UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-K

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(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, ~~2016~~2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 0-50167

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INFINITY PROPERTY AND CASUALTY CORPORATION

(Exact name of registrant as specified in its charter)

________________________________



OHIO		03-0483872
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2201 4TH AVENUE NORTH BIRMINGHAM, ALABAMA		35203
(Address of principal executive offices)		(Zip Code)

(205) 870-4000

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:		Name of each exchange on which registered:
Common Stock, no par value		NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ý No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ 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). ý Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of June 30, ~~2016~~2017, the aggregate market value of the voting Common Stock held by non-affiliates of the registrant was $~~860~~1,~~574~~007,~~116~~156,859 based on the last sale price of Common Stock on that date as reported by The NASDAQ Global Select Market.

As of February 179, ~~2017~~2018, there were 1110,~~038~~935,~~721~~412 shares of the registrant’s Common Stock outstanding.

________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the annual meeting of shareholders to be held on May 1722, ~~2017~~2018, are incorporated by reference in Part III hereof.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1 -	Business	1
	Introduction	1
	Segments	1
Item 1A -	Risk Factors	5
Item 1B -	Unresolved Staff Comments	78
Item 2 -	Properties	78
Item 3 -	Legal Proceedings	78
Item 4 -	Mine Safety Disclosures	78
PART II
Item 5 -	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	89
Item 6 -	Selected Financial Data	1011
Item 7 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1112
Item 7A -	Quantitative and Qualitative Disclosures About Market Risk	2729
Item 8 -	Financial Statements and Supplementary Data	2829
Item 9 -	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	2829
Item 9A -	Controls and Procedures	2830
Item 9B -	Other Information	3032
PART III
Item 10 -	Directors, Executive Officers and Corporate Governance	3032
Item 11 -	Executive Compensation	3032
Item 12 -	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	3032
Item 13 -	Certain Relationships and Related Transactions, and Director Independence	3032
Item 14 -	Principal Accountant Fees and Services	3032
PART IV
Item 15 -	Exhibits and Financial Statement Schedules	5152
Item 16 -	Form 10-K Summary	5455

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” which anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made 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 are based 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 (defined in Item 1 - Business). 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 that could cause actual results to differ from those contained in the forward-looking statements, refer to Item 1A - Risk Factors.

PART I

ITEM 1

Business

Introduction

Infinity Property and Casualty Corporation was incorporated under the laws of the State of Ohio on September 16, 2002. We are a holding company that provides insurance, through our subsidiaries, for personal auto with a concentration on nonstandard risks, commercial ~~vehicles~~auto and classic collectors. Our headquarters is located in Birmingham, Alabama. We employed approximately 2,300 people at December 31, ~~2016~~2017.

We file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports as required with the United States Securities and Exchange Commission (SEC). Any of these documents may be read and copied at the SEC’s Public Reference Room at 100 F Street N.E., Washington, DC 20549. Information regarding the operation of the SEC Public Reference Room may be obtained by calling 1-800-SEC-0330. Our filed documents may also be accessed via the SEC Internet site at http://www.sec.gov. All of our SEC filings, news releases and other information may also be accessed free of charge on our website at http://www.infinityauto.com. Information on our website is not part of this Form 10-K.

Refer to Note 1 - Significant Reporting and Accounting Policies to the Consolidated Financial Statements for additional information regarding our history and organization. References to "we" or "us", unless the context requires otherwise, include the combined operations of our subsidiaries. Unless indicated otherwise, the financial information we present in this report is on a Generally Accepted Accounting Principles (GAAP) basis. Schedules may not foot due to rounding.

On February 13, 2018, the Company entered into a definitive agreement and plan of merger (the “Merger Agreement”) with Kemper Corporation, a Delaware corporation (“Parent”) and Vulcan Sub, Inc., an Ohio corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and into the Company in accordance with the Ohio General Corporation Law (the “Merger”), with the Company surviving such Merger as a wholly owned subsidiary of Parent (such entity, the “Surviving Company”). The Company expects the closing of the Merger to occur in the third quarter of 2018.

Our Strategy

We offer personal and commercial auto insurance primarily in four key states: Arizona, California, Florida and Texas. Our target customers are urban and Hispanic drivers. This narrow geographic and demographic focus allows us to concentrate our efforts and resources on providing competitively priced products to underserved segments while generating adequate returns for our shareholders.

Segments

Personal Automobile is our primary insurance product. It provides coverage to individuals for liability to others for bodily injury and property damage and for physical damage to an insured's own vehicle from collision and various other perils. In addition, some states require policies to provide for first party personal injury protection, frequently referred to as no-fault coverage.

Personal auto insurance is the largest line of property and casualty insurance, accounting for approximately 37%, or $193 billion, of the estimated $521 billion of annual industry premium. Personal auto insurance comprises preferred, standard and nonstandard risks. Nonstandard risks are associated with drivers who, due to factors such as their driving record, driving experience, lapse in or absence of prior insurance, or credit history, represent a higher than normal risk. Customers in the market for nonstandard auto insurance generally seek minimum required liability limits and are willing to accept restrictive coverages in exchange for more affordable insurance, given their risk profile. There is no established industry-recognized distinction between nonstandard risks

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Personal auto insurance is the largest line of property and casualty insurance, accounting for approximately 39%, or $207 billion, of the estimated $535 billion of annual industry premium. Personal auto insurance comprises preferred, standard and nonstandard risks. Nonstandard risks are associated with drivers who, due to factors such as their driving record, driving experience, lapse in, (or the absence of) prior insurance, or credit history, represent a higher than normal risk. Customers in the market for nonstandard auto insurance generally seek minimum required liability limits and are willing to accept restrictive coverages in exchange for more affordable insurance, given their risk profile. There is no established industry-recognized distinction between nonstandard risks and all other personal auto risks. Independent agents sell approximately 27% of all personal automobile insurance. The remainder is sold by captive agents or directly by insurance companies to their customers. We believe that, relative to the standard and preferred auto insurance market, independent agents sell a disproportionately larger portion of nonstandard auto insurance.

The personal auto insurance industry is cyclical, characterized by periods of price competition and excess capacity followed by periods of higher premium rates and shortages of underwriting capacity. These cycles may vary by geographic market.

Industrywide, rates increased 7.09%, 5.7.0% and 45.87% in ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. Our filed average rate adjustments on our personal auto business were 8.19%, 58.1% and 65.01% ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

The personal auto insurance industry is highly competitive and, except for regulatory considerations, there are relatively few barriers to entry. We generally compete with other insurers based on price, coverage offered, claims handling, customer service, agent commission, geographic coverage and financial strength ratings. We compete with both large national writers and small regional companies. In ~~2015~~2016, the five largest automobile insurance companies accounted for approximately 56% of the industry’s net written premium and the largest ten accounted for approximately 72% (~~2016~~2017 industry data is not yet available). Approximately ~~306~~299 insurance groups and unaffiliated insurance companies compete in the personal auto insurance industry. Some of these groups specialize in nonstandard auto insurance while others insure a broad spectrum of personal auto insurance risks.

Based on data published by A.M. Best, we believe that we are the second largest provider of nonstandard personal auto coverage through independent agents in the United States. We also write standard and preferred personal auto insurance.

We have a history of underwriting results that outperform the personal auto industry. The following table compares our statutory combined ratio, net of fees, in past years with those of the private passenger auto industry. The statutory combined ratio is the sum of the loss ratio (the ratio of losses and loss adjustment expenses (LAE) to net earned premium) and the expense ratio (when calculated on a statutory accounting basis, the ratio of underwriting expenses, net of fees, to net written premium). Underwriting results are generally considered profitable when the combined ratio is under 100%; when the ratio is over 100%, underwriting results are generally considered unprofitable.

	2016		2015		2014		2013		2012		2012-2016		2007-2016
	2017		2016		2015		2014		2013		2013-2017		2008-2017
Personal Auto Segment	9493.90	%	9394.69	%	9493.56	%	9694.25	%	9896.52	%	9594.54	%	94.10	%
Industry (a)	~~107~~106.41	%	~~104~~106.63	%	~~102~~104.36	%	~~101~~102.63	%	~~102~~101.16	%	~~103~~104.73	%	102.39	%
Percentage point difference from industry	1213.51	%	11.04	%	711.80	%	57.48	%	35.64	%	89.28	%	8.29	%

________________

(a) We obtained the private passenger auto industry combined ratios for ~~2007~~2008 through ~~2015~~2016 from A.M. Best. A.M. Best data is not available for ~~2016~~2017. The industry combined ratio for ~~2016~~2017 is an estimate based on data obtained from Conning Research and Consulting.

Commercial ~~Vehicle~~Auto provides coverage to businesses for liability to others for bodily injury and property damage and for physical damage to vehicles from collision and various other perils.

Approximately ~~335~~339 insurance groups and unaffiliated insurance companies compete in the commercial ~~vehicle~~auto insurance industry. Writers of commercial ~~vehicle~~auto insurance typically focus on one or more of the various segments of commercial ~~vehicle~~auto. We avoid the segments that are involved in what we consider to be hazardous operations or interstate commerce.

The primary segment of the market on which we focus is artisan contractors, which makes up approximately 1719% of the industry's commercial ~~vehicle~~auto premium. We primarily target businesses with fleets of 2010 or fewer vehicles, averaging 1.9 vehicles per policy.

Classic Collector provides coverage to individuals with classic or antique automobiles for liability to others for bodily injury and property damage and for physical damage to an insured's own vehicle from collision and various other perils.

Our three segments contributed the following percentages of total gross written premium:

	Twelve months ended December 31,
	2016		2015		2014
Personal Auto	89	%	90	%	91	%
Commercial Vehicle	10	%	9	%	8	%
Classic Collector	1	%	1	%	1	%
Total	100	%	100	%	100	%

Refer to Note 17 – Segment Information to the Consolidated Financial Statements for information on our revenues and underwriting income by segment.

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Distribution and Marketing

We distribute our products primarily through a network of approximately 10,~~800~~600 independent agencies and brokers in 15,~~400~~600 locations. In ~~2016~~2017, 1516% of our agency force produced 80% of our gross written premium, our top 10 independent agents and brokers produced 2322%, ~~seven~~eight independent agencies accounted for more than 1% each, and our top agent produced 87%. In California, Infinity’s largest state by premium volume, 54 independent agents and brokers produced 50% of gross written premium in the state (which represents 2524% countrywide), and our largest broker in the state produced 15% of that premium. In Florida, Infinity's second largest state by premium volume, 3132 independent agents and brokers produced 50% of gross written premium in the state (which represents 1513% countrywide), and our largest agent in the state produced 1819% of that premium.

We foster agent relationships by providing them with access to our Internet-based software applications along with programs and services designed to strengthen and expand their marketing, sales and service capabilities. Our Internet-based software applications provide many of our agents with e-signature capabilities and real-time underwriting, claims and policy information. We believe the array of services offered to our agents adds significant value to the agents' businesses. For example, “Easy Street” is our incentive-based program through which agents receive assistance in critical areas such as training, advertising and promotion. In ~~2016~~2017 we spent $912.05 million on co-op advertising and promotions.

In ~~2016~~2017 we also wrote $9094.10 million of business sold directly to the consumer either through company-owned sales centers or via the Internet.

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 states that we believe offer the greatest opportunity for premium growth and profitability.

Total gross written premium mix was as follows ($ in thousands):

	Twelve months ended December 31,
Personal Auto:	~~2016~~2017			~~2015~~2016			~~2014~~2015
California	4946.01		%	49.20		%	4549.92		%
Florida	2925.4		%	3129.94		%	3231.89		%
Texas	611.38		%	36.93		%	43.69		%
Arizona	12.3		%	1.23		%	1.32		%
Other States	21.46		%	32.64		%	63.46		%
Total Personal Auto	8887.51		%	8988.85		%	9189.08		%
Commercial Vehicle	10.4		%	9.1		%	8.0		%
Commercial Auto	11.7		%	10.4		%	9.1		%
Classic Collector	1.12		%	1.1		%	1.1		%
Total all states and all lines	100.0		%	100.0		%	100.0		%
Total all states and all lines	$	1,~~401~~397,~~414~~294		$	1,~~387~~401,~~866~~414		$	1,~~360~~387,~~870~~866

We implement our distribution and marketing efforts with a focus on maintaining a low cost structure. Controlling expenses allows us to price competitively and achieve better underwriting returns. Over the five years ended ~~2015~~2016, years for which industry data is available from A.M. Best, our statutory ratio of underwriting expenses to premium written has averaged 1817.28%, which is 78.90 points better than the independent agency segment of the private passenger automobile industry average of 2625.28% for the same period.

Claims Handling

We strive for accuracy, consistency and fairness in our claim resolutions. Our claims organization employs approximately 1,300 people, has several field locations in each of the states in which we do business and provides a 24-hour, seven days per week toll-free service for our customers to report claims. We predominantly use our own local adjusters and appraisers.

We are committed to the field handling of claims and we believe that it provides, when compared with alternative methods, better service to our customers and better control of the claim resolution process. We open claims branch offices in urban areas where the volume of business will support them. Customer interactions can occur with generalists (initial and continuing adjusters) and specialists (staff appraisers, field casualty representatives and special investigators) based on local market volume, density and performance.

In addition to the use of field claims handling, we use centralized claims call centers to receive initial reports of losses and to adjust simple property damage claims.

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Ratings

A.M. Best has assigned our insurance company subsidiaries a group financial strength rating of “A” (Excellent). A.M. Best assigns “A” ratings to insurers that, in A.M. Best's opinion, “have an excellent ability to meet their ongoing insurance obligations.” A.M. Best bases our rating on factors that concern policyholders and not upon factors concerning investor protection.

Standard and Poor's has assigned our insurance company subsidiaries insurer financial strength ratings of "A" (Strong). An insurer rated "A" by Standard and Poor's has "strong financial security characteristics but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings." Insurer financial strength ratings do not refer to an organization's ability to meet nonpolicy (debt) obligations.

Regulatory Environment

Our insurance company subsidiaries are subject to regulation and supervision by insurance departments of the jurisdictions in which they are domiciled or licensed to transact business. State insurance departments have broad administrative power relating to licensing insurers and agents, regulating premium rates and policy forms, establishing reserve and investment requirements, prescribing statutory accounting methods and the form and content of statutory financial reports, and regulating methods and processes of how an insurer conducts its business. Examples of the latter include the establishment in California of auto rating factor and rate approval regulations, proscription on credit-based insurance scoring, prohibition of certain business practices with auto body repair shops, and attempts to set uniform auto body repair shop parts and labor rates.

Under state insolvency and guaranty laws, regulated insurers can be assessed or required to contribute to state guaranty funds to cover policyholder losses resulting from insurer insolvencies. Many states also require insurers, as a condition of doing business in the state, to participate in various assigned risk pools, reinsurance facilities or underwriting associations, which provide insurance coverage to individuals who otherwise are unable to purchase that coverage in the voluntary market. Participation in these involuntary plans is generally in proportion to voluntary writings of related lines of business in that state. The underwriting results of these plans traditionally have been unprofitable. The amount of premium we might be required to assume in a given state in connection with an involuntary plan may be reduced because of credit we may receive for nonstandard policies that we voluntarily write. Many states also have laws and regulations that limit an insurer's ability to exit a market. For example, certain states limit an automobile insurer's ability to cancel and non-renew policies.

State insurance departments that have jurisdiction over our insurance subsidiaries may conduct routine, on-site visits and examinations of our subsidiaries' affairs. There were no open market conduct examinations as of February 2815, ~~2017~~2018. These examinations have from time to time given rise to regulatory orders requiring remedial, injunctive or other action on the part of an insurance subsidiary or the assessment of substantial fines or other penalties against our insurance subsidiaries, and are likely to do so in the future. Every five years, our insurance subsidiaries are subject to a financial examination by the states in which the subsidiaries are domiciled. We expect the examination of years 2012 through 2016 to be completed during the first quarter of 2018 with no adjustment to statutory capital surplus.

The insurance laws of the states of domicile of our insurance subsidiaries contain provisions to the effect that the acquisition or change of control of a domestic insurer or of any entity that controls a domestic insurer cannot be consummated without the prior approval of the relevant insurance regulator. In addition, certain state insurance laws require pre-acquisition notification to state agencies of a change in control with respect to a non-domestic insurance company licensed to do business in that state. Such approval requirements may deter, delay or prevent certain transactions affecting the ownership of our common stock.

We are a holding company with no business operations of our own. Consequently, our ability to pay dividends to shareholders and meet our debt payment obligations is largely dependent on dividends or other distributions from our insurance company subsidiaries, current investments and cash held. State insurance laws restrict the ability of our insurance company subsidiaries to declare shareholder dividends. These subsidiaries may not make an “extraordinary dividend” until thirty days after the applicable commissioner of insurance has received notice of the intended dividend and has either not objected or has approved the payment of the extraordinary dividend within the 30-day period. An extraordinary dividend is defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the lesser of (i) 10% of the insurer's surplus; or (ii) the insurer's net income excluding realized capital gains for the twelve-month period ended the preceding December 31st, in each case determined in accordance with statutory accounting practices. In addition, an insurer's remaining surplus after payment of a cash dividend to shareholder affiliates must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs.

If a shareholder dividend does not rise to the statutory level of an extraordinary dividend, then it is an “ordinary dividend.” While an insurance company’s ability to pay an ordinary dividend does not require the approval of a state insurance department, it must file a 10-day notice of ordinary dividend with the appropriate insurance department. Insurance companies that fail to notify an insurance department of the payment of an ordinary dividend are assessed administrative fines.

State insurance laws require our subsidiaries to maintain specified levels of statutory capital and surplus. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed. In addition, for competitive reasons, our insurance company subsidiaries need to maintain adequate financial strength ratings from independent rating agencies. Both of these factors may limit the ability of our insurance subsidiaries to declare and pay dividends.

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file a 10-day notice of ordinary dividend with the appropriate insurance department. Insurance companies that fail to notify an insurance department of the payment of an ordinary dividend are assessed administrative fines.

ITEM 1A

Risk Factors

Our business operations face a number of risks. The risks below should be read and considered with other information provided in this report and in other reports and materials we have filed with the SEC. In addition to these risks, other risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially adversely affect our business, financial condition and/or operating results.

The announced merger agreement with Kemper Corporation is subject to various closing conditions, including regulatory and other approvals.

On February 13, 2018, we entered into a Merger Agreement pursuant to which the Company would become a wholly owned subsidiary of Kemper Corporation. The closing of the merger is subject to certain conditions, including, among others (i) the adoption of the Merger Agreement by holders of at least a majority of the outstanding Company Shares entitled to vote thereon; (ii) the expiration or earlier termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and regulatory approval by the Securities and Exchange Commission (the “SEC”); (iii) the absence of any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger; (iv) no more than 10% of the outstanding Company shares shall have properly elected appraisal rights; (v) the shares of Kemper common stock issuable to the Company’s shareholders have been approved for listing on the NYSE; (vi) the Form S-4 registering the Kemper shares comprising part of the merger consideration has been declared effective by the SEC; and (vii) certain employees of the Company must be retained.

A number of the closing conditions are outside of our control and we cannot predict with certainty whether all of the required closing conditions will be satisfied or waived or if other uncertainties may arise. In addition, regulators could impose additional requirements or obligations as conditions for their approvals, which may be burdensome. Despite our best efforts, we may not be able to satisfy the various closing conditions or obtain the necessary waivers or approvals in a timely fashion or at all, in which case the Merger would be prevented or delayed.

If we fail to price accurately the risks we underwrite, profitability may be affected.

Our profitability depends on our ability to set premium rates accurately. Inflationary pressures on medical care, auto parts and repair services costs complicate pricing with accuracy. Accurate pricing is also dependent on the availability of sufficient, reliable data on which to project both severity and frequency trends and timely recognition of changes in loss cost trends. This process poses more of a challenge in markets where we have less pricing experience. We could under-price risks, which could negatively affect our profit margins, or over-price risks, which could reduce sales volume and competitiveness. Either scenario could adversely affect profitability.

Because of the significant concentration of our business in California and Florida, negative developments in the regulatory, legal or economic conditions in these states may adversely affect our profitability.

California and Florida personal auto business represented 7872% of our total gross written premium in ~~2016~~2017. In ~~2016~~2017 our two largest urban zones, Los Angeles and Miami, represented 5448% of total gross written premium. Our personal auto business may become further concentrated in these states and within our two largest urban zones. Consequently, the dynamic nature of regulatory, legal, competitive and economic conditions in these states affects our revenues and profitability. Further, both California and Florida have regulations that limit the after-tax return on underwriting profit allowed for an insurer. These conditions could negatively affect premium revenue and make it more expensive or less profitable for us to conduct business in these states.

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We rely upon a limited number of independent agents to generate a substantial portion of our business. If we were unable to retain or increase the level of business that these independent agents place with us or increase the level of business generated by other agents, our revenues would be negatively affected.

Approximately 1516% of our 10,~~800~~600 independent agencies and brokers accounted for approximately 80% of our gross written premium in ~~2016~~2017. Further, in California, 54 agencies and brokers produced 50% of our premium in the state, accounting for 2524% of our premium nationwide, and in Florida, 3132 independent agents and brokers produced 50% of gross written premium in the state, accounting for 1513% of our premium nationwide.

We must compete with other insurance carriers for the business of these agents in an increasingly competitive marketplace. Some competitors offer more advanced systems to quote and process business, a larger variety of products, lower prices for insurance coverage, higher commissions or more attractive cash and non-cash incentives. In addition, some of our current agencies may merge or be acquired and the surviving entity may reduce the number of insurers with which business is placed.

If we fail to establish accurate loss reserves, our financial position and results of operations may be affected.

Our loss reserves are our best estimate of the amounts that will be paid for losses incurred as well as losses incurred but not reported. The accuracy of these estimates depends on a number of factors, including but not limited to the availability of sufficient and reliable historical data, inflationary pressures on medical and auto repair costs, changes in regulation, changes in frequency and severity trends and changes in our claims settlement practices. Because of the inherent uncertainty involved in the practice of establishing loss reserves, ultimate losses paid could vary materially from recorded reserves and may adversely affect our operating results.

We are vulnerable to a reduction in business written through the independent agent distribution channel.

Reliance on the independent agency as our primary distribution channel makes us vulnerable to the growing popularity of direct to consumer distribution channels, particularly the Internet. Approximately 73% of all personal automobile insurance sold in the United States is sold direct or through captive agents (agents employed by one company or selling only one company's products) and approximately 27% is sold by independent agents. A material reduction in business generated through the independent agency channel could negatively affect our revenues and growth opportunities.

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Judicial, regulatory and legislative changes or challenges to prevailing insurance industry practices as well as technology innovations are ongoing, and could adversely affect our revenue or operating results.

Political, judicial, economic and financial developments occasionally lead to challenges or changes to established industry practices. Examples include challenges to (i) the use of credit and other rating factors in making risk selection and pricing decisions; and (ii) how Florida Personal Injury Protection (PIP) payments to providers are calculated. It is difficult to predict the outcome or impact of current challenges or to identify others that might be brought in the future, but some could result in class action litigation, regulatory sanctions and substantial fines or penalties. In addition, auto technology advancements such as driverless cars, and emerging business models, including transportation network companies and usage-based insurance, could materially impact our revenue over time.

The failure to maintain or to develop further reliable, efficient and secure information technology systems would be disruptive to our operations and diminish our ability to compete successfully.

We are highly dependent on efficient and uninterrupted performance of our information technology and business systems. These systems quote, process and service our business, and perform actuarial functions necessary for pricing and product development. These systems must also be able to undergo periodic modifications and improvements without interruptions or untimely delays in service. This capability is crucial to meeting growing customer demands for user friendly, online capabilities and convenient, quality service. We are undergoing fundamental changes and improvements to our information technology (IT) platform. A failure or delay to achieve these improvements could interrupt certain processes or degrade business operations and could place us at a competitive disadvantage. Additionally, failure to maintain secure systems could result in unauthorized access to or theft of sensitive customer or company data, misappropriation of funds or disruption to our systems.

The inability to recruit, develop and retain key personnel could prevent us from executing our key business and financial objectives.

The highly competitive nature of our industry, along with the advantages that larger, better-known firms possess in the recruiting process, poses a challenge with respect to both employee retention and recruitment efforts. Successful execution of our key business and financial objectives depends, in part, on our ability to retain, develop or find qualified successors for key personnel, including our Chief Executive Officer, James Gober, and our other four named executive officers - each of whom, with the exception of our chief financial officer, has an employment agreement that expires in August 2017. The announcement of the loss of key personnel or the delay or inability to retain or appoint successors could negatively affect our stock price, our retention of other key personnel, or hinder us in achieving our business and financial objectives given the specialized knowledge of each of our executive officers and the limited pool of candidates with experience relevant to our operations.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

announcement of the loss of key personnel or the delay or inability to retain or appoint successors could negatively affect our stock price, our retention of other key personnel, or hinder us in achieving our business and financial objectives given the specialized knowledge of each of our executive officers and the limited pool of candidates with experience relevant to our operations.

Extra-contractual losses arising from bad faith claims could materially reduce our profitability.

In California and Florida, courts and laws are often viewed as unfavorable toward an insurer in litigation brought against it by policyholders and third-party claimants. This tends to increase our exposure to monetary damages beyond policy limits, in what are commonly referred to as "extra-contractual" or "bad faith" claims. Such claims may result in losses that materially reduce our profitability.

