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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission file number 001-18298

UNITRIN, INC.

(Exact Name of Registrant as Specified in its Charter)

(312) 661-4600

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

Based on the closing market price of Registrant’s common stock on June 30, 2003, the aggregate market value of such stock held by non-affiliates of Registrant was approximately $1.67 billion as of the last business day of Registrant’s most recently

completed second fiscal quarter. Solely for purposes of this calculation, all executive officers and directors of Registrant are considered affiliates.

Registrant had 67,838,878 shares of common stock outstanding as of January 26, 2004.

Documents Incorporated by Reference

PART I

Item 1. Business.

Unitrin, Inc. (“Unitrin” or the “Company”) was incorporated in Delaware in 1990. Unitrin’s subsidiaries serve the basic financial needs of individuals, families and small businesses by providing property and casualty insurance, life and health insurance, and consumer finance services.

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other information with the Securities and Exchange Commission (the “SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington DC 20549, or by calling the SEC at 1-800-SEC-0330, or by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC, the Company makes copies available to the public free of charge on or through its website at http://www.unitrin.com.

(a) GENERAL DEVELOPMENT OF BUSINESS

Acquisition of Kemper Personal Lines Business

On June 28, 2002, the Company closed its acquisition of the personal lines property and casualty insurance business of the Kemper Insurance Companies (“KIC”) in a cash transaction. The business unit acquired from KIC, referred to herein as “Kemper Auto and Home” or “KAH,” specializes in the sale of personal automobile and homeowners’ insurance through independent agents. KIC retained all liabilities for policies issued by Kemper Auto and Home prior to the closing, while Trinity Universal Insurance Company (“Trinity”), a subsidiary of Unitrin, is entitled to premiums written for substantially all policies issued or renewed by Kemper Auto and Home after the closing and is liable for losses and expenses incurred thereon.

At the acquisition date, Unitrin’s property and casualty insurance subsidiaries were not licensed in all the states where the KAH business is written nor were certain computer and data processing modifications completed to allow for the migration of the KAH business to the Company’s property and casualty insurance subsidiaries. Accordingly, Trinity and KIC entered into a quota share reinsurance agreement (the “Reinsurance Agreement”) whereby Trinity reinsured, on a 100% indemnity basis, substantially all of the KAH business written or renewed by KIC after the acquisition date in order to provide a transitional period for Unitrin’s property and casualty insurance subsidiaries to obtain licenses in the necessary states and other insurance regulatory authorizations and to complete the required computer and data processing modifications. Due to the deterioration of KIC’s financial condition (described below), on January 8, 2003, the Reinsurance Agreement was amended to provide, in the event of KIC’s insolvency, for Trinity to make claim payments directly to insureds and insured claimants under the reinsured policies. On June 6, 2003, the Reinsurance Agreement was further amended and restated to allow certain of Trinity’s affiliated insurance companies to elect to assume on an assumption reinsurance basis (an “assumption”) some or all of the business in the event that it appears receivership proceedings for KIC are imminent or if KIC is in fact placed into receivership. Depending upon the state of residence of a particular policyholder, such an assumption could be subject to notification to, or consent by, such policyholder, and/or regulatory approvals by a state insurance department. Moreover, certain computer and data processing modifications would be required to implement an assumption. The Company has developed specifications for such modifications, but has

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suspended programming work due to the progress that is being made in migrating the KIC business to Unitrin’s property and casualty insurance subsidiaries and the completion of computer and data processing modifications that would allow such subsidiaries to cancel and rewrite such business in bulk in the event that KIC were placed in receivership proceedings. While the Company believes that an assumption would have certain advantages relative to retention of the business in the event that KIC is placed in a receivership, there can be no assurances that such advantages would be realized or that the consents and approvals would be obtained, or obtained on a timely basis.

