Fitch Affirms Infinity’s Issuer Default Rating; Outlook Stable [Professional Services Close – Up]

Fitch Ratings has affirmed Infinity Property & Casualty Corp.'s ratings and its subsidiaries as follows:

--Long-term Issuer Default Rating at BBB+;

--$275 million senior notes due 2022 BBB;

--Insurer Financial Strength rating of the operating subsidiaries at A.

A complete list of subsidiary ratings follows at the end of this release. The Rating Outlook is Stable.

Key Rating Drivers

The ratings are based on Infinity's balance sheet quality characterized by strong capitalization and adequate loss reserving levels and to a lesser extent historical underwriting results. Offsetting these positives is Infinity's business concentration in the California auto market, which represents approximately 45 percent of net written premiums. Also, Infinity is challenged as a medium 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 nation's largest non-standard auto insurance companies. The average non-standard automobile consumer is more likely to be impacted by broader economic conditions than the standard or preferred automobile consumer. A weaker economy may impede premium growth or negatively impact customer retention in non- standard auto.

As of March 31, Infinity's financial leverage ratio was 30.3 percent and earnings based interest coverage for the same period was 3.3 times. Fitch anticipates that the company will continue to maintain adequate interest coverage levels to support debt servicing requirements going forward.

Infinity reported a statutory underwriting combined ratio of 102.6 percent at March 31, compared to 105.8 percent for full year 2012. When adjusted for fee income the combined ratio declines to 96.2 percent for March 31, and 98.3 percent for full year 2012.

Fitch notes that from a GAAP perspective the combined ratio was 98.2 percent at March 31, compared to 100.7 percent for full year 2012. On an accident year basis GAAP combined ratios deteriorated in full year 2012 to 99.3 percent from 97.6 percent for full year 2011. The increase in the combined ratio was primarily driven from premium growth in Florida, 67 percent higher in 2012 than 2011, and California, 7.4 percent higher in 2012 than 2011, that led to higher loss ratios.

Rating Sensitivities

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 permanent increase in capitalization that is consistent with higher rated categories.

--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 GAAP accident year combined ratio above 99 percent for a sustained period of time.

--A sustained increase in financial leverage above 30 percent or a decrease in earnings-based interest coverage of 3.0x lor lower.

--An increase in the company's statutory net leverage of 4.5x or higher.

--A negative legal or political action associated with either the nonstandard auto market or IPCC'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+

--$275 million 5.0 percent senior unsecured note due September 2022 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

Additional information is available at 'fitchratings.com'.

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