September 13, 2012 / 9:50 PM / 5 years ago

Fitch rates IPCC's $275m debt offering 'BBB'

Sept 13 (Reuters) - (The following statement was released by the rating
    CHICAGO, September 13 (Fitch) Fitch Ratings has assigned a 'BBB' to Infinity
Property & Casualty Corporation's (Infinity) (NASDAQ: IPCC) new 10-year 5.0%
$275 million debt issuance. Fitch has also affirmed IPCC's long-term Issuer
Default Rating (IDR) at 'BBB+' and operating subsidiaries Insurer Financial
Strength (IFS) rating at 'A'. The Outlook for all ratings is Stable. See below
for a complete list of subsidiary ratings. The affirmation of IPCC's ratings is
based on Infinity's historically strong underwriting results, quality balance
sheet characterized by strong capitalization, and adequate loss reserving
levels. Offsetting these positives are negative trends in IPCC's profitability
and its business concentration in the California auto market, which represents
approximately 50% of net written premiums. 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 affected by broader negative economic
issues than the standard or preferred automobile consumer; this can impede
customer retention or impact premium growth. Fitch notes that the new $275
million debt issuance will be IPCC's only outstanding debt offering as the
company will use these proceeds to pay off the existing $195 million in debt
that matures in February 2014 early, with the balance used for general corporate
purposes. As of June 30, 2012, Infinity's financial leverage ratio was 23.4%;
however, pro forma financial leverage increases to 29% as the company is
increasing their debt obligation by approximately $80 million. Fitch notes that
earnings-based interest coverage for the first half 2012 was 3.3x. Fitch
anticipates that this new debt issuance will modestly increase interest expense
as the incremental amount offsets the 50 basis point reduction in interest
rates. Fitch highlights that current ratings have a sustained financial leverage
expectation of 30% or lower and a sustained earnings-based interest coverage of
3.5x or higher. Failure to maintain these metrics could lower current ratings.
Infinity reported a GAAP underwriting combined ratio of 99.5% for first half
2012, up slightly from first half 2011's 99.1%. On an accident year basis IPCC's
first half 2012 result was 99.2% compared to first half 2011 results of 99.1%.
Fitch notes that IPCC has grown premiums in recent years and that there is an
inverse relationship between profitability and premium growth. IPCC's management
is actively pursuing rate increases to offset this negative trend but Fitch does
not anticipate a material reduction in the combined ratio in the near term.
While Fitch believes a ratings upgrade in the near term is unlikely, the
following is a list of key rating triggers that could lead to an upgrade: --A
more diverse geographical premium distribution while simultaneously maintaining
disciplined underwriting and profitability; --A permanent increase in
capitalization that is consistent with higher rated categories. The following is
a list of key rating triggers that could lead to a downgrade: --A GAAP accident
year combined ratio above 99% for a sustained period of time; --A sustained
increase in financial leverage above 30% or a decrease in earnings-based
interest coverage of 3.0x or lower; --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
assigned a 'BBB' rating to the following debt issuance: Infinity Property
Casualty Corp. --$275 million 5.0% senior unsecured note due 2022 at 'BBB'.
Fitch has affirmed the following ratings: Infinity Property Casualty Corp. --IDR
at 'BBB+'; Stable Outlook; --$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 Indemnity Insurance Co Infinity Insurance Company
Infinity Preferred Insurance Co Infinity Reserve Insurance Co Infinity Safeguard
Insurance Co Infinity Security Insurance Company Infinity Select Insurance Co
Infinity Standard Insurance Co

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