Edgar Filing: INFINITY PROPERTY & CASUALTY CORP

IPCC.10Q.1Q.2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 0-50167

INFINITY PROPERTY AND CASUALTY CORPORATION

(Exact name of registrant as specified in its charter)



Incorporated under the Laws of Ohio		03-0483872
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3700 Colonnade Parkway, Suite 600, Birmingham, Alabama 35243

(Address of principal executive offices and zip code)

(205) 870-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	o (Do not check if smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined by rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2015 there were 11,466,399 shares of the registrant’s common stock outstanding.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INDEX




		Page
	PART I – FINANCIAL INFORMATION

Item 1	Financial Statements

	Consolidated Statements of Earnings	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Changes in Shareholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Condensed Notes to Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4	Controls and Procedures	37

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	38

Item 1A	Risk Factors	38

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 6	Exhibits	39

	Signature	40

	EXHIBIT INDEX
Exhibit 31.1	Certification of the Chief Executive Officer under Exchange Act Rule 13a-14(a)

Exhibit 31.2	Certification of the Chief Financial Officer under Exchange Act Rule 13a-14(a)

Exhibit 32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

PART I

FINANCIAL INFORMATION

ITEM 1

Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

($ in thousands, except per share data)

(unaudited)



	Three months ended March 31,
	2015			2014			% Change
Revenues:
Earned premium	$	332,106		$	327,679		1.4	%
Installment and other fee income	24,561			24,340			0.9	%
Net investment income	8,736			8,798			(0.7	)%
Net realized gains on investments¹	1,169			645			81.4	%
Other income	400			151			164.9	%
Total revenues	366,973			361,613			1.5	%
Costs and Expenses:
Losses and loss adjustment expenses	255,643			253,702			0.8	%
Commissions and other underwriting expenses	88,828			87,973			1.0	%
Interest expense	3,459			3,453			0.2	%
Corporate general and administrative expenses	1,903			1,526			24.7	%
Other expenses	903			312			189.5	%
Total costs and expenses	350,737			346,966			1.1	%
Earnings before income taxes	16,236			14,647			10.9	%
Provision for income taxes	5,082			4,320			17.7	%
Net Earnings	$	11,154		$	10,327		8.0	%
Net Earnings per Common Share:
Basic	$	0.98		$	0.90		8.9	%
Diluted	0.97			0.89			9.0	%
Average Number of Common Shares:
Basic	11,427			11,429			0.0	%
Diluted	11,551			11,580			(0.2	)%
Cash Dividends per Common Share	$	0.43		$	0.36		19.4	%

¹Net realized gains before impairment losses	$	1,551		$	672		130.9	%
Total other-than-temporary impairment (OTTI) losses	(381		)	(893		)	(57.3	)%
Non-credit portion in other comprehensive income	0			885			(100.0	)%
OTTI losses reclassified from other comprehensive income	0			(19		)	(100.0	)%
Net impairment losses recognized in earnings	(381		)	(27		)	NM
Total net realized gains on investments	$	1,169		$	645		81.4	%

NM = Not Meaningful

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

(unaudited)



	Three months ended March 31,
	2015			2014
Net earnings	$	11,154		$	10,327
Other comprehensive income before tax:
Net change in postretirement benefit liability	16			657
Unrealized gains on investments:
Unrealized holding gains arising during the period	8,416			7,852
Less: Reclassification adjustments for losses included in net earnings	(1,169		)	(645		)
Unrealized gains on investments, net	7,247			7,208
Other comprehensive income, before tax	7,263			7,865
Income tax expense related to components of other comprehensive income	(2,542		)	(2,753		)
Other comprehensive income, net of tax	4,721			5,112
Comprehensive income	$	15,875		$	15,439

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share amounts in line descriptions)



	March 31, 2015			December 31, 2014
	(unaudited)
Assets
Investments:
Fixed maturities – at fair value (amortized cost $1,407,631 and $1,412,417)	$	1,433,022		$	1,431,843
Equity securities – at fair value (cost $76,625 and $77,862)	94,453			94,408
Short-term investments - at fair value (amortized cost $1,820 and $803)	1,819			803
Total investments	1,529,294			1,527,054
Cash and cash equivalents	96,434			84,541
Accrued investment income	12,031			12,976
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $14,648 and $15,510	529,969			483,638
Property and equipment, net of accumulated depreciation of $66,507 and $63,929	54,923			55,880
Prepaid reinsurance premium	5,386			4,809
Recoverables from reinsurers (includes $733 and $161 on paid losses and LAE)	14,715			14,530
Deferred policy acquisition costs	98,164			90,428
Current and deferred income taxes	13,148			20,022
Receivable for securities sold	3,650			4,549
Other assets	13,714			11,108
Goodwill	75,275			75,275
Total assets	$	2,446,702		$	2,384,812
Liabilities and Shareholders’ Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	675,755		$	668,177
Unearned premium	644,433			589,260
Long-term debt (fair value $294,674 and $291,044)	275,000			275,000
Commissions payable	19,274			18,673
Payable for securities purchased	9,370			17,173
Other liabilities	115,542			118,870
Total liabilities	1,739,374			1,687,153
Commitments and contingencies (See Note 9)
Shareholders’ equity:
Common stock, no par value (50,000,000 shares authorized; 21,729,057 and 21,728,032 shares issued)	21,756			21,745
Additional paid-in capital	373,082			372,368
Retained earnings	731,873			725,651
Accumulated other comprehensive income, net of tax	28,216			23,494
Treasury stock, at cost (10,270,472 and 10,244,672 shares)	(447,598		)	(445,599		)
Total shareholders’ equity	707,328			697,659
Total liabilities and shareholders’ equity	$	2,446,702		$	2,384,812

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands)

(unaudited)



	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income, Net of Tax			Treasury Stock			Total
Balance at December 31, 2013	$	21,684	$	368,902	$	685,011		$	16,624		$	(435,463	)	$	656,758
Net earnings	—		—		10,327			—			—			10,327
Net change in postretirement benefit liability	—		—		—			427			—			427
Change in unrealized gain on investments	—		—		—			5,055			—			5,055
Change in non-credit component of impairment losses on fixed maturities	—		—		—			(370		)	—			(370		)
Comprehensive income														15,439
Dividends paid to common shareholders	—		—		(4,139		)	—			—			(4,139		)
Shares issued and share-based compensation expense, including tax benefit	12		417		—			—			—			429
Acquisition of treasury stock	—		—		—			—			(2,000		)	(2,000		)
Balance at March 31, 2014	$	21,696	$	369,319	$	691,199		$	21,737		$	(437,463	)	$	666,488
Net earnings	—		—		46,874			—			—			46,874
Net change in postretirement benefit liability	—		—		—			(274		)	—			(274		)
Change in unrealized gain on investments	—		—		—			1,755			—			1,755
Change in non-credit component of impairment losses on fixed maturities	—		—		—			276			—			276
Comprehensive income														48,632
Dividends paid to common shareholders	—		—		(12,423		)	—			—			(12,423		)
Shares issued and share-based compensation expense, including tax benefit	49		3,049		—			—			—			3,098
Acquisition of treasury stock	—		—		—			—			(8,136		)	(8,136		)
Balance at December 31, 2014	$	21,745	$	372,368	$	725,651		$	23,494		$	(445,599	)	$	697,659
Net earnings	—		—		11,154			—			—			11,154
Net change in postretirement benefit liability	—		—		—			11			—			11
Change in unrealized gain on investments	—		—		—			4,497			—			4,497
Change in non-credit component of impairment losses on fixed maturities	—		—		—			213			—			213
Comprehensive income														15,875
Dividends paid to common shareholders	—		—		(4,932		)	—			—			(4,932		)
Shares issued and share-based compensation expense, including tax benefit	11		714		—			—			—			725
Acquisition of treasury stock	—		—		—			—			(1,999		)	(1,999		)
Balance at March 31, 2015	$	21,756	$	373,082	$	731,873		$	28,216		$	(447,598	)	$	707,328

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(unaudited)



