Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2010

OR

 

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

For the transition period from              to             

Commission File No. 0-50167

 

 

INFINITY PROPERTY AND CASUALTY CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Incorporated under

the Laws of Ohio

  03-0483872

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3700 Colonnade Parkway, Suite 600, Birmingham, Alabama 35243

(Address of principal executive offices and zip code)

(205) 870-4000

(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 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if smaller reporting company)    Smaller reporting company   ¨

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

As of July 31, 2010, there were 12,649,612 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INDEX

 

     Page
Part I – FINANCIAL INFORMATION   

Item 1

   Financial Statements   
  

Consolidated Statements of Earnings

   3
  

Consolidated Balance Sheets

   4
  

Consolidated Statements of Changes in Shareholders’ Equity

   5
  

Consolidated Statements of Cash Flows

   6
  

Condensed Notes to Consolidated Financial Statements

   8

Item 2

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    23

Item 3

   Quantitative and Qualitative Disclosures About Market Risk    36

Item 4

   Controls and Procedures    36
Part II – OTHER INFORMATION   

Item 1

   Legal Proceedings    36

Item 1A

   Risk Factors    36

Item 2

   Unregistered Sales of Equity Securities and Use of Proceeds    37

Item 6

   Exhibits    38
   Signature    38
   EXHIBIT INDEX   

Exhibit 10

   Amended and Restated Employee Stock Purchase Plan   

Exhibit 31.1

   Certification of the Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002   

Exhibit 31.2

   Certification of the Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002   

Exhibit 32

   Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   

Exhibit 101

   XBRL Instance Document   

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

PART I

FINANCIAL INFORMATION

ITEM 1

Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

(unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
   2010     2009     % Change     2010     2009     % Change  

Revenues:

            

Earned premium

   $ 225,590      $ 213,729      5.5   $ 437,656      $ 428,396      2.2

Net investment income

     11,583        12,152      (4.7 )%      22,878        25,797      (11.3 )% 

Realized gains (losses) on investments*

     44        170      (74.1 )%      (411     (5,957   (93.1 )% 

Other income

     98        23      326.1     121        71      70.4
                                            

Total revenues

     237,315        226,075      5.0     460,244        448,308      2.7

Costs and Expenses:

            

Losses and loss adjustment expenses

     153,281        150,825      1.6     299,923        302,094      (0.7 )% 

Commissions and other underwriting expenses

     53,855        45,551      18.2     102,009        92,652      10.1

Interest expense

     2,700        2,769      (2.5 )%      5,401        5,537      (2.5 )% 

Corporate general and administrative expenses

     2,225        1,909      16.6     4,097        3,581      14.4

Restructuring charges (reversals)

     0        (8   (100.0 )%      0        2      (100.0 )% 

Other expenses

     1,824        786      132.1     2,556        1,414      80.8
                                            

Total costs and expenses

     213,885        201,832      6.0     413,986        405,278      2.1
                                            

Earnings before income taxes

     23,430        24,243      (3.4 )%      46,258        43,029      7.5

Provision for income taxes

     7,152        7,357      (2.8 )%      14,358        15,321      (6.3 )% 
                                            

Net Earnings

   $ 16,278      $ 16,886      (3.6 )%    $ 31,900      $ 27,709      15.1
                                            

Earnings per Common Share:

            

Basic

   $ 1.25      $ 1.24      0.8   $ 2.42      $ 2.01      20.4

Diluted

     1.22        1.22      0.0     2.37        1.98      19.7

Average Number of Common Shares:

            

Basic

     13,054        13,634      (4.3 )%      13,186        13,804      (4.5 )% 

Diluted

     13,347        13,828      (3.5 )%      13,484        14,006      (3.7 )% 

Cash Dividends per Common Share

   $ 0.14      $ 0.12      16.7   $ 0.28      $ 0.24      16.7

 

            

* Realized gains before impairment losses

   $ 311      $ 999      (68.9 )%    $ 1,389      $ 2,388      (41.8 )% 

Total other-than-temporary impairment (OTTI) losses

     (43     (4,066   (98.9 )%      (142     (11,582   (98.8 )% 

Non-credit portion in other comprehensive income

     0        3,783      (100.0 )%      0        3,783      (100.0 )% 

OTTI losses reclassed from other comprehensive income

     (224     (545   (58.9 )%      (1,659     (545   204.4
                                            

Net impairment losses recognized in earnings

     (267     (829   (67.8 )%      (1,800     (8,345   (78.4 )% 
                                            

Total realized gains (losses) on investments

   $ 44      $ 170      (74.1 )%    $ (411   $ (5,957   (93.1 )% 
                                            

See Condensed Notes to Consolidated Financial Statements.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

     June 30, 2010     December 31, 2009  
   (unaudited)        

Assets

    

Investments:

    

Fixed maturities - at fair value (amortized cost $1,149,907 and $1,125,776)

   $ 1,190,173      $ 1,146,692   

Equity securities - at fair value (cost $31,327 and $31,331)

     36,773        39,438   
                

Total investments

     1,226,946        1,186,131   

Cash and cash equivalents

     63,147        99,700   

Accrued investment income

     11,853        11,237   

Agents’ balances and premium receivable, net of allowances for doubtful accounts of $11,206 and $10,853

     335,626        295,691   

Property and equipment, net of accumulated depreciation of $47,307 and $42,092

     28,339        27,916   

Prepaid reinsurance premium

     1,921        1,536   

Recoverable from reinsurers (includes $111 and $316 on paid losses and loss adjustment expenses)

     18,686        18,031   

Deferred policy acquisition costs

     78,143        68,839   

Current and deferred income taxes

     11,729        10,258   

Other assets

     13,955        9,057   

Goodwill

     75,275        75,275   
                

Total assets

   $ 1,865,619      $ 1,803,671   
                

Liabilities and Shareholders’ Equity

    

Liabilities:

    

Unpaid losses and loss adjustment expenses

   $ 502,267      $ 509,114   

Unearned premium

     428,021        376,068   

Payable to reinsurers

     0        58   

Long-term debt (fair value $194,825 and $192,309)

     194,690        194,651   

Commissions payable

     20,159        18,012   

Payable for securities purchased

     4,779        17,576   

Other liabilities

     86,512        70,032   
                

Total liabilities

     1,236,428        1,185,511   
                

Commitments and contingencies (See Note 10)

    

Shareholders’ equity:

    

Common stock, no par value (50,000,000 shares authorized; 21,118,889 and 21,082,139 shares issued)

     21,143        21,064   

Additional paid-in capital

     346,689        344,031   

Retained earnings

     569,380        541,167   

Accumulated other comprehensive income, net of tax

     30,313        19,500   

Treasury stock, at cost (8,271,762 and 7,584,762 shares)

     (338,332     (307,602
                

Total shareholders’ equity

     629,192        618,160   
                

Total liabilities and shareholders’ equity

   $ 1,865,619      $ 1,803,671   
                

See Condensed Notes to Consolidated Financial Statements.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

 

     Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss),
net of tax
    Treasury
Stock
    Total  

Balance at December 31, 2008

   $ 20,999    $ 341,889    $ 439,051      $ 5,987      $ (282,594   $ 525,331   

Net earnings

   $ —      $ —      $ 27,709      $ —        $ —        $ 27,709   

Net change in postretirement benefit liability

     —        —        —          (49     —          (49

Change in unrealized gain on investments

     —        —        —          16,857        —          16,857   

Change in non-credit component of impairment losses on fixed maturities

     —        —        —          (1,582     —          (1,582
                    

Comprehensive income

               $ 42,934   

Reclassification of non-credit component of previously recognized impairment losses on fixed maturities

     —        —        38,107        (38,107     —          0   

Tax benefit on reclassification

     —        —        —          13,338        —          13,338   

Dividends paid to common shareholders

     —        —        (3,325     —          —          (3,325

Shares issued and share-based compensation expense

     32      1,018      —          —          —          1,050   

Acquisition of treasury stock

     —        —        —          —          (19,116     (19,116
                                              

Balance at June 30, 2009

   $ 21,031    $ 342,908    $ 501,541      $ (3,557   $ (301,710   $ 560,212   
                                              

Net earnings

   $ —      $ —      $ 42,886      $ —        $ —        $ 42,886   

Net change in postretirement benefit liability

     —        —        —          (28     —          (28

Change in unrealized gain on investments

     —        —        —          4,668        —          4,668   

Change in non-credit component of impairment losses on fixed maturities

     —        —        —          18,416        —          18,416   
                    

Comprehensive income

               $ 65,943   

Dividends paid to common shareholders

     —        —        (3,260     —          —          (3,260

Shares issued and share-based compensation expense

     33      1,123      —          —          —          1,156   

Acquisition of treasury stock

     —        —        —          —          (5,892     (5,892
                                              

Balance at December 31, 2009

   $ 21,064    $ 344,031    $ 541,167      $ 19,500      $ (307,602   $ 618,160   
                                              

Net earnings

   $ —      $ —      $ 31,900      $ —        $ —        $ 31,900   

Net change in postretirement benefit liability

     —        —        —          (35     —          (35

Change in unrealized gain on investments

     —        —        —          8,020        —          8,020   

Change in non-credit component of impairment losses on fixed maturities

     —        —        —          2,827        —          2,827   
                    

Comprehensive income

               $ 42,713   

Dividends paid to common shareholders

     —        —        (3,687     —          —          (3,687

Shares issued and share-based compensation expense

     79      2,658      —          —          —          2,736   

Acquisition of treasury stock

     —        —        —          —          (30,730     (30,730
                                              

Balance at June 30, 2010

   $ 21,143    $ 346,689    $ 569,380      $ 30,313      $ (338,332   $ 629,192   
                                              

See Condensed Notes to Consolidated Financial Statements.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Three months ended June 30,  
     2010     2009  

Operating Activities:

    

Net earnings

   $ 16,278      $ 16,886   

Adjustments:

    

Depreciation and amortization

     4,025        2,889   

Net realized gains on investing activities

     (44     (170

Loss on disposal of property and equipment

     3        96   

Share-based compensation expense

     1,371        473   

Decrease in accrued investment income

     366        210   

(Increase) decrease in agents’ balances and premium receivable

     (5,242     7,016   

Decrease in reinsurance receivables

     468        2   

(Increase) decrease in deferred policy acquisition costs

     (2,386     2,158   

Increase in other assets

     (13,249     (7,038

Increase (decrease) in insurance claims and reserves

     5,806        (7,975

Decrease in payable to reinsurers

     0        (280

Increase (decrease) in other liabilities

     20,207        (8,363
                

Net cash provided by operating activities

     27,603        5,905   

Investing Activities:

    

Purchases of and additional investments in:

    

Fixed maturities

     (97,534     (29,906

Property and equipment

     (3,585     (849

Maturities and redemptions of fixed maturities

     31,384        36,377   

Sales of fixed maturities

     68,467        18,690   
                

Net cash (used in) provided by investing activities

     (1,268     24,312   

Financing Activities:

    

Proceeds from stock options exercised and employee stock purchases, including tax benefit

