTANT TREASURERS

Section 10. The Treasurer shall perform such duties and have such powers as may be determined by resolution of the board of directors or, in the absence of such determination, by the Chief Executive Officer or President.

Section 11. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order as may be determined by resolution of the board of directors , or, in the absence of such determination, by the Chief Executive Officer or President, shall, in the absence or disability of the Treasurer, perform the duties and have the powers incident to the office of the Treasurer and shall perform such other duties and have such other powers as may be determined by the Chief Executive Officer or President.

ARTICLE VI. - STOCK

ISSUANCE OF STOCK

Section 1. The corporation is authorized to issue shares of stock, directly or through its agent, in certificated form as well as uncertificated form, including book-entry or other method of direct registration.

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STOCK CERTIFICATES

Section 2. Every holder of stock in the corporation shall be entitled upon written request to have a certificate signed in the name of the corporation by the Chief Executive Officer, the President or a Vice President and the Treasurer or an assistant treasurer, or the Secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Any or all the signatures on a certificate, including the signatures of the corporate officers, the transfer agent and/or the registrar, may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.

Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue new shares, by certificate or in uncertificated form, to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

FIXING OF RECORD DATES

Section 5. For the purpose of determining the stockholders who shall exclusively, notwithstanding any subsequent stock transfers, be entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or disbursement or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may either fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action, or close the stock transfer books for a period which shall not exceed sixty days nor be less than ten days before the date of such meeting, nor for a period exceeding sixty days prior to any other action.

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REGISTERED STOCKHOLDERS

Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VII. - GENERAL PROVISIONS

DIVIDENDS

Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

EVIDENCE OF INDEBTEDNESS

Section 3. All checks or demands for money and notes or other evidence of indebtedness of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate.

FISCAL YEAR

Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors.

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SEAL

Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII. - DIRECTORS’ LIABILITY AND INDEMNIFICATION

DIRECTORS’ LIABILITY

Section 1. No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended hereafter further to eliminate or limit the personal liability of directors, the liability of a director of this corporation shall be limited or eliminated to the fullest extent permitted by the Delaware General Corporation Law, as amended.

RIGHT TO INDEMNIFICATION

Section 2. Each person who was or is made a party to or is threatened to be made a party to or is involuntarily involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving (during his or her tenure as director and/or officer) at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, whether the basis of such Proceeding is an alleged action or inaction in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law (or other applicable law), as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such Proceeding. Such director or officer shall have the right to be

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paid by the corporation for expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law (or other applicable law) requires, the payment of such expenses in advance of the final disposition of any such Proceeding shall be made only upon receipt by the corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it should be determined ultimately that he or she is not entitled to be indemnified under this Article or otherwise.

RIGHT OF CLAIMANT TO BRING SUIT

Section 3. If a claim under Section 2 of this Article is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim, together with interest thereon, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including reasonable attorneys’ fees incurred in connection therewith. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law (or other applicable law) for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (or of its full board of directors, its directors who are not parties to the Proceeding with respect to which indemnification is claimed, its stockholders, or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law (or other applicable law), nor an actual determination by any such person or persons that such claimant has not met such applicable standard of conduct, shall be a defense to such action or create a presumption that the claimant has not met the applicable standard of conduct.

NON-EXCLUSIVITY OF RIGHTS

Section 4. The rights conferred by this Article shall not be exclusive of any other right which any director, officer, representative, employee or other agent may have or hereafter acquire under the Delaware General Corporation Law or any other statute, or any provision contained in the certificate of incorporation or these Bylaws, or any agreement, or pursuant to a vote of stockholders or disinterested directors, or otherwise.

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INSURANCE AND TRUST FUND

Section 5. In furtherance and not in limitation of the powers conferred by statute:

(a) the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of law; and

(b) the corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or elsewhere.

INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE

CORPORATION

Section 6. The corporation may, to the extent authorized from time to time by the board of directors, grant rights to indemnification, including the right to be paid by the corporation the expenses incurred in defending any Proceeding in advance of its final disposition, to any employee or agent of the corporation to the fullest extent permitted by law.

AMENDMENT

Section 7. This Article VIII is also contained in Articles NINE and TEN of the corporation’s certificate of incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time said Articles NINE and TEN are altered, amended or repealed. Any repeal or modification of this Article VIII shall not change the rights of an officer or director to indemnification with respect to any act or omission occurring prior to such repeal or modification.

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ARTICLE IX. - AMENDMENTS

Section 1. The board of directors may adopt, amend or repeal these Bylaws. Any adoption, amendment or repeal of these Bylaws by the board of directors shall require the approval of a majority of the directors then in office. The stockholders shall also have power to adopt, amend or repeal these Bylaws. In addition to any vote of the holders of any class or series of stock of this corporation required by law or by the certificate of incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of voting stock voting together as a single class, shall be required to adopt, amend or repeal any provision of these Bylaws.

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Exhibit 10.2

UNITRIN, INC.

1997 STOCK OPTION PLAN

Amended and Restated

1. PURPOSE

The purpose of the Unitrin, Inc. 1997 Stock Option Plan is to secure for Unitrin, Inc. and its shareholders the benefits arising from stock ownership by selected executive and other key employees of Unitrin, Inc. or its subsidiaries or affiliates and such other persons as the Committee (as defined hereafter) may from time to time determine.

2. DEFINITIONS

As used herein, the following words or terms have the meanings set forth below:

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.

“Committee” means the Compensation Committee of the Board or any successor committee. The Committee shall be composed of two or more persons who qualify both as “outside directors” under Section 162(m) of the Code and related regulations and “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934, or any successor provisions.

“Company” means Unitrin, Inc., a Delaware corporation.

“Constructive or Actual Delivery” means either: (i) presentation to the Company of a recent brokerage account statement or other written evidence satisfactory to the Committee evidencing beneficial ownership by the Participant of shares of Stock other than shares held in 401(k), pension, IRA or similar accounts, or (ii) physical delivery of certificates evidencing shares of Stock, properly indorsed for transfer to the Company or with an appropriately executed stock power.

“Disability” means a physical or mental disability of such a nature that it would qualify a Participant for benefits under the long-term disability insurance plan of Unitrin, Inc., or one of its subsidiaries or affiliates.

“Exercise Price” means the price at which the Stock underlying an Option granted under this Plan may be purchased upon exercise of the Option.

“Fair Market Value,” as used to refer to the price of a share of Stock on a particular day, means the closing price for a share of the Stock for that day as subsequently reported in The Wall Street Journal , or if no prices are quoted for that day, the last preceding day on which such prices of Stock are so quoted (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the fair market value.)

“ISO” means an Option that satisfies the requirements of Section 422(b) of the Code and any regulations promulgated thereunder from time to time, or any successor provisions thereto.

“Mature Shares” means shares of Stock that satisfy the following requirements:

(i) have been owned by a Participant free of any encumbrances, vesting requirements or similar restrictions for at least six (6) months; and

(ii) have not been exchanged or surrendered by Constructive or Actual Delivery in full or partial payment of the Exercise Price and/or the related tax withholding obligations arising out of an Option exercise within the previous six months.

“Non-Qualified Option” means an Option that does not satisfy the requirements for an ISO.

“Option” means an option, including a Non-Qualified Option, an ISO and a Restorative Option, granted to a Participant under this Plan to purchase a designated number of shares of Stock.

“Option Agreement” means an agreement between the Company and a Participant evidencing the terms and conditions of a particular Option.

“Participant” means an individual selected by the Committee to receive an Option under the Plan.

“Representative” means an executor, administrator, guardian, trustee or other representative of a Participant who has legal authority to exercise such Participant’s Options or Stock Appreciation Rights on behalf of such Participant or such Participant’s estate.

“Restorative Option” means an Option granted to a Participant under Section 8 of the Plan.

“Retirement” means the termination of employment with the Company and/or its subsidiaries or affiliates by a Participant after attaining age 55, where such Participant does not continue to render services as a consultant, advisor or director to the Company or any such subsidiaries or affiliates.

“Stock” means the Common Stock of the Company.

“Stock Appreciation Right” means a stock appreciation right granted pursuant to Section 9 of the Plan.

“Substantial Cause” means (a) the commission of a criminal act against, or in derogation of, the interests of the Company or its subsidiaries or affiliates; (b) knowingly divulging confidential information about the Company or its subsidiaries or affiliates to a competitor or to the public or using such information for personal gain; or (c) the performance of any similar action that the Committee, in its sole discretion, may deem to be sufficiently injurious to the interests of the Company or its subsidiaries or affiliates to constitute substantial cause for the termination of services by a Participant as an employee, director, consultant or advisor. Nothing in this Plan shall be construed to imply that a Participant’s employment may only be terminated for Substantial Cause.