	Three months ended March 31,
	2015			2014
Operating Activities:
Net earnings	$	11,154		$	10,327
Adjustments:
Depreciation	2,982			2,540
Amortization	5,888			5,767
Net realized gains on investments	(1,169		)	(645		)
Loss (gain) on disposal of property and equipment	115			(27		)
Share-based compensation expense	659			(168		)
Excess tax benefits from share-based payment arrangements	0			(56		)
Activity related to rabbi trust	27			18
Change in accrued investment income	946			386
Change in agents’ balances and premium receivable	(46,331		)	(41,657		)
Change in reinsurance receivables	(761		)	(1,146		)
Change in deferred policy acquisition costs	(7,736		)	(6,449		)
Change in other assets	1,732			2,555
Change in unpaid losses and loss adjustment expenses	7,578			16,313
Change in unearned premium	55,173			47,008
Change in other liabilities	(2,790		)	5,553
Net cash provided by operating activities	27,467			40,318
Investing Activities:
Purchases of fixed maturities	(150,155		)	(183,528		)
Purchases of equity securities	(2,000		)	(2,600		)
Purchases of short-term investments	(1,032		)	(200		)
Purchases of property and equipment	(2,140		)	(5,249		)
Maturities and redemptions of fixed maturities	46,727			41,201
Maturities and redemptions of short-term investments	0			1,400
Proceeds from sale of fixed maturities	95,432			64,959
Proceeds from sale of equity securities	4,489			0
Proceeds from sale of property and equipment	0			30
Net cash used in investing activities	(8,678		)	(83,986		)
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	66			541
Excess tax benefits from share-based payment arrangements	0			56
Principal payments under capital lease obligation	(118		)	(134		)
Acquisition of treasury stock	(1,912		)	(1,975		)
Dividends paid to shareholders	(4,932		)	(4,139		)
Net cash used in financing activities	(6,896		)	(5,650		)
Net increase (decrease) in cash and cash equivalents	11,893			(49,319		)
Cash and cash equivalents at beginning of period	84,541			134,211
Cash and cash equivalents at end of period	$	96,434		$	84,892

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

INDEX TO NOTES



1.	Reporting and Accounting Policies	7.	Additional Information

2.	Computation of Net Earnings Per Share	8.	Insurance Reserves

3.	Fair Value	9.	Commitments and Contingencies

4.	Investments	10.	Accumulated Other Comprehensive Income

5.	Long-Term Debt	11.	Subsequent Event

6.	Income Taxes

Note 1 Reporting and Accounting Policies

Nature of Operations

We are a holding company that provides, through our subsidiaries, personal automobile insurance with a focus on the nonstandard market. Although licensed to write insurance in all 50 states and the District of Columbia, we focus on select states that we believe offer the greatest opportunity for premium growth and profitability.

Basis of Consolidation and Reporting

The accompanying consolidated financial statements are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014. This Quarterly Report on Form 10-Q, including the Condensed Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, focuses on our financial performance since the beginning of the year.

These financial statements reflect certain adjustments necessary for a fair presentation of our results of operations and financial position. Such adjustments consist of normal, recurring accruals recorded to match expenses with their related revenue streams and the elimination of all significant inter-company transactions and balances.

We have evaluated events that occurred after March 31, 2015, for recognition or disclosure in our financial statements and the notes to the financial statements.

Schedules may not foot due to rounding.

Estimates

We based certain accounts and balances within these financial statements upon our estimates and assumptions. The amount of reserves for claims not yet paid, for example, is an item that we can only record by estimation. Unrealized capital gains and losses on investments are subject to market fluctuations, and we use judgment in the determination of whether unrealized losses on certain securities are temporary or other-than-temporary. Should actual results differ significantly from these estimates, the effect on our results of operations could be material. The results of operations for the periods presented may not be indicative of our results for the entire year.

Recently Issued Accounting Standards

In April 2015 the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) related to the presentation of debt issuance costs. The guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. The standard is effective for fiscal years beginning after December 15, 2015 and is to be applied retrospectively. The new guidance will have no impact on our results of operations or financial position.

In May 2014 the FASB issued an ASU related to the accounting for revenue from contracts with customers. Insurance contracts have been excluded from the scope of the guidance, which is effective for fiscal years beginning after December 15, 2016. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 2 Computation of Net Earnings per Share

The following table illustrates our computations of basic and diluted net earnings per common share ($ in thousands, except per

share figures):



	Three months ended March 31,
	2015		2014
Net earnings	$	11,154	$	10,327
Average basic shares outstanding	11,427		11,429
Basic net earnings per share	$	0.98	$	0.90

Average basic shares outstanding	11,427		11,429
Restricted stock not yet vested	11		57
Dilutive effect of assumed option exercises	0		2
Dilutive effect of Performance Share Plan	113		92
Average diluted shares outstanding	11,551		11,580
Diluted net earnings per share	$	0.97	$	0.89

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 3 Fair Value

Fair values of instruments are based on:


(i)	quoted prices in active markets for identical assets (Level 1);


(ii)	quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2); or


(iii)	valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).

The following tables present, for each of the fair value hierarchy levels, our assets and liabilities for which we report fair value on a recurring basis ($ in thousands):



	Fair Value
March 31, 2015	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	96,434		$	0		$	0		$	96,434
Fixed maturity securities:
U.S. government	66,511			58			0			66,569
State and municipal	0			504,690			10			504,700
Mortgage-backed securities:
Residential	0			345,884			0			345,884
Commercial	0			66,992			0			66,992
Total mortgage-backed securities	0			412,876			0			412,876
Asset-backed securities	0			62,302			46			62,348
Corporates	0			383,583			2,946			386,529
Total fixed maturities	66,511			1,363,509			3,002			1,433,022
Equity securities	94,453			0			0			94,453
Short-term investments	0			1,819			0			1,819
Total cash and investments	$	257,398		$	1,365,328		$	3,002		$	1,625,728
Percentage of total cash and investments	15.8		%	84.0		%	0.2		%	100.0		%

	Fair Value
December 31, 2014	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	84,541		$	0		$	0		$	84,541
Fixed maturity securities:
U.S. government	66,847			87			0			66,933
State and municipal	0			503,650			0			503,650
Mortgage-backed securities:
Residential	0			354,528			0			354,528
Commercial	0			50,838			0			50,838
Total mortgage-backed securities	0			405,366			0			405,366
Asset-backed securities	0			58,457			150			58,607
Corporates	0			394,152			3,134			397,286
Total fixed maturities	66,847			1,361,711			3,285			1,431,843
Equity securities	94,408			0			0			94,408
Short-term investments	0			803			0			803
Total cash and investments	$	245,795		$	1,362,514		$	3,285		$	1,611,594
Percentage of total cash and investments	15.3		%	84.5		%	0.2		%	100.0		%

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

We do not report our long-term debt at fair value in the Consolidated Balance Sheets. The $294.7 million and $291.0 million fair value of our long-term debt at March 31, 2015, and December 31, 2014, respectively, would be included in Level 2 of the fair value hierarchy if it were reported at fair value.

Level 1 includes cash and cash equivalents, U.S. Treasury securities, an exchange-traded fund and equities held in a rabbi trust which funds our Supplemental Employee Retirement Plan ("SERP"). Level 2 includes securities whose fair value was determined using observable market inputs. Level 3 securities are comprised of (i) securities for which there is no active or inactive market for similar instruments; (ii) securities whose fair value is determined based on unobservable inputs; and (iii) securities, other than those backed by the U.S. Government, that are not rated by a nationally recognized statistical rating organization ("NRSRO"). We recognize transfers between levels at the beginning of the reporting period.

A third party nationally recognized pricing service provides the fair value of securities in Level 2. We review the third party pricing methodologies quarterly and test for significant differences between the market price used to value the security and recent sales activity.

The following tables present the progression in the Level 3 fair value category ($ in thousands):



	Three months ended March 31, 2015
	State and Municipal			Corporates			Asset-Backed Securities			Total
Balance at beginning of period	$	0		$	3,134		$	150		$	3,285
Total gains or (losses), unrealized or realized
Included in net earnings	(0		)	(95		)	0			(95		)
Included in other comprehensive income	0			(14		)	0			(14		)
Settlements	0			(80		)	(105		)	(184		)
Transfers in	10			0			0			10
Balance at end of period	$	10		$	2,946		$	46		$	3,002

	Three months ended March 31, 2014
	State and Municipal			Corporates			Asset-Backed Securities			Total
Balance at beginning of period	$	0		$	5,175		$	686		$	5,860
Total gains or (losses), unrealized or realized
Included in net earnings	0			9			0			9
Included in other comprehensive income	0			(56		)	0			(56		)
Settlements	0			(74		)	(156		)	(230		)
Transfers in	0			0			0			0
Balance at end of period	$	0		$	5,054		$	530		$	5,583

Of the $3.0 million fair value of securities in Level 3 at March 31, 2015, which consists of eight securities, we priced five based on non-binding broker quotes, one price was provided by our unaffiliated money manager and two securities, which were included in Level 3 because they were not rated by a nationally recognized statistical rating organization, were priced by a nationally recognized pricing service.

During the three months ended March 31, 2015, one security was transferred from Level 2 into Level 3 because it was no longer rated by a nationally recognized statistical rating organization. There were no transfers of securities between Levels 1 and 2.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

The gains or losses included in net earnings are included in the line item "Net realized gains on investments" in the Consolidated Statements of Earnings. We recognize the net gains or losses included in other comprehensive income in the line item "Unrealized gains on investments, net" in the Consolidated Statements of Comprehensive Income and the line item "Change in unrealized gain on investments" or the line item "Change in non-credit component of impairment losses on fixed maturities" in the Consolidated Statements of Changes in Shareholders’ Equity.

