Infinity Property and Casualty Reports 17.1% Growth in Gross Written Premium on Solid Earnings
BIRMINGHAM, Ala., Feb. 8, 2007 -- Infinity Property and Casualty Corporation , a national provider of personal automobile insurance with a concentration on nonstandard auto insurance, today reported for the fourth quarter and twelve months ending December 31, 2006:
Three Months Ended Twelve Months Ended December 31, December 31, (in millions, except per share % % amounts and ratios) 2006 2005 Change 2006 2005 Change Gross written premiums $259.3 $221.5 17.1% $986.7 $988.7 (0.2%) Revenues $263.5 $256.3 2.8% $1,021.3 $1,053.3 (3.0%) Net earnings $22.4 $32.0 (30.0%) $87.3 $106.3 (17.9%) Net earnings per diluted share $1.12 $1.53 (26.8%) $4.26 $5.09 (16.3%) Operating earnings(1) $20.6 $31.5 (34.6%) $85.9 $84.4 1.8% Operating earnings per diluted share(1) $1.03 $1.51 (31.8%) $4.19 $4.04 3.7% Underwriting income(1) $25.2 $34.8 (27.6%) $87.4 $76.4 14.4% Combined ratio 89.6% 85.4% 4.2 pts 90.8% 92.0% (1.2)pts Return on equity 13.6% 21.0% (7.4) pts 13.5% 18.1% (4.6)pts Operating income return on equity(1) 12.4% 20.7% (8.3) pts 13.3% 14.4% (1.1)pts Book value per share $33.88 $30.34 11.7% Debt to total capital 23.1% 24.1% (1.0)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.
Gross written premiums for the three months ended December 31, 2006 grew 17.1% compared with the same period of 2005 primarily as a result of growth in California, Arizona and Texas. Excluding the business assumed from Great American Insurance Company ("GAI"), which is currently in runoff, gross written premiums during the fourth quarter of 2006 increased 23.4% compared with the fourth quarter of 2005.
Revenues for the three months ended December 31, 2006 increased as a result of a 1.6% increase in earned premiums and $3.7 million of net realized gains during the fourth quarter of 2006. In addition to a 1.3% decline in earned premiums, revenues for the twelve months ended December 31, 2006 declined compared to the same period in 2005 as Infinity recognized $22.3 million of net realized gains during 2005 compared with $2.0 million of net realized gains during 2006.
Earnings for the fourth quarter and twelve months ended December 31, 2006 include a pre-tax charge of $4.8 million related to severance costs from efforts to consolidate certain customer service, claims and information technology back-office operations to Birmingham, as announced in October 2006. Net earnings for the twelve months ended December 31, 2005 include a $7.4 million tax benefit from the utilization of net capital loss carry-forwards. In comparison, net earnings for the twelve months ended December 31, 2006 include a tax benefit of $3.1 million from the utilization of net capital loss carry-forwards.
2007 Earnings Guidance
Infinity's initial guidance for 2007, based on fully diluted operating earnings, is $3.20 -- $3.60. Included in this guidance is a charge of $0.15, the estimated cost to complete the consolidation of back office operations.
Share Repurchase Program
Infinity completed its $50 million share repurchase program in December 2006, repurchasing 364,000 shares at an average cost of $44.26 during the fourth quarter, and in January 2007 began repurchasing shares under the new $100 million repurchase program announced in October 2006.
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 that 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 fourth quarter results at 11:00 a.m. (ET) today, February 8. There are two alternative communication modes available to listen to the call. Telephone access will be available by dialing 1-800-435-1398 and providing the confirmation code 55837671. 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, February 15, 2007. To listen to the replay, dial 1-888-286-8010 and provide the confirmation code 61681194. 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 and dividends) For the Three For the Twelve Months Ended Months Ended December 31, December 31, 2006 2005 2006 2005 Revenues: Earned premiums $242.6 $238.8 $948.7 $961.5 Net investment income 16.9 16.6 68.4 65.5 Realized gains (losses) on investments (1) 3.7 0.0 2.0 22.3 Other income 0.2 0.9 2.3 4.0 Total revenues 263.5 256.3 1,021.3 1,053.3 Costs and Expenses: Loss and loss adjustment expenses (2) 163.0 147.9 635.1 660.6 Commissions and other underwriting expenses 54.4 56.1 226.1 224.5 Interest expense 2.8 2.8 11.1 11.1 Corporate general and administrative expenses 1.6 1.6 7.1 6.6 Restructuring charge 4.8 - 4.8 - Other expenses (3) 2.1 0.3 5.7 1.7 Total costs and expenses 228.7 208.6 889.9 904.5 Earnings before income taxes 34.8 47.7 131.4 148.8 Provision for income taxes (4) 12.4 15.7 44.1 42.5 Net earnings $22.4 $32.0 $87.3 $106.3 Earnings per common share: Basic $1.13 $1.55 $4.30 $5.15 Diluted $1.12 $1.53 $4.26 $5.09 Average number of common shares: Basic 19.771 20.644 20.303 20.640 Diluted 19.953 20.907 20.475 20.892 Cash dividends per common share $0.075 $0.06 $0.30 $0.24 Note: Columns may not foot due to rounding Notes: (1) Realized gains (losses) for the three months and twelve months ended December 31, 2006, include $7.0 million and $8.9 million, respectively, of taxable gains from securities