Edgar Filing: INFINITY PROPERTY & CASUALTY CORP

Document

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 June 30, 2017

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

For the transition period from to

Commission File No. 0-50167

INFINITY PROPERTY AND CASUALTY CORPORATION

(Exact name of registrant as specified in its charter)



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

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “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 July 28, 2017, there were 11,037,459 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	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4	Controls and Procedures	39

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	39

Item 1A	Risk Factors	39

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 6	Exhibits	40

	Signature	41

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 June 30,							Six months ended June 30,
	2017		2016			% Change		2017			2016			% Change
Revenues:
Earned premium	$	339,147	$	340,715		(0.5	)%	$	680,516		$	676,899		0.5	%
Installment and other fee income	26,461		25,385			4.2	%	53,410			50,903			4.9	%
Net investment income	9,001		8,927			0.8	%	17,696			16,990			4.2	%
Net realized gains (losses) on investments ⁽¹⁾	1,886		(164		)	NM		2,396			(25		)	NM
Other income	391		220			77.3	%	666			478			39.2	%
Total revenues	376,886		375,084			0.5	%	754,683			745,246			1.3	%
Costs and Expenses:
Losses and loss adjustment expenses	273,621		263,514			3.8	%	544,296			528,798			2.9	%
Commissions and other underwriting expenses	90,241		89,164			1.2	%	176,180			177,771			(0.9	)%
Interest expense	3,511		3,508			0.1	%	7,023			7,017			0.1	%
Corporate general and administrative expenses	2,447		2,060			18.8	%	4,718			3,764			25.4	%
Other expenses	507		797			(36.4	)%	829			1,080			(23.2	)%
Total costs and expenses	370,327		359,043			3.1	%	733,046			718,429			2.0	%
Earnings before income taxes	6,559		16,040			(59.1	)%	21,637			26,816			(19.3	)%
Provision for income taxes	1,513		5,026			(69.9	)%	5,945			8,094			(26.5	)%
Net Earnings	$	5,046	$	11,015		(54.2	)%	$	15,692		$	18,723		(16.2	)%
Net Earnings per Common Share:
Basic	$	0.46	$	1.00		(54.0	)%	$	1.43		$	1.70		(15.9	)%
Diluted	0.46		0.99			(53.5	)%	1.41			1.68			(16.1	)%
Average Number of Common Shares:
Basic	11,006		11,012			(0.1	)%	11,002			11,024			(0.2	)%
Diluted	11,082		11,096			(0.1	)%	11,105			11,115			(0.1	)%
Cash Dividends per Common Share	$	0.58	$	0.52		11.5	%	$	1.16		$	1.04		11.5	%
⁽¹⁾Net realized gains on sales	$	1,886	$	34		NM		$	2,406		$	291		726.3	%
Total other-than-temporary impairment (OTTI) losses	0		(198		)	NM		(46		)	(316		)	(85.6	)%
Non-credit portion in other comprehensive income	0		0			0.0	%	36			0			NM
Net impairment losses recognized in earnings	0		(198		)	NM		(10		)	(316		)	(96.9	)%
Total net realized gains (losses) on investments	$	1,886	$	(164	)	NM		$	2,396		$	(25	)	NM

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 June 30,						Six months ended June 30,
	2017			2016			2017			2016
Net earnings	$	5,046		$	11,015		$	15,692		$	18,723
Other comprehensive income before tax:
Net change in post-retirement benefit liability	(13		)	(11		)	(25		)	(22		)
Unrealized gains on investments:
Unrealized holding gains arising during the period	9,055			10,828			19,720			26,287
Less: Reclassification adjustments for (gains) losses included in net earnings	(1,886		)	164			(2,396		)	25
Unrealized gains on investments, net	7,169			10,992			17,324			26,311
Other comprehensive income, before tax	7,156			10,981			17,299			26,290
Income tax expense related to components of other comprehensive income	(2,505		)	(3,843		)	(6,055		)	(9,201		)
Other comprehensive income, net of tax	4,652			7,137			11,244			17,088
Comprehensive income	$	9,698		$	18,152		$	26,937		$	35,811

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)