A.M. Best Co., Inc. (“A.M. Best”), the principal insurance company rating agency, lowered its rating for KIC from

“A-” (Excellent) to “B+” (Very Good) in December 2002, from “B+” to “B” (Fair) in March 2003, from “B” to “C++” (Marginal) on May 1, 2003, and from “C++” to “D” (Poor) on June 10, 2003. A.M. Best attributed the most recent downgrade to KIC’s “announcement that upon completion of the year-end 2002 independent financial audit, Lumbermens Mutual Casualty Co., the lead company of the [KIC] inter-company pool, expects its year-end 2002 statutory surplus - as reflected in its annual statement - to be substantially lower than currently stated.” According to A.M. Best, KIC “management has indicated that if the adjustments had been reflected in its year-end 2002 statutory filing of Lumbermens Mutual Casualty Co., total risk-adjusted capital would fall within the Mandatory Control Level of the risk-based capital calculation required by the Illinois Department of Insurance.” These rating actions with respect to KIC have no impact on the “A” (Excellent) rating assigned to Unitrin’s property and casualty insurance subsidiaries by A.M. Best.

When an Illinois-domiciled property and casualty insurance company’s risk-based capital falls within the Mandatory Control Level, the Illinois Director of Insurance is mandated to place the company in receivership proceedings unless, as is the case with KIC, the company is no longer writing new business and is running off existing business, in which case the Illinois Director may allow the run-off to proceed under its supervision. For so long as KIC may be permitted to continue in such a run-off, KIC will only be able to write insurance coverage where required by state law or contractual commitments, such as its contractual commitment to write certain personal lines coverage on Unitrin’s behalf. If KIC were placed into receivership, KIC’s ability to write additional coverage would terminate regardless of existing contractual commitments. In addition, in a receivership, the Illinois Department of Insurance could attempt to take the further action of effecting mid-term cancellations of policies written by KIC. There can be no assurance as to what actions, if any, the Illinois Department of Insurance may take with respect to KIC or the ultimate effect that such actions may have on Unitrin.

Unitrin is continuing the migration of the KIC personal lines business to Unitrin’s property and casualty insurance subsidiaries as rapidly as possible to reduce dependence on KIC. The licensing and computer and data processing efforts to allow Unitrin’s property and casualty insurance subsidiaries to directly renew the KIC personal lines business are complete. Unitrin’s property and casualty insurance subsidiaries began directly issuing insurance policies for new business in a few states in March 2003 and began directly issuing insurance policies for new business in most of KAH’s remaining states in the second quarter of 2003. Unitrin’s property and casualty insurance subsidiaries also began issuing renewal insurance policies in the second quarter of 2003 in most of KAH’s states. As of December 31, 2003, approximately 50% of the in-force KIC personal lines policies had been renewed directly by Unitrin’s property and casualty insurance subsidiaries and renewal notices for an additional 20% had been sent to policyholders. While there can be no assurance that Unitrin’s property and casualty insurance subsidiaries will be successful in retaining a substantial portion of the remaining business, Unitrin’s experience thus far is that such renewals are being retained at levels consistent with KIC’s historical rates. Barring further action by the Illinois Department of Insurance with respect to KIC, Unitrin expects that approximately 70% of the in-force KIC personal lines policies at the end of the first quarter of 2004 will have been renewed directly by Unitrin’s property and casualty insurance subsidiaries and renewal notices will have been sent to an

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additional 10% of policyholders. The Company anticipates that the migration of the KAH business to Unitrin’s property and casualty insurance subsidiaries will be substantially complete in the second half of 2004.

Unitrin also has substantially completed the development of data processing capabilities to cancel and rewrite such business in bulk mid-term should KIC be placed into a receivership. In the event that KIC were placed in receivership proceedings and ordered to effect mid-term cancellation of all policies written on its paper, the Company cannot predict the extent to which its contingency plans to rewrite such policies in bulk on policies issued directly by Unitrin’s property and casualty insurance subsidiaries would be successful, nor can the Company predict what impact these developments would ultimately have on the contingent purchase price or performance bonuses described in Note 3 to the Company’s Consolidated Financial Statements (“Financial Statements”) included in Exhibit 13.1 to this Annual Report on Form 10-K.

