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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has assigned a 'BBB' to Infinity Property & Casualty Corporation's (Infinity) (NASDAQ: IPCC) new 10-year 5.0% $275 million debt issuance. Fitch has also affirmed IPCC's long-term Issuer Default Rating (IDR) at 'BBB+' and operating subsidiaries Insurer Financial Strength (IFS) rating at 'A'. The Outlook for all ratings is Stable. See below for a complete list of subsidiary ratings.

The affirmation of IPCC's ratings is based on Infinity's historically strong underwriting results, quality balance sheet characterized by strong capitalization, and adequate loss reserving levels. Offsetting these positives are negative trends in IPCC's profitability and its business concentration in the California auto market, which represents approximately 50% of net written premiums.

Infinity is one of the largest non-standard auto insurance companies in the country. The average non-standard automobile consumer is more likely to be affected by broader negative economic issues than the standard or preferred automobile consumer; this can impede customer retention or impact premium growth.

Fitch notes that the new $275 million debt issuance will be IPCC's only outstanding debt offering as the company will use these proceeds to pay off the existing $195 million in debt that matures in February 2014 early, with the balance used for general corporate purposes.

As of June 30, 2012, Infinity's financial leverage ratio was 23.4%; however, pro forma financial leverage increases to 29% as the company is increasing their debt obligation by approximately $80 million. Fitch notes that earnings-based interest coverage for the first half 2012 was 3.3x. Fitch anticipates that this new debt issuance will modestly increase interest expense as the incremental amount offsets the 50 basis point reduction in interest rates.

Fitch highlights that current ratings have a sustained financial leverage expectation of 30% or lower and a sustained earnings-based interest coverage of 3.5x or higher. Failure to maintain these metrics could lower current ratings.

Infinity reported a GAAP underwriting combined ratio of 99.5% for first half 2012, up slightly from first half 2011's 99.1%. On an accident year basis IPCC's first half 2012 result was 99.2% compared to first half 2011 results of 99.1%. Fitch notes that IPCC has grown premiums in recent years and that there is an inverse relationship between profitability and premium growth. IPCC's management is actively pursuing rate increases to offset this negative trend but Fitch does not anticipate a material reduction in the combined ratio in the near term.

While Fitch believes a ratings upgrade in the near term is unlikely, the following is a list of key rating triggers that could lead to an upgrade:

--A more diverse geographical premium distribution while simultaneously maintaining disciplined underwriting and profitability;

--A permanent increase in capitalization that is consistent with higher rated categories.

The following is a list of key rating triggers that could lead to a downgrade:

--A GAAP accident year combined ratio above 99% for a sustained period of time;

--A sustained increase in financial leverage above 30% or a decrease in earnings-based interest coverage of 3.0x or lower;

--An increase in the company's statutory net leverage of 4.5x or higher;

--A negative legal or political action associated with either the nonstandard auto market or IPCC's marketing strategy of targeting the Hispanic market that damages Infinity's brand image.

Fitch has assigned a 'BBB' rating to the following debt issuance:

Infinity Property Casualty Corp.

--$275 million 5.0% senior unsecured note due 2022 at 'BBB'.

Fitch has affirmed the following ratings:

Infinity Property Casualty Corp.

--IDR at 'BBB+'; Stable Outlook;

--$195 million 5.5% senior unsecured note due 2014 at 'BBB'.

Fitch has also affirmed the following IFS ratings at 'A', with a Stable Outlook:

Hillstar Insurance Co

Infinity Assurance Insurance Co

Infinity Auto Insurance Co

Infinity Casualty Insurance Company

Infinity County Mutual Insurance Company

Infinity Indemnity Insurance Co

Infinity Insurance Company

Infinity Preferred Insurance Co

Infinity Reserve Insurance Co

Infinity Safeguard Insurance Co

Infinity Security Insurance Company

Infinity Select Insurance Co

Infinity Standard Insurance Co

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the ratings process other than through the medium of public disclosure.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018 ]

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