	June 30, 2017			December 31, 2016
	(unaudited)
Assets
Investments:
Fixed maturities – at fair value (amortized cost $1,431,815 and $1,392,660)	$	1,439,034		$	1,390,167
Equity securities – at fair value (cost $74,270 and $77,013)	95,508			90,640
Short-term investments – at fair value (amortized cost $425 and $2,909)	425			2,907
Total investments	1,534,967			1,483,714
Cash and cash equivalents	87,608			92,800
Accrued investment income	13,471			12,485
Agents’ balances and premium receivable, net of allowances for doubtful accounts of $13,216 and $14,207	498,055			495,157
Property and equipment, net of accumulated depreciation of $77,591 and $70,559	87,507			96,166
Prepaid reinsurance premium	3,186			3,410
Recoverables from reinsurers (includes $439 and $121 on paid losses and LAE)	17,864			17,251
Deferred policy acquisition costs	90,403			91,136
Current and deferred income taxes	22,536			21,635
Receivable for securities sold	0			795
Other assets	20,523			12,777
Goodwill	75,275			75,275
Total assets	$	2,451,396		$	2,402,601
Liabilities and Shareholders’ Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	701,097		$	685,455
Unearned premium	623,466			614,347
Long-term debt (fair value $294,132 and $278,726)	273,699			273,591
Commissions payable	13,836			16,176
Payable for securities purchased	14,525			13,922
Other liabilities	112,648			99,924
Total liabilities	1,739,271			1,703,414
Commitments and contingencies (See Note 9)
Shareholders’ equity:
Common stock, no par value (50,000,000 shares authorized; 21,851,207 and 21,809,954 shares issued)	21,862			21,829
Additional paid-in capital	381,477			378,745
Retained earnings	780,575			777,695
Accumulated other comprehensive income, net of tax	19,152			7,907
Treasury stock, at cost (10,807,816 and 10,766,211 shares)	(490,941		)	(486,990		)
Total shareholders’ equity	712,125			699,187
Total liabilities and shareholders’ equity	$	2,451,396		$	2,402,601

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands)

(unaudited)



	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income, Net of Tax			Treasury Stock			Total
Balance at December 31, 2015	$	21,794	$	376,025	$	757,604		$	7,811		$	(475,638	)	$	687,595
Net earnings	—		—		18,723			—			—			18,723
Net change in post-retirement benefit liability	—		—		—			(14		)	—			(14		)
Change in unrealized gain on investments	—		—		—			16,960			—			16,960
Change in non-credit component of impairment losses on fixed maturities	—		—		—			142			—			142
Comprehensive income														35,811
Dividends paid to common shareholders	—		—		(11,497		)	—			—			(11,497		)
Shares issued and share-based compensation expense, including tax benefit	7		627		—			—			—			633
Acquisition of treasury stock	—		—		—			—			(9,486		)	(9,486		)
Balance at June 30, 2016	$	21,801	$	376,652	$	764,829		$	24,899		$	(485,124	)	$	703,057
Net earnings	—		—		24,362			—			—			24,362
Net change in post-retirement benefit liability	—		—		—			71			—			71
Change in unrealized gain on investments	—		—		—			(17,198		)	—			(17,198		)
Change in non-credit component of impairment losses on fixed maturities	—		—		—			135			—			135
Comprehensive income														7,371
Dividends paid to common shareholders	—		—		(11,496		)	—			—			(11,496		)
Shares issued and share-based compensation expense, including tax benefit	29		2,093		—			—			—			2,122
Acquisition of treasury stock	—		—		—			—			(1,866		)	(1,866		)
Balance at December 31, 2016	$	21,829	$	378,745	$	777,695		$	7,907		$	(486,990	)	$	699,187
Net earnings	—		—		15,692			—			—			15,692
Net change in post-retirement benefit liability	—		—		—			(16		)	—			(16		)
Change in unrealized gain on investments	—		—		—			11,179			—			11,179
Change in non-credit component of impairment losses on fixed maturities	—		—		—			82			—			82
Comprehensive income														26,937
Dividends paid to common shareholders	—		—		(12,813		)	—			—			(12,813		)
Shares issued and share-based compensation expense	33		2,732		—			—			—			2,765
Acquisition of treasury stock	—		—		—			—			(3,951		)	(3,951		)
Balance at June 30, 2017	$	21,862	$	381,477	$	780,575		$	19,152		$	(490,941	)	$	712,125

See Condensed Notes to Consolidated Financial Statements.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands, unaudited)



