UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2017~~2018

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

For the transition period from to

Commission File No. 0-50167

INFINITY PROPERTY AND CASUALTY CORPORATION

(Exact name of registrant as specified in its charter)

Incorporated underthe Laws of Ohio		03-0483872
Ohio		03-0483872
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)

2201 4th Avenue North, Birmingham, Alabama 35203

(Address of principal executive offices and zip code)

(205) 870-4000

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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. Yes x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company ~~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	x	Accelerated filer	¨
Non-accelerated filer	o (Do not check if smaller reporting company)	Smaller reporting company	¨
Emerging growth company	o

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 by Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~October~~April 3126, ~~2017~~2018, there were 10,~~926~~941,~~700~~936 shares of the registrant’s common stock outstanding.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Statements of Earnings	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Condensed Notes to Consolidated Financial Statements	98
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3938
Item 4	Controls and Procedures	3938
PART II – OTHER INFORMATION
Item 1	Legal Proceedings	3938
Item 1A	Risk Factors	3938
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4039
Item 6	Exhibits	4039
	Signature	4140

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

PART I

FINANCIAL INFORMATION

ITEM 1

Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

(unaudited)

	Three months ended								~~Nine months ended~~
	September 30,								September 30,
	March 31,
	2017			2016			% Change		2017			2016			% Change
	2018			2017			% Change
Revenues:
				(as adjusted)
Earned premium	$	344,964		$	342,171		0.8	%	$	1,025,480		$	1,019,070		0.6	%
Revenues:
Installment and other fee income	26,022			26,297			(1.0	)%	79,432			77,200			2.9	%
Earned premium	$	353,987		$	341,368		3.7	%
Net investment income	9,771			8,125			20.3	%	27,467			25,115			9.4	%
Installment and other fee income	27,395			26,739			2.5	%
Net realized (losses) gains on investments (1)	(431		)	1,282			(133.6	)%	1,964			1,257			56.2	%
Net investment income	9,786			8,695			12.5	%
Other income	376			249			50.7	%	1,041			727			43.2	%
Net realized (losses) gains on investments (1)	(2,832		)	509			(656.2	)%
Total revenues	380,701			378,124			0.7	%	1,135,385			1,123,370			1.1	%
Other income	430			275			56.3	%
Costs and Expenses:
Total revenues	388,766			377,587			3.0	%
Losses and loss adjustment expenses	263,186			280,866			(6.3	)%	807,482			809,664			(0.3	)%
Costs and Expenses:
Commissions and other underwriting expenses	89,321			88,412			1.0	%	265,501			266,183			(0.3	)%
Losses and loss adjustment expenses	264,552			270,676			(2.3	)%
Interest expense	3,510			3,507			0.1	%	10,533			10,524			0.1	%
Commissions and other underwriting expenses	90,521			85,939			5.3	%
Corporate general and administrative expenses	2,158			1,768			22.0	%	6,876			5,532			24.3	%
Interest expense	3,509			3,512			(0.1	)%
Other expenses	844			375			125.1	%	1,673			1,455			15.0	%
Corporate general and administrative expenses	4,743			2,271			108.9	%
Total costs and expenses	359,019			374,929			(4.2	)%	1,092,065			1,093,358			(0.1	)%
Other expenses	505			322			56.9	%
Earnings before income taxes	21,683			3,196			578.5	%	43,320			30,012			44.3	%
Total costs and expenses	363,829			362,719			0.3	%
Provision for income taxes	6,704			442			NM		12,649			8,536			48.2	%
Earnings before income taxes	24,937			14,868			67.7	%
Net Earnings	$	14,978		$	2,753		444.0	%	$	30,671		$	21,476		42.8	%
Provision for income taxes	4,853			4,358			11.4	%
Net Earnings per Common Share:
Net Earnings	$	20,083		$	10,510		91.1	%
Basic	$	1.36		$	0.25		444.0	%	$	2.79		$	1.95		43.1	%
Net Earnings per Common Share:
Diluted	1.35			0.25			440.0	%	2.76			1.93			43.0	%
Basic	$	1.84		$	0.96		91.7	%
Average Number of Common Shares:
Diluted	1.82			0.94			93.6	%
Basic	10,993			11,018			(0.2	)%	11,004			11,022			(0.2	)%
Average Number of Common Shares:
Diluted	11,062			11,084			(0.2	)%	11,095			11,105			(0.1	)%
Basic	10,915			10,998			(0.8	)%
Cash Dividends per Common Share	$	0.58		$	0.52		11.5	%	$	1.74		$	1.56		11.5	%
Diluted	11,009			11,127			(1.1	)%
(1) Net realized (losses) gains on sales	$	(410	)	$	1,282		(132.0	)%	$	1,996		$	1,573		26.9	%
Cash Dividends per Common Share	$	0.58		$	0.58		0.0	%
Total other-than-temporary impairment (OTTI) losses	(57		)	0			NM		(102		)	(316		)	(67.6	)%
(1) Net realized gains on sales	$	1,363		$	519		162.6	%
Non-credit portion in other comprehensive income	35			0			NM		71			0			NM
Net holding period losses on equity securities	(2,607		)	0			NM
Net impairment losses recognized in earnings	(22		)	0			NM		(31		)	(316		)	(90.0	)%
Total other-than-temporary impairment (OTTI) losses	(1,468		)	(46		)	NM
Total net realized (losses) gains on investments	$	(431	)	$	1,282		(133.6	)%	$	1,964		$	1,257		56.2	%
Non-credit portion in other comprehensive income	158			36			341.9	%
NM = Not Meaningful
OTTI losses reclassified from other comprehensive income	(278		)	0			NM
Net impairment losses recognized in earnings	(1,588		)	(10		)	NM
Total net realized (losses) gains on investments	$	(2,832	)	$	509		(656.2	)%

NM = Not Meaningful

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

(unaudited)

	Three months ended						~~Nine months ended~~
	September 30,						September 30,
	March 31,
	2017			2016			2017			2016
	2018			2017
Net earnings	$	14,978		$	2,753		$	30,671		$	21,476
				(as adjusted)
Other comprehensive income before tax:
Net earnings	$	20,083		$	10,510
Net change in post-retirement benefit liability	(13		)	(11		)	(38		)	(32		)
Other comprehensive income before tax:
Unrealized gains on investments:
Net change in post-retirement benefit liability	(2		)	(13		)
Unrealized holding gains arising during the period	6,310			4,702			26,030			30,989
Unrealized gains on investments(1):
Less: Reclassification adjustments for losses (gains) included in net earnings	431			(1,282		)	(1,964		)	(1,257		)
Unrealized holding (losses) gains arising during the period	(18,344		)	10,664
Unrealized gains on investments, net	6,742			3,420			24,066			29,731
Less: Reclassification adjustments for losses (gains) included in net earnings	2,106			(509		)
Other comprehensive income, before tax	6,729			3,409			24,028			29,699
Unrealized (losses) gains on investments, net	(16,238		)	10,155
Income tax expense related to components of other comprehensive income	(2,355		)	(1,193		)	(8,410		)	(10,395		)
Other comprehensive (loss) income, before tax	(16,240		)	10,143
Other comprehensive income, net of tax	4,374			2,216			15,618			19,304
Income tax benefit (expense) related to components of other comprehensive income	3,410			(3,550		)
Comprehensive income	$	19,352		$	4,969		$	46,289		$	40,780
Other comprehensive (loss) income, net of tax	(12,829		)	6,593
Comprehensive income	$	7,254		$	17,102
(1) The amounts for 2018 are for fixed maturities only.

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts in line descriptions)

	September 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
	(unaudited)			(as adjusted)
Assets
Investments:
Fixed maturities – at fair value (amortized cost $1,439,204 and $1,392,660)	$	1,448,709		$	1,390,167
Fixed maturities – at fair value (amortized cost $1,512,939 and $1,439,878)	$	1,497,930		$	1,441,107
Equity securities – at fair value (cost $74,347 and $77,013)	100,042			90,640
Equity securities – at fair value (cost $65,913 and $68,812)	90,498			96,004
Short-term investments – at fair value (amortized cost $2,574 and $2,909)	2,572			2,907
Short-term investments – at fair value (amortized cost $0 and $2,541)	0			2,541
Total investments	1,~~551~~588,~~323~~428			1,~~483~~539,~~714~~653
Cash and cash equivalents	~~102~~88,~~356~~793			92107,~~800~~589
Accrued investment income	1210,~~411~~098			1213,~~485~~079
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $13,884 and $14,207	509,210			495,157
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $13,238 and $15,262	557,206			507,963
Property and equipment, net of accumulated depreciation of $81,411 and $70,559	84,485			96,166
Property and equipment, net of accumulated depreciation of $87,945 and $84,776	78,732			82,453
Prepaid reinsurance premium	~~2,976~~482			31,~~410~~032
Recoverables from reinsurers (includes $3,288 and $121 on paid losses and LAE)	36,368			17,251
Recoverables from reinsurers (includes $3,124 and $(1,269) on paid losses and LAE)	22,674			30,340
Deferred policy acquisition costs	9198,~~418~~672			9188,~~136~~300
Current and deferred income taxes	209,~~050~~091			2110,~~635~~543
Receivable for securities sold	~~2,025~~120			~~795~~1,700
Other assets	1921,~~968~~896			1216,~~777~~557
Goodwill	75,275			75,275
Total assets	$	2,~~507~~551,~~866~~466		$	2,~~402~~474,~~601~~484
Liabilities and Shareholders’ Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	~~729~~701,~~280~~006		$	~~685~~715,~~455~~098
Unearned premium	~~637~~691,~~506~~464			~~614~~627,~~347~~575
Long-term debt (fair value $292,782 and $278,726)	273,753			273,591
Long-term debt (fair value $286,330 and $290,824)	273,865			273,809
Commissions payable	15,~~035~~844			16,~~176~~743
Payable for securities purchased	1040,~~167~~375			135,~~922~~615
Other liabilities	~~123~~110,~~513~~996			99119,~~924~~831
Total liabilities	1,~~789~~833,~~254~~550			1,~~703~~758,~~414~~672
Commitments and contingencies (See Note 9)
Shareholders’ equity:
Common stock, no par value (50,000,000 shares authorized; 21,852,037 and 21,809,954 shares issued)	21,868			21,829
Common stock, no par value (50,000,000 shares authorized; 21,879,505 and 21,867,436 shares issued)	21,908			21,888
Additional paid-in capital	~~381~~385,~~928~~346			~~378~~383,~~745~~567
Retained earnings	~~789~~824,~~175~~932			~~777~~793,~~695~~077
Accumulated other comprehensive income, net of tax	23(11,~~526~~202		)	719,~~907~~756
Treasury stock, at cost (10,883,839 and 10,766,211 shares)	(497,885		)	(486,990		)
Treasury stock, at cost (10,937,569 and 10,932,539 shares)	(503,069		)	(502,475		)
Total shareholders’ equity	~~718~~717,~~612~~916			~~699~~715,~~187~~812
Total liabilities and shareholders’ equity	$	2,~~507~~551,~~866~~466		$	2,~~402~~474,~~601~~484

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands)

(unaudited)

	CommonStock		AdditionalPaid-inCapital		RetainedEarnings			AccumulatedOtherComprehensiveIncome,Net of Tax			TreasuryStock			Total
Balance at December 31, 2015	$	21,794	$	376,025	$	757,604		$	7,811		$	(475,638	)	$	687,595
Net earnings	—		—		21,476			—			—			21,476
Net change in post-retirement benefit liability	—		—		—			(21		)	—			(21		)
Change in unrealized gain on investments	—		—		—			19,109			—			19,109
Change in non-credit component of impairment losses on fixed maturities	—		—		—			216			—			216
Comprehensive income														40,780
Dividends paid to common shareholders	—		—		(17,249		)	—			—			(17,249		)
Shares issued and share-based compensation expense, including tax benefit	22		1,731		—			—			—			1,753
Acquisition of treasury stock	—		—		—			—			(10,079		)	(10,079		)
Balance at September 30, 2016	$	21,816	$	377,757	$	761,831		$	27,115		$	(485,717	)	$	702,801
Net earnings	—		—		21,609			—			—			21,609
Net change in post-retirement benefit liability	—		—		—			78			—			78
Change in unrealized gain on investments	—		—		—			(19,347		)	—			(19,347		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			61			—			61
Comprehensive income														2,401
Dividends paid to common shareholders	—		—		(5,744		)	—			—			(5,744		)
Shares issued and share-based compensation expense, including tax benefit	13		989		—			—			—			1,002
Acquisition of treasury stock	—		—		—			—			(1,273		)	(1,273		)
Balance at December 31, 2016	$	21,829	$	378,745	$	777,695		$	7,907		$	(486,990	)	$	699,187
Net earnings	—		—		30,671			—			—			30,671
Cumulative effect of change in accounting principle	—		—		(3,808		)	—			—			(3,808		)
Net change in post-retirement benefit liability	—		—		—			(24		)	—			(24		)
Net earnings	—		—		10,510			—			—			10,510
Change in unrealized gain on investments	—		—		—			15,539			—			15,539
Net change in post-retirement benefit liability	—		—		—			(8		)	—			(8		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			103			—			103
Change in unrealized gain on investments	—		—		—			6,579			—			6,579
Comprehensive income														46,289
Change in non-credit component of impairment losses on fixed maturities	—		—		—			22			—			22
Dividends paid to common shareholders	—		—		(19,191		)	—			—			(19,191		)
Comprehensive income														17,102
Shares issued and share-based compensation expense	39		3,183		—			—			—			3,222
Dividends paid to common shareholders	—		—		(6,402		)	—			—			(6,402		)
Acquisition of treasury stock	—		—		—			—			(10,895		)	(10,895		)
Shares issued and share-based compensation expense	18		1,430		—			—			—			1,449
Balance at September 30, 2017	$	21,868	$	381,928	$	789,175		$	23,526		$	(497,885	)	$	718,612
Acquisition of treasury stock	—		—		—			—			(2,303		)	(2,303		)
Balance at March 31, 2017, as adjusted	$	21,848	$	380,175	$	777,994		$	14,500		$	(489,293	)	$	705,225
Net earnings	—		—		34,214			—			—			34,214
Net change in post-retirement benefit liability	—		—		—			(124		)	—			(124		)
Change in unrealized gain on investments	—		—		—			5,074			—			5,074
Change in non-credit component of impairment losses on fixed maturities	—		—		—			306			—			306
Comprehensive income														39,469
Dividends paid to common shareholders	—		—		(19,131		)	—			—			(19,131		)
Shares issued and share-based compensation expense	40		3,391		—			—			—			3,432
Acquisition of treasury stock	—		—		—			—			(13,182		)	(13,182		)
Balance at December 31, 2017, as adjusted	$	21,888	$	383,567	$	793,077		$	19,756		$	(502,475	)	$	715,812
Cumulative effect of change in accounting principle	$	—	$	—	18,118			$	(18,128	)	$	—		(10		)
Net earnings	—		—		20,083			—			—			20,083
Net change in post-retirement benefit liability	—		—		—			(1		)	—			(1		)
Change in unrealized gain on fixed maturity investments	—		—		—			(12,980		)	—			(12,980		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			152			—			152
Comprehensive income														7,254
Dividends paid to common shareholders	—		—		(6,346		)	—			—			(6,346		)
Shares issued and share-based compensation expense	21		1,779		—			—			—			1,800
Acquisition of treasury stock	—		—		—			—			(594		)	(594		)
Balance at March 31, 2018	$	21,908	$	385,346	$	824,932		$	(11,202	)	$	(503,069	)	$	717,916

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands, unaudited)