The following table presents the carrying value and estimated fair value of our financial instruments ($ in thousands):



	March 31, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	96,434	$	96,434	$	84,541	$	84,541
Investments
Fixed maturities	1,433,022		1,433,022		1,431,843		1,431,843
Equity securities	94,453		94,453		94,408		94,408
Short-term	1,819		1,819		803		803
Total cash and investments	$	1,625,728	$	1,625,728	$	1,611,594	$	1,611,594
Liabilities:
Long-term debt	$	275,000	$	294,674	$	275,000	$	291,044

Refer to Note 4 to the Consolidated Financial Statements for additional information on investments and Note 5 to the Consolidated Financial Statements for additional information on long-term debt.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 4 Investments

We consider all fixed maturity and equity securities to be available-for-sale and report them at fair value with the net unrealized gains or losses reported after-tax (net of any valuation allowance) as a component of other comprehensive income. The proceeds from sales of securities for the three months ended March 31, 2015, and March 31, 2014, were $99.9 million and $65.0 million, respectively. The proceeds for the three months ended March 31, 2015, were net of $3.6 million of receivable for securities sold during the first quarter of 2015 that had not settled at March 31, 2015. The proceeds for the three months ended March 31, 2014, were net of $0.2 million of receivable for securities sold during the first quarter of 2014 that had not settled at March 31, 2014.

Gross gains of $2.1 million and gross losses of $0.6 million were realized on sales of available for sale securities during the three months ended March 31, 2015, compared with gross gains of $0.8 million and gross losses of $0.1 million realized on sales during the three months ended March 31, 2014. Gains or losses on securities are determined on a specific identification basis.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Summarized information for the major categories of our investment portfolio follows ($ in thousands):



	March 31, 2015
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI Recognized in Accumulated OCI⁽¹⁾
Fixed maturities:
U.S. government	$	66,013	$	582	$	(26	)	$	66,569	$	0
State and municipal	493,901		10,923		(124		)	504,700		(69		)
Mortgage-backed securities:
Residential	339,035		7,487		(638		)	345,884		(2,781		)
Commercial	66,885		315		(208		)	66,992		0
Total mortgage-backed securities	405,920		$	7,802	(846		)	$	412,876	(2,781		)
Asset-backed securities	62,107		259		(19		)	62,348		(8		)
Corporates	379,689		7,684		(843		)	386,529		(246		)
Total fixed maturities	1,407,631		27,249		(1,858		)	1,433,022		(3,105		)
Equity securities	76,625		17,828		0			94,453		0
Short-term investments	1,820		0		(1		)	1,819		0
Total	$	1,486,075	$	45,077	$	(1,859	)	$	1,529,294	$	(3,105	)

	December 31, 2014
	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI Recognized in Accumulated OCI⁽¹⁾
Fixed maturities:
U.S. government	$	66,625	$	502	$	(193	)	$	66,933	$	0
State and municipal	493,350		10,637		(337		)	503,650		(69		)
Mortgage-backed securities:
Residential	349,371		6,547		(1,390		)	354,528		(2,914		)
Commercial	50,914		182		(258		)	50,838		0
Total mortgage-backed securities	400,285		6,729		(1,648		)	405,366		(2,914		)
Asset-backed securities	58,546		131		(70		)	58,607		(8		)
Corporates	393,611		5,999		(2,324		)	397,286		(441		)
Total fixed maturities	1,412,417		23,998		(4,572		)	1,431,843		(3,433		)
Equity securities	77,862		16,546		0			94,408		0
Short-term investments	803		0		(1		)	803		0
Total	$	1,491,082	$	40,544	$	(4,573	)	$	1,527,054	$	(3,433	)

(1) The total non-credit portion of OTTI recognized in Accumulated OCI reflecting the original non-credit loss at the time the credit impairment was determined.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

The following tables set forth the amount of unrealized loss by investment category and length of time that individual securities have been in a continuous unrealized loss position ($ in thousands):



	Less than 12 Months								12 Months or More
	Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost		Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost
March 31, 2015
Fixed maturities:
U.S. government	3	$	10,945	$	(9	)	0.1	%	4	$	5,172	$	(17	)	0.3	%
State and municipal	22	49,505		(124		)	0.2	%	0	0		0			0.0	%
Mortgage-backed securities:
Residential	34	24,701		(94		)	0.4	%	70	52,776		(544		)	1.0	%
Commercial	8	24,585		(135		)	0.5	%	5	21,091		(73		)	0.3	%
Total mortgage-backed securities	42	49,286		(230		)	0.5	%	75	73,867		(616		)	0.8	%
Asset-backed securities	11	8,417		(9		)	0.1	%	2	1,150		(10		)	0.8	%
Corporates	39	49,860		(739		)	1.5	%	7	9,711		(104		)	1.1	%
Total fixed maturities	117	168,014		(1,110		)	0.7	%	88	89,900		(747		)	0.8	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Short-term investments	2	1,531		(1		)	0.1	%	0	0		0			0.0	%
Total	119	$	169,545	$	(1,111	)	0.7	%	88	$	89,900	$	(747	)	0.8	%




	Less than 12 Months								12 Months or More
	Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost		Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost
December 31, 2014
Fixed maturities:
U.S. government	2	$	5,275	$	(13	)	0.3	%	8	$	21,051	$	(180	)	0.8	%
State and municipal	45	108,721		(290		)	0.3	%	2	4,183		(47		)	1.1	%
Mortgage-backed securities:
Residential	24	12,855		(34		)	0.3	%	109	100,752		(1,356		)	1.3	%
Commercial	8	15,638		(122		)	0.8	%	5	9,519		(136		)	1.4	%
Total mortgage-backed securities	32	28,493		(156		)	0.5	%	114	110,271		(1,492		)	1.3	%
Asset-backed securities	24	23,351		(60		)	0.3	%	2	1,150		(9		)	0.8	%
Corporates	103	142,046		(1,820		)	1.3	%	16	19,865		(503		)	2.5	%
Total fixed maturities	206	307,886		(2,340		)	0.8	%	142	156,521		(2,232		)	1.4	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Short-term investments	2	803		(1		)	0.1	%	0	0		0			0.0	%
Total	208	$	308,689	$	(2,341	)	0.8	%	142	$	156,521	$	(2,232	)	1.4	%

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. Factors we considered and resources we used in our determination include:


•	whether the unrealized loss is credit-driven or a result of changes in market interest rates;


•	the length of time the security’s market value has been below its cost;


•	the extent to which fair value is less than cost basis;


•	the intent to sell the security;


•	whether it is more likely than not that there will be a requirement to sell the security before its anticipated recovery;


•	historical operating, balance sheet and cash flow data contained in issuer SEC filings;


•	issuer news releases;


•	near-term prospects for improvement in the issuer and/or its industry;


•	industry research and communications with industry specialists; and


•	third-party research and credit rating reports.

We regularly evaluate for potential impairment each security position that has either of the following: a fair value of less than 95% of its book value or an unrealized loss that equals or exceeds $100,000.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

The following table summarizes those securities, excluding the rabbi trust, with unrealized gains or losses:



	March 31, 2015		December 31, 2014
Number of positions held with unrealized:
Gains	930		778
Losses	207		350
Number of positions held that individually exceed unrealized:
Gains of $500,000	3		3
Losses of $500,000	0		0
Percentage of positions held with unrealized:
Gains that were investment grade	92	%	92	%
Losses that were investment grade	85	%	84	%
Percentage of fair value held with unrealized:
Gains that were investment grade	92	%	94	%
Losses that were investment grade	86	%	86	%

The following table sets forth the amount of unrealized loss, excluding the rabbi trust, by age and severity at March 31, 2015 ($ in thousands):



Age of Unrealized Losses:	Fair Value of Securities with Unrealized Losses		Total Gross Unrealized Losses			Less Than 5%*			5% - 10%*			Greater Than 10%*
Three months or less	$	121,145	$	(469	)	$	(396	)	$	(73	)	$	0
Four months through six months	30,368		(351		)	(270		)	(37		)	(45		)
Seven months through nine months	17,986		(291		)	(291		)	0			0
Ten months through twelve months	4,828		(16		)	(16		)	0			0
Greater than twelve months	85,117		(731		)	(731		)	0			0
Total	$	259,444	$	(1,859	)	$	(1,704	)	$	(110	)	$	(45	)

* As a percentage of amortized cost or cost.