Our goodwill may be at risk for impairment if actual results regarding growth and profitability vary from our estimates.

At December 31, ~~2016~~2017, we had $75.3 million, or approximately $6.8288 per share, of goodwill. In accordance with the Goodwill topic of the FASB Accounting Standards Codification, we perform impairment test procedures for goodwill on an annual basis. These procedures require us to calculate the fair value of goodwill, compare the result to our carrying value and record the amount of any shortfall as an impairment charge.

We use a variety of methods to test goodwill for impairment, including estimates of future discounted cash flows and comparisons of our market value to our major competitors. Our cash flow projections rely on assumptions that are subject to uncertainty, including premium growth, loss and loss adjustment expense ratios, interest rates and capital requirements. If actual results differ significantly from these assumptions, the fair value of our goodwill could fall below our carrying value and we could be required to record an impairment charge.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

ITEM 1B

Unresolved Staff Comments

None.

ITEM 2

Properties

Our insurance subsidiaries lease ~~175~~158,~~318~~741 square feet of office space in numerous cities throughout the United States. All of these leases expire within ~~seven~~six years. The most significant leased office spaces are located in Miami, Florida; ~~and~~ Cerritos, California and Alpharetta, Georgia. Refer to Note 14 – Commitments and Contingencies to the Consolidated Financial Statements for further information about leases. We own a 33,515 square foot call center in McAllen, Texas, a 50,900 square foot call center in Tucson, Arizona, and three properties in Birmingham, Alabama - a 116,433 square foot building, a 62,808 square foot warehouse and a 120,493 square foot building which serves as our corporate headquarters. The properties identified above are used by all segments reported in the Notes to Consolidated Financial Statements.

ITEM 3

Legal Proceedings

Refer to Note 13 – Legal and Regulatory Proceedings to the Consolidated Financial Statements for a discussion of our material legal proceedings. Except for those legal proceedings disclosed in Note 13 to the Consolidated Financial Statements, we believe that none of the legal proceedings to which we are subject meet the threshold for disclosure under this item.

ITEM 4

Mine Safety Disclosures

Not applicable.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

PART II

ITEM 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We had 58 registered holders of record as of February 179, ~~2017~~2018. Our common stock is listed and traded on the NASDAQ Global Select Market under the symbol IPCC. The stock prices in the following table are over-the-counter market quotations that reflect transactions between dealers; retail markups and commissions are not reflected. These prices may not represent actual transactions. Our closing per-share stock price on February 179, ~~2017~~2018, was $8995.0060. Refer to Note 12 – Statutory Information to the Consolidated Financial Statements for information about restrictions on transfer of funds and assets of subsidiaries.

Infinity Quarterly High and Low Stock Prices and Dividends Paid by Quarter

For the quarter ended	High		Low		Close		Dividends Declared and Paid Per Share		Return to Shareholders (excluding dividends) (a)		Return to Shareholders (including dividends) (b)
March 31, 2015	$	87.89	$	69.87	$	82.05	$	0.43	6.2	%	6.8	%
June 30, 2015	83.03		70.21		75.84		0.43		(7.6	)%	(7.0	)%
September 30, 2015	82.57		73.90		80.54		0.43		6.2	%	6.8	%
December 31, 2015	87.61		78.41		82.23		0.43		2.1	%	2.6	%
March 31, 2016	$	84.10	$	73.26	$	80.50	$	0.52	(2.1	)%	(1.5	)%
June 30, 2016	86.79		73.92		80.66		0.52		0.2	%	0.8	%
September 30, 2016	86.74		76.37		82.63		0.52		2.4	%	3.1	%
December 31, 2016	90.50		73.80		87.90		0.52		6.4	%	7.0	%
March 31, 2017	$	99.55	$	84.60	$	95.50	$	0.58	8.6	%	9.3	%
June 30, 2017	101.70		90.75		94.00		0.58		(1.6	)%	(1.0	)%
September 30, 2017	100.70		83.00		94.20		0.58		0.2	%	0.8	%
December 31, 2017	110.63		86.45		106.00		0.58		12.5	%	13.1	%
For the twelve months ended
December 31, 2015	$	87.89	$	69.87	$	82.23	$	1.72	6.4	%	8.7	%
December 31, 2016	$	90.50	$	73.26	$	87.90	$	2.08	6.9	%	9.4	%
December 31, 2016	90.50		73.26		87.90		2.08		6.9	%	9.4	%
December 31, 2017	110.63		83.00		106.00		2.32		20.6	%	23.2	%


(a)	Calculated by dividing the change in share price during the period presented by the share price at the beginning of the period presented.


(b)	Calculated by dividing (i) the sum of the amount of the dividend, assuming dividend reinvestment, and the change in share price during the period presented; by (ii) the share price at the beginning of the period presented.

The information required under the heading “Equity Compensation Plan Information” is provided under Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters herein.

During the fiscal year ended December 31, ~~2016~~2017, all of our equity securities sold were registered under the Securities Act of 1933, as amended.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

The following table presents information with respect to purchases of our common stock made during the three months ended December 31, ~~2016~~2017, by us or any of our "affiliated purchasers" as defined in Rule 10b-18(a)(3) under the Exchange Act:

Period	Total Numberof SharesPurchased	~~Average PricePaid per Share (a)~~	Average PricePaid per Share (a)		~~Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms~~	Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms	~~Approximate DollarValue that May Yet BePurchased Under thePlans or Programs (b)~~		Approximate DollarValue that May Yet BePurchased Under thePlans or Programs (b)
October 1, 2016 - October 31, 2016	3,100	$	82.37		3,100		$	35,896,371
October 1, 2017 - October 31, 2017	41,900		$	94.29		41,900			$	23,169,053
November 1, 2016 - November 30, 2016	7,700	$	81.57		7,700		$	35,266,730
November 1, 2017 - November 30, 2017	6,800		$	93.71		6,800			$	22,531,509
December 1, 2016 - December 31, 2016	4,363	$	88.17		4,363		$	34,880,451
December 1, 2017 - December 31, 2017	—		$	—		—			$	22,531,509
Total	1548,~~163~~700	$	~~83.63~~$	94.21	~~15,163~~	48,700	$	~~34,880,451~~	$	22,531,509


(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 to December 31, 2016, from December 31, 2014. On November 1, 2016, our Board approved the extension of the date to execute the program from December 31, 2016, to December 31, 2017, and on November 2, 2017, approved an extension to December 31, 2018.

The following graph shows the comparison of cumulative total shareholder return on our common stock over the five years ended December 31, ~~2016~~2017. The return is measured by dividing (i) the sum of the cumulative amount of dividends, assuming dividend reinvestment, and the change in share price during the periods presented; by (ii) the share price at the beginning of the periods presented. The graph demonstrates cumulative total returns for Infinity, the NASDAQ OMX Global Total Return Index for NASDAQ US Benchmark and the NASDAQ OMX Global Total Return for Industrial Classification Benchmark (ICB): 8500 Insurance (Supersector).

Cumulative Total Return as of December 3029, ~~2016~~2017

(Assumes a $100 investment at the close of trading on December 3031, ~~2011~~2012)

12/30/2011

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/30/2016

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/30/2016

12/29/2017

IPCC

100.00

~~104~~125.2758

~~130~~138.9408

~~143~~150.9814

~~156~~164.56

~~171~~203.6023

NASDAQ US

100.00

~~116~~133.4348

~~155~~150.4112

~~174~~150.7884

~~175~~170.6246

~~198~~206.4791

ICB: 8500 Insurance

100.00

~~118~~141.3364

~~167~~160.6185

~~190~~159.3467

~~188~~192.9430

~~227~~224.5589

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

ITEM 6

Selected Financial Data

($ in thousands, except per share data)	~~2016~~2017			~~2015~~2016			~~2014~~2015			~~2013~~2014			~~2012~~2013
Gross written premium	$1,397,294	~~1,401,414~~		$1,401,414	~~1,387,866~~		$1,387,866	~~1,360,870~~		$1,360,870	~~1,339,819~~		$1,339,819	~~1,254,929~~
Gross written premium growth	1.(0.3		)%	21.0		%	12.60		%	61.86		%	156.98		%
Net written premium	1,~~392~~386,~~459~~853			1,~~373~~392,~~287~~459			1,~~347~~373,~~604~~287			1,~~329~~347,~~892~~604			1,~~247~~329,~~198~~892
Net earned premium	1,~~391~~371,~~664~~336			1,~~346~~391,~~564~~664			1,~~325~~346,~~935~~564			1,~~302~~325,~~525~~935			1,~~184~~302,~~090~~525
Total revenues	1,~~538~~517,~~706~~987			1,~~484~~538,~~032~~706			1,~~461~~484,~~709~~032			1,~~443~~461,~~233~~709			1,~~349~~443,~~585~~233
Loss & LAE ratio	7876.8		%	7678.98		%	7576.59		%	7875.15		%	7978.61		%
Underwriting ratio	1718.93		%	1817.79		%	1918.67		%	19.96		%	2119.19		%
Combined ratio	9695.72		%	9596.67		%	95.16		%	9895.01		%	~~100~~98.70		%
Net earnings	$	4345,~~085~~384		$	5143,~~481~~085		$	5751,~~201~~481		$	3257,~~633~~201		$	2432,~~319~~633
Net earnings per diluted share	$	34.8810		$	43.5188		$	4.9551		$	24.8095		$	2.0480
Return on average common shareholders’ equity	6.24		%	76.42		%	87.4		%	58.04		%	35.70		%
Cash and investments	$	1,~~576~~647,~~514~~242		$	1,~~538~~576,~~536~~514		$	1,~~611~~538,~~594~~536		$	1,~~582~~611,~~238~~594		$	1,~~560~~582,~~116~~238
Total assets	2,~~402~~473,~~601~~411			2,~~385~~402,~~135~~601			2,~~382~~385,~~998~~135			2,~~315~~382,~~263~~998			2,~~301~~315,~~413~~263
Unpaid losses and LAE	~~685~~715,~~455~~098			~~669~~685,~~965~~455			~~668~~669,~~177~~965			~~646~~668,~~577~~177			~~572~~646,~~894~~577
Unearned premium	~~614~~627,~~347~~575			~~616~~614,~~649~~347			~~589~~616,~~260~~649			~~566~~589,~~004~~260			~~538~~566,~~142~~004
Long-term debt	273,~~591~~809			273,~~383~~591			273,~~186~~383			~~272~~273,~~998~~186			272,~~820~~998
Total liabilities	1,~~703~~753,~~414~~130			1,~~697~~703,~~540~~414			1,~~685~~697,~~339~~540			1,~~658~~685,~~505~~339			1,~~645~~658,~~170~~505
Total shareholders’ equity	~~699~~720,~~187~~281			~~687~~699,~~595~~187			~~697~~687,~~659~~595			~~656~~697,~~758~~659			656,~~242~~758
Cash dividends per common share	$	2.0832		$	12.7208		$	1.4472		$	1.2044		$	01.9020
Common shares outstanding	1110,~~044~~935			11,~~151~~044			11,~~483~~151			11,~~504~~483			11,~~605~~504
Book value per common share	$	6365.3187		$	6163.6631		$	6061.7566		$	5760.0975		$	5657.5509
Ratios:
Debt to total capital	2827.26		%	28.62		%	28.36		%	2928.53		%	29.5		%
Debt to tangible capital	3029.69		%	3130.06		%	3031.60		%	3230.16		%	32.1		%
Interest coverage	56.47			65.34			6.93			46.29			24.72

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

ITEM 7

Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations

TABLE OF CONTENTS

Page Overview 1213 Critical Accounting Policies 1213 Insurance Reserves 1314 Other-than-Temporary Losses on Investments 1516 Accruals for Litigation 1617 Goodwill 1617 Liquidity and Capital Resources 1617 Ratios 1617 Sources of Funds 1617 Uses of Funds 1718 Contractual Obligations 1718 Investments 1719 General 1719 Receivable for Securities Sold 1920 Payable for Securities Purchased 1921 Exposure to Market Risk 2021 Interest Rate Risk 2021 Credit Risk 2022 Equity Price Risk 2122 Results of Operations 2223 Underwriting 2223 Premium 2223 Profitability 2324 Installment and Other Fee Income 2526 Net Investment Income 2526 Net Realized Gains on Investments 2627 Other Income 2628 Interest Expense 2628 Corporate General and Administrative Expenses 2728 Other Expenses 2728 Income Taxes 2729

Refer to Cautionary Statement Regarding Forward-Looking Statements on page 1.

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

Overview

Gross written premium ~~grew~~decreased 1.0.3% in ~~2016~~2017 compared with ~~2015~~2016 primarily from ~~growth~~premium adjustments in ~~Texas~~California ~~personal~~of ~~auto~~$22.2 ~~and~~million ~~countrywide~~during ~~Commercial~~the ~~Vehicle~~first ~~partially~~six ~~offset~~months byof ~~declines~~2017. inRefer ~~Florida~~to asNote ~~well~~13 as- ~~states~~Legal ~~where~~and weRegulatory ~~are~~Proceedings ~~running~~for ~~off~~a ~~business~~more detailed discussion of the premium adjustments. Refer to Results of Operations – Underwriting – Premium for a more detailed discussion of our gross written premium.

Net earnings and diluted earnings per share for the year ended December 31, ~~2016~~2017, were $4345.14 million and $34.8810, respectively, compared with $5143.51 million and $43.5188, respectively, for ~~2015~~2016. The ~~decrease~~increase in net earnings and diluted earnings per share for the year ended December 31, ~~2016~~2017, was primarily due to aan ~~decrease~~increase in underwriting income as the result of ana ~~increase~~decrease in the accident year combined ratio from 9798.84% at December 31, ~~2015~~2016, to 9896.45% at December 31, ~~2016,~~2017. ~~and~~Partially offsetting this was a ~~decrease~~$10.2 inmillion ~~favorable~~deferred ~~development~~tax onasset ~~prior~~write-off ~~accident~~resulting ~~year~~from ~~loss~~the ~~and~~impact ~~LAE~~of ~~reserves~~the enacted tax reform.

~~Included~~Net incatastrophe ~~net~~losses ~~earnings~~during ~~for~~2017 ~~the~~were ~~year ended December 31, 2016, was~~ $1517.64 million ~~($24.0~~compared million pre-tax) of favorable development on prior accident year loss and LAE reserves. This development was primarily due to decreases in severity estimates in Florida bodily injury and personal injury protection coverages related to accident years 2015 and prior, partially offset by increases in severity estimates in California material damage and bodily injury coverages as well as bodily injury coverages in our commercial vehicle product, all related to accident year 2015. This compares with $186.~~8 million ($28.~~9 million ~~pre-tax)~~during ~~of favorable development for 2015. The following table displays GAAP combined ratio results by accident year developed through December 31,~~ 2016:.

	Accident Year Combined RatioDeveloped Through										Prior Accident Year (Favorable)/Unfavorable Development($ in millions)
	Dec.		Mar.		Jun.		Sep.		Dec.		YTD		YTD
	2015		2016		2016		2016		2016		2016		2016
Accident year
Prior													$	0.3
2007	92.1	%	92.1	%	92.1	%	92.1	%	92.1	%	0.0	%	0.2
2008	91.1	%	91.1	%	91.1	%	91.1	%	91.1	%	(0.0	)%	(0.2		)
2009	92.4	%	92.4	%	92.4	%	92.4	%	92.4	%	0.0	%	0.3
2010	99.4	%	99.3	%	99.3	%	99.3	%	99.3	%	(0.2	)%	(1.4		)
2011	100.2	%	100.0	%	100.0	%	100.0	%	99.8	%	(0.3	)%	(3.3		)
2012	100.1	%	99.9	%	99.8	%	99.8	%	99.6	%	(0.4	)%	(5.3		)
2013	95.5	%	95.3	%	95.1	%	94.9	%	94.8	%	(0.7	)%	(9.1		)
2014	95.4	%	95.0	%	94.6	%	94.3	%	94.4	%	(1.0	)%	(13.1		)
2015	97.8	%	98.3	%	98.0	%	98.4	%	98.3	%	0.6	%	7.7
													$	(24.0	)

Included in net earnings for the year ended December 31, 2017, was $12.0 million ($18.5 million pre-tax) of favorable development on prior accident year loss and LAE reserves. This development was primarily due to a decrease in ultimate severity estimates in California related to bodily injury and material damage coverages for accident year 2016 and a decrease in ultimate frequency estimates in Florida related to material damage and uninsured motorist bodily injury coverage for accident year 2016. This favorable development was partially offset by increases in ultimate severity estimates in bodily injury coverages in our commercial auto product. This compares with $15.6 million ($24.0 million pre-tax) of favorable development for 2016. The following table displays GAAP combined ratio results by accident year developed through December 31, 2017:



	Accident Year Combined Ratio Developed Through										Prior Accident Year (Favorable)/Unfavorable Development ($ in millions)
	Dec.		Mar.		Jun.		Sep.		Dec.		YTD		YTD
	2016		2017		2017		2017		2017		2017		2017
Accident year
Prior													$	0.1
2008	91.1	%	91.1	%	91.1	%	91.1	%	91.1	%	0.0	%	0.1
2009	92.4	%	92.4	%	92.5	%	92.5	%	92.6	%	0.2	%	1.7
2010	99.3	%	99.3	%	99.3	%	99.3	%	99.3	%	0.1	%	0.7
2011	99.8	%	99.9	%	99.9	%	99.9	%	99.9	%	0.1	%	0.6
2012	99.6	%	99.5	%	99.4	%	99.4	%	99.4	%	(0.2	)%	(2.5		)
2013	94.8	%	94.9	%	94.9	%	94.8	%	94.8	%	0.0	%	0.1
2014	94.4	%	94.4	%	94.5	%	94.5	%	94.5	%	0.2	%	2.3
2015	98.3	%	98.4	%	98.3	%	98.5	%	98.5	%	0.2	%	2.2
2016	98.4	%	97.8	%	97.4	%	97.0	%	96.7	%	(1.7	)%	(23.9		)
													$	(18.5	)

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

Pre-tax net investment income ~~declined~~increased from $3635.85 million in ~~2015~~2016 to $3537.53 million in ~~2016~~2017 primarily due to aan ~~decline~~increase ~~of $0.9 million~~ in make whole ~~proceeds~~interest and abond ~~decrease~~issuer tender offers during 2017 totaling $1.0 million and an increase in ~~book~~interest ~~yield~~income ~~caused~~on bycash ~~continued~~equivalents ~~low~~due ~~reinvestment~~to ~~yields~~an increase in yield.

Our book value per share increased 24.70% from $6163.6631 at December 31, ~~2015~~2016, to $6365.3187 at December 31, ~~2016~~2017. This increase was primarily due to net earnings partially offset by shareholder dividends and share repurchases.

Critical Accounting Policies

(Refer to Note 1- Significant Reporting and Accounting Policies to the Consolidated Financial Statements.)

The preparation of financial statements requires management to make estimates and assumptions that can have a significant effect on amounts reported in the financial statements. As more information becomes known, these estimates and assumptions could change and thus impact amounts reported in the future. We believe that the establishment of insurance reserves, the determination of “other-than-temporary” impairment on investments, accruals for litigation and valuation of goodwill are the areas where the degree of judgment required to determine amounts recorded in the financial statements makes the accounting policies critical.

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

Insurance Reserves

Insurance reserves, or unpaid losses and LAE, are our best estimate of the ultimate amounts that will be paid for (i) all claims that have been reported up to the date of the current accounting period but have not yet been paid; (ii) all claims that have occurred but have not yet been reported to us (“incurred but not reported” or IBNR); and (iii) unpaid claim settlement expenses.

Incurred but not reported (IBNR) reserves are established for the quarter and year-end based on a quarterly reserve analysis by our actuarial staff. Various standard actuarial tests are applied to subsets of the business at a state, product and coverage basis. Included in the analyses are the following:


•	Paid and incurred extrapolation methods utilizing paid and incurred loss development to predict ultimate losses;


•	Paid and incurred frequency and severity methods utilizing paid and incurred claims count development and paid and incurred claims cost development to predict ultimate average frequency (claims count per policy or auto insured) or ultimate average severity (cost per claim); and


•	Paid and incurred Bornhuetter-Ferguson methods adding expected development to actual paid or incurred experience to project ultimate losses.

For each subset of the business evaluated, each test generates a point estimate based on development factors applied to known paid and incurred losses and claim counts. Selections of development factors are based on historical loss development patterns with adjustment based on professional actuarial judgment where anticipated development patterns vary from those seen historically. Deviations from historical loss development patterns may occur due to changes in items such as claims settlement and payment practices, business mix, coverage limits and deductibles, inflation trends in auto repair and medical costs and legal and regulatory trends affecting claims settlements. This estimation of IBNR requires selection of hundreds of such factors. A single point estimate for the subset being evaluated is then selected from the results of various tests, based on a combination of simple averages of the point estimates of the various tests and selections based on professional actuarial judgment.

Estimating the liability for unpaid losses and LAE is inherently judgmental and is influenced by factors that are subject to significant variation. When possible, we make quantitative and qualitative modifications to, or selections of, such factors where deviations from historical trends in these key areas exist. We analyze the adequacy of reserves using actuarial data and analytical reserve development techniques, including projections of ultimate paid losses, to determine the ultimate amount of reserves. The list of historical trends provided above are non-exhaustive examples of major factors that we take into account in developing these estimates.

We review loss reserve adequacy quarterly by accident year at a state, product and coverage level. We adjust reserves as additional information becomes known and reflect such adjustments in current year operations.

During each quarterly review by the internal actuarial staff, using the additional information obtained with the passage of time, factor selections are updated, which in turn adjust the ultimate loss estimates and held IBNR reserves for the subset of the business and accident periods affected by such updates. The actuarial staff also performs various tests to estimate ultimate average severity and frequency of claims. Severity represents the average cost per claim and frequency represents the number of claims per auto or per policy. As an overall review, the staff then evaluates for reasonableness loss and LAE ratios by accident year by state, by product and by coverage.

Factors that can significantly affect actual frequency include, among others, changes in weather, driving patterns or trends and class of driver. Changes in claims settlement and reserving practices can affect estimates of average frequency and severity. Auto repair and medical cost inflation, jury awards and changes in policy limit profiles can affect loss severity. Estimation of LAE reserves is subject to variation from factors such as the use of outside adjusters, frequency of lawsuits, claims staffing and experience levels.

We believe that our relatively low average policy limit and concentration on the nonstandard auto driver classification generally help stabilize fluctuations in frequency and severity. For example, approximately 9092% of our policies include only the state-mandated minimum policy limits for bodily injury, which somewhat mitigates the challenge of estimating average severity. These low limits tend to reduce the exposure of the loss reserves on this coverage to medical cost inflation on severe injuries since the minimum policy limits will limit the total payout.

Ultimate loss estimates, excluding extra-contractual obligation (ECO) losses, usually experience the greatest adjustment within the first 12 to 18 months after the accident year. Accordingly, the highest degree of uncertainty is associated with reserves for the current accident year because the current accident year contains the greatest proportion of losses that have not been reported or settled, and we must estimate these elements as of the current reporting date. The proportion of losses with these characteristics typically diminishes in subsequent years.

As compared with loss and LAE reserves held at December 31, ~~2016~~2017, our best estimate of reserve ranges using indicated results from utilized estimates of loss and LAE could range from a deficiency of 8%, or $5455.65 million, to a redundancy of 119%, or $7159.49

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

million. These ranges do not present a forecast of future redundancy or deficiency since actual development of future losses on current loss reserves may vary materially from those estimated in the year-end ~~2016~~2017 reserve tests. Reserves recorded are our best estimate of the ultimate amounts that will be paid.

As noted above, the highest degree of uncertainty is associated with reserves in the first 12 to 18 months. The following table displays the accident year combined ratios developed through December 31, ~~2016~~2017, for the four most recent accident years along with the potential combined ratios based on the low and high outcomes of the loss and LAE tests utilized:

	Combined Ratios Developed Through
	December 31, 2016
	December 31, 2017
	Low		As Reported		High
Accident year
2013	94.4	%	94.8	%	95.2	%
2014	94.1	%	94.5	%	94.9	%
2014	93.6	%	94.4	%	94.8	%
2015	97.7	%	98.5	%	99.2	%
2015	96.9	%	98.3	%	99.3	%
2016	96.1	%	96.7	%	97.3	%
2016	96.2	%	98.4	%	100.3	%
2017	94.5	%	96.5	%	98.5	%

ECO losses represent estimates of losses incurred from actual or threatened litigation by claimants alleging improper handling of claims by us, which are commonly known as “bad faith” claims. Oftentimes, the onset of such litigation, subsequent discovery, settlement discussions, trial and appeal may occur several years after the date of the original claim. Because of the infrequent nature of such claims, we accrue a liability for each case based on the facts and circumstances in accordance with the Loss Contingency topic of the FASB Accounting Standards Codification, which requires that such loss be probable and estimable. As such, no reserve is permissible for IBNR for threatened litigation yet to occur on accidents with dates prior to the balance sheet date. Consequently, the effect of setting accruals for such items likely will result in unfavorable reserve development in the following reserve tables.

Calendar year losses incurred for ECOs, ~~gross and~~ net of reinsurance, over the past five ~~calendar~~ years have ranged from $1.1 million to $4.25 million, averaging $2.17 million per year. ~~Losses~~Calendar year losses incurred for ~~2016~~ECOs, ~~2015~~gross ~~and~~of ~~2014~~reinsurance, over the past five years have ~~been~~ranged from $1.1 million to $16.6 million, averaging $25.41 million per year. Net losses for 2017, 2016 and 2015 have been $4.5 million, $1.1 million and $2.4 million, respectively.