     56        203   

Acquisition of treasury stock

     (19,010     (9,113

Dividends paid to shareholders

     (1,823     (1,638
                

Net cash used in financing activities

     (20,777     (10,549
                

Net increase in cash and cash equivalents

     5,558        19,668   

Cash and cash equivalents at beginning of period

     57,589        129,478   
                

Cash and cash equivalents at end of period

   $ 63,147      $ 149,146   
                

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

     Six months ended June 30,  
     2010     2009  

Operating Activities:

    

Net earnings

   $ 31,900      $ 27,709   

Adjustments:

    

Depreciation and amortization

     8,280        4,637   

Net realized losses on investing activities

     411        5,957   

Loss on disposal of property and equipment

     3        96   

Share-based compensation expense

     2,043        790   

(Increase) decrease in accrued investment income

     (616     706   

Increase in agents’ balances and premium receivable

     (39,934     (5,858

(Increase) decrease in reinsurance receivables

     (1,040     3,194   

Increase in deferred policy acquisition costs

     (9,304     (1,118

(Increase) decrease in other assets

     (12,208     3,776   

Increase (decrease) in insurance claims and reserves

     45,107        (4,224

Decrease in payable to reinsurers

     (58     (954

Increase in other liabilities

     18,626        6,767   
                

Net cash provided by operating activities

     43,208        41,477   

Investing Activities:

    

Purchases of and additional investments in:

    

Fixed maturities

     (193,049     (156,878

Equity securities

     0        (117

Property and equipment

     (5,701     (2,285

Maturities and redemptions of fixed maturities

     71,135        67,896   

Sales of fixed maturities

     80,184        93,696   
                

Net cash (used in) provided by investing activities

     (47,430     2,311   

Financing Activities:

    

Proceeds from stock options exercised and employee stock purchases, including tax benefit

     693        260   

Acquisition of treasury stock

     (29,338     (19,146

Dividends paid to shareholders

     (3,687     (3,325
                

Net cash used in financing activities

     (32,332     (22,210
                

Net (decrease) increase in cash and cash equivalents

     (36,553     21,578   

Cash and cash equivalents at beginning of period

     99,700        127,568   
                

Cash and cash equivalents at end of period

   $ 63,147      $ 149,146   
                

See Condensed Notes to Consolidated Financial Statements.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

INDEX TO NOTES

 

1.      Reporting and Accounting Policies

 

  7.    Income Taxes

2.      Share-based Compensation

 

  8.    Additional Information

3.      Computation of Earnings Per Share

 

  9.    Insurance Reserves

4.      Fair Value

 

10.    Commitments and Contingencies

5.      Investments

 

11.    Subsequent Events

6.      Long-term Debt

 

Note 1 Reporting and Accounting Policies

Nature of Operations

Infinity Property and Casualty Corporation (“Infinity” or the “Company”) is a holding company that, through subsidiaries, provides personal automobile insurance with a concentration on nonstandard auto insurance. Although licensed to write insurance in all 50 states and the District of Columbia, Infinity focuses on select states that management believes offer the greatest opportunity for premium growth and profitability.

Basis of Consolidation and Reporting

The accompanying consolidated financial statements are unaudited and should be read in conjunction with Infinity Property and Casualty Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009. This Quarterly Report on Form 10-Q, including the Condensed Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, focuses on Infinity’s financial performance since the beginning of the year.

These financial statements reflect certain adjustments necessary for a fair presentation of Infinity’s results of operations and financial position. Such adjustments consist of normal, recurring accruals recorded to accurately match expenses with their related revenue streams and the elimination of all significant inter-company transactions and balances.

Infinity has evaluated events that occurred subsequent to June 30, 2010 for recognition or disclosure in the Company’s financial statements and the notes to the financial statements. See Note 11 to the Consolidated Financial Statements for further information.

Schedules may not foot due to rounding.

Estimates

Certain accounts and balances within these financial statements are based upon management’s estimates and assumptions. The amount of reserves for claims not yet paid, for example, is an item that can only be recorded by estimation. Unrealized capital gains and losses on investments are subject to market fluctuations, and management uses judgment in the determination of whether unrealized losses on certain securities are temporary or other-than-temporary. Should actual results differ significantly from these estimates, the effect on Infinity’s results of operations could be material. The results of operations for the periods presented may not be indicative of the Company’s results for the entire year.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 2 Share-based Compensation

Restricted Stock Plan

Infinity’s Amended Restricted Stock Plan was established in 2002 and amended on July 31, 2007. There were 500,000 shares of Infinity common stock reserved for issuance under the Restricted Stock Plan, of which 206,609 shares have been issued through June 30, 2010. The fair value of shares issued under Infinity’s Restricted Stock Plan is expensed over the vesting periods of the awards based on the market value of Infinity’s stock on the date of grant.

On July 31, 2007, Infinity’s Compensation Committee approved the grant of 72,234 shares of restricted stock to certain officers under the Amended Restricted Stock Plan. These shares will vest in full on July 31, 2011. During the vesting period, the shares will not have voting rights but will accrue dividends, which will not be paid until the shares have vested. The shares are treated as issued and outstanding for calculation of diluted earnings per share only. Until fully vested, the shares will not be considered issued and outstanding for purposes of the basic earnings per share calculation. During the second quarter and first six months of 2010, $0.2 million and $0.4 million, respectively, of expense was recorded in the Consolidated Statements of Earnings related to the grant of restricted stock. During the second quarter and first six months of 2009, $0.2 million and $0.4 million, respectively, of expense was recorded in the Consolidated Statements of Earnings related to the grant of restricted stock.

Non-employee Directors’ Stock Ownership Plan

In May 2005, Infinity’s shareholders approved the Non-employee Directors’ Stock Ownership Plan (the “Directors’ Plan”). The purpose of the Directors’ Plan is to include Infinity common stock as part of the compensation provided to its non-employee directors and to provide for stock ownership requirements for Infinity’s non-employee directors. There are 200,000 shares of Infinity common stock reserved for issuance under the Directors’ Plan, of which 37,302 shares have been issued through June 30, 2010. Under the terms of the Directors’ Plan, shares are granted on or about June 1 of each year and the recipient may not sell or transfer the shares for six months from the date of grant. On June 1, 2009, a total of 9,583 shares of common stock, determined pursuant to the Directors’ Plan and valued at $350,000, were issued to Infinity’s non-employee directors. On June 1, 2010, a total of 7,672 shares of common stock, determined pursuant to the Directors’ Plan and valued at $350,000, were issued to Infinity’s non-employee directors. Participants’ shares are treated as issued and outstanding for earnings per share calculations.

Employee Stock Purchase Plan

Infinity established the Employee Stock Purchase Plan (the “ESPP”) in 2004. Under this plan, all eligible full-time employees may purchase shares of Infinity common stock at a 15% discount to the current market price. Employees may allocate up to 25% of their base salary with a maximum annual participation amount of $25,000. The source of shares issued to participants is treasury shares or authorized but previously unissued shares. The maximum number of shares which may be issued under the ESPP is 1,000,000, of which 40,076 have been issued through June 30, 2010. Infinity’s ESPP is qualified under Section 423 of the Internal Revenue Code of 1986, as amended. The 15% discount for shares purchased during the three-month periods ended June 30, 2010 and 2009 approximated $8,000 and $8,000, respectively. The 15% discount for shares purchased during the six-month periods ended June 30, 2010 and 2009 approximated $16,000 and $16,000, respectively. The discounts were recognized as compensation expense in the Consolidated Statements of Earnings in each period. Participants’ shares are treated as issued and outstanding for earnings per share calculations.

Performance Share Plan

In 2008, Infinity’s shareholders approved the Performance Share Plan (the “Plan”). The purpose of the Plan is to further align the interest of management with the long-term shareholders of the company by including performance-based compensation, payable in shares of common stock, as a component of an executive’s annual compensation. The Plan is administered by the Compensation Committee (“Committee”), which is composed solely of three outside directors as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. No member of the Committee, while serving as such, is eligible to be granted performance share units. The Committee will (i) establish the performance goals, which may include but are not limited to, combined ratio, premium growth, growth within certain specific geographic areas and earnings per share or return on equity over the course of the upcoming three year period (a “Performance Measurement Cycle”), (ii) determine the Plan participants, (iii) set the performance share units to be awarded to such participants, and (iv) set the rate at which performance share units will convert to shares of common stock based upon

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

attainment of the performance goals. The number of shares of common stock that may be issued under the Plan is limited to 500,000 shares. No shares have been issued under this plan. During the second quarter and first six months of 2010, approximately $0.8 million and $1.3 million of expense, respectively, was recognized in the Consolidated Statements of Earnings for the Plan. During the second quarter and first six months of 2009, approximately $(0.1) million and $0.0 million of expense, respectively, was recognized in the Consolidated Statements of Earnings for the Plan.

Stock Option Plan

Infinity’s Stock Option Plan (“SOP”) was amended to prohibit any future grant of stock options from the plan after May 20, 2008. No options have been granted since 2004. Options were generally granted with an exercise price equal to the closing price of Infinity’s stock at the date of grant and have a 10-year contractual life. All of the options under this plan have fully vested. Subject to specific limitations contained in the SOP, Infinity’s Board of Directors has the ability to amend, suspend or terminate the plan at any time without shareholder approval. The SOP will continue in effect until the exercise or expiration of all options granted under the plan.

As permitted by the Stock Compensation topic of the FASB Accounting Standards Codification, Infinity used the modified Black-Scholes model with the assumptions noted below to estimate the value of employee stock options on the date of grant. Expected volatilities are based on historical volatilities of Infinity’s stock. Infinity selected the expected option life to be 7.5 years, which represents the midpoint between the last vesting date and the end of the contractual term. The risk-free rate for periods within the contractual life of the options is based on the yield on 10-year Treasury notes in effect at the time of grant. The dividend yield was based on expected dividends at the time of grant.

The weighted-average grant date fair values of options granted during 2004 and 2003 were estimated using the modified Black-Scholes valuation model and the following weighted-average assumptions:

 

     2004 Grants     2003 Grants  

Weighted-average grant date fair value

   $ 13.87      $ 5.97   

Dividend yield

     0.7     1.4

Expected volatility

     33.0     33.0

Risk-free interest rate

     4.3     4.0

Expected life

     7.5 years        7.5 years   

Weighted-average grant exercise price

   $ 33.56      $ 16.11   

Outstanding as of June 30, 2010

     116,050        169,340   

The following table describes activity for Infinity’s Stock Option:

 

     Number of Options     Weighted-average
Exercise  Price
   Weighted-average
Remaining  Term
(in years)
   Aggregate
Intrinsic  Value
(a) (in millions)

Outstanding at December 31, 2009

   312,840      $ 23.05      

Granted

   0        0      

Exercised

   (26,450   $ 19.95      

Forfeited

   (1,000   $ 33.58      
              

Outstanding at June 30, 2010

   285,390      $ 23.30    3.04    $ 6.5
              

Vested as of June 30, 2010

   285,390      $ 23.30    3.04    $ 6.5

Exercisable as of June 30, 2010

   285,390      $ 23.30    3.04    $ 6.5

(a) The intrinsic value for the stock options is calculated based on the difference between the exercise price of the underlying awards and Infinity’s closing stock price as of the reporting date.

