September 13, 2012 / 4:26 PM / 5 years ago

TEXT-S&P rates Infinity Property and Casualty Corp notes 'BBB'

Overview
     -- Infinity Property and Casualty Corp. is issuing $275 million of
senior 
unsecured notes due in 2022 to refinance its existing $195 million in notes 
maturing in 2014.
     -- We are assigning our 'BBB' senior unsecured rating to the proposed 
issuance.
     -- Infinity's credit protection measures will remain appropriate for the 
rating following the refinancing, therefore, we are affirming all of our 
existing ratings on the company.
     -- The stable outlook reflects our belief that Infinity's competitive 
position will remain strong in its markets and that the company will meet our 
performance expectations.

Rating Action
On Sept. 13, 2012, Standard and Poor's Ratings Services assigned its 'BBB' 
senior debt rating to Infinity Property and Casualty Corp.'s (Infinity) 
proposed $275 million 5% senior unsecured notes due in 2022. At the same time, 
we affirmed our 'A' financial strength and 'BBB' counterparty credit ratings 
on the company. The outlook remains stable.

Rationale
We expect only modest changes to Infinity's credit protection following the 
proposed issuance. This is because the company intends to use the proceeds to 
redeem its existing $195 million 5.5% senior notes due in 2014. The company 
will use the remainder of the proceeds to pay a make-whole provision for 
redeeming the existing notes, and for general corporate purposes. Pro forma 
for the transaction, financial leverage increases to 31.5% from 25.1% as of 
June 30, 2012. EBITDA fixed-charge coverage pro forma for the transaction 
deteriorates to about 3x from 4x for the first half of 2012. Though these 
credit measures have weakened modestly due to the somewhat higher debt burden, 
these ratios are still within our tolerance for the current rating level.

Outlook
We expect Infinity's competitive position to remain strong in its target 
nonstandard auto insurance market. In 2012, we believe its gross premium 
growth will be in the 8%-12% range, stemming from its continued fine-tuning of 
its product, rating structure, marketing, and agency appointment strategies. 
We also believe the company's performance should remain favorable in 2012 as 
it continues to strike an appropriate balance between growth and 
profitability. However, its 2012 accident-year combined ratio will likely 
remain slightly higher than historical levels--at about 97%-99%--because of a 
greater proportion of new business (which is associated with a higher combined 
ratio). Similarly, we expect overall 2012 return on revenue to be lower than 
historical norms at around 4%-6% due to continued modestly higher combined 
ratios, declining investment income (because of low rates), and no expected 
material favorable or unfavorable reserve development. We also expect Infinity 
to maintain its conservative financial management with very strong capital 
adequacy, financial leverage of less than 35%, and GAAP (generally accepted 
accounting principles) EBITDA fixed-charge coverage of at least 3x.

We could lower the ratings if Infinity suffers an underwriting loss arising 
from poor execution of its targeted geographic penetration strategy or weak 
insurance pricing cycle management, or if capital, coverage, or leverage falls 
below our stated expectations. It's unlikely that we will raise the ratings in 
the next year or two due to the company's narrow product and geographic focus, 
relatively modest market share, and mixed success so far in showing profitable 
growth in its target markets.

Related Criteria And Research
Holding Company Analysis, June 11, 2009

Ratings List
Ratings Affirmed

Infinity Property and Casualty Corp.
 Counterparty Credit Rating
  Local Currency                        BBB/Stable/--      

Hillstar Insurance Co.
Infinity Standard Insurance Co.
Infinity Select Insurance Co.
Infinity Security Insurance Co.
Infinity Safeguard Insurance Co.
Infinity Preferred Insurance Co.
Infinity Insurance Co.
Infinity Indemnity Insurance Co.
Infinity Casualty Insurance Co.
Infinity Auto Insurance Co.
Infinity Assurance Insurance Co.
 Counterparty Credit Rating
  Local Currency                        A/Stable/--        
 Financial Strength Rating
  Local Currency                        A/Stable/--        

Infinity Premier Insurance Co.
 Counterparty Credit Rating
  Local Currency                        A/Watch Neg/--     
 Financial Strength Rating
  Local Currency                        A/Watch Neg/--     

Infinity Property and Casualty Corp.
 Senior Unsecured                       BBB                

New Rating

Infinity Property and Casualty Corp.
 Senior Unsecured                       BBB

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