EX-99 2 a3q2014earningsrelease.htm EARNINGS RELEASE 3Q 2014 Earnings Release


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

Birmingham, Alabama – November 6, 2014 – Infinity Property and Casualty Corporation (NASDAQ: IPCC) today reported results for the three and nine months ended September 30, 2014:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except per share amounts and ratios)
 
2014
 
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

Net earnings per diluted share increased 108.1% and 55.8% in the third quarter and first nine months of 2014 compared with the third quarter and first nine months of 2013, respectively, primarily as a result of improved underwriting profitability and an increase in favorable development on prior accident year loss and loss adjustment expense ("LAE") reserves.
Gross written premium grew 5.8% during the third quarter of 2014 compared with the same period of 2013. Premium growth of 9.7% in California, Florida, Texas and Arizona personal auto and countrywide Commercial Vehicle was partially offset by a decline of 30.7% in the remaining personal auto states.
James Gober, CEO and Chairman of Infinity, commented, “We are pleased by the premium growth and improvement in our earnings. Our strategic focus on California, Florida, Texas and Arizona personal auto, as well as our Commercial Vehicle business, will position the company for continued solid performance in 2015 and beyond."
2014 Earnings Guidance
The Company is increasing its operating earnings guidance to $4.00 to $4.35, from $3.55 to $4.35. The operating guidance reflects $8.6 million, pre-tax, of favorable development on prior accident year loss and LAE reserves recognized during the first nine months of 2014, but does not include any additional loss reserve development in




earnings during the fourth quarter. The current guidance assumes gross written premium growth between 2.0% and 4.0% as compared with the prior year, and an accident year combined ratio, which excludes development on prior accident period loss and loss adjustment expense reserves, of approximately 96.5%.
2015 Earnings Guidance
The Company's initial guidance for 2015, based on fully diluted operating earnings, is $4.00 to $4.50. The guidance assumes gross written premium growth between (2.5)% and 2.5%, as compared with 2014, and accident year combined ratio, excluding development on prior accident period loss and loss adjustment expense reserves, between 95.5% and 96.5%.
Share and Debt Repurchase Program
During the third quarter of 2014, Infinity repurchased 20,100 shares at an average price, excluding commissions, of $66.69. On November 4th, the Board of Directors increased the capacity of the debt and share repurchase program to a total of $75 million and extended the program from December 31, 2014 to December 31, 2016.
Forward-Looking Statements
This press release, notably “2014 Earnings Guidance,” contains certain “forward-looking statements” which 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.

The primary events or circumstances that could cause actual results to differ materially from what we expect include determinations with respect to reserve adequacy, realized gains or losses on the investment portfolio (including other-than-temporary impairments for credit losses), loss cost trends, undesired business mix or risk profile for new business and competitive conditions in our 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 Infinity’s filings with the Securities and Exchange Commission.

Conference Call
Infinity will conduct a conference call and webcast to discuss third quarter 2014 results at 11:00 a.m. (ET) today, November 6, 2014. The webcast can be accessed on the Company's Investor Relations website at http://ir.infinityauto.com. The conference call will be available by dialing 1-877-508-9611. For those unable to attend the live event, a replay of the webcast will be posted on the website shortly after the event ends.





Infinity Property and Casualty Corporation
Statements of Earnings
(in millions, except EPS and dividends)
 
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

 
 
 
 
 
 
 
 
Cash Dividends per Common Share
$0.36
 
$0.30
 
$1.08
 
$0.90
Notes:
(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
 

($0.5
)
 
$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.




Infinity Property and Casualty Corporation
Balance Sheets
(in millions, except book value per share)
 
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
Book value per share
$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
(20.7
)
 
(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




Definitions of Non-GAAP Financial and Operating Measures
Operating earnings are defined as net earnings, before realized gains and losses on investments and the cumulative effect of a change in accounting principle, after tax. Infinity reports this non-GAAP measure because realized gains and losses on investments can be volatile and because it is a measure used often by investors in evaluating insurance companies. Net earnings are the most comparable GAAP measure.
Underwriting income measures the insurer’s profit on insurance sales after all losses and expenses have been paid. It is calculated by deducting losses and loss adjustment expenses and underwriting expenses from premiums earned. Infinity reports this non-GAAP measure to show profitability before inclusion of net investment income, other income, interest expense, corporate general and administrative expenses, other expenses and taxes and because it is a measure used often by investors in evaluating insurance companies. Net earnings are the most comparable GAAP measure.
Below is a schedule that reconciles operating earnings and underwriting income to net earnings:
 
 
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
 
 
 
 
 
 
 
 








Gross written premium is the amount of premium charged for policies issued during a fiscal period. Earned premium is a GAAP measure and represents the portion of gross written premium (after cessions to reinsurers) that has been recognized in income in the financial statements for the periods presented as earned on a pro-rata basis over the term of the policies.
Below is a schedule that reconciles gross written premium to earned premium:
 
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

 
 
 
 
 
 
 
Tangible capital is defined as total capital (long-term debt plus total shareholders’ equity) less intangible assets. Infinity reports this non-GAAP measure because it is a measure often used by debt-holders and rating agencies when evaluating financial leverage. Total capital is the most comparable GAAP measure.
Below is a schedule that reconciles tangible capital to total capital:

(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
 
 
 

Infinity also makes available an investor supplement on its website. To access the supplemental financial information, go to http://ir.infinityauto.com and click on “Annual & Quarterly Reports.”

About Infinity
Infinity Property and Casualty Corporation (NASDAQ: IPCC) is a national provider of personal automobile insurance with a concentration on nonstandard auto insurance. Its products are offered through a network of approximately 12,500 independent agencies and brokers. For more information about Infinity, please visit http://www.infinityauto.com.
Source:     Infinity Property and Casualty Corporation
3700 Colonnade Parkway
Suite 600
Birmingham, AL 35243
Contact:    Kelly Langele
Investor Relations Analyst
(205) 803-8219
kelly.langele@ipacc.com