The Stock Compensation topic of the FASB Accounting Standards codification requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. As of June 30, 2010, Infinity used an estimated forfeiture rate of 0%. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Cash received from option exercises for the six months ended June 30, 2010 and 2009 was approximately $0.5 million and $0.1 million, respectively. The actual tax benefit realized for the tax deductions from options exercised of share-based payment arrangements totaled less than $0.1 million for each of the six months ended June 30, 2010 and June 30, 2009. The total intrinsic value of options exercised during the six months ended June 30, 2010 and 2009 was approximately $0.7 million and $0.2 million, respectively.

Infinity has a policy of issuing new stock for the exercise of stock options.

Note 3 Computation of Earnings Per Share

The following table illustrates the computation of Infinity’s basic and diluted earnings per common share (in thousands, except per share figures):

 

     For the three months
ended June 30,
   For the six months
ended June 30,
     2010    2009    2010    2009

Net earnings for basic and diluted earnings per share

   $ 16,278    $ 16,886    $ 31,900    $ 27,709

Average basic shares outstanding

     13,054      13,634      13,186      13,804

Basic earnings per share

   $ 1.25    $ 1.24    $ 2.42    $ 2.01
                           

Average basic shares outstanding

     13,054      13,634      13,186      13,804

Restricted stock not yet vested

     72      72      72      72

Dilutive effect of assumed option exercises

     142      122      140      130

Dilutive effect of Performance Share Plan

     78      0      85      0
                           

Average diluted shares outstanding

     13,347      13,828      13,484      14,006

Diluted earnings per share

   $ 1.22    $ 1.22    $ 2.37    $ 1.98
                           

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 4 Fair Value

Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1), (ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2) or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).

The following table presents for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2010 (in thousands):

 

     Fair Value  
   Level 1     Level 2     Level 3     Total  

Cash and cash equivalents

   $ 63,147      $ 0      $ 0      $ 63,147   

Fixed maturity securities:

        

U.S. government and agencies

     206,429        0        0        206,429   

Government-sponsored entities

     0        40,461        5,087        45,548   

State and municipal

     0        361,808        0        361,808   

Mortgage-backed securities:

        

Residential

     0        174,292        0        174,292   

Commercial

     0        36,332        0        36,332   
                                

Total mortgage-backed securities

   $ 0      $ 210,624      $ 0      $ 210,624   

Collateralized mortgage obligations

     0        54,589        1,703        56,292   

Asset-backed securities

     0        26,968        0        26,968   

Corporates

     0        268,861        13,643        282,504   
                                

Total fixed maturities

   $ 206,429      $ 963,312      $ 20,433      $ 1,190,173   

Equity securities

     36,772        1        0        36,773   
                                

Total

   $ 306,348      $ 963,312      $ 20,433      $ 1,290,093   
                                

Percentage of total

     23.7     74.7     1.6     100.0

Level 1 includes cash and cash equivalents, U.S. Treasury securities and an exchange-traded fund. Level 2 securities are comprised of securities whose fair value was determined using observable market inputs. Level 3 securities are comprised of (i) securities for which there is no active or inactive market for similar instruments, (ii) securities whose fair value is determined based on unobservable inputs and (iii) securities, other than those backed by the U.S. Government, that are not rated by a nationally recognized statistical rating organization. Transfers between levels are recognized at the end of the reporting period.

The fair value of securities in Level 2 is provided by a third-party, nationally recognized pricing service. Infinity periodically reviews the third-party model pricing methodologies and periodically tests sales activity to determine if there are any significant differences between the market price used to value the security as of the balance sheet date and the sales price of the security for sales that occurred around the balance sheet date.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The following table presents the changes in the Level 3 fair value category at June 30, 2010 (in thousands):

 

     For the three months ended June 30, 2010  
   Government-
sponsored
Entities
    State and
Municipal
    Mortgage-
backed
Securities
    Collateralized
Mortgage
Obligations
    Asset-
backed
Securities
    Corporates     Total  

Balance at beginning of period

   $ 4,062      $ 0      $ 0      $ 1,831      $ 645      $ 13,031      $ 19,568   

Total gains or (losses), unrealized or realized

              

Included in net earnings

     0        0        0        (4     0        (122     (127

Included in other comprehensive income

     129        0        0        29        0        948        1,106   

Purchases

     0        0        0        0        0        1,028        1,028   

Sales

     0        0        0        0        0        (119     (119

Settlements

     0        0        0        (153     0        (643     (797

Transfers in

     897        0        0        0        0        0        897   

Transfers out

     0        0        0        0        (645     (479     (1,123
                                                        

Balance at end of period

   $ 5,087      $ 0      $ 0      $ 1,703      $ 0      $ 13,643      $ 20,433   
                                                        
     For the six months ended June 30, 2010  
   Government-
sponsored
Entities
    State and
Municipal
    Mortgage-
backed
Securities
    Collateralized
Mortgage
Obligations
    Asset-
backed
Securities
    Corporates     Total  

Balance at beginning of period

   $ 4,392      $ 3,810      $ 6,169      $ 8,888      $ 576      $ 13,469      $ 37,302   

Total gains or (losses), unrealized or realized

              

Included in net earnings

     0        0        0        (11     0        (1,620     (1,631

Included in other comprehensive income

     76        0        0        87        (0     2,225        2,388   

Purchases

     0        0        0        0        645        1,639        2,284   

Sales

     0        0        0        0        0        (334     (334

Settlements

     (277     0        0        (394     0        (1,257     (1,928

Transfers in

     897        0        0        0        0        0        897   

Transfers out

     0        (3,810     (6,169     (6,867     (1,221     (479     (18,545
                                                        

Balance at end of period

   $ 5,087      $ 0      $ 0      $ 1,703      $ 0      $ 13,643      $ 20,433   
                                                        

Of the $20.4 million fair value of securities in Level 3, which consists of 15 securities, 12 are priced based on non-binding broker quotes or prices from various outside sources. When there are multiple prices obtained for the same security, a hierarchy is used that determines the best price, which is used as the basis for the fair value presented in the financial statements. The remaining three securities, which have a fair value of $3.2 million, are manually calculated based on expected principal repayments from Bloomberg, the zero spot Treasury curve at June 30, 2010 and the average spreads to Treasury for the type and rating of the security being priced.

Approximately $18.5 million of securities in Level 3 at December 31, 2009 were transferred to Level 2 during the six months ended June 30, 2010 because a price for those securities was obtained from a third-party, nationally recognized pricing service. Approximately $0.9 million of securities were transferred into Level 3 from Level 2 during the six months ended June 30, 2010 because the Company could not obtain a price from a third-party, nationally recognized pricing service.

The gains or losses included in net earnings are included in the line item realized gains (losses) on investments on the Consolidated Statements of Earnings. The gains or losses included in other comprehensive income are recognized in the line item change in unrealized gain on investments or the line item change in non-credit component of impairment losses on fixed maturities on the Consolidated Statements of Changes in Shareholders’ Equity.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The following table presents the carrying value and estimated fair value of Infinity’s financial instruments (in thousands):

 

     June 30, 2010    December 31, 2009
     Carrying
Value
   Fair Value    Carrying
Value
   Fair Value

Assets:

           

Cash and cash equivalents

   $ 63,147    $ 63,147    $ 99,700    $ 99,700

Available-for-sale securities

           

Fixed maturities

     1,190,173      1,190,173      1,146,692      1,146,692

Equity securities

     36,773      36,773      39,438      39,438
                           

Total cash and investments

   $ 1,290,093    $ 1,290,093    $ 1,285,831    $ 1,285,831
                           

Liabilities:

           

Long-term debt

   $ 194,690    $ 194,825    $ 194,651    $ 192,309
                           

See Note 5 of the Consolidated Financial Statements for additional information on investments and Note 6 for additional information on long-term debt.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 5 Investments

All fixed maturity and equity securities are considered available-for-sale and reported at fair value with the net unrealized gains or losses reported after-tax (net of any valuation allowance) as a component of other comprehensive income. The proceeds from sales of securities for the three and six months ended June 30, 2010 were $67.9 million and $80.2 million, respectively. Proceeds from sales of securities for the three and six months ended June 30, 2009 were $18.7 million and $93.7 million, respectively. Gains or losses on securities are determined on a specific identification basis.

Summarized information for the major categories of Infinity’s investment portfolio follows (in thousands):

 

     June 30, 2010
   Amortized Cost or
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    OTTI
Recognized  in

Accumulated
OCI
    Fair Value

Fixed maturities:

            

U.S. government and agencies

   $ 199,948    $ 6,481    $ 0      $ 0      $ 206,429

Government-sponsored entities

     44,186      1,365      (3     0        45,548

State and municipal

     350,041      11,879      (112     0        361,808

Mortgage-backed securities:

            

Residential

     166,800      7,492      0        0        174,292

Commercial

     35,217      1,149      (34     0        36,332
                                    

Total mortgage-backed securities

   $ 202,018    $ 8,641    $ (34   $ 0      $ 210,624

Collateralized mortgage obligations

     55,281      1,190      0        (179     56,292

Asset-backed securities

     26,797      215      (42     (1     26,968

Corporates

     271,635      11,135      (263     (4     282,504
                                    

Total fixed maturities

   $ 1,149,907    $ 40,906    $ (455   $ (184   $ 1,190,173

Equity securities

     31,327      5,446      0        0        36,773
                                    

Total

   $ 1,181,233    $ 46,352    $ (455   $ (184   $ 1,226,946
                                    
     December 31, 2009
   Amortized Cost or
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    OTTI
Recognized in
Accumulated
OCI
    Fair Value

Fixed maturities:

            

U.S. government and agencies

   $ 187,915    $ 4,063    $ (717   $ 0      $ 191,261

Government-sponsored entities

     56,344      790      (118     0        57,015

State and municipal

     342,696      9,020      (1,640     0        350,076

Mortgage-backed securities:

            

Residential

     149,354      3,549      (36     0        152,867

Commercial

     53,338      637      (49     0        53,926
                                    

Total mortgage-backed securities

   $ 202,692    $ 4,186    $ (85   $ 0      $ 206,793

Collateralized mortgage obligations

     65,249      619      (387     (901     64,580

Asset-backed securities

     6,760      41      (71     (5     6,726

Corporates

     264,120      8,190      (696     (1,374     270,241
                                    

Total fixed maturities

   $ 1,125,776    $ 26,909    $ (3,714   $ (2,279   $ 1,146,692

Equity securities

     31,331      8,108      0        0        39,438
                                    

Total

   $ 1,157,107    $ 35,017    $ (3,714   $ (2,279   $ 1,186,131
                                    

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The following table sets forth the amount of unrealized loss by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

     Less than 12 Months     12 Months or More  
   Number of
Securities
with
Unrealized
Losses
   Fair Value    Gross
Unrealized
Losses
    Unrealized
Losses as %
of Cost
    Number of
Securities
with
Unrealized
Losses
   Fair Value    Gross
Unrealized
Losses
    Unrealized
Losses as %
of Cost
 

June 30, 2010

                    

Fixed maturities:

                    

U.S. government and agencies

   0    $ 0    $ 0      0.0   0    $ 0    $ 0      0.0

Government-sponsored entities

   1      897      (3   0.4   0      0      0      0.0

State and municipal

   11      22,675      (112   0.5   0      0      0      0.0

Mortgage-backed securities:

                    

