Infinity Property and Casualty Corporation Reports Strong Results for the Third Quarter of 2017

Three months ended September 30,

Nine months ended September 30,

(in millions, except per share amounts and ratios)

2017

2016

Change

2017

2016

Change

Gross written premium ⁽¹⁾

$362.2

$359.4

0.8%

$1,056.7

$1,072.3

Revenues

$380.7

$378.1

0.7%

$1,135.4

$1,123.4

1.1%

Net earnings

$15.0

$2.8

444.0%

$30.7

$21.5

42.8%

Net earnings per diluted share

$1.35

$0.25

440.0%

$2.76

$1.93

43.0%

Operating earnings ⁽¹⁾

$15.3

$1.9

694.7%

$29.4

$20.7

42.3%

Operating earnings per diluted share ⁽¹⁾

$1.38

$0.17

711.8%

$2.65

$1.86

42.5%

Underwriting income (loss) ⁽¹⁾

$18.5

$(0.8)

NM

$31.9

$20.4

56.3%

Calendar year combined ratio ⁽²⁾

94.6%

100.2%

(5.6) pts

96.9%

98.0%

(1.1) pts

Return on equity ⁽³⁾

8.4%

1.6%

6.8 pts

5.8%

4.1%

1.7 pts

Operating earnings return on equity ^{(1) (3)}

8.5%

1.1%

7.4 pts

5.5%

4.0%

1.5 pts

Book value per share

$65.52

$63.56

3.1%

Debt to total capital

27.7%

28.1%

(0.4) pt

Debt to tangible capital ⁽¹⁾

29.9%

30.5%

(0.6) pt

Notes:

(1)

Measures used in this release that are not based on generally accepted accounting principles ("non-GAAP") are defined at the end of this release and reconciled to the most comparable GAAP measure.

(2)

Premium returned to California policyholders resulted in premium adjustments to written and earned premium of $22.1 million and $16.2 million, respectively, for the nine months ended September 30, 2017.  Refer to Note 9 - Commitments and Contingencies of the Form 10-Q for the quarter ended September 30, 2017 for a discussion of the premium adjustments.

(3)

Annualized

Columns throughout may not foot due to rounding.

NM = Not Meaningful

Infinity Property and Casualty Corporation

Statements of Earnings

(in millions, except EPS and dividends)

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

(unaudited)

(unaudited)

Revenues:

Earned premium

$345.0

$342.2

$1,025.5

$1,019.1

Installment and other fee income

26.0

26.3

79.4

77.2

Net investment income

9.8

8.1

27.5

25.1

Net realized (losses) gains on investments ⁽¹⁾

(0.4)

1.3

2.0

1.3

Other income

0.4

0.2

1.0

0.7

Total revenues

380.7

378.1

1,135.4

1,123.4

Costs and Expenses:

Losses and loss adjustment expenses ⁽²⁾

263.2

280.9

807.5

809.7

Commissions and other underwriting expenses

89.3

88.4

265.5

266.2

Interest expense

3.5

3.5

10.5

10.5

Corporate general and administrative expenses

2.2

1.8

6.9

5.5

Other expenses

0.8

0.4

1.7

1.5

Total costs and expenses

359.0

374.9

1,092.1

1,093.4

Earnings before income taxes

21.7

3.2

43.3

30.0

Provision for income taxes

6.7

0.4

12.6

8.5

Net Earnings

$15.0

$2.8

$30.7

$21.5

Net Earnings per Common Share:

Basic

$1.36

$0.25

$2.79

$1.95

Diluted

$1.35

$0.25

$2.76

$1.93

Average Number of Common Shares:

Basic

11.0

11.0

11.0

11.0

Diluted

11.1

11.1

11.1

11.1

$0.58

$0.52

$1.74

$1.56

Notes:

(1)

Net realized (losses) gains on sales

($0.4)

$1.3

$     2.0

$     1.6

Total other-than-temporary impairment (OTTI) losses

(0.1)

—

(0.1)

(0.3)

Non-credit portion in other comprehensive income

0.0

—

0.1

—

Net impairment losses recognized in earnings

(0.0)

—

(0.0)

(0.3)

Total net realized (losses) gains on investments

$1.3

$2.0

$1.3

(2)

Losses and loss adjustment expenses for the three and nine months ended September 30, 2017, include $4.1 million and $17.2 million of favorable development on prior accident year loss and loss adjustment expense reserves, respectively, compared with $0.6 million and $18.6 million of favorable development for the three and nine months ended September 30, 2016, respectively.