	Three months ended June 30,
	2017			2016
Operating Activities:
Net earnings	$	5,046		$	11,015
Adjustments:
Depreciation	4,120			3,438
Amortization	5,695			5,037
Net realized (gains) losses on investments	(1,886		)	164
(Gain) loss on disposal of property and equipment	(5		)	399
Share-based compensation expense	1,238			28
Excess tax benefits from share-based payment arrangements	0			157
Activity related to rabbi trust	59			48
Change in accrued investment income	(1,233		)	(314		)
Change in agents’ balances and premium receivable	14,207			6,044
Change in reinsurance receivables	(1,307		)	1,663
Change in deferred policy acquisition costs	3,690			1,392
Change in other assets	(8,789		)	6,433
Change in unpaid losses and loss adjustment expenses	22,151			(7,265		)
Change in unearned premium	(17,825		)	(7,103		)
Change in other liabilities	4,980			295
Net cash provided by operating activities	30,141			21,431
Investing Activities:
Purchases of fixed maturities	(155,009		)	(103,611		)
Purchases of short-term investments	(425		)	(5,140		)
Purchases of property and equipment	(695		)	(10,450		)
Maturities and redemptions of fixed maturities	65,159			36,847
Maturities and redemptions of short-term investments	500			0
Proceeds from sale of fixed maturities	81,487			99,180
Proceeds from sale of equity securities	5,000			0
Proceeds from sale of short-term investments	0			1,064
Proceeds from sale of property and equipment	6			2
Net cash (used in) provided by investing activities	(3,978		)	17,892
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	78			68
Principal payments under capital lease obligations	(134		)	(129		)
Acquisition of treasury stock	(1,450		)	(1,116		)
Dividends paid to shareholders	(6,411		)	(5,753		)
Net cash used in financing activities	(7,916		)	(6,930		)
Net increase in cash and cash equivalents	18,247			32,393
Cash and cash equivalents at beginning of period	69,361			43,623
Cash and cash equivalents at end of period	$	87,608		$	76,016

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)



	Six months ended June 30,
	2017			2016
Operating Activities:
Net earnings	$	15,692		$	18,723
Adjustments:
Depreciation	8,296			6,521
Amortization	11,023			10,839
Net realized (gains) losses on investments	(2,396		)	25
(Gain) loss on disposal of property and equipment	(8		)	401
Share-based compensation expense	2,622			351
Excess tax benefits from share-based payment arrangements	0			157
Activity related to rabbi trust	128			66
Change in accrued investment income	(986		)	509
Change in agents’ balances and premium receivable	(2,898		)	(25,016		)
Change in reinsurance receivables	(389		)	(2,067		)
Change in deferred policy acquisition costs	733			(2,664		)
Change in other assets	(13,220		)	3,303
Change in unpaid losses and loss adjustment expenses	15,643			(3,755		)
Change in unearned premium	9,118			28,747
Change in other liabilities	10,321			(3,745		)
Net cash provided by operating activities	53,679			32,396
Investing Activities:
Purchases of fixed maturities	(275,840		)	(261,498		)
Purchases of equity securities	(1,900		)	0
Purchases of short-term investments	(425		)	(5,140		)
Purchases of property and equipment	(1,584		)	(15,395		)
Maturities and redemptions of fixed maturities	108,478			76,145
Maturities and redemptions of short-term investments	500			0
Proceeds from sale of fixed maturities	119,158			203,115
Proceeds from sale of equity securities	7,002			0
Proceeds from sale of short-term investments	2,400			5,666
Proceeds from sale of property and equipment	25			2
Net cash (used in) provided by investing activities	(42,187		)	2,896
Financing Activities:
Proceeds from stock options exercised and employee stock purchases	143			126
Principal payments under capital lease obligations	(269		)	(249		)
Acquisition of treasury stock	(3,746		)	(10,137		)
Dividends paid to shareholders	(12,813		)	(11,497		)
Net cash used in financing activities	(16,684		)	(21,759		)
Net (decrease) increase in cash and cash equivalents	(5,192		)	13,533
Cash and cash equivalents at beginning of period	92,800			62,483
Cash and cash equivalents at end of period	$	87,608		$	76,016

See Condensed Notes to Consolidated Financial Statements.

Table of Contents

INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

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. 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 June 30, 2017, 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 2016 the FASB issued an ASU related to the accounting for employee share-based payments. The guidance addresses the recognition, presentation and classification of awards, forfeitures and shares withheld for tax purposes. We adopted the change to the presentation of excess tax benefits on the consolidated statements of cash flow retrospectively and all other portions of the standard prospectively as of January 1, 2017. We reclassified $0.2 million of excess tax benefits from financing activities to operating activities for both the three and six months ended June 30, 2016, respectively. The adoption of this standard did not have a material impact on our financial condition or results of operations.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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

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

In 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 June 30, 2017, we have $13.8 million net unrealized gains, net of tax, recognized as a component of other comprehensive income.

