Infinity Property and Casualty Reports 8.0% Increase in Operating Earnings
BIRMINGHAM, Ala., July 27 -- Infinity Property and Casualty Corporation , a national provider of personal automobile insurance with a concentration on nonstandard auto insurance, today reported for the second quarter and first six months of 2006:
Three Months Ended Six Months Ended
June 30, June 30,
(in millions,
except per share 2006 2005 % Change 2006 2005 % Change
amounts and ratios)
Gross written premiums $229.0 $255.9 (10.5%) $489.1 $537.1 (8.9%)
Revenues $254.0 $273.5 (7.1%) $505.8 $534.2 (5.3%)
Net earnings $20.0 $23.7 (15.7%) $49.0 $47.7 2.9%
Net earnings per
diluted share $0.96 $1.13 (15.0%) $2.35 $2.28 3.1%
Operating earnings(1) $19.7 $18.2 8.0% $48.6 $34.3 41.6%
Operating earnings
per diluted share (1) $0.95 $0.87 9.2% $2.33 $1.64 42.1%
Underwriting income(1) $17.2 $17.7 (2.3%) $48.7 $29.3 66.2%
Combined ratio 92.7% 92.9% (0.2)pts 89.6% 93.9% (4.2)pts
Book value per share $31.51 $27.91 12.9% $31.51 $27.91 12.9%
Return on equity 12.4% 16.9% (4.4)pts 15.5% 17.0% (1.5)pts
Operating income
return on equity (1) 12.2% 13.0% (0.7)pts 15.3% 12.2% 3.1 pts
Debt to total capital 23.7% 25.7% (2.0)pts 23.7% 25.7% (2.0)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) Beginning January 1, 2006, Infinity began including corporate
litigation expense on losses, except for class action lawsuits, and
bad debt charge-offs on agent balances and premium receivables in
underwriting income and the combined ratio. Information for 2005 has
been reclassed to conform to the 2006 presentation. This reclass had
no impact on 2005 shareholders' equity or net income.
Excluding the business assumed from Great American Insurance Company ("GAI"), which is currently in runoff, gross written premiums declined 5.3% for the quarter. Commenting on the quarter, James Gober, Chairman and CEO said, "Infinity continued to generate solid underwriting profits in the second quarter of 2006 as a result of conservative reserving practices, pricing discipline and efficient claims handling. In addition, as I discussed in last quarter's earnings call, the decline in premiums in the second quarter was expected, given the strong growth we had in last year's second quarter. We continue to expect growth in premiums in the second half of this year, given more modest premiums in last year's second half and the recent trends such as our 5.4% growth in gross premiums, excluding GAI, for the month of June."
2006 Earnings Guidance
Given the better than projected underwriting results in the second quarter, Infinity is increasing its operating earnings guidance to $3.95 - $4.25 per diluted share from $3.80 - $4.20 per diluted share.
Forward-Looking Statements
This press release 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 press release not dealing with historical results or current facts are forward-looking and are based on estimates, assumptions, and projections. Statements which include the words "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, premiums, growth, earnings, investment performance, expected losses, rate changes and loss experience.
Actual results could differ materially from those expected by Infinity depending on: changes in economic conditions and financial markets (including interest rates), the adequacy or accuracy of Infinity's pricing methodologies, actions of competitors, the approval of requested form and rate changes, judicial and regulatory developments affecting the automobile insurance industry, the outcome of pending litigation against Infinity, weather conditions (including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions), changes in driving patterns and loss trends. 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
The Company will hold a conference call to discuss 2006 second quarter results at 11:00 a.m. (ET) today, July 27. There are two alternative communication modes available to listen to the call. Telephone access will be available by dialing 1-800-573-4840 and providing the confirmation code 45569901. Please dial 5 to 10 minutes prior to the scheduled start time. A replay of the call will also be available one hour following the completion of the call, at around 1:00 p.m. (ET), and will run until 8:00 p.m. on Thursday, August 3, 2006. To listen to the replay, dial 1-888-286-8010 and provide the confirmation code 52173053. The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, go to Infinity's website, http://www.ipacc.com/, click on Investor Relations and follow the instructions at the webcast link. The archived webcast will be available on Infinity's website approximately one hour following the completion of the call and will be available for one year.