3. THE COMMITTEE

a) Administration. The Plan shall be administered by the Committee, which shall have authority: (i) to construe and interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan, (ii) to make all determinations as to eligibility pursuant to Section 5 of the Plan, (iii) to grant Options and Stock Appreciation Rights as more fully described in Section 3(b) below, (iv) to approve and determine the duration of leaves of absence which may be granted to Participants without constituting a termination of their employment for the purposes of the Plan, and (v) to make all other determinations necessary or advisable for the administration of the Plan. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants and their Representatives, successors in interest and beneficiaries. Any action of the Committee with respect to administration of the Plan shall be taken by a majority vote or written consent of its members.

b) Granting Authority. Subject to the provisions of the Plan, the authority and discretion to determine the Participants to whom and the time or times at which Options shall be granted, whether an Option will be an ISO or a Non-Qualified Option, whether to couple a Stock Appreciation Right with an Option and the terms of such Right, the

number of shares of Stock to be subject to each Option, the Exercise Price, the number of installments, if any, in which each Option may vest, and the expiration date of each Option shall reside with the following persons:

(i) the Committee; and

(ii) if authorized by a resolution adopted by the Board, one or more executive officers of the Company may be delegated such authority and discretion, provided that no such officer may grant Options or Rights to himself or herself or to any officer of the Company who is subject to the reporting and short-swing liability provisions of Section 16 of the Securities Exchange Act of 1934.

4. SHARES SUBJECT TO PLAN

Subject to adjustment as provided in Section 14 hereof, the maximum number of shares of Stock which may be issued pursuant to the exercise of Options and Stock Appreciation Rights granted under the Plan shall not exceed four million (4,000,000) shares in total. The maximum number of shares that may be granted to an individual Participant under the Plan shall be one-third of such total. If any Option granted under the Plan shall expire or terminate for any reason (other than surrender at the time of exercise of a related Stock Appreciation Right provided for in paragraph 9 hereof), without having been exercised in full, the unpurchased shares subject thereto shall again be available for Options to be granted under the Plan. Any shares of Stock that are used by Constructive or Actual Delivery as full or partial payment for the Exercise Price of an Option and/or the withholding taxes arising from the exercise of such Option, or that are withheld from the shares that would otherwise be issued upon exercise of such Option in full or partial payment of such withholding taxes, shall in each case be added to the aggregate number of shares of Stock available for issuance under this Plan.

5. ELIGIBILITY

The following persons shall be eligible to receive grants of Options and Stock Appreciation Rights under this Plan:

a) all executive and other key employees of the Company or of any subsidiary or affiliate of the Company who are designated as such by the Committee in its sole discretion;

b) directors of the Company who are regular employees of the Company or any such subsidiary or affiliate; and

c) key persons selected by the Committee in its sole discretion who render services to the Company or its subsidiaries or affiliates as consultants or advisors, but such persons shall only be eligible to receive Non-Qualified Options (including Restorative Options issued with respect to such Options).

6. TERMS OF OPTIONS

a ) Duration. Each Option and all rights associated therewith, shall expire on such date as the Committee may determine, subject to earlier termination as provided herein. All Options granted under this Plan shall be granted on or before December 31, 2006, except for Restorative Options which may continue to be granted after December 31, 2006 until the expiration dates of the original Options to which such Restorative Options relate, subject to the limitations in the last sentence of Section 8.

b) Exercise Price . The Exercise Price of the Stock covered by each Option shall be determined by the Committee.

c) Vesting. Each Option granted under this plan shall vest and be exercisable in such installments, if any, during the period prior to its expiration date as the Committee shall determine, and, unless otherwise specified in an Option Agreement, no Option shall be exercisable for at least six months after grant except in the case of the death or Disability of the Participant.

d) Non-Transferability. Unless otherwise provided in an Option Agreement, an Option (and any accompanying Stock Appreciation Right) granted under the Plan shall not be transferable by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by the Participant (or, in the case of the incapacity of the Participant, by the Participant’s Representative) regardless of any community property interest therein of the spouse of the Participant, or such spouse’s successors in interest. If the spouse of the Participant shall have acquired a community property interest in such Option (or accompanying Stock Appreciation Right), the Participant, or the Participant’s Representative, may exercise the Option (or accompanying Stock Appreciation Right) on behalf of the spouse of the Participant or such spouse’s successors in interest.

e) Option Agreements. The terms of each Option granted pursuant to this Plan shall be evidenced by an Option Agreement in a form approved by the Committee and signed by both the Company and the Participant, except that a Restorative Option may be evidenced by a certificate or statement issued by the Company that recites the essential terms of such Option.

7. EXERCISE OF OPTIONS

a) Notice by Participant. Each Participant (or such Participant’s Representative) who desires to exercise an Option shall give advance written notice of such exercise to the Company in such form as may be prescribed from time to time by the Committee.

b) Payment for Exercises. Before shares will be issued in connection with an Option exercise, the Exercise Price of an Option shall be paid in full by: (i) check payable to the order of the Company; (ii) Constructive or Actual Delivery of Mature Shares; (iii) wire transfer or other means acceptable to the Committee; or (iv) any combination of the foregoing. Mature Shares used by Constructive or Actual Delivery to satisfy the Exercise Price of an Option shall be valued at their Fair Market Value on the date of exercise.

c) Partial Exercises. No Option may be exercised for a fraction of a share and no partial exercise of any Option may be made for less than fifty (50) shares unless the total number of shares covered by an Option is less than 50 at the time of exercise or unless an Option or Stock Appreciation Right is scheduled to expire within six months of the date of exercise.

d) Withholding Taxes. Upon the exercise of a Non-Qualified Option or a Stock Appreciation Right, the Company shall have the right to: (i) require such Participant (or such Participant’s Representative) to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such exercise, or (ii) deduct from all amounts paid in cash with respect to the exercise of a Stock Appreciation Right the amount of any taxes which the Company may be required to withhold with respect to such cash amounts.

Subject to the limitation set forth in the next sentence, a Participant or such Participant’s Representative may elect to satisfy all or any portion of the tax withholding obligations arising from the exercise of an Option or Stock Appreciation Right either by: (i) any of the methods described in Section 7(b), or (ii) directing the Company to withhold shares of Stock that would otherwise be issued pursuant to such exercise. With respect to exercises of Options and Stock Appreciation Rights granted on or after May 5, 1999, no Participant or Participant’s Representative shall have the right to utilize Constructive or Actual Delivery of Mature Shares or have shares of Stock withheld in excess of the minimum number required to satisfy applicable tax withholding requirements based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. Shares of Stock used in either of the foregoing ways to satisfy tax withholding obligations will be valued at their Fair Market Value on the date of exercise.

8. GRANT OF RESTORATIVE OPTIONS

a) Subject to Section 8(b), a Restorative Option to purchase shares of Stock will be granted to a Participant in connection with the exercise of an Option if: (i) the Participant elects to pay some or all of the Exercise Price of the Option (the “Underlying Option”) and/or any related withholding taxes by Constructive or Actual Delivery of Mature Shares (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Underlying Option); and (ii) for Options under original grants made on or after February 1, 2006, and for Restorative Options relating to such original grants, the Fair Market Value of a share of Stock on the exercise date exceeds the Exercise Price of the Underlying Option by at least the percentage set forth in the Option Agreement. The number of shares of Stock subject to the Restorative Option shall be equal to the sum of: (a) any Mature Shares used by Constructive or Actual Delivery to pay the Exercise Price and/or the related withholding taxes, and (b) any shares withheld in connection with the exercise in payment of withholding taxes. The Exercise Price of the Restorative Option shall be equal to one hundred percent (100%) of the Fair Market Value of the Stock on the date the Underlying Option is exercised. The Restorative Option shall be fully vested beginning six months after the date of its grant and shall expire on the expiration date of the Underlying Option. All other terms of the Restorative Option shall be identical to the terms of the Underlying Option.

b) No Restorative Option shall be granted: (i) to any Participant who is not actively employed by the Company or one of its subsidiaries or affiliates on the date of exercise of the Underlying Option or who is not then rendering services to the Company or any such subsidiaries or affiliates as a consultant, advisor or director; (ii) if, on the date of exercise of the Underlying Option such Option would be scheduled to expire within the period set forth in the Option Agreement or, if not specified in the Option Agreement, within six months; or (iii) for Options under original grants made on or after February 1, 2006, and for Restorative Options relating to such original grants, if the price of a share of Stock on the exercise date does not meet the appreciation requirement described in Section 8(a)(ii).

9. STOCK APPRECIATION RIGHTS

If deemed appropriate by the Committee, any Option may be coupled with a Stock Appreciation Right at the time of the grant of the Option, or the Committee may grant a Stock Appreciation Right to any Participant at any time after granting an Option to such Participant but prior to the expiration date of such associated Option. Such Stock Appreciation Right shall be subject to such terms and conditions consistent with the Plan as the Committee shall impose, provided that:

a) A Stock Appreciation Right shall be exercisable to the extent, and only to the extent, the associated Option is exercisable and shall be exercisable only for such period as the Committee may determine (which period may expire prior to the expiration date of the Option);

b) A Stock Appreciation Right shall entitle the Participant to surrender to the Company unexercised the Option to which it is related, or any portion thereof, and to receive from the Company in exchange therefor that number of shares (rounded down to the nearest whole number) having an aggregate value equal to the excess of the Fair Market Value of one share over the Exercise Price per share specified in such Option, multiplied by the number of shares subject to the Option, or portion thereof, which is so surrendered; and

c) The Committee may elect to settle, or the Stock Appreciation Right may permit the Participant to elect to receive (subject to approval by the Committee), any part or all of the Company’s obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash equal to the aggregate Fair Market Value of that part or all of the shares it would otherwise be obligated to deliver, provided that in no event shall cash be payable to an officer or director of the Company upon exercise of a Stock Appreciation Right: (i) if the Stock Appreciation Right was exercised during the first six months of its term; or (ii) unless the transaction is otherwise exempt from the operation of Section 16(b) of the Securities Exchange Act of 1934.