	Three months ended September 30,
	Three months ended
	2017			2016
	March 31,
	2018			2017
				(as adjusted)
Operating Activities:
Net earnings	$	1420,~~978~~083		$	210,~~753~~510
Adjustments:
Depreciation	43,~~008~~696			34,~~930~~177
Amortization	54,~~436~~840			5,~~643~~327
Net realized losses (gains) on investments	~~431~~2,832			(~~1,282~~509		)
Loss on disposal of property and equipment	1			143
Loss (gain) on disposal of property and equipment	10			(2		)
Share-based compensation expense	~~390~~1,731			1,~~060~~384
Activity related to rabbi trust	55(13		)	4669
Change in accrued investment income	12,~~060~~980			~~482~~246
Change in agents’ balances and premium receivable	(1149,~~155~~243		)	(1517,~~356~~118		)
Change in reinsurance receivables	~~(18~~8,~~295~~216		)	~~465~~917
Change in deferred policy acquisition costs	(110,~~016~~372		)	(12,~~627~~957		)
Change in other assets	~~295~~(804		)	(24,~~363~~505		)
Change in unpaid losses and loss adjustment expenses	28(14,~~182~~092		)	10(6,~~316~~508		)
Change in unearned premium	1463,~~040~~889			1426,~~911~~943
Change in other liabilities	12(9,~~068~~815		)	(35,~~179~~565		)
Net cash provided by operating activities	5023,~~479~~939			1523,~~943~~538
Investing Activities:
Purchases of fixed maturities	(~~136~~403,~~834~~516		)	(~~117~~120,~~638~~831		)
Purchases of short-term investments	(2,594		)	(3,110		)
Purchases of equity securities	0			(1,900		)
Purchases of property and equipment	(~~987~~313		)	(~~253~~889		)
Maturities and redemptions of fixed maturities	7332,~~361~~497			3943,~~703~~319
Maturities and redemptions of short-term investments	425			1,300
Proceeds from sale of fixed maturities	328,064			37,671
Proceeds from sale of fixed maturities	44,201			62,429
Proceeds from sale of equity securities	5,013			2,002
Proceeds from sale of equity securities	0			2,000
Proceeds from sale of short-term investments	2,528			2,400
Proceeds from sale of short-term investments	0			3,592
Proceeds from sale of property and equipment	0			19
Proceeds from sale of property and equipment	1			0
Net cash used in investing activities	(35,727		)	(38,209		)
Net cash used in investing activities	(22,428		)	(11,977		)
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	6670			6065
Principal payments under capital lease obligations	(~~135~~138		)	(~~131~~135		)
Acquisition of treasury stock	(~~6,857~~594		)	(~~543~~2,296		)
Dividends paid to shareholders	(6,~~378~~346		)	(56,~~751~~402		)
Net cash used in financing activities	(137,~~303~~009		)	(68,~~366~~768		)
Net increase (decrease) in cash and cash equivalents	14,748			(2,400		)
Net decrease in cash and cash equivalents	(18,796		)	(23,438		)
Cash and cash equivalents at beginning of period	87107,~~608~~589			7692,~~016~~800
Cash and cash equivalents at end of period	$	~~102~~88,~~356~~793		$	7369,~~616~~361

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands, unaudited)

	Nine months ended September 30,
	2017			2016
Operating Activities:
Net earnings	$	30,671		$	21,476
Adjustments:
Depreciation	12,304			10,451
Amortization	16,459			16,482
Net realized gains on investments	(1,964		)	(1,257		)
(Gain) loss on disposal of property and equipment	(7		)	544
Share-based compensation expense	3,012			1,411
Excess tax benefits from share-based payment arrangements	0			157
Activity related to rabbi trust	183			112
Change in accrued investment income	74			992
Change in agents’ balances and premium receivable	(14,053		)	(40,372		)
Change in reinsurance receivables	(18,684		)	(1,602		)
Change in deferred policy acquisition costs	(283		)	(4,292		)
Change in other assets	(12,925		)	940
Change in unpaid losses and loss adjustment expenses	43,825			6,562
Change in unearned premium	23,158			43,657
Change in other liabilities	22,388			(6,924		)
Net cash provided by operating activities	104,159			48,339
Investing Activities:
Purchases of fixed maturities	(412,675		)	(379,135		)
Purchases of equity securities	(1,900		)	0
Purchases of short-term investments	(3,019		)	(8,250		)
Purchases of property and equipment	(2,571		)	(15,648		)
Maturities and redemptions of fixed maturities	181,839			115,848
Maturities and redemptions of short-term investments	925			1,300
Proceeds from sale of fixed maturities	163,359			265,544
Proceeds from sale of equity securities	7,002			2,000
Proceeds from sale of short-term investments	2,400			9,258
Proceeds from sale of property and equipment	26			2
Net cash used in investing activities	(64,614		)	(9,081		)
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	210			185
Principal payments under capital lease obligations	(403		)	(380		)
Acquisition of treasury stock	(10,603		)	(10,681		)
Dividends paid to shareholders	(19,191		)	(17,249		)
Net cash used in financing activities	(29,988		)	(28,125		)
Net increase in cash and cash equivalents	9,556			11,133
Cash and cash equivalents at beginning of period	92,800			62,483
Cash and cash equivalents at end of period	$	102,356		$	73,616

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2017~~2018

INDEX TO NOTES



1.	Significant Reporting and Accounting Policies	7.	Additional Information

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

3.	Fair Value	9.	Commitments and Contingencies

4.	Investments	10.	Accumulated Other Comprehensive Income

5.	Long-Term Debt	11.	Segment Information

6.	Income Taxes

Note 1 Significant Reporting and Accounting Policies

Nature of Operations

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

Basis of Consolidation and Reporting

The accompanying consolidated financial statements are unaudited and should be read in conjunction with our Annual Report on Form 10-K (Form 10-K) for the year ended December 31, ~~2016~~2017. This Quarterly Report on Form 10-Q, including the Condensed Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, focuses on our financial performance since the beginning of the year.

These financial statements reflect certain adjustments necessary for a fair presentation of our results of operations and financial position. Such adjustments consist of normal, recurring accruals recorded to 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 ~~September~~March 3031, ~~2017~~2018, for recognition or disclosure in our financial statements and the notes to the financial statements.

Schedules may not foot due to rounding.

Estimates

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

Recently Adopted Accounting Standards

In ~~March~~February ~~2016~~2018 the FASB issued an ASU ~~related~~allowing toa ~~the~~reclassification ~~accounting~~from ~~for~~accumulated ~~employee~~other ~~share-based~~comprehensive ~~payments.~~income ~~The~~to ~~guidance~~retained ~~addresses~~earnings ~~the recognition, presentation~~ and ~~classification~~consequently ofeliminating ~~awards,~~the ~~forfeitures~~stranded ~~and shares withheld for~~ tax ~~purposes.~~effects Weresulting ~~adopted~~from the ~~change~~Tax toCuts ~~the~~and ~~presentation~~Jobs Act of ~~excess~~2017. ~~tax~~We ~~benefits~~elected onto ~~the~~early ~~consolidated~~adopt ~~statements~~the ofASU ~~cash flow retrospectively~~ and ~~all~~applied ~~other~~the ~~portions~~amendment ofin the ~~standard~~period ~~prospectively as~~ of ~~January 1~~adoption, ~~2017.~~with Wea ~~reclassified~~cumulative-effect adjustment of $0.24 million ofreclassified ~~excess~~from ~~tax~~accumulated ~~benefits~~other ~~from~~comprehensive ~~financing~~income ~~activities~~ to ~~operating~~retained ~~activities for the nine months ended September 30, 2016~~earnings. ~~The adoption of this standard did not have a material impact on our financial condition or results of operations.~~

9In 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

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

~~Condensed~~outside ~~Notes~~party. We adopted the change on a modified retrospective basis, with a cumulative-effect adjustment of less than $(0.1) million recorded to ~~Consolidated~~retained ~~Financial~~earnings ~~Statements~~as of January 1, 2018.

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. We adopted the change on a modified retrospective basis as of January 1, 2018, with a cumulative-effect adjustment of $17.7 million reclassified from other comprehensive income to retained earnings.

In May 2014 the FASB issued an ASU related to the accounting for revenue from contracts with customers. Insurance contracts were excluded from the scope of the guidance. 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 were generally earned at the inception of the policy under previous guidance but are earned over the life of the policy under current guidance. The guidance was adopted as of January 1, 2018, using a full retrospective approach with a cumulative-effect adjustment to the balance sheet, which reduced shareholders' equity by $4.5 million.

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



	December 31, 2017
	As Reported		As Adjusted		Difference
Agents' balances and premium receivable	$	508.1	$	508.0	$	(0.1	)
Current and deferred income taxes	9.4		10.5		1.2
Total assets	2,473.4		2,474.5		1.1
Other liabilities	114.3		119.8		5.5
Shareholders' equity	720.3		715.8		(4.5		)
Total liabilities and shareholders' equity	2,473.4		2,474.5		1.1

The following table illustrates the effect of adopting this standard on the Consolidated Statements of Earnings (in millions, except per share amounts):



	Three months ended March 31, 2017
	As Reported		As Adjusted		Difference
Installment and other fee income	$	26.9	$	26.7	$	(0.2	)
Total revenues	377.8		377.6		(0.2		)
Earnings before income taxes	15.1		14.9		(0.2		)
Provision for income taxes	4.4		4.4		(0.1		)
Net earnings	10.6		10.5		(0.1		)
Net earnings per common share:
Basic	$	0.97	$	0.96	$	(0.01	)
Diluted	0.96		0.94		(0.02		)

We also adjusted the Consolidated Statements of Changes in Shareholders' Equity and the Consolidated Statements of Cash Flows for these changes for the three months ended March 31, 2017.

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~~period 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~~June 2016 the FASB issued an ASU related to the ~~recognition~~accounting offor ~~income~~credit ~~tax on intra-entity transfers of assets other than inventory~~losses. The guidance generally requires ~~the~~credit ~~income~~losses ~~tax~~on ~~to be recognized when the transfer occurs rather than when the asset is sold to an outside party. The standard is effective~~ available-for-sale ~~annual~~debt ~~periods~~securities ~~beginning after December 15, 2017, and interim periods within the year of adoption, and is~~ to be ~~applied~~recognized onas aan ~~modified~~allowance ~~retrospective~~rather ~~basis~~than ~~through~~as a ~~cumulative-effect~~reduction ~~adjustment directly~~ to ~~retained earnings as of~~ the ~~beginning~~amortized ofcost ~~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~~security.

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.9

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 do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

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 September 30, 2017, we have $16.7 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, which totaled $19.7 million for the year ended December 31, 2016, and are largely earned at the inception of the policy under current guidance, will be earned over the life of the policy under the new revenue recognition guidance. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

~~Condensed~~The ~~Notes~~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 ~~Consolidated~~have ~~Financial~~a ~~Statements~~material impact on our financial condition or results of operations.

Note 2 Computation of Net Earnings per Share

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

share figures):

	Three months ended September 30,				Nine months ended September 30,
	Three months ended
	2017		2016		2017		2016
	March 31,
Net earnings	$	14,978	$	2,753	$	30,671	$	21,476
	2018		2017
Average basic shares outstanding	10,993		11,018		11,004		11,022
Net earnings	$	20,083	$	10,510
Basic net earnings per share	$	1.36	$	0.25	$	2.79	$	1.95
Average basic shares outstanding	10,915		10,998
Average basic shares outstanding	10,993		11,018		11,004		11,022
Basic net earnings per share	$	1.84	$	0.96
Restricted stock not vested	17		27		28		24
Average basic shares outstanding	10,915		10,998
Dilutive effect of Performance Share Plan	52		39		63		59
Restricted stock not vested	8		33
Average diluted shares outstanding	11,062		11,084		11,095		11,105
Dilutive effect of Performance Share Plan	86		96
Diluted net earnings per share	$	1.35	$	0.25	$	2.76	$	1.93
Average diluted shares outstanding	11,009		11,127
Diluted net earnings per share	$	1.82	$	0.94

1110

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 3 Fair Value

Fair values of instruments are based on:


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


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


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

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

Fair Value

September 30, 2017

Level 1

Level 2

Level 3

Total

March 31, 2018

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

~~102~~88,~~356~~793

Fixed maturity securities:

U.S. government

61124,~~894~~757

State and municipal

~~498~~296,~~849~~048

~~3,537~~766

~~502~~296,~~386~~814

Mortgage-backed securities:

Residential

~~355~~365,~~257~~007

Commercial

3459,~~890~~204

02,857

3462,~~890~~061

Total mortgage-backed securities

~~390~~424,~~148~~211

02,857

~~390~~427,~~148~~068

Asset-backed securities

55110,~~906~~836

~~200~~17,647

56128,~~106~~484

Corporates

~~437~~520,~~962~~698

~~213~~109

~~438~~520,~~175~~807

Total fixed maturities

61124,~~894~~757

1,~~382~~351,~~865~~794

321,~~950~~379

1,~~448~~497,~~709~~930

Equity securities

~~100~~90,~~042~~498

Short-term investments

~~2,572~~0

Total cash and investments

~~264~~304,~~292~~048

1,~~385~~351,~~437~~794

321,~~950~~379

1,~~653~~677,~~679~~221

Percentage of total cash and investments

1618.01

8380.86

01.23

100.0

December 31, 2016

December 31, 2017

Cash and cash equivalents

92107,~~800~~589

Fixed maturity securities:

U.S. government

6260,~~480~~528

6260,~~485~~528

State and municipal

~~472~~490,~~471~~724

3,~~860~~488

~~476~~494,~~331~~211

Mortgage-backed securities:

Residential

~~340~~350,~~367~~992

Commercial

6930,~~801~~569

Total mortgage-backed securities

~~410~~381,~~169~~561

Asset-backed securities

3762,~~196~~266

~~412~~152

3762,~~608~~418

Corporates

~~402~~442,~~909~~281

~~666~~108

~~403~~442,~~575~~390

Total fixed maturities

6260,~~480~~528

1,~~322~~376,~~749~~832

43,~~938~~748

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

Equity securities

9096,~~640~~004

Short-term investments

~~769~~0

2,~~139~~541

2,~~907~~541

Total cash and investments

~~246~~264,~~689~~121

1,~~324~~379,~~888~~373

43,~~938~~748

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

Percentage of total cash and investments

1516.60

8483.07

0.32

100.0

1211

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

~~Condensed~~We ~~Notes~~do tonot report our long-term debt at fair value in the Consolidated ~~Financial~~Balance ~~Statements~~Sheets. The $286.3 million and $290.8 million fair value of our long-term debt at March 31, 2018, and December 31, 2017, respectively, would be included in Level 2 of the fair value hierarchy if it were reported at fair value.

We do not report our long-term debt at fair value in the Consolidated Balance Sheets. The $292.8 million and $278.7 million fair value of our long-term debt at September 30, 2017, and December 31, 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 held in a rabbi trust which funds our Supplemental Employee Retirement Plan (SERP). Level 2 includes securities whose fair value was determined using observable market inputs. Level 3 securities are comprised of (i) securities for which there is no active or inactive market for similar instruments; (ii) securities whose fair value is determined based on unobservable inputs; and (iii) securities, other than those backed by the U.S. Government, that are not rated by a nationally recognized statistical rating organization (NRSRO). We recognize transfers between levels at the beginning of the reporting period.

A third party nationally recognized pricing service provides the fair value of securities in Level 2. 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.