We find it useful to evaluate accident year loss and LAE ratios by calendar year to monitor reserve development. The following table presents, by accident year, loss and LAE ratios (including IBNR):

	Accident Year Loss and LAE Ratios Through Calendar Year End
	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
Accident year
2007	71.9	%	72.5	%	71.0	%	69.8	%	69.5	%	69.1	%	69.0	%	68.9	%	68.9	%	68.9	%
2008	73.5	%	71.9	%	69.9	%	69.6	%	69.4	%	69.2	%	69.0	%	69.0	%	68.9	%	68.9	%
2008			73.5	%	71.9	%	69.9	%	69.6	%	69.4	%	69.2	%	69.0	%	69.0	%	68.9	%
2009			74.2	%	71.0	%	71.0	%	70.7	%	70.4	%	70.4	%	70.5	%	70.5	%	70.7	%
2009					74.2	%	71.0	%	71.0	%	70.7	%	70.4	%	70.4	%	70.5	%	70.5	%
2010					75.1	%	76.7	%	76.8	%	76.9	%	76.5	%	76.7	%	76.6	%	76.6	%
2010							75.1	%	76.7	%	76.8	%	76.9	%	76.5	%	76.7	%	76.6	%
2011							74.9	%	77.3	%	77.6	%	77.4	%	77.5	%	77.1	%	77.2	%
2011									74.9	%	77.3	%	77.6	%	77.4	%	77.5	%	77.1	%
2012									78.2	%	78.7	%	79.0	%	79.0	%	78.5	%	78.3	%
2012											78.2	%	78.7	%	79.0	%	79.0	%	78.5	%
2013											77.9	%	77.0	%	75.6	%	75.0	%	75.0	%
2013													77.9	%	77.0	%	75.6	%	75.0	%
2014													76.9	%	75.8	%	74.8	%	75.0	%
2014															76.9	%	75.8	%	74.8	%
2015															79.1	%	79.7	%	79.8	%
2015																	79.1	%	79.7	%
2016																	80.5	%	78.8	%
2016																			80.5	%
2017																			78.2	%

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

The following table summarizes the effect on each calendar year of reserve re-estimates, net of reinsurance, for each of the accident years presented. The total of each column details the amount of reserve re-estimates made in the indicated calendar year and shows the accident years to which the re-estimates are applicable.

	Calendar Year Impact of Reserve Development by Accident Year(Favorable) Unfavorable Reserve Development
($ in millions)	~~2007~~2008			~~2008~~2009			~~2009~~2010			~~2010~~2011			~~2011~~2012			~~2012~~2013			~~2013~~2014			~~2014~~2015			~~2015~~2016			~~2016~~2017
Accident year
Prior	$	(1329.54	)	$	(3550.75	)	$	(3427.9	)	$	(157.61	)	$	(45.3	)	$	(1.49	)	$	(01.48	)	$	(10.12	)	$	(0.05	)	$	0.31
2007				6.3			(15.6		)	(12.3		)	(2.8		)	(3.9		)	(1.5		)	(0.7		)	(0.2		)	0.2
2008				(14.8		)	(18.6		)	(2.8		)	(1.6		)	(2.0		)	(1.6		)	(0.7		)	(0.2		)	0.1
2008							(14.8		)	(18.6		)	(2.8		)	(1.6		)	(2.0		)	(1.6		)	(0.7		)	(0.2		)
2009							(27.5		)	0.1			(2.6		)	(3.0		)	0.8			0.3			0.3			1.7
2009										(27.5		)	0.1			(2.6		)	(3.0		)	0.8			0.3			0.3
2010										14.3			1.1			0.5			(3.4		)	1.8			(1.4		)	0.7
2010													14.3			1.1			0.5			(3.4		)	1.8			(1.4		)
2011													24.7			2.8			(2.0		)	0.9			(3.3		)	0.6
2011																24.7			2.8			(2.0		)	0.9			(3.3		)
2012																6.4			2.5			0.1			(5.3		)	(2.5		)
2012																			6.4			2.5			0.1			(5.3		)
2013																			(11.9		)	(17.1		)	(9.1		)	0.1
2013																						(11.9		)	(17.1		)	(9.1		)
2014																						(14.0		)	(13.1		)	2.3
2014																									(14.0		)	(13.1		)
2015																									7.7			2.2
2015																												7.7
2016																												(23.9		)
Total	$	(1329.54	)	$	(2965.4	)	$	(6573.49	)	$	~~(73~~4.95	)	$	416.52		$	~~16.~~2.9		$	2(17.94	)	$	(1728.49	)	$	(2824.90	)	$	(2418.05	)

The $2418.05 million favorable reserve development during the twelve months ended December 31, ~~2016~~2017, was primarily due to decreases in ultimate frequency and severity estimates infrom ~~Florida~~the bodily injury and ~~personal~~material ~~injury~~damage ~~protection~~ coverages ~~related~~in toCalifornia for accident ~~years~~year ~~2015~~2016 and ~~prior,~~decreases ~~partially~~in ~~offset~~ultimate byfrequency ~~increases~~and in severity estimates infrom ~~California~~ material damage ~~and~~coverages ~~bodily~~along ~~injury~~with ~~coverages~~decreases asin ~~well~~severity asestimates from uninsured motorist bodily injury ~~coverages~~coverage in ~~our~~Florida ~~commercial~~for ~~vehicle~~accident ~~product,~~year ~~all~~2016. ~~related~~This tofavorable ~~accident~~development ~~year~~was ~~2015~~partially offset by increases in ultimate severity estimates in bodily injury coverages in our commercial auto product.

The $24.0 million favorable reserve development during the twelve months ended December 31, 2016, was primarily due to decreases in severity estimates in Florida bodily injury and personal injury protection coverages related to accident years 2015 and prior, partially offset by increases in severity estimates in California material damage and bodily injury coverages as well as bodily injury coverages in our commercial auto product, all related to accident year 2015.

The $28.9 million favorable reserve development during the twelve months ended December 31, 2015, was primarily due to decreases in severity estimates in Florida bodily injury coverages and California bodily injury loss adjustment expense estimates, all related to accident years 2013 and 2014.

The $17.4 million favorable reserve development during the twelve months ended December 31, 2014, was primarily due to decreases in California property damage severity estimates and in both severity and frequency estimates in Florida bodily injury coverages, all related to accident year 2013.

Other-than-Temporary Losses on Investments

The determination of whether unrealized losses on investments 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 our investment portfolio for potential impairment by evaluating 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. Since accurately predicting if or when a specific security will become other-than-temporarily impaired is not possible, total impairment charges could be material to the results of operations in a future period.

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impaired but we do not intend to and are not more than likely to be required to sell the security before our recovery to amortized cost, the amount of the impairment is separated 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 (i) the effective interest rate implicit at the date of acquisition for non-structured securities; or (ii) 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, the entire amount of the impairment is treated as a credit loss.

Accruals for Litigation

We continually evaluate potential liabilities and reserves for litigation using the criteria established by the Loss Contingency topic of the FASB Accounting Standards Codification. Under this guidance, we may only record reserves for loss if the likelihood of occurrence is probable and the amount is reasonably estimable. We consider each legal action and record reserves for losses in accordance with this guidance. We believe the current assumptions and other considerations used to estimate potential liability for litigation are appropriate. Certain claims and legal actions have been brought against us for which, under the rules described above, no loss has been accrued. While it is not possible to know with certainty the ultimate outcome of these claims or lawsuits, we do not expect them to have a material effect on our financial condition or liquidity. Refer to Note 13 – Legal and Regulatory Proceedings to the Consolidated Financial Statements for a discussion of our material legal proceedings.

Goodwill

In accordance with the Goodwill topic of the FASB Accounting Standards Codification, we perform impairment test procedures for goodwill on an annual basis. These procedures require us to calculate the fair value of goodwill, compare the result to our carrying value and record the amount of any shortfall as an impairment charge.

We performed this test as of October 1, ~~2016~~2017, using a variety of methods, including estimates of future discounted cash flows and comparisons of our market value to that of our major competitors. Our cash flow projections rely on assumptions that are subject to uncertainty, including premium growth, loss and LAE ratios, interest rates and capital requirements.

The October 1, ~~2016~~2017, test results indicated that the fair value of our goodwill exceeded our carrying value and therefore no impairment charge was required at that date. Additionally, there was no indication of impairment at December 31, ~~2016~~2017.

Liquidity and Capital Resources

Ratios

The National Association of Insurance Commissioners’ (NAIC) model law for risk-based capital (RBC) provides formulas to determine the amount of capital that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired. At December 31, ~~2016~~2017, the capital ratios of all our insurance subsidiaries exceeded the RBC requirements.

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 come primarily from dividends and tax payments from the insurance subsidiaries as well as cash and investments held by the holding company. The ordinary dividend capacity and total payment activity, including extraordinary dividends, of our insurance companies for the two most recent years, as well as the dividend capacity for the upcoming year, are shown in the following table ($ in thousands):

	2017		2016		2015
	2018		2017		2016
Maximum ordinary dividends available to Infinity	$	5967,~~343~~863	$	59,~~623~~343	$	6859,~~143~~623
Dividends paid from subsidiaries to parent	N/A		6066,000		6860,~~450~~000

As of December 31, ~~2016~~2017, the holding company had $~~156~~171.50 million of cash and investments. In ~~2017~~2018, our insurance subsidiaries may pay us up to $5967.39 million in ordinary dividends without prior regulatory approval. Rating agency capital requirements, among other factors, will be considered when determining the actual amount of dividends paid in ~~2017~~2018.

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

Our insurance subsidiaries generate liquidity to satisfy their obligations, primarily by collecting and investing premiums 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 approximately $~~114~~134.02 million in ~~2016~~2017, $80114.20 million in ~~2015~~2016 and $~~117~~80.92 million in ~~2014~~2015.

At December 31, ~~2016~~2017, we had $275 million principal outstanding of 5.0% senior notes due September 2022 (the "5.0% Senior Notes"). The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually each March and September. Refer to Note 4 – Long-Term Debt to the Consolidated Financial Statements for more information on our long-term debt.

In August ~~2014~~2017 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, and as of December 31, ~~2016~~2017, there were no borrowings outstanding against it.

On February 29, 2016, we filed a "shelf" registration statement with the Securities and Exchange Commission registering securities, and as long as it remains effective, it will allow us to sell any combination of senior or subordinated debt securities, common stock, preferred stock, warrants, depositary shares, purchase contracts and units in one or more offerings should we choose to do so in the future. This shelf registration statement expires March 1, 2019.

Uses of Funds

InOur ~~February 2017 we increased our~~ quarterly dividend tois currently $0.58 per share ~~from $0~~.52 ~~per share.~~ At this current amount, our ~~2017~~2018 annualized dividend payments will be approximately $25.64 million.

Our Board of Directors previously authorized a share and debt repurchase program. On November 4, 2014, our Board of Directors increased the authority to a total of $75 million and extended the date to execute the program ~~from~~to December 31, ~~2014~~2016, tofrom December 31, ~~2016~~2014. On November 1, 2016, our Board approved the extension of the date to execute the program from December 31, 2016, to December 31, 2017, and on November 2, 2017, approved an extension to December 31, 2018. During ~~2016~~2017 we repurchased ~~131~~133,~~829~~306 shares at an average cost, excluding commissions, of $7992.4154 per share. As of December 31, ~~2016~~2017, we had $3422.95 million of authority remaining under this program.

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.

Contractual Obligations

Our contractual obligations and those of our insurance subsidiaries as of December 31, ~~2016~~2017, were ($ in thousands):

Due in	Long-Term Debt & Interest		Operating Leases		Capital Leases		Loss and LAEReserves (a)		Post-retirement Benefit Payments (b)		Total
2017	$	13,750	$	4,542	$	722	$	426,509	$	295	$	445,818
2018	$	13,750	$	4,218	$	717	$	427,913	$	266	$	446,864
2018 - 2019	27,500		6,278		1,409		190,922		576		226,685
2019 - 2020	27,500		4,919		1,037		216,065		559		250,080
2020 - 2021	27,500		3,315		535		40,120		564		72,034
2021 - 2022	302,500		2,809		202		43,628		567		349,706
2022 and after	288,750		1,225		0		27,903		1,549		319,427
2023 and after	0		523		0		27,492		1,627		29,642
Total	$	~~357~~343,~~500~~750	$	1512,~~360~~469	$	21,~~666~~956	$	~~685~~715,~~455~~098	$	23,~~983~~020	$	1,~~063~~076,~~964~~293

________________


(a)	We base the payout pattern for reserves for losses and LAE upon historical payment patterns and they do not represent actual contractual obligations. The timing and amounts ultimately paid will vary from these estimates, as discussed above under Critical Accounting Policies and in Note 1 – Significant Reporting and Accounting Policies to the Consolidated Financial Statements.


(b)	The payments for post-retirement benefits do not represent actual contractual obligations. The payments presented represent the best estimate of future contributions.

~~Investments~~ 18

General

Our Investment Committee, which is composed exclusively of independent directors, has approved our investment guidelines. The guidelines specifically address overall investment objectives, permissible assets, prohibited assets, permitted exceptions to the guidelines and credit quality.

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

Investments

General

We engage three unaffiliated money managers for our fixed income portfolio and we own a Vanguard exchange-traded fund designed to track the FTSE Global All Cap Index for our equity portfolio. The investment managers conduct, in accordance with our investment guidelines, all of our investment purchases and sales. Our Chief Financial Officer and the Investment Committee, at least quarterly, review the performance of the money managers and compliance with our investment guidelines. National banks unaffiliated with the money managers maintain physical custody of securities.

Our consolidated investment portfolio at December 31, ~~2016~~2017, contained $1.4 billion in fixed maturity securities, $9096.60 million in equity securities and $2.95 million of short-term investments, all 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 December 31, ~~2016~~2017, we had pre-tax net unrealized ~~losses~~gains of $21.52 million on fixed maturities and pre-tax net unrealized gains of $1327.62 million on equity securities. Combined, the pre-tax net unrealized gain increased by $017.13 million for the twelve months ended December 31, ~~2016~~2017.

Approximately 9190.35% of our fixed maturity portfolio at December 31, ~~2016~~2017, was rated “investment grade” (credit rating of AAA to BBB) by nationally recognized rating agencies. The average credit rating of our fixed maturity portfolio was AA- at December 31, ~~2016~~2017. Investment grade securities generally bear lower yields and 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 stable and predictable investment returns.

Because we carry all of these securities at fair value in the Consolidated Balance Sheets, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses. The average duration of our fixed maturity portfolio was 3.3 years at December 31, ~~2016~~2017.

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.

A third party nationally recognized pricing service provides the fair value of securities in Level 2. We periodically review the third party pricing methodologies used by our primary independent pricing service to verify that prices are determined in accordance with fair value guidance in U.S. GAAP, including the use of observable market inputs, and to ensure that assets are properly classified in the fair value hierarchy.

Further, for all Level 2 securities, we compare the market price from the primary independent third party pricing service that is used to value the security with market prices from recent sales activity or, for those securities with no recent sales activity, with prices from another independent third party pricing service or non-binding broker quotes. This comparison is performed in order to determine if the price obtained from the primary independent pricing service is a reasonable price to use in our financial statements. We made no adjustments to the prices obtained from the primary independent pricing service as a result of this comparison.

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

Summarized information for our investment portfolio at December 31, ~~2016~~2017, follows ($ in thousands):

	AmortizedCost		FairValue		% ofTotal FairValue
Fixed maturities:
U.S. government	$	6261,~~808~~196	$	6260,~~485~~528	43.29	%
State and municipal	~~477~~492,~~834~~442		~~476~~494,~~331~~211		32.1	%
Mortgage- and asset-backed:
Residential mortgage-backed securities	~~343~~353,~~095~~277		~~340~~350,~~367~~992		22.98	%
Commercial mortgage-backed securities	7031,~~676~~204		6930,~~801~~569		42.70	%
Asset-backed securities (ABS):
Auto loans	2529,~~636~~450		2529,~~671~~362		1.79	%
Equipment leases	7,589		7,610		0.5	%
Credit card	22,593		22,551		1.5	%
All other	4,337		4,327		0.3	%
Equipment leases	4,961		4,958		0.3	%
Total ABS	37,562		37,608		2.5	%
All other	5,548		5,548		0.4	%
Total mortgage- and asset-backed	451,333		447,776		30.2	%
Total ABS	62,552		62,418		4.1	%
Total mortgage- and asset-backed	447,032		443,979		28.8	%
Corporates
Investment grade	~~286~~308,~~496~~515		~~286~~309,~~983~~403		1920.31	%
Non-investment grade	~~114~~130,~~189~~693		~~116~~132,~~592~~986		78.96	%
Total corporates	~~400~~439,~~685~~208		~~403~~442,~~575~~390		2728.27	%
Total fixed maturities	1,~~392~~439,~~660~~878		1,~~390~~441,~~167~~107		93.76	%
Equity securities	7768,~~013~~812		9096,~~640~~004		6.12	%
Short-term investments	2,~~909~~541		2,~~907~~541		0.2	%
Total investment portfolio	$	1,~~472~~511,~~582~~232	$	1,~~483~~539,~~714~~653	100.0	%

The following table presents the returns, gross of investment expenses, of our investment portfolios based on quarterly investment balances as reflected in the financial statements, excluding equities invested in a rabbi trust:

	Twelve months ended December 31,
	2016		2015		2014
	2017		2016		2015
Return on fixed income securities:
Excluding realized gains and losses	2.6	%	2.6	%	2.56	%
Including realized gains and losses	2.64	%	2.76	%	2.87	%
Return on equity securities:
Excluding realized gains and losses	2.9	%	2.89	%	32.08	%
Including realized gains and losses	610.65	%	56.46	%	45.74	%
Return on all investments:
Excluding realized gains and losses	2.5	%	2.5	%	2.45	%
Including realized gains and losses	2.7	%	2.7	%	2.7	%

Receivable for Securities Sold

The $1.7 million and $0.8 million ~~balance~~balances in receivable for securities sold at December 31, 2017, and December 31, 2016, respectively, represents fixed income securities sold in the normal course of business that had not settled prior to the end of ~~the~~their ~~year~~respective years.

~~Payable~~ ~~for Securities Purchased~~20

The $13.9 million and $7.3 million balances in payable for securities purchased at December 31, 2016, and December 31, 2015, respectively, represent fixed income securities and treasury stock purchased in the normal course of business that had not settled prior to the end of their respective years.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

Payable for Securities Purchased

The $5.6 million and $13.9 million balances in payable for securities purchased at December 31, 2017, and December 31, 2016, respectively, represent fixed income securities and treasury stock purchased in the normal course of business that had not settled prior to the end of their respective years.

Exposure to Market Risk

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Our exposures to market risk relate principally to our investment portfolio, which is exposed primarily to interest rate risk and credit risk and, to a lesser extent, equity price risk.

Our fixed maturity portfolio is comprised of substantially all fixed rate investments with primarily short-term and intermediate-term maturities. We strive to maintain a "laddered" portfolio, with maturities and prepaid principal spread across the maturity spectrum. This portfolio composition allows flexibility in reacting to fluctuations of interest rates. In addition, higher market rates available for new funds available for investment partially mitigate the risk of loss in fair value. We manage the portfolios of our insurance companies to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations.

Interest Rate Risk

The fair values of our fixed maturity investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in fair values of those instruments. Additionally, the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions may affect fair values of interest rate sensitive instruments.

The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates resulting from parallel shifts in market yield curves on our fixed maturity portfolio and long-term debt. We assume that we will realize the effects immediately upon the change in interest rates. The hypothetical changes in market interest rates do not reflect best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table.

($ in thousands)	Sensitivity to Instantaneous Interest Rate Changes (basis points)
	(200)		(100)		(50)		—		50		100		200
Fair value of fixed maturity portfolio	$	1,~~478~~533,~~379~~583	$	1,~~436~~488,~~286~~956	$	1,~~413~~465,~~256~~047	$	1,~~390~~441,~~167~~107	$	1,~~367~~417,~~055~~139	$	1,~~343~~393,~~920~~141	$	1,~~297~~345,~~584~~059
Fair value of long-term debt	~~307~~316,~~900~~513		~~292~~303,~~887~~348		~~285~~297,~~703~~008		~~278~~290,~~726~~824		~~271~~284,~~949~~790		~~265~~278,~~366~~904		~~252~~267,~~757~~557

~~The~~ following table provides information about our fixed maturity investments at December 31, 2016, 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. Mortgage-Backed Securities (MBS) and sinking fund issues are included based on maturity year adjusted for expected payment patterns. 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 below.21

	Expected Principal Cash Flows
($ in thousands)	MBS andABS only		Excluding MBS and ABS		Total		Maturing Book Yield
For the twelve months ending December 31,
2017	$	79,752	$	136,866	$	216,618	2.2
2018	53,338		142,133		195,472		2.2
2019	43,277		186,020		229,297		2.1
2020	35,692		156,590		192,282		2.6
2021	27,851		115,370		143,221		2.7
Thereafter	194,136		155,010		349,145		2.8
Total	$	434,046	$	891,989	$	1,326,035	2.4

Credit Risk

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

~~government-sponsored~~The ~~entities~~following table provides information about our fixed maturity investments at December 31, is2017, ~~$16.2~~which ~~million~~are orsensitive 1to interest rate risk.2% The table shows expected principal cash flows by expected maturity date for each of the ~~fixed~~five ~~income~~subsequent ~~investment~~years ~~portfolio,~~and collectively for all years thereafter. Callable bonds and ~~the~~notes ~~top~~are ~~five~~included ~~investments~~based ~~make~~on upcall ~~4.5%~~date ofor maturity date depending upon which date produces the ~~fixed~~most ~~income~~conservative ~~portfolio~~yield. ~~All~~Mortgage-Backed ofSecurities ~~the~~(MBS) ~~fixed~~and ~~maturities~~sinking ~~owned~~fund atissues ~~December~~are included based on maturity year adjusted for expected payment patterns. The cash flows presented take into consideration historical relationships of market yields and prepayment rates. 31However, ~~2016,~~the ~~were~~actual ~~producing~~prepayment ~~their~~rate ~~stated~~may ~~rate~~differ offrom ~~investment~~historical ~~income~~trends resulting in actual principal cash flows that differ from those presented below.



	Expected Principal Cash Flows
($ in thousands)	MBS and ABS only		Excluding MBS and ABS		Total		Maturing Book Yield
For the twelve months ending December 31,
2018	$	53,241	$	95,915	$	149,155	2.4
2019	51,874		197,042		248,916		2.3
2020	54,011		198,579		252,590		2.5
2021	42,207		139,544		181,751		2.7
2022	44,766		159,758		204,524		2.6
Thereafter	186,212		151,217		337,429		2.9
Total	$	432,310	$	942,056	$	1,374,365	2.6

Credit Risk

We manage credit risk by diversifying our portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings. The largest investment in any one issuer, excluding the U.S. Government or government-sponsored entities, is $13.2 million or 0.9% of the fixed income investment portfolio, and the top five investments make up 3.9% of the fixed income portfolio. All of the fixed maturities owned at December 31, 2017, were producing their stated rate of investment income.

We categorize securities by rating based upon available ratings issued by Moody's, Standard & Poor's or Fitch. 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 December 31, ~~2016~~2017, ($ in thousands):

	Rating
	AAA			AA			A			BBB			Non-investmentGrade			Total Fair Value			% ofTotalExposure
U.S. government	$	6260,~~485~~528		$	0		$	0		$	0		$	0		$	6260,~~485~~528		4.52	%
State and municipal	~~132~~143,~~058~~597			~~259~~261,~~117~~000			8186,~~297~~126			0			3,~~860~~488			~~476~~494,~~331~~211			34.3	%
Mortgage- and asset-backed	~~426~~424,~~893~~015			1610,~~468~~355			16,~~314~~128			3,~~101~~481			0			~~447~~443,~~776~~979			3230.28	%
Corporates	01,695			3124,~~942~~399			~~135~~154,~~233~~782			~~119~~128,~~808~~527			~~116~~132,~~592~~986			~~403~~442,~~575~~390			2930.07	%
Total fair value	$	~~621~~629,~~436~~835		$	~~307~~295,~~527~~754		$	~~217~~247,~~844~~037		$	~~122~~132,~~909~~007		$	~~120~~136,~~452~~474		$	1,~~390~~441,~~167~~107		100.0	%
% of total fair value	4443.7		%	2220.15		%	1517.71		%	89.82		%	89.75		%	100.0		%

Equity Price Risk

Equity price risk is the potential economic loss from adverse changes in equity security prices. Our exposure to equity price risk is limited, as our equity investments comprise only 6.12% of our total investment portfolio. At December 31, ~~2016~~2017, the fair value of our equity portfolio was $9096.60 million.