sold to utilize a portion of the available tax loss carry-forward. Realized gains (losses) for the three months and twelve months ended December 31, 2005, include $0.5 million and $20.3 million, respectively, of taxable gains from securities sold to utilize a portion of the available tax loss carry-forward. (2) Loss and loss adjustment expenses for the three and twelve months ended December 31, 2006, include $6.7 million and $31.2 million of favorable development on prior accident period loss and loss adjustment expense reserves, respectively. Loss and loss adjustment expenses for the three and twelve months ended December 31, 2005, include $18.9 million and $17.0 million of favorable development on prior accident period loss and loss adjustment expense reserves, respectively. The development for the three months ended December 31, 2005 includes $9.0 million related to favorable development for the first three accident quarters of 2005. (3) Other expenses for the three and twelve months ended December 31, 2006 include a $1.7 million increase in reserves for class action lawsuits. Other expenses for the twelve months ended December 31, 2005 include a $2.7 million reduction in reserves for class action lawsuits. (4) Income taxes for the three and twelve months ended December 31, 2006 include a $2.5 million and $3.1 million tax benefit from the utilization of net capital loss carryforwards, respectively. Income taxes for both the three and twelve months ended December 31, 2006 also include a $3.0 million increase in the provision for tax valuation allowance on net capital loss carryforwards. Income taxes for the three and twelve months ended December 31, 2005 include a $0.5 million and $7.4 million tax benefit from the utilization of net capital loss carry-forwards, respectively. Infinity Property and Casualty Corporation Condensed Balance Sheet (in millions, except book value per share) For the Period Ended December 31, September 30, 2006 2006 Assets: Investments: Fixed maturities, at fair value $1,250.2 $1,272.4 Equity securities, at fair value 55.5 80.9 Total investments 1,305.7 1,353.3 Cash and cash equivalents 109.2 67.5 Accrued investment income 16.1 14.9 Agents' balances and premiums receivable 343.1 321.8 Prepaid reinsurance premiums 4.3 5.9 Recoverables from reinsurers 31.8 19.9 Deferred policy acquisition costs 76.8 73.7 Current and deferred income taxes 34.6 35.3 Prepaid expenses, deferred charges and other assets 17.5 15.2 Goodwill 75.3 75.3 Total assets $2,014.4 $1,982.8 Liabilities and Shareholders' Equity: Liabilities: Unpaid losses and loss adjustment expenses $595.4 $587.3 Unearned premiums 431.0 417.1 Payable to reinsurers 0.6 1.0 Long-term debt 199.4 199.4 Commissions payable 30.1 29.6 Accounts payable, accrued expenses and other liabilities 93.2 89.6 Total liabilities 1,349.8 1,324.1 Shareholders' Equity: Common stock 20.8 20.8 Additional paid-in capital 335.7 335.3 Retained earnings (1) 361.7 340.7 Other comprehensive income (3.2) (3.8) Treasury stock, at cost (2) (50.4) (34.3) Total shareholders' equity 664.6 658.7 Total liabilities and shareholders' equity $2,014.4 $1,982.8 Shares outstanding 19.617 19.976 Book value per share $33.88 $32.98 Note: Columns may not foot due to rounding Notes: (1) Net income of $22.4 million less shareholder dividends of $1.5 million resulted in the increase in retained earnings from September 2006. (2) Infinity repurchased 364,000 shares during the fourth quarter of 2006 at an average price of $44.26. 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 Twelve Months Ended December 31, Ended December 31, (in millions, except EPS) 2006 2005 2006 2005 Earned premiums $242.6 $238.8 $948.7 $961.5 Loss and loss adjustment expenses (163.0) (147.9) (635.1) (660.6) Commissions and other underwriting expenses (54.4) (56.1) (226.1) (224.5) Underwriting income 25.2 34.8 87.5 76.4 Net investment income 16.9 16.6 68.4 65.5 Other income 0.2 0.9 2.3 4.0 Interest expense (2.8) (2.8) (11.1) (11.1) Corporate general and administrative expenses (1.6) (1.6) (7.1) (6.6) Restructuring charge (4.8) - (4.8) - Other expenses (2.1) (0.3) (5.7) (1.7) Pre-tax operating earnings 31.1 47.7 129.5 126.5 Provision for income taxes (10.5) (16.2) (43.6) (42.1) Operating earnings, after-tax 20.6 31.5 85.9 84.4 Realized gains (losses) on investments, pre-tax 3.7 0.0 2.0 22.3 Provision for income taxes (1.3) 0.0 (0.7) (7.8) Utilization of capital loss carry-forward 2.5 0.5 3.1 7.4 Increase in provision for tax valuation allowance (3.0) - (3.0) - Realized gains on investments, after-tax 1.9 0.5 1.4 21.9 Net earnings $22.4 $32.0 $87.3 $106.3 Operating earnings per share - diluted $1.03 $1.51 $4.19 $4.04 Net realized gains on investments 0.12 0.00 0.07 0.70 Utilization of capital loss carry-forward 0.12 0.02 0.15 0.35 Increase in provision for tax valuation allowance (0.15) - (0.15) - Net earnings per share - diluted $1.12 $1.53 $ 4.26 $5.09 Note: Columns may not foot due to rounding
Infinity also makes available an investor supplement on our website. To access the supplemental financial information, go to www.ipacc.com and click on "Investor Relations" followed by "Quarterly Reports."
FCMN Contact: amy.starling@ipacc.com