Unitrin Stock Repurchases

During 2003, Unitrin repurchased and retired 62,000 shares of its common stock in open market transactions at an aggregate cost of approximately $1.4 million. No shares were repurchased during the fourth quarter of 2003. Since its inception in 1990, Unitrin has repurchased, on a post-split basis, approximately 54.7 million shares of its common stock, or nearly half of Unitrin’s shares originally outstanding, for an aggregate cost of approximately $1.5 billion. At December 31, 2003, approximately 3.5 million shares of Unitrin common stock remained under the outstanding repurchase authorization of Unitrin’s Board of Directors.

Although Unitrin does not anticipate repurchasing a significant number of its shares in 2004, under the outstanding authorization, stock repurchases may be made from time to time at prevailing prices in the open market or in privately negotiated transactions, subject to market conditions and other factors. Repurchases are financed through Unitrin’s general corporate funds. Unitrin may also borrow funds under an existing bank credit facility to fund common stock repurchases.

(b) BUSINESS SEGMENT FINANCIAL DATA

Financial information about Unitrin’s business segments for the years ended December 31, 2003, 2002, and 2001 is contained in the following portions of this 2003 Annual Report on Form 10-K of Unitrin, Inc. and is incorporated herein by reference: (i) Note 17 to the Financial Statements, and (ii) Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Exhibits 13.2 and 13.4 to this Annual Report on Form 10-K (“MD&A”).

(c) DESCRIPTION OF BUSINESS

The Company is engaged, through its subsidiaries, in the property and casualty insurance, life and health insurance and consumer finance businesses. The Company conducts its operations through six operating segments: Multi Lines Insurance, Specialty Lines Insurance, Kemper Auto and Home, Unitrin Direct, Life and Health Insurance and Consumer Finance.

Unitrin’s subsidiaries employ more than 8,700 full-time associates of which approximately 1,150 are employed in the Multi Lines Insurance segment, 770 in the Specialty Lines Insurance segment, 1,050 in the Kemper Auto and Home segment, 405 in the Unitrin Direct segment, 4,540 in the Life and Health Insurance segment, 780 in the Consumer Finance segment and the remainder in various corporate and other staff functions.

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Property and Casualty Insurance Business

Unitrin’s property and casualty insurance business operations are conducted through the following segments: Multi Lines Insurance, Specialty Lines Insurance, Kemper Auto and Home, and Unitrin Direct. The Unitrin companies operating in these segments provide automobile, homeowners, commercial multi-peril, motorcycle, boat and watercraft, fire, casualty, workers compensation, and other types of property and casualty insurance to individuals and businesses. Automobile insurance accounted for 56%, 50%, and 41% of Unitrin’s consolidated insurance premiums earned for the years ended December 31, 2003, 2002, and 2001, respectively.

Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases casualty insurance also obligates the insurance company to provide a defense for the insured in litigation arising out of events covered by the policy.

All of Unitrin’s property and casualty insurance segments except Unitrin Direct distribute their products through independent agents who are paid commissions for their services. Unitrin Direct distributes its products directly to consumers.

Multi Lines Insurance. Multi Lines Insurance, based in Dallas, conducts business in 30 states, with a geographic emphasis in areas outside of the northeast and mid-Atlantic states. The following states provided more than two-thirds of the premium revenues in this segment in 2003: Texas (40%), Oregon (8%), Louisiana (6%), Wisconsin (5%), Illinois (5%) and Washington (5%). Multi Lines Insurance has more than 315,000 policies in force.

Multi Lines Insurance primarily sells preferred and standard risk automobile, homeowners, fire, commercial multi-peril and workers compensation insurance. Multi Lines Insurance products accounted for approximately 30% of the aggregate insurance premium revenues of Unitrin’s property and casualty insurance business in 2003. Multi Lines Insurance products are marketed by more than 1,300 independent insurance agents. These personal and commercial products are designed and priced for those individuals and businesses that have demonstrated favorable risk characteristics and loss history.