In May 2014 the FASB issued an ASU related to the accounting for revenue from contracts with customers. Insurance contracts have been excluded from the scope of the guidance. In August 2015 the FASB issued an ASU to defer the effective date from fiscal years beginning after December 15, 2016, to fiscal years beginning after December 15, 2017. We do not expect the adoption of this standard to have a material impact on our financial condition or results of operations. As an insurance-entity, we are largely exempt from the provisions of this standard, with only fee income totaling $107.4 million for the year ended December 31, 2016, subject to this new standard.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 2 Computation of Net Earnings per Share

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

share figures):



	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Net earnings	$	5,046	$	11,015	$	15,692	$	18,723
Average basic shares outstanding	11,006		11,012		11,002		11,024
Basic net earnings per share	$	0.46	$	1.00	$	1.43	$	1.70

Average basic shares outstanding	11,006		11,012		11,002		11,024
Restricted stock not vested	36		24		34		22
Dilutive effect of Performance Share Plan	41		60		68		69
Average diluted shares outstanding	11,082		11,096		11,105		11,115
Diluted net earnings per share	$	0.46	$	0.99	$	1.41	$	1.68

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 3 Fair Value

Fair values of instruments are based on:


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


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


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

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



	Fair Value
June 30, 2017	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	87,608		$	0		$	0		$	87,608
Fixed maturity securities:
U.S. government	64,025			0			0			64,025
State and municipal	0			498,709			3,447			502,156
Mortgage-backed securities:
Residential	0			351,766			0			351,766
Commercial	0			42,060			0			42,060
Total mortgage-backed securities	0			393,826			0			393,826
Asset-backed securities	0			51,527			249			51,775
Corporates	0			427,038			215			427,252
Total fixed maturities	64,025			1,371,099			3,910			1,439,034
Equity securities	95,508			0			0			95,508
Short-term investments	0			425			0			425
Total cash and investments	$	247,141		$	1,371,524		$	3,910		$	1,622,575
Percentage of total cash and investments	15.2		%	84.5		%	0.2		%	100.0		%

December 31, 2016
Cash and cash equivalents	$	92,800		$	0		$	0		$	92,800
Fixed maturity securities:
U.S. government	62,480			5			0			62,485
State and municipal	0			472,471			3,860			476,331
Mortgage-backed securities:
Residential	0			340,367			0			340,367
Commercial	0			69,801			0			69,801
Total mortgage-backed securities	0			410,169			0			410,169
Asset-backed securities	0			37,196			412			37,608
Corporates	0			402,909			666			403,575
Total fixed maturities	62,480			1,322,749			4,938			1,390,167
Equity securities	90,640			0			0			90,640
Short-term investments	769			2,139			0			2,907
Total cash and investments	$	246,689		$	1,324,888		$	4,938		$	1,576,514
Percentage of total cash and investments	15.6		%	84.0		%	0.3		%	100.0		%

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

We do not report our long-term debt at fair value in the Consolidated Balance Sheets. The $294.1 million and $278.7 million fair value of our long-term debt at June 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.

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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 June 30, 2017	State and Municipal			Asset-Backed Securities			Corporates			Total
Balance at beginning of period	$	3,479		$	4,584		$	2,553		$	10,616
Total (losses) gains, unrealized or realized
Included in net earnings	(29		)	0			0			(29		)
Included in other comprehensive income	(3		)	1			(4		)	(6		)
Settlements	0			(76		)	(335		)	(411		)
Transfers out	0			(4,259		)	(2,000		)	(6,259		)
Balance at end of period	$	3,447		$	249		$	215		$	3,910

Three months ended June 30, 2016
Balance at beginning of period	$	0		$	1,338		$	1,442		$	2,781
Total (losses) gains, unrealized or realized
Included in net earnings	(4		)	0			4			(0		)
Included in other comprehensive income	1			1			(26		)	(24		)
Purchases	0			620			0			620
Settlements	0			0			(312		)	(312		)
Transfers in	628			0			0			628
Balance at end of period	$	626		$	1,959		$	1,107		$	3,692




Six months ended June 30, 2017	State and Municipal			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	(60		)	0			2			(59		)
Included in other comprehensive income	12			1			(26		)	(12		)
Purchases	0			4,259			2,000			6,259
Sales	(694		)	0			0			(694		)
Settlements	0			(165		)	(427		)	(591		)
Transfers in	329			0			0			329
Transfers out	0			(4,259		)	(2,000		)	(6,259		)
Balance at end of period	$	3,447		$	249		$	215		$	3,910

Six months ended June 30, 2016
Balance at beginning of period	$	10		$	0		$	1,524		$	1,534
Total losses, unrealized or realized
Included in net earnings	(4		)	0			7			3
Included in other comprehensive income	1			1			(25		)	(23		)
Purchases	0			620			0			620
Sales	0			0			0			0
Settlements	(10		)	0			(398		)	(408		)
Transfers in	628			1,338			0			1,966
Transfers out	0			0			0			0
Balance at end of period	$	626		$	1,959		$	1,107		$	3,692

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Of the $3.9 million fair value of securities in Level 3 at June 30, 2017, which consisted of five securities, we priced two based on non-binding broker quotes and three 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 six months ended June 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 . There were no transfers of securities between Levels 1 and 2.