The change in unrealized gains (losses) on marketable securities included the following ($ in thousands):



	Pre-tax
	Fixed Maturities			Equity Securities			Short-Term Investments			Tax Effects			Net
Three months ended March 31, 2015
Unrealized holding gains (losses) on securities arising during the period	$	6,036		$	2,380		$	(0	)	$	(2,946	)	$	5,470
Realized gains on securities sold	(452		)	(1,098		)	0			543			(1,008		)
Impairment loss recognized in earnings	381			0			0			(134		)	248
Change in unrealized gains (losses) on marketable securities, net	$	5,966		$	1,282		$	(0	)	$	(2,536	)	$	4,711
Three months ended March 31, 2014
Unrealized holding gains on securities arising during the period	$	7,389		$	458		$	5		$	(2,748	)	$	5,104
Realized gains on securities sold	(666		)	0			(5		)	235			(437		)
Impairment loss recognized in earnings	27			0			0			(9		)	17
Change in unrealized gains (losses) on marketable securities, net	$	6,750		$	458		$	(1	)	$	(2,523	)	$	4,685

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

For fixed maturity securities that are other-than-temporarily impaired, we assess our intent to sell and the likelihood that we will be required to sell the security before recovery of our amortized cost. If a fixed maturity security is considered other-than-temporarily impaired but we do not intend to and are not more than likely to be required to sell the security before our recovery of amortized cost, we separate the amount of the impairment into a credit loss component and the amount due to all other factors ("non-credit component"). The excess of the amortized cost over the present value of the expected cash flows determines the credit loss component of an impairment charge on a fixed maturity security. The present value is determined using the best estimate of cash flows discounted at (1) the effective interest rate implicit at the date of acquisition for non-structured securities or (2) the book yield for structured securities. The techniques and assumptions for determining the best estimate of cash flows vary depending on the type of security. We recognize the credit loss component of an impairment charge in net earnings and the non-credit component in accumulated other comprehensive income. If we intend to sell or will, more likely than not, be required to sell a security, we treat the entire amount of the impairment as a credit loss.

The following table is a progression of credit losses on fixed maturity securities that were bifurcated between a credit and non-credit component ($ in thousands):



	Three months ended March 31,
	2015			2014
Beginning balance	$	852		$	956
Additions for:
Previously impaired securities	0			19
Newly impaired securities	0			8
Reductions for:
Securities sold and paid down	(52		)	(40		)
Ending balance	$	799		$	943

The table below sets forth the scheduled maturities of fixed maturity securities at March 31, 2015, based on their fair values ($ in thousands). We report securities that do not have a single maturity date at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.



	Fair Value								Amortized Cost
Maturity	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities		All Fixed Maturity Securities
One year or less	$	93,229	$	12,491	$	3,206	$	108,925	$	108,112
After one year through five years	504,782		57,388		0		562,170		551,461
After five years through ten years	219,377		55,314		467		275,158		269,159
After ten years	11,545		0		0		11,545		10,871
Mortgage- and asset-backed securities	342,503		132,720		0		475,224		468,027
Total	$	1,171,436	$	257,913	$	3,673	$	1,433,022	$	1,407,631

Note 5 Long-Term Debt

In September 2012 we issued $275 million principal of senior notes due September 2022 (the “5.0% Senior Notes”). The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually. At the time we issued the 5.0% Senior Notes, we capitalized $2.2 million of debt issuance costs, which we are amortizing over the term of the 5.0% Senior Notes. We calculated the March 31, 2015, fair value of $294.7 million using a 196 basis point spread to the ten-year U.S. Treasury Note of 1.925%.

In August 2014 we renewed our agreement for a $50 million three-year revolving credit facility (the “Credit Agreement”) that requires us to meet certain financial and other covenants. We are currently in compliance with all covenants under the Credit

Agreement. At March 31, 2015, there were no borrowings outstanding under the Credit Agreement.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 6 Income Taxes

The following is a reconciliation of income taxes at the statutory rate of 35.0% to the effective provision for income taxes as shown in the Consolidated Statements of Earnings ($ in thousands):



	Three months ended March 31,
	2015			2014
Earnings before income taxes	$	16,236		$	14,647
Income taxes at statutory rate	5,683			5,126
Effect of:
Dividends-received deduction	(104		)	(107		)
Tax-exempt interest	(724		)	(702		)
Other	228			3
Provision for income taxes as shown on the Consolidated Statements of Earnings	$	5,082		$	4,320
GAAP effective tax rate	31.3		%	29.5		%

Note 7 Additional Information

Supplemental Cash Flow Information

We made the following payments that we do not separately disclose in the Consolidated Statements of Cash Flows ($ in thousands):



	Three months ended March 31,
	2015		2014
Income tax payments	$	750	$	0
Interest payments on debt	6,875		6,875
Interest payments on capital leases	22		16

Negative Cash Book Balances

Negative cash book balances, included in the line item “Other liabilities” in the Consolidated Balance Sheets, were $54.5 million and $51.2 million, respectively, at March 31, 2015, and December 31, 2014.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 8 Insurance Reserves

Insurance reserves include liabilities for unpaid losses, both known and estimated for incurred but not reported (“IBNR”), and unpaid loss adjustment expenses (“LAE”). The following table provides an analysis of changes in the liability for unpaid losses and LAE on a GAAP basis ($ in thousands):



	Three months ended March 31,
	2015			2014
Balance at Beginning of Period
Unpaid losses on known claims	$	235,037		$	221,447
IBNR losses	277,482			262,660
LAE	155,658			162,469
Total unpaid losses and LAE	668,177			646,577
Reinsurance recoverables	(14,370		)	(14,431		)
Unpaid losses and LAE, net of reinsurance recoverables	653,808			632,146
Current Activity
Loss and LAE incurred:
Current accident year	257,785			256,776
Prior accident years	(2,142		)	(3,074		)
Total loss and LAE incurred	255,643			253,702
Loss and LAE payments:
Current accident year	(81,907		)	(80,818		)
Prior accident years	(165,770		)	(156,683		)
Total loss and LAE payments	(247,677		)	(237,502		)
Balance at End of Period
Unpaid losses and LAE, net of reinsurance recoverables	661,773			648,346
Add back reinsurance recoverables	13,982			14,544
Total unpaid losses and LAE	675,755			662,890
Unpaid losses on known claims	241,483			226,659
IBNR losses	278,863			272,159
LAE	155,409			164,072
Total unpaid losses and LAE	$	675,755		$	662,890

The $2.1 million of favorable reserve development during the three months ended March 31, 2015, was primarily due to decreases in loss adjustment expense in Florida bodily injury coverages and in California property damage and bodily injury coverages related to accident year 2013.

The $3.1 million of favorable reserve development during the three months ended March 31, 2014, was primarily due to a decrease in frequency in accident year 2013 in Florida personal injury protection and material damage coverages in the states of California, Georgia and Pennsylvania.

Note 9 Commitments and Contingencies

Commitments

There have been no material changes from the commitments discussed in the Form 10-K for the year ended December 31, 2014. For a description of our previously reported commitments, refer to Note 14 Commitments and Contingencies in the Form 10-K for the year ended December 31, 2014.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Contingencies

From time to time we and our subsidiaries are named as defendants in various lawsuits incidental to our insurance operations. We consider legal actions relating to claims made in the ordinary course of seeking indemnification for a loss covered by the insurance policy in establishing loss and LAE reserves.

We also face, in the ordinary course of business, lawsuits that seek damages beyond policy limits, commonly known as extra-contractual claims, as well as class action and individual lawsuits that involve issues not unlike those facing other insurance companies and employers. We continually evaluate potential liabilities and reserves for litigation of these types using the criteria established by the Contingencies topic of the FASB. Under this guidance we may only record reserves for a loss if the likelihood of occurrence is probable and we can reasonably estimate the amount. If a material loss is judged to be reasonably possible, we will disclose an estimated range of loss or state that an estimate cannot be made. We consider each legal action using this guidance and record reserves for losses as warranted by establishing a reserve captured within our Consolidated Balance Sheets line-items “Unpaid losses and LAE” for extra-contractual claims and “Other liabilities” for class action and other non-claims related lawsuits. We record amounts incurred on the Consolidated Statements of Earnings within “Losses and LAE” for extra-contractual claims and “Other expenses” for class action and other non-claims related lawsuits.

Certain claims and legal actions have been brought against us for which we have accrued no loss, and for which an estimate of a possible range of loss cannot be made under the above rules. While it is not possible to predict the ultimate outcome of these claims or lawsuits, we do not believe they are likely to have a material effect on our financial condition or liquidity. However, losses incurred because of these cases could have a material adverse impact on net earnings in a given period.

