Fitch Affirms Infinity's IDR at 'BBB+'; Outlook Stable

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

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

--$195 million senior notes due 2014 '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 is Infinity's business concentration in the California auto market, which represents approximately 50% 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 Sept. 30, 2011, Infinity's debt-to-tangible capital ratio was 25.3%. Fitch notes that earnings based interest coverage for third quarter 2011 was 4.0 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 IPCC'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 the first nine months of 2011 was approximately $67 million or 8.7% of rolling 12 month gross written premium.

Infinity reported a statutory underwriting combined ratio of 96.8% at Sept. 30, 2011 compared to 89.2% for the prior year. From a GAAP perspective IPCC reported a combined ratio of 98.9% at Sept. 30, 2011 compared to 90.7% for the prior year. The primary driver for the decline in underwriting is reserve development. In 2010 Infinity's profitability benefited from favorably reserve development where results in 2011 have been negatively impacted by adverse reserve development. The accident year combined ratio for Sept. 30, 2011 was 98.2% compared to 98.5% for prior year.

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% for a sustained period of time.

--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+'

--$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 General Insurance Co

Infinity Indemnity Insurance Co

Infinity Insurance Company

Infinity Preferred Insurance Co

Infinity Premier Insurance Co

Infinity Reserve Insurance Co

Infinity Safeguard Insurance Co

Infinity Security Insurance Company

Infinity Select Insurance Co

Infinity Specialty Insurance Co

Infinity Standard Insurance Co

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

Insurance Rating Methodology

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