Fitch Affirms Infinity’s IDR at ‘BBB+’; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Infinity Property & Casualty Corporation's ratings (Infinity) (NASDAQ: IPCC), and its subsidiaries, as follows:

--Long-term Issuer Default Rating (IDR) at 'BBB+';

--$195 million senior notes due 2014 at 'BBB';

--Insurer Financial Strength (IFS) rating of the operating subsidiaries at 'A'.

See below for a complete list of subsidiary ratings. The Rating Outlook is Stable.

The ratings are based on Infinity's underwriting results, quality balance sheet, characterized by strong capitalization and adequate loss reserving levels. Offsetting these positives are Infinity's business concentration in the California auto market, which represents approximately 49% of net written premiums. Also, Infinity is challenged as a more modest sized personal auto specialist to compete with insurers with greater capital bases and operating scale, and to manage regulatory and operating risks inherent to this business segment.

Infinity is one of the largest non-standard auto insurance companies in the country. The average non-standard automobile consumer is more likely to be impacted by broader negative economic issues than the standard or preferred automobile consumer. This may impede premium growth or negatively impact customer retention.

As of March 31, 2012, Infinity's financial leverage ratio was 23.4%. Fitch notes that earnings based interest coverage for first quarter 2012 was 3.0 times (x) and anticipates that the company will continue to maintain adequate interest coverage levels to support debt servicing requirements going forward.

An important accounting item to point out when looking at Infinity's underwriting results is that there is a significant difference between statutory and GAAP expense ratios. From a statutory perspective, beginning in 2007, to be more consistent with the way other insurance companies reported fee income, Infinity did not directly offset underwriting income expenses but rather put the fees in other income lines. However, from a GAAP perspective, the company reports expenses on a net basis. Fee income generated for 2011 was approximately $91 million or 8.4% of rolling 12 month gross written premium.

Infinity reported a statutory underwriting combined ratio of 103.5% for full year 2011 compared to 95.8% for the prior year. From a GAAP perspective Infinity reported a combined ratio of 98.0% for full year 2011 compared to 89.6% for prior year. The primary driver for the decline in underwriting is reserve development. In 2010, Infinity's results benefited $73.9 million from favorable prior year reserve development compared to an adverse $4.5 million experienced for full year 2011. Removing the impact of reserve development, Infinity reported an accident year combined ratio of 97.6% for full year 2011 which is very comparable to full year 2010's result of 97.7%.

While Fitch believes a ratings upgrade in the near term is unlikely the following is a list of key rating triggers that could lead to an upgrade:

--A sustained increase in capitalization such that statutory net leverage was 3.5x or lower.

--A more diverse geographical premium distribution while simultaneously maintaining disciplined underwriting and profitability.

The following is a list of key rating triggers that could lead to a downgrade:

--A pretax GAAP operating loss that meaningfully increases operating leverage.

--An increase in the company's statutory net leverage of 5.0x or higher.

--A negative legal or political action associated with either the nonstandard auto market or Infinity's marketing strategy of targeting the Hispanic market that damages Infinity's brand image.

Fitch has affirmed the following ratings with a Stable Outlook:

Infinity Property Casualty Corp.

--IDR at 'BBB+';

--$195 million 5.5% senior unsecured note due 2014 at 'BBB'.

Fitch has also affirmed the following IFS ratings at 'A', with a Stable Outlook:

Hillstar Insurance Co

Infinity Assurance Insurance Co

Infinity Auto Insurance Co

Infinity Casualty Insurance Company

Infinity County Mutual Insurance Company

Infinity Indemnity Insurance Co

Infinity Insurance Company

Infinity Preferred Insurance Co

Infinity Reserve Insurance Co

Infinity Safeguard Insurance Co

Infinity Security Insurance Company

Infinity Select Insurance Co

Infinity Standard Insurance Co

Fitch no longer has sufficient information to rate the following entities thus the ratings have been withdrawn:

Infinity General Insurance Co

Infinity Specialty Insurance Co

Infinity Premier Insurance Co

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the ratings process other than through the medium of public disclosure. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Fitch Ratings
Primary AnalystGerald Glombicki, CPA, +1-312-606-2354
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jim Auden, CFA, +1-312-368-3146
Managing Director
or
Committee ChairpersonKeith Buckley, CFA, +1-312-368-3211
Group Managing Director
or
Media RelationsBrian Bertsch, +1-212-908-0549
[email protected]

Source: Fitch Ratings