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Rating Action:

Moody's reviews Infinity Property & Casualty ratings for downgrade following announced acquisition by Kemper Corporation

14 Feb 2018

Infinity to be acquired by Kemper for $1.3 billion

New York, February 14, 2018 -- Moody's Investors Service has placed the Baa2 senior debt rating of Infinity Property and Casualty Corporation (NASD: IPCC, "Infinity") and the A2 insurance financial strength (IFS) ratings of its principal operating subsidiaries on review for downgrade following the company's announcement that it has entered into an agreement to be acquired by Kemper Corporation (NYSE: KMPR, "Kemper", Baa3 senior, stable) for $1.3 billion in cash and stock. The transaction is expected to close in the third quarter, and is subject to shareholder approvals by both companies and regulatory approvals.

RATINGS RATIONALE

The review for downgrade of Infinity's ratings is prompted by Kemper's lower credit profile, an expectation that Kemper would likely increase Infinity's investment risk, and a potential reduction in cash/capital to help fund the transaction. However, Infinity would be part of a larger, more diversified organization with a combined leading position in nonstandard auto insurance. The review will focus on Infinity's prospective profitability, operational flexibility, and capital adequacy.

According to Moody's, Infinity's ratings reflect the group's established franchise within the independent agency channel in nonstandard automobile insurance, solid capital adequacy and profitable track record. Additional strengths include a high quality investment portfolio, low reserve risk, relatively low catastrophe risk, solid and stable operating returns, and moderate financial leverage. Infinity's strengths are tempered by the company's narrow product and geographic focus, intense competition from larger insurers who possess greater financial resources, and relatively high adjusted financial leverage, which in times of stress could pressure coverage metrics.

For 2017, Infinity reported net income of $45 million, an improvement of 5.3% relative to 2016 net income despite a $10.2 million charge in the fourth quarter from a deferred tax asset write-off, and significantly higher catastrophe losses ($17.4 million during 2017 compared to $6.9 million in 2016). The company's combined ratio improved to 95.2% in 2017 from 96.7% in the prior year due to earned rate increases along with favorable reserve development.

RATING DRIVERS

Infinity's ratings could be downgraded upon closing of the transaction given the potential for higher investment risk and somewhat lower capitalization.

Additional factors that could lead to a downgrade of the ratings: 1) meaningful underwriting losses (e.g. combined ratios consistently above 100%); 2) sustained financial leverage above 35%; 3) earnings coverage consistently less than 5x; 4) GAAP gross underwriting leverage greater than 3.5x; and, 5) significant adverse reserve development (greater than 3% of loss and LAE reserves).

A termination of the planned transaction, with no material change to Infinity's current financial profile would most likely result in a confirmation of the current ratings with a stable outlook.

The following ratings have been placed on review for downgrade:

Infinity Property and Casualty Corporation -- senior unsecured debt at Baa2; senior unsecured shelf (P)Baa2; subordinated shelf (P)Baa3; junior subordinated shelf (P)Baa3; preferred shelf (P)Ba1; preferred non-cumulative shelf (P)Ba1;

Infinity Insurance Company -- insurance financial strength at A2;

Infinity Standard Insurance Company -- insurance financial strength at A2;

Infinity Casualty Insurance Company -- insurance financial strength at A2;

Infinity Select Insurance Company -- insurance financial strength at A2;

Infinity Auto Insurance Company -- insurance financial strength at A2;

Infinity Preferred Insurance Company -- insurance financial strength at A2;

Infinity Indemnity Insurance Company -- insurance financial strength at A2;

Infinity Assurance Insurance Company -- insurance financial strength at A2;

Infinity Safeguard Insurance Company -- insurance financial strength at A2

Infinity Security Insurance Company -- insurance financial strength at A2.

Ratings Withdrawn:

Infinity Reserve Insurance Company- insurance financial strength, previously at A2.

Hillstar Insurance Company- insurance financial strength, previously at A2.

Infinity Property and Casualty Corporation, a non-standard writer of auto insurance, is headquartered in Birmingham, Alabama. For 2017, Infinity reported gross premiums written of almost $1.4 billion and net income of $45 million. As of December 31, 2017, shareholders' equity was $720 million.

The principal methodology used in these ratings was Global Property and Casualty Insurers published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Dion, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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