Residential

   0      0      0      0.0   0      0      0      0.0

Commercial

   6      5,712      (34   0.6   0      0      0      0.0
                                                    

Total mortgage-backed securities

   6    $ 5,712    $ (34   0.6   0    $ 0    $ 0      0.0

Collateralized mortgage obligations

   0      0      0      0.0   3      4,302      (179   4.0

Asset-backed securities

   1      744      (5   0.7   2      467      (38   7.6

Corporates

   26      18,692      (263   1.4   2      448      (4   0.9
                                                    

Total fixed maturities

   45    $ 48,719    $ (418   0.9   7    $ 5,217    $ (221   4.1

Equity securities

   0      0      0      0.0   0      0      0      0.0
                                                    

Total

   45    $ 48,719    $ (418   0.9   7    $ 5,217    $ (221   4.1
                                                    
     Less than 12 Months     12 Months or More  
     Number of
Securities
with
Unrealized
Losses
   Fair Value    Gross
Unrealized
Losses
    Unrealized
Losses as %

of Cost
    Number of
Securities
with
Unrealized
Losses
   Fair Value    Gross
Unrealized
Losses
    Unrealized
Losses as %

of Cost
 

December 31, 2009

                    

Fixed maturities:

                    

U.S. government and agencies

   11    $ 46,288    $ (717   1.5   0    $ 0    $ 0      0.0

Government-sponsored entities

   2      23,440      (118   0.5   0      0      0      0.0

State and municipal

   39      98,053      (1,640   1.6   0      0      0      0.0

Mortgage-backed securities:

                    

Residential

   5      26,305      (36   0.1   0      0      0      0.0

Commercial

   8      11,742      (49   0.4   0      0      0      0.0
                                                    

Total mortgage-backed securities

   13    $ 38,047    $ (85   0.2   0    $ 0    $ 0      0.0

Collateralized mortgage obligations

   5      17,916      (131   0.7   7      14,133      (1,157   7.6

Asset-backed securities

   1      576      (1   0.2   3      536      (75   12.2

Corporates

   32      57,203      (768   1.3   18      8,117      (1,301   13.8
                                                    

Total fixed maturities

   103    $ 281,523    $ (3,460   1.2   28    $ 22,786    $ (2,533   10.0

Equity securities

   0      0      0      0.0   0      0      0      0.0
                                                    

Total

   103    $ 281,523    $ (3,460   1.2   28    $ 22,786    $ (2,533   10.0
                                                    

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. Factors considered and resources used by management include:

 

   

whether the unrealized loss is credit-driven or a result of changes in market interest rates;

 

   

the length of time the security’s fair value has been below its cost;

 

   

the extent to which fair value is less than cost basis;

 

   

the intent to sell the security;

 

   

whether it is more likely than not that there will be a requirement to sell the security before its anticipated recovery;

 

   

historical operating, balance sheet and cash flow data contained in issuer SEC filings;

 

   

issuer news releases;

 

   

near-term prospects for improvement in the issuer and/or its industry;

 

   

industry research and communications with industry specialists and

 

   

third-party research and credit rating reports.

Management regularly evaluates for potential impairment each security position that has any of the following: a fair value of less than 95% of its book value, an unrealized loss that equals or exceeds $100,000 or one or more impairment charges recorded in the past. In addition, management reviews positions held related to an issuer of a previously impaired security.

 

     June 30,
2010
    December 31,
2009
 

Number of positions held with unrealized:

    

Gains

   518      413   

Losses

   52      131   

Number of positions held that individually exceed unrealized:

    

Gains of $500,000

   7      4   

Losses of $500,000

   0      1   

Percentage of positions held with unrealized:

    

Gains that were investment grade

   82   76

Losses that were investment grade

   52   78

Percentage of fair value held with unrealized:

    

Gains that were investment grade

   93   94

Losses that were investment grade

   82   95

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The following table sets forth the amount of unrealized loss by age and severity at June 30, 2010 (in thousands):

 

Age of Unrealized Losses:    Fair Value of
Securities with
Unrealized
Losses
   Total
Gross
Unrealized
Losses
    Less than 5%*     5% - 10%*     Total
Gross
Greater
than
10%*
 

Less than or equal to:

           

Three months

   22,471    (237   (205   (32   0   

Six months

   4,637    (56   (56   0      0   

Nine months

   16,794    (112   (112   0      0   

Twelve months

   4,817    (13   (13   0      0   

Greater than twelve months

   5,217    (221   (65   (37   (119
                             

Total

   53,936    (639   (451   (69   (119
                             
* As a percentage of amortized cost or cost.

The change in unrealized gains (losses) on marketable securities included the following (in thousands):

 

     Pre-tax              
     Fixed
Maturities1
    Equity
Securities
    Tax
Effects
    Net  

Six months ended June 30, 2010

        

Unrealized holding gains (losses) on securities arising during the period

   $ 18,943      $ (2,666   $ (5,697   $ 10,580   

Realized (gains) losses on securities sold

     (1,389     0        486        (903

Impairment loss recognized in earnings

     1,796        4        (630     1,170   
                                

Change in unrealized gains (losses) on marketable securities, net

   $ 19,350      $ (2,661   $ (5,841   $ 10,848   
                                

Six months ended June 30, 2009

        

Unrealized holding gains (losses) on securities arising during the period

   $ 16,468      $ 1,075      $ (6,140   $ 11,403   

Realized (gains) losses on securities sold

     (2,388     0        836        (1,552

Impairment loss recognized in earnings

     8,345        0        (2,921     5,424   
                                

Change in unrealized gains (losses) on marketable securities, net

   $ 22,424      $ 1,075      $ (8,225   $ 15,275   
                                

1 The change in unrealized gains (losses) for the six months ended June 30, 2009 excludes a $38.1 million reclassification of the non-credit component of previously recognized impairments from retained earnings to accumulated other comprehensive income

For fixed maturity securities that are other-than-temporarily impaired, Infinity assesses its intent to sell and the likelihood that the Company will be required to sell the security before recovery of its amortized cost. If a fixed maturity security is considered other-than-temporarily impaired but the Company does not intend to and is not more than likely to be required to sell the security prior to its recovery to amortized cost, the amount of the impairment is separated into a credit loss component and the amount due to all other factors. The credit loss component of an impairment charge on a fixed maturity security is determined by the excess of the amortized cost over the present value of the expected cash flows. The present value is determined using the best estimate of cash flows discounted at (1) the effective interest rate implicit at the date of acquisition for non-structured securities or (2) the book yield for structured securities. The techniques and assumptions for determining the best estimate of cash flows varies depending on the type of security. The credit loss component of an impairment charge is recognized in net earnings while the non-credit component is recognized in accumulated other comprehensive income. If Infinity intends to sell or will more likely than not be required to sell a security, the entire amount of the impairment is treated as a credit loss.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

The following table is a progression of credit losses on fixed maturity securities for which a portion was recognized in accumulated other comprehensive income (in thousands):

 

Balance at December 31, 2009

   $ 3,136   

Additional credit impairments on:

  

Previously impaired securities

     1,652   

Securities without prior impairments

     7   

Reductions for securities sold and paydowns

     (1,304
        

Balance at June 30, 2010

   $ 3,490   
        

The table below sets forth the scheduled maturities of fixed maturity securities at June 30, 2010, based on their fair values (in thousands). Securities that do not have a single maturity date are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

 

                         Amortized
     Fair Value    Cost

Maturity

   Securities
with
Unrealized
Gains
   Securities
with
Unrealized
Losses
   Securities
with No
Unrealized
Gains or
Losses
   All Fixed
Maturity
Securities
   All Fixed
Maturity
Securities

One year or less

   $ 73,971    $ 0    $ 319    $ 74,290    $ 73,187

After one year through five years

     453,594      11,437      4,221      469,252      451,084

After five years through ten years

     235,947      23,799      2,589      262,335      253,583

After ten years

     82,937      7,476      0      90,412      87,957

Mortgage-backed, asset-backed and collateralized mortgage obligations

     282,660      11,224      0      293,884      284,096
                                  
   $ 1,129,108    $ 53,936    $ 7,130    $ 1,190,173    $ 1,149,907
                                  

Note 6 Long-term Debt

In February 2004, Infinity issued $200 million principal of senior notes due February 2014 (the “Senior Notes”). The Senior Notes accrue interest at an effective yield of 5.55% and bear a coupon of 5.5%, payable semiannually. At the time the notes were issued, Infinity capitalized $2.1 million of debt issuance costs, which are being amortized over the term of the Senior Notes. During 2009, Infinity repurchased $5.0 million of its debt, bringing the outstanding principle to $195.0 million. The June 30, 2010 fair value of $194.8 million was calculated using a 259 basis point spread to the ten-year U.S. Treasury Note of 2.933%.

In August 2008, Infinity entered into an agreement for a $50 million three-year revolving credit facility (the “Credit Agreement”) that requires Infinity to meet certain financial and other covenants. Infinity is currently in compliance with all covenants under the Credit Agreement. At June 30, 2010, there were no borrowings outstanding under the Credit Agreement.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 7 Income Taxes

Income tax expense for the three and six months ended June 30, 2010 was $7.2 million and $14.4 million, respectively, compared to $7.4 million and $15.3 million for the same periods of 2009. The following table reconciles Infinity’s statutory federal income tax rate to its effective tax rate (in thousands):

 

     For the three months
ended June 30,
    For the six months
ended June 30,
 
     2010     2009     2010     2009  

Earnings before income taxes

   $ 23,430      $ 24,243      $ 46,258      $ 43,029   

Income taxes at statutory rates

     8,201        8,485        16,190        15,060   

Effect of:

        

Dividends-received deduction

     (39     (33     (74     (73

Tax-exempt interest

     (891     (648     (1,773     (1,246

Adjustment to valuation allowance

     (135     (466     (23     1,569   

Other

     16        18        37        11   
                                

Provision for income taxes

   $ 7,152      $ 7,357      $ 14,358      $ 15,321   
                                

GAAP effective tax rate

     30.5     30.4     31.0     35.6
                                

During the first six months of 2009, Infinity increased its tax valuation allowance by approximately $1.6 million primarily as a result of an increase in the reserve for other-than-temporarily impaired securities.