10. HOLDING OF STOCK AFTER EXERCISE OF OPTION

At the discretion of the Committee, any Option Agreement may provide that the Participant, by accepting such Option, represents and agrees, for the Participant and the Participant’s permitted transferees, that none of the shares purchased upon exercise of the Option or any accompanying Stock Appreciation Right will be acquired with a view to any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or any applicable state “blue sky” laws, and the person entitled to exercise the same shall furnish evidence satisfactory to the Company (including a written and signed representation) to that effect in form and substance satisfactory to the Company, including an indemnification of the Company in the event of any violation of the Securities Act of 1933 or state blue sky law by such person.

11. CESSATION OF SERVICES

Unless otherwise specified in an Option Agreement or approved in writing by the Committee, if a Participant ceases to provide services to any of the Company, its subsidiaries and affiliates as an employee, director, consultant or advisor, other than as a

result of the Participant’s Retirement, death or Disability, the Participant’s outstanding Options (and any accompanying Stock Appreciation Rights) shall, to the extent such Options are already vested, be exercisable for a period of 90 days after the date such Participant ceases to provide all such services and shall thereafter expire and be void and of no further force or effect. A leave of absence approved in writing by the Committee shall not be deemed a cessation of services for purposes of this paragraph, but no Option (or accompanying Stock Appreciation Right) may be exercised during any such leave of absence, except during the first 90 days thereof unless otherwise agreed to in writing by the Committee. If a Participant’s services as an employee, director, consultant or advisor are terminated for Substantial Cause, all of the Participant’s outstanding Options (and accompanying Stock Appreciation Rights) will terminate as of the date of such termination.

12. RETIREMENT, DEATH OR DISABILITY OF PARTICIPANT

a) Retirement. A Participant shall have one year from the date of Retirement in which to exercise all Options that are vested on the Retirement date, and all such Options which are not exercised within such one-year period shall expire and be of no further force or effect. All Options that were not vested on the date of Retirement will immediately expire and be of no further force or effect. The foregoing provisions shall apply equally to any Stock Appreciation Rights held by the Participant.

b) Death or Disability. Effective for original grants made hereunder on or after February 1, 2005, and for restorative grants relating to such original grants, upon a Participant’s death or Disability while employed by the Company or one of its subsidiaries or affiliates or while such Participant was providing services thereto as a director, consultant or advisor, all Options granted to such Participant that were outstanding but not vested on such date shall immediately vest, and the Participant (or his or her Representative) shall have one year from the date of death or the date the Participant first became Disabled in which to exercise all vested Options held by such Participant on such date. For original grants made hereunder prior to February 1, 2005, and for restorative grants relating to such original grants, upon the death or Disability of a Participant while employed by the Company or one of its subsidiaries or affiliates or while such Participant was providing services thereto as a director, consultant or advisor, the Participant’s outstanding Options shall expire one (1) year after the date of such death or Disability unless by their terms they expire sooner. During such period after the death of a Participant, such Options may, to the extent that they were vested but unexercised on the date of death, be exercised by the Participant’s Representative. The provisions of this Section 12(b) shall apply equally to any Stock Appreciation Rights held by the Participant.

13. PRIVILEGES OF STOCK OWNERSHIP

No Participant shall have any of the rights or privileges of a shareholder of the Company in respect of any shares of Stock issuable upon exercise of any Option or Stock Appreciation Right until shares of Stock shall have been issued and delivered (i) to the Participant in the form of certificates, (ii) to a brokerage or other account for the benefit of the Participant either in certificate form or via “DWAC” or similar electronic means, or (iii) to a book entry or direct registration account in the name of the Participant. No shares shall be issued and delivered upon the exercise of any Option or accompanying Stock Appreciation Rights unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933 (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange or any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery.

14. ADJUSTMENTS

If the outstanding shares of the Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Options (and accompanying Stock Appreciation Rights) may be granted under this Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in an outstanding Option shall be made without change in the aggregate purchase price applicable to the unexercised portion of such Option but with a corresponding adjustment in the Exercise Price for each share or other unit of any security covered by the Option. The share limit in Section 4 of this Amended and Restated Plan has been restated in accordance with this Section 14 to reflect the Company’s 2-for-1 stock split effective March 26, 1999.

Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty percent (80%) of the then outstanding Stock of the Company to another corporation, this Plan shall terminate; provided, however, that notwithstanding the foregoing, the Board shall provide in writing in connection with such transaction for any one or more of the following alternatives (separately or in combinations); (i) for each Option and any accompanying Stock Appreciation Rights theretofore granted to become immediately exercisable notwithstanding the provisions of Section 6(c) hereof, (ii) for

the assumption by the successor corporation of the Options and Stock Appreciation Rights theretofore granted or the substitution by such corporation for such Stock Appreciation Rights theretofore granted or the substitution by such corporation for such Options and rights of new Options and rights covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by such successor corporation in which event the Plan and the Options and any accompanying Stock Appreciation Rights therefore granted shall continue in the manner and under the terms so provided; or (iv) for the payment in cash or stock in lieu of and in complete satisfaction of such Options and rights.

Adjustments under this paragraph shall be made by the Committee, whose determination as to which adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the plan on any such adjustment.

At the discretion of the Committee, any Option Agreement may contain provisions to the effect that upon the happening of certain events, including a change in control (as defined by the Committee in such Option Agreement) of the Company, any outstanding Options and accompanying Stock Appreciation Rights not theretofore vested shall immediately become vested and exercisable in their entirety, notwithstanding any of the other provisions of the Option.

15. AMENDMENT AND TERMINATION OF PLAN

The Board may at any time suspend or terminate the Plan or amend the terms of the Plan. In the event that any provision of applicable law mandates that any such amendment be approved by the Company’s shareholders, then such amendment shall be submitted to such shareholders for approval or ratification within a time period that satisfies such law. In the case of other laws that require shareholder approval of amendments as a condition to receiving or preserving certain benefits ( e.g ., deductibility of certain compensation under Section 162(m) of the Code) or achieving a “safe harbor” status, the Board shall have sole discretion to determine whether or not to submit amendments to the Company’s shareholders for approval.

The Committee may from time to time increase or decrease the six-month holding periods specified in the definition of Mature Shares in Section 2 above: (i) to satisfy applicable legal or accounting requirements; (ii) to secure advantageous treatment for the Company or the Participants under any provision of law or any accounting rule, pronouncement or interpretation applicable to financial statements prepared on the basis of accounting principles generally accepted in the United States; or (iii) for any reason determined by the Committee to be in the best interests of the Company or the Participants and not

inconsistent with any applicable legal or accounting requirements. The Committee may eliminate such holding periods in the event that there are no legal or accounting requirements that they be imposed or if there is no longer any advantage to the Company or the Participants that they be imposed and such elimination is otherwise consistent with applicable legal and accounting requirements. The Committee may also reinstate holding periods in order to satisfy applicable legal or accounting requirements or to secure advantageous treatment for the Company or the Participants of the type contemplated in this paragraph.

Notwithstanding the foregoing, no amendment, suspension or termination of the Plan by the Board, and no change related to holding periods made by the Committee pursuant to the foregoing paragraph, shall in any way adversely affect the rights of a holder of any outstanding Option, Restorative Option subsequently granted in connection with the exercise of an outstanding Option, or accompanying Stock Appreciation Right, without the prior written consent of such holder.

16. ARBITRATION.

The Committee may, as a condition to granting Options or Stock Appreciation Rights, require that a Participant agree in writing to submit all disputes or claims arising out of or relating to any such Options or Stock Appreciation Rights to binding arbitration in accordance with such terms as the Committee shall prescribe.

Exhibit 10.6

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

NON-QUALIFIED STOCK OPTION AGREEMENT

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made as of this day of , between UNITRIN, INC., a Delaware corporation (the “Company”), and , the (“Option Holder”).

RECITALS

A. The Board of Directors and Shareholders of the Company have adopted the 1995 Non-Employee Director Stock Option Plan.

B. The Plan provides, among other things, for the automatic grant of stock options to non-employee directors of the Company in the amounts and at the times set forth in the Plan.

C. The option granted hereby is not intended to qualify as an “incentive stock option” under §422A of the Internal Revenue Code of 1986, as amended.

D. Terms used herein and not otherwise defined shall have the meanings given to such terms in the Plan.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant of Option . The Company grants to the Option Holder the right and option to purchase on the terms and conditions hereinafter set forth, all or any part of an aggregate of four thousand (4,000) shares of the Common Stock of the Company (the “Option”) at the purchase price of $ per share, exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the tenth anniversary of the date of this Agreement or such later date as may result from the application of §6 (the “Expiration Date”). This Option is also subject to early termination in accordance with §5.

2. Vesting . The Option Holder may not purchase any shares by exercise of this Option between the date of this Agreement and the first anniversary date hereof. The shares subject to this Option shall become exercisable in full by the Option Holder commencing on the first anniversary date of this Agreement. Subject to earlier termination under §5 or the terms of the Plan and no later than the Expiration Date, the Option Holder may purchase all or any part of the shares subject to this Option which are

currently exercisable in the manner and under the terms specified in §3 hereof. The number of shares subject to the Option which the Option Holder may purchase shall be reduced by the number of shares previously purchased by the Option Holder pursuant to the Agreement.