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

Results of Operations

Underwriting

Premium

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

	Twelve months ended December 31,
	2017			2016			Change			% Change
Gross written premium:
Personal Auto	1,217,384			1,240,037			(22,653		)	(1.8	)%
Commercial Auto	163,389			145,272			18,117			12.5	%
Classic Collector	16,520			16,105			415			2.6	%
Total gross written premium	1,397,294			1,401,414			(4,121		)	(0.3	)%
Ceded reinsurance	(10,441		)	(8,955		)	(1,486		)	16.6	%
Net written premium	1,386,853			1,392,459			(5,606		)	(0.4	)%
Change in unearned premium	(15,517		)	(795		)	(14,722		)	NM
Net earned premium	$	1,371,336		$	1,391,664		$	(20,328	)	(1.5	)%
	Twelve months ended December 31,
	2016			2015			Change			% Change
Gross written premium:
Personal Auto	1,240,037			1,246,492			(6,455		)	(0.5	)%
Commercial Vehicle	145,272			126,036			19,237			15.3	%
Commercial Auto	145,272			126,036			19,237			15.3	%
Classic Collector	16,105			15,339			766			5.0	%
Total gross written premium	1,401,414			1,387,866			13,548			1.0	%
Ceded reinsurance	(8,955		)	(14,579		)	5,624			(38.6	)%
Net written premium	1,392,459			1,373,287			19,172			1.4	%
Change in unearned premium	(795		)	(26,723		)	25,928			(97.0	)%
Net earned premium	$	1,391,664		$	1,346,564		$	45,100		3.3	%
	Twelve months ended December 31,
	2015			2014			Change			% Change
Gross written premium:
Personal Auto	1,246,492			1,237,774			8,718			0.7	%
Commercial Vehicle	126,036			108,640			17,395			16.0	%
Classic Collector	15,339			14,456			883			6.1	%
Total gross written premium	1,387,866			1,360,870			26,996			2.0	%
Ceded reinsurance	(14,579		)	(13,266		)	(1,313		)	9.9	%
Net written premium	1,373,287			1,347,604			25,683			1.9	%
Change in unearned premium	(26,723		)	(21,669		)	(5,054		)	23.3	%
Net earned premium	$	1,346,564		$	1,325,935		$	20,629		1.6	%

NM = Not Meaningful

The following table summarizes our policies in force:

	At December 31,
	2017	2016	Change		% Change
Personal Auto	683,802	705,242	(21,440	)	(3.0	)%
Commercial Auto	56,818	52,340	4,478		8.6	%
Classic Collector	41,118	41,473	(355	)	(0.9	)%
Total policies in force	781,738	799,055	(17,317	)	(2.2	)%
	At December 31,
	2016	2015	Change		% Change
Personal Auto	705,242	766,858	(61,616	)	(8.0	)%
Commercial Vehicle	52,340	48,955	3,385		6.9	%
Commercial Auto	52,340	48,955	3,385		6.9	%
Classic Collector	41,473	41,178	295		0.7	%
Total policies in force	799,055	856,991	(57,936	)	(6.8	)%
	At December 31,
	2015	2014	Change		% Change
Personal Auto	766,858	801,024	(34,166	)	(4.3	)%
Commercial Vehicle	48,955	44,772	4,183		9.3	%
Classic Collector	41,178	40,825	353		0.9	%
Total policies in force	856,991	886,621	(29,630	)	(3.3	)%

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

2017 compared to 2016

It is our policy to close our policy and claim systems on the last Friday of the month, which resulted in 2016 being a 53-week year. Excluding the impact of this extra week, gross written premium in 2017 would have increased 1.0%.

We implemented rate revisions in various states with an overall rate increase of 8.9% during 2017. Policies in force at December 31, 2017, decreased 2.2% compared with the same period of 2016.

The decrease in Personal Auto gross written premium was primarily due to premium adjustments in California of $22.2 million during the first six months of 2017. Refer to Note 13 - Legal and Regulatory Proceedings for a more detailed discussion of the premium adjustments. Excluding the premium adjustments, gross written premium increased 1.3% during 2017 driven by growth in Texas, Arizona and Commercial Auto, partially offset by reductions in new business in Florida and renewal business in California. Growth in Texas was primarily due to new and renewal business growth and higher average premiums. Growth in Arizona was primarily due to new business growth and higher average premiums.

The gross written premium growth in our Commercial Auto product was primarily due to new and renewal business growth and higher average premiums.

2016 compared to 2015

ItWe isimplemented ~~our~~rate ~~policy~~revisions toin ~~close~~various ~~the~~states ~~books~~with onan ~~the~~overall ~~last~~rate ~~Friday~~increase of ~~the~~8.6% ~~month,~~during ~~which~~2016. ~~resulted~~Policies in force at December 31, 2016, ~~being~~decreased a6.8% ~~53-week~~compared ~~year~~with the same period of 2015. Excluding the impact of ~~this~~the extra week in 2016, gross written premium would have decreased 0.3% for the year.

We implemented rate revisions in various states with an overall rate increase of 8.6% during 2016. Policies in force at December 31, 2016, decreased 6.8% compared with the same period of 2015.

The decrease in Personal Auto gross written premium was primarily due to a decline in Florida in response to rate increases totaling 12.8% implemented throughout the year as well as lower premium in states where we are running off business. This decrease was partially offset by growth in Texas, which grew 63.2% compared with the prior year.

The gross written premium growth in our Commercial ~~Vehicle~~Auto product was primarily due to renewal business growth and higher average premiums in California and Texas.

2015 compared to 2014

We implemented rate revisions in various states with an overall rate increase of 5.4% during 2015. Gross written premium grew despite the decline in policies in force primarily due to an increase in average premiums per policy.

The increase in Personal Auto gross written premium was primarily due to growth in California, which grew 9.4%, compared with the prior year. California's premium growth, most of which occurred during the first half of 2015, was primarily due to an increase in both new and renewal business as a result of an improving economy and higher average written premiums. The growth in California was partially offset by declining gross written premium in Georgia, Nevada and Pennsylvania as we discontinued writing new business effective January 1, 2015.

The gross written premium growth in our Commercial Vehicle product was primarily due to renewal business growth and higher average premiums.

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.

In addition to reporting financial results in accordance with GAAP, we report results 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 successfully 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 discussion of underwriting results that follows focuses on statutory ratios and the components thereof, unless otherwise indicated.

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

The following tables present statutory and GAAP combined ratios:

	Twelve months ended December 31,
	2016					2015					% Point Change
	2017					2016					% 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	7876.96	%	16.03%	9493.90	%	7678.79	%	16.80%	9394.69	%	(2.23	)%	(0.9)4%	(1.39	)%
Commercial Vehicle	81.6	%	16.9%	98.5	%	85.0	%	16.2%	101.3	%	(3.5	)%	0.7%	(2.8	)%
Commercial Auto	82.0	%	16.0%	98.0	%	81.6	%	16.9%	98.5	%	0.4	%	(0.9)%	(0.5	)%
Classic Collector	62.17	%	3235.85%	9498.92	%	5262.1	%	2932.08%	8194.19	%	~~10.~~0.6	%	32.87%	133.83	%
Total statutory ratios	7977.01	%	16.35%	9593.36	%	7779.10	%	16.93%	9495.03	%	(1.9	)%	(0.7)3%	(1.27	)%
Total statutory ratios excluding development	8078.74	%	16.35%	9795.0	%	7980.27	%	16.93%	9697.20	%	1(2.53	)%	(0.7)3%	0(2.80	)%
GAAP ratios	7876.8	%	1718.93%	9695.72	%	7678.98	%	1817.79%	9596.67	%	1(2.90	)%	(0.8)5%	(1.15	)%
GAAP ratios excluding development	8078.52	%	1718.93%	9896.45	%	7980.15	%	1817.79%	9798.84	%	1(2.43	)%	(0.8)5%	0(1.79	)%

	Twelve months ended December 31,
	2015					2014					% Point Change
	2016					2015					% Point Change
	Loss &LAERatio		UnderwritingRatio	CombinedRatio		Loss &LAERatio		UnderwritingRatio	CombinedRatio		Loss &LAERatio		UnderwritingRatio	CombinedRatio
Personal Auto	7678.79	%	16.80%	9394.69	%	76.87	%	1716.8%	9493.56	%	(02.12	)%	(0.9)%	(1.03	)%
Commercial Vehicle	85.0	%	16.2%	101.3	%	63.7	%	17.4%	81.1	%	21.3	%	(1.2)%	20.2	%
Commercial Auto	81.6	%	16.9%	98.5	%	85.0	%	16.2%	101.3	%	(3.5	)%	0.7%	(2.8	)%
Classic Collector	5262.1	%	2932.08%	8194.19	%	6252.71	%	3229.50%	9581.21	%	(10.60	)%	(3.5)8%	~~(14~~13.08	)%
Total statutory ratios	7779.10	%	16.93%	9495.03	%	7577.71	%	1716.9%	9394.60	%	1.49	%	(1.0.7)%	01.52	%
Total statutory ratiosexcluding development	7980.27	%	16.93%	9697.20	%	7779.02	%	1716.9%	9496.92	%	21.35	%	(1.0.7)%	10.38	%
GAAP ratios	7678.98	%	1817.79%	9596.67	%	7576.59	%	1918.67%	95.16	%	1.49	%	(0.98)%	01.51	%
GAAP ratios excluding development	7980.15	%	1817.79%	9798.84	%	7679.91	%	1918.67%	9697.48	%	21.24	%	(0.98)%	10.37	%

2017 compared to 2016

During 2017, adjustments were made to written and earned premium as a result of premium returned to policyholders in California. Refer to Note 13 - Legal and Regulatory Proceedings for a more detailed discussion of the premium adjustments. For the twelve months ended December 31, 2017, written and earned premiums were reduced by $22.1 million and $16.2 million, respectively. Excluding the adjustments, the statutory combined ratio for the twelve months ended December 31, 2017, would have been 92.5%. The GAAP combined ratio for the same period would have been 94.0%.

The statutory combined ratio for the twelve months ended December 31, 2017, decreased by 1.7 points from the same period of 2016. The twelve months ended December 31, 2017, included $18.5 million of favorable development on prior year loss and LAE reserves compared with $24.0 million of favorable development on prior year loss and LAE reserves in 2016. Excluding the effect of development from both periods, the statutory combined ratio decreased by 2.0 points for the twelve months ended December 31, 2017, compared with 2016.

The GAAP combined ratio for the twelve months ended December 31, 2017, decreased by 1.5 points compared with the same period of 2016. Excluding the effect of development from both periods, the GAAP combined ratio decreased by 1.9 points for the twelve months ended December 31, 2017, compared with 2016.

Losses from catastrophes totaled $17.4 million during 2017, compared with $6.9 million in 2016.

The 1.9 points decline in the Personal Auto combined ratio for the twelve months ended December 31, 2017, was primarily due to improving loss cost trends during 2017 in both Florida and California resulting in lower loss ratios in these states.

The 0.5 point decline in the Commercial Auto product combined ratio during the twelve months ended December 31, 2017, was primarily due to an improvement in the underwriting expense ratio as a result of lower average commission ratios.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

2016 compared to 2015

The statutory combined ratio for the twelve months ended December 31, 2016, increased by 1.2 points from the same period of 2015. The twelve months ended December 31, 2016, included $24.0 million of favorable development on prior year loss and LAE reserves compared with $28.9 million of favorable development on prior year loss and LAE reserves in 2015. Excluding the effect of development from both periods, the statutory combined ratio increased by 0.8 point for the twelve months ended December 31, 2016, compared with 2015.

The GAAP combined ratio for the twelve months ended December 31, 2016, increased by 1.1 points compared with the same period of 2015. Excluding the effect of development from both periods, the GAAP combined ratio increased by 0.7 point for the twelve months ended December 31, 2016, compared with 2015.

Losses from catastrophes totaled $6.9 million during 2016, compared with $1.8 million in 2015.

The 1.3 points increase in the Personal Auto combined ratio for the twelve months ended December 31, 2016, was primarily due to a deterioration in the California calendar year loss and LAE ratio as a result of increases in severity estimates in the material damage and bodily injury coverages from accident year 2015.

The 2.8 points decline in the Commercial ~~Vehicle~~Auto product combined ratio during the twelve months ended December 31, 2016, was due to an improvement in the current accident year loss and LAE ratio primarily due to an increase in average earned premium.

2015 compared to 2014

The statutory combined ratio for the twelve months ended December 31, 2015, increased by 0.5 point from the same period of 2014. The twelve months ended December 31, 2015, included $28.9 million of favorable development on prior year loss and LAE reserves compared with $17.4 million of favorable development on prior year loss and LAE reserves in 2014. Excluding the effect

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

of development from both periods, the statutory combined ratio increased by 1.3 points for the twelve months ended December 31, 2015, compared with 2014.

The GAAP combined ratio for the twelve months ended December 31, 2015, increased by 0.5 point compared with 2014. Excluding the effect of development from both periods, the GAAP combined ratio increased by 1.3 points for the twelve months ended December 31, 2015, compared with 2014.

Losses from catastrophes totaled $1.8 million during 2015, compared with $2.5 million in 2014.

The 1.0 point decline in the Personal Auto combined ratio for the twelve months ended December 31, 2015, was primarily due to an increase in net written premium, resulting in a reduction of the underwriting ratio.

The 20.2 points increase in the Commercial Vehicle product combined ratio during the twelve months ended December 31, 2015, was primarily due to increases in both frequency and severity, resulting in higher new business loss ratios in 2015, particularly in Florida, as well as favorable development on loss and LAE reserves recognized in the twelve months ended December 31, 2014.

Installment and Other Fee Income

	Twelve months ended December 31,
($ in thousands)	~~2016~~2017		~~2015~~2016		~~2014~~2015
Installment and other fee income	$	~~107~~105,~~361~~764	$	96107,~~753~~361	$	9596,~~242~~753

The decrease in installment and other fee income charged to policyholders during 2017 was primarily related to a decrease in processing and late fees as a result of a reduction in business in California partially offset by increases in installment and policy fees. The increase in installment and other fee income charged to policyholders during 2016 was primarily related to an increase in processing fees.

Net Investment Income

Investment income primarily includes gross investment revenue net of investment management fees and any changes reflect fluctuations in market rates and average invested assets as shown in the following table ($ in thousands):

	Twelve months ended December 31,
	2016			2015			2014
	2017			2016			2015
Gross investment income:
Interest income on fixed maturities, cash and cash equivalents	$	3537,~~528~~301		$	3635,~~871~~528		$	3536,~~596~~871
Dividends on equity securities	2,~~231~~174			2,~~194~~231			2,~~245~~194
Gross investment income	3739,~~759~~476			3937,~~065~~759			3739,~~841~~065
Investment expenses	(2,~~222~~213		)	(2,~~265~~222		)	(2,~~211~~265		)
Net investment income	$	3537,~~537~~262		$	3635,~~800~~537		$	3536,~~629~~800
Average investment balance, at cost	$	1,~~510~~549,~~122~~325		$	1,~~555~~510,~~808~~122		$	1,~~563~~555,~~028~~808
Annualized returns excluding realized gains and losses	2.4		%	2.4		%	2.34		%
Annualized returns including realized gains and losses	2.65		%	2.56		%	2.65		%

Pre-tax 25net investment income declined from $36.8 million in 2015 to $35.5 million in 2016 primarily due to a decline of $0.9

million in make whole proceeds and a decrease in book yield caused by continued low reinvestment yields.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

Net Realized Gains on Investments

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

Twelve months ended December 31, 2016	Net Realized Gains (Losses) on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Gains (Losses) on Investments
Twelve months ended December 31, 2017	Net Realized (Losses) Gains on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized (Losses) Gains on Investments
Fixed maturities	$	(160	)	$	(3,116	)	$	(3,276	)
Equity securities	5,501			0			5,501
Short-term investments	1			(7		)	(5		)
Total	$	5,343		$	(3,123	)	$	2,220
Twelve months ended December 31, 2016
Fixed maturities	$	671		$	(375	)	$	296
Equity securities	2,851			0			2,851
Short-term investments	(3		)	0			(3		)
Total	$	3,519		$	(375	)	$	3,145
Twelve months ended December 31, 2015
Fixed maturities	$	2,064		$	(1,294	)	$	770
Equity securities	2,039			0			2,039
Short-term investments	0			0			0
Total	$	4,102		$	(1,294	)	$	2,809
Twelve months ended December 31, 2014
Fixed maturities	$	3,137		$	(160	)	$	2,976
Equity securities	1,303			0			1,303
Short-term investments	5			0			5
Total	$	4,444		$	(160	)	$	4,284

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.

~~Other~~Of ~~Income~~the $3.1 million impairments recorded during 2017, $3.0 million were recorded during the fourth quarter as a result of our upcoming transition to a new investment policy statement and the related repositioning of our portfolio. These securities, impaired as we have an intent to sell, are expected to be sold between February and May 2018. We also intend to sell other securities that are currently in unrealized gain positions. The overall impact to the portfolio based on current market values, after security sales during the first and second quarters of 2018, is expected to be immaterial. The actual impact could be different as market values fluctuate over the transition period.

	Twelve months ended December 31,
($ in thousands)	2016		2015		2014
Other income	$	1,000	$	1,106	$	619

Other income was primarily comprised of commission from the sales of third party insurance policies and items of a non-recurring nature. Other income for the year ended December 31, 2015, increased $0.5 million primarily as a result of a growth in the sales of these policies.

Interest Expense

	Twelve months ended December 31,
($ in thousands)	2016		2015		2014
5.0% Senior Notes	$	13,750	$	13,750	$	13,750
Amortization of debt issuance costs	208		197		188
Capital leases	80		81		51
Total	$	14,037	$	14,029	$	13,989

At December 31, 2016, we had $275 million principal outstanding of senior notes. These notes carry a coupon rate of 5.0% and require no principal payment until maturity in September 2022. Refer to Note 4 – Long-Term Debt to the Consolidated Financial Statements for additional information on the 5.0% Senior Notes.

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

Other Income



	Twelve months ended December 31,
($ in thousands)	2017		2016		2015
Other income	$	1,404	$	1,000	$	1,106

Other income was primarily comprised of commission from the sales of third party insurance policies and items of a non-recurring nature. Other income for the year ended December 31, 2017, increased $0.4 million primarily as a result of a growth in the sales of these policies.

Interest Expense



	Twelve months ended December 31,
($ in thousands)	2017		2016		2015
5.0% Senior Notes	$	13,750	$	13,750	$	13,750
Amortization of debt issuance costs	218		208		197
Capital leases	75		80		81
Total	$	14,043	$	14,037	$	14,029

At December 31, 2017, we had $275 million principal outstanding of senior notes. These notes carry a coupon rate of 5.0% and require no principal payment until maturity in September 2022. Refer to Note 4 – Long-Term Debt to the Consolidated Financial Statements for additional information on the 5.0% Senior Notes.

Corporate General and Administrative Expenses

	Twelve months ended December 31,
($ in thousands)	~~2016~~2017		~~2015~~2016		~~2014~~2015
Corporate general and administrative expenses	$	79,~~899~~769	$	7,~~655~~899	$	7,~~514~~655

Corporate general and administrative expenses are comprised of expenses of the holding company, including board of directors' fees, directors and officers insurance and a portion of the salaries and benefits of senior executives. The increase in expense during 2017 is primarily related to performance share expense following improvement in underlying results.

Other Expenses

	Twelve months ended December 31,
($ in thousands)	~~2016~~2017			~~2015~~2016		~~2014~~2015
Loss on disposal of assets	$	~~568~~55		$	~~265~~568	$	15265
Corporate litigation expense	~~318~~902			~~299~~318		~~238~~299
Lease related expenses	17(83		)	~~979~~17		~~275~~979
Loss on impairment of property	0			~~909~~0		0909
Other	~~833~~1,595			~~844~~833		~~354~~844
Total	$	12,~~736~~470		$	31,~~296~~736	$	~~882~~3,296

Other expenses for the twelve months ended December 31, 2017, increased primarily due an increase in litigation expense.

Other expenses for the twelve months ended December 31, 2016, decreased primarily due to losses in 2015 on subleases related to the closure of offices in Georgia, Nevada and Pennsylvania as well as a partial lease buyout on our existing corporate headquarters. In addition, we incurred an impairment to bring the book values of two properties down to the appraised value after the demolition of buildings that were on the premises at the time of purchase.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-K

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

Income Taxes

The following table reconciles our U.S. statutory rate and effective tax rate for the periods ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015:

	Twelve months ended December 31,
	2016		2015		2014
	2017		2016		2015
U.S. Statutory tax rate	35.0	%	35.0	%	35.0	%
Adjustments:
Dividends-received deduction	(0.76	)%	(0.67	)%	(0.6	)%
Tax-exempt interest	(43.0	)%	(34.60	)%	(3.36	)%
Other	(0.42	)%	0.4	%	0.14	%
Effective tax rate	30.7	%	31.2	%	31.2	%
Deferred tax rate adjustment	12.6	%	0.0	%	0.0	%
Effective tax rate	43.8	%	30.7	%	31.2	%

The GAAP effective tax rate ~~has~~increased in 2017 primarily as a result of the inclusion of the adjustment to net deferred taxes in the Provision for income taxes relating to the reduction in the enacted corporate tax rate under the Tax Cuts and Jobs Act from 35% to 21% and an increase in pre-tax income. The GAAP effective tax rate decreased in 2016 primarily as a result of a more significant impact from tax-exempt interest and the dividends-received deduction due to lower pre-tax income. Refer to Note 5 – Income Taxes to the Consolidated Financial Statements for additional information on income taxes.

ITEM 7A

Quantitative and Qualitative Disclosures about Market Risk

The information required by Item 7A is included under the caption Exposure to Market Risk in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 8

Financial Statements and Supplementary Data

Infinity Property and Casualty Corporation and Subsidiaries:
Report of Independent Registered Public Accounting Firm	3133
Consolidated Statements of Earnings: Years ended December 31, 2016, 2015, and 2014	32
Consolidated Statements of Earnings: Years ended December 31, 2017, 2016 and 2015	34
Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, and 2014	33
Consolidated Statements of Comprehensive Income: Years ended December 31, 2017, 2016 and 2015	35
Consolidated Balance Sheets: December 31, 2016, and 2015	34
Consolidated Balance Sheets: December 31, 2017 and 2016	36
Consolidated Statements of Changes in Shareholders’ Equity: Years ended December 31, 2016, 2015, and 2014	35
Consolidated Statements of Changes in Shareholders’ Equity: Years ended December 31, 2017, 2016 and 2015	37
Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, and 2014	36
Consolidated Statements of Cash Flows: Years ended December 31, 2017, 2016 and 2015	38
Notes to Consolidated Financial Statements	3739

ITEM 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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ITEM 9A

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 principal executive officer and principal 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 December 31, ~~2016~~2017. 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 the principal executive officer and principal financial officer, as appropriate.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2016~~2017, based on the framework in the 2013 edition of the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, ~~2016~~2017.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements contained in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, ~~2016~~2017, which is included herein.

Because of our inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and we take actions to correct deficiencies as we identify them.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, ~~2016~~2017, 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.

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Report of Independent Registered Public Accounting Firm on

Internal Control over Financial Reporting

The Shareholders and Board of Directors ~~and Shareholders~~

Infinity Property and Casualty Corporation and Subsidiaries

WeOpinion ~~have audited Infinity Property and Casualty Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2016, based~~ on ~~criteria established in~~ Internal Control~~-Integrated~~ Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Infinity Property and Casualty Corporation and subsidiaries' management is responsible for maintaining effective internal control over ~~financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over~~ Financial Reporting~~. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.~~

We ~~conducted~~have ~~our~~audited ~~audit~~Infinity inProperty ~~accordance~~and ~~with~~Casualty ~~the~~Corporation ~~standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan~~ and ~~perform~~subsidiaries’ ~~the audit to obtain reasonable assurance about whether effective~~ internal control over financial reporting ~~was~~as ~~maintained~~of inDecember 31, ~~all~~2017, ~~material~~based ~~respects.~~on ~~Our~~criteria ~~audit~~established ~~included~~in ~~obtaining~~Internal anControl-Integrated ~~understanding~~Framework ofissued ~~internal~~by ~~control~~the ~~over~~Committee ~~financial~~of ~~reporting,~~Sponsoring ~~assessing~~Organizations of the ~~risk~~Treadway ~~that~~Commission a(2013 ~~material~~framework) ~~weakness~~(the ~~exists,~~COSO ~~testing~~criteria). ~~and~~In ~~evaluating~~our ~~the~~opinion, ~~design~~Infinity Property and ~~operating~~Casualty ~~effectiveness~~and ofsubsidiaries ~~internal~~(the ~~control~~Company) ~~based~~maintained, onin ~~the~~all ~~assessed~~material ~~risk~~respects, ~~and~~effective ~~performing~~internal ~~such~~control ~~other~~over financial ~~procedures~~reporting as weof ~~considered~~December ~~necessary~~31, in2017, ~~the~~based ~~circumstances.~~on Wethe ~~believe~~COSO ~~that our audit provides a reasonable basis for our opinion~~criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “financial statements”) of the Infinity Property and Casualty Corporation and our report dated February 15, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Infinity Property and Casualty Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2016, and 2015, and the related consolidated statements of changes in capital, income and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2016, of Infinity Property and Casualty Corporation and subsidiaries and our report dated February 28, 2017, expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Birmingham, Alabama

February 2815, ~~2017~~2018

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ITEM 9B

Other Information

On February 22, 2017, our Board of Directors voted to amend and restate the Company’s regulations to replace the Company’s plurality voting standard with a majority voting standard in “uncontested elections,” meaning any election of directors at a meeting of the shareholders in which the number of nominees does not exceed the number of directors to be elected and in which cumulative voting is not in effectNone. Under this newly implemented standard, any director who does not receive in excess of fifty percent (50%) “for” votes for his or her election among the votes cast, excluding “abstentions” and “broker non-votes,” shall tender his or her resignation to the Board. Within ninety (90) days following certification of the voting results, the Board shall decide whether to accept or reject such resignation and publicly disclose its decision to accept or reject, including the rationale therefor, such resignation. A director tendering his or her resignation shall not participate in the Board’s decision of whether to accept or reject such resignation. The foregoing description of the change to the Company’s regulations does not purport to be complete and is qualified by reference to the full text of the Amended and Restated Regulations, attached as Exhibit 3.2 to this Form 10-K.