1312

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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

Three months ended September 30, 2017	State andMunicipal			Asset-Backed Securities			Corporates			Total
Three months ended March 31, 2018	State andMunicipal			Mortgage-BackedSecurities			Asset-Backed Securities			Corporates			Total
Balance at beginning of period	$	3,~~447~~488		$	~~249~~0		$	~~215~~152		$	~~3,910~~108		$	3,748
Total (losses) gains, unrealized or realized
Included in net earnings	(3010		)	0			(0		)	(300		)	(10		)
Included in other comprehensive income	23			(110		)	(127		)	(01		)	41
Settlements	0			(48		)	0			(48		)
Purchases	0			2,847			17,729			0			20,576
Transfers in	118			0			0			118
Sales	(3,360		)	0			0			0			(3,360		)
Balance at end of period	$	3,537		$	200		$	213		$	3,950
Settlements	0			0			(261		)	0			(261		)
Three months ended September 30, 2016
Transfers in	645			0			0			0			645
Balance at beginning of period	$	626		$	1,959		$	1,107		$	3,692
Balance at end of period	$	766		$	2,857		$	17,647		$	109		$	21,379
Total (losses) gains, unrealized or realized
Three months ended March 31, 2017
Included in net earnings	(6		)	(0		)	2			(4		)
Balance at beginning of period	$	3,860		$	0		$	412		$	666		$	4,938
Included in other comprehensive income	(1		)	1			(16		)	(17		)
Total (losses) gains, unrealized or realized
Purchases	0			0			0			0
Included in net earnings	(31		)	0			0			1			(30		)
Settlements	0			(125		)	(89		)	(214		)
Included in other comprehensive income	15			0			1			(22		)	(6		)
Transfers in	0			0			0			0
Purchases	0			0			4,259			2,000			6,259
Transfers out	0			(1,339		)	0			(1,339		)
Sales	(694		)	0			0			0			(694		)
Balance at end of period	$	618		$	495		$	1,005		$	2,118
Settlements	0			0			(88		)	(92		)	(180		)
Transfers in	329			0			0			0			329
Balance at end of period	$	3,479		$	0		$	4,584		$	2,553		$	10,616

Nine months ended September 30, 2017	State andMunicipal			Asset-Backed Securities			Corporates			Total
Balance at beginning of period	$	3,860		$	412		$	666		$	4,938
Total (losses) gains, unrealized or realized
Included in net earnings	(90		)	0			2			(89		)
Included in other comprehensive income	14			25			(28		)	11
Purchases	0			4,259			2,000			6,259
Sales	(694		)	0			0			(694		)
Settlements	0			(213		)	(427		)	(640		)
Transfers in	447			0			0			447
Transfers out	0			(4,283		)	(2,000		)	(6,283		)
Balance at end of period	$	3,537		$	200		$	213		$	3,950
Nine months ended September 30, 2016
Balance at beginning of period	$	10		$	0		$	1,524		$	1,534
Total (losses) gains, unrealized or realized
Included in net earnings	(10		)	0			9			(1		)
Included in other comprehensive income	(0		)	2			(42		)	(40		)
Purchases	0			620			0			620
Settlements	(10		)	(125		)	(487		)	(622		)
Transfers in	628			1,338			0			1,966
Transfers out	0			(1,339		)	0			(1,339		)
Balance at end of period	$	618		$	495		$	1,005		$	2,118

Of the $21.4 million fair value of securities in Level 3 at March 31, 2018, which consisted of eleven securities, we priced six based on non-binding broker quotes, one was priced based on our unaffiliated money manager and four securities, which were included in Level 3 because they were not rated by a nationally recognized statistical rating organization, were priced by a nationally recognized pricing service.

14During the three months ended March 31, 2018, eight securities were purchased and are new issues. One security, which was an exchange of a rated municipal bond for an unrated refunded bond, was transferred from Level 2 into Level 3. There were no transfers of securities between Levels 1 and 2. During the three months ended March 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.

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 (losses) gains on investments, net" in the Consolidated Statements of Comprehensive Income and the line item "Change in unrealized gain on investments" or the line item "Change in non-credit component of impairment losses on fixed maturities" in the Consolidated Statements of Changes in Shareholders’ Equity.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Of the $4.0 million fair value of securities in Level 3 at September 30, 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 nationally recognized statistical rating organization, were priced by a nationally recognized pricing service.

During the nine months ended September 30, 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 zero security was transferred from Level 2 into Level 3 because it was not rated by a recognized statistical rating organization. There were no transfers of securities between Levels 1 and 2. Zero 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 market observable inputs and the security was transferred back into Level 2.

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

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

September 30, 2017

December 31, 2016

March 31, 2018

December 31, 2017

Carrying Value

Fair Value

Carrying Value

Fair Value

Assets:

Cash and cash equivalents

~~102~~88,~~356~~793

92107,~~800~~589

Available-for-sale securities:

Fixed maturities

1,~~448~~497,~~709~~930

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

Equity securities

~~100~~90,~~042~~498

9096,~~640~~004

Short-term investments

~~2,572~~0

2,~~907~~541

Total cash and investments

1,~~653~~677,~~679~~221

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

Liabilities:

Long-term debt

273,~~753~~865

~~292~~286,~~782~~330

273,~~591~~809

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

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

Note 4 Investments

We consider all fixed maturity and equity securities to be available-for-sale and report them at fair value. ~~with~~Net ~~the net~~ unrealized gains or losses on equity securities prior to January 1, 2018, and on fixed maturities are reported after-tax (net of any valuation allowance) as a component of other comprehensive income. As of January 1, 2018, changes in fair value of equity securities are recognized through net income. The proceeds from sales of securities for the three ~~and nine~~ months ended ~~September~~March 3031, 2018, and March 31, 2017, were $44335.26 million and $~~172~~42.81 million, respectively,. ~~while~~Sales ~~the~~of ~~proceeds~~securities ~~from~~were ~~sales~~higher ofduring ~~securities~~the ~~for~~first ~~the~~quarter ~~three~~of ~~and~~2018 ~~nine~~as ~~months~~a ~~ended~~result ~~September~~of ~~30,~~our ~~2016,~~transition ~~were~~to ~~$68.0~~a ~~million~~new investment policy statement and ~~$276.8~~related ~~million,~~portfolio ~~respectively~~repositioning. The proceeds for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, were net of $2.0.1 million of receivable for ~~unsettled~~securities ~~sales~~sold as of ~~September 30~~March 31, ~~2017~~2018. The proceeds for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017, were net of $15.72 million of receivable for securities sold during the ~~third~~first quarter of ~~2016~~2017 that had not settled as of ~~September 30~~March 31, ~~2016~~2017.

Gross gains of $02.39 million and gross losses of $01.76 million were realized on sales of available-for-sale securities during the three months ended ~~September~~March 3031, ~~2017~~2018, compared with gross gains of $10.37 million and gross losses of $~~42.~~0 ~~thousand realized on sales during the three months ended September 30, 2016~~.2 ~~Gross gains of $3.3~~ million ~~and gross losses of $1.3 million were~~ realized on sales ~~of available-for-sale securities~~ during the ~~nine~~three months ended ~~September~~March 3031, 2017~~, compared with gross gains of $3~~.5 ~~million and gross losses of $1.9 million realized on sales during the nine months ended September 30, 2016.~~ Gains or losses on securities are determined on a specific identification basis.

1514

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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

September 30, 2017	AmortizedCost or Cost		GrossUnrealizedGains		GrossUnrealizedLosses			Fair Value		OTTIRecognized inAccumulatedOCI(1)
March 31, 2018	AmortizedCost or Cost		GrossUnrealizedGains		GrossUnrealizedLosses			Fair Value		OTTIRecognized inAccumulatedOCI(1)
Fixed maturities:
U.S. government	$	62125,~~099~~887	$	4958	$	(~~254~~1,188	)	$	61124,~~894~~757	$	0
State and municipal	~~497~~297,~~868~~994		51,~~336~~031		(~~818~~2,211		)	~~502~~296,~~386~~814		~~(46~~0		)
Mortgage-backed securities:
Residential	~~356~~372,~~172~~319		~~2,592~~669		(37,~~507~~981		)	~~355~~365,~~257~~007		(~~1,823~~72		)
Commercial	3563,~~292~~053		3823		(~~440~~1,016		)	3462,~~890~~061		0
Total mortgage-backed securities	~~391~~435,~~463~~372		~~2,631~~693		(38,~~946~~996		)	~~390~~427,~~148~~068		(~~1,823~~72		)
Asset-backed securities	56129,~~031~~010		~~114~~104		(39630		)	56128,~~106~~484		(80		)
Corporates	~~431~~524,~~742~~676		61,~~922~~726		(~~490~~5,595		)	~~438~~520,~~175~~807		~~(31~~0		)
Total fixed maturities	1,~~439~~512,~~204~~939		153,~~053~~612		(518,~~548~~621		)	1,~~448~~497,~~709~~930		(~~1,909~~72		)
Equity securities	74,347		25,695		0			100,042		0
Short-term investments	0		0		0			0		0
Short-term investments	2,574		0		(2		)	2,572		0
Total	$	1,512,939	$	3,612	$	(18,621	)	$	1,497,930	$	(72	)
Total	$	1,516,125	$	40,748	$	(5,550	)	$	1,551,323	$	(1,909	)
December 31, 2017
December 31, 2016
Fixed maturities:
U.S. government	$	6261,~~808~~196	$	550	$	(~~377~~668	)	$	6260,~~485~~528	$	0
State and municipal	~~477~~492,~~834~~442		2,~~313~~768		(~~3,816~~999		)	~~476~~494,~~331~~211		(5146		)
Mortgage-backed securities:
Residential	~~343~~353,~~095~~277		21,~~306~~812		(54,~~034~~097		)	~~340~~350,~~367~~992		(1,~~967~~479		)
Commercial	7031,~~676~~204		6318		(~~939~~653		)	6930,~~801~~569		0
Total mortgage-backed securities	~~413~~384,~~772~~481		21,~~369~~830		(54,~~972~~750		)	~~410~~381,~~169~~561		(1,~~967~~479		)
Asset-backed securities	3762,~~562~~552		9362		(47196		)	3762,~~608~~418		(8		)
Corporates	~~400~~439,~~685~~208		4,~~389~~610		(1,~~499~~429		)	~~403~~442,~~575~~390		(4131		)
Total fixed maturities	1,~~392~~439,~~660~~878		9,~~219~~271		(118,~~711~~042		)	1,~~390~~441,~~167~~107		(21,~~068~~564		)
Equity securities	7768,~~013~~812		1327,~~627~~192		0			9096,~~640~~004		0
Short-term investments	2,~~909~~541		0		(20		)	2,~~907~~541		0
Total	$	1,~~472~~511,~~582~~232	$	2236,~~846~~463	$	(118,~~713~~042	)	$	1,~~483~~539,~~714~~653	$	(21,~~068~~564	)
(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.

1615

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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

	Less than 12 Months								12 Months or More
September 30, 2017	Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost		Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost
March 31, 2018	Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost		Number ofSecuritieswithUnrealizedLosses	FairValue		GrossUnrealizedLosses			UnrealizedLosses as% of Cost
Fixed maturities:
U.S. government	2328	$	4448,~~656~~202	$	(~~162~~881	)	01.48	%	916	$	412,~~489~~743	$	(93307	)	2.04	%
State and municipal	6099	~~119~~184,~~086~~046		(~~491~~2,147		)	01.42	%	164	354,~~590~~573		(~~328~~64		)	01.94	%
Mortgage-backed securities:
Residential	~~315~~263	~~158~~144,~~772~~098		(2,~~004~~250		)	1.25	%	94272	50119,~~661~~273		(15,~~503~~730		)	24.96	%
Commercial	315	730,~~719~~658		(87177		)	10.16	%	78	1923,~~659~~206		(~~353~~839		)	13.85	%
Total mortgage-backed securities	~~318~~278	~~166~~174,~~491~~756		(2,~~091~~427		)	1.24	%	~~101~~280	70142,~~320~~480		(16,~~855~~569		)	24.64	%
Asset-backed securities	1943	2174,~~159~~670		(32628		)	0.18	%	31	21,~~534~~458		(72		)	0.31	%
Corporates	48232	67367,~~708~~660		(~~306~~5,168		)	01.4	%	1915	2018,~~627~~126		(~~184~~427		)	02.93	%
Total fixed maturities	~~468~~680	~~419~~849,~~100~~333		(311,~~081~~252		)	01.73	%	~~148~~316	~~133~~179,~~560~~380		(27,~~467~~369		)	13.89	%
Short-term investments	20	~~2,572~~0		(20		)	0.50	%	0	0		0			0.0	%
Total	~~470~~680	$	~~421~~849,~~672~~333	$	(311,~~083~~252	)	01.73	%	~~148~~316	$	~~133~~179,~~560~~380	$	(27,~~467~~369	)	13.89	%
December 31, 2016
December 31, 2017
Fixed maturities:
U.S. government	3125	$	4746,~~640~~160	$	(~~377~~422	)	0.89	%	016	$	014,368	$	0(246	)	01.07	%
State and municipal	~~146~~82	~~303~~163,~~428~~997		(~~3,816~~939		)	10.26	%	05	010,529		0(60		)	0.06	%
Mortgage-backed securities:
Residential	~~381~~154	~~225~~81,~~117~~841		(~~4,559~~453		)	2.0.6	%	40279	11127,~~891~~317		(~~474~~3,644		)	32.8	%
Commercial	142	383,~~002~~578		(~~788~~30		)	2.0.8	%	79	2623,~~537~~066		(~~150~~623		)	02.6	%
Total mortgage-backed securities	~~395~~156	~~263~~85,~~119~~419		(~~5,347~~483		)	2.0.6	%	47288	38150,~~428~~383		(~~625~~4,267		)	12.68	%
Asset-backed securities	931	735,~~836~~407		(46193		)	0.65	%	12	~~519~~1,561		(13		)	0.12	%
Corporates	98104	~~145~~158,~~089~~788		(1,~~272~~197		)	0.97	%	713	716,~~745~~468		(~~227~~232		)	21.84	%
Total fixed maturities	~~679~~398	~~767~~489,~~112~~771		(103,~~859~~233		)	10.47	%	55324	46193,~~693~~309		(~~852~~4,809		)	12.84	%
Short-term investments	3	2,907		(2		)	0.1	%	0	0		0			0.0	%
Equity securities	0	0		0			0.0	%	0	0		0			0.0	%
Total	682	$	770,019	$	(10,861	)	1.4	%	55	$	46,693	$	(852	)	1.8	%
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	%

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.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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 with unrealized gains or losses (2018 includes fixed maturity securities only):



	March 31, 2018		December 31, 2017
Number of positions held with unrealized:
Gains	302		496
Losses	996		722
Number of positions held that individually exceed unrealized:
Gains of $500,000	0		2
Losses of $500,000	0		0
Percentage of positions held with unrealized:
Gains that were investment grade	84	%	81	%
Losses that were investment grade	94	%	97	%
Percentage of fair value held with unrealized:
Gains that were investment grade	88	%	81	%
Losses that were investment grade	93	%	95	%

The following table sets forth the amount of unrealized losses by age and severity at March 31, 2018, ($ 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	$	454,565	$	(3,506	)	$	(3,394	)	$	(112	)	$	0
Four months through six months	247,851		(4,193		)	(4,007		)	(185		)	0
Seven months through nine months	139,484		(3,392		)	(3,392		)	0			0
Ten months through twelve months	7,432		(161		)	(161		)	0			0
Greater than twelve months	179,380		(7,369		)	(4,846		)	(2,523		)	0
Total	$	1,028,713	$	(18,621	)	$	(15,801	)	$	(2,820	)	$	0

* As a percentage of amortized cost or cost.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

The change in unrealized gains (losses) on marketable securities recognized through accumulated other comprehensive income included the following ($ in thousands):

Condensed Notes to Consolidated Financial Statements



	Pre-tax
Three months ended March 31, 2018	Fixed Maturities			Short-Term Investments			Tax Effects			Net
Unrealized holding (losses) gains on securities arising during the period	$	(18,346	)	$	1		3,852			(14,492		)
Realized losses (gains) on securities sold	519			(1		)	(109		)	409
Impairment loss recognized in earnings	1,588			0			(334		)	1,255
Change in unrealized, net	$	(16,238	)	$	0		$	3,410		$	(12,828	)

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



	Pre-tax
Three months ended March 31, 2017	Fixed Maturities		Equity Securities			Short-Term Investments			Tax Effects			Net
Unrealized holding gains on securities arising during the period	$	4,368	$	6,294		$	3		$	(3,733	)	$	6,932
Realized losses (gains) on securities sold	52		(569		)	(1		)	182			(337		)
Impairment loss recognized in earnings	10		0			0			(3		)	6
Change in unrealized, net	$	4,429	$	5,725		$	1		$	(3,554	)	$	6,601

	September 30, 2017		December 31, 2016
Number of positions held with unrealized:
Gains	728		527
Losses	618		737
Number of positions held that individually exceed unrealized:
Gains of $500,000	2		1
Losses of $500,000	0		0
Percentage of positions held with unrealized:
Gains that were investment grade	85	%	85	%
Losses that were investment grade	97	%	97	%
Percentage of fair value held with unrealized:
Gains that were investment grade	86	%	84	%
Losses that were investment grade	97	%	97	%

The following table sets forth the amount of unrealized losses, excluding the rabbi trust, by age and severity at September 30, 2017 ($ in thousands):