3. Manner of Exercise . Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company. Such notice shall identify the Options being exercised. When applicable, the notice shall also specify the number of Mature Shares (as defined in the Plan) that the Option Holder plans to deliver in payment of all or part of the exercise price. Before shares will be issued, the full purchase price of the shares subject to the Options being exercised shall be paid to the Company using the following methods, individually or in combination: (i) in cash or by certified, cashier’s or (as funds clear) personal check payable to the order of the Company; (ii) by Constructive or Actual Delivery (as defined in the Plan) of Mature Shares with a fair market value as of the close of business on the date of exercise equal to or greater than the purchase price; (iii) by wire transfer to an account specified by the Company, or (iv) by delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay such full purchase price (in which case the exercise will be effective upon the earlier of the trade date or receipt of such proceeds by the Company for the related sale of shares). The Company reserves the right to accept shares of stock of the Company in payment of the purchase price of an option only if such shares have been held by the Option Holder for a specified minimum period of time during which such shares were not exchanged to effectuate another option exercise. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than: (i) one hundred (100) shares; or (ii) the total number of shares then eligible for exercise, if less than one hundred (100) shares.

This Option may be exercised: (i) during the lifetime of the Option Holder only by the Option Holder or in the event a guardian or legal representative is appointed during the Option Holder’s lifetime to handle the affairs of the Option Holder, such guardian or legal representative; and (ii) after the Option Holder’s death by his or her transferees by will or the laws of descent or distribution, and not otherwise, regardless of any community property interest therein of the spouse of the Option Holder, or such spouse’s successors in interest. If the spouse of the Option Holder shall have acquired a community property interest in this Option, the Option Holder, or the Option Holder’s permitted successors in interest, may exercise the Option on behalf of the spouse of the Option Holder or such spouse’s successors in interest.

or if such date is not a business day, for the business day immediately preceding such date, (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

5. Cessation of Services, Death or Permanent Disability . All rights of the Option Holder in this Option shall terminate three (3) months after the date of the termination of Option Holder’s service as a director of the Company for any reason other than: (i) the death of Option Holder; (ii) cessation of services as a director because Option Holder, although nominated by the Board of Directors, is not elected by the shareholders to the Board of Directors; or (iii) retirement of Option Holder because of total and permanent disability as defined in §22(e)(3) of the Internal Revenue Code of 1986, as amended (each of which events is hereafter collectively referred to as a “Termination Event”). If Option Holder ceases to be a director of the Company because of a Termination Event, then this Option shall vest immediately to the extent not already vested and shall expire twelve (12) months (and not three months) after the date of such Termination Event. In the event of Option Holder’s death, any vested, unexercised portion of this Option may be exercised by the person or persons to whom the Option Holder’s rights under the Option shall pass by any reason of the death of the Option Holder, whether by will or by the applicable laws of descent and distribution. However, in no event may the Option be exercised to any extent by anyone after the Expiration Date.

6. Extension of Expiration in Certain Cases . From time to time, the Company may declare “blackout” periods during which directors and covered employees are prohibited from engaging in certain transactions in Company securities. In the event that the scheduled Expiration Date of this Option shall fall within a blackout period that has been declared by the Company and that applies to the Option Holder, then the Expiration Date shall automatically, and without further notice to Option Holder, be extended until such time as fifteen (15) consecutive business days have elapsed after the scheduled Expiration Date without interruption by any blackout period that applied to the Option Holder.

7. Shares to be Issued in Compliance with Federal Securities Laws and Other Rules . No shares issuable upon the exercise of this Option shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange (or such other exchange(s) or market(s) on which shares of the same class are then listed) and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. The Company shall use its best efforts and take all necessary or appropriate actions to assure that such full compliance on the part of the Company is made. By signing this Agreement, the Option Holder represents and warrants that none of the shares to be acquired upon exercise of this

Option will be acquired with a view towards any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended (the “Act”), and the rules and regulations promulgated thereunder, or any applicable “blue sky” laws, and that Option Holder hereby agrees to indemnify the Company in the event of any violation by Option Holder of such Act, rules, regulations or laws.

8. Withholding of Taxes . Upon the exercise of this Option, the Company shall require the Option Holder or the Option Holder’s permitted successor in interest to pay the Company the amount of taxes, if any, which the Company may be required to withhold with respect to such shares.

9. Transferability . This Option and all other rights and privileges granted hereby shall not be transferred, assigned, pledged or otherwise encumbered in any way, whether by operation of the law or otherwise except by will or the laws of descent and distribution. Without limiting the generality of the preceding sentence, no rights or privileges granted hereby may be assigned or otherwise transferred to the spouse or former spouse of the Option Holder pursuant to any divorce proceedings, settlement or judgment. Upon any attempt so to transfer, assign, pledge, encumber or otherwise dispose of this Option or any other rights or privileges granted hereby contrary to the provisions hereof, this Option and all other rights and privileges contained herein shall immediately become null and void and of no further force or effect.

10. Adjustment for Reorganizations, Stock Splits, etc. If the outstanding shares of the Common Stock of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares receivable upon the exercise of this Option, without change in the aggregate purchase price applicable to the unexercised portion of this Option but with a corresponding adjustment in the price for each share or other unit of any security covered by this Option. No fractional shares of stock shall be issued under the Plan on any such adjustment.

11. Participation by Option Holder in Other Company Plans . Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other welfare plan or program of the Company or of any subsidiary of the Company in which non-employee directors of the Company are otherwise eligible to participate.

12. No Rights as a Stockholder Until Issuance of Shares . Neither the Option Holder nor any other person legally entitled to exercise this Option shall be entitled to any of the rights or privileges of a shareholder of the Company in respect of

any shares issuable upon any exercise of this Option unless and until such shares shall have been issued and delivered to: (i) Option Holder in the form of certificates, (ii) a brokerage or other account for the benefit of Option Holder either in certificate form or via “DWAC” or similar electronic means, or (iii) a book entry or direct registration account in the name of Option Holder.

13. No Right to Continue as a Director . Nothing herein contained shall be construed as an agreement by the Company, expressed or implied, that Option Holder has a right to continue as a director of the Company for any period of time or at any particular rate of compensation.

14. Agreement Subject to Stock Option Plan . The Option hereby granted is subject to, and the Company and the Option Holder agree to be bound by, all of the terms and conditions of the Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Option Holder’s rights under this Option without the prior written consent of the Option Holder. In the event that the terms or conditions of this Agreement conflict with the terms or conditions of the Plan, the Plan shall govern.

15. Restorative Stock Options . A Restorative Option (as defined in the Plan) will be granted in connection with the exercise of this Option and any Restorative Option resulting from this Option if: (i) the Option Holder elects to pay some or all of the exercise price of such Option (the “Underlying Option”) and/or any related withholding taxes by Constructive or Actual Delivery of Mature Shares (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Underlying Option); and (ii) the Fair Market Value of a share of the Company’s Common Stock on the exercise date exceeds the exercise price of a share of Common Stock subject to the Underlying Option by at least fifteen percent (15%).

The number of shares of Common Stock subject to the Restorative Option shall be equal to the sum of: (a) any Mature Shares used by Constructive or Actual Delivery to pay the exercise price and/or the related withholding taxes, and (b) any shares of Common Stock withheld in connection with the exercise in payment of withholding taxes. The exercise price of the Restorative Option shall be equal to one hundred percent (100%) of the Fair Market Value of a share of the Common Stock on the date the Underlying Option is exercised. The Restorative Option shall be fully vested beginning six months after the date of its grant and shall expire on the expiration date of the Underlying Option. All other terms of the Restorative Option shall be identical to the terms of the Underlying Option.

No Restorative Option shall be granted if on the date of exercise of the Underlying Option: (i) the Option Holder does not meet the eligibility requirements under Section 4 of the Plan; (ii) such Option would be scheduled to expire within twelve (12) months; or (iii) the Fair Market Value of a share of the Company’s Common Stock does not meet the fifteen percent (15%) appreciation requirement set forth above.

To the extent the Option Holder is granted a Restorative Option under the Plan pursuant to the exercise of this Option, the undersigned Option Holder and his or her spouse agree to be bound by all the terms and conditions of this Option Agreement and the Plan with respect to such Restorative Option.

16. Execution . This Option has been granted, executed and delivered as of the day and year first above written at Chicago, Illinois, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the state of Illinois without application of its conflicts of laws and principles.

By his or her signature below, the spouse of the Option Holder agrees to be bound by all of the terms and conditions of the foregoing Option Agreement.

Print Name

Exhibit 10.8

Unitrin, Inc. 1997 Stock Option Plan

NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT

This NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT (“Agreement”) is made as of this day of , 200 (“Grant Date”) between UNITRIN, INC., a Delaware corporation (the “Company”), and «name» (the “Option Holder”).

RECITALS

A. The Board of Directors of the Company has adopted the Unitrin, Inc. 1997 Stock Option Plan, including all amendments to date (the “Plan”).

The Plan provides for the granting to selected executive and other key employees, and other persons furnishing services to the Company or any subsidiary or affiliate of the Company, as the Stock Option Committee (the “Committee”) may from time to time determine, of options to purchase shares of Common Stock of the Company and tandem stock appreciation rights (“SAR(s)”).