PART III

ITEM 10

Directors, Executive Officers and Corporate Governance

We make available free of charge within the Investor Relations section of our website at www.infinityauto.com, our Corporate Governance Guidelines, the Charter of each standing committee of the Board of Directors, and the Code of Ethics adopted by the Board and applicable to all of our directors, officers and employees. Requests for copies may be directed to our Corporate Secretary at Infinity Property and Casualty Corporation, 2201 4th Avenue North, Birmingham, Alabama 35203. We intend to disclose any amendments to the Code of Ethics, and any waiver from a provision of the Code of Ethics granted to our principal executive officer or principal financial officer, on our website following such amendment or waiver. We may disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

The information required by this Item 10 regarding Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act of 1934; and Corporate Governance is incorporated by reference from our Proxy Statement for the ~~2017~~2018 Annual Meeting of Shareholders to be held on May 1722, ~~2017~~2018.

ITEM 11

Executive Compensation

Incorporated by reference from our Proxy Statement for the ~~2017~~2018 Annual Meeting of Shareholders to be held on May 1722, ~~2017~~2018.

ITEM 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference from our Proxy Statement for the ~~2017~~2018 Annual Meeting of Shareholders to be held on May 1722, ~~2017~~2018.

ITEM 13

Certain Relationships and Related Transactions, and Director Independence

Incorporated by reference from our Proxy Statement for the ~~2017~~2018 Annual Meeting of Shareholders to be held on May 1722, ~~2017~~2018.

ITEM 14

Principal Accountant Fees and Services

Incorporated by reference from our Proxy Statement for the ~~2017~~2018 Annual Meeting of Shareholders to be held on May 1722, ~~2017~~2018.

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors ~~and Stockholders~~

Infinity Property and Casualty Corporation and Subsidiaries

WeOpinion ~~have~~on ~~audited~~ the ~~accompanying~~Financial consolidated balance sheets of Infinity Property and Casualty Corporation and subsidiaries as of December 31, 2016, and 2015, and the related consolidated statements of changes in capital, income and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.Statements

We ~~conducted~~have ~~our~~audited ~~audits~~the inaccompanying ~~accordance~~consolidated ~~with~~balance ~~the~~sheets ~~standards~~ of ~~the~~Infinity ~~Public~~Property ~~Company~~and ~~Accounting~~Casualty ~~Oversight~~Corporation ~~Board~~and subsidiaries (~~United~~the ~~States~~Company). ~~Those~~as ~~standards~~of ~~require~~December ~~that~~31, we2017 ~~plan~~ and ~~perform~~2016, the ~~audit~~related toconsolidated ~~obtain~~statements ~~reasonable~~of ~~assurance~~income, ~~about~~comprehensive ~~whether~~income, ~~the~~shareholders' ~~financial~~equity ~~statements~~and ~~are~~cash ~~free~~flows for each of ~~material~~the ~~misstatement.~~three Anyears ~~audit~~in ~~includes~~the ~~examining,~~period onended aDecember ~~test~~31, ~~basis~~2017, ~~evidence~~and ~~supporting~~ the ~~amounts~~related notes and ~~disclosures~~financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In Anour ~~audit~~opinion, ~~also~~the ~~includes~~financial ~~assessing~~statements present fairly, in all material respects, the ~~accounting~~consolidated ~~principles~~financial ~~used~~position ~~and~~of ~~significant~~the ~~estimates~~Company ~~made~~at byDecember ~~management~~31, as2017 ~~well~~and as2016, ~~evaluating~~and the ~~overall~~consolidated ~~financial~~results ~~statement~~of ~~presentation.~~its Weoperations ~~believe~~and ~~that~~its ~~our~~cash ~~audits~~flows ~~provide~~for aeach ~~reasonable~~of ~~basis~~the ~~for~~three ~~our~~years ~~opinion~~in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

InWe ~~our~~also ~~opinion,~~have ~~the financial statements referred to above present fairly~~audited, in ~~all~~accordance ~~material~~with ~~respects,~~ the ~~consolidated~~standards ~~financial position~~ of ~~Infinity~~the ~~Property~~Public ~~and~~Company ~~Casualty~~Accounting ~~Corporation~~Oversight ~~and~~Board ~~subsidiaries~~(United atStates) ~~December 31~~(PCAOB), ~~2016, and 2015, and~~ the ~~consolidated~~Company's ~~results~~internal ofcontrol ~~their~~over ~~operations~~financial ~~and~~reporting ~~their~~as ~~cash flows for each~~ of ~~the three years in the period ended~~ December 31, ~~2016~~2017, inbased ~~conformity~~on ~~with~~criteria ~~U.S.~~established ~~generally~~in ~~accepted~~Internal ~~accounting~~Control-Integrated ~~principles.~~Framework ~~Also,~~issued inby ~~our opinion,~~ the ~~related~~Committee ~~financial~~of ~~statement~~Sponsoring ~~schedules,~~Organizations ~~when~~of ~~considered in relation to~~ the ~~basic~~Treadway ~~financial~~Commission ~~statements~~(2013 ~~taken as a whole~~framework), ~~present~~and ~~fairly~~our inreport ~~all~~dated ~~material~~February ~~respects~~15, ~~the~~2018 ~~information~~expressed ~~set~~an ~~forth~~unqualified ~~therein~~opinion thereon.

WeBasis ~~also~~for have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Infinity Property and Casualty Corporation's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2017, expressed an unqualified opinion thereon.Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2002.

/S/ ERNST & YOUNG LLP

Birmingham, Alabama

February 2815, ~~2017~~2018

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

	Twelve months ended December 31,
	2016			2015			% Change		2014			% Change
	2017			2016			% Change		2015			% Change
Revenues:
Earned premium	$	1,~~391~~371,~~664~~336		$	1,~~346~~391,~~564~~664		3(1.35	)%	$	1,~~325~~346,~~935~~564		13.63	%
Installment and other fee income	~~107~~105,~~361~~764			96107,~~753~~361			11(1.05	)%	9596,~~242~~753			111.60	%
Net investment income	3537,~~537~~262			3635,~~800~~537			~~(3.~~4.9	)%	3536,~~629~~800			(3.34	)%
Net realized gains on investments(1)	32,~~145~~220			23,~~809~~145			12(29.04	)%	42,~~284~~809			~~(34~~12.40	)%
Other income	1,~~000~~404			1,~~106~~000			(940.64	)%	~~619~~1,106			78(9.86	)%
Total revenues	1,~~538~~517,~~706~~987			1,~~484~~538,~~032~~706			3(1.73	)%	1,~~461~~484,~~709~~032			13.57	%
Costs and Expenses:
Losses and loss adjustment expenses	1,~~096~~053,~~755~~697			1,~~036~~096,~~001~~755			5(3.9	)%	1,~~001~~036,~~628~~001			35.49	%
Commissions and other underwriting expenses	~~356~~357,~~148~~281			~~348~~356,~~219~~148			20.3	%	~~354~~348,~~559~~219			(12.83	)%
Interest expense	14,~~037~~043			14,~~029~~037			0.10	%	1314,~~989~~029			0.31	%
Corporate general and administrative expenses	79,~~899~~769			7,~~655~~899			323.27	%	7,~~514~~655			13.92	%
Other expenses	12,~~736~~470			31,~~296~~736			~~(47~~42.3	)%	~~882~~3,296			~~273~~(47.83	)%
Total costs and expenses	1,~~476~~437,~~575~~260			1,~~409~~476,~~200~~575			4(2.87	)%	1,~~378~~409,~~572~~200			24.28	%
Earnings before income taxes	6280,~~132~~727			7462,~~832~~132			~~(17~~29.09	)%	8374,~~138~~832			(1017.0	)%
Provision for income taxes	1935,~~047~~343			2319,~~351~~047			~~(18~~85.46	)%	2523,~~936~~351			(1018.04	)%
Net Earnings	$	4345,~~085~~384		$	5143,~~481~~085		~~(16~~5.3	)%	$	5751,~~201~~481		(1016.03	)%
Net Earnings per Common Share:
Basic	$	34.9113		$	43.5491		~~(13~~5.96	)%	$	54.0054		(913.29	)%
Diluted	34.8810			43.5188			~~(14~~5.07	)%	4.9551			(814.90	)%
Average Number of Common Shares:
Basic	1110,~~018~~984			11,~~334~~018			(20.83	)%	11,~~440~~334			(02.98	)%
Diluted	11,~~101~~067			11,~~417~~101			(20.83	)%	11,~~562~~417			(12.38	)%
Cash Dividends per Common Share	$	2.0832		$	12.7208		2011.95	%	$	1.4472		1920.49	%
(1) Net realized gains on sales	$	35,~~519~~343		$	43,~~102~~519		~~(14~~51.28	)%	$	4,~~444~~102		(714.72	)%
Total other-than-temporary impairment (OTTI) losses	(~~375~~2,912		)	(~~1,294~~375		)	~~(71~~677.15	)%	(1,~~023~~294		)	26(71.51	)%
Non-credit portion in other comprehensive income	088			0			~~0.0~~NM	%	~~888~~0			NM0.0	%
OTTI losses reclassified from other comprehensive income	0(299		)	0			~~0.0~~NM	%	~~(25~~0		)	NM0.0	%
Net impairment losses recognized in earnings	(~~375~~3,123		)	(~~1,294~~375		)	~~(71~~733.18	)%	(~~160~~1,294		)	NM(71.1	)%
Total net realized gains on investments	$	32,~~145~~220		$	23,~~809~~145		12(29.04	)%	$	42,~~284~~809		~~(34~~12.40	)%

NM = Not Meaningful

See Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

	Twelve months ended December 31,
	2016			2015			2014
	2017			2016			2015
Net earnings	$	4345,~~085~~384		$	5143,~~481~~085		$	5751,~~201~~481
Other comprehensive income before tax:
Net change in post-retirement benefit liability	88(204		)	~~771~~88			~~235~~771
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising during the period	319,~~205~~509			~~(22~~3,~~091~~205		)	14(22,~~618~~091		)
Less: Reclassification adjustments for gains included in net earnings	(32,~~145~~220		)	(23,~~809~~145		)	(42,~~284~~809		)
Unrealized gains (losses) on investments, net	6117,288			~~(24,900~~61		)	10(24,~~334~~900		)
Other comprehensive income (loss), before tax	~~149~~17,085			~~(24,129~~149		)	10(24,~~569~~129		)
Income tax (expense) benefit related to components of other comprehensive income	(525,236		)	~~8,445~~(52		)	(38,~~699~~445		)
Other comprehensive income (loss), net of tax	9711,848			~~(15,684~~97		)	6(15,~~870~~684		)
Comprehensive income	$	4357,~~182~~232		$	3543,~~797~~182		$	6435,~~071~~797

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts in line descriptions)

	December 31,
	2016			2015
	2017			2016
Assets
Investments:
Fixed maturities – at fair value (amortized cost $1,392,660 and $1,381,510)	$	1,390,167		$	1,381,467
Fixed maturities – at fair value (amortized cost $1,439,878 and $1,392,660)	$	1,441,107		$	1,390,167
Equity securities – at fair value (cost $77,013 and $78,815)	90,640			89,935
Equity securities – at fair value (cost $68,812 and $77,013)	96,004			90,640
Short-term investments – at fair value (amortized cost $2,909 and $4,656)	2,907			4,651
Short-term investments – at fair value (amortized cost $2,541 and $2,909)	2,541			2,907
Total investments	1,~~483~~539,~~714~~653			1,~~476~~483,~~053~~714
Cash and cash equivalents	92107,~~800~~589			6292,~~483~~800
Accrued investment income	1213,~~485~~079			12,~~245~~485
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $14,207 and $15,385	495,157			511,543
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $15,262 and $14,207	508,078			495,157
Property and equipment, net of accumulated depreciation of $70,559 and $72,892	96,166			89,707
Property and equipment, net of accumulated depreciation of $84,776 and $70,559	82,453			96,166
Prepaid reinsurance premium	31,~~410~~032			53,~~385~~410
Recoverables from reinsurers (includes $121 and $362 on paid losses and LAE)	17,251			15,056
Recoverables from reinsurers (includes $(1,269) and $121 on paid losses and LAE)	30,340			17,251
Deferred policy acquisition costs	9188,~~136~~300			9391,~~157~~136
Current and deferred income taxes	219,~~635~~355			3321,~~926~~635
Receivable for securities sold	~~795~~1,700			0795
Other assets	1216,~~777~~557			1012,~~306~~777
Goodwill	75,275			75,275
Total assets	$	2,~~402~~473,~~601~~411		$	2,~~385~~402,~~135~~601
Liabilities and Shareholders’ Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	~~685~~715,~~455~~098		$	~~669~~685,~~965~~455
Unearned premium	~~614~~627,~~347~~575			~~616~~614,~~649~~347
Long-term debt (fair value $278,726 and $281,581)	273,591			273,383
Long-term debt (fair value $290,824 and $278,726)	273,809			273,591
Commissions payable	16,~~176~~743			1716,~~406~~176
Payable for securities purchased	135,~~922~~615			713,~~264~~922
Other liabilities	99114,~~924~~289			~~112~~99,~~873~~924
Total liabilities	1,~~703~~753,~~414~~130			1,~~697~~703,~~540~~414
Commitments and contingencies (See Note 14)
Shareholders’ equity:
Common stock, no par value (50,000,000 shares authorized; 21,809,954 and 21,774,520 shares issued)	$	21,829		$	21,794
Common stock, no par value (50,000,000 shares authorized; 21,867,436 and 21,809,954 shares issued)	$	21,888		$	21,829
Additional paid-in capital	~~378~~383,~~745~~567			~~376~~378,~~025~~745
Retained earnings	~~777~~797,~~695~~546			~~757~~777,~~604~~695
Accumulated other comprehensive income, net of tax	719,~~907~~756			7,~~811~~907
Treasury stock, at cost (10,766,211 and 10,623,138 shares)	(486,990		)	(475,638		)
Treasury stock, at cost (10,932,539 and 10,766,211 shares)	(502,475		)	(486,990		)
Total shareholders’ equity	~~699~~720,~~187~~281			~~687~~699,~~595~~187
Total liabilities and shareholders’ equity	$	2,~~402~~473,~~601~~411		$	2,~~385~~402,~~135~~601

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands)

	CommonStock		AdditionalPaid-inCapital		RetainedEarnings			AccumulatedOtherComprehensiveIncome,Net of Tax			TreasuryStock			Total
Balance at January 1, 2014	$	21,684	$	368,902	$	685,011		$	16,624		$	(435,463	)	$	656,758
Balance at January 1, 2015	$	21,745	$	372,368	$	725,651		$	23,494		$	(445,599	)	$	697,659
Net earnings	—		—		57,201			—			—			57,201
Net change in post-retirement benefit liability	—		—		—			153			—			153
Change in unrealized gain on investments	—		—		—			6,810			—			6,810
Change in non-credit component of impairment losses on fixed maturities	—		—		—			(93		)	—			(93		)
Comprehensive income														64,071
Dividends paid to common shareholders	—		—		(16,562		)	—			—			(16,562		)
Shares issued and share-based compensation expense, including tax benefit	61		3,466		—			—			—			3,527
Acquisition of treasury stock	—		—		—			—			(10,136		)	(10,136		)
Balance at December 31, 2014	$	21,745	$	372,368	$	725,651		$	23,494		$	(445,599	)	$	697,659
Net earnings	—		—		51,481			—			—			51,481
Net change in post-retirement benefit liability	—		—		—			501			—			501
Change in unrealized gain on investments	—		—		—			(16,795		)	—			(16,795		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			610			—			610
Comprehensive income														35,797
Dividends paid to common shareholders	—		—		(19,528		)	—			—			(19,528		)
Shares issued and share-based compensation expense, including tax benefit	49		3,658		—			—			—			3,706
Acquisition of treasury stock	—		—		—			—			(30,040		)	(30,040		)
Balance at December 31, 2015	$	21,794	$	376,025	$	757,604		$	7,811		$	(475,638	)	$	687,595
Net earnings	—		—		43,085			—			—			43,085
Net change in post-retirement benefit liability	—		—		—			57			—			57
Change in unrealized gain on investments	—		—		—			(238		)	—			(238		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			277			—			277
Comprehensive income														43,182
Dividends paid to common shareholders	—		—		(22,993		)	—			—			(22,993		)
Shares issued and share-based compensation expense, including tax benefit	35		2,720		—			—			—			2,755
Acquisition of treasury stock	—		—		—			—			(11,352		)	(11,352		)
Balance at December 31, 2016	$	21,829	$	378,745	$	777,695		$	7,907		$	(486,990	)	$	699,187
Net earnings	—		—		45,384			—			—			45,384
Net change in post-retirement benefit liability	—		—		—			(133		)	—			(133		)
Change in unrealized gain on investments	—		—		—			11,653			—			11,653
Change in non-credit component of impairment losses on fixed maturities	—		—		—			327			—			327
Comprehensive income														57,232
Dividends paid to common shareholders	—		—		(25,533		)	—			—			(25,533		)
Shares issued and share-based compensation expense	59		4,822		—			—			—			4,880
Acquisition of treasury stock	—		—		—			—			(15,485		)	(15,485		)
Balance at December 31, 2017	$	21,888	$	383,567	$	797,546		$	19,756		$	(502,475	)	$	720,281

See Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

	Twelve months ended December 31,
	2016			2015			2014
	2017			2016			2015
Operating Activities:
Net earnings	$	4345,~~085~~384		$	5143,~~481~~085		$	5751,~~201~~481
Adjustments:
Depreciation	1416,~~642~~274			1214,~~299~~642			1012,~~803~~299
Amortization	2021,~~401~~454			2220,~~411~~401			22,~~140~~411
Net realized gains on investments	(32,~~145~~220		)	(23,~~809~~145		)	(42,~~284~~809		)
Loss (gain) on disposal of property and equipment	566			1,174			(16		)
Loss on disposal of property and equipment	49			566			1,174
Share-based compensation expense	24,~~342~~596			32,~~149~~342			23,~~634~~149
Excess tax benefits from share-based payment arrangements	~~(157~~0		)	~~(298~~157		)	~~(108~~298		)
Activity related to rabbi trust	77228			~~(49~~77		)	48(49		)
Change in accrued investment income	(~~240~~594		)	~~732~~(240		)	~~(205~~732		)
Change in agents’ balances and premium receivable	16(12,~~385~~920		)	~~(27~~16,~~904~~385		)	(3227,~~299~~904		)
Change in reinsurance receivables	(~~220~~10,711		)	(~~1,101~~220		)	(1,~~699~~101		)
Change in deferred policy acquisition costs	2,~~021~~836			(2,~~728~~021		)	(2,~~170~~728		)
Change in other assets	93,~~954~~878			(59,~~902~~797		)	4(6,~~063~~200		)
Change in unpaid losses and loss adjustment expenses	1529,~~490~~644			115,~~787~~490			211,~~600~~787
Change in unearned premium	(213,~~301~~228		)	27(2,~~389~~301		)	2327,~~256~~389
Change in other liabilities	~~(13~~14,~~678~~836		)	(713,~~122~~678		)	5(7,~~056~~122		)
Net cash provided by operating activities	~~105~~125,~~223~~961			72105,~~507~~380			~~106~~72,~~020~~805
Investing Activities:
Purchases of fixed maturities	(~~479~~490,~~050~~728		)	(~~523~~479,~~502~~050		)	(~~516~~523,~~522~~502		)
Purchases of equity securities	(71,~~591~~900		)	(7,~~000~~591		)	(67,~~600~~000		)
Purchases of short-term investments	(93,~~882~~019		)	(89,~~413~~882		)	(78,~~920~~413		)
Purchases of property and equipment	(214,~~668~~564		)	(4721,~~300~~668		)	(1847,~~641~~300		)
Maturities and redemptions of fixed maturities	~~163~~218,~~755~~595			~~198~~163,~~050~~755			~~167~~198,~~011~~050
Maturities and redemptions of short-term investments	~~2,270~~925			12,~~285~~270			21,~~800~~285
Proceeds from sale of fixed maturities	~~290~~192,~~866~~408			~~329~~290,~~688~~866			~~238~~329,~~893~~688
Proceeds from sale of equity securities	1216,~~185~~010			812,~~489~~185			48,~~999~~489
Proceeds from sale of short-term investments	92,~~258~~400			39,~~086~~258			63,~~864~~086
Proceeds from sale of property and equipment	225			02			340
Net cash used in investing activities	(3969,~~855~~849		)	(4539,~~617~~855		)	(~~129~~45,~~082~~617		)
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	~~256~~285			~~259~~256			~~784~~259
Excess tax benefits from share-based payment arrangements	157			298			108
Principal payments under capital lease obligations	(540		)	(517		)	(497		)
Principal payments under capital lease obligations	(517		)	(497		)	(840		)
Acquisition of treasury stock	(15,535		)	(11,953		)	(29,481		)
Acquisition of treasury stock	(11,953		)	(29,481		)	(10,100		)
Dividends paid to shareholders	(25,533		)	(22,993		)	(19,528		)
Dividends paid to shareholders	(22,993		)	(19,528		)	(16,562		)
Net cash used in financing activities	(41,323		)	(35,208		)	(49,246		)
Net cash used in financing activities	(35,051		)	(48,948		)	(26,609		)
Net increase (decrease) in cash and cash equivalents	14,789			30,317			(22,058		)
Net increase (decrease) in cash and cash equivalents	30,317			(22,058		)	(49,670		)
Cash and cash equivalents at beginning of period	92,800			62,483			84,541
Cash and cash equivalents at beginning of period	62,483			84,541			134,211
Cash and cash equivalents at end of period	$	107,589		$	92,800		$	62,483
Cash and cash equivalents at end of period	$	92,800		$	62,483		$	84,541

See Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2016~~2017

INDEX TO NOTES

1	Significant Reporting and Accounting Policies	10	Insurance Reserves
2	Fair Value	11	Reinsurance
3	Investments	12	Statutory Information
4	Long-Term Debt	13	Legal and Regulatory Proceedings
5	Income Taxes	14	Commitments and Contingencies
6	Computation of Net Earnings per Share	15	Additional Information
7	Share-Based Compensation	16	Accumulated Other Comprehensive Income
8	Benefit Plans	17	Segment Information
9	Quarterly Operating Results (Unaudited)	18	Subsequent Event

Note 1 Significant Reporting and Accounting Policies

Nature of Operations

We ~~currently~~ write personal ~~automobile~~auto insurance with a concentration on nonstandard ~~automobile~~auto insurance, commercial ~~vehicle~~auto insurance and classic collector ~~automobile~~auto insurance. Personal auto insurance accounts for 8987% of our total gross written premium and we primarily write it in four states. We wrote approximately 5553% of our personal auto gross written premium in the state of California during ~~2016~~2017.

Basis of Consolidation and Reporting

The accompanying consolidated financial statements include our accounts and those of our subsidiaries. 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 accurately match expenses with their related revenue streams and the elimination of all significant intercompany transactions and balances.

We have evaluated events that occurred after December 31, ~~2016~~2017, for recognition or disclosure in our financial statements and the notes to the financial statements.

Schedules may not foot due to rounding.

Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles of the United States requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in circumstances could cause actual results to differ materially from those estimates.

Investments

We consider all fixed maturity and equity securities “available for sale” and report them at fair value with net unrealized gains or losses reported after-tax (net of any valuation allowance) as a component of accumulated other comprehensive income within shareholders' equity. We base the fair values of investments on prices quoted in the most active market for each security. If quoted prices are not available, we estimate fair value based on the fair value of comparable securities, discounted cash flow models or similar methods. We treat premium and discounts on mortgage-backed securities (MBS) and asset-backed securities (ABS) as a yield adjustment over the estimated life of the securities, adjusted for anticipated prepayments, using the interest method. We base prepayment assumptions on data from widely accepted third party data sources or internal estimates. We review the amortized cost and effective yield of the security periodically and adjust it to reflect actual prepayments and changes in expectations. For high credit quality MBS and ABS (those rated AA or above at the time of purchase), the adjustments to amortized cost are recorded as a charge or credit to net investment income in accordance with the retrospective method. For MBS and ABS rated below AA, we adjust the yield prospectively for any changes in estimated cash flows.

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Notes to Consolidated Financial Statements

as a charge or credit to net investment income in accordance with the retrospective method. For MBS and ABS rated below AA, we adjust the yield prospectively for any changes in estimated cash flows.

Gains or losses on securities are determined on the specific identification basis. When we consider impairment in the value of a specific investment other-than-temporary (OTTI), the cost basis of that investment is reduced. For fixed maturity securities that are OTTI, 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 OTTI, but we do not intend to and are not more than likely to be required to sell the security prior to its recovery to amortized cost, the amount of the impairment is separated into a credit loss component and the amount due to all other factors. 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 (i) the effective interest rate implicit at the date of acquisition for non-structured securities; or (ii) 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.