For a description of previously reported contingencies, refer to Note 14 Commitments and Contingencies in the Form 10-K for the year ended December 31, 2014.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 10 Accumulated Other Comprehensive Income

The components of other comprehensive income before and after tax are as follows ($ in thousands):



	Three months ended March 31,
	2015									2014
	Before Tax			Income Tax			Net			Before Tax			Income Tax			Net
Accumulated change in postretirement benefit liability, beginning of period	$	174		$	(61	)	$	113		$	(62	)	$	22		$	(40	)
Effect on other comprehensive income	16			(6		)	11			657			(230		)	427
Accumulated change in postretirement benefit liability, end of period	190			(66		)	123			595			(208		)	387

Accumulated unrealized gains on investments, net, beginning of period	35,972			(12,590		)	23,382			25,638			(8,973		)	16,665
Other comprehensive income before reclassification	8,416			(2,946		)	5,470			7,852			(2,748		)	5,104
Reclassification adjustment for other-than-temporary impairments included in net income	381			(134		)	248			27			(9		)	17
Reclassification adjustment for realized gains included in net income	(1,551		)	543			(1,008		)	(672		)	235			(437		)
Effect on other comprehensive income	7,247			(2,536		)	4,711			7,208			(2,523		)	4,685
Accumulated unrealized gains on investments, net, end of period	43,218			(15,126		)	28,092			32,846			(11,496		)	21,350

Accumulated other comprehensive income, beginning of period	36,145			(12,651		)	23,494			25,576			(8,952		)	16,624
Change in postretirement benefit liability	16			(6		)	11			657			(230		)	427
Change in unrealized gains on investments, net	7,247			(2,536		)	4,711			7,208			(2,523		)	4,685
Effect on other comprehensive income	7,263			(2,542		)	4,721			7,865			(2,753		)	5,112
Accumulated other comprehensive income, end of period	$	43,408		$	(15,193	)	$	28,216		$	33,441		$	(11,704	)	$	21,737

Note 11 Subsequent Event

On April 21, 2015, we closed on a $20 million purchase for a 120,493 square foot building located in Birmingham, Alabama. The purchase was made with internally generated funds. The building will serve as our new headquarters, replacing our currently leased building. We expect to see a reduction in net operating expenses once employees are relocated to the new headquarters, which is currently planned for the first half of 2016, although no assurances can be made in this regard.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” which anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. We make these statements 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 we base them 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. Examples of such forward-looking statements include statements relating to expectations concerning market conditions, premium growth, earnings, investment performance, expected losses, rate changes and loss experience.

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, and competitive conditions in our key Focus States. We undertake 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 “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014.

OVERVIEW

During the first three months of 2015 total gross written premium grew 3.6% compared with the same period of 2014. The majority of this growth came from California personal auto and countrywide Commercial Vehicle, which grew a combined 14.6% compared with the prior year. Partially offsetting premium growth in these two areas was premium decline of 42.7% for the combined states of Georgia, Nevada and Pennsylvania as we have shifted our focus in these states to renewal only business. See Results of Operations – Underwriting – Premium for a more detailed discussion of our gross written premium growth.

Net earnings and diluted earnings per share for the three months ended March 31, 2015, were $11.2 million and $0.97, respectively, compared with $10.3 million and $0.89, respectively, for the three months ended March 31, 2014. The increase in diluted earnings per share for the three months ended March 31, 2015, was primarily due to an improvement in underwriting profitability.

Included in net earnings for the three months ended March 31, 2015, was $1.4 million ($2.1 million pre-tax) of favorable development on prior accident year loss and LAE reserves. The development was primarily due to decreases in loss adjustment expense in Florida bodily injury coverages and in California property damage and bodily injury coverages related to accident year 2013. Included in net earnings for the three months ended March 31, 2014, was $2.0 million ($3.1 million pre-tax) of favorable development on prior accident year loss and LAE reserves.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table displays combined ratio results by accident year developed through March 31, 2015.



	Accident Year Combined Ratio Developed Through								Prior Accident Year (Favorable) / Unfavorable Development		($ in millions) Prior Accident Year (Favorable) / Unfavorable Development
Accident Year	Dec 2013		Mar 2014		Dec 2014		Mar 2015		YTD 2015		YTD 2015
Prior											$	0.3
2007	92.2	%	92.2	%	92.1	%	92.1	%	(0.0	)%	(0.2		)
2008	91.3	%	91.3	%	91.2	%	91.1	%	(0.0	)%	(0.4		)
2009	92.3	%	92.3	%	92.4	%	92.4	%	0.1	%	0.5
2010	99.6	%	99.5	%	99.2	%	99.3	%	0.1	%	0.7
2011	100.3	%	100.2	%	100.1	%	100.1	%	0.0	%	0.1
2012	99.8	%	100.1	%	100.1	%	100.0	%	(0.0	)%	(0.5		)
2013	97.7	%	97.4	%	96.8	%	96.6	%	(0.2	)%	(2.3		)
2014			97.8	%	96.4	%	96.4	%	(0.0	)%	(0.3		)
2015 YTD							97.0	%
											$	(2.1	)

See Results of Operations – Underwriting – Profitability for a more detailed discussion of our underwriting results.

Pre-tax net investment income for the three months ended March 31, 2015, was $8.7 million compared with $8.8 million for the three months ended March 31, 2014.

Our book value per share increased 1.6% from $60.75 at December 31, 2014, to $61.73 at March 31, 2015. This increase was primarily due to an increase in unrealized gains and earnings partially offset by dividends for the three months ended March 31, 2015.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Underwriting

Premium

Our insurance subsidiaries provide personal automobile insurance products with a concentration on nonstandard auto insurance. While there is no industry-recognized definition of nonstandard auto insurance, we believe that it is generally understood to mean coverage for drivers who, because of their driving record, age or vehicle type, represent higher than normal risks and pay higher rates for comparable coverage. We also write commercial vehicle insurance and insurance for classic collectible automobiles (“Classic Collector”).

We are licensed to write insurance in all 50 states and the District of Columbia, but we focus our operations in targeted urban areas identified in selected Focus States that we believe offer the greatest opportunity for premium growth and profitability.

We classify the states in which we operate into two categories:


•	“Focus States” – These states include Arizona, California, Florida, and Texas.


•	“Other States” – Includes Georgia, Nevada and Pennsylvania where we currently offer renewals only, as well as additional states where we are running off our writings.

Georgia, Nevada and Pennsylvania were previously included in the Focus States category. All prior period data has been adjusted to reflect the updated state classification.

We continually evaluate our market opportunities; thus, the Focus States and Other States may change over time as new market opportunities arise, as the allocation of resources changes or as regulatory environments change.

Our net earned premium was as follows ($ in thousands):



	Three months ended March 31,
	2015			2014			Change			% Change
Net earned premium
Gross written premium
Personal Auto:
Focus States	$	341,302		$	322,454		$	18,848		5.8	%
Other States	14,927			26,357			(11,429		)	(43.4	)%
Total Personal Auto	356,229			348,811			7,418			2.1	%
Commercial Vehicle	31,276			25,464			5,812			22.8	%
Classic Collector	3,141			2,906			234			8.1	%
Total gross written premium	390,645			377,181			13,464			3.6	%
Ceded reinsurance	(3,572		)	(2,931		)	(641		)	21.9	%
Net written premium	387,073			374,249			12,823			3.4	%
Change in unearned premium	(54,966		)	(46,570		)	(8,396		)	18.0	%
Net earned premium	$	332,106		$	327,679		$	4,427		1.4	%

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes our policies in force:



	At March 31,
	2015	2014	Change		% Change
Policies in Force
Personal Auto
Focus States	773,928	781,107	(7,179	)	(0.9	)%
Other States	41,744	68,052	(26,308	)	(38.7	)%
Total Personal Auto	815,672	849,159	(33,487	)	(3.9	)%
Commercial Vehicle	46,357	40,750	5,607		13.8	%
Classic Collector	40,983	39,705	1,278		3.2	%
Total policies in force	903,012	929,614	(26,602	)	(2.9	)%

Gross written premium grew 3.6% during the first three months of 2015 when compared with the same period of 2014. During the first three months of 2015 Infinity implemented rate revisions in various states with an overall rate increase of 1.5%. Excluding the effect of rate changes in California and Florida, the states in which we write the most premium, the overall rate increase was 0.8%. Policies in force at March 31, 2015, decreased 2.9% compared with the same period in 2014. Gross written premium grew despite the decline in policies in force primarily due to an increase in average premiums per policy in California.

During the first three months of 2015 personal auto insurance gross written premium in our Focus States grew 5.8% when compared with the same period of 2014. The increase in gross written premium was primarily due to growth in California, which grew 13.3% during the first three months of 2015 when compared with the first three months of 2014, and was primarily due to our focus on territories with higher average written premium and an increase in new business. The growth in the Focus States during the first three months of 2015 was partially offset by declining gross written premium in the Other States as we discontinued writing new business in Georgia, Nevada and Pennsylvania effective January 1, 2015.

Commercial Vehicle gross written premium grew 22.8% during the first three months of 2015 when compared with the same period of 2014. This growth was primarily due to new and renewal policy growth and higher average premium in Florida, California and Texas.

Gross written premium in our Classic Collector product grew 8.1% during the first three months of 2015 when compared with the same period of 2014. This growth was primarily due to growth in renewal business in Florida, Texas, North Carolina and California.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Profitability

A key operating performance measure of insurance companies is underwriting profitability, as opposed to overall profitability or net earnings. We measure underwriting profitability by the combined ratio. When the combined ratio is under 100%, we consider underwriting results profitable; when the ratio is over 100%, we consider underwriting results unprofitable. The combined ratio does not reflect investment income, other income, interest expense, corporate general and administrative expenses, other expenses or federal income taxes.