Note 8 Additional Information

Supplemental Cash Flow Information

Non-cash activity includes the issuance of and the accounting for share-based compensation and the changes in net unrealized gains or losses in securities. The Company made the following payments that are not separately disclosed in the Consolidated Statements of Cash Flows (in thousands):

 

     For the three months ended June 30,    For the six months ended June 30,
     2010    2009    2010    2009

Income tax payments

   $ 16,100    $ 17,000    $ 21,600    $ 17,200

Interest payments on debt

     0      0      5,363      5,500

Negative Cash Book Balances

Negative cash book balances, included in the line item “Other liabilities” in the Consolidated Balance Sheets, were $33.8 million and $22.1 million, respectively, at June 30, 2010 and December 31, 2009.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 9 Insurance Reserves

Insurance reserves include liabilities for unpaid losses, both known and estimated for incurred but not reported (“IBNR”), and unpaid loss adjustment expenses (“LAE”). The following table provides an analysis of changes in the liability for unpaid losses and LAE on a GAAP basis (in thousands):

 

     Three months ended     Six months ended  
     June 30,     June 30,  
     2010     2009     2010     2009  

Balance at Beginning of Period

        

Unpaid losses on known claims

   $ 168,918      $ 171,700      $ 164,134      $ 179,530   

IBNR losses

     185,538        194,121        193,790        196,891   

LAE

     150,769        165,299        151,191        168,335   
                                

Total unpaid losses and LAE

     505,225        531,120        509,114        544,756   

Reinsurance recoverables

     (18,735     (19,461     (17,715     (20,516
                                

Unpaid losses and LAE, net of reinsurance recoverables

     486,491        511,658        491,399        524,241   

Current Activity

        

Loss and LAE incurred:

        

Current accident year

     173,557        161,206        336,889        322,246   

Prior accident years

     (20,276     (10,381     (36,965     (20,153
                                

Total loss and LAE incurred

     153,281        150,825        299,923        302,094   

Loss and LAE payments:

        

Current accident year

     (96,894     (87,615     (147,900     (137,176

Prior accident years

     (59,184     (59,423     (159,729     (173,713
                                

Total loss and LAE payments

     (156,078     (147,038     (307,629     (310,889

Balance at End of Period

        

Unpaid losses and LAE, net of reinsurance recoverables

     483,693        515,445        483,693        515,445   

Add back reinsurance recoverables

     18,574        18,557        18,574        18,557   
                                

Total unpaid losses and LAE

   $ 502,267      $ 534,002      $ 502,267      $ 534,002   
                                

Unpaid losses on known claims

   $ 170,692      $ 169,753      $ 170,692      $ 169,753   

IBNR losses

     185,553        196,830        185,553        196,830   

LAE

     146,022        167,419        146,022        167,419   
                                

Total unpaid losses and LAE

   $ 502,267      $ 534,002      $ 502,267      $ 534,002   
                                

The $37.0 million of favorable reserve development during the six months ended June 30, 2010 is primarily driven by bodily injury and collision coverages in the states of Arizona, California, Connecticut, Florida and Georgia and is related to accident years 2009, 2008 and 2007.

The $20.2 million of favorable development during the six months ended June 30, 2009 primarily relates to liability coverages on the nonstandard personal auto program in California and Florida. In addition, there was favorable development on loss and LAE reserves relating to liability coverages in the commercial vehicle program.

 

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Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Condensed Notes to Consolidated Financial Statements

 

Note 10 Commitments and Contingencies

Commitments

In late 2009, Infinity made an offer to purchase the Liberty Park call center facility. This offer was contingent upon due diligence by the Company and the successful execution of the sales contract. In May of this year, Infinity completed its due diligence and entered into a definitive sales contract to purchase the building for $16.1 million. Infinity intends to use current funds to complete the purchase in the second half of 2010.

There have been no other material changes from the commitments discussed in the Form 10-K for the year ended December 31, 2009. For a description of the Company’s previously reported commitments, refer to Note 16 Commitments and Contingencies, in the form 10-K for the year ended December 31, 2009.

Contingencies

There have been no material changes from the contingencies discussed in the Form 10-K for the year ended December 31, 2009. For a description of the Company’s previously reported contingencies, refer to Note 16 Commitments and Contingencies, in the form 10-K for the year ended December 31, 2009.

Note 11 Subsequent Events

Following the end of the second quarter, Infinity exhausted the $9.5 million of remaining authority on the share and debt repurchase program as of June 30, 2010, purchasing 197,900 shares at an average price, excluding commissions, of $47.91. On August 3, 2010, Infinity’s Board of Directors increased the authority under the 2006 repurchase program by $50.0 million and extended the date to execute this program to December 31, 2011.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain statements that may be deemed to be “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in this report not dealing with historical results or current facts are forward-looking and are based on estimates, assumptions, and projections. Statements which include the words “assumes”, “believes,” “seeks,” “expects,” “may,” “should,” “intends,” “likely,” “targets,” “plans,” “anticipates,” “estimates” or the negative version of those words and similar statements of a future or forward-looking nature identify forward-looking statements. Examples of such forward-looking statements include statements relating to expectations concerning market conditions, premium growth, earnings, investment performance, expected losses, rate changes and loss experience.

The primary events or circumstances that could cause actual results to differ materially from those expected by Infinity include determinations with respect to reserve adequacy, realized gains or losses on the investment portfolio including other-than-temporary impairments for credit losses, rising bodily injury loss cost trends, undesired business mix or risk profile for new business, elevated unemployment rates and the proliferation of illegal immigration legislation in key Focus States. Infinity undertakes no obligation to publicly update or revise any of the forward-looking statements. For a more detailed discussion of some of the foregoing risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements see “Risk Factors” contained in Part I, Item 1A of Infinity’s Annual Report on Form 10-K for the twelve months ended December 31, 2009.

OVERVIEW

Net earnings and diluted earnings per share for the three months ended June 30, 2010 were $16.3 million and $1.22, respectively, compared to $16.9 million and $1.22, respectively, for the three months ended June 30, 2009. Net earnings and diluted earnings per share for the six months ended June 30, 2010 were $31.9 million and $2.37, respectively, compared to $27.7 million and $1.98, respectively, for the six months ended June 30, 2009. The increase in diluted earnings per share for the six months ended June 30, 2010 is primarily due to an increase in underwriting income coupled with a decline in other-than-temporary impairment losses.

Infinity had a net realized gain on investments of less than $0.1 million for the second quarter of 2010 compared to a net realized gain of $0.2 million in the second quarter of 2009. Net realized losses on investments were $0.4 million for the first six months of 2010 compared to $6.0 million for the same period of 2009. Included in the net realized loss for the first six months of 2010 is $1.8 million of other-than-temporary impairments on fixed income securities compared with $8.3 million of impairments during the first six months of 2009. Included in the net realized gain for the second quarter of 2010 is $0.3 million of other-than-temporary impairments on fixed income securities compared with $0.8 million of impairments during the second quarter of 2009.

Included in net earnings for the three and six months ended June 30, 2010 were $13.2 million ($20.3 million pre-tax) and $24.0 million ($37.0 million pre-tax), respectively, of favorable development on prior accident period loss and LAE reserves compared to $6.8 million ($10.4 million pre-tax) and $13.1 million ($20.2 million pre-tax), respectively, for the three and six months ended June 30, 2009. See Results of Operations – Underwriting – Profitability for a more detailed discussion of Infinity’s underwriting results.

Total revenues grew 5.0% and 2.7% for the three and six months ended June 30, 2010 compared with the same periods in 2009. The growth in both periods is primarily attributable to an increase in earned premiums. Gross written premiums in California, Florida and Pennsylvania contributed to this growth. See Results of Operations – Underwriting – Premiums for a more detailed discussion of Infinity’s gross written premium growth.

Infinity’s book value per share increased 19.1% from $41.11 at June 30, 2009 to $48.98 at June 30, 2010. This increase was primarily due to earnings and change in unrealized net gains on investments, net of shareholder dividends, for the twelve months ended June 30, 2010. Annualized return on equity for the three and six months ended June 30, 2010 was 10.4% and 10.2%, respectively, compared with 12.4% and 10.2% for the three and six months ended June 30, 2009.

 

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Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

RESULTS OF OPERATIONS

Underwriting

Premium

Infinity’s insurance subsidiaries provide personal automobile insurance products with a concentration on nonstandard auto insurance. While there is no industry-recognized definition of nonstandard auto insurance, Infinity believes that it is generally understood to mean coverage for drivers who, because of their driving record, age or vehicle type, represent higher than normal risks and pay higher rates for comparable coverage. Infinity also writes commercial vehicle insurance and insurance for classic collectible automobiles (“Classic Collector”).

Infinity is licensed to write insurance in all 50 states and the District of Columbia, but focuses its operations in targeted urban areas (“Urban Zones”) identified within selected focus states that management believes offer the greatest opportunity for premium growth and profitability.

Infinity classifies the states in which it operates into three categories:

 

   

“Focus States” – Infinity has identified Urban Zones in these states which include: Arizona, California, Florida, Georgia, Illinois, Nevada, Pennsylvania and Texas.

 

   

“Maintenance States” – Infinity is maintaining its writings in these states which include: Alabama, Colorado, Connecticut, South Carolina, and Tennessee. Infinity believes each state offers the Company an opportunity for underwriting profit.

 

   

“Other States” – Includes all remaining states.

Infinity further classifies territories within the Focus States into two categories:

 

   

“Urban Zones” – include the following urban areas:

 

   

Arizona – Phoenix and Tucson

 

   

California – Bay Area, Los Angeles, Sacramento, San Diego, and San Joaquin Valley

 

   

Florida – Jacksonville, Miami, Orlando, Sarasota and Tampa

 

   

Georgia – Atlanta

 

   

Illinois – Chicago

 

   

Nevada – Las Vegas

 

   

Pennsylvania – Allentown and Philadelphia

 

   

Texas – Dallas, Fort Worth, Houston and San Antonio

 

   

“Non-Urban Zones” – include all remaining areas in the Focus States located outside of a designated Urban Zone.

Infinity continually evaluates its market opportunities; thus the Focus States, Urban Zones, Maintenance States and Other States may change over time as new market opportunities arise, as the allocation of resources changes or as regulatory environments change. In the tables below, Infinity has restated 2009 premium, policies-in-force and combined ratios to be consistent with the 2010 definition of Urban Zones, Focus States, Maintenance States and Other States.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following table shows Infinity’s net earned premium for the three months ended June 30, 2010 and 2009 ($ in thousands):

 

     Three months ended June 30,  
     2010     2009     $ Change     % Change  

Net earned premium

        

Gross written premium

        

Personal auto insurance:

        

Focus States:

        

Urban Zones

   $ 184,955      $ 157,466      $ 27,489      17.5

Non-Urban Zones

     26,478        20,240        6,238      30.8
                              

Total Focus States

     211,433        177,706        33,727      19.0

Maintenance States

     5,415        6,752        (1,337   (19.8 )% 

Other States

     798        1,421        (623   (43.9 )% 
                              

Total personal auto

     217,646        185,879        31,767      17.1

Commercial Vehicle

     14,918        14,361        556      3.9

Classic Collector

     3,050        3,826        (776   (20.3 )% 

Other

     0        32        (32   (100.0 )% 
                              

Total gross written premium

     235,614        204,099        31,515      15.4

Ceded reinsurance

     (1,378     (1,278     (100   7.8
                              

Net written premium

     234,236        202,821        31,415      15.5

Change in unearned premium

     (8,646     10,909        (19,555   (179.3 )% 
                              

Net earned premium

   $ 225,590      $ 213,729      $ 11,860      5.5
                              

The following table shows Infinity’s net earned premium for the six months ended June 30, 2010 and 2009 ($ in thousands):

 

     Six months ended June 30,  
     2010     2009     $ Change     % Change  

Net earned premium

        

Gross written premium

        

Personal auto insurance:

        

Focus States:

        