Age of Unrealized Losses	Fair Value ofSecurities withUnrealizedLosses		Total GrossUnrealizedLosses			Less Than 5%*			5% - 10%*			Total Gross GreaterThan 10%*
Three months or less	$	262,514	$	(943	)	$	(943	)	$	0		$	0
Four months through six months	13,342		(46		)	(46		)	0			0
Seven months through nine months	4,313		(24		)	(18		)	(6		)	0
Ten months through twelve months	186,054		(2,999		)	(2,999		)	0			0
Greater than twelve months	89,009		(1,537		)	(1,408		)	(129		)	(0		)
Total	$	555,232	$	(5,550	)	$	(5,415	)	$	(135	)	$	(0	)

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

	Pre-tax
Nine months ended September 30, 2017	FixedMaturities			EquitySecurities			Short-Term Investments			TaxEffects			Net
Unrealized holding gains on securities arising during the period	$	11,805		$	14,223		$	1		$	(9,110	)	$	16,919
Realized losses (gains) on securities sold	161			(2,155		)	(1		)	698			(1,297		)
Impairment loss recognized in earnings	31			0			0			(11		)	20
Change in unrealized, net	$	11,998		$	12,068		$	(0	)	$	(8,423	)	$	15,643
Nine months ended September 30, 2016
Unrealized holding gains on securities arising during the period	$	25,941		$	5,047		$	0		$	(10,846	)	$	20,143
Realized (gains) losses on securities sold	(1,106		)	(470		)	3			551			(1,023		)
Impairment loss recognized in earnings	316			0			0			(111		)	205
Change in unrealized, net	$	25,151		$	4,577		$	3		$	(10,406	)	$	19,325

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

For fixed maturity securities that are other-than-temporarily impaired, we assess our intent to sell and the likelihood that we will be required to sell the security before recovery of our amortized cost. If a fixed maturity security is considered other-than-temporarily impaired but we do not intend to and are not more than likely to be required to sell the security before our recovery 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):

	Nine months ended September 30,
	Three months ended March 31,
	2017			2016
	2018			2017
Beginning balance	$	~~557~~753		$	~~683~~557
Additions for:
Newly impaired securities	13			0
Previously impaired securities	278			0
Newly impaired securities	7			10
Reductions for:
Securities sold and paid down	(9841		)	(~~105~~24		)
Ending balance	$	~~472~~996		$	~~579~~542

The table below sets forth the scheduled maturities of fixed maturity securities at September 30, 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.18

	Fair Value								AmortizedCost
Maturity	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities		All Fixed Maturity Securities
One year or less	$	36,440	$	24,407	$	5,699	$	66,545	$	66,395
After one year through five years	477,237		211,513		1,656		690,405		684,589
After five years through ten years	186,952		56,236		0		243,188		238,518
After ten years	2,317		0		0		2,317		2,207
Mortgage- and asset-backed securities	185,749		260,504		0		446,253		447,494
Total	$	888,695	$	552,659	$	7,354	$	1,448,709	$	1,439,204

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

The table below sets forth the scheduled maturities of fixed maturity securities at March 31, 2018, based on their fair values ($ in thousands). We report securities that do not have a single maturity date at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.



	Fair Value								Amortized Cost
Maturity	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities		All Fixed Maturity Securities
One year or less	$	9,473	$	24,024	$	1,353	$	34,850	$	34,848
After one year through five years	188,968		453,537		7,187		649,692		653,913
After five years through ten years	68,219		157,207		649		226,075		228,286
After ten years	31,179		582		0		31,761		31,510
Mortgage- and asset-backed securities	143,210		393,363		18,979		555,552		564,382
Total	$	441,049	$	1,028,713	$	28,168	$	1,497,930	$	1,512,939

The portion of unrealized gains and losses recorded during the three months ended March 31, 2018, that relate to equities still held at the end of the reporting date are as follows ($ in thousands):



Net losses recognized during the period on equity securities	$	(726	)
Less: Net gains recognized during the period on equity securities sold	(1,881		)
Unrealized losses recognized during the period on equity securities still held at the reporting date	$	(2,607	)

Note 5 Long-Term Debt

($ in thousands)	~~September~~March 3031, ~~2017~~2018		December 31, ~~2016~~2017
Principal	$	275,000	$	275,000
Unamortized debt issuance costs	1,~~247~~135		1,~~409~~191
Long-term debt less unamortized debt issuance costs	$	273,~~753~~865	$	273,~~591~~809

In September 2012 we issued $275 million principal of senior notes due September 2022 (the “5.0% Senior Notes”). The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually. At the time we issued the 5.0% Senior Notes, we capitalized $2.2 million of debt issuance costs, which we are amortizing over the term of the 5.0% Senior Notes. We calculated the March 31, 2018, fair value of $286.3 million using a 124 basis point spread to the 10-year U.S. Treasury Note of 2.741%.

In August 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 March 31, 2018, there were no borrowings outstanding against it.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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 September 30, 2017, fair value of $292.8 million using a 123 basis point spread to the 10-year U.S. Treasury Note Yield of 2.335%.

In August 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 September 30, 2017, there were no borrowings outstanding against it.

Note 6 Income Taxes

The following is a reconciliation of income taxes at the statutory rate of 21% and 35.0% for 2018 and 2017, respectively, to the effective provision for income taxes as shown in the Consolidated Statements of Earnings ($ in thousands):

	Three months ended						~~Nine months ended~~
	September 30,						September 30,
	March 31,
	2017			2016			2017			2016
	2018			2017
Earnings before income taxes	$	2124,~~683~~937		$	314,~~196~~868		$	~~43,320~~		$	~~30,012~~
Income taxes at statutory rate	75,~~589~~237			15,~~119~~204			~~15,162~~			~~10,504~~
Effect of:
Dividends-received deduction	(~~104~~25		)	(~~101~~79		)	~~(318~~		)	~~(322~~		)
Tax-exempt interest	(~~595~~279		)	(~~600~~633		)	~~(1,844~~		)	~~(1,858~~		)
Other	(~~185~~80		)	24(134		)	~~(350~~		)	~~212~~
Provision for income taxes as shown on the Consolidated Statements of Earnings	$	64,~~704~~853		$	~~442~~4,358		$	~~12,649~~		$	~~8,536~~
GAAP effective tax rate	3019.95		%	1329.83		%	~~29.2~~		%	~~28.4~~		%

Note 7 Additional Information

Supplemental Cash Flow Information

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

	Three months ended				~~Nine months ended~~
	September 30,				September 30,
	March 31,
	2017		2016		2017		2016
	2018		2017
Income tax payments	$	~~6,575~~0	$	3,100	$	~~19,475~~	$	~~6,651~~
Interest payments on debt	6,875		6,875		~~13,750~~		~~13,750~~
Interest payments on capital leases	1815		1821		58		57

Negative Cash Book Balances

Negative cash book balances, included in the line item “Other liabilities” in the Consolidated Balance Sheets, were $6349.52 million and $4049.67 million at ~~September~~March 3031, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.

Merger with Kemper Corporation

On February 13, 2018, Kemper Corporation (“Kemper”), a wholly owned subsidiary of Kemper (“Kemper Merger Sub”) and Infinity entered into a merger agreement (the “Merger Agreement”) under which Kemper will acquire Infinity in a cash and stock transaction valued at approximately $1.4 billion, plus assumption of certain of Infinity’s debt, or $129.00 per Infinity share; the exchange ratio for stock consideration to be issued in the merger is fixed and was determined based on Kemper’s 20-trading day volume weighted average price as of February 12, 2018 of $64.40. Based on Kemper’s February 12, 2018 closing stock price of $57.75, the implied total consideration is approximately $1.3 billion, or $121.01 per Infinity share. Pursuant to the Merger Agreement, Kemper Merger Sub will merge with and into Infinity, with Infinity surviving as a wholly owned subsidiary of Kemper. Kemper is a diversified insurance holding company, with subsidiaries that provide automobile, homeowners, life, health, and other insurance products to individuals and businesses. Kemper conducts its operations through two operating segments: Property & Casualty Insurance and Life & Health Insurance. Kemper conducts its operations solely in the United States with approximately 5,550 full-time associates supporting their operations.

Under the terms of the Merger Agreement, as of the effective time of the merger (the “Effective Time”), each share of Infinity common stock issued and outstanding as of immediately prior to the Effective Time (other than as set forth in the Merger Agreement) will be canceled and converted into, at the election of the holder of such share and subject to an automatic adjustment as described below, the right to, receive (i) $51.60 in cash and 1.2019 Kemper common shares for each share of Infinity common stock, without

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

~~Condensed~~interest ~~Notes~~(the “Mixed Consideration”), (ii) an amount of cash for each share of Infinity common stock, without interest, equal to ~~Consolidated~~$129.00 ~~Financial~~(the ~~Statements~~“Cash Consideration”) or (iii) a number of shares of Kemper common stock equal to 2.0031 (the “Stock Consideration”). Holders of Infinity common stock who do not make an election will receive the Mixed Consideration. The consideration to be paid to holders of Infinity common stock electing to receive the Cash Consideration or the Stock Consideration in connection with the merger is subject to automatic adjustment, as applicable, to ensure that the total amount of cash paid and the total number of shares of Kemper common stock issued in the merger is the same as what would be paid and issued if all holders of Infinity common stock were to receive the Mixed Consideration. Following the close of the merger, Infinity shareholders are expected to own approximately 20% of the combined company on a pro-forma basis.

~~Note~~The 8merger ~~Insurance~~has ~~Reserves~~been approved by the Board of Directors of each company and is expected to close in the third quarter of 2018, subject to the satisfaction or waiver of applicable closing conditions. During the first quarter of 2018, Kemper and Infinity received notice from the U.S. Federal Trade Commission granting early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, thereby satisfying one of the applicable closing conditions. Remaining closing conditions to which the completion of the merger is subject include, among others, (i) adoption by Infinity shareholders of the Merger Agreement, (ii) approval by Kemper stockholders of the issuance of Kemper common stock in connection with the merger, (iii) the receipt of certain other regulatory approvals, (iv) the absence of any effective order issued by any court of competent jurisdiction or other legal restraint prohibiting or preventing the consummation of the merger and (v) other closing conditions.

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Balance at Beginning of Period
Unpaid losses on known claims	$	235,400		$	236,947		$	238,412		$	237,660
IBNR losses	323,184			290,767			306,641			290,097
LAE	142,513			138,496			140,402			142,207
Total unpaid losses and LAE	701,097			666,210			685,455			669,965
Reinsurance recoverables	(17,425		)	(18,487		)	(17,130		)	(14,694		)
Unpaid losses and LAE, net of reinsurance recoverables	683,673			647,723			668,325			655,271
Current Activity
Loss and LAE incurred:
Current accident year	267,319			281,456			824,719			828,310
Prior accident years	(4,134		)	(590		)	(17,237		)	(18,646		)
Total loss and LAE incurred	263,186			280,866			807,482			809,664
Loss and LAE payments:
Current accident year	(186,335		)	(197,437		)	(447,115		)	(461,020		)
Prior accident years	(64,324		)	(72,205		)	(332,493		)	(344,969		)
Total loss and LAE payments	(250,659		)	(269,642		)	(779,608		)	(805,989		)
Balance at End of Period
Unpaid losses and LAE, net of reinsurance recoverables	696,199			658,946			696,199			658,946
Add back reinsurance recoverables	33,080			17,580			33,080			17,580
Total unpaid losses and LAE	729,280			676,526			729,280			676,526
Unpaid losses on known claims	255,368			240,935			255,368			240,935
IBNR losses	330,553			299,143			330,553			299,143
LAE	143,359			136,449			143,359			136,449
Total unpaid losses and LAE	$	729,280		$	676,526		$	729,280		$	676,526

Contributing to the $4.1 million and $17.2 million of favorable reserve development during the three and nine months ended September 30, 2017, respectively, was a decrease in ultimate severity estimates in California related to bodily injury and material damage coverages for accident year 2016. Also contributing to the $17.2 million of favorable reserve development for the nine months ended September 30, 2017 was 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.

The $0.6 million and $18.6 million of favorable reserve development during the three and nine months ended September 30, 2016, respectively, was primarily due to decreases in severity estimates related to Florida personal injury protection and bodily injury coverages related to accident years 2015 and prior, partially offset by unfavorable development from accident year 2015 in California material damage coverages and in bodily injury coverages in our commercial auto product, driven by an increase in severity.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

~~Condensed~~Note ~~Notes~~8 toInsurance ~~Consolidated Financial Statements~~Reserves



	Three months ended
	March 31,
	2018			2017
Balance at Beginning of Period
Unpaid losses on known claims	$	264,470		$	238,412
IBNR losses	312,516			306,641
LAE	138,112			140,402
Total unpaid losses and LAE	715,098			685,455
Reinsurance recoverables	(31,609		)	(17,130		)
Unpaid losses and LAE, net of reinsurance recoverables	683,489			668,325
Current Activity
Loss and LAE incurred:
Current accident year	273,408			277,044
Prior accident years	(8,856		)	(6,368		)
Total loss and LAE incurred	264,552			270,676
Loss and LAE payments:
Current accident year	(89,106		)	(96,869		)
Prior accident years	(177,479		)	(179,319		)
Total loss and LAE payments	(266,585		)	(276,187		)
Balance at End of Period
Unpaid losses and LAE, net of reinsurance recoverables	681,457			662,814
Add back reinsurance recoverables	19,549			16,133
Total unpaid losses and LAE	701,006			678,947
Unpaid losses on known claims	247,940			233,303
IBNR losses	318,281			307,932
LAE	134,786			137,712
Total unpaid losses and LAE	$	701,006		$	678,947

The $8.9 million of favorable reserve development during the three months ended March 31, 2018, was primarily due to decreases in accident year 2017 estimates from California, with lower ultimate frequency estimates in collision and comprehensive coverages along with lower ultimate severity estimates for collision coverage, and from Florida, with decreased ultimate frequency estimates in collision, comprehensive and personal injury protection coverages.

The $6.4 million of favorable reserve development during the three months ended March 31, 2017, was primarily due to decreases in frequency estimates in California and Florida material damage coverages related to accident year 2016, partially offset by increases in severity estimates in personal injury protection coverages and in bodily injury coverages in our commercial auto product related to accident years 2016 and prior.

Note 9 Commitments and Contingencies

Commitments

There have been no material changes from the commitments discussed on Form 10-K for the year ended December 31, ~~2016~~2017. For a description of our previously reported commitments, refer to Note 14 Commitments and Contingencies of our Form 10-K for the year ended December 31, ~~2016~~2017.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Contingencies

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

We also face in the ordinary course of business lawsuits that seek damages beyond policy limits, commonly known as extra-contractual claims, as well as class action and individual lawsuits that involve issues not unlike those facing other insurance companies and employers.

We continually evaluate potential liabilities and reserves for litigation of these types using the criteria established by the Contingencies topic of the FASB Accounting Standards Codification. Under this guidance, we may only record reserves for a loss if the likelihood of occurrence is probable and we can reasonably estimate the amount or range of the loss. When disclosing litigation or claims where a material loss is judged to be reasonably possible, we will disclose an estimated range of loss or state that an estimate cannot be made. We consider each legal action using this guidance and record reserves for losses as warranted by establishing a reserve captured within our Consolidated Balance Sheets line-items “Unpaid losses and loss adjustment expenses” for extra-contractual claims and “Other liabilities” for class action and other non-claims related lawsuits. We record amounts incurred on the Consolidated Statements of Earnings within “Losses and loss adjustment expenses” for extra-contractual claims and “Other expenses” for class action and other non-claims related lawsuits.