The gains or losses included in net earnings are included in the line item "Net realized gains (losses) 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):



	June 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	$	87,608	$	87,608	$	92,800	$	92,800
Available-for-sale securities:
Fixed maturities	1,439,034		1,439,034		1,390,167		1,390,167
Equity securities	95,508		95,508		90,640		90,640
Short-term investments	425		425		2,907		2,907
Total cash and investments	$	1,622,575	$	1,622,575	$	1,576,514	$	1,576,514
Liabilities:
Long-term debt	$	273,699	$	294,132	$	273,591	$	278,726

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 the net unrealized gains or losses reported after-tax (net of any valuation allowance) as a component of other comprehensive income. The proceeds from sales of securities for the three and six months ended June 30, 2017, were $86.5 million and $128.6 million respectively, while the proceeds from sales of securities for the three and six months ended June 30, 2016, were $100.2 million and $208.8 million, respectively. There was no receivable for unsettled sales as of June 30, 2017, or June 30, 2016.

Gross gains of $2.3 million and gross losses of $0.4 million were realized on sales of available-for-sale securities during the three months ended June 30, 2017, compared with gross gains of $0.9 million and gross losses of $0.9 million realized on sales during the three months ended June 30, 2016. Gross gains of $3.0 million and gross losses of $0.6 million were realized on sales of available-for-sale securities during the six months ended June 30, 2017, compared with gross gains of $2.2 million and gross losses of $1.9 million realized on sales during the six months ended June 30, 2016. Gains or losses on securities are determined on a specific identification basis.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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



June 30, 2017	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI Recognized in Accumulated OCI⁽¹⁾
Fixed maturities:
U.S. government	$	64,192	$	66	$	(234	)	$	64,025	$	0
State and municipal	497,850		5,085		(778		)	502,156		(47		)
Mortgage-backed securities:
Residential	353,813		2,264		(4,311		)	351,766		(1,856		)
Commercial	42,609		65		(614		)	42,060		0
Total mortgage-backed securities	396,422		2,328		(4,924		)	393,826		(1,856		)
Asset-backed securities	51,668		130		(22		)	51,775		(8		)
Corporates	421,684		6,476		(908		)	427,252		(31		)
Total fixed maturities	1,431,815		14,085		(6,866		)	1,439,034		(1,942		)
Equity securities	74,270		21,238		0			95,508		0
Short-term investments	425		0		(0		)	425		0
Total	$	1,506,511	$	35,323	$	(6,866	)	$	1,534,967	$	(1,942	)

December 31, 2016
Fixed maturities:
U.S. government	$	62,808	$	55	$	(377	)	$	62,485	$	0
State and municipal	477,834		2,313		(3,816		)	476,331		(51		)
Mortgage-backed securities:
Residential	343,095		2,306		(5,034		)	340,367		(1,967		)
Commercial	70,676		63		(939		)	69,801		0
Total mortgage-backed securities	413,772		2,369		(5,972		)	410,169		(1,967		)
Asset-backed securities	37,562		93		(47		)	37,608		(8		)
Corporates	400,685		4,389		(1,499		)	403,575		(41		)
Total fixed maturities	1,392,660		9,219		(11,711		)	1,390,167		(2,068		)
Equity securities	77,013		13,627		0			90,640		0
Short-term investments	2,909		0		(2		)	2,907		0
Total	$	1,472,582	$	22,846	$	(11,713	)	$	1,483,714	$	(2,068	)

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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



	Less than 12 Months								12 Months or More
June 30, 2017	Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost		Number of Securities with Unrealized Losses	Fair Value		Gross Unrealized Losses			Unrealized Losses as % of Cost
Fixed maturities:
U.S. government	30	$	48,093	$	(233	)	0.5	%	1	$	765	$	(1	)	0.1	%
State and municipal	81	157,706		(713		)	0.4	%	1	3,743		(66		)	1.7	%
Mortgage-backed securities:
Residential	382	220,947		(3,790		)	1.7	%	46	13,071		(520		)	3.8	%
Commercial	11	28,392		(602		)	2.1	%	3	5,027		(12		)	0.2	%
Total mortgage-backed securities	393	249,339		(4,392		)	1.7	%	49	18,098		(532		)	2.9	%
Asset-backed securities	9	8,653		(17		)	0.2	%	1	1,455		(5		)	0.3	%
Corporates	74	98,429		(756		)	0.8	%	6	5,975		(152		)	2.5	%
Total fixed maturities	587	562,220		(6,111		)	1.1	%	58	30,036		(755		)	2.5	%
Short-term investments	1	425		(0		)	0.0	%	0	0		0			0.0	%
Total	588	$	562,645	$	(6,111	)	1.1	%	58	$	30,036	$	(755	)	2.5	%