Infinity Property and Casualty Corporation
Statement of Earnings
(in millions, except EPS)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
Revenues:
Earned premiums $235.9 $248.0 $469.9 $478.8
Net investment income 17.7 16.1 34.6 32.7
Realized gains on investments(1) (0.1) 8.4 0.0 20.5
Other income 0.6 1.0 1.3 2.2
Total revenues 254.0 273.5 505.8 534.2
Costs and Expenses:
Loss and loss adjustment
expenses(2) 159.3 172.8 308.2 339.8
Commissions and other
underwriting expenses(3) 59.3 57.5 113.0 109.7
Interest expense 2.8 2.8 5.5 5.5
Corporate general and
administrative expenses 1.9 1.6 3.8 3.2
Other expenses 1.1 3.2 1.9 3.7
Total costs and expenses 224.4 237.9 432.4 461.9
Earnings before income taxes 29.7 35.7 73.4 72.3
Provision for income taxes 9.7 12.0 24.3 24.6
Net earnings $20.0 $23.7 $49.0 $47.7
Earnings per common share:
Basic $0.97 $1.15 $2.38 $2.31
Diluted $0.96 $1.13 $2.35 $2.28
Average number of common shares:
Basic 20.582 20.646 20.628 20.627
Diluted 20.797 20.882 20.863 20.880
Cash dividends per common share $0.075 $0.060 $0.15 $0.12
Note: Columns may not foot due to rounding
Notes:
(1) Realized gains for the three months and six months ended June 30,
2006, include $1.0 million and $1.2 million, respectively, of taxable
gains from securities sold to utilize a portion of the available tax
loss carry-forward.
Realized gains for the three months and six months ended June 30,
2005, include $6.5 million and $17.1 million, respectively, of taxable
gains from securities sold to utilize a portion of the available tax
loss carry-forward.
(2) Beginning January 1, 2006, Infinity began including corporate
litigation expense on losses, except for class action lawsuits, in
loss and loss adjustment expenses. Information for 2005 has been
reclassed to conform to the 2006 presentation. This reclass had no
impact on 2005 shareholders' equity or net income.
Loss and loss adjustment expenses for the three months and six months
ended June 30, 2006, include $5.6 million and $24.6 million,
respectively, of favorable development on prior accident period loss
and loss adjustment expense reserves.
Loss and loss adjustment expenses for the three months and six months
ended June 30, 2005, include $5.9 million and $9.2 million,
respectively, of favorable development on prior accident period loss
and loss adjustment expense reserves.
(3) Beginning January 1, 2006, Infinity began including bad debt charge-
offs on agent balances and premium receivables in commissions and
other underwriting expenses. Information for 2005 has been reclassed
to conform to the 2006 presentation. This reclass had no impact on
2005 shareholders' equity or net income.