Specialty Lines Insurance. Specialty Lines Insurance, based in Dallas, conducts business in 25 states, with a geographic emphasis in areas outside of the northeast and mid-Atlantic states. The following states provided more than two-thirds of the premium revenues in this segment in 2003: California (27%), Texas (24%), Washington (8%), Missouri (4%) and Arizona (4%). Specialty Lines Insurance has more than 325,000 policies in force.

Specialty Lines Insurance specializes in nonstandard personal and commercial automobile, motorcycle, and specialty watercraft insurance. Specialty Lines Insurance products accounted for approximately 29% of the aggregate insurance premium revenues of Unitrin’s property and casualty insurance business in 2003. Nonstandard automobile insurance is provided for individuals and businesses that have had difficulty

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obtaining standard or preferred risk insurance, usually because of their driving records, claims or premium payment history. Nonstandard automobile insurance products are marketed through approximately 10,000 independent agents.

Kemper Auto and Home. Kemper Auto and Home, based in Jacksonville, Florida, conducts business in 30 states geographically dispersed throughout the United States. The following states provided more than two-thirds of the premium revenues in this segment in 2003: New York (23%), North Carolina (17%), California (12%), Texas (6%), Connecticut (6%) and Maryland (5%).

Kemper Auto and Home primarily sells preferred and standard risk automobile and homeowners insurance. Kemper Auto and Home products accounted for approximately 33% of the aggregate insurance premium revenues of Unitrin’s property and casualty insurance business in 2003. Kemper Auto and Home’s products are marketed by approximately 1,500 independent insurance agents. These personal lines products are designed and priced for those individuals who have demonstrated favorable risk characteristics and loss history. Typical customers include middle to upper income individuals and families in urban, suburban and rural communities.

Unitrin Direct. Unitrin Direct is a business unit that is the result of a combination of the Company’s own direct-to-consumer insurance operation, which was established in January 2000 to sell auto insurance primarily through direct mail, and the Kemper Direct unit that was acquired in June 2002 from KIC, which commenced operations in 1997 and specializes in the sale of auto insurance to consumers over the Internet through web insurance portals, “click-throughs” and its own website.

Due to the similarity of Unitrin Direct’s and Kemper Direct’s business models, products and back-office operations, the Company has combined the operations of the two businesses into a single business unit under the Unitrin Direct name. The Company believes that such a combination provides an opportunity to achieve economies of scale in a shorter time frame than would have been possible if both businesses were operated as stand-alone units.

Unitrin Direct actively sells auto insurance in 18 states geographically dispersed throughout the United States. The following states provided more than two-thirds of the premium revenues in this segment in 2003: Florida (26%), California (19%), Pennsylvania (14%) and New York (12%). Unitrin Direct insurance products accounted for approximately 8% of the aggregate insurance premium revenues of Unitrin’s property and casualty insurance business in 2003.

Unitrin Direct writes a broad spectrum of auto insurance risks ranging from non-standard to preferred private passenger auto customers, and competes with companies that sell insurance directly to the consumer, as well as companies that sell through agents. Regardless of the sales methods used by a company, personal auto insurance is a highly competitive business, particularly in the areas of price and customer service. The overall business strategy of Unitrin Direct places great emphasis on competitive pricing and quality customer service.

Building a direct marketing insurance operation requires a significant investment in up-front costs and expenses associated with marketing products and acquiring new policies. In 2003, Unitrin Direct continued to reduce operating losses and build economies of scale. The Company anticipates that Unitrin Direct will reach profitability on a discrete quarter basis in the second half of 2004, but that it may not reach profitability for a full year until 2005.