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

InAs ~~Reyes v. Infinity Indemnity Insurance Company (Circuit Court~~ of ~~Miami-Dade~~March ~~County~~31, ~~Florida)~~2018, ~~which~~pending ~~was~~putative initially filed on June 4, 2014, a third-party claimant is attempting to recover from Infinity a $30 million consent judgment obtained against an Infinity policyholder for personal injuries suffered by the claimant(i. ~~In December 2014 the trial court granted Infinity's motion for partial summary judgment~~e., ~~finding~~not ~~the~~certified) ~~consent~~class ~~judgment~~action ~~unenforceable~~lawsuits ~~and~~ that nochallenge ~~bad~~certain ~~faith claim could exist as a matter~~ of ~~law.~~Infinity’s ~~The~~business ~~plaintiff~~operations ~~successfully appealed that ruling. Petitions for Rehearing~~ and ~~for~~practices ~~Certiorari~~included ~~Review by~~ the Florida Supreme Court were denied on March 10, 2017 and June 14, 2017, respectively sending the matter back to the trial court, where resumed litigation is expected to focus next on the issues of coverage and duty to defend. We will continue to vigorously defend against all claims in this case. following:

As of September 30, 2017, pending putative (i.e., not certified) class action lawsuits that challenge certain of Infinity’s business operations and practices included the following:

• allegations we sold a lessor liability endorsement affording only illusory coverage.

• a challenge to denial of personal injury protection benefits to a class of injured third parties in vehicle accidents.

• a challenge to our payment of a percentage of arbitration awards to collection agencies in successful intercompany ~~arbitrations.~~

~~• allegations that we are obligated to reimburse Medicare or secondary payers for accident-related medical payments in which personal injury protection benefits were denied~~ arbitrations.

• allegations that we are obligated to reimburse Medicare or secondary payers for accident-related medical payments in

which personal injury protection benefits were denied.

In addition to lawsuits, regulatory bodies, including state insurance departments and the Securities and Exchange Commission, among others, may make inquiries, investigate consumer complaints or conduct on-site examinations concerning specific business practices or compliance more generally. Such inquiries, investigations or examinations have in the past and may in the future directly or indirectly result in regulatory orders requiring remedial, injunctive or other actions or the assessment of substantial fines or other penalties.

~~During~~For ~~the first quarter of 2017, as~~ a ~~result~~description of ~~our~~previously ~~review~~reported ofcontingencies, ~~certain~~refer ~~business practices surrounding a California consumer complaint~~ to ~~the~~Note 14 ~~California~~Commitments ~~Department~~and Contingencies of ~~Insurance~~our ~~(CDI),~~Form a10-K ~~$3.8~~for ~~million~~the ~~adjustment~~year ~~was~~ended ~~made to written and earned premium~~December 31, ~~reflecting premium to be returned to policyholders~~2017.

2223

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

During the second quarter, the CDI inquired about how we estimate and adjust an insured's annual mileage driven. Under California's auto insurance regulations, annual miles driven is one of three mandatory factors used to determine insurance premium rates. Although we believe we are in compliance with applicable regulations, we opted to revise the methodology we employ during the renewal process for estimating changes in annual miles. This change resulted in lowering mileage on approximately 200,000 policies renewed predominately in years 2016 and 2017, and correspondingly lowering rates on those policies. Any excess premiums collected were returned to policyholders, which resulted in premium adjustments to written and earned premium for the second quarter of $18.3 million and $12.4 million, respectively. While we believe our policies fully comply with all state regulations, given the broad administrative and interpretative powers of state insurance departments, future and unanticipated judicial, regulatory or legislative changes may raise challenges over established rate, underwriting or claims practices.

For a description of previously reported contingencies, refer to Note 14 Commitments and Contingencies in the Form 10-K for the year ended December 31, 2016.

Note 10 Accumulated Other Comprehensive Income

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

	Three months ended September 30,
	Three months ended March 31,
	2017									2016
	2018									2017
	Before Tax			Income Tax			Net			Before Tax			Income Tax			Net
Accumulated change in post-retirement benefit liability, beginning of period	$	~~1,007~~829		$	(~~353~~290	)	$	~~655~~539		$	~~923~~1,033		$	(~~323~~361	)	$	~~600~~671
Effect on other comprehensive income	(13		)	4			(8		)	(11		)	4			(7		)
Cumulative effect of change in accounting principle	0			116			116			0			0			0
Accumulated change in post-retirement benefit liability, end of period	995			(348		)	647			912			(319		)	593
Effect on other comprehensive income	(2		)	0			(1		)	(13		)	4			(8		)
Accumulated unrealized gains on investments, net, beginning of period	28,457			(9,960		)	18,497			37,383			(13,084		)	24,299
Accumulated change in post-retirement benefit liability, end of period	827			(174		)	653			1,020			(357		)	663
Other comprehensive income before reclassification	6,310			(2,209		)	4,102			4,702			(1,646		)	3,056
Accumulated unrealized gains on investments, net, beginning of period	28,421			(9,204		)	19,217			11,133			(3,896		)	7,236
Reclassification adjustment for other-than-temporary impairments included in net income	22			(8		)	14			0			0			0
Cumulative effect of change in accounting principle	(27,192		)	8,948			(18,244		)	0			0			0
Reclassification adjustment for realized losses (gains) included in net income	410			(143		)	266			(1,282		)	449			(833		)
Other comprehensive (loss) income before reclassification (1)	(18,344		)	3,852			(14,492		)	10,664			(3,733		)	6,932
Effect on other comprehensive income	6,742			(2,360		)	4,382			3,420			(1,197		)	2,223
Reclassification adjustment for other-than-temporary impairments included in net income (1)	1,588			(334		)	1,255			10			(3		)	6
Accumulated unrealized gains on investments, net, end of period	35,198			(12,319		)	22,879			40,803			(14,281		)	26,522
Reclassification adjustment for realized losses (gains) included in net income (1)	518			(109		)	409			(519		)	182			(337		)
Accumulated other comprehensive income, beginning of period	29,464			(10,312		)	19,152			38,306			(13,407		)	24,899
Effect on other comprehensive income	(16,238		)	3,410			(12,828		)	10,155			(3,554		)	6,601
Change in post-retirement benefit liability	(13		)	4			(8		)	(11		)	4			(7		)
Accumulated unrealized (losses) gains on investments, net, end of period	(15,009		)	3,154			(11,855		)	21,288			(7,451		)	13,837
Change in unrealized gains on investments, net	6,742			(2,360		)	4,382			3,420			(1,197		)	2,223
Accumulated other comprehensive income, beginning of period	29,250			(9,494		)	19,756			12,165			(4,258		)	7,907
Effect on other comprehensive income	6,729			(2,355		)	4,374			3,409			(1,193		)	2,216
Cumulative effect of change in accounting principle	(27,192		)	9,064			(18,128		)	0			0			0
Accumulated other comprehensive income, end of period	$	36,193		$	(12,668	)	$	23,526		$	41,715		$	(14,600	)	$	27,115
Change in post-retirement benefit liability	(2		)	0			(1		)	(13		)	4			(8		)
Change in unrealized (losses) gains on investments, net (1)	(16,238		)	3,410			(12,828		)	10,155			(3,554		)	6,601
Effect on other comprehensive income	(43,432		)	12,474			(30,958		)	10,143			(3,550		)	6,593
Accumulated other comprehensive (loss) income, end of period	$	(14,182	)	$	2,980		$	(11,202	)	$	22,308		$	(7,808	)	$	14,500

23(1) The amounts for 2018 are for fixed maturities only.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

	Nine months ended September 30,
	2017									2016
	Before Tax			Income Tax			Net			Before Tax			Income Tax			Net
Accumulated change in post-retirement benefit liability, beginning of period	$	1,033		$	(361	)	$	671		$	944		$	(331	)	$	614
Effect on other comprehensive income	(38		)	13			(24		)	(32		)	11			(21		)
Accumulated change in post-retirement benefit liability, end of period	995			(348		)	647			912			(319		)	593
Accumulated unrealized gains on investments, net, beginning of period	11,133			(3,896		)	7,236			11,072			(3,875		)	7,197
Other comprehensive income before reclassification	26,030			(9,110		)	16,919			30,989			(10,846		)	20,143
Reclassification adjustment for other-than-temporary impairments included in net income	31			(11		)	20			316			(111		)	205
Reclassification adjustment for realized gains included in net income	(1,996		)	698			(1,297		)	(1,573		)	551			(1,023		)
Effect on other comprehensive income	24,066			(8,423		)	15,643			29,731			(10,406		)	19,325
Accumulated unrealized gains on investments, net, end of period	35,198			(12,319		)	22,879			40,803			(14,281		)	26,522
Accumulated other comprehensive income, beginning of period	12,165			(4,258		)	7,907			12,016			(4,206		)	7,811
Change in post-retirement benefit liability	(38		)	13			(24		)	(32		)	11			(21		)
Change in unrealized gains on investments, net	24,066			(8,423		)	15,643			29,731			(10,406		)	19,325
Effect on other comprehensive income	24,028			(8,410		)	15,618			29,699			(10,395		)	19,304
Accumulated other comprehensive income, end of period	$	36,193		$	(12,668	)	$	23,526		$	41,715		$	(14,600	)	$	27,115

Note 11 Segment Information

We manage our business based on product line and have three operating segments: Personal Auto, Commercial Auto and Classic Collector (our reportable segments are Personal Auto and Commercial Auto).

Our Personal Auto product 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.

Our Commercial Auto product 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. We primarily target businesses with fleets of 2010 or fewer vehicles and average 1.9 vehicles per policy. We avoid businesses that are involved in what we consider to be hazardous operations or interstate commerce.

Our Classic Collector product 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.

2425

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

All segment revenues are generated from external customers. The following table provides revenues by segment and a reconciliation to "Total revenues" as reported on the Consolidated Statements of Earnings ($ in thousands):

	Three months ended September 30,						Nine months ended September 30,
	Three months ended
Gross written premium:	2017			2016			2017			2016
	March 31,
Personal Auto	$	319,242		$	319,771		$	920,522		$	951,925
Gross written premium:	2018			2017
Commercial Auto	38,617			35,326			123,207			107,975
Personal Auto	$	370,193		$	324,352
Classic Collector	4,358			4,280			12,979			12,406
Commercial Auto	47,739			42,785
Total gross written premium	362,217			359,377			1,056,709			1,072,306
Classic Collector	3,660			3,565
Ceded reinsurance:
Total gross written premium	421,592			370,702
Personal Auto	(1,627		)	(977		)	(3,615		)	(2,989		)
Ceded reinsurance:
Commercial Auto(1)	(1,311		)	(1,137		)	(1,470		)	(2,887		)
Personal Auto	(2,077		)	(983		)
Classic Collector	(275		)	(198		)	(696		)	(635		)
Commercial Auto	(1,379		)	(1,412		)
Total ceded reinsurance	(3,213		)	(2,312		)	(5,782		)	(6,511		)
Classic Collector	(260		)	(213		)
Net written premium:
Total ceded reinsurance	(3,716		)	(2,608		)
Personal Auto	317,615			318,794			916,907			948,936
Net written premium:
Commercial Auto	37,306			34,190			121,737			105,088
Personal Auto	368,116			323,369
Classic Collector	4,084			4,081			12,283			11,771
Commercial Auto	46,360			41,373
Total net written premium	359,004			357,065			1,050,927			1,065,795
Classic Collector	3,400			3,352
Change in unearned premium:
Total net written premium	417,876			368,094
Personal Auto	(14,075		)	(13,652		)	(12,532		)	(34,081		)
Change in unearned premium:
Commercial Auto	307			(881		)	(12,071		)	(11,869		)
Personal Auto	(57,817		)	(20,983		)
Classic Collector	(272		)	(362		)	(844		)	(775		)
Commercial Auto	(6,532		)	(6,170		)
Total change in unearned premium	(14,040		)	(14,895		)	(25,447		)	(46,725		)
Classic Collector	460			428
Earned premium:
Total change in unearned premium	(63,889		)	(26,726		)
Personal Auto	303,540			305,142			904,375			914,855
Earned premium:
Commercial Auto	37,612			33,309			109,666			93,219
Personal Auto	310,298			302,386
Classic Collector	3,812			3,720			11,439			10,996
Commercial Auto	39,828			35,203
Total earned premium	344,964			342,171			1,025,480			1,019,070
Classic Collector	3,860			3,780
Installment and other fee income:
Total earned premium	353,987			341,368
Personal Auto	23,133			23,760			70,839			69,783
Installment and other fee income:
Commercial Auto	2,889			2,537			8,593			7,417
Personal Auto	24,281			23,937
Classic Collector	0			0			0			0
Commercial Auto	3,114			2,802
Total installment and other fee income	26,022			26,297			79,432			77,200
Classic Collector	0			0
Net investment income	9,771			8,125			27,467			25,115
Total installment and other fee income	27,395			26,739
Net realized gains on investments	(431		)	1,282			1,964			1,257
Net investment income	9,786			8,695
Other income	376			249			1,041			727
Net realized gains on investments	(2,832		)	509
Total revenues	$	380,701		$	378,124		$	1,135,385		$	1,123,370
Other income	430			275
(1) Effective June 1, 2017, the premium paid for our excess of loss reinsurance contract for our commercial auto business is now based on earned premium rather than written premium. Premium ceded during the nine months ended September 30, 2017 includes the return of $2.6 million of unearned premium due to the termination of the previous excess of loss contract.
Total revenues	$	388,766		$	377,587

2526

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Our management uses underwriting income and combined ratios calculated on a statutory accident year basis as primary measures of profitability. Statutory accident year underwriting income is calculated by subtracting losses and loss adjustment expenses and commissions and other underwriting expenses (including bad debt charge-offs on agents' balances and premium receivables) from the total of earned premium and installment and other fee income. The statutory accident year combined ratio represents the sum of the following ratios: (i) losses and LAE incurred, excluding development from prior accident years, as a percentage of net earned premium; and (ii) underwriting expenses incurred, including bad debt and net of fees, as a percentage of net written premium.

The primary differences between the calculation of the statutory accident year used by management and the statutory calendar year combined ratios is the exclusion of bad debt charge-offs and the inclusion of development on prior accident year loss and LAE reserves.

Certain expenses are treated differently under statutory 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 agents' balances and premium receivables are included in the GAAP combined ratios.

The following tables present the underwriting income and combined ratio on a statutory accident year basis with reconciliations to "Earnings before income taxes" as presented on the Consolidated Statements of Earnings ($ in thousands). We do not allocate assets or "Provision for income taxes" to operating segments.

Three months ended September 30, 2017

Three months ended March 31, 2018

Personal Auto

Commercial Auto

Classic Collector

Total

Pre-tax Profit (Loss)

Combined Ratio (1)

Pre-tax Profit (Loss)

Combined Ratio (1)

Pre-tax Profit (Loss)

Combined Ratio (1)

Pre-tax Profit (Loss)

Combined Ratio (1)

Statutory accident year underwriting income

146,~~571~~311

94.48

~~156~~812

9995.72

~~(1,268~~613

)

~~130~~88.91

137,~~459~~737

9594.47

Bad debt charge-offs

3,~~302~~363

~~588~~392

9(44

)

3,~~900~~711

Favorable (unfavorable) development on prior accident years

410,~~803~~555

(~~907~~1,362

)

~~237~~(337

)

48,~~134~~856

Statutory calendar year underwriting income

2220,~~676~~229

9190.75

(~~162~~158

)

~~100~~97.68

~~(1,022~~233

)

~~124~~98.42

2120,~~492~~304

9391.13

Statutory-to-GAAP underwriting income differences

(36,~~013~~005

)

GAAP calendar year underwriting income

1826,~~479~~309

9492.6

Net investment income

9,~~771~~786

Net realized gains on investments

(~~431~~2,832

)

Other income

~~376~~430

Interest expense

(3,~~510~~509

)

Corporate general and administrative expenses

(24,~~158~~743

)

Other expenses

(~~844~~505

)

Earnings before income taxes

2124,~~683~~937

(1) Management includes the provision for uncollectible accounts in the underwriting income and combined ratio on both statutory accident year and GAAP calendar year bases.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

	Three months ended September 30, 2016
	Personal Auto					Commercial Auto					Classic Collector					Total
	Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)
Statutory accident year underwriting income	$	(2,394	)	100.0	%	$	(336	)	100.5	%	$	(87	)	99.0	%	$	(2,817	)	100.1	%
Bad debt charge-offs	3,682					509					21					4,212
Favorable (unfavorable) development on prior accident years	5,997					(5,315		)			(92		)			590
Statutory calendar year underwriting income	7,285			96.8	%	(5,142		)	115.0	%	(157		)	100.9	%	1,985			98.7	%
Statutory-to-GAAP underwriting income differences																(2,795		)
GAAP calendar year underwriting income																(810		)	100.2	%
Net investment income																8,125
Net realized gains on investments																1,282
Other income																249
Interest expense																(3,507		)
Corporate general and administrative expenses																(1,768		)
Other expenses																(375		)
Earnings before income taxes																$	3,196
(1) Management includes the provision for uncollectible accounts in the underwriting income and combined ratio on both statutory accident year and GAAP calendar year bases.