Infinity Property and Casualty Corporation

Balance Sheets

(in millions, except book value per share)

September 30,

June 30,

December 31,

2017

2017

2016

(unaudited)

(unaudited)

(audited)

Assets

Investments:

Fixed maturities, at fair value

$1,448.7

$1,439.0

$1,390.2

Equity securities, at fair value

100.0

95.5

90.6

Short-term investments, at fair value

2.6

0.4

2.9

  Total investments

1,551.3

1,535.0

1,483.7

Cash and cash equivalents

102.4

87.6

92.8

Accrued investment income

12.4

13.5

12.5

Agents' balances and premium receivable

509.2

498.1

495.2

Property and equipment (net of depreciation)

84.5

87.5

96.2

Prepaid reinsurance premium

3.0

3.2

3.4

Recoverable from reinsurers

36.4

17.9

17.3

Deferred policy acquisition costs

91.4

90.4

91.1

Current and deferred income taxes

20.1

22.5

21.6

Receivable for securities sold

2.0

—

0.8

Other assets

20.0

20.5

12.8

Goodwill

75.3

75.3

75.3

         Total assets

$2,507.9

$2,451.4

$2,402.6

Liabilities and Shareholders' Equity

Liabilities:

Unpaid losses and loss adjustment expenses

$729.3

$701.1

$685.5

Unearned premium

637.5

623.5

614.3

Long-term debt

273.8

273.7

273.6

Commissions payable

15.0

13.8

16.2

Payable for securities purchased

10.2

14.5

13.9

Other liabilities

123.5

112.6

99.9

 Total liabilities

1,789.3

1,739.3

1,703.4

Shareholders' Equity:

Common stock

21.9

21.9

21.8

Additional paid-in capital

381.9

381.5

378.7

Retained earnings ⁽¹⁾

789.2

780.6

777.7

Accumulated other comprehensive income, net of tax

23.5

19.2

7.9

Treasury stock, at cost ⁽²⁾

(497.9)

(490.9)

(487.0)

 Total shareholders' equity

718.6

712.1

699.2

        Total liabilities and shareholders' equity

$2,507.9

$2,451.4

$2,402.6

Shares outstanding

11.0

11.0

11.0

$65.52

$64.48

$63.31

Notes:

(1)

The change in retained earnings from June 30, 2017 is primarily as a result of net income of $15.0 million less shareholder dividends of $6.4 million. The change in retained earnings from December 31, 2016 is primarily as a result of net income of $30.7 million less shareholder dividends of $19.2 million.

(2)

Infinity repurchased 58,449 common shares during the third quarter of 2017 at an average price paid per share, excluding commissions, of $91.00. Infinity repurchased 84,606 common shares during the first nine months of 2017 at an average price paid per share, excluding commissions, of $91.58.

Infinity Property and Casualty Corporation

Statements of Cash Flows

(in millions)

Three months ended September 30,

2017

2016

(unaudited)

(unaudited)

Operating Activities:

Net earnings

$15.0

$2.8

Adjustments:

Depreciation

4.0

3.9

Amortization

5.4

5.6

Net realized losses (gains) on investments

0.4

(1.3)

Loss on disposal of property and equipment

0.0

0.1

Share-based compensation expense

0.4

1.1

Activity related to rabbi trust

0.1

0.0

Change in accrued investment income

1.1

0.5

Change in agents' balances and premium receivable

(11.2)

(15.4)

Change in reinsurance receivables

(18.3)

0.5

Change in deferred policy acquisition costs

(1.0)

(1.6)

Change in other assets

0.3

(2.4)

Change in unpaid losses and loss adjustment expenses

28.2

10.3

Change in unearned premium

14.0

14.9

Change in other liabilities

12.1

(3.2)

Net cash provided by operating activities

50.5

15.9

Investing Activities:

Purchases of fixed maturities

(136.8)

(117.6)

Purchases of short-term investments

(2.6)

(3.1)

Purchases of property and equipment

(1.0)

(0.3)

Maturities and redemptions of fixed maturities

73.4

39.7

Maturities and redemptions of short-term investments

0.4

1.3

Proceeds from sale of fixed maturities

44.2

62.4

Proceeds from sale of equity securities

—

2.0

Proceeds from sale of short-term investments

—

3.6

Proceeds from sale of property and equipment

0.0

—

Net cash used in investing activities

(22.4)

(12.0)

Financing Activities:

Proceeds from stock options exercised and employee stock purchases

0.1

0.1

Principal payments under capital lease obligations

(0.1)

(0.1)

Acquisition of treasury stock

(6.9)