Urban Zones

   $ 385,859      $ 338,574      $ 47,285      14.0

Non-Urban Zones

     57,423        45,105        12,318      27.3
                              

Total Focus States

     443,282        383,679        59,602      15.5

Maintenance States

     11,711        15,016        (3,305   (22.0 )% 

Other States

     1,736        3,169        (1,433   (45.2 )% 
                              

Total personal auto

     456,729        401,864        54,865      13.7

Commercial Vehicle

     30,217        27,202        3,015      11.1

Classic Collector

     5,114        8,175        (3,061   (37.4 )% 

Other

     0        112        (112   (100.0 )% 
                              

Total gross written premium

     492,060        437,353        54,707      12.5

Ceded reinsurance

     (2,640     (2,578     (63   2.4
                              

Net written premium

     489,419        434,775        54,644      12.6

Change in unearned premium

     (51,763     (6,379     (45,384   711.5
                              

Net earned premium

   $ 437,656      $ 428,396      $ 9,260      2.2
                              

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following table shows Infinity’s policies-in-force:

 

     As of June 30,  
     2010    2009    Change     % Change  

Policies-in-force

          

Personal auto insurance:

          

Focus States:

          

Urban Zones

   647,582    588,366    59,216      10.1

Non-Urban Zones

   82,597    69,032    13,565      19.7
                      

Total Focus States

   730,179    657,398    72,781      11.1

Maintenance States

   18,727    23,225    (4,498   (19.4 )% 

Other States

   2,858    5,148    (2,290   (44.5 )% 
                      

Total personal auto insurance

   751,764    685,771    65,993      9.6

Commercial Vehicle

   31,472    24,780    6,692      27.0

Classic Collector

   34,194    54,265    (20,071   (37.0 )% 

Other

   0    95    (95   (100.0 )% 
                      

Total policies-in-force

   817,430    764,911    52,519      6.9
                      

Gross written premium grew 15.4% and 12.5% during the second quarter and first six months of 2010, respectively, compared with the same periods of 2009. During the first six months of 2010, Infinity implemented 13 rate revisions in various states with an overall rate decrease of less than 1%. Policies-in-force at June 30, 2010 increased 6.9% compared with the same period in 2009. Gross written premium grew more than policies-in-force due to a shift in business mix toward policies offering broader coverage. These policies typically generate a higher premium per policy than those with more restricted coverage.

During the second quarter and first six months of 2010, personal auto insurance gross written premium in Infinity’s Focus States grew 19.0% and 15.5%, respectively, when compared with the same periods of 2009, with growth in all states excluding Nevada. The increase in gross written premium is primarily a result of growth in Arizona, California, Florida and Pennsylvania.

 

   

Gross written premium in Arizona grew 23.1% during the second quarter and 43.3% for the first six months of 2010 compared with the same periods of 2009. Increased marketing efforts and rate decreases taken in the state during late 2009 contributed to the substantial growth. Although the Company intends to continue the aggressive marketing campaign in Arizona, tough economic, political and legal conditions in the state will most likely slow growth in the remainder of the year.

 

   

In California, gross written premium grew 6.0% during the second quarter and 2.2% for the first six months of 2010. Infinity believes that two program revisions that became effective in California during the second quarter will allow the company to more effectively segment its rates and stimulate further growth in the state.

 

   

In Florida, gross written premium grew 81.3% and 77.6% during the second quarter and first six months of 2010, respectively, compared with the same periods of 2009. Growth in Florida is attributable to increased marketing efforts coupled with underwriting restrictions recently implemented by competitors. Infinity took aggressive actions in 2008 and 2009 in advance of competitors to improve profit margins in Florida. Infinity has recently increased rates and modified certain underwriting rules in the state and expects premium growth to moderate throughout the rest of 2010.

 

   

Pennsylvania gross written premium increased by 34.7% and 27.1% during the second quarter and first six months of 2010, respectively, compared with the same periods of 2009. This increase is a result of new agency appointments and rate increases taken by competitors.

Gross written premium in the Maintenance States declined 19.8% and 22.0% during the second quarter and first six months of 2010 compared with the same periods of 2009, primarily due to declines in Connecticut. Infinity has increased rates in several of the Maintenance States over the last twelve months in an effort to improve profitability.

Infinity’s Commercial Vehicle gross written premium increased 3.9% and 11.1% during the second quarter and first six months of 2010, respectively, compared with the same periods of 2009, primarily from growth in California resulting from the appointment of new agents. Premium growth has slowed recently as Infinity has tightened underwriting standards in this program.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Profitability

A key operating performance measure of insurance companies is underwriting profitability, as opposed to overall profitability or net earnings. Underwriting profitability is measured by the combined ratio. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the ratio is over 100%, underwriting results are generally considered unprofitable. The combined ratio does not reflect investment income, other income, other expenses or federal income taxes.

While financial data is reported in accordance with GAAP for shareholder and other investment purposes, it is reported on a statutory basis for insurance regulatory purposes. Infinity evaluates underwriting profitability based on a combined ratio calculated using statutory accounting principles. The statutory combined ratio represents the sum of the following ratios: (i) losses and LAE incurred as a percentage of net earned premium and (ii) underwriting expenses incurred, net of fees, as a percentage of net written premium. Certain expenses are treated differently under statutory and GAAP accounting principles. Under GAAP, commissions, premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized as deferred policy acquisition costs and amortized on a pro rata basis over the period in which the related premium are earned; on a statutory basis these items are expensed as incurred. Costs for computer software developed or obtained for internal use are capitalized under GAAP and amortized over their useful life, rather than expensed as incurred, as required for statutory purposes. Additionally, bad debt charge-offs on agent balances and premium receivables are included only in the GAAP combined ratios.

The following table presents the statutory and GAAP combined ratios:

 

     Three months ended June 30,        
     2010     2009     % Point Change  
     Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
    Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
    Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
 

Personal Auto Insurance:

                  

Focus States:

                  

Urban Zones

   67.6   22.0   89.6   71.9   20.4   92.3   (4.3 )%    1.6   (2.8 )% 

Non-urban Zones

   74.1   23.6   97.8   70.6   21.3   91.9   3.5   2.3   5.8
                                                      

Total Focus States

   68.4   22.2   90.6   71.8   20.5   92.3   (3.3 )%    1.7   (1.7 )% 

Maintenance States

   63.6   24.1   87.8   74.1   21.9   96.0   (10.4 )%    2.2   (8.2 )% 

Other States

   NM      NM      NM      NM      NM      NM      NM      NM      NM   
                                                      

Subtotal

   67.9   22.2   90.1   71.6   20.6   92.3   (3.7 )%    1.6   (2.2 )% 

Commercial Vehicle

   83.3   19.3   102.6   62.0   21.0   83.1   21.3   (1.7 )%    19.6

Classic Collector

   46.3   36.2   82.6   47.6   37.8   85.4   (1.3 )%    (1.5 )%    (2.8 )% 

Other

   NM      NM      NM      NM      NM      NM      NM      NM      NM   
                                                      

Total statutory ratios

   67.9   22.5   90.4   70.6   20.6   91.2   (2.7 )%    1.9   (0.7 )% 
                                                      

Total statutory ratios excluding development

   76.9   22.5   99.4   75.4   20.6   96.0   1.5   1.9   3.4
                                                      

GAAP ratios

   67.9   23.9   91.8   70.6   21.3   91.9   (2.7 )%    2.6   (0.1 )% 
                                                      

 

NM: not meaningful due to the low premium for these lines.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

     Six months ended June 30,        
     2010     2009     % Point Change  
     Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
    Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
    Loss  &
LAE
Ratio
    Underwriting
Ratio
    Combined
Ratio
 

Personal Auto Insurance:

                  

Focus States:

                  

Urban Zones

   68.3   21.2   89.5   71.9   19.9   91.8   (3.6 )%    1.3   (2.4 )% 

Non-urban Zones

   75.2   21.6   96.8   70.2   20.7   90.9   5.1   0.8   5.9
                                                      

Total Focus States

   69.1   21.2   90.4   71.7   20.0   91.7   (2.5 )%    1.2   (1.3 )% 

Maintenance States

   62.3   25.0   87.4   75.9   23.6   99.5   (13.5 )%    1.4   (12.1 )% 

Other States

   NM      NM      NM      NM      NM      NM      NM      NM      NM   
                                                      

Subtotal

   68.6   21.4   89.9   71.8   20.3   92.0   (3.2 )%    1.1   (2.1 )% 

Commercial Vehicle

   79.7   19.6   99.3   64.6   21.5   86.1   15.1   (1.9 )%    13.2

Classic Collector

   39.5   39.9   79.4   38.0   40.0   78.0   1.5   (0.1 )%    1.4

Other

   NM      NM      NM      NM      NM      NM      NM      NM      NM   
                                                      

Total statutory ratios

   68.5   21.6   90.1   70.5   20.6   91.1   (2.0 )%    1.0   (1.0 )% 
                                                      

Total statutory ratios excluding development

   77.0   21.6   98.6   75.2   20.6   95.8   1.8   1.0   2.8
                                                      

GAAP ratios

   68.5   23.3   91.8   70.5   21.6   92.1   (2.0 )%    1.7   (0.3 )% 
                                                      

 

NM: not meaningful due to the low premium for these lines.

In evaluating the profit performance of Infinity’s business, the Company’s management reviews underwriting profitability using statutory combined ratios. Accordingly, the discussion of underwriting results that follows will focus on these ratios and the components thereof, unless otherwise indicated.

The second quarter and first six months of 2010 benefited from $20.3 million and $37.0 million, respectively, of favorable development on loss and LAE reserves compared to $10.4 million and $20.2 million of favorable development for the same periods of 2009. Favorable development during 2010 is primarily driven by bodily injury and collision coverages in the states of California, Connecticut, Florida, Georgia and Arizona and is related to accident years 2009, 2008 and 2007. The Company believes that the favorable development recognized in 2010 has occurred as lower paid development patterns continue to emerge as a result of an increase in the claims settlement tempo over the last several years. Losses from catastrophes were $0.3 million and $0.5 million for the three and six months ended June 30, 2010, respectively, compared to $0.2 million for each of the same periods of 2009.

The statutory combined ratio for the second quarter and first six months of 2010 decreased 0.7 and 1.0 points, respectively, compared with the same periods of 2009. Excluding the effect of favorable development on all periods, the statutory combined ratio increased by 3.4 and 2.8 points for the second quarter and first sixth months of 2010 when compared with the same periods of 2009. The GAAP combined ratio for the second quarter and first six months of 2010 decreased by 0.1 and 0.3 points, respectively. Excluding the effect of favorable development and one-time expense adjustments, the GAAP combined ratios for the second quarter and first six months of 2010 were 100.4% and 99.8%, respectively, compared to 96.7% and 96.8% for the same periods of 2009. Infinity expects the GAAP combined ratio, excluding redundancy releases, to be between 98.5% and 99.5% for the year as seasonality from the first half of the year moderates and tightened underwriting standards take effect.

The combined ratio in the Focus States declined 1.7 and 1.3 points in the second quarter and first six months of 2010, respectively. These declines are a result of a 4.3 and 3.6 point decline in the Urban Zone loss and LAE ratio, primarily in the California and Nevada loss ratios. Partially offsetting these declines were a 3.5 and 5.1 point increase in the loss and LAE ratio in the Non-urban Zones, primarily due to an increase in Florida. Florida’s combined ratio rose as a result of growth in new business in late 2009 and into 2010. Infinity has taken actions, including raising rates and modifying certain underwriting standards, to improve the underperforming segments of the Florida business.