Securities having a fair value of approximately $19.8 million at December 31, ~~2016~~2017, were on deposit as required by regulatory authorities.

Cash and Cash Equivalents

We consider liquid investments having original maturities of three months or less when purchased to be cash equivalents for purposes of the financial statements.

Reinsurance

Our insurance subsidiaries cede insurance to other companies. To the extent that any reinsuring companies are unable to meet obligations under agreements covering reinsurance ceded, our insurance subsidiaries would remain liable. We estimate amounts recoverable from reinsurers in a manner consistent with the claim liability associated with the reinsured policies. Our insurance subsidiaries report as assets (i) the estimated reinsurance recoverable on unpaid losses; and (ii) amounts paid to reinsurers applicable to the unexpired terms of policies in force.

Advertising

Advertising costs are charged to expense as incurred. Total advertising costs were $911.71 million, $9.17 million and $89.71 million for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

Deferred Policy Acquisition Costs (DPAC)

Policy acquisition costs (principally commissions, premium taxes and other marketing and underwriting expenses) related to the successful production of premium writings are deferred and charged against income ratably over the terms of the related policies. The method followed in computing DPAC limits the amount of such costs to their estimated realizable value without any consideration for anticipated investment income. Each quarter, we evaluate the recoverability of these costs. The DPAC amortization expense recognized in the Consolidated Statements of Earnings during ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 was $~~207~~200.17 million, $~~203~~207.71 million and $~~204~~203.7 million, respectively.

Goodwill

In accordance with the Goodwill topic of the FASB Accounting Standards Codification (FASC), we perform impairment test procedures for goodwill on an annual basis. These procedures require us to calculate the fair value of goodwill, compare the result to our carrying value and record the amount of any shortfall as an impairment charge.

We performed this test as of October 1, ~~2016~~2017, using a variety of methods, including estimates of future discounted cash flows and comparisons of our market value to that of our major competitors. Our cash flow projections rely on assumptions that are subject to uncertainty, including premium growth, loss and loss adjustment expense ratios, interest rates and capital requirements.

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Notes to Consolidated Financial Statements

Unpaid Losses and Loss Adjustment Expenses (LAE)

The net liabilities stated for unpaid claims and for expenses of investigation and adjustment of unpaid claims are based upon (i) the accumulation of case estimates for losses reported prior to the close of the accounting period on direct business written; (ii) estimates received from ceding reinsurers and insurance pools and associations; (iii) estimates of unreported losses based on past experience; (iv) estimates based on experience of expenses for investigating and adjusting claims; and (v) the current state of the law and coverage litigation. These liabilities are subject to the impact of changes in claim amounts and frequency and other factors. We have not reduced liabilities for unpaid losses and LAE for reinsurance recoverables; such recoverables are recorded separately as assets. Changes in estimates of the liabilities for losses and LAE are reflected in the Consolidated Statements of Earnings in the period in which determined. In spite of the variability inherent in such estimates, we believe that the liabilities for unpaid losses and LAE are adequate.

Premium and Receivables

We earn insurance premium written over the terms of the policies on a pro rata basis. Unearned premium represents that portion of premium written which is applicable to the unexpired terms of policies in force. On reinsurance assumed from other insurance companies or written through various underwriting organizations, we base unearned premium on reports received from such companies and organizations. We provide insurance and related services to individuals and small commercial accounts throughout the United States and offer a variety of payment plans. We establish an allowance for doubtful accounts based on the relationship, on a policy basis, between receivables and unearned premium, or an aging analysis of past due balances. We charge off premium due from insureds if not collected within 90 days of the policies' expiration or cancellation dates. However, even after we charge off premium, attempts to collect the premium continue.

Income Taxes

We file a consolidated federal income tax return, which includes all 80% and greater owned U.S. subsidiaries. We and our 80% and greater owned subsidiaries are parties to a tax allocation agreement, which designates how members of the tax group share tax payments. In general, each subsidiary agrees to pay us taxes computed on a separate company taxable income basis. We agree to pay each subsidiary for the tax benefit, if any, of net losses used by other members of the consolidated group.

We calculate deferred income taxes using the “asset and liability method.” Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis and are measured using enacted tax rates. We recognize deferred tax assets if it is more likely than not that a benefit will be realized. We aggregate current and deferred tax assets and liabilities on the Consolidated Balance Sheets.

Property and Equipment

We report property and equipment balances at cost less accumulated depreciation. Property and equipment, which consists of land, buildings, leasehold improvements, computer equipment, capitalized software and furniture and fixtures, consisted of the following balances as of December 31, ~~2016~~2017 ($ in millions):

	Gross Asset		Accumulated Depreciation			Net Asset
Real estate related	$	69.58	$	(79.26	)	$	6260.32
Computer equipment & software	82.9		(5566.69		)	2716.30
Furniture & fixtures	14.35		(7.8.2		)	6.63
Total	$	~~166~~167.72	$	(7084.68	)	$	9682.25

We recognized $2.1.5 million, net of accumulated depreciation of $1.6 million, of equipment held under capital leases in other assets on the Consolidated Balance Sheets with the related lease obligations recorded in other liabilities. We compute depreciation over the estimated useful lives of the assets using the straight-line method. Property and equipment is a separate line item on the Consolidated Balance Sheets and we allocate the related expenses, including amortization of assets recorded under capital leases, to one or more of the following line items on the Consolidated Statements of Earnings depending on the asset: "Losses and loss adjustment expenses," "Commissions and other underwriting expenses," "Corporate general and administrative expenses" or "Other expenses."

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Notes to Consolidated Financial Statements

Benefit Plans

We provide retirement benefits to qualified employees and healthcare and life insurance benefits to eligible retirees. We also provide post-employment benefits to former or inactive employees (primarily those on disability) who were not deemed retired under other company plans. The projected future cost of providing these benefits is expensed over the period the employees earn such benefits.

Recently Adopted Accounting Standards

In ~~May~~March ~~2015~~2016 the ~~Financial Accounting Standards Board (~~FASB) issued an ~~Accounting Standards Update (~~ASU) related to the ~~disclosure~~accounting for ~~short~~employee share-~~duration~~based ~~contracts~~payments. The guidance ~~requires~~addresses ~~additional disclosures related to~~ the ~~liability~~recognition, ~~for~~presentation ~~unpaid claims~~ and ~~claim~~classification ~~adjustment~~of ~~expenses~~awards, inforfeitures anand ~~effort~~shares towithheld ~~increase~~for ~~transparency~~tax ~~and comparability~~purposes. We adopted ~~this standard retrospectively as of January 1, 2016. See Note 10 – Insurance Reserves to~~ the ~~Consolidated Financial Statements for these required disclosures.~~change

Into ~~April~~the ~~2015~~presentation of excess tax benefits on the ~~FASB~~consolidated ~~issued~~statements anof ~~ASU~~cash ~~related~~flow toretrospectively and all other portions of the ~~presentation~~standard prospectively as of ~~debt~~January ~~issuance~~1, ~~costs~~2017. ~~The~~We ~~guidance~~reclassified ~~requires~~$0.2 ~~debt~~million ~~issuance~~and ~~costs~~$0.3 tomillion beof ~~presented~~excess intax ~~the~~benefits ~~balance~~from ~~sheet~~financing asactivities ato ~~direct~~operating ~~deduction~~activities ~~from~~for the ~~carrying~~twelve ~~amount~~months ofended ~~the~~December ~~debt~~31, ~~liability~~2016 and December 31, 2015, respectively. WeThe ~~adopted~~adoption of this standard ~~retrospectively~~did asnot ofhave ~~January~~a 1,material ~~2016.~~impact on our financial condition or results of operations.

The following table illustrates the effect of adopting this standard on the Consolidated Balance Sheets ($ in millions):

	December 31, 2015
	As Reported		As Adjusted		Difference
Other assets	$	11.9	$	10.3	$	(1.6	)
Total assets	2,386.8		2,385.1		(1.6		)
Long-term debt	275.0		273.4		(1.6		)
Total liabilities	1,699.2		1,697.5		(1.6		)
Total liabilities and shareholders' equity	2,386.8		2,385.1		(1.6		)

In August 2014, the FASB issued an ASU related to an entity's ability to continue as a going concern. The guidance requires management to perform an assessment of an entity's ability to continue as a going concern within one year after the date that the financial statements are issued as well as disclose going concern uncertainties in the financial statements. We adopted this standard as of December 31, 2016.

Recently Issued Accounting Standards

In March 2017 the FASB issued an ASU related to the amortization of premium on purchased callable debt securities. The guidance

amends the amortization period for certain purchased callable debt securities held at a premium. Securities that contain explicit,

noncontingent call features that are callable at fixed prices and on preset dates should shorten the amortization period for the premium to the earliest call date (and if the call option is not exercised, the effective yield is reset using the payment terms of the

debt security). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

In October 2016 the FASB issued an ASU related to the recognition of income tax on intra-entity transfers of assets other than inventory. The guidance requires the income tax to be recognized when the transfer occurs rather than when the asset is sold to an outside party. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within the year of adoption, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

In June 2016 the FASB issued an ASU related to the accounting for credit losses. The guidance generally requires credit losses on available-for-sale debt securities to be recognized as an allowance rather than as a reduction to the amortized cost of a security. The standard is effective for fiscal periods beginning after December 15, 2019, and interim periods within the year of adoption, with prospective application of the ASU required for debt securities for which an other-than-temporary impairment has been recognized before the implementation date. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

In March 2016 the FASB issued an ASU related to the accounting for employee share-based payments. The guidance addresses the recognition, presentation and classification of awards, forfeitures and shares withheld for tax purposes. The standard is effective for fiscal periods beginning after December 15, 2016, with each provision having a different application method. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

In February 2016 the FASB issued an ASU related to the accounting for leases. The guidance requires lessees to recognize lease assets and liabilities on the balance sheet. The standard is effective for fiscal years beginning after December 15, 2018, and is to

be applied retrospectively, with an option to use a modified retrospective approach for leases which commenced prior to the effective date of this ASU. We ~~are~~do ~~still~~not ~~evaluating~~expect the ~~impact~~adoption of this ~~ASU~~standard ~~will~~to have ona ~~the~~material ~~Company's~~impact ~~consolidated~~on our financial ~~statements~~condition or results of operations.

In 40January 2016 the FASB issued an ASU amending the guidance on classifying and measuring financial instruments. The guidance requires equity securities to be measured at fair value and changes in that fair value to be recognized through net income. The standard is effective for fiscal years beginning after December 15, 2017, with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We currently record equity securities at fair value and as of December 31, 2017, we have $17.7 million net unrealized gains, net of tax, recognized as a component of other comprehensive income.

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. In August 2015 the FASB issued an ASU to defer the effective date from fiscal years beginning after December 15, 2016, to fiscal years beginning after December 15, 2017. As an insurance-entity, we are largely exempt from the provisions of this standard, with only fee income subject to this new standard. Processing and policy fees are largely earned at the inception of the policy under current guidance but will be earned over the life of the policy under the new revenue recognition guidance. We will adopt using a full retrospective approach and will record a cumulative-effect adjustment to the balance sheet reducing shareholders' equity by $4.5 million on January 1, 2018.

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In January 2016 the FASB issued an ASU amending the guidance on classifying and measuring financial instruments. The guidance requires equity securities to be measured at fair value and changes in that fair value to be recognized through net income. The standard is effective for fiscal years beginning after December 15, 2017, with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We currently record equity securities at fair value and as of December 31, 2016, we have $8.9 million net unrealized gains, net of tax, recognized as a component of other comprehensive income.

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. In August 2015 the FASB issued an ASU to defer the effective date from fiscal years beginning after December 15, 2016, to fiscal years beginning after December 15, 2017. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations. As an insurance-entity, we are largely exempt from the provisions of this standard, with only fee income totaling $107.4 million for the year ending December 31, 2016, subject to this new standard.

Note 2 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).

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Notes to Consolidated Financial Statements

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
December 31, 2016	Level 1			Level 2			Level 3			Total
December 31, 2017	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	107,589		$	0		$	0		$	107,589
Fixed maturity securities:
U.S. government	60,528			0			0			60,528
State and municipal	0			490,724			3,488			494,211
Mortgage-backed securities:
Residential	0			350,992			0			350,992
Commercial	0			30,569			0			30,569
Total mortgage-backed securities	0			381,561			0			381,561
Asset-backed securities	0			62,266			152			62,418
Corporates	0			442,281			108			442,390
Total fixed maturities	60,528			1,376,832			3,748			1,441,107
Equity securities	96,004			0			0			96,004
Short-term investments	0			2,541			0			2,541
Total cash and investments	$	264,121		$	1,379,373		$	3,748		$	1,647,242
Percentage of total cash and investments	16.0		%	83.7		%	0.2		%	100.0		%
December 31, 2016
Cash and cash equivalents	$	92,800		$	0		$	0		$	92,800
Fixed maturity securities:
U.S. government	62,480			5			0			62,485
State and municipal	0			472,471			3,860			476,331
Mortgage-backed securities:
Residential	0			340,367			0			340,367
Commercial	0			69,801			0			69,801
Total mortgage-backed securities	0			410,169			0			410,169
Asset-backed securities	0			37,196			412			37,608
Corporates	0			402,909			666			403,575
Total fixed maturities	62,480			1,322,749			4,938			1,390,167
Equity securities	90,640			0			0			90,640
Short-term investments	769			2,139			0			2,907
Total cash and investments	$	246,689		$	1,324,888		$	4,938		$	1,576,514
Percentage of total cash and investments	15.6		%	84.0		%	0.3		%	100.0		%
December 31, 2015
Cash and cash equivalents	$	62,483		$	0		$	0		$	62,483
Fixed maturity securities:
U.S. government	64,638			32			0			64,669
State and municipal	0			479,656			10			479,666
Mortgage-backed securities:
Residential	0			334,784			0			334,784
Commercial	0			70,224			0			70,224
Total mortgage-backed securities	0			405,008			0			405,008
Asset-backed securities	0			54,018			0			54,018
Corporates	0			376,582			1,524			378,105
Total fixed maturities	64,638			1,315,295			1,534			1,381,467
Equity securities	89,935			0			0			89,935
Short-term investments	0			4,651			0			4,651
Total cash and investments	$	217,056		$	1,319,946		$	1,534		$	1,538,536
Percentage of total cash and investments	14.1		%	85.8		%	0.1		%	100.0		%

We do not report our long-term debt at fair value in the Consolidated Balance Sheets. The $~~278~~290.78 million and $~~281~~278.67 million fair value of our long-term debt at December 31, ~~2016~~2017, and December 31, ~~2015~~2016, 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 invested 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.43

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Notes to Consolidated Financial Statements

Level 1 includes cash and cash equivalents, U.S. Treasury securities, an exchange-traded fund and equities invested 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. A summary of the significant valuation techniques and market inputs for each class of security follows:

U.S. Government: In determining the fair value for U.S. Government securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

State and municipal: In determining the fair value for state and municipal securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.

Mortgage-backed securities: In determining the fair value for mortgage-backed securities we use the market approach and to a lesser extent the income approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data, industry and economic events and monthly payment information.

Asset-backed securities: In determining the fair value for asset-backed securities we use the market approach and to a lesser extent the income approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data, industry and economic events, monthly payment information and collateral performance.

Corporate: In determining the fair value for corporate securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.

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):~~44

Twelve months ended December 31, 2016	State and Municipal			Corporates			Asset-Backed Securities			Total
Balance at beginning of period	$	10		$	1,524		$	0		$	1,534
Total (lossses) gains, unrealized or realized
Included in net earnings	(25		)	12			0			(13		)
Included in other comprehensive income	(10		)	(60		)	3			(67		)
Purchases	0			0			620			620
Settlements	(10		)	(810		)	(209		)	(1,029		)
Transfers in	3,894			0			1,338			5,232
Transfers out	0			0			(1,339		)	(1,339		)
Balance at end of period	$	3,860		$	666		$	412		$	4,938
Twelve months ended December 31, 2015
Balance at beginning of period	$	0		$	3,134		$	150		$	3,285
Total (losses) gains, unrealized or realized
Included in net earnings	(0		)	(71		)	0			(72		)
Included in other comprehensive income	0			(80		)	0			(80		)
Purchases	0			0			0			0
Settlements	0			(1,112		)	(150		)	(1,263		)
Transfers in	10			0			0			10
Transfers out	0			(347		)	0			(347		)
Balance at end of period	$	10		$	1,524		$	0		$	1,534

Of the $4.9 million fair value of securities in Level 3 at December 31, 2016, which consisted of seven securities, we priced three based on non-binding broker quotes, one price was provided by our unaffiliated money manager and three securities, which were included in Level 3 because they were not rated by a NRSRO, were priced by a nationally recognized pricing service.

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Notes to Consolidated Financial Statements

~~One~~The ~~security~~following ~~was~~tables ~~transferred~~present ~~from Level 2 into Level 3 during~~ the ~~first~~progression ~~quarter~~in ~~of 2016 because a price could not be determined using observable market inputs. However, during~~ the ~~third quarter of 2016, a price was obtained using observable market inputs and the security was transferred back into~~ Level ~~2. Three securities during 2016 were transferred from Level 2 into Level~~ 3 because they were no longer rated by a NRSRO. There were no transfers of securities between Levels 1 and 2 during 2016. During 2015 one security was transferred from Level 2 into Level 3 because it was no longer rated by a NRSRO, and one security was transferred from Level 3 into Level 2 because its fair value ~~was~~category ~~determinable~~($ ~~using~~in ~~observable market inputs. There were no transfers of securities between Levels 1 and 2 during 2015.~~ thousands):



Twelve months ended December 31, 2017	State and Municipal			Corporates			Asset-Backed Securities			Total
Balance at beginning of period	$	3,860		$	666		$	412		$	4,938
Total (lossses) gains, unrealized or realized
Included in net earnings	(129		)	1			0			(127		)
Included in other comprehensive income	3			(30		)	22			(5		)
Purchases	0			2,000			4,259			6,259
Sales	(694		)	0			0			(694		)
Settlements	0			(530		)	(258		)	(788		)
Transfers in	447			0			0			447
Transfers out	0			(2,000		)	(4,283		)	(6,283		)
Balance at end of period	$	3,488		$	108		$	152		$	3,748

Twelve months ended December 31, 2016
Balance at beginning of period	$	10		$	1,524		$	0		$	1,534
Total (losses) gains, unrealized or realized
Included in net earnings	(25		)	12			0			(13		)
Included in other comprehensive income	(10		)	(60		)	3			(67		)
Purchases	0			0			620			620
Settlements	(10		)	(810		)	(209		)	(1,029		)
Transfers in	3,894			0			1,338			5,232
Transfers out	0			0			(1,339		)	(1,339		)
Balance at end of period	$	3,860		$	666		$	412		$	4,938

Of the $3.7 million fair value of securities in Level 3 at December 31, 2017, which consisted of six securities, we priced two based on non-binding broker quotes and four securities, which were included in Level 3 because they were not rated by a NRSRO, were priced by a nationally recognized pricing service.

During the twelve months ended December 31, 2017, one security, which was an exchange of a rated municipal bond for an unrated refunded bond, was transferred from Level 2 into Level 3 and one security was transferred from Level 2 into Level 3 because it was not rated by a recognized statistical rating organization. Six securities were purchased and placed into Level 3 during the first quarter of 2017 because a price could not be determined using observable market inputs. However, during the second quarter of 2017, prices were obtained using observable market inputs and these securities were transferred into Level 2. There were no transfers of securities between Levels 1 and 2.

One security was transferred from Level 2 into Level 3 during the first quarter of 2016 because a price could not be determined using observable market inputs. However, during the third quarter of 2016, a price was obtained using observable market inputs and the security was transferred back into Level 2. Three securities during 2016 were transferred from Level 2 into Level 3 because they were no longer rated by a NRSRO. There were no transfers of securities between Levels 1 and 2 during 2016.

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 (losses) 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.

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Notes to Consolidated Financial Statements

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

December 31, 2016

December 31, 2015

December 31, 2017

December 31, 2016

CarryingValue

FairValue

CarryingValue

FairValue

Assets:

Cash and cash equivalents

92107,~~800~~589

6292,~~483~~800

Available-for-sale securities:

Fixed maturities

1,~~390~~441,~~167~~107

1,~~381~~390,~~467~~167

Equity securities

9096,~~640~~004

8990,~~935~~640

Short-term investments

2,~~907~~541

42,~~651~~907

Total cash and investments

1,~~576~~647,~~514~~242

1,~~538~~576,~~536~~514

Liabilities:

Long-term debt

273,~~591~~809

~~278~~290,~~726~~824

273,~~383~~591

~~281~~278,~~581~~726

Refer to Note 3 – Investments to the Consolidated Financial Statements for additional information on investments and Note 4 – Long-Term Debt to the Consolidated Financial Statements for additional information on long-term debt.

Note 3 Investments

We consider all fixed maturity and equity securities “available for sale” and report them at fair value with net unrealized gains or losses reported after-tax (net of any valuation allowance) as a component of accumulated other comprehensive income within shareholders' equity. The proceeds from sales of securities for the twelve months ended December 31, ~~2016~~2017, were $~~312~~210.38 million, and are net of $01.87 million of receivable for securities sold during ~~2016~~2017 that had not settled at December 31, ~~2016~~2017. The proceeds from sales of securities for the twelve months ended December 31, ~~2015~~2016, were $~~341~~312.3 million. ~~The proceeds from sales of securities for the twelve months ended December 31, 2014, were $250.8 million~~ and are net of $40.58 million of receivable for securities sold during ~~2014~~2016 that had not settled at December 31, ~~2014~~2016. The proceeds from sales of securities for the twelve months ended December 31, 2015, were $341.3 million.

Gross gains of $6.29 million, $76.2 million and $57.12 million were realized on sales of available for sale securities during the years ended ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. Gross losses of $21.7 million, $3.2.7 million and $03.72 million were realized on sales of available for sale securities during the years ended ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. Gains or losses on securities are determined on a specific identification basis.

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

December 31, 2016	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI Recognized in Accumulated OCI(1)
December 31, 2017	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI Recognized in Accumulated OCI(1)
Fixed maturities:
U.S. government	$	61,196	$	0	$	(668	)	$	60,528	$	0
State and municipal	492,442		2,768		(999		)	494,211		(46		)
Mortgage-backed securities:
Residential	353,277		1,812		(4,097		)	350,992		(1,479		)
Commercial	31,204		18		(653		)	30,569		0
Total mortgage-backed securities	384,481		1,830		(4,750		)	381,561		(1,479		)
Asset-backed securities	62,552		62		(196		)	62,418		(8		)
Corporates	439,208		4,610		(1,429		)	442,390		(31		)
Total fixed maturities	1,439,878		9,271		(8,042		)	1,441,107		(1,564		)
Equity securities	68,812		27,192		0			96,004		0
Short-term investments	2,541		0		0			2,541		0
Total	$	1,511,232	$	36,463	$	(8,042	)	$	1,539,653	$	(1,564	)
December 31, 2016
Fixed maturities:
U.S. government	$	62,808	$	55	$	(377	)	$	62,485	$	0
State and municipal	477,834		2,313		(3,816		)	476,331		(51		)
Mortgage-backed securities:
Residential	343,095		2,306		(5,034		)	340,367		(1,967		)
Commercial	70,676		63		(939		)	69,801		0
Total mortgage-backed securities	413,772		2,369		(5,972		)	410,169		(1,967		)
Asset-backed securities	37,562		93		(47		)	37,608		(8		)
Corporates	400,685		4,389		(1,499		)	403,575		(41		)
Total fixed maturities	1,392,660		9,219		(11,711		)	1,390,167		(2,068		)
Equity securities	77,013		13,627		0			90,640		0
Short-term investments	2,909		0		(2		)	2,907		0
Total	$	1,472,582	$	22,846	$	(11,713	)	$	1,483,714	$	(2,068	)
December 31, 2015
Fixed maturities:
U.S. government	$	64,849	$	103	$	(282	)	$	64,669	$	0
State and municipal	472,402		7,393		(129		)	479,666		(51		)
Mortgage-backed securities:
Residential	333,554		3,678		(2,448		)	334,784		(2,374		)
Commercial	71,137		16		(929		)	70,224		0
Total mortgage-backed securities	404,691		3,694		(3,377		)	405,008		(2,374		)
Asset-backed securities	54,106		50		(138		)	54,018		(8		)
Corporates	385,462		1,281		(8,638		)	378,105		(61		)
Total fixed maturities	1,381,510		12,521		(12,564		)	1,381,467		(2,495		)
Equity securities	78,815		11,120		0			89,935		0
Short-term investments	4,656		0		(4		)	4,651		0
Total	$	1,464,981	$	23,640	$	(12,568	)	$	1,476,053	$	(2,495	)
(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.