(0.5)

Dividends paid to shareholders

(6.4)

(5.8)

Net cash used in financing activities

(13.3)

(6.4)

Net increase (decrease) in cash and cash equivalents

14.7

(2.4)

Cash and cash equivalents at beginning of period

87.6

76.0

Cash and cash equivalents at end of period

$102.4

$73.6

Nine months ended September 30,

2017

2016

(unaudited)

(unaudited)

Operating Activities:

Net earnings

$30.7

$21.5

Adjustments:

Depreciation

12.3

10.5

Amortization

16.5

16.5

Net realized gains on investments

(2.0)

(1.3)

(Gain) loss on disposal of property and equipment

(0.0)

0.5

Share-based compensation expense

3.0

1.4

Excess tax benefits from share-based payment arrangements

—

0.2

Activity related to rabbi trust

0.2

0.1

Change in accrued investment income

0.1

1.0

Change in agents' balances and premium receivable

(14.1)

(40.4)

Change in reinsurance receivables

(18.7)

(1.6)

Change in deferred policy acquisition costs

(0.3)

(4.3)

Change in other assets

(12.9)

0.9

Change in unpaid losses and loss adjustment expenses

43.8

6.6

Change in unearned premium

23.2

43.7

Change in other liabilities

22.4

(6.9)

Net cash provided by operating activities

104.2

48.3

Investing Activities:

Purchases of fixed maturities

(412.7)

(379.1)

Purchases of equity securities

(1.9)

—

Purchases of short-term investments

(3.0)

(8.2)

Purchases of property and equipment

(2.6)

(15.6)

Maturities and redemptions of fixed maturities

181.8

115.8

Maturities and redemptions of short-term investments

0.9

1.3

Proceeds from sale of fixed maturities

163.4

265.5

Proceeds from sale of equity securities

7.0

2.0

Proceeds from sale of short-term investments

2.4

9.3

Proceeds from sale of property and equipment

0.0

0.0

Net cash used in investing activities

(64.6)

(9.1)

Financing Activities:

Proceeds from stock options exercised and employee stock purchases

0.2

0.2

Principal payments under capital lease obligations

(0.4)

(0.4)

Acquisition of treasury stock

(10.6)

(10.7)

Dividends paid to shareholders

(19.2)

(17.2)

Net cash used in financing activities

(28.1)

Net increase in cash and cash equivalents

9.6

11.1

Cash and cash equivalents at beginning of period

92.8

62.5

Cash and cash equivalents at end of period

$102.4

$73.6

Three months ended September 30,

Nine months ended September 30,

2017

2016

2017

2016

(in millions, except EPS)

Net earnings

$15.0

$2.8

$30.7

$21.5

Less:

Realized (losses) gains on investments, pre-tax

(0.4)

1.3

2.0

1.3

Provision for income taxes

0.2

(0.4)

(0.7)

(0.4)

Realized (losses) gains on investments, net of tax

(0.3)

0.8

1.3

0.8

Operating earnings, after-tax

15.3

1.9

29.4

20.7

Less: Provision for income taxes

(6.9)

0.0

(12.0)

(8.1)

Pre-tax operating earnings

22.1

1.9

41.4

28.8

Less:

Net investment income

9.8

8.1

27.5

25.1

Other income

0.4

0.2

1.0

0.7

Interest expense

(3.5)

(3.5)

(10.5)

(10.5)

Corporate general and administrative expenses

(2.2)

(1.8)

(6.9)

(5.5)

Other expenses

(0.8)

(0.4)

(1.7)

(1.5)

Underwriting income (loss)

18.5

(0.8)

31.9

20.4

Net earnings per diluted share

$1.35

$0.25

$2.76

$1.93

Less: Realized (losses) gains on investments, net of tax

(0.03)

0.08

0.11

0.07

Operating earnings per diluted share

$1.38

$0.17

$2.65

$1.86

Three months ended September 30,

Nine months ended September 30,

(in millions)

2017

2016

2017

2016

Earned premium

$345.0

$342.2

$1,025.5

$1,019.1

Less: Change in unearned premium

(14.0)

(14.9)

(25.4)

(46.7)

Net written premium

359.0

357.1

1,050.9

1,065.8

Less: Ceded reinsurance

(3.2)

(2.3)

(5.8)

(6.5)

Gross written premium

$362.2

$359.4

$1,056.7

$1,072.3

(in millions)

September 30, 2017

September 30, 2016

Total capital

$993.6

$977.8

Less: Goodwill

75.3

75.3

Tangible capital