While we report financial results in accordance with GAAP for shareholder and other users’ purposes, we report it on a statutory basis for insurance regulatory purposes. We evaluate underwriting profitability based on a combined ratio calculated using statutory accounting principles. The statutory combined ratio represents the sum of the following ratios: (i) losses and LAE incurred as a percentage of net earned premium; and (ii) underwriting expenses incurred, net of installment and other fees, as a percentage of net written premium. Certain expenses are treated differently under statutory and GAAP accounting principles. Under GAAP, commissions, premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized as deferred policy acquisition costs and amortized on a pro rata basis over the period in which the related premium is earned; on a statutory basis these items are expensed as incurred. Additionally, bad debt charge-offs on agent balances and premium receivables are included only in the GAAP combined ratios.

The following tables present the statutory and GAAP combined ratios:



	Three months ended March 31,
	2015						2014						% Point Change
	Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio
Personal Auto:
Focus States	77.2	%	17.2	%	94.4	%	78.6	%	17.5	%	96.1	%	(1.4	)%	(0.3	)%	(1.8	)%
Other States	90.4	%	16.1	%	106.5	%	76.4	%	17.8	%	94.3	%	14.0	%	(1.7	)%	12.2	%
Total Personal Auto	78.0	%	17.1	%	95.1	%	78.4	%	17.5	%	95.9	%	(0.4	)%	(0.4	)%	(0.8	)%
Commercial Vehicle	71.7	%	16.9	%	88.6	%	73.7	%	17.6	%	91.3	%	(2.0	)%	(0.7	)%	(2.7	)%
Classic Collector	39.4	%	30.3	%	69.7	%	45.8	%	34.1	%	79.9	%	(6.4	)%	(3.8	)%	(10.2	)%
Total statutory ratios	77.2	%	17.3	%	94.5	%	77.5	%	17.8	%	95.3	%	(0.4	)%	(0.4	)%	(0.8	)%
Total statutory ratios excluding development	77.8	%	17.3	%	95.2	%	78.5	%	17.8	%	96.2	%	(0.7	)%	(0.4	)%	(1.1	)%
GAAP ratios	77.0	%	19.4	%	96.3	%	77.4	%	19.4	%	96.8	%	(0.4	)%	(0.1	)%	(0.5	)%
GAAP ratios excluding development	77.6	%	19.4	%	97.0	%	78.4	%	19.4	%	97.8	%	(0.7	)%	(0.1	)%	(0.8	)%

In evaluating the profit performance of our business, we review underwriting profitability using statutory combined ratios. Accordingly, the discussion of underwriting results that follows will focus on these ratios and the components thereof, unless otherwise indicated.

The statutory combined ratio for the three months ended March 31, 2015, decreased by 0.8 point from the same period of 2014. The first three months of 2015 included $2.1 million of favorable development on prior accident year loss and LAE reserves, while the first three months of 2014 included $3.1 million of favorable development on prior accident year loss and LAE reserves. Excluding the effect of development, the statutory combined ratio decreased 1.1 points for the three months ended March 31, 2015, compared with the same period of 2014.

The GAAP combined ratio for the three months ended March 31, 2015, decreased by 0.5 point from the same period of 2014. Excluding the effect of development, the GAAP combined ratio decreased by 0.8 point for the three months ended March 31, 2015, compared with the same period of 2014. The decline in both the statutory and GAAP combined ratios excluding development is primarily due to a decrease in the California accident year combined ratio.

Losses from catastrophes were $0.1 million for the three months ended March 31, 2015. There were no catastrophe losses for the three months ended March 31, 2014.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The 1.4 points decline in the Focus States loss & LAE ratio for the three months ended March 31, 2015, is primarily due to improvement in calendar year loss ratios in Florida, Texas and California as a result of favorable development from prior accident year loss and LAE reserves as well as an increase in average earned premiums.

The combined ratio in the Other States increased by 12.2 points during the three months ended March 31, 2015. The increase is primarily due to unfavorable development from prior accident year loss and LAE reserves in the states of Georgia and Nevada.

The combined ratio in Commercial Vehicle decreased by 2.7 points, during the three months ended March 31, 2015, compared with the same period of 2014, primarily due to favorable development from prior accident year loss and LAE reserves.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Installment and Other Fee Income

Installment and other fee income, which is primarily made up of installment and other fees charged to policyholders, was relatively flat for the three months ended March 31, 2015, compared with the same period of 2014, increasing from $24.3 million to $24.6 million.

Net Investment Income

Net investment income is comprised of gross investment income and investment management fees and expenses, as shown in the following table ($ in thousands):



	Three months ended March 31,
	2015			2014
Investment income:
Interest income on fixed maturities, cash and cash equivalents	$	8,815		$	8,833
Dividends on equity securities	500			514
Gross investment income	9,314			9,347
Investment expenses	(578		)	(549		)
Net investment income	8,736			8,798
Average investment balance, at cost	$	1,578,750		$	1,556,841
Annualized returns excluding realized gains and losses	2.2		%	2.3		%
Annualized returns including realized gains and losses	2.5		%	2.4		%

The book yield on our portfolio continues to exceed our new money rates. Therefore, we expect that investment returns will continue to decline gradually as proceeds from maturing or prepaid investments are expected to be reinvested at yields lower than the average book yield for the total portfolio.

The following table provides information about our fixed maturity investments at March 31, 2015, which are sensitive to interest rate risk. The table shows expected principal cash flows by expected maturity date for each of the five subsequent years and collectively for all years thereafter. Callable bonds and notes are included based on call date or maturity date depending upon which date produces the most conservative yield. MBS and sinking fund issues are included based on maturity year adjusted for expected payment patterns.



($ in thousands)	Expected Principal Cash Flows
	MBS and ABS only		Excluding MBS and ABS		Total		Maturing Book Yield
For the period ending December 31,
2015	$	53,054	$	104,270	$	157,323	2.3%
2016	78,348		141,030		219,378		2.4%
2017	95,036		202,032		297,068		2.2%
2018	51,183		97,760		148,944		2.5%
2019	33,410		119,467		152,877		2.6%
Thereafter	138,593		222,011		360,604		3.0%
Total	$	449,623	$	886,571	$	1,336,193	2.5%

The cash flows presented take into consideration historical relationships of market yields and prepayment rates. However, the actual prepayment rate may differ from historical trends, resulting in actual principal cash flows that differ from those presented above.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Realized Gains (Losses) on Investments

We recorded impairments for unrealized losses deemed other-than-temporary and realized gains and losses on sales and disposals, as follows (before tax, $ in thousands):



	Three months ended March 31, 2015							Three months ended March 31, 2014
	Impairments Recognized in Earnings			Net Realized Gains (Losses) on Sales		Total Realized Gains (Losses)		Impairments Recognized in Earnings			Net Realized Gains (Losses) on Sales		Total Realized Gains (Losses)
Fixed maturities	$	(381	)	$	452	$	71	$	(27	)	$	666	$	639
Equities	0			1,098		1,098		0			0		0
Short-term investments	0			0		0		0			5		5
Total	$	(381	)	$	1,551	$	1,169	$	(27	)	$	672	$	645

For our securities held with unrealized losses, we believe, based on our analysis, that (i) we will recover our cost basis in these securities; and (ii) we do not intend to sell the securities nor is it more likely than not that there will be a requirement to sell the securities before they recover in value. Should either of these beliefs change with regard to a particular security, a charge for impairment would likely be required. While it is not possible to predict accurately if or when a specific security will become impaired, charges for other-than-temporary impairments could be material to results of operations in a future period.

Interest Expense

At March 31, 2015, we had $275 million of Senior Notes outstanding that accrue interest at 5.0% (the "5.0% Senior Notes"). We recognized $3.4 million of interest expense on the Senior Notes in the Consolidated Statements of Earnings for both the three months ended March 31, 2015, and 2014. Refer to Note 5 to the Consolidated Financial Statements for additional information on the Senior Notes.

Income Taxes

Our GAAP effective tax rate for the three months ended March 31, 2015, was 31.3% compared with 29.5% for the same period of 2014. The GAAP effective tax rate has increased in 2015 primarily as a result of an improvement in the underwriting profit, which is taxed at 35%. Refer to Note 6 to the Consolidated Financial Statements for additional information on income taxes.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Sources of Funds

We are a holding company and our insurance subsidiaries conduct our operations. Accordingly, we will have continuing cash needs for administrative expenses, the payment of interest on borrowings, shareholder dividends, share repurchases and taxes.

Funds to meet expenditures at the holding company level come primarily from dividends and tax payments from the insurance subsidiaries, as well as cash and investments held by the holding company. As of March 31, 2015, the holding company had $136.3 million of cash and investments. In 2015 our insurance subsidiaries may pay us up to $68.1 million in ordinary dividends without prior regulatory approval. For the three months ended March 31, 2015, our insurance subsidiaries have paid us ordinary dividends of $15.0 million.

Our insurance subsidiaries generate liquidity to satisfy their obligations primarily by collecting and investing premium in advance of paying claims and generating investment income on their $1.4 billion investment portfolio. Our insurance subsidiaries generated positive cash flows from operations of $33.9 million during the three months ended March 31, 2015, compared with positive operating cash flows of $54.5 million during the three months ended March 31, 2014.