	Nine months ended September 30, 2017
	Personal Auto				Commercial Auto					Classic Collector					Total
	Pre-tax Profit (Loss)		Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)
Statutory accident year underwriting income	$	13,780	98.2	%	$	1,992		96.3	%	$	(990	)	106.1	%	$	14,782		98.1	%
Bad debt charge-offs	9,225				1,345					20					10,590
Favorable (unfavorable) development on prior accident years	20,849				(4,015		)			404					17,237
Statutory calendar year underwriting income	43,854		94.9	%	(679		)	98.9	%	(566		)	102.4	%	42,610			95.4	%
Statutory-to-GAAP underwriting income differences															(10,681		)
GAAP calendar year underwriting income															31,929			96.9	%
Net investment income															27,467
Net realized gains on investments															1,964
Other income															1,041
Interest expense															(10,533		)
Corporate general and administrative expenses															(6,876		)
Other expenses															(1,673		)
Earnings before income taxes															$	43,320
(1) Management includes the provision for uncollectible accounts in the underwriting income and combined ratio on both statutory accident year and GAAP calendar year bases.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements



	Three months ended March 31, 2017
	Personal Auto				Commercial Auto					Classic Collector				Total
	Pre-tax Profit (Loss)		Combined Ratio⁽¹⁾		Pre-tax Profit (Loss)			Combined Ratio⁽¹⁾		Pre-tax Profit (Loss)		Combined Ratio⁽¹⁾		Pre-tax Profit (Loss)			Combined Ratio⁽¹⁾
Statutory accident year underwriting income	$	1,594	98.3	%	$	629		95.3	%	$	335	95.3	%	$	2,558		98.0	%
Bad debt charge-offs	2,251				291					10				2,552
Favorable (unfavorable) development on prior accident years	6,986				(874		)			256				6,368
Statutory calendar year underwriting income	10,831		95.2	%	45			97.1	%	602		88.3	%	11,478			95.4	%
Statutory-to-GAAP underwriting income differences														14
GAAP calendar year underwriting income														11,492			96.6	%

Net investment income														8,695
Net realized gains on investments														509
Other income														275
Interest expense														(3,512		)
Corporate general and administrative expenses														(2,271		)
Other expenses														(322		)
Earnings before income taxes														$	14,868
(1) Management includes the provision for uncollectible accounts in the underwriting income and combined ratio on both statutory accident year and GAAP calendar year bases.

	Nine months ended September 30, 2016
	Personal Auto					Commercial Auto					Classic Collector					Total
	Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)		Pre-tax Profit (Loss)			Combined Ratio (1)
Statutory accident year underwriting income	$	(978	)	99.5	%	$	(1,816	)	99.6	%	$	731		91.1	%	$	(2,063	)	99.4	%
Bad debt charge-offs	11,048					1,322					39					12,409
Favorable (unfavorable) development on prior accident years	21,077					(2,393		)			(39		)			18,646
Statutory calendar year underwriting income	31,148			95.9	%	(2,887		)	100.9	%	731			91.1	%	28,992			96.4	%
Statutory-to-GAAP underwriting income differences																(8,568		)
GAAP calendar year underwriting income																20,424			98.0	%
Net investment income																25,115
Net realized gains on investments																1,257
Other income																727
Interest expense																(10,524		)
Corporate general and administrative expenses																(5,532		)
Other expenses																(1,455		)
Earnings before income taxes																$	30,012
(1) Management includes the provision for uncollectible accounts in the underwriting income and combined ratio on both statutory accident year and GAAP calendar year bases.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

ITEM 2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” which anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. We make these statements subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in this report not dealing with historical results or current facts are forward-looking and we base them on estimates, assumptions and projections. Statements which include the words “assumes,” “believes,” “seeks,” “expects,” “may,” “should,” “intends,” “likely,” “targets,” “plans,” “anticipates,” “estimates” or the negative version of those words and similar statements of a future or forward-looking nature identify forward-looking statements. Examples of such forward-looking statements include statements relating to expectations concerning market conditions, premium growth, earnings, investment performance, expected losses, rate changes and loss experience.

The primary events or circumstances that could cause actual results to differ materially from what we expect include determinations with respect to reserve adequacy, realized gains or losses on the investment portfolio (including other-than-temporary impairments for credit losses), loss cost trends, and competitive conditions in our key ~~focus~~Focus ~~states~~States (defined in Results of Operations – Underwriting – Premium). Additionally, risks and uncertainties related to the merger are set forth in the Joint Proxy Statement/Prospectus with Kemper, filed with the SEC on April 27, 2018, and incorporated herein by reference.We undertake no obligation to publicly update or revise any of the forward-looking statements. For a more detailed discussion of some of the foregoing risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements refer to Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

OVERVIEW

~~During~~On February 13, 2018, the ~~third~~Company ~~quarter~~entered ofinto ~~2017~~the Merger Agreement with Kemper and Kemper Merger Sub. The Merger Agreement provides that, ~~premium~~subject ~~growth~~to inthe ~~Texas~~satisfaction or waiver of certain conditions set forth therein, ~~Arizona~~Kemper ~~and~~Merger ~~Commercial~~Sub ~~Auto~~will ~~was~~merge ~~mostly~~with ~~offset~~and byinto ~~reductions~~the Company in ~~new~~accordance ~~business~~with inthe ~~Florida~~Ohio ~~and~~General ~~California.~~Corporation ~~Refer~~Law to(the ~~Results~~“merger”), ofwith ~~Operations~~the –Company ~~Underwriting~~surviving –such ~~Premium~~merger ~~for~~as a ~~more~~wholly ~~detailed~~owned ~~discussion~~subsidiary of ~~our~~Kemper. ~~gross~~The ~~written~~Company ~~premium~~expects the closing of the merger to occur in the third quarter of 2018.

~~Net~~Gross ~~catastrophe~~written ~~losses~~premium grew 13.7% during the ~~third~~first quarter of ~~2017~~2018 ~~were~~compared ~~$15.1~~with ~~million~~the ~~compared~~first quarter of 2017 primarily due to an ~~net~~increase ~~recoveries~~in ofnew $0application counts and higher average premium in California, higher average premium on renewal business in Texas as well as policy growth and higher average premium in our Commercial Auto product.3 ~~million~~Partially ~~during~~offsetting the ~~third~~growth ~~quarter~~was a decline in renewal business in Florida. Refer to Results of ~~2016~~Operations – Underwriting – Premium for a more detailed discussion of our gross written premium.

Net earnings and diluted earnings per share for the three months ended ~~September~~March 3031, ~~2017~~2018, were $1520.01 million and $1.3582, respectively, compared with $210.85 million and $0.2594, respectively, for the same ~~periods~~period of ~~2016. Net earnings and diluted earnings per share for the nine months ended September 30,~~ 2017~~, were $30~~.7 ~~million and $2.76, respectively, compared with $21.5 million and $1.93, respectively, for the same periods of 2016.~~ The increase in net earnings and diluted earnings per share for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, was primarily due to a decrease in the accident year combined ratio from 9998.85% at ~~September~~March 3031, ~~2016~~2017, to 9895.61% at ~~September~~March 3031, ~~2017.~~2018,

Included in net earnings for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, was $2.7 ~~million ($4~~.10 million ~~pre-tax) and $11.2 million~~ ($178.29 million pre-tax), ~~respectively,~~ of favorable development on prior accident year loss and LAE reserves. ~~Contributing~~ This development was primarily due to ~~the~~decreases ~~$4.1~~in ~~million~~accident ~~and~~year ~~$17.2~~2017 ~~million~~estimates offrom ~~favorable~~California, ~~reserve~~with ~~development~~lower ~~during~~ultimate ~~the~~frequency ~~three~~estimates in collision and ~~nine~~comprehensive ~~months~~coverages ~~ended~~along ~~September 30,~~with ~~2017,~~lower ~~respectively~~ultimate severity estimates for collision coverage, ~~was~~and afrom ~~decrease~~Florida, inwith decreased ultimate ~~severity~~frequency estimates in ~~California~~collision, ~~related~~comprehensive toand ~~bodily~~personal injury ~~and~~protection ~~material~~coverages. ~~damage~~Included ~~coverages~~in net earnings for ~~accident~~the ~~year~~three ~~2016.~~months ~~Also~~ended ~~contributing~~March 31, to2017, ~~the~~was $174.21 million ($6.4 million pre-tax) of favorable ~~reserve~~ development ~~for~~on ~~the~~prior ~~nine~~accident ~~months~~year ~~ended~~loss ~~September~~and ~~30,~~LAE ~~2017~~reserves. This development was aprimarily ~~decrease~~due into ~~ultimate~~decreases in frequency estimates in ~~Florida~~California ~~related~~and toFlorida material damage ~~and~~coverages ~~uninsured~~related ~~motorist~~to ~~bodily injury coverage for~~ accident year 2016~~. This~~, ~~favorable development was~~ partially offset by increases in ~~ultimate~~ severity estimates in personal injury protection coverages and in bodily injury coverages in our commercial auto product related to accident years 2016 and prior.

Included in net earnings for the three and nine months ended September 30, 2016, was $0.4 million ($0.6 million pre-tax) and $12.1 million ($18.6 million pre-tax), respectively, of favorable development on prior accident year loss and LAE reserves. This development was primarily due to decreases in severity estimates related to Florida personal injury protection and bodily injury coverages related to accident years 2015 and prior, partially offset by unfavorable development from accident year 2015 in California material damage coverages and in bodily injury coverages in our commercial auto product, driven by an increase in severity.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

The following table displays combined ratio results by accident year developed through ~~September~~March 3031, ~~2017~~2018:

	Accident Year Combined RatioDeveloped Through								Prior Accident Year(Favorable) Unfavorable Development($ in millions)					~~Prior Accident Year(Favorable) / Unfavorable Development($ in millions)~~
	Dec 2015		Sept 2016		Dec 2016		Mar 2017		June 2017		Sept 2017			Q3 2017					YTD 2017
	Dec 2016		Mar 2017		Dec 2017		Mar 2018		Q1 2018
Accident Year
Prior											$	(0.2	)			$	~~(0.1~~	)			$	~~0.3~~
2009	92.4	%	92.4	%	92.4	%	92.4	%	92.5	%	92.5	%		0.0	%	0.2			0.1	%	0.4
2010	99.3	%	99.3	%	99.3	%	99.3	%	(0.0	)%	(0.1		)
2010	99.4	%	99.3	%	99.3	%	99.3	%	99.3	%	99.3	%		0.0	%	0.2			0.1	%	0.5
2011	99.8	%	99.9	%	99.9	%	99.9	%	0.0	%	0.0
2011	100.2	%	100.0	%	99.8	%	99.9	%	99.9	%	99.9	%		0.0	%	0.0			0.1	%	0.6
2012	99.6	%	99.5	%	99.4	%	99.4	%	(0.0	)%	(0.0		)
2012	100.1	%	99.8	%	99.6	%	99.5	%	99.4	%	99.4	%		0.0	%	0.3			(0.2	)%	(2.4		)
2013	94.8	%	94.9	%	94.8	%	94.7	%	(0.1	)%	(1.4		)
2013	95.5	%	94.9	%	94.8	%	94.9	%	94.9	%	94.8	%		(0.1	)%	(1.5		)	(0.1	)%	(0.7		)
2014	94.4	%	94.4	%	94.5	%	94.5	%	(0.0	)%	(0.6		)
2014	95.4	%	94.3	%	94.4	%	94.4	%	94.5	%	94.5	%		0.5	%	0.6			0.1	%	1.8
2015	98.3	%	98.4	%	98.5	%	98.4	%	(0.0	)%	(0.6		)
2015	97.8	%	98.4	%	98.3	%	98.4	%	98.3	%	98.5	%		0.2	%	2.2			0.2	%	2.3
2016	98.4	%	97.8	%	96.7	%	96.6	%	(0.1	)%	(0.8		)
2016			99.8	%	98.4	%	97.8	%	97.4	%	97.0	%		(0.4	)%	(6.1		)	(1.4	)%	(20.1		)
2017			98.5	%	96.5	%	96.1	%	(0.4	)%	(5.2		)
2017 YTD							98.4	%	99.9	%	98.6	%
2018 YTD							95.1	%
											$	(8.9	)			$	~~(4.1~~	)			$	~~(17.2~~	)

~~Refer~~Pre-tax net investment income increased from $8.7 million during the three months ended March 31, 2017, to ~~Results~~$9.8 ofmillion ~~Operations~~during –the ~~Underwriting~~three –months ~~Profitability~~ended ~~for~~March 31, a2018, ~~more~~primarily ~~detailed~~due ~~discussion~~to oflower ~~our~~premium ~~underwriting~~amortization ~~results~~on municipal bonds and commercial mortgage-backed securities during 2018.

~~Pre-tax~~Our ~~net~~book ~~investment~~value ~~income~~per ~~for~~share ~~the~~increased ~~three~~0.2% ~~and~~from ~~nine~~$65.46 ~~months~~at ~~ended September~~December 3031, 2017, ~~was~~to $965.861 ~~million~~at ~~and $27.5 million respectively~~March 31, ~~compared with $8~~2018.1 ~~million~~This ~~and $25.1 million, respectively, for the same periods of 2016. The~~ increase ~~for the three and nine months ended September 30, 2017,~~ was primarily due to ~~lower~~earnings ~~premium~~partially ~~amortization~~offset onby ~~mortgage-backed~~a ~~securities~~decrease ~~and~~in anunrealized ~~increase~~gains inon ~~both~~fixed ~~make~~maturity ~~whole~~investments ~~interest~~ and ~~bond~~shareholder ~~issuer tender offers during 2017~~dividends.

Our book value per share increased 3.5% from $63.31 at December 31, 2016, to $65.52 at September 30, 2017. This increase was primarily due to earnings and an increase in unrealized gains, partially offset by shareholder dividends and share repurchases during the year.

RESULTS OF OPERATIONS

Underwriting

Premium

Our insurance subsidiaries provide personal automobile insurance products with a concentration on nonstandard auto insurance. While there is no industry-recognized definition of nonstandard auto insurance, we believe that it is generally understood to mean coverage for drivers who, 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. We also write commercial auto insurance and insurance for classic collectible automobiles (Classic Collector).

