Infinity Property and Casualty Reports Improved Earnings per Share in the Third Quarter of 2014

Three months ended September 30,

Nine months ended September 30,

(in millions, except per share amounts and ratios)

2013

Change

2014

2013

Change

Gross written premium ⁽¹⁾

$347.5

$328.6

5.8%

$1,058.4

$1,026.6

3.1%

Revenues

$366.2

$359.1

2.0%

$1,095.7

$1,080.9

1.4%

Net earnings

$14.9

$7.2

106.5%

$35.8

$23.3

54.1%

Net earnings per diluted share

$1.29

$0.62

108.1%

$3.10

$1.99

55.8%

Operating earnings ⁽¹⁾

$14.2

$7.3

93.3%

$33.6

$20.4

64.5%

Operating earnings per diluted share ⁽¹⁾

$1.23

$0.63

95.2%

$2.90

$1.75

65.7%

Underwriting income ⁽¹⁾

$17.2

$7.5

128.8%

$37.7

$20.5

84.0%

Combined ratio

94.8%

97.7%

(2.9) pts

96.2%

97.9%

(1.7) pts

Return on equity ⁽²⁾

8.7%

4.5%

4.2 pts

7.1%

4.8%

2.3 pts

Operating earnings return on equity ^{(1) (2)}

8.3%

4.6%

3.7 pts

6.7%

4.2%

2.5 pts

Book value per share

$59.25

$56.49

4.9%

Debt to total capital

28.8%

29.8%

(1.0) pt

Debt to tangible capital ⁽¹⁾

31.2%

32.4%

(1.2) pts

(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)

Annualized

Three months ended
September 30,

Nine months ended
September 30,

2014

2013

2014

2013

(unaudited)

(unaudited)

Revenues:

Earned premium

$333.0

$327.1

$993.7

$976.9

Installment and other fee income

23.3

24.2

71.4

74.4

Net investment income

8.8

8.1

26.7

25.1

Net realized gains (losses) on investments⁽¹⁾

1.0

(0.5)

3.5

4.1

Other income

0.2

0.3

0.4

0.4

Total revenues

366.2

359.1

1,095.7

1,080.9

Costs and Expenses:

  Losses and loss adjustment expenses ⁽²⁾

248.5

255.2

759.1

762.7

  Commissions and other underwriting expenses

90.6

88.5

268.3

268.1

  Interest expense

3.4

3.5

10.4

10.5

  Corporate general and administrative expenses

1.8

1.9

6.0

6.0

  Other expenses

0.2

0.4

0.5

1.8

Total costs and expenses

344.4

349.5

1,044.2

1,049.0

Earnings before income taxes

21.7

9.6

51.5

31.9

Provision for income taxes

6.9

2.4

15.7

8.6

Net Earnings

$14.9

$7.2

$35.8

$23.3

Net Earnings per Common Share:

Basic

$1.30

$0.63

$3.13

$2.03

Diluted

$1.29

$0.62

$3.10

$1.99

Average Number of Common Shares:

Basic

11.5

11.4

11.4

11.5

Diluted

11.6

11.6

11.6

11.7

$0.36

$0.30

$1.08

$0.90

(1) Net realized gains before impairment losses

$1.0

$0.3

$3.6

$5.3

Total other-than-temporary impairment ("OTTI") losses

(0.0)

(1.5)

(0.9)

(2.1)

Non-credit portion in other comprehensive income

0.0

0.7

0.9

0.9

OTTI losses reclassified from other comprehensive income

—

—

(0.0)

—

Net impairment losses recognized in earnings

(0.0)

(0.8)

(0.1)

(1.2)

Total net realized gains (losses) on investments

$1.0

$3.5

$4.1

(2) Losses and loss adjustment expenses for the three months ended September 30, 2014 include $5.4 million of favorable development, while the three months ended September 30, 2013 include $0.9 million of unfavorable development on prior accident year loss and loss adjustment expense reserves. Losses and loss adjustment expenses for the nine months ended September 30, 2014 include $8.6 million of favorable development, while the nine months ended September 30, 2013 include $2.2 million of unfavorable development on prior accident year loss and loss adjustment expense reserves.

Columns may not foot due to rounding.