The loss and LAE ratio in the Maintenance States declined 10.4 and 13.5 points in the second quarter and first six months of 2010, respectively, as a result of a decline in the loss ratio in Connecticut.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The loss and LAE ratio for the Commercial Vehicle business increased by 21.3 and 15.1 points during the second quarter and first six months of 2010 when compared with the same periods in 2009, primarily as a result of an increase in the loss ratio in California and Florida due to a shift toward new business, which typically has a higher loss ratio than renewal business. In addition, Infinity incurred several large losses in these states during the year. The Company is tightening underwriting standards in an effort to improve underperforming business.

Net Investment Income

Net investment income is comprised of gross investment revenue and investment management fees and expenses, as shown in the following table (in thousands):

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2010     2009     2010     2009  

Investment income:

        

Interest income on fixed maturities, cash and cash equivalents

   $ 11,889      $ 12,538      $ 23,536      $ 26,407   

Dividends on equity securities

     188        156        353        350   
                                

Gross investment income

   $ 12,077      $ 12,694      $ 23,889      $ 26,758   

Investment expenses

     (494     (541     (1,011     (961
                                

Net investment income

   $ 11,583      $ 12,152      $ 22,878      $ 25,797   
                                

Average investment balance, at cost

   $ 1,234,643      $ 1,212,301      $ 1,240,915      $ 1,200,795   

Net investment income as a percentage of average investment balances

     0.9     1.0     1.8     2.1

Changes in investment income reflect fluctuations in market rates and changes in average invested assets. Net investment income for the three and six months ended June 30, 2010 declined compared to the same periods in 2009 primarily due to a decline in book yields as a result of a general decline in market interest rates for high quality bonds. Infinity expects market rates to remain low throughout 2010, which will continue to depress investment income.

Infinity recorded impairments for unrealized losses deemed other-than-temporary and realized gains and losses on sales and disposals, as follows (before tax, in thousands):

 

     Three months ended June 30, 2010     Three months ended June 30, 2009  
     Impairments
recognized
in earnings
    Realized gains
on sales
   Total realized
gains
    Impairments
recognized
in earnings
    Realized gains
on sales
   Total realized
gains
 

Fixed maturities

   $ (263   $ 311    $ 48      $ (829   $ 999    $ 170   

Equities

     (4     0      (4     0       0      0   
                                              

Total

   $ (267   $ 311    $ 44      $ (829   $ 999    $ 170   
                                              
     Six months ended June 30, 2010     Six months ended June 30, 2009  
     Impairments
recognized
in earnings
    Realized gains
on sales
   Total realized
losses
    Impairments
recognized
in earnings
    Realized gains
on sales
   Total realized
losses
 

Fixed maturities

   $ (1,796   $ 1,389    $ (407   $ (8,345   $ 2,388    $ (5,957

Equities

     (4 )     0      (4     0       0      0   
                                              

Total

   $ (1,800   $ 1,389    $ (411   $ (8,345   $ 2,388    $ (5,957
                                              

For Infinity’s securities held with unrealized losses, management believes that, based on its analysis (i) Infinity will recover its cost basis in these securities and (ii) that Infinity does not intend to sell the securities nor is it more likely than not that there will be a

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

requirement to sell the securities before they recover in value. Should either of these beliefs change with regard to a particular security, a charge for impairment would likely be required. While it is not possible to accurately predict if or when a specific security will become impaired, charges for other-than-temporary impairments could be material to results of operations in a future period.

Interest Expense

The Senior Notes accrue interest at an effective yield of 5.55% (Refer to Note 6 of the Consolidated Financial Statements for additional information on the Senior Notes). Interest expense on the Senior Notes recognized in the Consolidated Statements of Earnings for each of the three and six months ended June 30, 2010 was $2.7 million and $5.4 million, respectively, compared to $2.8 million and $5.5 million, respectively, for the same periods of 2009.

Corporate General and Administrative Expense

Corporate general and administrative expense was $2.2 million and $4.1 million, respectively, for the three and six months ended June 30, 2010, compared to $1.9 million and $3.6 million for the same periods of 2009. This increase was primarily due to an increase in the accrual of expense for the Performance Share Plan. Due to recent premium growth, a higher share award is indicated than was previously projected. See Note 2 of the Consolidated Financial Statements for additional information on the Performance Share Plan.

Other Expense

Other expense for the three months ended June 30, 2010 was $1.8 million compared to $0.8 million for the corresponding period of 2009. Other expense for the six months ended June 30, 2010 was $2.6 million compared to $1.4 million for the same period of 2009. The increase is primarily due to $1.4 million and $1.9 million, respectively, in sublease losses incurred during the second quarter and first six months 2010.

Income Taxes

The Company’s GAAP effective tax rate for the three and six months ended June 30, 2010 was 30.5% and 31.0%, respectively, compared to 30.4% and 35.6% for the same periods of 2009. See Note 7 of the Consolidated Financial Statements for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Funds

Infinity is organized as a holding company with all of its operations being conducted by its insurance subsidiaries. Accordingly, Infinity will have continuing cash needs for administrative expenses, the payment of interest on borrowings, shareholder dividends, share repurchases and taxes. Administrative expenses at the holding company currently average approximately $8.2 million annually.

At June 30, 2010, Infinity had outstanding $195 million principal of Senior Notes due 2014, bearing a fixed 5.5% interest rate. Interest payments on the Senior Notes of $5.4 million are due each February and August through maturity in February 2014. (Refer to Note 6 of the Consolidated Financial Statements for more information on the Senior Notes).

In February 2010, Infinity increased its quarterly dividend to $0.14 per share from $0.12 per share. At this current amount, Infinity’s 2010 annualized dividend payments would be approximately $7.4 million.

In October 2006, the Board of Directors approved a share repurchase program whereby the Company may repurchase up to an aggregate amount of $100 million of its outstanding common shares. On August 6, 2009, the Board of Directors increased the authority by $28.8 million to $50.0 million as of that date (for an aggregate of $203.1 million since inception) and modified the authority to include the repurchase of Infinity’s debt. During the first quarter of 2010, Infinity repurchased 251,900 shares at an average cost, excluding commissions, of $41.30. During the second quarter of 2010, Infinity repurchased 435,100 shares at an average cost, excluding commissions, of $46.67. Following the end of the second quarter, Infinity exhausted the $9.5 million of remaining authority on the share and debt repurchase program as of June 30, 2010, purchasing 197,900 shares at an average price, excluding commissions, of $47.91. On August 3, 2010, Infinity’s Board of Directors increased the authority under the 2006 repurchase program by $50.0 million and extended the date to execute this program to December 31, 2011.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Funds to meet expenditures at the holding company come primarily from dividends and tax payments from the insurance subsidiaries as well as cash and investments held by the holding company. As of June 30, 2010, Infinity had $199.8 million of cash and investments. In 2010, Infinity’s insurance subsidiaries may pay to Infinity up to $107.0 million in ordinary dividends without prior regulatory approval. For the six months ended June 30, 2010, $50.0 million of dividends were paid to Infinity by its insurance subsidiaries.

In August 2008, Infinity entered into an agreement for a $50 million three-year revolving credit facility (the “Credit Agreement”) that requires Infinity to meet certain financial and other covenants. Infinity is currently in compliance with all covenants under the Credit Agreement. At June 30, 2010, there were no borrowings outstanding under the Credit Agreement.

Infinity’s insurance subsidiaries generate liquidity to satisfy their obligations primarily by collecting and investing premium in advance of paying claims and investment income on its $1.1 billion investment portfolio. Infinity’s insurance subsidiaries’ cash flow from operations was approximately $24.6 million and $46.3 million for the three and six-month periods ended June 30, 2010, respectively, and approximately $3.6 million and $48.5 million for the three and six-month periods ended June 30, 2009, respectively.

Management believes that cash balances, cash flows generated from operations or borrowings, and maturities and sales of investments are adequate to meet the future liquidity needs for Infinity and its insurance subsidiaries.

Reinsurance

Infinity uses excess of loss, catastrophe and extra-contractual loss reinsurance to mitigate the financial impact of large or catastrophic losses. During 2010, the catastrophe reinsurance provides protection for losses up to $15 million in excess of $5 million for any single event. Infinity’s excess of loss reinsurance provides reinsurance protection for commercial auto losses up to $700,000 for claims in excess of $300,000 per occurrence. Infinity’s extra-contractual loss reinsurance provides for protection for losses up to $15 million in excess of $5 million for any single extra-contractual loss. Infinity also uses reinsurance to mitigate losses on its Classic Collector business.

Premiums ceded under all reinsurance agreements for the three months ended June 30, 2010 and 2009 were $1.4 million and $1.3 million, respectively. Premiums ceded under these agreements for the six months ended June 30, 2010 and 2009 were $2.6 million and $2.6 million, respectively.

Investments

Infinity’s consolidated investment portfolio at June 30, 2010 contained approximately $1.2 billion in fixed maturity securities and $36.8 million in equity securities, all carried at fair value with unrealized gains and losses reported as a separate component of shareholders’ equity on an after-tax basis. At June 30, 2010, Infinity had pre-tax net unrealized gains of $40.3 million on fixed maturities and pre-tax net unrealized gains of $5.4 million on equity securities. Combined, the pre-tax net unrealized gain increased by $16.7 million for the six months ended June 30, 2010.

Approximately 94.6% of Infinity’s fixed maturity investments at June 30, 2010 were rated “investment grade,” and as of the same date, the average credit rating of Infinity’s fixed maturity portfolio was AA. Investment grade securities generally bear lower yields and have lower degrees of risk than those that are unrated or non-investment grade. Management believes that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

Since all of these securities are carried at fair value in the balance sheet, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses. The average option adjusted duration of Infinity’s fixed maturity portfolio is 3.2 years at June 30, 2010.

Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1), (ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2) or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).

Level 1 securities are U.S. Treasury securities and an exchange-traded fund that makes up Infinity’s equity portfolio. Level 2 securities are comprised of securities whose fair value was determined using observable market inputs. Level 3 securities are comprised of (i) securities for which there is no active or inactive market for similar instruments, (ii) securities whose fair value is determined based on unobservable inputs and (iii) securities, other than those backed by the U.S. Government, that are not rated by a nationally recognized statistical rating organization.