B. Pursuant to the Plan, the Plan shall be administered by the Committee appointed by and comprised of members of the Board of Directors.

C. Pursuant to the Plan, the Committee has determined that it is to the advantage and best interest of the Company and its stockholders to grant a non-qualified stock option (and tandem SAR) to the Option Holder covering «shares» («number») shares of the Company’s Common Stock as an inducement to remain in the service of the Company and as an incentive for increased effort during such service, and has approved the execution of this Non-Qualified Stock Option and SAR Agreement between the Company and the Option Holder.

D. Neither the option nor the SAR granted hereby is intended to qualify as an “incentive stock option” under Section 422A of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant .

(a) The Company grants to the Option Holder the right and option (the “Option”) to purchase on the terms and conditions hereinafter set forth, all or any part (subject to the limitations of Section 3) of an aggregate of «shares» («number») shares of the Common Stock of the Company at the purchase price of $ per share, exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the tenth anniversary of the Grant Date (the “Expiration Date”) or earlier in accordance with Section 3(e) or Section 5.

(b) The Option is coupled with a SAR that is exercisable to the extent, and only to the extent, that the Option is exercisable under the vesting provisions of Section 2. The term of the SAR shall expire on the Expiration Date and shall be subject to early termination pursuant to Section 3(e) and Section 5. The SAR shall entitle the Option Holder to surrender the Option (or any portion thereof, subject to Section 3(a)) to the Company unexercised and receive in exchange for the surrender of the Option (or the surrendered portion thereof) that number of shares of the Company’s common stock having an aggregate value equal to: (A) the excess of the fair market value of one share of such stock (as determined in accordance with Section 4) over the purchase price per share specified in Section 1(a) above (or, if applicable, such price as adjusted pursuant to Section 9 or Section 14 hereof), multiplied by (B) the number of such shares subject to the Option (or portion thereof) which is so surrendered.

2. Vesting . The Option Holder may not purchase any shares by exercise of this Option or the SAR prior to the six-month anniversary of the Grant Date (“Initial Vesting Date”). The shares subject to this Option and the SAR shall become exercisable in four (4), equal annual installments of twenty-five percent (25%) commencing on the Initial Vesting Date, and shall be fully exercisable on the third anniversary of the Initial Vesting Date. Subject to earlier termination under Section 5 or the terms of the Plan and no later than the Expiration Date, the Option Holder may purchase all or any part (subject to the limitations of Section 3) of the shares subject to this Option which are currently exercisable, or such lesser number of shares as may be available through the exercise of the SAR. The total number of shares subject to the Option, including the number of shares subject to the Option which are currently exercisable by the Option Holder each shall be reduced by the number of shares previously acquired by the Option Holder pursuant to this Agreement.

3. Manner of Exercise .

(a) Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company. Such notice shall identify the Options being exercised. When applicable, the notice shall also specify the number of Mature Shares (as defined in the Plan) that the Option Holder plans to deliver in payment of all or part of

the exercise price. Before shares will be issued, the full purchase price of the shares subject to the Options being exercised shall be paid to the Company using the following methods, individually or in combination: (i) by check payable to the order of the Company in an amount equal to the purchase price, (ii) by Constructive or Actual Delivery (as defined in the Plan) of Mature Shares with a fair market value as of the close of business on the date of exercise equal to or greater than the purchase price, (iii) by electronic transfer of funds to an account of the Company, or (iv) by other means acceptable to the Committee. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than fifty (50) shares or the total number of shares then eligible for exercise, if less than fifty (50) shares, unless the Option/SAR is scheduled to expire within six months of the date of the exercise.

(b) Each exercise of the SAR shall be by means of a written notice of exercise delivered to the Company, specifying whether the Option Holder is surrendering all or a portion of the Option and, if only a portion of the Option is being surrendered, how many shares are included in such portion (to the extent determinable by the Option Holder). Upon satisfaction of the Option Holder’s obligation to pay the Company the amount of all taxes that the Company is required to withhold in connection with such exercise as specified in Section 7 below, the Company shall issue to the Option Holder a number of shares of the Company’s common stock computed in accordance with Section 1(b) and the Option and the SAR (or the surrendered portions thereof) shall be deemed extinguished. The SAR may only be settled in shares of the Company’s common stock and not by payment of cash to the Option Holder. Any fractional share that would otherwise result from an exercise of the SAR shall be rounded down to the nearest whole share.

(c) The date of exercise shall be: (i) in the case of a broker-assisted cashless exercise, the earlier of (A) the trade date of the related sale of stock, or (B) the date that the Company receives the purchase price; (ii) in the case of a Restorative Option (as defined in the Plan) or SAR, the date that the Company receives written notice of exercise; or (iii) in all other cases, the date that the Company receives the purchase price.

(d) This Option and SAR may be exercised (i) during the lifetime of the Option Holder only by the Option Holder or the Option Holder’s Representative (as defined in the Plan); and (ii) after the Option Holder’s death, by the Representative of the Option Holder’s estate or his or her transferees by will or the laws of descent or distribution, and not otherwise, regardless of any community property interest therein of the spouse of the Option Holder, or such spouse’s successors in interest. If the spouse of the Option Holder shall have acquired a community property interest in this Option and the SAR, the Option Holder, or the Option Holder’s permitted successors in interest, may exercise the Option and the SAR on behalf of the spouse of the Option Holder or such spouse’s successors in interest.

(e) Except as provided in Section 14 below with respect to the coupling of a SAR to a Restorative Option, in the event the Option (or any portion thereof) is exercised, then the SAR (or the corresponding portion) shall terminate. In the event that the SAR (or any portion thereof) is exercised, then the Option (or the corresponding portion) shall likewise terminate.

4. Fair Market Value of Common Stock . The fair market value of a share of Common Stock shall be determined for purposes of this Agreement by reference to the closing price of a share of Common Stock on the New York Stock Exchange as reported by The Wall Street Journal for the Grant Date or date of exercise, as applicable, or if such date is not a business day, for the business day immediately preceding such date, (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

5. Cessation of Services, Death or Permanent Disability . The provisions of Sections 11 or 12 of the Plan are hereby incorporated into and made a part of this Agreement.

6. Shares to be Issued in Compliance with Federal Securities Laws and Exchange Rules . No shares issuable upon the exercise of this Option or SAR shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange or any principal securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. The Company shall use its best efforts and take all necessary or appropriate actions to assure that such full compliance on the part of the Company is made.

7. Withholding of Taxes . Upon the exercise of this Option and SAR, the Company shall require the Option Holder or the Option Holder’s permitted successor in interest to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such shares. Subject to the limitations set forth in the next three sentences, the Option Holder or his/her Representative may elect to satisfy all or any portion of such tax withholding obligations either by: (i) any of the methods described in Sections 3(a)(i) through 3(a)(iv) above, or (ii) directing the Company to withhold shares that would otherwise have been issued pursuant to the exercise of this Option or SAR. Neither the Option Holder nor his/her Representative shall have the right to utilize shares already owned by the Option Holder or to have shares withheld, in either case, in excess of the minimum number required to satisfy applicable tax withholding requirements based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. Shares used in either of the foregoing ways to satisfy tax withholding obligations will be valued at their fair market value on the date of

exercise. In the case of an exercise of the SAR, the Company retains the right to require the Option Holder to pay any and all withholding taxes arising out of such exercise solely in cash.

8. No Assignment . This Option and SAR and all rights and privileges granted hereby (including the right of exercise) shall not be transferred, assigned, pledged or hypothecated in any way, whether by operation of the law or otherwise, except by will or the laws of descent and distribution. Without limiting the generality of the preceding sentence, no rights or privileges granted hereby may be assigned or otherwise transferred to the spouse or former spouse of the Option Holder pursuant to any divorce proceedings, settlement or judgment. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this Option or SAR or any other rights or privileges granted hereby contrary to the provisions hereof, this Option and SAR and all other rights and privileges contained herein shall immediately become null and void and of no further force or effect.

9. Adjustment for Reorganizations, Stock Splits, etc . The provisions of Section 14 of the Plan relating to certain adjustments in the case of stock splits, reorganizations, equity restructurings, change of control events and similar matters described therein are hereby incorporated in and made a part of this Agreement.

Adjustments under this Section 9 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be issued under the Plan on any such adjustment.

10. Participation by Option Holder in Other Company Plans . Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other employee welfare plan or program of the Company or of any subsidiary of the Company.

11. No Rights as a Stockholder Until Issuance of Stock Certificate . Neither the Option Holder nor any other person legally entitled to exercise this Option or SAR shall be entitled to any of the rights or privileges of a stockholder of the Company in respect of any shares issuable upon any exercise of this Option or SAR unless and until the shares have been issued and delivered to: (i) Option Holder in certificate form; (ii) a brokerage or other account for the benefit of Option Holder either in certificate form or via “DWAC” or similar electronic means; or (iii) a book entry or direct registration account in the name of Option Holder.

12. Not an Employment or Service Contract . Nothing herein contained shall be construed as an agreement by the Company, expressed or implied, to employ Option

Holder or contract for Option Holder’s services, to restrict the Company’s right to discharge Option Holder or cease contracting for Option Holder’s services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between the Option Holder and the Company.