Infinity Property and Casualty Corporation
Condensed Balance Sheet
(in millions, except book value per share)
For the Period Ended
June 30, March 31,
2006 2006
Assets:
Investments:
Fixed maturities, at fair value $1,272.4 $1,291.3
Equity securities, at fair value 65.6 60.7
Total investments 1,338.1 1,352.0
Cash and cash equivalents 68.3 79.5
Accrued investment income 16.3 15.1
Agents' balances and premiums receivable 310.0 314.3
Prepaid reinsurance premiums 7.6 8.1
Recoverables from reinsurers 19.4 18.8
Deferred policy acquisition costs 73.4 76.1
Current and deferred income taxes 41.9 26.8
Prepaid expenses, deferred
charges and other assets 16.4 16.3
Goodwill 75.3 75.3
Total assets $1,966.5 $1,982.3
Liabilities and Shareholders' Equity:
Liabilities:
Unpaid losses and loss adjustment expenses $592.1 $602.2
Unearned premiums 417.9 426.5
Payable to reinsurers 0.1 0.7
Long-term debt 199.4 199.4
Commissions payable 29.0 28.4
Accounts payable, accrued expenses
and other liabilities 84.9 80.7
Total liabilities 1,323.4 1,338.0
Shareholders' Equity:
Common stock 20.8 20.8
Additional paid-in capital 334.8 333.4
Retained earnings(1) 325.1 306.7
Net unrealized loss(2) (21.0) (11.7)
Treasury stock, at cost(3) (16.5) (4.9)
Total shareholders' equity 643.2 644.3
Total liabilities and
shareholders' equity $1,966.5 $1,982.3
Shares outstanding 20.411 20.676
Book value per share $31.51 $31.16
Note: Columns may not foot due to rounding
Notes:
(1) Net income of $20.0 million less shareholder dividends of $1.5 million
resulted in the increase in retained earnings from March 2006.
(2) Unrealized losses increased for the quarter primarily as a result of a
general increase in market interest rates during the second quarter of
2006.
(3) Infinity repurchased 278,300 shares during the second quarter of 2006
at an average price of $41.59.
Definitions of Non-GAAP Financial and Operating Measures
Operating earnings are defined as net income, before realized gains and losses and the cumulative effect of a change in accounting principle, after tax. Infinity reports this non-GAAP measure because realized gains and losses 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 loss and loss adjustment expenses and underwriting expenses from premiums earned. Infinity reports this non-GAAP measure to show profitability before inclusion of investment income or 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, both non-GAAP measures, to net earnings:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in millions, except EPS) 2006 2005 2006 2005
Earned premiums $235.9 $248.0 $469.9 $478.8
Loss and loss adjustment
expenses (1) (159.3) (172.8) (308.2) (339.8)
Commissions and other
underwriting expenses (2) (59.3) (57.5) (113.0) (109.7)
Underwriting income 17.2 17.7 48.7 29.3
Net investment income 17.7 16.1 34.6 32.7
Other income 0.6 1.0 1.3 2.2
Interest expense (2.8) (2.8) (5.5) (5.5)
Corporate general and
administrative expenses (1.9) (1.6) (3.8) (3.2)
Other expenses (1.1) (3.2) (1.9) (3.7)
Pre-tax operating earnings 29.7 27.2 73.3 51.8
Provision for income taxes 10.0 9.0 24.7 17.4
Operating earnings, after-tax 19.7 18.2 48.6 34.3
Realized gains on investments,
pre-tax (0.1) 8.4 0.0 20.5
Provision for income taxes 0.0 (3.0) 0.0 (7.2)
Utilization of capital loss
carry-forward 0.4 - 0.4 -
Realized gains on investments
after-tax 0.3 5.5 0.4 13.3
Net earnings $20.0 $23.7 $49.0 $47.7
Operating earnings per share
- diluted $0.95 $0.87 $2.33 $1.64
Net realized gains (losses)
on investments (0.01) 0.26 (0.00) 0.64
Utilization of capital loss
carry-forward 0.02 - 0.02 -
Net earnings per share
- diluted $0.96 $1.13 $2.35 $2.28
Note: Columns may not foot due to rounding
(1) Beginning January 1, 2006, Infinity began including corporate
litigation expense on losses, except for class action lawsuits, in
loss and loss adjustment expenses. Information for 2005 has been
reclassed to conform to the 2006 presentation. This reclass had no
impact on 2005 shareholders' equity or net income.
(2) Beginning January 1, 2006, Infinity began including bad debt charge-
offs on agent balances and premium receivables in commissions and
other underwriting expenses. Information for 2005 has been reclassed
to conform to the 2006 presentation. This reclass had no impact on
2005 shareholders' equity or net income.
Infinity also makes available an investor supplement on our website. To access the supplemental financial information, go to http://www.ipacc.com/ and click on "Investor Relations" followed by "Quarterly Reports."