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Summarized information for Infinity’s investment portfolio at June 30, 2010 is as follows (in thousands):

 

(in thousands)    Amortized
Cost
   Fair
Value
   % of
Total Fair
Value
 

U.S. government and agencies:

        

U.S. government

   $ 199,948    $ 206,429    16.8

Government-sponsored entities

     44,186      45,548    3.7
                    

Total U.S. government and agencies

     244,134      251,976    20.5

State and municipal

     350,041      361,808    29.5

Mortgage-backed, CMOs and asset-backed:

        

Residential mortgage-backed securities

     166,800      174,292    14.2

Commercial mortgage-backed securities

     35,217      36,332    3.0

Collateralized mortgage obligations:

        

PAC

     27,224      27,873    2.3

Sequentials

     19,742      20,213    1.6

Junior

     714      595    0.0

Accretion directed

     1,153      1,108    0.1

Whole loan

     6,447      6,503    0.5
                    

Total CMO

     55,281      56,292    4.6

Asset-backed securities:

        

Auto loans

     4,446      4,517    0.4

Home equity

     996      959    0.1

Credit card receivables

     21,356      21,492    1.8
                    

Total ABS

     26,797      26,968    2.2

Total mortgage-backed, CMOs and asset-backed

     284,096      293,884    24.0

Corporates

        

Investment grade

     209,558      218,516    17.8

Non-investment grade

     62,078      63,989    5.2
                    

Total corporates

     271,635      282,504    23.0

Total fixed maturities

     1,149,907      1,190,173    97.0

Equity securities

     31,327      36,773    3.0
                    

Total investment portfolio

   $ 1,181,233    $ 1,226,946    100.0
                    

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following table presents the credit rating and fair value (in thousands) of Infinity’s fixed maturity portfolio by major security type:

 

     Rating        
     AAA     AA     A     BBB     Non-
Investment
Grade
    Fair Value     % of
Total
Exposure
 

U.S. government and agencies

   $ 251,976      $ 0      $ 0      $ 0      $ 0      $ 251,976      21.2

State and municipal

     47,105        226,787        85,552        2,364        0        361,808      30.4

Mortgage-backed, CMO and asset-backed

     287,136        6,749        0        0        0        293,884      24.7

Corporates

     15,555        11,980        147,412        43,568        63,989        282,504      23.7
                                                      

Total Fair Value

   $ 601,772      $ 245,516      $ 232,964      $ 45,932      $ 63,989      $ 1,190,173      100.0
                                                      

% of Total Fair Value

     50.6     20.6     19.6     3.9     5.4     100.0  
                                                  

Other than securities backed by the U.S. government or issued by government-sponsored enterprises, Infinity’s fixed income portfolio contains no securities issued by any single issuer that exceed 1% of the fair value of the fixed income portfolio.

Since 2007, the mortgage industry has experienced a rise in mortgage delinquencies and foreclosures, particularly among lower quality exposures (“sub-prime” and “Alt-A”). As a result, many securities with underlying sub-prime and Alt-A mortgages as collateral experienced significant drops in market value. Infinity has only modest exposure to these types of investments. At June 30, 2010, Infinity’s fixed maturity portfolio included 6 securities, or less than 1% of the total fair value of the fixed maturity portfolio, with exposure to sub-prime and Alt-A mortgages. Although these securities have sub-prime mortgages as underlying collateral, all are rated AA or better.

The following table presents the credit rating and fair value of Infinity’s MBS and CMO portfolio at June 30, 2010, excluding Government-sponsored Enterprises (“GSE”), by deal origination year (in thousands):

 

     Rating        

Deal Origination Year

   AAA     AA     A     BBB     Non-
Investment
Grade
    Fair Value     % of
Total
Exposure
 

1999

   $ 0      $ 595      $ 0      $ 0      $ 0      $ 595      0.9

2001

     1,379        0        0        0        0        1,379      2.2

2002

     5,466        0        0        0        0        5,466      8.5

2003

     4,628        0        0        0        0        4,628      7.2

2004

     12,272        3,477        0        0        0        15,750      24.6

2005

     9,769        2,600        0        0        0        12,368      19.3

2006

     16,434        0        0        0        0        16,434      25.7

2010

     7,384        0        0        0        0        7,384      11.5
                                                      

Total Fair Value

   $ 57,332      $ 6,672      $ 0      $ 0      $ 0      $ 64,004      100.0
                                                      

% of Total Fair Value

     89.6     10.4     0.0     0.0     0.0     100.0  
                                                  

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following table presents the credit rating and fair value of Infinity’s GSE MBS and CMO portfolio at June 30, 2010 by deal origination year (in thousands):

 

     Rating        

Deal Origination Year

   AAA     AA     A     BBB     Non-
Investment
Grade
    Fair Value     % of
Total
Exposure
 

2002

   $ 5,677      $ 0      $ 0      $ 0      $ 0      $ 5,677      2.8

2003

     9,543        0        0        0        0        9,543      4.7

2004

     5,874        0        0        0        0        5,874      2.9

2007

     1,195        0        0        0        0        1,195      0.6

2008

     81,077        0        0        0        0        81,077      40.0

2009

     84,125        0        0        0        0        84,125      41.5

2010

     15,419        0        0        0        0        15,419      7.6
                                                      

Total Fair Value

   $ 202,912      $ 0      $ 0      $ 0      $ 0      $ 202,912      100.0
                                                      

% of Total Fair Value

     100.0     0.0     0.0     0.0     0.0     100.0  
                                                  
The following table presents the credit rating and fair value of Infinity’s ABS portfolio at June 30, 2010 by deal origination year (in thousands):    
     Rating              

Deal Origination Year

   AAA     AA     A     BBB     Non-
Investment
Grade
    Fair Value     % of
Total
Exposure
 

2001

   $ 70      $ 0      $ 0      $ 0      $ 0      $ 70      0.3

2003

     5,862        0        0        0        0        5,862      21.7

2004

     0        77        0        0        0        77      0.3

2006

     744        0        0        0        0        744      2.8

2007

     3,910        0        0        0        0        3,910      14.5

2008

     5,437        0        0        0        0        5,437      20.2

2009

     8,337        0        0        0        0        8,337      30.9

2010

     2,531        0        0        0        0        2,531      9.4
                                                      

Total Fair Value

   $ 26,891      $ 77      $ 0      $ 0      $ 0      $ 26,968      100.0
                                                      

% of Total Fair Value

     99.7     0.3     0.0     0.0     0.0     100.0  
                                                  

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

In 2008, several municipal bond insurers had their credit ratings downgraded or placed under review by one or more nationally recognized statistical rating organizations. These downgrades were a result of a perceived weakening of the insurers’ financial strength as a result of losses incurred on mortgage-backed and asset-backed securities. These securities experienced increased delinquencies and defaults as a result of a weakening economy and housing market in particular.

Infinity’s investment portfolio consists of $361.8 million of municipal bonds, of which $151.9 million are insured. Of the insured bonds, 45.6% are insured with MBIA, 31.1% with Assured Guaranty, 23.0% with AMBAC and 0.4% are insured with XL Capital. The following table presents the underlying ratings, represented by the lower of Standard and Poor’s, Moody’s or Fitch’s ratings, of the municipal bond portfolio (in thousands) at June 30, 2010:

 

     Insured     Uninsured     Total  
     Fair
Value
   % of
Fair
Value
    Fair
Value
   % of
Fair
Value
    Fair
Value
   % of
Fair
Value
 

AAA

   $ 5,482    3.6   $ 41,623    19.8   $ 47,105    13.0

AA+, AA, AA-

     87,416    57.6     139,371    66.4     226,787    62.7

A+, A, A-

     56,624    37.3     28,928    13.8     85,552    23.6

BBB+, BBB, BBB-

     2,364    1.6     0    0.0     2,364    0.7
                                       

Total

   $ 151,887    100.0   $ 209,921    100.0   $ 361,808    100.0
                                       

The following table presents the credit rating and fair value of Infinity’s municipal bond portfolio, by state, at June 30, 2010 (in thousands):

 

     Rating        

State

   AAA     AA     A     BBB     Non-
Investment
Grade
    Fair Value     % of
Total
Exposure
 

TX

   $ 14,493      $ 15,446      $ 4,636      $ 0      $ 0      $ 34,575      9.6

GA

     9,635        8,546        11,183        0        0        29,363      8.1

NY

     0        25,435        0        0        0        25,435      7.0

FL

     0        13,741        10,156        0        0        23,898      6.6

WA

     1,486        16,257        0        0        0        17,743      4.9

PA

     0        9,082        8,321        0        0        17,403      4.8

MI

     397        5,943        8,577        0        0        14,916      4.1

CO

     1,761        8,746        4,109        0        0        14,616      4.0

IN

     0        13,141        0        0        0        13,141      3.6

MO

     4,844        3,454        1,398        2,364        0        12,059      3.3

All other states

     14,490        106,996        37,173        0        0        158,659      43.9
                                                      

Total Fair Value

   $ 47,105      $ 226,787      $ 85,552      $ 2,364      $ 0      $ 361,808      100.0
                                                      

% of Total Fair Value

     13.0     62.7     23.6     0.7     0.0     100.0  
                                                  

 

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2010, there were no material changes to the information provided in Infinity’s Form 10-K for the year ended December 31, 2009 under the caption “Exposure to Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4

Controls and Procedures

Infinity’s chief executive officer and chief financial officer, with assistance from management, evaluated Infinity’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of June 30, 2010. Based on that evaluation, they concluded that the controls and procedures are effective. There has been no change in Infinity’s internal controls during the first six months of 2010 that has materially affected, or is reasonably likely to materially affect, Infinity’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).

PART II

OTHER INFORMATION

ITEM 1

Legal Proceedings

The Company has not become a party to any material legal proceedings nor have there been any material developments in the Company’s legal proceedings disclosed in the Company’s Form 10-K for the year ended December 31, 2009. For a description of the Company’s previously reported legal proceedings, refer to Part I, Item 3, Legal Proceedings, in the form 10-K for the year ended December 31, 2009.

ITEM 1A

Risk Factors

There have been no material changes in the Company’s risk factors as disclosed in the Company’s Form 10-K for the year ended December 31, 2009. For a description of the Company’s previously reported risk factors, refer to Part I, Item 1A, Risk Factors, in the Form 10-K for the year ended December 31, 2009.

 

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Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

 

Period

   Total Number
of Shares
Purchased
   Average Price
Paid per Share (a)
   Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (b)
   Maximum Number (or
Approximate Dollar
Value) that May Yet
Be Purchased Under
the Plans or Programs

April 1, 2010 – April 30, 2010

   48,600    $ 46.43    48,600    $ 27,550,979

May 1, 2010 – May 31, 2010

   142,200    $ 46.22    142,200      20,974,608

June 1, 2010 – June 30, 2010

   244,300    $ 46.98    244,300      9,490,712
                       

Total

   435,100    $ 46.67    435,100    $ 9,490,712
                       

 

(a) Average price paid per share excludes commissions.
(b) In October 2006, the Company announced that the Board of Directors approved a share repurchase program whereby the Company may repurchase up to an aggregate of $100 million of its outstanding shares. Effective August 6, 2009, Infinity’s Board of Directors increased this authority by $28.8 million to $50.0 million as of that date and modified the authority to include the repurchase of Infinity’s debt. In addition to $25.0 million in shares repurchased during 2009, Infinity repurchased approximately $5.0 million of debt. Following the end of the second quarter, Infinity exhausted the $9.5 million of remaining authority on the share and debt repurchase program as of June 30, 2010, purchasing 197,900 shares at an average price, excluding commissions, of $47.91. On August 3, 2010, Infinity’s Board of Directors increased the authority under the 2006 repurchase program by $50.0 million and extended the date to execute this program to December 31, 2011.

 

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Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

ITEM 6

Exhibits

 

Exhibit 10 -    Amended and Restated Employee Stock Purchase Plan.
Exhibit 31.1 -    Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 -    Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
Exhibit 32 -    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101 -    XBRL Instance Document

Sign ature

Pursuant to the requirements of the Securities Exchange Act of 1934, Infinity Property and Casualty Corporation has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Infinity Property and Casualty Corporation
  BY:  

/s/ ROGER SMITH

August 6, 2010

    Roger Smith
   

Executive Vice President, Chief Financial Officer and Treasurer

(principal financial and accounting officer)

 

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