December 31, 2016
Fixed maturities:
U.S. government	31	$	47,640	$	(377	)	0.8	%	0	$	0	$	0		0.0	%
State and municipal	146	303,428		(3,816		)	1.2	%	0	0		0			0.0	%
Mortgage-backed securities:
Residential	381	225,117		(4,559		)	2.0	%	40	11,891		(474		)	3.8	%
Commercial	14	38,002		(788		)	2.0	%	7	26,537		(150		)	0.6	%
Total mortgage-backed securities	395	263,119		(5,347		)	2.0	%	47	38,428		(625		)	1.6	%
Asset-backed securities	9	7,836		(46		)	0.6	%	1	519		(1		)	0.1	%
Corporates	98	145,089		(1,272		)	0.9	%	7	7,745		(227		)	2.8	%
Total fixed maturities	679	767,112		(10,859		)	1.4	%	55	46,693		(852		)	1.8	%
Short-term investments	3	2,907		(2		)	0.1	%	0	0		0			0.0	%
Total	682	$	770,019	$	(10,861	)	1.4	%	55	$	46,693	$	(852	)	1.8	%

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


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


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


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


•	the intent to sell the security;


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


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


•	issuer news releases;


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


•	industry research and communications with industry specialists; and


•	third-party research and credit rating reports.

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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



	June 30, 2017		December 31, 2016
Number of positions held with unrealized:
Gains	677		527
Losses	646		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	86	%	85	%
Losses that were investment grade	96	%	97	%
Percentage of fair value held with unrealized:
Gains that were investment grade	87	%	84	%
Losses that were investment grade	96	%	97	%

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



Age of Unrealized Losses	Fair Value of Securities with Unrealized Losses		Total Gross Unrealized Losses			Less Than 5%*			5% - 10%*			Total Gross Greater Than 10%*
Three months or less	$	203,738	$	(638	)	$	(638	)	$	0		$	0
Four months through six months	18,639		(53		)	(53		)	0			0
Seven months through nine months	249,433		(4,058		)	(4,058		)	0			0
Ten months through twelve months	96,024		(1,447		)	(1,447		)	0			0
Greater than twelve months	24,847		(669		)	(543		)	(127		)	(0		)
Total	$	592,681	$	(6,866	)	$	(6,740	)	$	(127	)	$	(0	)

* As a percentage of amortized cost or cost.

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



	Pre-tax
Six months ended June 30, 2017	Fixed Maturities			Equity Securities			Short-Term Investments			Tax Effects			Net
Unrealized holding gains on securities arising during the period	$	9,950		$	9,766		$	3		$	(6,902	)	$	12,818
Realized gains on securities sold	(249		)	(2,155		)	(1		)	842			(1,564		)
Impairment loss recognized in earnings	10			0			0			(3		)	6
Change in unrealized, net	$	9,711		$	7,611		$	2		$	(6,063	)	$	11,261

Six months ended June 30, 2016
Unrealized holding gains on securities arising during the period	$	25,531		$	753		$	3		$	(9,200	)	$	17,086
Realized (gains) losses on securities sold	(293		)	(0		)	2			102			(189		)
Impairment loss recognized in earnings	316			0			0			(111		)	205
Change in unrealized, net	$	25,553		$	753		$	5		$	(9,209	)	$	17,102

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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):



	Six months ended June 30,
	2017			2016
Beginning balance	$	557		$	683
Additions for:
Newly impaired securities	10			0
Reductions for:
Securities sold and paid down	(57		)	(65		)
Ending balance	$	509		$	618

The table below sets forth the scheduled maturities of fixed maturity securities at June 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.



	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	$	36,678	$	41,079	$	11,151	$	88,909	$	88,803
After one year through five years	438,388		209,919		0		648,308		643,656
After five years through ten years	190,801		57,673		0		248,474		243,611
After ten years	1,703		6,040		0		7,742		7,655
Mortgage- and asset-backed securities	168,056		277,545		0		445,602		448,090
Total	$	835,627	$	592,256	$	11,151	$	1,439,034	$	1,431,815

Note 5 Long-Term Debt



($ in thousands)	June 30, 2017		December 31, 2016
Principal	$	275,000	$	275,000
Unamortized debt issuance costs	1,301		1,409
Long-term debt less unamortized debt issuance costs	$	273,699	$	273,591