13. Agreement Subject to Stock Option Plan . The Option and SAR hereby granted is subject to, and the Company and the Option Holder agree to be bound by, all of the terms and conditions of the Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Option Holder’s rights under this Agreement without the prior written consent of the Option Holder. To the extent that the terms or conditions of this Agreement conflict with the terms or conditions of the Plan, the Plan shall govern.

14. Restorative Stock Options . A Restorative Option (as defined in the Plan) will be granted in connection with the exercise of this Option and a Restorative Option resulting from this Option if: (i) the Option Holder elects to pay some or all of the exercise price of such Option (the “Underlying Option”) and/or any related withholding taxes by Constructive or Actual Delivery of Mature Shares (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Underlying Option); and (ii) the Fair Market Value of a share of the Company’s Common Stock on the exercise date exceeds the exercise price of a share of Common Stock subject to the Underlying Option by at least fifteen percent (15%).

No Restorative Option shall be granted if on the date of exercise of the Underlying Option: (i) the Option Holder does not meet the eligibility requirements under Section 5 of the Plan; (ii) such Option would be scheduled to expire within twelve (12) months; or (iii) the Fair Market Value of a share of the Company’s Common Stock does not meet the fifteen percent (15%) appreciation requirement set forth above.

To the extent the Option Holder is granted a Restorative Option pursuant to the exercise of this Option, the Option Holder and his or her spouse agree to be bound by all

the terms and conditions of this Agreement and the Plan with respect to such Restorative Option. Each Restorative Option that may result from the exercise of this Option shall be deemed to be coupled with a SAR. Each Restorative Option and tandem SAR shall be identical in terms with the original Option and SAR provided for in Section 1(a) and (b) of this Agreement, except that the Restorative Option and tandem SAR shall (i) have an exercise price per share equal to the fair market value of the one share of the Company’s common stock on the date of the exercise giving rise to such Restorative Option, and (ii) fully vest six months after its inception. No Restorative Option shall be granted with respect to any Constructive or Actual Delivery of Mature Shares, or any shares withheld, in either case to pay any applicable withholding taxes that arise out of any exercise of the SAR.

15. Arbitration . All disputes related to this Agreement or any Options granted hereunder, shall be submitted to binding arbitration with the American Arbitration Association (“AAA”) pursuant to the AAA National Rules for the Resolution of Employment Disputes (“AAA Rules”). A copy of the AAA Rules is available to the Option Holder upon written request to the Company’s Director of Human Resources at One East Wacker Drive, Chicago, Illinois 60601 (or such other address as the Company may specify from time to time), or may be obtained online at: www.adr.org .

To initiate arbitration, either party must file a Demand for Arbitration (“Demand”) in the manner described in the AAA Rules. After a demand has been filed and served, either party may request that the dispute initially be mediated pursuant to the AAA Rules. If mediation does not fully resolve the dispute, then the matter will be subject to arbitration before a single arbitrator who shall have the power to award any types of legal or equitable relief available in a court of competent jurisdiction, including, but not limited to, attorneys’ fees and costs, to the extent such relief is available under applicable law, and all defenses that would be applicable in a court of competent jurisdiction shall be available. All administrative costs of arbitration (including reimbursement of filing fees) and the fees of the arbitrator will be paid by the Company.

16. Execution . This Option and SAR have been granted, executed and delivered as of the day and year first above written at Chicago, Illinois, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the state of Illinois.

17. Stock Holding Period . The Option Holder agrees to hold all shares of Common Stock acquired upon the exercise of Options (including Restorative Options) granted hereunder for a minimum of twelve months following the date of such exercise. This holding period shall not apply to shares sold or tendered by the Option Holder and/or withheld by the Company to pay the Option exercise price and/or to settle tax liabilities related to the Option exercise.

By his or her signature below, the spouse of the Option Holder agrees to be bound by all of the terms and conditions of the foregoing Non-Qualified Stock Option and SAR Agreement.

Print Name

Exhibit 10.9

Unitrin, Inc. 2002 Stock Option Plan

NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT

This NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT (“Agreement”) is made as of this day of , 2 (“Grant Date”) between UNITRIN, INC., a Delaware corporation (the “Company”), and «name» (the “Option Holder”).

RECITALS

A. The Board of Directors of the Company has adopted the Unitrin, Inc. 2002 Stock Option Plan, including any and all amendments to date (the “Plan”).

B. Pursuant to the Plan, the Plan shall be administered by a committee appointed by and comprised of members of the Company’s Board of Directors (“Committee”).

C. The Plan provides for the granting to selected executive and other key employees, and other persons furnishing services to the Company or any subsidiary or affiliate of the Company, as the Committee may from time to time determine, of options to purchase shares of Common Stock of the Company and tandem stock appreciation rights (“SAR(s)”).

D. Pursuant to the Plan, the Committee has determined that it is to the advantage and best interest of the Company and its stockholders to grant a non-qualified stock option (and tandem SAR) to the Option Holder covering «shares» («number») shares of the Company’s Common Stock as an inducement to remain in the service of the Company and as an incentive for increased effort during such service, and has approved the execution of this Non-Qualified Stock Option and SAR Agreement between the Company and the Option Holder.

E. Neither the option nor the SAR granted hereby is intended to qualify as an “incentive stock option” under Section 422A of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant .

(a) The Company grants to the Option Holder the right and option (the “Option”) to purchase on the terms and conditions hereinafter set forth, all or any part (subject to the limitations of Section 3) of an aggregate of «shares» («number») shares of the Common Stock of the Company at the purchase price of $ per share. The Option shall be exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the tenth anniversary of the Grant Date or such later date as may result from the application of Section 6 (such anniversary or later date is referred to as the “Expiration Date”). The Option is also subject to early termination pursuant to Section 3(f) and Section 5.

(b) The Option is coupled with a SAR that is exercisable to the extent, and only to the extent, that the Option is exercisable under the vesting provisions of Section 2. The term of the SAR shall expire on the Expiration Date and shall be subject to early termination pursuant to Section 3(f) and Section 5. The SAR shall entitle the Option Holder to surrender the Option (or any portion thereof, subject to Section 3(a)) to the Company unexercised and receive in exchange for the surrender of the Option (or the surrendered portion thereof) that number of shares of the Company’s common stock having an aggregate value equal to: (A) the excess of the fair market value of one share of such stock (as determined in accordance with Section 4) over the purchase price per share specified in Section 1(a) above (or, if applicable, such price as adjusted pursuant to Section 9 or Section 14 hereof), multiplied by (B) the number of such shares subject to the Option (or portion thereof) which is so surrendered.

2. Vesting . The Option Holder may not purchase any shares by exercise of this Option or the SAR prior to the six-month anniversary of the Grant Date (the “Initial Vesting Date”). The shares subject to this Option and the SAR shall become exercisable in four (4), equal annual installments, the first of which shall vest on the Initial Vesting Date, and the remainder of which shall vest on the first, second and third anniversaries of the Initial Vesting Date, respectively. Subject to early termination under Section 5 or the terms of the Plan and no later than the Expiration Date, the Option Holder may purchase all or any part (subject to the limitations of Section 3) of the shares subject to this Option which are currently exercisable, or such lesser number of shares as may be available through the exercise of the SAR. The total number of shares subject to the Option and the number of shares subject to the Option which are currently exercisable by the Option Holder each shall be reduced by the number of shares previously acquired by the Option Holder pursuant to this Agreement.

3. Manner of Exercise .

(a) Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company by the Option Holder or his or her Representative (as such term is defined in the Plan). Such notice shall identify the Options being exercised. When applicable, the notice shall also specify the number of Mature Shares (as defined in the Plan) that the Option Holder plans to deliver in payment of all or part of the exercise price. Before shares will be issued, the full purchase price of the shares subject to the Options being exercised shall be paid to the Company using the following methods, individually or in combination: (i) by check payable to the order of the Company in an amount equal to the purchase price, (ii) by Constructive or Actual Delivery of Mature Shares (as defined in the Plan) with a fair market value as of the close of business on the date of exercise equal to or greater than the purchase price, (iii) by electronic transfer of funds to an account of the Company, or (iv) by other means acceptable to the Committee. This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than fifty (50) shares unless the total number of shares covered by this Option is less than 50 on the date of exercise or unless this Option is scheduled to expire within six months of the date of exercise.

(b) Each exercise of the SAR shall be by means of a written notice of exercise delivered to the Company, specifying whether the Option Holder is surrendering all or a portion of the Option and, if only a portion of the Option is being surrendered, how many shares are included in such portion (to the extent determinable by the Option Holder). Upon satisfaction of the Option Holder’s obligation to pay the Company the amount of all taxes that the Company is required to withhold in connection with such exercise as specified in Section 3(e) below, the Company shall issue to the Option Holder a number of shares of the Company’s common stock computed in accordance with Section 1(b) and the Option and the SAR (or the surrendered portions thereof) shall be deemed extinguished. The SAR may only be settled in shares of the Company’s common stock and not by payment of cash to the Option Holder. Any fractional share that would otherwise result from an exercise of the SAR shall be rounded down to the nearest whole share.

(c) The date of exercise shall be: (i) in the case of a broker-assisted cashless exercise, the earlier of (A) the trade date of the related sale of stock or (B) the date that the Company receives the purchase price; (ii) in the case of a Restorative Option (as defined in the Plan) or SAR, the date that the Company receives written notice of exercise; or (iii) in all other cases, the date that the Company receives the purchase price.