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
December 31, 2016	Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost		Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost
December 31, 2017	Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost		Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost
Fixed maturities:
U.S. government	25	$	46,160	$	(422	)	0.9	%	16	$	14,368	$	(246	)	1.7	%
State and municipal	82	163,997		(939		)	0.6	%	5	10,529		(60		)	0.6	%
Mortgage-backed securities:
Residential	154	81,841		(453		)	0.6	%	279	127,317		(3,644		)	2.8	%
Commercial	2	3,578		(30		)	0.8	%	9	23,066		(623		)	2.6	%
Total mortgage-backed securities	156	85,419		(483		)	0.6	%	288	150,383		(4,267		)	2.8	%
Asset-backed securities	31	35,407		(193		)	0.5	%	2	1,561		(3		)	0.2	%
Corporate	104	158,788		(1,197		)	0.7	%	13	16,468		(232		)	1.4	%
Total fixed maturities	398	489,771		(3,233		)	0.7	%	324	193,309		(4,809		)	2.4	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Short-term investments	0	0		0			0.0	%	0	0		0			0.0	%
Total	398	$	489,771	$	(3,233	)	0.7	%	324	$	193,309	$	(4,809	)	2.4	%
December 31, 2016
Fixed maturities:
U.S. government	31	$	47,640	$	(377	)	0.8	%	0	$	0	$	0		0.0	%
State and municipal	146	303,428		(3,816		)	1.2	%	0	0		0			0.0	%
Mortgage-backed securities:
Residential	381	225,117		(4,559		)	2.0	%	40	11,891		(474		)	3.8	%
Commercial	14	38,002		(788		)	2.0	%	7	26,537		(150		)	0.6	%
Total mortgage-backed securities	395	263,119		(5,347		)	2.0	%	47	38,428		(625		)	1.6	%
Asset-backed securities	9	7,836		(46		)	0.6	%	1	519		(1		)	0.1	%
Corporate	98	145,089		(1,272		)	0.9	%	7	7,745		(227		)	2.8	%
Total fixed maturities	679	767,112		(10,859		)	1.4	%	55	46,693		(852		)	1.8	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Short-term investments	3	2,907		(2		)	0.1	%	0	0		0			0.0	%
Total	682	$	770,019	$	(10,861	)	1.4	%	55	$	46,693	$	(852	)	1.8	%
December 31, 2015
Fixed maturities:
U.S. government	18	$	36,024	$	(241	)	0.7	%	4	$	4,687	$	(41	)	0.9	%
State and municipal	27	54,680		(129		)	0.2	%	0	0		0			0.0	%
Mortgage-backed securities:
Residential	205	133,814		(1,436		)	1.1	%	64	39,001		(1,012		)	2.5	%
Commercial	9	28,733		(349		)	1.2	%	10	34,169		(580		)	1.7	%
Total mortgage-backed securities	214	162,547		(1,785		)	1.1	%	74	73,170		(1,592		)	2.1	%
Asset-backed securities	36	35,313		(132		)	0.4	%	2	1,153		(7		)	0.6	%
Corporate	172	239,440		(7,149		)	2.9	%	12	14,373		(1,488		)	9.4	%
Total fixed maturities	467	528,003		(9,436		)	1.8	%	92	93,384		(3,128		)	3.2	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Short-term investments	2	4,651		(4		)	0.1	%	0	0		0			0.0	%
Total	469	$	532,654	$	(9,440	)	1.7	%	92	$	93,384	$	(3,128	)	3.2	%

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.

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

	December 31, 2016		December 31, 2015
	December 31, 2017		December 31, 2016
Number of positions held with unrealized:
Gains	~~527~~496		~~602~~527
Losses	~~737~~722		~~561~~737
Number of positions held that individually exceed unrealized:
Gains of $500,000	12		21
Losses of $500,000	0		0
Percentage of positions held with unrealized:
Gains that were investment grade	8581	%	9485	%
Losses that were investment grade	97	%	8997	%
Percentage of fair value held with unrealized:
Gains that were investment grade	8481	%	9584	%
Losses that were investment grade	9795	%	8897	%

The following table sets forth the amount of unrealized losses, excluding the rabbi trust, by age and severity at December 31, ~~2016,~~2017 ($ in thousands):

Age of Unrealized Losses	Fair Value of Securities with Unrealized Losses		Total Gross Unrealized Losses			Less Than 5%*			5% - 10%*			Total Gross Greater Than 10%*
Three months or less	$	~~643~~316,~~988~~027	$	(71,~~965~~498	)	$	(71,~~922~~498	)	$	~~(43~~0	)	$	0
Four months through six months	~~117~~161,~~157~~848		(21,~~766~~620		)	(21,~~586~~620		)	~~(180~~0		)	0
Seven months through nine months	59,~~039~~020		(8086		)	(8086		)	0			0
Ten months through twelve months	3,~~836~~748		(5139		)	(5133		)	0(7		)	0
Greater than twelve months	46192,~~693~~437		(~~852~~4,799		)	(~~698~~4,387		)	(74412		)	(810		)
Total	$	~~816~~683,~~712~~080	$	(118,~~713~~042	)	$	(117,~~336~~623	)	$	(~~297~~419	)	$	(810	)


*	As a percentage of amortized cost or cost.

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

	Pre-tax
December 31, 2016	Fixed Maturities			Equity Securities			Short-Term Investments			Tax Effects			Net
December 31, 2017	Fixed Maturities			Equity Securities			Short-Term Investments			Tax Effects			Net
Unrealized holding gains (losses) on securities arising during the period	$	446		$	19,066		$	(4	)	$	(6,085	)	$	13,424
Realized losses (gains) included in net earnings	160			(5,501		)	(1		)	1,870			(3,473		)
Impairment losses recognized in net earnings	3,116			0			7			(1,093		)	2,030
Change in unrealized, net	$	3,722		$	13,565		$	2		$	(5,308	)	$	11,981
December 31, 2016
Unrealized holding (losses) gains on securities arising during the period	$	(2,153	)	$	5,359		$	(0	)	$	(1,122	)	$	2,084
Realized (gains) losses included in net earnings	(671		)	(2,851		)	3			1,232			(2,287		)
Impairment losses recognized in net earnings	375			0			0			(131		)	243
Change in unrealized, net	$	(2,449	)	$	2,508		$	2		$	(21	)	$	40
December 31, 2015
Unrealized holding losses on securities arising during the period	$	(18,699	)	$	(3,388	)	$	(4	)	$	7,732		$	(14,359	)
Realized gains included in net earnings	(2,064		)	(2,039		)	(0		)	1,436			(2,667		)
Impairment losses recognized in net earnings	1,294			0			0			(453		)	841
Change in unrealized, net	$	(19,469	)	$	(5,427	)	$	(4	)	$	8,715		$	(16,185	)
December 31, 2014
Unrealized holding gains on securities arising during the period	$	13,174		$	1,440		$	4		$	(5,116	)	$	9,502
Realized gains included in net earnings	(3,137		)	(1,303		)	(5		)	1,556			(2,889		)
Impairment losses recognized in net earnings	160			0			0			(56		)	104
Change in unrealized, net	$	10,198		$	137		$	(1	)	$	(3,617	)	$	6,717

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 to amortized cost, the amount of the impairment is separated 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 (i) the effective interest rate implicit at the date of acquisition for non-structured securities; or (ii) 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, the entire amount of the impairment is treated as a credit loss.

For our securities held with unrealized losses, we believe, based on our analysis, that we will recover our cost basis in these securities and 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.

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):

	2016			2015
	2017			2016
Balance at beginning of year	$	~~683~~557		$	~~852~~683
Reductions for securities sold and paydowns	(127		)	(168		)
Additions for:
Balance at end of year	$	557		$	683
Previously impaired securities	299			0
Newly impaired securities	13			0
Reductions for:
Reductions for securities sold and paydowns	(116		)	(127		)
Balance at end of year	$	753		$	557

The table below sets forth the scheduled maturities of fixed maturity securities at December 31, ~~2016~~2017, 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

One year or less

8427,~~529~~184

2723,~~794~~139

225,~~500~~325

~~114~~75,~~823~~648

~~114~~75,~~372~~568

After one year through five years

~~244~~245,~~604~~431

~~346~~317,~~357~~699

1131,~~557~~378

~~592~~694,~~519~~509

~~591~~693,~~872~~370

After five years through ten years

~~102~~139,~~369~~337

~~129~~69,~~751~~472

114,~~167~~449

~~233~~223,~~287~~257

~~233~~220,~~404~~275

After ten years

13,~~763~~715

13,~~679~~633

Mortgage- and asset-backed securities

~~137~~126,~~873~~679

~~309~~272,~~903~~770

044,530

~~447~~443,~~776~~979

~~451~~447,~~333~~032

Total

~~571~~542,~~138~~346

~~813~~683,~~805~~080

5215,~~224~~682

1,~~390~~441,~~167~~107

1,~~392~~439,~~660~~878

Net Investment Income

The following table shows investment income earned and investment expenses incurred ($ in thousands):

	Twelve months ended December 31,
	2016			2015			2014
	2017			2016			2015
Gross investment income:
Interest income on fixed maturities, cash and cash equivalents	$	3537,~~528~~301		$	3635,~~871~~528		$	3536,~~596~~871
Dividends on equity securities	2,~~231~~174			2,~~194~~231			2,~~245~~194
Gross investment income	3739,~~759~~476			3937,~~065~~759			3739,~~841~~065
Investment expenses	(2,~~222~~213		)	(2,~~265~~222		)	(2,~~211~~265		)
Net investment income	$	3537,~~537~~262		$	3635,~~800~~537		$	3536,~~629~~800

Note 4 Long-Term Debt

	December 31,
($ in thousands)	~~2016~~2017		~~2015~~2016
Principal	$	275,000	$	275,000
Unamortized debt issuance costs	1,~~409~~191		1,~~617~~409
Long-term debt less unamortized debt issuance costs	$	273,~~591~~809	$	273,~~383~~591

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 December 31, ~~2016~~2017, fair value of $~~278~~290.78 million using a ~~228~~125 basis point spread to the 10-year U.S. Treasury Note Yield of 23.~~446~~658%.

We paid interest on long-term debt of $13.8 million for each of the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015.

4446

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 5 Income Taxes

In the years ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, we paid $628.73 million, $286.57 million and $2028.95 million, respectively, in taxes. The following is a reconciliation of income taxes at the statutory rate of 35.0% to the effective provision for income taxes as shown in the Consolidated Statements of Earnings ($ in thousands):

	Twelve months ended December 31,
	2016			2015			2014
	2017			2016			2015
Earnings before income taxes	$	6280,~~132~~727		$	7462,~~832~~132		$	8374,~~138~~832
Income taxes at statutory rate	2128,~~746~~254			2621,~~191~~746			2926,~~098~~191
Effect of:
Dividends-received deduction	(~~466~~455		)	(~~458~~466		)	(~~469~~458		)
Tax-exempt interest	(2,~~456~~442		)	(2,~~713~~456		)	(2,~~752~~713		)
Other	~~223~~(198		)	~~331~~223			59331
Provision for income taxes as shown on the Consolidated Statements of Earnings	$	19,047		$	23,351		$	25,936
Deferred tax rate adjustment	10,184			$	0		$	0
GAAP effective tax rate	30.7		%	31.2		%	31.2		%
Provision for income taxes as shown on the Consolidated Statements of Earnings	$	35,343		$	19,047		$	23,351
GAAP effective tax rate	43.8		%	30.7		%	31.2		%

The total income tax provision consists of ($ in thousands):

	2016		2015		2014
	2017		2016		2015
Current	$	1430,~~782~~332	$	2314,~~133~~782	$	2523,~~342~~133
Deferred	45,~~265~~011		~~218~~4,265		~~594~~218
Provision for income taxes	$	1935,~~047~~343	$	2319,~~351~~047	$	2523,~~936~~351

Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The significant components of deferred tax assets and liabilities included in the Consolidated Balance Sheets were as follows ($ in thousands):

	As of December 31,
	2016			2015
	2017			2016
Deferred tax assets:
Discount on loss reserves	$	45,~~853~~862		$	54,~~344~~853
Unearned premium reserve	4226,~~844~~358			42,~~788~~844
Bad debts	43,~~972~~205			54,~~385~~972
Accrued bonuses	21,~~250~~937			12,~~863~~250
Deferred compensation	63,~~152~~966			56,~~827~~152
Long-term incentive compensation	~~814~~740			~~1,081~~814
Other	52,~~089~~683			45,~~681~~089
Gross deferred tax assets	6644,~~974~~751			66,~~969~~974
Valuation allowance for deferred tax assets	(~~326~~195		)	(~~166~~326		)
Total deferred tax assets	6644,~~648~~556			66,~~803~~648
Deferred tax liabilities:
Deferred policy acquisition costs	(3118,~~897~~543		)	(3231,~~605~~897		)
Investment securities – unrealized gains	(35,~~896~~966		)	(3,~~875~~896		)
Fixed assets	(52,~~037~~379		)	0(5,037		)
Other	(1,405		)	(1,592		)
Loss reserve transition liability	(3,120		)	0
Total deferred tax liabilities	(42,235		)	(38,072		)
Other	(382		)	(1,405		)
Net deferred tax assets	24,413			28,731
Total deferred tax liabilities	(30,390		)	(42,235		)
Current income tax (payable) receivable	(2,778		)	5,195
Net deferred tax assets	14,166			24,413
Current and deferred income taxes	$	21,635		$	33,926
Current income tax payable	(4,811		)	(2,778		)
Current and deferred income taxes	$	9,355		$	21,635

AnThe ~~analysis~~Tax isCuts ~~performed~~and Jobs Act (TCJA) was enacted on aDecember ~~quarterly~~22, ~~basis~~2017, toand ~~determine~~reduced ifthe ~~there~~federal iscorporate ~~sufficient~~tax ~~evidence~~rate ~~that~~from it35% isto ~~more~~21%, ~~likely~~effective ~~than~~January ~~not~~1, ~~that~~2018. ~~the~~The deferred tax assets ~~will~~and bedeferred ~~recognized~~tax ~~for~~liabilities ~~tax~~as ~~purposes.~~of ~~The~~December ~~evidence~~31, ~~that~~2017, ishave ~~considered~~been incalculated ~~assessing~~based on the ~~need~~new ~~for~~enacted atax ~~valuation~~rate, ~~allowance~~which ~~includes:~~resulted ~~(i)~~in ~~sufficient~~a ~~future~~net ~~taxable~~deferred ~~income;~~tax ~~(ii)~~rate ~~sufficient~~adjustment ~~ordinary~~of ~~and~~$10.2 ~~capital~~million ~~taxable~~recorded in the provision for income intaxes. ~~carryback~~The ~~periods;~~TCJA ~~(iii)~~also ~~the~~made ~~reversals~~changes ofto ~~existing~~the ~~taxable~~way ~~temporary~~companies ~~differences;~~are ~~and~~allowed ~~(iv)~~to ~~tax~~calculate ~~planning~~their ~~strategies~~tax ~~that~~loss ~~could~~reserve bediscount ~~utilized~~factors. toThe ~~accelerate~~TCJA requires the ~~recognition~~use of ~~capital~~industry ~~gains~~payout inpatterns and revised the ~~future.~~method ~~Based~~of oncalculating ~~this~~the ~~evaluation,~~interest itrates isfor ~~management’s~~purposes ~~belief~~of ~~the~~tax ~~only~~loss ~~valuation~~reserve ~~allowance~~discounting. ~~required~~The atTCJA ~~December 31~~requires companies to revalue their tax loss reserves as of January 1, ~~2016~~2018, ~~and~~based on December 31, ~~2015,~~2018 ~~relates~~discount tofactors. This results in a ~~net~~grossed ~~operating~~up ~~loss~~deferred ~~carryover~~tax ~~generated~~asset byrelating anto ~~inactive~~tax ~~company~~loss ~~that~~reserves ~~previously~~and ~~filed~~the onestablishment of a ~~separate~~deferred ~~company~~tax ~~basis.~~liability Infor ~~2016~~the wetransition ~~purchased~~loss ~~the~~that ~~remaining~~will ~~49%~~be ofrecognized ~~this~~ratably ~~company’s~~over ~~stock~~eight ~~resulting~~years, inboth ~~their~~of ~~inclusion~~which are reflected in the ~~consolidated~~above ~~income~~December ~~tax~~31, ~~return~~2017 balances. ~~Due~~Since tothe December 31, 2018 discount factors, and the ~~limitations~~exact ~~that~~methodology ~~will~~used ~~apply~~to calculate the interest rate used to ~~utilizing~~determine the ~~subsidiary’s~~discount ~~net~~factors, ~~operating~~have ~~loss~~not been released, both the ~~valuation~~gross-up ~~allowance~~of ~~equals~~the ~~100%~~tax ofloss reserve deferred tax asset and the ~~subsidiary’s~~setup ~~net~~of ~~operating~~the transitional loss, ~~which~~deferred tax liability have been computed on what we believe is a reasonable estimate under SAB 118. These balances will ~~start~~be ~~expiring~~revised inwhen ~~the~~published ~~year~~discount ~~2028~~factors are made available.

WeAn ~~did~~analysis is performed on a quarterly basis to determine if there is sufficient evidence that it is more likely than not ~~have~~that ~~any~~the ~~gross~~deferred ~~unrecognized~~tax assets will be recognized for tax ~~benefits~~purposes. The evidence that ~~would~~is ~~exceed~~considered in assessing the need for a ~~materiality~~valuation ~~threshold~~allowance includes: (i) sufficient future taxable income; (ii) sufficient ordinary and ~~therefore,~~capital ~~there~~taxable ~~was~~income noin ~~reduction~~carryback periods; (iii) the reversals of existing taxable temporary differences; and (iv) tax planning strategies that could be utilized to ~~Retained~~accelerate ~~Earnings~~the recognition of capital gains in ~~our~~the ~~Consolidated~~future. ~~Balance~~Based ~~Sheets~~on this evaluation, it is management’s belief the only valuation allowance required at ~~January~~December 31, 12017, and December 31, 2016, relates to a net operating loss carryover generated by an inactive company that previously filed on a separate company basis. ~~The~~In ~~gross~~2016 ~~unrecognized~~we purchased the remaining 49% of this company’s stock resulting in their inclusion in the consolidated income tax ~~benefit~~return. ~~did~~Due ~~not~~to ~~exceed~~the limitations that will apply to utilizing the ~~materiality~~subsidiary’s ~~threshold~~net asoperating loss, the valuation allowance equals 100% of ~~December 31~~the subsidiary’s net operating loss, ~~2016~~which will start expiring in the year 2028. The reduction in the valuation allowance is attributable to the reduction in the enacted tax rate.

~~The~~We ~~Company~~did is not ~~currently~~have ~~under~~any ~~examination~~gross byunrecognized ~~the~~tax ~~IRS~~benefits ~~and~~that ~~the~~would ~~statute~~exceed ofa ~~limitations~~materiality ~~has~~threshold ~~expired~~and ~~for~~therefore, ~~all~~there ~~years~~was ~~prior~~no reduction to ~~2013~~Retained Earnings in our Consolidated Balance Sheets at January 1, 2017. The gross unrecognized tax benefit did not exceed the materiality threshold as of December 31, 2017.

The Company is not currently under examination by the IRS and the statute of limitations has expired for all years prior to 2014.

Note 6 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):

	Twelve months ended December 31,
	2016		2015		2014
	2017		2016		2015
Net earnings	$	4345,~~085~~384	$	5143,~~481~~085	$	5751,~~201~~481
Average basic shares outstanding	1110,~~018~~984		11,~~334~~018		11,~~440~~334
Basic net earnings per share	$	34.9113	$	43.5491	$	54.0054
Average basic shares outstanding	1110,~~018~~984		11,~~334~~018		11,~~440~~334
Restricted stock not vested	2622		1626		3716
Dilutive effect of assumed option exercises	0		0		1
Dilutive effect of Performance Share Plan	62		57		67
Dilutive effect of Performance Share Plan	57		67		84
Average diluted shares outstanding	11,067		11,101		11,417
Average diluted shares outstanding	11,101		11,417		11,562
Diluted net earnings per share	$	4.10	$	3.88	$	4.51
Diluted net earnings per share	$	3.88	$	4.51	$	4.95

Note 7 Share-Based Compensation

We established the Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”), which was approved by the Company’s shareholders on May 21, 2013. Under the 2013 Plan, 750,000 shares are authorized and reserved for issuance. Upon the approval by the shareholders of the 2013 Plan, we became prohibited from issuing any further grants under the Restricted Stock Plan, Directors’ Plan, Performance Share Plan, or Stock Option Plan (collectively, the "Prior Plans"). However, all outstanding awards under the Prior Plans remain outstanding and will continue to be administered and settled with the applicable provisions of the Prior Plans. We have a policy of issuing new stock for shares issued under the 2013 Plan.

The number of shares issued, net of forfeitures, by plan, for share-based compensation arrangements was as follows:

	2016	2015		2014
	2017	2016	2015
	2013 Plan	2013 Plan	~~Prior~~2013 ~~Plans~~Plan	~~2013~~Prior ~~Plan~~Plans	~~Prior Plans~~
Restricted Stock	014,500	~~(1,613)~~0	0(1,613)	~~46,328~~0	0
Non-employee Directors’ Stock	76,~~596~~680	7,~~013~~596	07,013	~~8,016~~0	0
Performance Shares	2432,~~123~~765	024,123	~~37,155~~0	037,155	~~55,245~~
Total	3153,~~719~~945	531,~~400~~719	375,~~155~~400	5437,~~344~~155	~~55,245~~

The amount of total compensation cost for share-based compensation arrangements was as follows ($ in thousands):

	Twelve months ended December 31,
	2016				2015				2014
	2017				2016				2015
	ExpenseRecognized inEarnings		TaxBenefit		ExpenseRecognized inEarnings		TaxBenefit		ExpenseRecognized inEarnings		TaxBenefit
Restricted Stock	$	~~1,037~~765	$	~~363~~161	$	~~799~~1,037	$	~~280~~363	$	~~1,126~~799	$	~~394~~280
Non-employee Directors’ Stock Ownership Plan	~~600~~646		~~210~~226		~~510~~600		~~178~~210		~~520~~510		~~182~~178
Employee Stock Purchase Plan	4650		0		4546		0		5545		0
Performance Shares	~~661~~3,135		~~231~~658		~~1,795~~661		~~628~~231		~~933~~1,795		~~327~~628
Total	$	24,~~343~~596	$	~~804~~1,045	$	32,~~148~~343	$	~~1,086~~804	$	23,~~634~~148	$	~~903~~1,086

Restricted Stock

On August 5, 2014, the Committee approved the grant of ~~restricted~~37,244 ~~stock~~shares to certain officers under the 2013 Plan. Awhich ~~total~~vested ~~of 37,244 shares will vest~~ in full on August 5, 2017. On October 19, ~~with~~2015, the ~~remaining~~Committee approved the grant of 7,471 ~~vesting~~shares that will vest in full on October 19, 2018. AsOn ofNovember ~~December 31~~2, ~~2016~~2017, the ~~weighted-average~~Committee ~~grant~~approved ~~date~~the ~~fair~~grant ~~value~~ of ~~these 44~~14,~~715~~500 shares ~~was~~that ~~$69~~will vest in full on November 2, 2020.~~54.~~ During the vesting period, the shares of restricted stock will not have voting rights but will accrue dividends, which we will not pay until the shares have vested. We treat the restricted shares as issued and outstanding for calculation of diluted earnings per share only. Until fully vested, we will not consider the shares issued and outstanding for purposes of the basic earnings per share calculation.

The following table sets forth the restricted stock activity for the year ended December 31, 2017:



Restricted Stock	Number of Shares		Weighted-average Grant Date Fair Value
Non-vested as of January 1, 2017	44,715		$	69.54
Vested	(37,244	)	$	67.04
Granted	14,500		$	93.7
Non-vested as of December 31, 2017	21,971		$	89.73

Non-employee Directors’ Stock

Shares are issued to non-employee directors on or about June 1 of each year as part of their compensation. We restrict these shares from sale or transfer by any recipient for six months from the grant date. These shares are treated as issued and outstanding for basic and diluted earnings per share calculations.

Performance Shares

The purpose of the Performance Shares is to align further the interest of management with our long-term shareholders by including performance-based compensation, payable in shares of common stock, as a component of an executive’s annual compensation. The Committee administers the Performance Shares and (i) establishes the performance goals, which may include but are not limited to, combined ratio, premium growth, growth within certain geographic areas and earnings per share or return on equity over the course of the upcoming three-year period; (ii) determines the Performance Share participants; (iii) sets the performance share units to be awarded to such participants; and (iv) sets the rate at which performance share units will convert to shares of common stock based upon attainment of the performance goals.

Employee Stock Purchase Plan

Under the employee stock purchase plan (ESPP), all eligible full-time employees may purchase shares of our common stock at a 15% discount to the current market price. Employees may allocate up to 25% of their base salary with a maximum annual participation amount of $25,000. If a participant sells any shares purchased under the ESPP within one year, we preclude that employee from participating in the ESPP for one year from the date of sale. The source of shares issued to participants is treasury shares or authorized but previously unissued shares. The maximum number of shares that we may issue under the ESPP may not exceed 1,000,000, of which we have issued 7276,~~989~~526 as of December 31, ~~2016~~2017. Our ESPP is qualified under Section 423 of the Internal Revenue Code of 1986, as amended. We treat participants’ shares as issued and outstanding for basic and diluted earnings per share calculations.

Note 8 Benefit Plans

We provide retirement benefits for all eligible employees by matching contributions made on participants' discretionary basis to participants' accounts in our qualified 401(k) Retirement Plan. Eligible employees may contribute up to a maximum of the lesser of $18,000 per year or 25% of the participant's salary in ~~2016~~2017. Participants age 50 or over at the end of the calendar year may make an additional elective deferral contribution of up to $6,000 for ~~2016~~2017. These additional contributions (commonly referred to as catch-up contributions) are not subject to the general limits that apply to 401(k) plans. The matching percentage made by us was 100% of participants' contributions up to a ceiling of 4% and 50% of the next 2% of contributions with a maximum match of $13,~~250~~500 in ~~2016~~2017. The plan expense was $5.15 million, $45.91 million and $54.19 million for the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively.