At March 31, 2015, we had $275 million principal outstanding of Senior Notes. The Senior Notes accrue interest at 5.0%, payable semiannually each March and September. Refer to Note 5 to the Consolidated Financial Statements for more information on our long-term debt.

In June 2013 we filed a "shelf" registration statement with the Securities and Exchange Commission registering $300.0 million of our securities, which will allow us to sell any combination of senior or subordinated debt securities, common stock, preferred stock, warrants, depositary shares and units in one or more offerings should we choose to do so in the future.

Uses of Funds

In February 2015 we increased our quarterly dividend to $0.43 per share from $0.36 per share. At this current amount, our 2015 annualized dividend payments would be approximately $19.7 million.

On November 4, 2014, our Board of Directors increased the authority of our share and debt repurchase program to a total of $75 million and extended the date to execute the program from December 31, 2014, to December 31, 2016. During the first quarter of 2015 we repurchased 25,800 shares at an average cost, excluding commissions, of $77.46 per share.

We believe that cash balances, cash flows generated from operations or borrowings, and maturities and sales of investments are adequate to meet our future liquidity needs and those of our insurance subsidiaries.

Reinsurance

We use excess of loss, catastrophe and extra-contractual loss reinsurance to mitigate the financial impact of large or

catastrophic losses. During 2015 our catastrophe reinsurance protection covers 100% of $55 million in excess of $5 million. Our excess of loss reinsurance provides protection for commercial auto losses up to $700,000 for claims in excess of $300,000 per occurrence. Our extra-contractual loss reinsurance provides protection for losses up to $10 million in excess of $5 million for any single extra-contractual loss. We also use reinsurance to mitigate losses on our Classic Collector business.

Premium ceded under all reinsurance agreements for the three months ended March 31, 2015, was $3.6 million, compared with $2.9 million for the same period of 2014.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investments

Our consolidated investment portfolio at March 31, 2015, contained approximately $1.4 billion in fixed maturity securities, $94.5 million in equity securities and $1.8 million in short-term investments. All of these are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income, a separate component of shareholders’ equity, on an after-tax basis. At March 31, 2015, we had pre-tax net unrealized gains of $25.4 million on fixed maturities and pre-tax net unrealized gains of $17.8 million on equity securities. Combined, the pre-tax net unrealized gain increased by $7.2 million for the three months ended March 31, 2015. This increase occurred primarily in the fixed portfolio due to lower market interest rates. The average option adjusted duration of our fixed maturity portfolio was 3.0 years at March 31, 2015, compared with 3.1 years at December 31, 2014.

Since we carry all of these securities at fair value in our balance sheet, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses.

Approximately 91.3% of our fixed maturity investments at March 31, 2015, were rated “investment grade,” and as of the same date, the average credit rating of our fixed maturity portfolio was AA-. Investment grade securities generally bear lower yields and have lower degrees of risk than those that are unrated or non-investment grade. We believe that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

Fair values of instruments are based on (i) quoted prices in active markets for identical assets (Level 1); (ii) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets (Level 2); or (iii) valuations derived from valuation techniques in which one or more significant inputs are unobservable in the marketplace (Level 3).

Our Level 1 securities are U.S. Treasury securities, an exchange-traded fund and equity securities held in a rabbi trust. Our Level 2 securities are comprised of securities whose fair value was determined using observable market inputs. Our Level 3 securities are comprised of (i) securities for which there is no active or inactive market for similar instruments; (ii) securities whose fair value is determined based on unobservable inputs; and (iii) securities that nationally recognized statistical rating organizations do not rate.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summarized information for our investment portfolio at March 31, 2015, was as follows ($ in thousands):



	Amortized Cost		Fair Value		% of Total Fair Value
Fixed Maturities:
U.S. government	$	66,013	$	66,569	4.4	%
State and municipal	493,901		504,700		33.0	%
Mortgage- and asset-backed:
Residential mortgage-backed securities	339,035		345,884		22.6	%
Commercial mortgage-backed securities	66,885		66,992		4.4	%
Asset-backed securities ("ABS"):
Auto loans	45,994		46,127		3.0	%
Equipment leases	10,183		10,244		0.7	%
Credit card receivables	4,515		4,516		0.3	%
Whole business	755		762		0.0	%
Home equity	505		535		0.0	%
Student loans	110		118		0.0	%
Tax liens	46		46		0.0	%
Total ABS	62,107		62,348		4.1	%
Total mortgage- and asset-backed	468,027		475,224		31.1	%
Corporates
Investment grade	256,102		261,686		17.1	%
Non-investment grade	123,586		124,843		8.2	%
Total corporates	379,689		386,529		25.3	%
Total fixed maturities	1,407,631		1,433,022		93.7	%
Equity securities	76,625		94,453		6.2	%
Short-term investments	1,820		1,819		0.1	%
Total investments	$	1,486,075	$	1,529,294	100.0	%

We categorize securities by rating based upon ratings issued by Moody's, Standard & Poor's or Fitch, where available. If all three ratings are available but not equivalent, we exclude the lowest rating and the lower of the remaining ratings is used. If ratings are only available from two agencies, the lowest is used. This methodology is consistent with that used by the major bond indices.

The following table presents the credit rating and fair value of our fixed maturity portfolio by major security type at March 31, 2015, ($ in thousands):



	Rating
	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
U.S. government	$	66,569		$	0		$	0		$	0		$	0		$	66,569		4.6	%
State and municipal	114,599			287,526			102,565			0			10			504,700			35.2	%
Mortgage- and asset-backed	425,838			41,277			7,346			762			0			475,224			33.2	%
Corporates	0			19,748			114,843			127,095			124,843			386,529			27.0	%
Total fair value	$	607,006		$	348,551		$	224,754		$	127,858		$	124,853		$	1,433,022		100.0	%
% of total fair value	42.4		%	24.3		%	15.7		%	8.9		%	8.7		%	100.0		%

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our fixed income portfolio contains no securities issued by any single issuer that exceed 1% of the fair value of the fixed income portfolio.

The following table presents the credit rating and fair value of our state and municipal bond portfolio, by state, at March 31, 2015, ($ in thousands):



	Rating
State	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
NY	$	3,814		$	49,179		$	16,879		$	0		$	10		$	69,883		13.8	%
CA	4,309			28,586			5,816			0			0			38,712			7.7	%
TX	13,834			9,708			5,607			0			0			29,149			5.8	%
WA	648			22,955			1,652			0			0			25,255			5.0	%
GA	11,882			2,298			9,705			0			0			23,884			4.7	%
MD	16,509			7,157			0			0			0			23,666			4.7	%
NC	12,991			10,153			0			0			0			23,144			4.6	%
NJ	1,676			1,088			17,255			0			0			20,019			4.0	%
PA	0			10,273			8,030			0			0			18,303			3.6	%
VA	7,677			9,673			0			0			0			17,350			3.4	%
All other states	41,260			136,455			37,620			0			0			215,335			42.7	%
Total fair value	$	114,599		$	287,526		$	102,565		$	0		$	10		$	504,700		100.0	%
% of total fair value	22.7		%	57.0		%	20.3		%	0.0		%	0.0		%	100.0		%

The following table presents the fair value of our state and municipal bond portfolio, by state and type of bond, at March 31, 2015, ($ in thousands):



	Type
	General Obligation
State	State			Local			Revenue			Certificate of Participation			Other			Total Fair Value			% of Total Exposure
NY	$	7,534		$	8,305		$	54,045		$	0		$	0		$	69,883		13.8	%
CA	7,792			14,277			16,642			0			0			38,712			7.7	%
TX	1,400			11,217			16,532			0			0			29,149			5.8	%
WA	7,084			2,956			15,215			0			0			25,255			5.0	%
GA	11,882			1,097			10,906			0			0			23,884			4.7	%
MD	5,190			15,585			2,892			0			0			23,666			4.7	%
NC	6,927			2,001			14,215			0			0			23,144			4.6	%
NJ	3,533			0			16,486			0			0			20,019			4.0	%
PA	5,154			774			12,375			0			0			18,303			3.6	%
VA	1,007			6,532			9,811			0			0			17,350			3.4	%
All other states	52,553			23,432			132,979			4,469			1,903			215,335			42.7	%
Total fair value	$	110,055		$	86,176		$	302,098		$	4,469		$	1,903		$	504,700		100.0	%
% of total fair value	21.8		%	17.1		%	59.9		%	0.9		%	0.4		%	100.0		%

The following table presents the fair value of the revenue category of our state and municipal bond portfolio, by state and further classification, at March 31, 2015, ($ in thousands):



