Fitch Ratings has affirmed Infinity Property & Casualty Corporation's ratings (Infinity) (NASDAQ: IPCC), and its subsidiaries, as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB+';
--$195 million senior notes due 2014 'BBB';
--Insurer Financial Strength (IFS) rating of the operating subsidiaries at 'A'.
See below for a complete list of subsidiary ratings. The Rating Outlook is Stable.
The ratings are based on Infinity's underwriting results, quality balance sheet, characterized by strong capitalization and adequate loss reserving levels. Offsetting these positives are Infinity's business concentration in the California auto market, which represents approximately 50% of net written premiums as of March 31, 2011. Also, Infinity is challenged as a more modest-sized personal auto specialist to compete with insurers with greater capital bases and operating scale, and to manage regulatory and operating risks inherent to this business segment.
Infinity is one of the largest non-standard auto insurance companies in the country. The average non-standard automobile consumer is more likely to be impacted by broader negative economic issues than the standard or preferred automobile consumer. This may impede premium growth or negatively impact customer retention.
As of March 31, 2011, Infinity had total GAAP capital of $859 million. The corporation's debt-to-tangible capital ratio was 24.9%. Fitch notes that earnings based interest coverage for first quarter 2011 was 5.0 times (x) and anticipates that the company will continue to maintain adequate interest coverage levels to support debt servicing requirements going forward.
An important accounting item to point out when looking at IPCC's underwriting results is that there is a significant difference between statutory and GAAP expense ratios. From a statutory perspective, beginning in 2007, to be more consistent with the way other insurance companies reported fee income, Infinity did not directly offset underwriting income expenses but rather put the fees in other income lines. However, from a GAAP perspective, the company reports expenses on a net basis. The effect this has on the expense ratio is approximately 8%.
Infinity reported a statutory underwriting combined ratio of 103.3% at March 31, 2011 compared to 96.3% for the prior year. From a GAAP perspective IPCC reported a combined ratio of 97.9% at March 31, 2011 compared to 91.9% for prior year. The primary driver for the decline in underwriting is approximately $13 million less favorable loss reserve development in first quarter 2011 compared to first quarter 2010. Fitch anticipates that accident year combined ratios will be challenged in the near term until premium growth rates stabilize. Infinity reported net earned premium revenues of $239 million at March 31, 2011, up approximately 12.7% from March 31, 2010.
Within Fitch's rating rationale are multiple considerations. If Infinity were to materially deviate from any of these items, especially for an extended period, the ratings could be affected.
While Fitch believes a ratings upgrade in the near term is unlikely the following is a list of key rating drivers that could lead to an upgrade:
--A permanent increase in capitalization that is consistent with higher rated categories.
--A more diverse geographical premium distribution while simultaneously maintaining disciplined underwriting and profitability.
The following is a list of key rating drivers that could lead to a downgrade:
--A GAAP accident year combined ratio above 99% for a sustained period of time.
--An increase in the company's statutory net leverage of 4.5x or higher.
--A negative legal or political action associated with either the nonstandard auto market or IPCC's marketing strategy of targeting the Hispanic market that damages Infinity's brand image.
Fitch has affirmed the following ratings with a Stable Outlook:
Infinity Property Casualty Corp.
--IDR at 'BBB+';
--$195 million 5.5% senior unsecured note due 2014 at 'BBB'.
Fitch has also affirmed the following IFS ratings at 'A', with a Stable Outlook:
Hillstar Insurance Co
Infinity Assurance Insurance Co
Infinity Auto Insurance Co
Infinity Casualty Insurance Company
Infinity County Mutual Insurance Company
Infinity General Insurance Co
Infinity Indemnity Insurance Co
Infinity Insurance Company
Infinity Preferred Insurance Co
Infinity Premier Insurance Co
Infinity Reserve Insurance Co
Infinity Safeguard Insurance Co
Infinity Security Insurance Company
Infinity Select Insurance Co
Infinity Specialty Insurance Co
Infinity Standard Insurance Co
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the ratings process other than through the medium of public disclosure.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (March 31, 2011);
--'Non-Life Insurance Rating Methodology (Global)' (March 31, 2011);
--'Fitch's Approach to Rating Insurance Groups' (Dec. 14, 2010);
--'Insurance Industry: Global Notching Methodology' (March 31, 2011).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266
Non-Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=604366
Fitch's Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Insurance Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Contacts:
Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA,
+1-312-606-2354
Director
Fitch, Inc.
70 W. Madison Street
Chicago,
IL 60602
or
Secondary Analyst
Jim Auden, CFA,
+1-312-368-3146
Managing Director
or
Committee Chairperson
Keith
Buckley, CFA, +1-312-368-3211
Group Managing Director
or
Media
Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com