Property and Casualty Loss and Loss Adjustment Expense Reserves. The process of estimating and establishing reserves for losses and loss adjustment expenses (“LAE”) for property and casualty insurance is inherently uncertain and the actual ultimate net cost of a claim may vary materially from the estimated amount reserved. The reserving process is particularly imprecise for claims involving asbestos, environmental matters, mold, construction defect and other emerging and/or long-tailed exposures which may not be discovered or reported until several years after the insurance policy period has ended. Estimates are influenced by many variables that are difficult to quantify, such as medical costs and jury awards, which will influence the final amount of the claim settlement. All these factors, coupled with changes to internal claims practices, changes in the legal environment and state regulatory requirements, require significant judgment in the reserve setting process. A change in any one or more of these factors is likely to result in an ultimate net claim cost different from the estimated reserve. Such changes in estimates may be material.

Reserves for losses and LAE are reported using the Company’s best estimate of its ultimate liability for losses and LAE for claims that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2003, the Company had $1,426.3 million of gross loss and LAE reserves, which represents management’s best estimate of ultimate loss. The Company generally reviews its reserves at a product line and/or coverage level quarterly depending on size of the product line and/or coverage level or emerging issues relating to them. The Company’s actuarial departments generally review the results of at least four different estimation methods, two based on paid data and two based on incurred data, to estimate loss and LAE reserves and determine if a change in estimate is required. In some cases the methods produce a cluster of estimates, giving management confidence that the estimate is within a relatively tight band of possible outcomes. In other cases, however, the methods produce conflicting results and wider bands. In the event of a wide variation among results generated by the different projections, the Company’s actuaries will further analyze the data using additional techniques.

        The Company’s actuarial departments review the frequency (number of claims per policy or exposure), severity (dollars of loss per claim) and the average premium (dollars of premium per exposure). The actual frequency and severity experienced will vary depending on the change in mix by class of insured risk. In particular periods of high growth or expansion into new markets, such as that experienced by the Specialty Lines Insurance segment and Unitrin Direct, there may be additional uncertainty in estimating the ultimate loss costs. The contributing factors of this potential risk are changes in the Company’s mix by policy limit and mix of business by state or jurisdiction.

        The Multi Lines Insurance segment has exposure to construction defect losses through general liability and commercial multiperil coverages it provides to contractors. Construction defect claims arise from alleged defective work performed in the construction of buildings and alleged loss of economic value of the structures. The majority of the Multi Lines Insurance segment’s construction defect losses are concentrated in a limited number of western states, including California, and were primarily written by its subsidiaries, Valley Insurance Company and Valley Property & Casualty Insurance Company (the “Valley Companies”). The Company acquired the Valley Companies in 1999, at which time the Valley Companies substantially limited its exposure to contractors on a going-forward basis in the western United States. While the Company has experienced construction defect activity in non-western states, it has not detected the emergence of a significant trend outside the western United States. However, there can be no assurance that such a trend will not emerge in non-western states in which the Company may have significant general liability insurance risks. The process of estimating reserves for these claims is particularly difficult due to the potentially long period of time between the loss date and the date the loss is actually reported, changes in the regulatory and legal environment and involvement of multiple plaintiffs, defendants and insurers.

The Company’s goal is to ensure total reserves for losses and LAE are adequate to cover all costs while sustaining minimal variation from the time reserves for losses and LAE are initially established until losses are fully developed. During 2003, the Company made no significant change to the estimate of consolidated loss reserves recorded in prior years.

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The following table illustrates the change over time in the Company’s estimate of reserves for losses and LAE. The first section shows the amount of reserves recorded in the Company’s consolidated financial statements as originally reported at the end of each calendar year. The second section, reading down, shows the cumulative amount of payments made through the end of each successive year with respect to that reserve liability. The third section, reading down, shows a reestimation of the original reserve shown in the first section. In this section, the original reserve is reestimated using information and that has become known in subsequent years and as trends become more apparent. The last section compares the latest reestimate with the original estimate. Conditions and trends that affected development in the past may not necessarily repeat in the future. Accordingly, it may not be appropriate to extrapolate reserve deficiencies or redundancies based on this table.

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Loss and Loss Adjustment Expense Reserve Development

(Dollars in Millions)