	Revenue Bonds
State	Transportation			Utilities			Education			Other			Total Fair Value			% of Total Exposure
NY	$	27,073		$	0		$	5,923		$	21,049		$	54,045		17.9	%
CA	8,093			5,438			0			3,112			16,642			5.5	%
TX	3,518			1,872			4,241			6,902			16,532			5.5	%
NJ	1,960			0			6,569			7,957			16,486			5.5	%
WA	0			11,892			0			3,323			15,215			5.0	%
CO	0			0			9,073			5,164			14,237			4.7	%
NC	0			4,062			0			10,153			14,215			4.7	%
PA	8,030			0			2,742			1,602			12,375			4.1	%
MN	0			2,058			0			9,725			11,783			3.9	%
GA	6,422			3,393			0			1,090			10,906			3.6	%
All other states	17,327			16,916			17,448			67,972			119,662			39.6	%
Total fair value	$	72,424		$	45,630		$	45,995		$	138,048		$	302,098		100.0	%
% of total fair value	24.0		%	15.1		%	15.2		%	45.7		%	100.0		%

The following table presents the credit rating and fair value of our residential mortgage-backed securities at March 31, 2015, by deal origination year ($ in thousands):



	Rating
Deal Origination Year	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
2003	$	547		$	0		$	0		$	0		$	0		$	547		0.2	%
2004	4,693			0			0			0			0			4,693			1.4	%
2005	1,023			0			0			0			0			1,023			0.3	%
2006	7,931			0			0			0			0			7,931			2.3	%
2007	2,521			0			0			0			0			2,521			0.7	%
2008	7,751			0			0			0			0			7,751			2.2	%
2009	9,695			0			0			0			0			9,695			2.8	%
2010	24,988			0			0			0			0			24,988			7.2	%
2011	50,689			0			0			0			0			50,689			14.7	%
2012	30,551			0			0			0			0			30,551			8.8	%
2013	81,537			0			0			0			0			81,537			23.6	%
2014	79,435			0			0			0			0			79,435			23.0	%
2015	44,524			0			0			0			0			44,524			12.9	%
Total fair value	$	345,884		$	0		$	0		$	0		$	0		$	345,884		100.0	%
% of total fair value	100.0		%	0.0		%	0.0		%	0.0		%	0.0		%	100.0		%

All of the $345.9 million of residential mortgage-backed securities were issued by government-sponsored enterprises (“GSE”) or by Government National Mortgage Association ("GNMA").

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table presents the credit rating and fair value of our commercial mortgage-backed securities at March 31, 2015, by deal origination year ($ in thousands):



	Rating
Deal Origination Year	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
2005	$	1,274		$	0		$	0		$	0		$	0		$	1,274		1.9	%
2006	10,187			0			0			0			0			10,187			15.2	%
2007	24,928			7,280			0			0			0			32,208			48.1	%
2008	2,694			5,390			0			0			0			8,084			12.1	%
2010	3,677			0			0			0			0			3,677			5.5	%
2011	1,243			0			0			0			0			1,243			1.9	%
2012	4,160			0			0			0			0			4,160			6.2	%
2013	1,433			0			0			0			0			1,433			2.1	%
2014	4,726			0			0			0			0			4,726			7.1	%
Total fair value	$	54,322		$	12,670		$	0		$	0		$	0		$	66,992		100.0	%
% of total fair value	81.1		%	18.9		%	0.0		%	0.0		%	0.0		%	100.0		%

None of the $67.0 million of commercial mortgage-backed securities were issued by GSEs.

The following table presents the credit rating and fair value of our ABS portfolio at March 31, 2015, by deal origination year ($ in thousands):



	Rating
Deal Origination Year	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
2001	$	85		$	0		$	0		$	0		$	0		$	85		0.1	%
2003	450			0			0			0			0			450			0.7	%
2011	118			32			0			0			0			150			0.2	%
2012	7,054			5,848			60			0			0			12,962			20.8	%
2013	13,281			11,043			2,051			0			0			26,375			42.3	%
2014	4,644			8,278			1,981			0			0			14,903			23.9	%
2015	0			3,407			3,254			762			0			7,423			11.9	%
Total fair value	$	25,632		$	28,607		$	7,346		$	762		$	0		$	62,348		100.0	%
% of total fair value	41.1		%	45.9		%	11.8		%	1.2		%	0.0		%	100.0		%

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table presents the credit rating and fair value of our corporate bond portfolio, by industry sector and rating of bond, at March 31, 2015, ($ in thousands):



	Rating
Industry Sector	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
Financial	$	0		$	16,028		$	80,053		$	36,232		$	8,081		$	140,395		36.3	%
Consumer, Non-cyclical	0			2,042			14,766			16,565			19,703			53,076			13.7	%
Communications	0			0			1,645			17,543			25,299			44,487			11.5	%
Energy	0			1,678			3,260			19,178			17,335			41,451			10.7	%
Consumer, Cyclical	0			0			6,660			14,033			19,370			40,063			10.4	%
Industrial	0			0			0			8,740			13,064			21,804			5.6	%
Utilities	0			0			4,451			8,412			4,322			17,185			4.4	%
Technology	0			0			1,745			1,400			11,917			15,062			3.9	%
Basic Materials	0			0			594			4,991			5,565			11,150			2.9	%
Diversified	0			0			1,669			0			187			1,856			0.5	%
Total fair value	$	0		$	19,748		$	114,843		$	127,095		$	124,843		$	386,529		100.0	%
% of total fair value	0.0		%	5.1		%	29.7		%	32.9		%	32.3		%	100.0		%

Included in our investments in corporate fixed income securities at March 31, 2015, are $54.6 million of dollar-denominated investments with issuers or guarantors in foreign countries, as follows ($ in thousands):



	Rating
Issuer or Guarantor	AAA			AA			A			BBB			Non- investment Grade			Total Fair Value			% of Total Exposure
Britain	$	0		$	4,452		$	13,895		$	0		$	0		$	18,347		33.6	%
Canada	0			3,777			1,737			1,649			4,642			11,806			21.6	%
Australia	0			1,664			3,990			0			0			5,654			10.4	%
France	0			2,042			2,684			0			0			4,726			8.7	%
Switzerland	0			0			2,718			0			0			2,718			5.0	%
Japan	0			0			2,649			0			0			2,649			4.8	%
Cayman Islands	0			0			1,669			0			279			1,948			3.6	%
Netherlands	0			0			1,721			0			0			1,721			3.2	%
New Zealand	0			1,703			0			0			0			1,703			3.1	%
Norway	0			1,678			0			0			0			1,678			3.1	%
Sweden	0			1,677			0			0			0			1,677			3.1	%
Total fair value	$	0		$	16,992		$	31,063		$	1,649		$	4,922		$	54,626		100.0	%
% of total fair value	0.0		%	31.1		%	56.9		%	3.0		%	9.0		%	100.0		%

We do not own any investments that are denominated in a currency other than the U.S. dollar.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

As of March 31, 2015, there were no material changes to the information provided in our Form 10-K for the year ended December 31, 2014, under the caption “Exposure to Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Refer to Item 2 Management’s Discussion and Analysis under the caption “Investments” for updates to disclosures made under the sub caption “Credit Risk” in our Form 10-K for the year ended December 31, 2014.

ITEM 4

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2015. Based on that evaluation, we concluded that the controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended March 31, 2015, there have been no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

PART II

OTHER INFORMATION

ITEM 1

Legal Proceedings

We have not become a party to any material legal proceedings nor have there been any material developments in our legal proceedings disclosed in our Form 10-K for the year ended December 31, 2014. For a description of our previously reported legal proceedings, refer to Part I, Item 3, Legal Proceedings, in the Form 10-K for the year ended December 31, 2014.

ITEM 1A

Risk Factors

There have been no material changes in our risk factors as disclosed in our Form 10-K for the year ended December 31, 2014. For a description of our previously reported risk factors, refer to Part I, Item 1A, Risk Factors, in the Form 10-K for the year ended December 31, 2014.

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid per Share (a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs (b)
January 1, 2015 - January 31, 2015	7,100	$	74.56	7,100	$	73,534,463
February 1, 2015 - February 28, 2015	5,700	74.13		5,700	73,111,755
March 1, 2015 - March 31, 2015	13,000	80.51		13,000	72,064,780
Total	25,800	$	77.46	25,800	$	72,064,780


(a)	Average price paid per share excludes commissions.


(b)	On November 4, 2014, our Board of Directors increased the authority under our current share and debt repurchase plan to a total of $75.0 million and extended the date to execute the program from December 31, 2014, to December 31, 2016.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

ITEM 6

Exhibit 31.1 - Certification of the Chief Executive Officer under Exchange Act Rule 13a-14(a)

Exhibit 31.2 - Certification of the Chief Financial Officer under Exchange Act Rule 13a-14(a)

Exhibit 32 - Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

Exhibit 101.INS - XBRL Instance Document

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document (1)

Exhibit 101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document (1)

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document (1)

Exhibit 101.LAB - XBRL Taxonomy Extension Label Linkbase Document (1)

Exhibit 101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document (1)

(1) Furnished with this report, in accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, Infinity Property and Casualty Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	Infinity Property and Casualty Corporation

	BY:	/s/ ROGER SMITH
May 7, 2015		Roger Smith
		Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)