September 30,
 2014

June 30,
 2014

December 31,
 2013

(unaudited)

(unaudited)

Assets:

Investments:

Fixed maturities, at fair value

$1,429.7

$1,445.0

$1,354.3

Equity securities, at fair value

90.6

93.3

91.1

Short-term investments, at fair value

0.8

0.2

2.6

Total investments

1,521.2

1,538.5

1,448.0

Cash and cash equivalents

94.7

59.1

134.2

Accrued investment income

12.2

13.5

12.8

Agents' balances and premium receivable

507.8

494.5

451.3

Property and equipment (net of depreciation)

56.1

55.8

48.1

Prepaid reinsurance premium

5.2

4.8

3.1

Recoverable from reinsurers

14.0

14.6

14.5

Deferred policy acquisition costs

95.4

94.0

88.3

Current and deferred income taxes

22.0

18.7

28.6

Receivable for securities sold

1.9

—

2.8

Other assets

11.9

11.2

10.2

Goodwill

75.3

75.3

75.3

Total assets

$2,417.5

$2,380.0

$2,317.3

Liabilities and Shareholders' Equity:

Liabilities:

Unpaid losses and loss adjustment expenses

$673.2

$665.2

$646.6

Unearned premium

622.3

610.7

566.0

Payable to reinsurers

—

—

0.0

Long-term debt

275.0

275.0

275.0

Commissions payable

18.6

16.2

19.1

Payable for securities purchased

24.7

11.0

39.9

Other liabilities

122.4

121.1

113.9

Total liabilities

1,736.1

1,699.2

1,660.5

Shareholders' Equity:

Common stock

21.7

21.7

21.7

Additional paid-in capital

372.2

371.3

368.9

Retained earnings ⁽¹⁾

708.4

697.7

685.0

Accumulated other comprehensive income, net of tax

23.3

30.6

16.6

Treasury stock, at cost  ⁽²⁾

(444.2)

(440.6)

(435.5)

Total shareholders' equity

681.5

680.8

656.8

Total liabilities and shareholders' equity

$2,417.5

$2,380.0

$2,317.3

Shares outstanding

11.5

11.5

11.5

$59.25

$59.16

$57.09

Notes:

(1)

The change in retained earnings from June 30, 2014 is a result of net income of $14.9 million less shareholder dividends of $4.1 million. The change in retained earnings from December 31, 2013 is a result of net income of $35.8 million less shareholder dividends of $12.4 million.

(2)

Infinity repurchased 20,100 common shares during the third quarter of 2014 at an average per share price, excluding commissions, of $66.69.  Infinity repurchased 66,300 common shares during the first nine months of 2014 at an average per share price, excluding commissions, of $68.28.

Columns may not foot due to rounding.

Infinity Property and Casualty Corporation

Statements of Cash Flows

(in millions)

Three months ended
September 30,

2014

2013

(unaudited)

(unaudited)

Operating Activities:

Net earnings

$14.9

$7.2

Adjustments:

Depreciation

2.8

2.3

Amortization

5.5

5.4

Net realized (gains) losses on investments

(1.0)

0.5

(Gain) loss on disposal of property and equipment

0.0

(0.1)

Share-based compensation expense

0.7

1.0

Excess tax benefits from share-based payment arrangements

(0.1)

(0.2)

Activity related to rabbi trust

(0.0)

0.1

Change in accrued investment income

1.3

0.7

Change in agents' balances and premium receivable

(13.2)

(4.8)

Change in reinsurance receivables

0.2

0.8

Change in deferred policy acquisition costs

(1.3)

1.0

Change in other assets

(0.0)

(2.4)

Change in unpaid losses and loss adjustment expenses

8.0

20.9

Change in unearned premium

11.5

(0.9)

Change in payable to reinsurers

—

0.2

Change in other liabilities

3.8

11.0

Net cash provided by operating activities

33.0

42.3

Investing Activities:

Purchases of fixed maturities

(97.7)

(148.2)

Purchases of equity securities

—

(1.0)

Purchases of short-term investments

(7.7)

(0.6)

Purchases of property and equipment

(3.1)

(5.9)

Maturities and redemptions of fixed maturities

50.8

46.1

Maturities and redemptions of short-term investments

0.2

—

Proceeds from sale of fixed maturities

60.9

42.9

Proceeds from sale of short-term investments

6.9

0.1

Proceeds from sale of property and equipment

0.0

0.2

Net cash provided by (used in) investing activities

10.3

(66.3)

Financing Activities:

Proceeds from stock options exercised and employee stock purchases

0.1

1.0

Excess tax benefits from share-based payment arrangements

0.1

0.2

Principal payments under capital lease obligation

(0.1)

(0.1)

Acquisition of treasury stock

(3.6)

(2.2)

Dividends paid to shareholders

(4.1)

(3.4)

Net cash used in financing activities

(7.7)

(4.6)

Net increase (decrease) in cash and cash equivalents

35.5

(28.6)

Cash and cash equivalents at beginning of period

59.1

115.9

Cash and cash equivalents at end of period

$94.7

$87.3

Nine months ended
September 30,

2014

2013

(unaudited)

(unaudited)

Operating Activities:

Net earnings

$35.8

$23.3

Adjustments:

Depreciation

8.0

6.3

Amortization

16.8

15.1

Net realized gains on investments

(3.5)

(4.1)

Gain on disposal of property and equipment

(0.0)

(0.1)

Share-based compensation expense

2.4

3.0

Excess tax benefits from share-based payment arrangements

(0.2)

(0.4)

Activity related to rabbi trust

0.0

0.1

Change in accrued investment income

0.6

(0.2)

Change in agents' balances and premium receivable

(56.4)

(34.1)

Change in reinsurance receivables

(1.5)

(0.3)

Change in deferred policy acquisition costs

(7.1)

(3.0)

Change in other assets

1.8

2.2

Change in unpaid losses and loss adjustment expenses

26.6

60.0

Change in unearned premium

56.3

42.7

Change in payable to reinsurers

(0.0)

0.0

Change in other liabilities

8.1

11.2

Net cash provided by operating activities

87.7

121.7

Investing Activities:

Purchases of fixed maturities

(396.9)

(638.6)

Purchases of equity securities

(2.6)

(2.1)

Purchases of short-term investments

(7.9)

(4.2)

Purchases of property and equipment

(16.0)

(15.1)

Maturities and redemptions of fixed maturities

124.0

149.4

Maturities and redemptions of short-term investments

2.8

—

Proceeds from sale of fixed maturities

178.3

323.8

Proceeds from sale of equity securities

5.0

7.2

Proceeds from sale of short-term investments

6.9

0.1

Proceeds from sale of property and equipment

0.0

0.2

Net cash used in investing activities

(106.6)

(179.2)

Financing Activities:

Proceeds from stock options exercised and employee stock purchases

0.7

1.5

Excess tax benefits from share-based payment arrangements

0.2

0.4

Principal payments under capital lease obligation

(0.4)

(0.6)

Acquisition of treasury stock

(8.7)

(11.4)

Dividends paid to shareholders

(12.4)

(10.4)

Net cash used in financing activities

(20.4)

Net decrease in cash and cash equivalents

(39.5)

(77.9)

Cash and cash equivalents at beginning of period

134.2

165.2

Cash and cash equivalents at end of period

$94.7

$87.3

Three months ended
September 30,

Nine months ended
September 30,

2014

2013

2014

2013

(in millions, except EPS)

Earned premium

$333.0

$327.1

$993.7

$976.9

Losses and loss adjustment expenses

(248.5)

(255.2)

(759.1)

(762.7)

Commissions and other underwriting expenses

(90.6)

(88.5)

(268.3)

(268.1)

Installment and other fee income

23.3

24.2

71.4

74.4

Underwriting income

17.2

7.5

37.7

20.5

Net investment income

8.8

8.1

26.7

25.1

Other income

0.2

0.3

0.4

0.4

Interest expense

(3.4)

(3.5)

(10.4)

(10.5)

Corporate general and administrative expenses

(1.8)

(1.9)

(6.0)

(6.0)

Other expenses

(0.2)

(0.4)

(0.5)

(1.8)

Pre-tax operating earnings

20.7

10.2

48.0

27.8

   Provision for income taxes

(6.5)

(2.8)

(14.4)

(7.4)

Operating earnings, after-tax

14.2

7.3

33.6

20.4

Realized gains (losses) on investments, pre-tax

1.0

(0.5)

3.5

4.1

Provision for income taxes on capital gains (losses)

(0.4)

0.2

(1.2)

(1.4)

Prior period tax adjustment on capital gains

—

0.2

—

0.2

Realized gains (losses) on investments, net of tax

0.7

(0.2)

2.3

2.9

Net earnings

$14.9

$7.2

$35.8

$23.3

Operating earnings per diluted share

$1.23

$0.63

$2.90

$1.75

Realized gains (losses) on investments, net of tax

0.06

(0.03)

0.20

0.22

Prior period tax adjustment on capital gains

0.00

0.02

0.00

0.02

Net earnings per diluted share

$1.29

$0.62

$3.10

$1.99

Note: Columns may not foot due to rounding

Three months ended
September 30,

Nine months ended
September 30,

(in millions)

2014

2013

2014

2013

Gross written premium

$347.5

$328.6

$1,058.4

$1,026.6

Ceded reinsurance

(3.5)

(2.5)

(9.9)

(7.4)

Net written premium

344.1

326.0

1,048.5

1,019.2

Change in unearned premium

(11.1)

1.1

(54.8)

(42.3)

Earned premium

$333.0

$327.1

$993.7

$976.9

Note: Columns may not foot due to rounding

(in millions)

September 30,
2014

September 30,
2013

Tangible capital

$881.2

$848.9

Goodwill

75.3

75.3

Total capital

$956.5

$924.2

Note: Columns may not foot due to rounding