(d) This Option and SAR may be exercised only by the Option Holder or his or her Representative, and not otherwise, regardless of any community property interest therein of the spouse of the Option Holder, or such spouse’s successors in interest. If the spouse of the Option Holder shall have acquired a community property interest in this Option and the SAR, the Option Holder, or the Option Holder’s Representative, may exercise the Option and the SAR on behalf of the spouse of the Option Holder or such spouse’s successors in interest.

(e) Upon the exercise of this Option or the SAR, the Company shall require the Option Holder or the Option Holder’s Representative to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such exercise. Subject to the limitations set forth in the next three sentences, the Option Holder or his/her Representative may elect to satisfy all or any portion of such tax withholding obligations either by: (i) any of the methods described in Sections 3(a)(i) through 3(a)(iv) above, or (ii) directing the Company to withhold shares that would otherwise have been issued pursuant to the exercise of this Option or SAR. Neither the Option Holder nor his/her Representative shall have the right to utilize Constructive or Actual Delivery of Mature Shares or to have shares withheld, in either case, in excess of the minimum number required to satisfy applicable tax withholding requirements based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. Shares used in either of the foregoing ways to satisfy tax withholding obligations will be valued at their fair market value on the date of exercise. In the case of an exercise of the SAR, the Company retains the right to require the Option Holder to pay any and all withholding taxes arising out of such exercise solely in cash.

(f) Except as provided in Section 14 below with respect to the coupling of a SAR to a Restorative Option, in the event the Option (or any portion thereof) is exercised, then the SAR (or the corresponding portion) shall terminate. In the event that the SAR (or any portion thereof) is exercised, then the Option (or the corresponding portion) shall likewise terminate.

4. Fair Market Value of Common Stock . The fair market value of a share of Common Stock shall be determined for purposes of this Agreement by reference to the closing price of a share of Common Stock on the New York Stock Exchange, as reported by The Wall Street Journal for the Grant Date or date of exercise, as applicable, or if such date is not a business day, for the business day immediately preceding such date, (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

5. Cessation of Services . The provisions of Sections 11(a), 11(b), 11(c) and 11(d) of the Plan are hereby incorporated into and made a part of this Agreement.

6. Extension of Expiration in Certain Cases . From time to time, the Company may declare “blackout” periods with respect to designated employees of the Company and/or its subsidiaries or affiliates during which such employees are prohibited from engaging in certain transactions in Company securities. In the event that the scheduled Expiration Date of this Option and SAR shall fall within a blackout period that has been declared by the Company and that applies to the Option Holder, then the Expiration Date shall automatically, and without further notice to Option Holder, be extended until such time as fifteen (15) consecutive business days have elapsed after the scheduled Expiration Date without interruption by any blackout period that applied to the Option Holder.

7. Shares to be Issued in Compliance with Federal Securities Laws and Exchange Rules . No shares issuable upon the exercise of this Option or SAR shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange or such other exchange(s) or markets on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. The Company shall use its best efforts and take all necessary or appropriate actions to assure that such full compliance on the part of the Company is made.

9. Certain Adjustments The provisions of Sections 13(a), 13(b) and 13(c) of the Plan relating to certain adjustments in the case of stock splits, reorganizations, equity restructurings, change of control events and similar matters described therein are hereby incorporated in and made a part of this Agreement.

Any such adjustments shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be issued under the Plan on any such adjustment.

10. Participation by Option Holder in Other Company Plans . Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any retirement plan or employee welfare benefit plan or program of the Company or of any subsidiary or affiliate of the Company, subject in each case, to the terms and conditions of any such plan or program.

11. No Rights as a Stockholder Until Issuance of Shares . Neither the Option Holder nor his/her Representative shall be entitled to any of the rights or privileges of a

stockholder of the Company in respect of any shares issuable upon any exercise of this Option or SAR unless and until such shares shall have been issued and delivered to: (i) Option Holder in the form of certificates, (ii) a brokerage or other account for the benefit of Option Holder either in certificate form or via “DWAC” or similar electronic means, or (iii) a book entry or direct registration account in the name of Option Holder.

12. Not an Employment or Service Contract . Nothing herein contained shall be construed as an agreement by the Company or any of its subsidiaries or affiliates, expressed or implied, to employ Option Holder or contract for Option Holder’s services, to restrict the right of the Company or any of its subsidiaries or affiliates to discharge Option Holder or cease contracting for Option Holder’s services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between the Option Holder and the Company or any of its subsidiaries or affiliates.

13. Agreement Subject to Stock Option Plan . The Option and SAR hereby granted are subject to, and the Company and the Option Holder agree to be bound by, all of the terms and conditions of the Plan, as the same may be amended from time to time hereafter in accordance with the terms thereof, but no such amendment shall adversely affect the Option Holder’s rights under this Agreement without the prior written consent of the Option Holder. To the extent that the terms or conditions of this Agreement conflict with the terms or conditions of the Plan, the Plan shall govern.

14. Restorative Stock Options . A Restorative Option (as defined in the Plan) will be granted in connection with the exercise of this Option and any Restorative Option resulting from this Option if: (i) the Option Holder elects to pay some or all of the exercise price of such Option (the “Underlying Option”) and/or any related withholding taxes by Constructive or Actual Delivery of Mature Shares (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Underlying Option); and (ii) the Fair Market Value of a share of the Company’s Common Stock on the exercise date exceeds the exercise price of a share of Common Stock subject to the Underlying Option by at least fifteen percent (15%).

No Restorative Option shall be granted if on the date of exercise of the Underlying Option: (i) the Option Holder does not meet the eligibility requirements under Section 5(a) of the Plan; (ii) such Option would be scheduled to expire within twelve (12) months; or (iii) the Fair Market Value of a share of the Company’s Common Stock does not meet the fifteen percent (15%) appreciation requirement set forth above.

To the extent the Option Holder is granted a Restorative Option pursuant to the exercise of this Option, the undersigned Option Holder and his or her spouse agree to be bound by all the terms and conditions of this Agreement and the Plan with respect to such Restorative Option. Each Restorative Option that may result from the exercise of this Option shall be deemed to be coupled with a SAR. Each Restorative Option and tandem SAR shall be identical in terms with the original Option and SAR provided for in Section 1(a) and (b) of this Agreement, except that the Restorative Option and tandem SAR shall (i) have an exercise price per share equal to the fair market value of one share of the Company’s common stock on the date of the exercise giving rise to such Restorative Option, and (ii) fully vest six months after its inception. No Restorative Option shall be granted with respect to any Constructive or Actual Delivery of Mature Shares (as defined in the Plan), or any shares withheld, in either case to pay any applicable withholding taxes that arise out of an exercise of the SAR.

17. Miscellaneous . This Agreement, together with the Plan, is the entire agreement of the parties with respect to the Option and SAR granted hereby and may not be amended except in a writing signed by both Unitrin, Inc. and the Option Holder or his/her Representative.

18. Stock Holding Period . The Option Holder agrees to hold all shares of Common Stock acquired upon the exercise of Options (including Restorative Options) granted hereunder for a minimum of twelve months following the date of such exercise. This holding period shall not apply to shares sold or tendered by the Option Holder and/or withheld by the Company to pay the Option exercise price and/or to settle tax liabilities related to the Option exercise.

By his or her signature below, the spouse of the Option Holder agrees to be bound by all of the terms and conditions of the foregoing Non-Qualified Stock Option and SAR Agreement.

Print Name

Exhibit 10.13

Unitrin, Inc. 2011 Omnibus Equity Plan

NON-EMPLOYEE DIRECTOR

NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT

This NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT (the “Agreement”) is made as of this day of (“Grant Date”), between UNITRIN, INC., a Delaware corporation (the “Company”), and (the “Option Holder”) for an award consisting of the right and option (the “Option”) to purchase on the terms and conditions hereinafter set forth, all or any part (subject to the limitations of Section 3) of an aggregate of shares of the Common Stock of the Company at the purchase price of $ per share.

SIGNATURES

As of the date set forth above, the parties have executed this Agreement:


UNITRIN, INC.		OPTION HOLDER

By:
	«Authorized Officer»	«Name»

By his or her signature below, the spouse of the Option Holder agrees to be bound by all of the terms and conditions of the foregoing Non-Qualified Stock Option and SAR Agreement.





						Print Name

As of 05/04/11

RECITALS

A. The Board of Directors and Shareholders of the Company have adopted the 2011 Omnibus Equity Plan (the “Plan”), to be administered by the Compensation Committee of the Company’s Board of Directors (the “Committee”).

B. The Plan provides, among other things, for grants of awards to non-employee directors of the Company, of the type, in the amounts and subject to such terms as shall be determined from time to time by the Board of Directors after considering any recommendation by the Committee.

C. This Agreement sets forth the terms of awards that may be granted to non-employee directors of the Company as determined by the Board of Directors from time to time in the form of an option to purchase shares of Common Stock of the Company (“Common Stock”) and tandem stock appreciation rights (“SAR”); neither the Option nor the SAR granted hereby is intended to qualify as an “incentive stock option” under §422A of the Internal Revenue Code of 1986, as amended.