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

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

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

	Three months ended September 30,
	Three months ended March 31,
	2017			2016			Change			% Change
	2018			2017			Change			% Change
Gross written premium:
Personal Auto	$	~~319~~370,~~242~~193		$	~~319~~324,~~771~~352		$	~~(529~~45,841	)	(014.21	)%
Commercial Auto	3847,~~617~~739			3542,~~326~~785			34,~~290~~954			911.36	%
Classic Collector	43,~~358~~660			43,~~280~~565			7995			12.87	%
Total gross written premium	~~362~~421,~~217~~592			~~359~~370,~~377~~702			250,~~840~~890			013.87	%
Ceded reinsurance	(3,~~213~~716		)	(2,~~312~~608		)	(~~901~~1,108		)	3942.05	%
Net written premium	~~359~~417,~~004~~876			~~357~~368,~~065~~094			149,~~939~~782			013.5	%
Change in unearned premium	(1463,~~040~~889		)	(1426,~~895~~726		)	~~855~~(37,163		)	(5139.71	)%
Net earned premium	$	~~344~~353,~~964~~987		$	~~342~~341,~~171~~368		$	212,~~793~~618		03.87	%
	Nine months ended September 30,
	2017			2016			Change			% Change
Gross written premium:
Personal Auto	$	920,522		$	951,925		$	(31,403	)	(3.3	)%
Commercial Auto	123,207			107,975			15,232			14.1	%
Classic Collector	12,979			12,406			573			4.6	%
Total gross written premium	1,056,709			1,072,306			(15,598		)	(1.5	)%
Ceded reinsurance	(5,782		)	(6,511		)	729			(11.2	)%
Net written premium	1,050,927			1,065,795			(14,868		)	(1.4	)%
Change in unearned premium	(25,447		)	(46,725		)	21,278			(45.5	)%
Net earned premium	$	1,025,480		$	1,019,070		$	6,410		0.6	%

The following table summarizes our policies in force:

	At September 30,
	At March 31,
	2017	2016	Change		% Change
	2018	2017	Change		% Change
Personal Auto	~~687~~712,~~251~~893	~~729~~706,~~686~~783	~~(42~~6,~~435~~110	)	(50.89	)%
Commercial Auto	5558,~~935~~708	5153,~~849~~756	4,~~086~~952		7.9.2	%
Classic Collector	41,~~268~~009	41,~~511~~547	(~~243~~538	)	(01.63	)%
Total policies in force	~~784~~812,~~454~~610	~~823~~802,~~046~~086	~~(38~~10,~~592~~524	)	(41.73	)%

~~During~~The increase in gross written premium in Personal Auto during the first ~~nine~~quarter ~~months~~ of ~~2017~~2018 was primarily due to premium growth in California and Texas, wepartially ~~implemented~~offset ~~rate~~by ~~revisions~~a decline in ~~various~~Florida. ~~states~~New ~~with~~business anin ~~overall~~California ~~rate~~grew ~~increase~~during the first quarter of ~~3.0%.~~2018 ~~Policies~~due to an increase in ~~force~~application atcounts ~~September 30,~~and ~~2017,~~higher ~~decreased~~average 4premium.7% ~~compared~~Growth ~~with~~during the ~~same~~first ~~period~~three months in ~~2016~~Texas was primarily due to higher average premium on renewal business. This growth was offset by a decline in renewal business in Florida primarily as a result of rate increases of 14.4% implemented during 2017.

~~Gross written premium in Personal Auto was relatively flat during the third quarter of 2017 primarily due to premium declines in California and Florida, offset by growth in Texas and Arizona.~~ The ~~decrease in~~ gross written premium in Personal Auto during the first nine months of 2017 was primarily due to premium adjustments in California of $22.2 million during the first six months of 2017. Refer to Note 9 - Commitments and Contingencies for a more detailed discussion of the premium adjustments. Excluding the premium adjustments, gross written premium increased 0.6% during the first nine months of 2017 driven by growth in ~~Texas,~~our ~~Arizona and~~ Commercial Auto, ~~partially~~product ~~offset by reductions in new business in Florida and California. Growth~~ during the first ~~nine~~quarter ~~months~~of in2018 ~~Texas and Arizona~~ was primarily due to new ~~business~~and renewal policy growth and higher average premium in ~~both~~Texas, ~~states~~California asand ~~well as renewal premium growth in Texas~~Florida.

The gross written premium growth during the third quarter and first nine months of 2017 in our Commercial Auto product was primarily due to new and renewal business growth and higher average premium.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Profitability

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

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 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.

~~The following table presents statutory and GAAP combined ratios:~~ 31

	Three months ended September 30,
	2017						2016						% Point Change
	Loss &LAERatio		UnderwritingRatio		CombinedRatio		Loss &LAERatio		UnderwritingRatio		CombinedRatio		Loss &LAERatio		UnderwritingRatio		CombinedRatio
Personal Auto	75.5	%	16.3	%	91.7	%	80.7	%	16.2	%	96.8	%	(5.2	)%	0.1	%	(5.1	)%
Commercial Auto	84.0	%	16.6	%	100.6	%	98.3	%	16.7	%	115.0	%	(14.3	)%	(0.1	)%	(14.4	)%
Classic Collector	91.4	%	33.0	%	124.4	%	67.1	%	33.8	%	100.9	%	24.3	%	(0.8	)%	23.5	%
Total statutory ratios	76.5	%	16.6	%	93.1	%	82.3	%	16.4	%	98.7	%	(5.8	)%	0.1	%	(5.6	)%
Total statutory ratios excluding development	81.9	%	16.6	%	98.4	%	80.7	%	16.4	%	97.1	%	1.2	%	0.1	%	1.3	%
GAAP ratios	76.3	%	18.3	%	94.6	%	82.1	%	18.2	%	100.2	%	(5.8	)%	0.2	%	(5.6	)%
GAAP ratios excluding development	81.7	%	18.3	%	100.0	%	80.5	%	18.2	%	98.7	%	1.2	%	0.2	%	1.4	%
	Nine months ended September 30,
	2017						2016						% Point Change
	Loss &LAERatio		UnderwritingRatio		CombinedRatio		Loss &LAERatio		UnderwritingRatio		CombinedRatio		Loss &LAERatio		UnderwritingRatio		CombinedRatio
Personal Auto	78.6	%	16.2	%	94.9	%	79.4	%	16.5	%	95.9	%	(0.8	)%	(0.2	)%	(1.0	)%
Commercial Auto	83.0	%	15.9	%	98.9	%	83.7	%	17.2	%	100.9	%	(0.7	)%	(1.3	)%	(2.0	)%
Classic Collector	67.9	%	34.5	%	102.4	%	58.9	%	32.2	%	91.1	%	9.0	%	2.3	%	11.3	%
Total statutory ratios	79.0	%	16.5	%	95.4	%	79.6	%	16.8	%	96.4	%	(0.7	)%	(0.3	)%	(1.0	)%
Total statutory ratios excluding development	80.7	%	16.5	%	97.1	%	81.5	%	16.8	%	98.2	%	(0.8	)%	(0.3	)%	(1.1	)%
GAAP ratios	78.7	%	18.1	%	96.9	%	79.5	%	18.5	%	98.0	%	(0.7	)%	(0.4	)%	(1.1	)%
GAAP ratios excluding development	80.4	%	18.1	%	98.6	%	81.3	%	18.5	%	99.8	%	(0.9	)%	(0.4	)%	(1.3	)%

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

~~During~~The ~~the~~following ~~first~~table ~~nine~~presents ~~months~~statutory ~~of 2017, adjustments were made to written~~ and earned premium as a result of premium to be returned to policyholders in California. Refer to Note 9 - Commitments and Contingencies for a more detailed discussion of the premium adjustments. For the nine months ended September 30, 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 nine months ended September 30, 2017, would have been 93.9%. The GAAP combined ~~ratio for the same period would have been 95.3%.~~ratios:

The statutory combined ratio for the three and nine months ended September 30, 2017, decreased by 5.6 points and 1.0 point, respectively, from the same periods of 2016. The third quarter of 2017 included $14.4 million of favorable development from the first two accident quarters of 2017 compared with $6.0 million of unfavorable development during the third quarter of 2016 from the first two accident quarters of 2016.



	Three months ended March 31,
	2018						2017						% 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	74.3	%	16.2	%	90.5	%	79.6	%	15.6	%	95.2	%	(5.4	)%	0.6	%	(4.7	)%
Commercial Auto	81.7	%	16.1	%	97.8	%	81.0	%	16.1	%	97.1	%	0.7	%	0.0	%	0.7	%
Classic Collector	62.9	%	35.3	%	98.2	%	51.0	%	37.2	%	88.3	%	11.8	%	(1.9	)%	9.9	%
Total statutory ratios	75.0	%	16.3	%	91.3	%	79.5	%	15.9	%	95.4	%	(4.5	)%	0.5	%	(4.1	)%
Total statutory ratios excluding development	77.5	%	16.3	%	93.8	%	81.4	%	15.9	%	97.3	%	(3.9	)%	0.5	%	(3.4	)%
GAAP ratios	74.7	%	17.8	%	92.6	%	79.3	%	17.3	%	96.6	%	(4.6	)%	0.6	%	(4.0	)%
GAAP ratios excluding development	77.2	%	17.8	%	95.1	%	81.2	%	17.3	%	98.5	%	(3.9	)%	0.6	%	(3.4	)%

The ~~third~~statutory ~~quarter~~combined ~~and~~ratio ~~first~~for ~~nine~~the three months ofended ~~2017~~March ~~included $4.1 million and $17.2 million~~31, ~~respectively~~2018, ofdecreased ~~favorable~~by ~~reserve~~4.1 ~~development~~points onfrom ~~prior~~the ~~accident~~same ~~year~~period ~~loss~~of ~~and LAE reserves~~2017. ~~Contributing~~The tofirst ~~the~~quarter ~~$4.1~~of ~~million~~2018 ~~and~~included $178.29 million of favorable reserve development ~~during~~on ~~the~~prior ~~three~~accident ~~and~~year ~~nine~~loss ~~months~~and ~~ended~~LAE ~~September 30,~~reserves ~~2017,~~primarily ~~respectively,~~due ~~was~~to adecreases ~~decrease~~ in ~~ultimate severity estimates in California related to bodily injury and material damage coverages for~~ accident year ~~2016.~~2017 ~~Also~~estimates ~~contributing~~from ~~to the $17.2 million of favorable reserve development for the nine months ended September 30~~California, ~~2017~~with ~~was~~lower ~~a decrease in~~ ultimate frequency estimates in ~~Florida~~collision ~~related~~and tocomprehensive ~~material~~coverages ~~damage~~along ~~and~~with ~~uninsured~~lower ~~motorist~~ultimate ~~bodily~~severity ~~injury~~estimates ~~coverage~~ for ~~accident~~collision ~~year~~coverage, ~~2016. This~~and ~~favorable~~from ~~development~~Florida, ~~was~~with ~~partially~~decreased ~~offset by increases in~~ ultimate ~~severity~~frequency estimates in ~~bodily~~collision, ~~injury~~comprehensive ~~coverages~~and inpersonal ~~our~~injury ~~commercial~~protection ~~auto product~~coverages. The ~~third~~first quarter ~~and first nine months~~ of ~~2016~~2017 included $0.6 ~~million and $18~~.64 million, ~~respectively,~~ of favorable development on prior accident year loss and LAE reserves primarily due to decreases in ~~severity~~frequency estimates ~~related~~in toCalifornia ~~Florida personal injury protection~~ and ~~bodily~~Florida ~~injury~~material damage coverages related to accident ~~years~~year ~~2015 and prior~~2016, partially offset by ~~unfavorable~~increases ~~development~~in ~~from~~severity ~~accident~~estimates ~~year 2015~~ in ~~California~~personal ~~material~~injury ~~damage~~protection coverages and in bodily injury coverages in our commercial auto product related to accident years 2016 and prior. Excluding the effect of development, ~~driven~~the bystatutory ancombined ~~increase~~ratio indecreased ~~severity~~3.4 points during the first quarter of 2018, compared with the same period of 2017.

The GAAP combined ratio for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, decreased by 54.60 points ~~and 1.1 points, respectively,~~ from the same ~~periods~~period of ~~2016~~2017. Excluding the effect of development, the GAAP combined ratio ~~increased~~decreased by 13.4 points ~~and decreased by 1.3 points~~ during the ~~third~~first quarter ~~and~~of ~~first~~2018 ~~nine~~primarily ~~months~~due ofto ~~2017,~~an ~~respectively.~~increase ~~The decrease~~ in ~~the~~average ~~combined~~earned ~~ratio~~premium ~~during~~and ~~the~~lower ~~first~~estimates ~~nine~~of ~~months~~ultimate isfrequency ~~primarily due to improving combined ratios in California~~ and ~~Florida~~severity.

~~Losses~~Net recoveries from catastrophes were $150.1 million for the three months ended ~~September 30~~March 31, ~~2017~~2018, compared with net ~~loss~~losses ~~recoveries~~ from catastrophes ~~for the three months ended September 30, 2016~~ of $01.35 million. ~~Losses from catastrophes during the first nine months of 2017 were $18.3 million compared with $6.1 million~~ for the same period of ~~2016~~2017.

The 54.17 points decrease in the Personal Auto combined ratio for the three months ended ~~September 30~~March 31, ~~2017~~2018, compared with the same period of ~~2016~~2017, was primarily ~~favorable~~due ~~development~~to inrelatively ~~California~~flat ~~and~~loss ~~Florida~~cost ~~from~~trends ~~the~~and ~~first~~an ~~two~~increase ~~accident~~in ~~quarters~~average ofearned ~~2017~~premium ~~partially~~in ~~offset~~California byand anlower ~~increase~~frequency inestimates ~~the combined ratio~~ in ~~Texas~~Florida.

The 140.47 ~~points~~point ~~and~~increase ~~2.0 points decrease~~ in the Commercial Auto combined ratio for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, was primarily due to ~~less~~an ~~unfavorable~~increase ~~development~~in ~~during~~frequency ~~the third quarter of 2017 compared with the same period of 2016~~ and anseverity ~~improvement~~estimates in ~~the~~our ~~accident~~bodily ~~year~~injury ~~loss ratio during the third quarter of 2017 compared to the third quarter of 2016~~product.

Installment and Other Fee Income

Three months ended

~~Nine months ended~~

September 30,

March 31,

($ in thousands)

~~2017~~2018

~~2016~~2017

~~2017~~

~~2016~~

Installment and other fee income

2627,~~022~~395

26,~~297~~739

~~79,432~~

~~77,200~~

The increase in installment and other fee income charged to policyholders during the first ~~nine~~three months of ~~2017~~2018 was primarily related to an increase in installment fees.

3332

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Net Investment Income

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

Three months ended

~~Nine months ended~~

September 30,

March 31,

2017

2016

2017

2016

2018

2017

Gross investment income:

Interest income on fixed maturities, cash and cash equivalents

910,~~821~~017

8,~~191~~890

~~27,599~~

~~25,237~~

Dividends on equity securities

~~498~~317

~~482~~376

~~1,525~~

~~1,545~~

Gross investment income

10,~~319~~335

89,~~672~~266

~~29,124~~

~~26,782~~

Investment expenses

(548

)

(~~548~~570

)

~~(1,656~~

)

~~(1,667~~

)

Net investment income

9,~~771~~786

8,~~125~~695

~~27,467~~

~~25,115~~

Average investment balance, at cost

1,~~575~~609,~~453~~057

1,~~499~~542,~~267~~245

~~1,558,849~~

~~1,502,808~~

Annualized returns excluding realized gains and losses

2.54%

2.23%

~~2.3%~~

~~2.2%~~

Annualized returns including realized gains and losses

2.4%

2.54%

~~2.5%~~

~~2.3%~~

~~The increase in pre~~Pre-tax net investment income ~~for~~increased ~~the~~from ~~three~~$8.7 ~~and~~million ~~nine~~during the three months ended ~~September 30~~March 31, 2017, ~~was~~to ~~primarily~~$9.8 ~~due~~million toduring ~~lower~~the ~~premium~~three ~~amortization~~months onended ~~mortgage-backed~~March 31, ~~securities~~2018, ~~and~~primarily andue ~~increase~~to inlower ~~both~~premium ~~make~~amortization ~~whole~~on ~~interest~~municipal bonds and ~~bond~~commercial ~~issuer~~mortgage-backed ~~tender~~securities ~~offers~~ during ~~2017~~2018.

~~The~~New ~~following~~money ~~table~~rates ~~provides information about our fixed maturity investments at September 30, 2017, which~~ are ~~sensitive~~higher tothan ~~interest~~the ~~rate~~book ~~risk.~~yield ~~The~~on ~~table shows expected principal cash flows by expected maturity date for each of~~ the ~~five~~portfolio. ~~subsequent~~Therefore, ~~years~~we ~~and~~expect ~~collectively~~investment ~~for~~returns ~~all~~will ~~years~~gradually ~~thereafter.~~increase ~~Callable~~as ~~bonds~~proceeds ~~and~~from ~~notes~~maturing ~~are included based on call date~~ or ~~maturity~~prepaid ~~date~~investments ~~depending~~are ~~upon~~reinvested ~~which~~at ~~date produces~~ the ~~most~~higher ~~conservative yield~~yields. ~~Mortgage Backed Securities (MBS) and sinking fund issues are included based on maturity year adjusted for expected payment patterns.~~

	Expected Principal Cash Flows
($ in thousands)	MBS andABS only		ExcludingMBS and ABS		Total		Maturing Book Yield
For the period ending December 31,
2017	$	15,737	$	22,400	$	38,138	3.3%
2018	57,294		107,063		164,357		2.4%
2019	57,328		200,257		257,586		2.2%
2020	48,357		192,544		240,901		2.4%
2021	42,445		138,210		180,656		2.7%
Thereafter	210,634		276,766		487,401		2.6%
Total	$	431,795	$	937,243	$	1,369,038	2.5%

The following table provides information about our fixed maturity investments at March 31, 2018, 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.