In September 2012 we issued $275 million principal of senior notes due September 2022 (the “5.0% Senior Notes”). The 5.0% Senior Notes accrue interest at 5.0%, payable semiannually. At the time we issued the 5.0% Senior Notes, we capitalized $2.2 million of debt issuance costs, which we are amortizing over the term of the 5.0% Senior Notes. We calculated the June 30, 2017, fair value of $294.1 million using a 122 basis point spread to the 10-year U.S. Treasury Note Yield of 2.305%.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

In August 2014 we renewed our agreement for a $50 million three-year revolving credit facility (the “Credit Agreement”) that requires us to meet certain financial and other covenants. We are currently in compliance with all covenants under the Credit Agreement, and as of June 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 35.0% to the effective provision for income taxes as shown in the Consolidated Statements of Earnings ($ in thousands):



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Earnings before income taxes	$	6,559		$	16,040		$	21,637		$	26,816
Income taxes at statutory rate	2,296			5,614			7,573			9,386
Effect of:
Dividends-received deduction	(136		)	(150		)	(214		)	(222		)
Tax-exempt interest	(616		)	(619		)	(1,248		)	(1,258		)
Other	(31		)	180			(165		)	188
Provision for income taxes as shown on the Consolidated Statements of Earnings	$	1,513		$	5,026		$	5,945		$	8,094
GAAP effective tax rate	23.1		%	31.3		%	27.5		%	30.2		%

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 June 30,				Six months ended June 30,
	2017		2016		2017		2016
Income tax payments	$	9,800	$	3,551	$	12,900	$	3,551
Interest payments on debt	0		0		6,875		6,875
Interest payments on capital leases	19		19		40		40

Negative Cash Book Balances

Negative cash book balances, included in the line item “Other liabilities” in the Consolidated Balance Sheets, were $40.6 million at June 30, 2017 and December 31, 2016.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

Note 8 Insurance Reserves

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



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Balance at Beginning of Period
Unpaid losses on known claims	$	233,303		$	236,701		$	238,412		$	237,660
IBNR losses	307,932			295,281			306,641			290,097
LAE	137,712			141,493			140,402			142,207
Total unpaid losses and LAE	678,947			673,475			685,455			669,965
Reinsurance recoverables	(16,133		)	(17,724		)	(17,130		)	(14,694		)
Unpaid losses and LAE, net of reinsurance recoverables	662,814			655,751			668,325			655,271
Current Activity
Loss and LAE incurred:
Current accident year	280,356			275,687			557,400			546,854
Prior accident years	(6,736		)	(12,173		)	(13,104		)	(18,056		)
Total loss and LAE incurred	273,621			263,514			544,296			528,798
Loss and LAE payments:
Current accident year	(163,911		)	(174,138		)	(260,780		)	(263,582		)
Prior accident years	(88,850		)	(97,405		)	(268,169		)	(272,764		)
Total loss and LAE payments	(252,761		)	(271,543		)	(528,948		)	(536,347		)
Balance at End of Period
Unpaid losses and LAE, net of reinsurance recoverables	683,673			647,723			683,673			647,723
Add back reinsurance recoverables	17,425			18,487			17,425			18,487
Total unpaid losses and LAE	701,097			666,210			701,097			666,210
Unpaid losses on known claims	235,400			236,947			235,400			236,947
IBNR losses	323,184			290,767			323,184			290,767
LAE	142,513			138,496			142,513			138,496
Total unpaid losses and LAE	$	701,097		$	666,210		$	701,097		$	666,210

The $6.7 million and $13.1 million of favorable reserve development during the three and six months ended June 30, 2017, respectively, was primarily due to decreases in ultimate frequency and severity estimates in California along with lower ultimate frequency estimates in Florida related to material damage and uninsured motorists bodily injury coverages for accident year 2016. This favorable development was partially offset by increases in ultimate severity estimates in bodily injury and personal injury protection coverages in our commercial auto product as well as from personal injury protection in our personal auto product.

The $12.2 million and $18.1 million of favorable reserve development during the three and six months ended June 30, 2016, respectively, was primarily due to decreases in severity estimates related to Florida personal injury protection and bodily injury coverages and a decrease in California bodily injury loss adjustment expenses, and primarily related to accident years 2014 and prior. The favorable development for the six months ended June 30, 2016, was partially offset by unfavorable development from accident year 2015 in California material damage coverages, driven by an increase in severity.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

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. 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.

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 following legal actions have been brought against us for which we have accrued no loss, and for which an estimate of a possible range of loss cannot be made under the above rules. While it is not possible to predict the ultimate outcome of these 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.