Our Supplemental Employee Retirement Plan (SERP) is a non-qualified deferred compensation plan that enables eligible employees to make contributions and to receive employer-matching contributions that the provisions of the 401(k) Retirement Plan or laws preclude due to limits on compensation. We contributed $0.1 million to the SERP for each of the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015. We maintain a rabbi trust that includes investments to fund the SERP. As of December 31, ~~2016~~2017, investments in the rabbi trust totaled $2.06 million. We reflected these investments at fair value as equity securities on the Consolidated Balance Sheets.

We maintain a non-qualified deferred compensation plan for certain highly compensated employees, which permits the participants to defer a portion of their salaries and bonuses. The deferred amounts accrue interest at our approximate long-term borrowing rate. The deferred amounts are our general obligation liability and amounted to $1718.69 million, $1617.6 million and $1516.36 million at December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, respectively. We credited interest of approximately $0.7 million, $0.67 million and $0.76 million for these same periods.

We also provide post-retirement medical and life insurance benefits to certain eligible retirees. We have determined that the benefits provided under this plan are actuarially equivalent to those benefits provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). Our calculation of the accumulated post-retirement benefit obligation (APBO) as of December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015 does not reflect the government subsidy provided by the MMA, other than as reflected in the insured over 65 rates going forward.

Unrecognized actuarial gains of $10.29 million ($0.86 million net of tax) and prior service costs of $0.21 million ($0.1 million net of tax) that have not yet been recognized in net periodic post-retirement benefit costs are included in accumulated other comprehensive income at December 31, ~~2016~~2017. We expect to recognize a $0.1 million actuarial gain and $0.1 million of amortization of prior service costs in net periodic post-retirement benefit income during the fiscal year ending December 31, ~~2017~~2018.

We recognized the unfunded status of the APBO plan of $3.68 million at December 31, ~~2016~~2017, in the Consolidated Balance Sheets. We expect no plan assets to be returned to us during the fiscal year ended December 31, ~~2017~~2018.

The following tables show data related to the APBO plan ($ in thousands):

	2016			2015
	2017			2016
Net benefit obligation at beginning of year	$	3,~~729~~613		$	43,~~313~~729
Service cost	~~183~~173			~~235~~183
Interest cost	~~132~~125			~~146~~132
Participant contributions	3731			3037
Assumption change	44168			~~(280~~44		)
Actuarial gain	(~~176~~14		)	(~~425~~176		)
Gross benefits paid	(~~338~~326		)	(~~289~~338		)
Net benefit obligation at end of year	$	3,~~613~~769		$	3,~~729~~613

The following table discloses the components of net periodic post-retirement benefit cost ($ in thousands):

	2016			2015			2014
	2017			2016			2015
Service cost	$	~~183~~173		$	~~235~~183		$	~~198~~235
Interest cost	~~132~~125			~~146~~132			~~150~~146
Amortization of prior service cost	71			71			71
Amortization of net cumulative gain	(~~114~~121		)	(5114		)	(815		)
Net periodic post-retirement benefit cost	$	~~273~~247		$	~~447~~273		$	~~339~~447

The following table discloses discount rates used to determine benefit obligations:

	2016	2015	2014
	2017	2016	2015
Discount rate	3.6020%	3.7060%	3.5070%

The weighted average health care cost trend rate used in measuring the accumulated post-retirement benefit cost is 87.05% for ~~2017~~2018, declining to 5.0% in 2038.

The following table discloses the effects of a hypothetical one percentage point increase and the effects of a hypothetical one percentage point decrease in the assumed healthcare trend rate ($ in thousands):

	2016			2015			2014
	2017			2016			2015
A one percentage point hypothetical change in the assumed healthcare trend rate would have the following effect on the post-retirement benefit obligations:
1% increase	$	~~184~~188		$	~~304~~184		$	~~396~~304
1% decrease	(~~162~~172		)	(~~269~~162		)	(~~348~~269		)
A one percentage point hypothetical change in the assumed healthcare trend rate would have the following effect on the aggregate of the service and interest cost components of net periodic post-retirement healthcare benefit costs:
1% increase	$	4036		$	4940		$	4049
1% decrease	(3431		)	(4234		)	(3442		)

The following table reconciles the beginning and ending balances of the fair value of plan assets for the years ended December 31, ~~2016~~2017, and ~~2015~~2016 ($ in thousands):

	2016			2015
	2017			2016
Fair value of plan assets at beginning of year	$	0		$	0
Employer contributions	~~301~~295			~~259~~301
Participant contributions	3731			3037
Gross benefits paid	(~~338~~326		)	(~~289~~338		)
Fair value of plan assets at end of year	$	0		$	0

The following table presents the funded status and the amounts recognized in the Consolidated Balance Sheets ($ in thousands):

	2016			2015
	2017			2016
Fair value of plan assets	$	0		$	0
Benefit obligations	(3,~~613~~769		)	(3,~~729~~613		)
Funded status at end of year	(3,~~613~~769		)	(3,~~729~~613		)
Contributions made after the measurement date	0			0
Unrecognized actuarial net (gain) loss	0			0
Unrecognized prior service cost	0			0
Net amount recognized at end of year	$	(3,~~613~~769	)	$	(3,~~729~~613	)

The following table presents the 10-year forecast and best estimate of expected benefit payments ($ in thousands):

	2016			2015			2014
	2017			2016			2015
2017	$	295	2016	$	301	2015	$	259
2018	$	266	2017	$	295	2016	$	301
2018	287		2017	280		2016	294
2019	276		2018	287		2017	280
2019	289		2018	281		2017	304
2020	283		2019	289		2018	281
2020	281		2019	294		2018	314
2021	280		2020	281		2019	294
2021	283		2020	287		2019	337
2022	287		2021	283		2020	287
2022-2026	1,549		2021-2025	1,583		2020-2024	1,840
2023-2027	1,627		2022-2026	1,549		2021-2025	1,583
10-Year Total	$	23,~~983~~020		$	32,~~026~~983		$	3,~~348~~026

Our best estimate of contributions expected to be paid to the plan during the fiscal year beginning January 1, ~~2017~~2018, is $0.3 million.

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 9 Quarterly Operating Results (Unaudited)

While we recognize insurance premium on a relatively level basis, claim losses related to adverse weather (snow, hail, hurricanes, tornadoes, etc.) and customer driving behavior may be seasonal. Quarterly results rely heavily on estimates and are not necessarily indicative of results for longer periods.

The following are quarterly results of our consolidated operations for the three years ended December 31, ~~2016~~2017, ($ in thousands, except per share amounts):

2016	1st Quarter		2nd Quarter			3rd Quarter			4th Quarter		Total Year
2017	1st Quarter		2nd Quarter			3rd Quarter			4th Quarter		Total Year
Revenues	$	377,797	$	376,886		$	380,701		$	382,602	$	1,517,987
Net earnings	10,646		5,046			14,978			14,713		45,384
Net earnings per share:
Basic	$	0.97	$	0.46		$	1.36		$	1.35	$	4.13
Diluted	0.96		0.46			1.35			1.34		4.10
2016
Revenues	$	370,162	$	375,084		$	378,124		$	415,336	$	1,538,706
Net earnings	7,708		11,015			2,753			21,609		43,085
Net earnings per share:
Basic	$	0.70	$	1.00		$	0.25		$	1.96	$	3.91
Diluted	0.69		0.99			0.25			1.95		3.88
2015
Revenues	$	366,973	$	374,757		$	372,383		$	369,919	$	1,484,032
Net earnings	11,154		13,493			15,737			11,097		51,481
Net earnings per share:
Basic	$	0.98	$	1.18		$	1.39		$	0.99	$	4.54
Diluted	0.97		1.18			1.38			0.99		4.51
2014
Revenues	$	361,613	$	367,954		$	366,160		$	365,982	$	1,461,709
Net earnings	10,327		10,667			14,855			21,352		57,201
Net earnings per share:
Basic	$	0.90	$	0.93		$	1.30		$	1.87	$	5.00
Diluted	0.89		0.92			1.29			1.85		4.95
Net realized gains (losses) on investments amounted to:
	1st Quarter		2nd Quarter			3rd Quarter			4th Quarter		Total Year
2016	$	139	$	(164	)	$	1,282		$	1,887	$	3,145
2017	$	509	$	1,886		$	(431	)	$	256	$	2,220
2016	139		(164		)	1,282			1,887		3,145
2015	1,169		214			(410		)	1,835		2,809
2014	645		1,846			1,013			781		4,284

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INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 10 Insurance Reserves

The following table provides an analysis of changes in the liability for losses and LAE, net of reinsurance ($ in thousands):

	2016			2015			2014
	2017			2016			2015
Balance at Beginning of Period
Unpaid losses on known claims	$	~~237~~238,~~660~~412		$	~~235~~237,~~037~~660		$	~~221~~235,~~447~~037
IBNR losses	~~290~~306,~~097~~641			~~277~~290,~~482~~097			~~262~~277,~~660~~482
LAE	~~142~~140,~~207~~402			~~155~~142,~~658~~207			~~162~~155,~~469~~658
Total unpaid losses and LAE	~~669~~685,~~965~~455			~~668~~669,~~177~~965			~~646~~668,~~577~~177
Reinsurance recoverables	(1417,~~694~~130		)	(14,~~370~~694		)	(14,~~431~~370		)
Unpaid losses and LAE, net of reinsurance recoverables	~~655~~668,~~271~~325			~~653~~655,~~808~~271			~~632~~653,~~146~~808
Current Activity
Loss and LAE incurred:
Current accident year	1,~~120~~072,~~756~~191			1,~~064~~120,~~927~~756			1,~~019~~064,~~033~~927
Prior accident years	(2418,~~001~~494		)	(2824,~~926~~001		)	(1728,~~405~~926		)
Total loss and LAE incurred	1,~~096~~053,~~755~~697			1,~~036~~096,~~001~~755			1,~~001~~036,~~628~~001
Loss and LAE payments:
Current accident year	(~~687~~657,~~554~~252		)	(~~656~~687,~~317~~554		)	(~~602~~656,~~732~~317		)
Prior accident years	(~~396~~381,~~147~~281		)	(~~378~~396,~~221~~147		)	(~~377~~378,~~235~~221		)
Total loss and LAE payments	(1,~~083~~038,~~701~~533		)	(1,~~034~~083,~~538~~701		)	(~~979~~1,~~967~~034,538		)
Balance at End of Period
Unpaid losses and LAE, net of reinsurance recoverables	~~668~~683,~~325~~489			~~655~~668,~~271~~325			~~653~~655,~~808~~271
Add back reinsurance recoverables	1731,~~130~~609			1417,~~694~~130			14,~~370~~694
Total unpaid losses and LAE	~~685~~715,~~455~~098			~~669~~685,~~965~~455			~~668~~669,~~177~~965
Unpaid losses on known claims	~~238~~264,~~412~~470			~~237~~238,~~660~~412			~~235~~237,~~037~~660
IBNR losses	~~306~~312,~~641~~516			~~290~~306,~~097~~641			~~277~~290,~~482~~097
LAE	~~140~~138,~~402~~112			~~142~~140,~~207~~402			~~155~~142,~~658~~207
Total unpaid losses and LAE	$	~~685~~715,~~455~~098		$	~~669~~685,~~965~~455		$	~~668~~669,~~177~~965

The ~~$17.4~~following ~~million~~tables ~~favorable~~provide ~~reserve~~incurred ~~development~~losses ~~during~~and allocated loss adjustment expenses (ALAE) as well as cumulative paid claims and ALAE, net of reinsurance, for the ~~twelve~~prior ~~months~~ten ~~ended~~accident ~~December~~years 31for our two largest lines of business. In addition, ~~2014~~as of the most recent reporting period, ~~was~~the ~~primarily~~total ~~due~~of toincurred ~~decreases~~but innot ~~California~~reported ~~property~~(IBNR) ~~damage~~reserves ~~severity~~plus ~~estimates~~expected development on reported claims and the cumulative number of reported claims are presented ($ in ~~both~~thousands, except severity). The information about incurred and ~~frequency~~paid ~~estimates~~claims indevelopment ~~Florida~~for ~~bodily~~the ~~injury~~years ~~coverages,~~ended ~~all~~December ~~related~~31, 2008 to ~~accident~~December ~~year~~31, ~~2013.~~2016 is presented as supplementary information.

The following tables provide incurred losses and allocated loss adjustment expenses (ALAE) as well as cumulative paid claims and ALAE, net of reinsurance, for the prior ten accident years for our two largest lines of business. In addition, as of the most recent reporting period, the total of incurred but not reported (IBNR) reserves plus expected development on reported claims and the cumulative number of reported claims are presented ($ in thousands, except severity). The information about incurred and paid claims development for the years ended December 31, 2007 to December 31, 2015 is presented as supplementary information.



	Personal Auto - Liability
Accident Year	Incurred losses and ALAE, net of reinsurance recoverable For the years ended December 31,																				IBNR & expected development on reported claims		Cumulative number of reported claims ⁽¹⁾	Severity ⁽²⁾
	(unaudited)
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017		2017	2017
2008	$	370,950	$	365,395	$	348,841	$	344,914	$	342,775	$	343,137	$	341,566	$	340,998	$	340,785	$	340,829	$	70	151,692	$	2,246
2009			357,137		336,224		334,823		333,895		332,731		330,929		330,315		330,152		330,394		143		145,958	2,263
2010					386,452		400,888		404,963		406,602		404,872		406,279		404,807		405,351		348		170,120	2,381
2011							425,619		453,746		459,406		458,171		459,418		456,862		457,242		551		187,717	2,433
2012									521,603		540,012		540,572		541,696		538,233		536,492		1,391		216,394	2,473
2013											588,566		589,991		575,727		568,481		568,744		5,325		219,395	2,568
2014													569,899		572,955		561,861		562,673		14,989		213,517	2,565
2015															583,490		582,177		581,699		24,375		216,638	2,573
2016																	596,021		582,451		45,447		212,174	2,531
2017																			550,769		159,366		185,635	2,108
																	Total		$	4,916,644

		Personal Auto
Accident Year		Cumulative paid losses and ALAE, net of reinsurance recoverableFor the years ended December 31,
Accident Year		Incurred losses and ALAE, net of reinsurance recoverable For the years ended December 31,																				IBNR & expected development on reported claims		Cumulative number of reported claims (1)	Severity (2)
		(unaudited)
		(unaudited)
		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2016		2016	2016
2008		$	164,563	$	284,203	$	317,660	$	331,628	$	336,700	$	339,436	$	340,305	$	340,495	$	340,649	$	340,726
2007		$	600,087	$	612,555	$	596,818	$	585,525	$	582,153	$	578,186	$	578,429	$	577,799	$	577,577	$	577,777	$	0	283,087	$	2,041
2009				153,561		270,633		309,115		322,313		326,575		328,647		329,386		329,793		330,032
2008				545,873		533,293		517,125		513,175		511,141		511,490		509,922		509,250		509,058		4		247,202	2,059
2010						182,160		332,625		374,717		391,125		397,254		401,597		403,976		404,805
2009						497,393		473,328		472,772		471,867		471,714		472,523		473,000		473,359		10		230,828	2,051
2011								201,769		374,930		423,456		442,710		450,718		454,637		456,030
2010								541,302		554,167		557,592		559,253		557,625		558,936		557,477		16		270,702	2,059
2012										246,387		444,359		501,466		521,104		529,190		533,039
2011										608,636		633,011		638,400		637,569		638,507		635,905		578		307,904	2,063
2013												271,961		477,408		530,162		548,631		556,695
2012												739,820		750,522		751,262		751,601		748,166		5,644		360,236	2,061
2014														270,893		470,297		521,257		539,701
2013														805,039		805,460		789,428		782,369		11,736		364,784	2,113
2015																282,064		488,501		537,670
2014																807,278		796,084		784,928		21,812		354,013	2,156
2016																		290,108		483,874
2015																		839,059		841,144		41,629		365,037	2,190
2017																				265,959
2016																				874,326		206,058		343,254	1,947
		Total																		$	4,448,532
																		Total		$	6,784,508
Outstanding liabilities for unpaid losses and ALAE prior to 2008, net of reinsurance recoverable																				1,116
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance recoverable																				$	469,228
(1)	The cumulative number of reported claims is measured by individual claimant at a coverage level.
(2)	Calculated severity amounts by accident year are based on inception-to-date incurred less IBNR and expected development dollars and reported claims. Note that older accident years are more developed than recent accident years.

Accident Year		Cumulative paid losses and ALAE, net of reinsurance recoverableFor the years ended December 31,
		Personal Auto - Physical Damage
		(unaudited)
Accident Year		Incurred losses and ALAE, net of reinsurance recoverable For the years ended December 31,																				IBNR & expected development on reported claims			Cumulative number of reported claims (1)	Severity (2)
		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
		(unaudited)
2007		$	359,059	$	522,711	$	556,520	$	568,792	$	574,082	$	575,600	$	576,656	$	577,147	$	577,383	$	577,640
		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017			2017	2017
2008		$	174,923	~~320,317~~$	167,898	~~453,092~~$	168,284	~~485,866~~$	168,261	~~499,876~~$	168,366	~~505,063~~$	168,353	~~507,822~~$	168,356	~~508,674~~$	168,252	~~508,831~~$	168,272	~~508,960~~$	168,299	$	—		95,511	$	1,762
2009				140,256		~~285~~137,~~154~~104		~~408~~137,~~535~~949		~~447~~137,~~178~~972		~~460~~138,~~463~~983		~~465~~141,~~453~~594		~~470~~142,~~032~~685		~~471~~143,~~789~~208		~~473~~144,~~074~~613		—			84,871	1,704
2010						154,850		~~325~~153,~~911~~279		~~485~~152,~~920~~628		~~527~~152,~~538~~651		~~543~~152,~~884~~753		~~550~~152,~~025~~656		~~554~~152,~~410~~670		~~556~~152,~~781~~772		—			100,585	1,519
2011								183,016		~~374~~179,~~367~~265		~~554~~178,~~245~~993		~~602~~179,~~523~~399		~~621~~179,~~919~~090		~~629~~179,~~992~~043		~~633~~179,~~861~~128		—			120,196	1,490
2012										218,216		~~450~~210,~~434~~510		~~655~~210,~~303~~690		~~711~~209,~~636~~905		~~731~~209,~~205~~933		~~739~~209,~~354~~994		(0		)	143,891	1,459
2013												216,472		~~480~~215,~~464~~469		~~692~~213,~~039~~701		~~744~~213,~~188~~888		~~762~~214,~~770~~007		70			145,504	1,470
2014														237,379		~~485~~223,~~384~~130		~~694~~223,~~607~~068		~~744~~223,~~687~~014		157			140,849	1,582
2015																255,569		~~530~~258,~~264~~967		~~748~~258,~~850~~293		418			149,543	1,724
2016																		278,305		~~554~~269,~~216~~680		1,533			147,334	1,820
		Total																		$	6,300,193
2017																				265,045		28,822			135,189	1,747
Outstanding liabilities for unpaid losses and ALAE prior to 2007, net of reinsurance recoverable																				1,230
																		Total		$	2,084,845
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance recoverable																				$	485,545
(1)	The cumulative number of reported claims is measured by individual claimant at a coverage level.
(2)	Calculated severity amounts by accident year are based on inception-to-date incurred less IBNR and expected development dollars and reported claims. Note that older accident years are more developed than recent accident years.

		Commercial Vehicle
Accident Year		Cumulative paid losses and ALAE, net of reinsurance recoverableFor the years ended December 31,
Accident Year		Incurred losses and ALAE, net of reinsurance recoverableFor the years ended December 31,																				IBNR & expected development on reported claims		Cumulative number of reported claims (1)	Severity (2)
		(unaudited)
		(unaudited)
		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2016		2016	2016
2008		$	155,754	$	168,890	$	168,207	$	168,248	$	168,363	$	168,386	$	168,368	$	168,336	$	168,311	$	168,299
2007		$	25,689	$	23,743	$	23,028	$	21,935	$	21,099	$	20,781	$	20,674	$	20,639	$	20,631	$	20,631	$	0	6,356	$	3,246
2009				131,593		137,902		138,063		138,150		138,878		141,385		142,403		143,282		143,363
2008				24,457		21,187		18,960		18,893		18,320		18,045		17,973		17,996		17,996		0		6,595	2,729
2010						143,751		153,295		152,821		152,759		152,770		152,812		152,805		152,797
2009						35,627		31,903		31,226		28,943		27,598		27,533		27,402		27,385		0		9,059	3,023
2011								172,598		179,315		179,066		179,209		179,274		179,224		179,196
2010								41,321		39,149		35,881		34,539		33,397		33,845		33,460		44		11,202	2,983
2012										204,047		210,945		210,170		210,102		210,164		210,119
2011										40,294		39,094		36,202		35,052		35,130		34,507		60		11,497	2,996
2013												208,503		214,631		214,026		214,139		214,138
2012												51,085		46,950		46,284		46,405		45,832		706		13,118	3,440
2014														214,491		224,311		223,430		223,204
2013														62,157		51,438		52,083		51,407		1,123		14,426	3,486
2015																248,200		260,349		258,747
2014																65,724		63,304		64,682		2,128		16,735	3,738
2016																		264,108		271,370
2015																		81,849		84,314		3,271		20,043	4,043
2017																				251,865
2016																				95,536		29,491		20,309	3,252
		Total																		$	2,073,098
																		Total		$	475,750
Outstanding liabilities for unpaid losses and ALAE prior to 2008, net of reinsurance recoverable																				4
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance recoverable																				$	11,752
(1)	The cumulative number of reported claims is measured by individual claimant at a coverage level.
(2)	Calculated severity amounts by accident year are based on inception-to-date incurred less IBNR and expected development dollars and reported claims. Note that older accident years are more developed than recent accident years.

Accident Year		Cumulative paid losses and ALAE, net of reinsurance recoverable For the years ended December 31,
		Commercial Auto - Liability
		(unaudited)
Accident Year		Incurred losses and ALAE, net of reinsurance recoverableFor the years ended December 31,																				IBNR & expected development on reported claims		Cumulative number of reported claims (1)	Severity (2)
		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
		(unaudited)
2007		$	9,570	$	15,618	$	17,730	$	19,076	$	20,424	$	20,555	$	20,617	$	20,630	$	20,630	$	20,630
		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017		2017	2017
2008		$	20,258	~~9,095~~$	17,047	~~14,489~~$	14,845	~~16,224~~$	14,778	~~17,331~~$	14,218	~~17,887~~$	13,939	~~17,947~~$	13,865	~~17,948~~$	13,890	~~17,994~~$	13,890	~~17,994~~$	13,889	$	—	4,100	$	3,387
2009				30,227		1326,~~463~~644		2125,~~735~~977		2523,~~929~~687		2622,~~734~~332		2722,~~229~~265		2722,~~340~~137		2722,~~350~~120		2722,~~355~~109		—		5,878	3,761
2010						34,557		1632,~~110~~609		2529,~~904~~343		3028,~~120~~020		3226,~~192~~881		3227,~~690~~332		3326,~~286~~949		3326,~~349~~917		—		7,276	3,699
2011								33,090		1732,~~398~~272		2829,~~427~~448		3228,~~127~~318		3328,~~495~~396		3427,~~223~~772		3427,~~375~~798		44		7,613	3,646
2012										42,396		2238,~~273~~781		3538,~~322~~144		4138,~~500~~279		4337,~~623~~722		4437,~~578~~077		51		8,681	4,265
2013												52,590		2342,~~834~~327		4043,~~038~~025		4542,~~200~~317		4741,~~270~~342		376		9,688	4,228
2014														54,452		2852,~~628~~320		4753,~~162~~700		5554,~~131~~883		1,516		11,399	4,682
2015																67,731		3770,~~918~~252		6374,~~932~~418		2,405		13,809	5,215
2016																		79,025		4280,~~467~~418		6,591		14,651	5,039
		Total																		$	387,082
2017																				89,425		33,014		14,085	4,005
Outstanding liabilities for unpaid losses and ALAE prior to 2007, net of reinsurance recoverable																				33
																		Total		$	468,275
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance recoverable																				$	88,700
(1)	The cumulative number of reported claims is measured by individual claimant at a coverage level.
(2)	Calculated severity amounts by accident year are based on inception-to-date incurred less IBNR and expected development dollars and reported claims. Note that older accident years are more developed than recent accident years.



Accident Year	Cumulative paid losses and ALAE, net of reinsurance recoverable For the years ended December 31,
	(unaudited)
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	5,471	$	10,367	$	12,124	$	13,224	$	13,780	$	13,841	$	13,842	$	13,888	$	13,888	$	13,888
2009			8,704		16,508		20,695		21,481		21,962		22,073		22,084		22,090		22,106
2010					10,156		19,375		23,600		25,678		26,177		26,774		26,838		26,850
2011							11,046		21,665		25,402		26,768		27,489		27,641		27,721
2012									14,608		27,182		33,381		35,505		36,469		36,840
2013											15,276		30,953		36,150		38,178		39,464
2014													18,518		36,152		44,168		49,167
2015															24,840		49,828		60,558
2016																	27,539		52,993
2017																			29,203
	Total																		$	358,792
Outstanding liabilities for unpaid losses and ALAE prior to 2008, net of reinsurance recoverable																			8
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance recoverable																			$	109,491

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