	Expected Principal Cash Flows
($ in thousands)	MBS and ABS only		Excluding MBS and ABS		Total		Maturing Book Yield
For the period ending December 31,
2018	$	29,268	$	16,050	$	45,318	3.1%
2019	44,763		128,762		173,524		2.4%
2020	53,990		165,164		219,153		2.8%
2021	51,694		199,374		251,069		2.9%
2022	53,905		153,245		207,150		2.8%
Thereafter	314,171		253,941		568,112		3.1%
Total	$	547,791	$	916,535	$	1,464,326	2.9%

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

3433

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Net Realized Gains (Losses) on Investments

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

	Three months ended September 30, 2017											Three months ended September 30, 2016
	Three months ended March 31, 2018
	Net Realized Losses on Sales				Net Impairment Losses Recognized in Earnings				Total Net Realized Losses on Investments			Net Realized Gains (Losses) on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Gains (Losses) on Investments
	Net Realized (Losses) Gains on Sales			Net Impairment Losses Recognized in Earnings			Net Holding Period Losses			Total Net Realized (Losses) Gains on Investments
Fixed maturities	$(519	~~(410~~)	)	(1,588	$)	~~(22~~	)0		$	(~~431~~2,107	)	$	~~813~~		$	0		$	~~813~~
Equity securities	01,881			0	0		(2,607	)	0	(726	)	~~470~~			0			~~470~~
Short-term investments	01			0	0		0		0	1		(1		)	0			(1		)
Total	$1,363	~~(410~~	)	(1,588	$)	~~(22~~	)(2,607	)	$	(~~431~~2,832	)	$	~~1,282~~		$	0		$	~~1,282~~
	Nine months ended September 30, 2017											Nine months ended September 30, 2016
	Net Realized (Losses) Gains on Sales				Net Impairment Losses Recognizedin Earnings				Total Net Realized (Losses) Gainson Investments			Net RealizedGains (Losses) on Sales			Net Impairment Losses Recognizedin Earnings			Total Net Realized Gains (Losses) on Investments
Fixed maturities	$	(161	)		$	(31	)		$	(192	)	$	1,106		$	(316	)	$	790
Equity securities	2,155				0				2,155			470			0			470
Short-term investments	1				0				1			(3		)	0			(3		)
Total	$	1,996			$	(31	)		$	1,964		$	1,573		$	(316	)	$	1,257



	Three months ended March 31, 2017
	Net Realized (Losses) Gains on Sales		Net Impairment Losses Recognized in Earnings		Total Net Realized (Losses) Gains on Investments
Fixed maturities	(52	)	(10	)	(62		)
Equity securities	569		0		569
Short-term investments	1		0		1
Total	519		(10	)	$	509

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.

Of the $1.6 million impairments recorded during the first quarter of 2018, $1.5 million were as a result of our 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 by the end of May 2018.

Interest Expense

	Three months ended				~~Nine months ended~~
	September 30,				September 30,
	March 31,
($ in thousands)	~~2017~~2018		~~2016~~2017		~~2017~~		~~2016~~
5.0% Senior Notes	$	3,438	$	3,438	$	~~10,313~~	$	~~10,313~~
Amortization of debt issuance costs	5556		5253		~~162~~		~~154~~
Capital leases	1815		1821		58		57
Total	$	3,~~510~~509	$	3,~~507~~512	$	~~10,533~~	$	~~10,524~~

At ~~September~~March 3031, ~~2017~~2018, 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 5 – Long-Term Debt to the Consolidated Financial Statements for additional information on the 5.0% Senior Notes.

~~Income Taxes~~34

Our GAAP effective tax rate was 30.9% and 29.2% for the three and nine months ended September 30, 2017, respectively, compared with 13.8% and 28.4%, respectively, for the same periods of 2016. The GAAP effective tax rate has increased in 2017 primarily as a result of an increase in operating income. Refer to Note 6 – Income Taxes to the Consolidated Financial Statements for additional information on income taxes.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Income Taxes

Our GAAP effective tax rate was 19.5% and 29.3% for the three months ended March 31, 2018, and 2017, respectively. The GAAP effective tax rate has decreased in 2018 primarily as a result of the enacted tax rate change from 35% to 21% under the Tax Cuts and Jobs Act of 2017 (TCJA). Refer to Note 6 – Income Taxes to the Consolidated Financial Statements for additional information on income taxes.

The TCJA also changed the interest rate used to calculate the discounted tax loss reserves and required the setup of a transition liability to be ratably recognized in income over eight years. Since neither the new interest rate nor the discount factors have not been published by the Internal Revenue Service, we believe that the estimates used to calculate the deferred tax asset and liability relating to these two items as of December 31, 2017, continue to be reasonable estimates under SAB 118.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Funds

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

Funds to meet expenditures at the holding company level come primarily from dividends and tax payments from the insurance subsidiaries, as well as cash and investments held by the holding company. As of ~~September~~March 3031, ~~2017~~2018, the holding company had $~~163~~170.7 million of cash and investments. In ~~2017~~2018 our insurance subsidiaries may pay us up to $6667.29 million in ordinary dividends without prior regulatory approval. For the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, our insurance subsidiaries have paid us ordinary dividends of $4716.58 million.

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 $5330.19 million ~~and $111.5 million~~ during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, ~~respectively,~~ compared with positive operating cash flows of $2128.24 million ~~and $58.6 million~~ during the same ~~periods~~period of ~~2016~~2017.

At ~~September~~March 3031, ~~2017~~2018, we had $275 million principal outstanding of 5.0% Senior Notes. The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually each March and September. Refer to Note 5 – Long-Term Debt to the Consolidated Financial Statements for more information on our long-term debt.

In August 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 ~~September~~March 3031, ~~2017~~2018, 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 would be approximately $25.64 million.

On November 4, 2014, our Board of Directors increased the authority of our share and debt repurchase program to a total of $75 million and extended the date to execute the program 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. AsIn addition, the Merger Agreement prohibits us from repurchasing shares between the signing of ~~September 30~~the Merger Agreement (i.e., ~~2017~~February 13, we2018) ~~had~~and ~~$27.1~~the ~~million~~closing of ~~authority~~the ~~remaining~~merger. ~~under~~There ~~this~~were ~~program.~~no ~~Share~~share repurchases during the first ~~nine~~three months of ~~2017~~2018. ~~were as follows:~~

	Total Number of Shares Purchased	Average Price Paid per Share(Excluding Commissions)
First quarter	8,756	$	89.58
Second quarter	17,401	94.52
Third quarter	58,449	91.29
Total	84,606	$	91.58

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.

3635

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Reinsurance

Premium ceded under all reinsurance agreements for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, was $3.27 million ~~and $5.8 million, respectively,~~ compared with $2.~~3 million and $~~6.5 million, ~~respectively,~~ for the same ~~periods~~period of ~~2016. Effective June 1,~~ 2017~~, the premium paid for our excess of loss reinsurance contract for our commercial auto business is now based on earned premium rather than written premium~~. ~~Premium ceded for the nine months ended September 30, 2017, includes the return of $2.6 million of unearned premium due to the termination of the previous excess of loss contract.~~ Refer to Note 11 - Reinsurance to the Consolidated Financial Statements of our Form 10-K for the year ended December 31, ~~2016~~2017, for more information on our reinsurance contracts.

Investments

Our consolidated investment portfolio at ~~September~~March 3031, ~~2017~~2018, contained approximately $1.45 billion in fixed maturity securities, and $~~100~~90.05 million in equity securities ~~and $2~~.6 ~~million of short-term investments.~~ All of these are carried at fair value with unrealized gains and losses on fixed maturity securities reported in accumulated other comprehensive income, a separate component of shareholders’ equity, on an after-tax basis. AtAs ~~September 30~~of January 1, ~~2017~~2018, ~~we had pre-tax net~~ unrealized gains ofand ~~$9.5~~losses ~~million~~ on ~~fixed~~equity ~~maturities~~securities ~~and~~are ~~pre-tax~~recognized through net ~~unrealized gains of $25~~income.7 ~~million~~At onMarch 31, ~~equity securities. Combined~~2018, ~~the~~we had pre-tax net unrealized ~~gain~~losses ~~increased~~of by $2415.10 million ~~for~~on ~~the~~fixed ~~nine months ended September 30, 2017~~maturities. ~~This increase occurred as a result of lower market interest rates and a rise in global equity markets.~~ The average option adjusted duration of our fixed maturity portfolio was 34.30 years at ~~September~~March 3031, ~~2017~~2018, ~~and~~compared with 3.3 years at December 31, ~~2016~~2017.

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

Approximately 9091.32% of our fixed maturity investments at ~~September~~March 3031, ~~2017~~2018, were rated “investment grade,” and, as of the same date, the average credit rating of our fixed maturity portfolio was AA-. Investment grade securities generally bear lower yields and have lower degrees of risk than those that are unrated or non-investment grade. We believe that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

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

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

3736

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Summarized information for our investment portfolio at March 31, 2018, was as follows ($ in thousands):

	AmortizedCost		Fair Value		% of Total Fair Value
Fixed Maturities:
U.S. government	$	62125,~~099~~887	$	61124,~~894~~757	47.09	%
State and municipal	~~497~~297,~~868~~994		~~502~~296,~~386~~814		3218.47	%
Mortgage- and asset-backed:
Residential mortgage-backed securities	~~356~~372,~~172~~319		~~355~~365,~~257~~007		2223.90	%
Commercial mortgage-backed securities	3563,~~292~~053		3462,~~890~~061		23.29	%
Asset-backed securities (ABS):
Auto loans	33,165		33,172		2.1	%
Collateralized loan obligations	42,042		41,996		2.6	%
Equipment leases	4,731		4,744		0.3	%
Auto loans	32,383		32,162		2.0	%
Credit card	10,360		10,400		0.7	%
Equipment leases	5,983		5,969		0.4	%
All other	7,775		7,789		0.5	%
Credit card	24,785		24,530		1.5	%
Total ABS	56,031		56,106		3.6	%
All other	23,818		23,827		1.5	%
Total mortgage- and asset-backed	447,494		446,253		28.8	%
Total ABS	129,010		128,484		8.1	%
Total mortgage- and asset-backed	564,382		555,552		35.0	%
Corporates
Investment grade	~~298~~401,~~080~~681		~~300~~398,~~726~~594		1925.41	%
Non-investment grade	~~133~~122,~~663~~996		~~137~~122,~~450~~213		87.97	%
Total corporates	~~431~~524,~~742~~676		~~438~~520,~~175~~807		2832.28	%
Total fixed maturities	1,~~439~~512,~~204~~939		1,~~448~~497,~~709~~930		9394.43	%
Equity securities	7465,~~347~~913		~~100~~90,~~042~~498		65.47	%
Short-term investments	~~2,574~~0		~~2,572~~0		0.20	%
Total investments	$	1,~~516~~578,~~125~~852	$	1,~~551~~588,~~323~~428	100.0	%

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 ~~September~~March 3031, ~~2017~~2018 ($ in thousands):

	Rating
	AAA		AA		A		BBB		Non-investment Grade		Total FairValue		% of Total Exposure
U.S. government	$	61124,~~894~~757	$	0	$	0	$	0	$	0	$	61124,~~894~~757	48.3	%
State and municipal	~~145~~44,~~861~~719		~~268~~168,~~083~~372		8480,~~905~~741		02,216		~~3,537~~766		~~502~~296,~~386~~814		3419.78	%
Mortgage- and asset-backed	~~424~~480,~~431~~097		1349,~~558~~168		310,~~735~~573		46,~~530~~450		09,263		~~446~~555,~~253~~552		3037.81	%
Corporates	~~1,707~~0		2319,~~281~~712		~~145~~175,~~828~~310		~~129~~203,~~909~~572		~~137~~122,~~450~~213		~~438~~520,~~175~~807		3034.28	%
Total fair value	$	~~633~~649,~~893~~573	$	~~304~~237,~~923~~252	$	~~234~~266,~~467~~624	$	~~134~~212,~~439~~238	$	~~140~~132,~~987~~243	$	1,~~448~~497,~~709~~930	100.0	%
% of total fair value	43.84%		2115.08%		1617.28%		914.32%		98.78%		100.0%

3837

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

As of ~~September~~March 3031, ~~2017~~2018, there were no material changes to the information provided on Form 10-K for the year ended December 31, ~~2016~~2017, under the caption “Exposure to Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Refer to Item 2 Management’s Discussion and Analysis under the caption “Investments” for updates to disclosures made under the subcaption “Credit Risk” of our Form 10-K for the year ended December 31, ~~2016~~2017.

ITEM 4

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of the Company’s management, including its 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 ~~September~~March 3031, ~~2017~~2018. Based on that evaluation, we concluded that the controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission (SEC) under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended ~~September~~March 3031, ~~2017~~2018, 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.

PART II

OTHER INFORMATION

ITEM 1

Legal Proceedings

~~Refer~~We tohave ~~Note~~not 9become -a ~~Commitments~~party ~~and~~to ~~Contingencies~~any tomaterial ~~the~~legal ~~Consolidated~~proceedings ~~Financial~~and ~~Statements~~there ~~for~~have anot ~~discussion~~been ofany material developments in our legal proceedings ~~during~~disclosed on Form 10-K for the ~~third~~year ~~quarter~~ended ofDecember 31, 2017. For a description of our previously reported legal proceedings, refer to Part I, Item 3, Legal Proceedings of our Form 10-K for the year ended December 31, ~~2016~~2017.

ITEM 1A

Risk Factors

~~There~~Other than the risks relating to entering into the Merger Agreement referred to in Part I, Item 2 "Cautionary Statement Regarding Forward-Looking Statements," there have been no material changes in our risk factors as disclosed on Form 10-K for the year ended December 31, ~~2016~~2017. For a description of our previously reported risk factors, refer to Part I, Item 1A, Risk Factors of our Form 10-K for the year ended December 31, ~~2016~~2017.

3938

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased (a)	Average Price Paid per Share ~~(b)~~		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs (cb)
July 1, 2017 - July 31, 2017	6,200	$	93.81	6,200	$	31,861,730
January 1, 2018 - January 31, 2018	0	$	0.00	0	$	22,531,509
August 1, 2017 - August 31, 2017	37,423	91.88		19,849	30,042,848
February 1, 2018 - February 28, 2018	0	0.00		0	22,531,509
September 1, 2017 - September 30, 2017	32,400	90.12		32,400	27,121,521
March 1, 2018 - March 31, 2018	5,030	118.10		0	22,531,509
Total	765,~~023~~030	$	91118.2910	~~58,449~~0	$	2722,~~121~~531,~~521~~509

(a) ~~Includes 17~~5,~~574~~030 shares surrendered to cover the withholding taxes related to the issuance of shares under the ~~2013~~performance ~~Stock~~share ~~Incentive Plan~~plan.

(b) ~~Average~~On ~~price~~November ~~paid~~4, ~~per~~2014, our Board of Directors increased the authority under our current share ~~excludes~~and ~~commissions~~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.

(c) 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.

ITEM 6



Exhibit 31.1	Certification of the Chief Executive Officer under Exchange Act Rule 13a-14(a)
Exhibit 31.2	Certification of the Chief Financial Officer under Exchange Act Rule 13a-14(a)
Exhibit 32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document ⁽¹⁾
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document ⁽¹⁾
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

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

4039

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Signature

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

	Infinity Property and Casualty Corporation
	BY:	/s/ ROBERT H. BATEMAN
November 6, 2017		Robert H. Bateman
April 30, 2018		Robert H. Bateman
		Executive Vice President, Chief Financial Officer and Treasurer

4140

Filing Compare · INFINITY PROPERTY & CASUALTY CORP