D. Terms used herein and not otherwise defined shall have the meanings given to such terms in the Plan.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant .

(a) The Company grants the Option to the Option Holder, which will be exercisable from time to time in accordance with the provisions of this Agreement during a period expiring on the tenth anniversary of the Grant Date of this Agreement, or such later date as may result from the application of §6 (the “Expiration Date”). This Option is also subject to early termination in accordance with §5.

(b) The Option is coupled with a SAR that is exercisable to the extent, and only to the extent, that the Option is exercisable under the vesting provisions of Section 2. The term of the SAR shall expire on the Expiration Date and shall be subject to early termination pursuant to Section 3(f) and Section 5. The SAR shall entitle the Option Holder to surrender the Option (or any portion thereof, subject to Section 3(a)) to the Company unexercised and receive in exchange for the surrender of the Option (or the surrendered portion thereof) that number of shares of Common Stock having an aggregate value equal to: (A) the excess of the fair market value of one share of such stock (as determined in accordance with Section 4) over the purchase price per share specified on page one above (or, if applicable, such price as adjusted pursuant to Section 9 hereof), multiplied by (B) the number of such shares subject to the Option (or portion thereof) which is so surrendered.

As of 05/04/11

2. Vesting . The Option Holder may not purchase any shares by exercise of this Option or SAR between the date of this Agreement and the first anniversary date hereof. The shares subject to this Option and SAR shall become exercisable in full by the Option Holder commencing on the first anniversary date of this Agreement. Subject to earlier termination under §5 or the terms of the Plan and no later than the Expiration Date, the Option Holder may purchase all or any part of the shares subject to this Option which are currently exercisable in the manner and under the terms specified in §3 hereof, or such lesser number of shares as may be available through the exercise of the SAR. The number of shares subject to this Option that the Option Holder may purchase shall be reduced by the number of shares previously purchased by the Option Holder pursuant to the Agreement.

3. Manner of Exercise .

(a) Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company by the Option Holder or his or her Representative (as defined in the Plan). Such notice shall identify the Options being exercised. When applicable, the notice shall also specify the number of shares of Common Stock that the Option Holder plans to deliver in payment of all or part of the exercise price. Before shares will be issued, the full purchase price of the shares subject to the Options being exercised shall be paid to the Company using the following methods, individually or in combination: (i) by check payable to the order of the Company in an amount equal to the purchase price, (ii) by Constructive or Actual Delivery (as defined in the Plan) of shares of Common Stock with a fair market value as of the close of business on the date of exercise equal to or greater than the purchase price, (iii) by electronic transfer of funds to an account of the Company, or (iv) by other means acceptable to the Committee.

(b) Each exercise of the SAR shall be by means of a written notice of exercise delivered to the Company, specifying whether the Option Holder is surrendering all or a portion of the Option and, if only a portion of the Option is being surrendered, how many shares are included in such portion (to the extent determinable by the Option Holder). The Company shall issue to the Option Holder a number of shares of Common Stock computed in accordance with Section 1(b) and the Option and the SAR (or the surrendered portions thereof) shall be deemed extinguished. The SAR may only be settled in shares of Common Stock and not by payment of cash to the Option Holder. Any fractional share that would otherwise result from an exercise of the SAR shall be rounded down to the nearest whole share.

(c) The date of exercise shall be: (i) in the case of a broker-assisted cashless exercise, the earlier of (A) the trade date of the related sale of stock or (B) the date that the Company receives the purchase price; (ii) in the case of a SAR, or an Option exercise in which the Option Holder elects to pay some or all of the exercise price and/or any related withholding taxes by Constructive or Actual Delivery of shares of shares of

As of 05/04/11

Common Stock (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Option), the date that the Company receives written notice of such exercise; or (iii) in all other cases, the date that the Company receives the purchase price.

(e) Upon the exercise of this Option or SAR, the Company shall require the Option Holder or the Option Holder’s permitted successor in interest to pay the Company the amount of taxes, if any, which the Company may be required to withhold with respect to such exercise.

(f) In the event the Option (or any portion thereof) is exercised, then the SAR (or the corresponding portion) shall terminate. In the event that the SAR (or any portion thereof) is exercised, then the Option (or the corresponding portion) shall likewise terminate.

4. Fair Market Value of Common Stock . The fair market value of a share of Common Stock shall be determined for purposes of this Agreement by reference to the closing price of a share of Common Stock, as reported by the New York Stock Exchange (or such other exchange on which the shares of Common Stock are primarily traded) for the Grant Date or date of exercise, as applicable, or if such date is not a business day, for the business day immediately preceding such date (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof).

5. Termination of Services . This Option and SAR may be subject to termination or early vesting in connection with the termination of the Option Holder’s service as a director of the Company in accordance with the provisions of Section 12.3(a) of the Plan.

6. Extension of Expiration in Certain Cases . From time to time, the Company may declare “blackout” periods during which the Option Holder may be prohibited from engaging in certain transactions in Company securities. In the event that the scheduled Expiration Date of this Option and SAR shall fall within a blackout period that has been declared by the Company and that applies to the Option Holder, then the Expiration Date shall automatically, and without further notice to Option Holder, be extended until such time as fifteen (15) consecutive business days have elapsed after the

As of 05/04/11

scheduled Expiration Date without interruption by any blackout period that applied to the Option Holder.

7. Shares to be Issued in Compliance with Federal Securities Laws and Other Rules . No shares issuable upon the exercise of this Option or SAR shall be issued and delivered unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange (or such other exchange(s) or market(s) on which shares of the same class are then listed) and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. The Company shall use its best efforts and take all necessary or appropriate actions to assure that such full compliance on the part of the Company is made. By signing this Agreement, the Option Holder represents and warrants that none of the shares to be acquired upon exercise of this Option will be acquired with a view towards any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended (the “Act”), and the rules and regulations promulgated thereunder, or any applicable “blue sky” laws, and that Option Holder hereby agrees to indemnify the Company in the event of any violation by Option Holder of such Act, rules, regulations or laws.

8. Transferability . This Option and SAR and all other rights and privileges granted hereby shall not be transferred, assigned, pledged or otherwise encumbered in any way, whether by operation of the law or otherwise except by will or the laws of descent and distribution. Without limiting the generality of the preceding sentence, no rights or privileges granted hereby may be assigned or otherwise transferred to the spouse or former spouse of the Option Holder pursuant to any divorce proceedings, settlement or judgment. Upon any attempt so to transfer, assign, pledge, encumber or otherwise dispose of this Option or SAR or any other rights or privileges granted hereby contrary to the provisions hereof, this Option and SAR and all other rights and privileges contained herein shall immediately become null and void and of no further force or effect.

9. Certain Adjustments and Change in Control .

(a) The provisions of Articles 4.4 and 19.2 of the Plan relating to certain adjustments in the case of stock splits, reorganizations, equity restructurings and similar matters described therein are hereby incorporated in and made a part of this Agreement. Any such adjustments shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be issued under the Plan on any such adjustment.

(b) This Option and SAR may be subject to termination or early vesting in connection with a Change in Control in accordance with the provisions of Section 18.3 of the Plan.

As of 05/04/11

10. Participation by Option Holder in Other Company Plans . Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other welfare plan or program of the Company or of any subsidiary of the Company in which non-employee directors of the Company are otherwise eligible to participate.

11. No Rights as a Stockholder Until Issuance of Shares . Neither the Option Holder nor any other person legally entitled to exercise this Option or SAR shall be entitled to any of the rights or privileges of a shareholder of the Company in respect of any shares issuable upon any exercise of this Option unless and until such shares shall have been issued and delivered to: (i) Option Holder in the form of certificates, (ii) a brokerage or other account for the benefit of Option Holder either in certificate form or via “DWAC” or similar electronic means, or (iii) a book entry or direct registration account in the name of Option Holder.

12. No Right to Continue as a Director . Nothing herein contained shall be construed as an agreement by the Company, expressed or implied, that Option Holder has a right to continue as a director of the Company for any period of time or at any particular rate of compensation.

13. Agreement Subject to the Plan . The Option and SAR hereby granted are subject to, and the Company and the Option Holder agree to be bound by, all of the terms and conditions of the Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Option Holder’s rights under this Option and SAR without the prior written consent of the Option Holder. In the event that the terms or conditions of this Agreement conflict with the terms or conditions of the Plan, the Plan shall govern.

14. Execution . This Option and SAR have been granted, executed and delivered as of the day and year first above written at Chicago, Illinois, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without application of its conflicts of laws and principles.

15. Miscellaneous . This Agreement, together with the Plan, is the entire agreement of the parties with respect to the Option and SAR granted hereby and may not be amended except in a writing signed by both Unitrin, Inc. and the Option Holder or his/her Representative.

As of 05/04/11

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: May 4, 2011

/s/ Donald G. Southwell

Donald G. Southwell

Chairman, President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Dennis R. Vigneau, certify that:

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

(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: May 4, 2011

/s/ Dennis R. Vigneau

Dennis R. Vigneau

Senior Vice President and Chief Financial Officer

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 March 31, 2011 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:		Chairman, President and Chief Executive Officer
Date:		May 4, 2011

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 March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Dennis R. Vigneau, 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/ Dennis R. Vigneau
Name:		Dennis R. Vigneau
Title:		Senior Vice President and Chief Financial Officer
Date:		May 4, 2011