In Reyes v. Infinity Indemnity Insurance Company (Circuit Court of Miami-Dade County, Florida), which was 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. In December 2014 the trial court granted Infinity's motion for partial summary judgment, finding the consent judgment unenforceable and that no bad faith claim could exist as a matter of law. The plaintiff successfully appealed that ruling. Petitions for Rehearing and for Certiorari 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.

As of June 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.

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.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements

During the first quarter of 2017, as a result of our review of certain business practices surrounding a California consumer complaint to the California Department of Insurance (CDI), a $3.8 million adjustment was made to written and earned premium, reflecting premium to be returned to policyholders.

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 are being 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 June 30,
	2017									2016
	Before Tax			Income Tax			Net			Before Tax			Income Tax			Net
Accumulated change in post-retirement benefit liability, beginning of period	$	1,020		$	(357	)	$	663		$	934		$	(327	)	$	607
Effect on other comprehensive income	(13		)	4			(8		)	(11		)	4			(7		)
Accumulated change in post-retirement benefit liability, end of period	1,007			(353		)	655			923			(323		)	600
Accumulated unrealized gains on investments, net, beginning of period	21,288			(7,451		)	13,837			26,392			(9,237		)	17,155
Other comprehensive income before reclassification	9,055			(3,169		)	5,886			10,828			(3,790		)	7,038
Reclassification adjustment for other-than-temporary impairments included in net income	0			0			0			198			(69		)	129
Reclassification adjustment for realized gains included in net income	(1,886		)	660			(1,226		)	(34		)	12			(22		)
Effect on other comprehensive income	7,169			(2,509		)	4,660			10,992			(3,847		)	7,144
Accumulated unrealized gains on investments, net, end of period	28,457			(9,960		)	18,497			37,383			(13,084		)	24,299
Accumulated other comprehensive income, beginning of period	22,308			(7,808		)	14,500			27,326			(9,564		)	17,762
Change in post-retirement benefit liability	(13		)	4			(8		)	(11		)	4			(7		)
Change in unrealized gains on investments, net	7,169			(2,509		)	4,660			10,992			(3,847		)	7,144
Effect on other comprehensive income	7,156			(2,505		)	4,652			10,981			(3,843		)	7,137
Accumulated other comprehensive income, end of period	$	29,464		$	(10,312	)	$	19,152		$	38,306		$	(13,407	)	$	24,899

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements



	Six months ended June 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	(25		)	9			(16		)	(22		)	8			(14		)
Accumulated change in post-retirement benefit liability, end of period	1,007			(353		)	655			923			(323		)	600
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	19,720			(6,902		)	12,818			26,287			(9,200		)	17,086
Reclassification adjustment for other-than-temporary impairments included in net income	10			(3		)	6			316			(111		)	205
Reclassification adjustment for realized gains included in net income	(2,406		)	842			(1,564		)	(291		)	102			(189		)
Effect on other comprehensive income	17,324			(6,063		)	11,261			26,311			(9,209		)	17,102
Accumulated unrealized gains on investments, net, end of period	28,457			(9,960		)	18,497			37,383			(13,084		)	24,299
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	(25		)	9			(16		)	(22		)	8			(14		)
Change in unrealized gains on investments, net	17,324			(6,063		)	11,261			26,311			(9,209		)	17,102
Effect on other comprehensive income	17,299			(6,055		)	11,244			26,290			(9,201		)	17,088
Accumulated other comprehensive income, end of period	$	29,464		$	(10,312	)	$	19,152		$	38,306		$	(13,407	)	$	24,899

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 20 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.

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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 June 30,						Six months ended June 30,
Gross written premium:	2017			2016			2017			2016
Personal Auto	$	276,928		$	294,654		$	601,280		$	632,154
Commercial Auto	41,806			37,409			84,591			72,649
Classic Collector	5,056			4,898			8,621			8,126
Total gross written premium	323,790			336,961			694,491			712,929

Ceded reinsurance:
Personal Auto	(1,005		)	(1,000		)	(1,988		)	(2,012		)
Commercial Auto⁽¹⁾	1,253			1,244			(159		)	(1,750		)
Classic Collector	(209		)	(187		)	(422		)	(437		)
Total ceded reinsurance	39			57			(2,569		)	(4,199		)

Net written premium:
Personal Auto	275,923			293,654			599,292			630,142
Commercial Auto	43,059			38,653			84,432			70,899
Classic Collector	4,848			4,711			8,199			7,689
Total net written premium	323,829			337,018			691,923			708,730

Change in unearned premium:
Personal Auto	22,526			12,270			1,543			(20,429		)
Commercial Auto	(6,208		)	(7,555		)	(12,378		)	(10,988		)
Classic Collector	(1,000		)	(1,019		)	(572		)	(413		)
Total change in unearned premium	15,318			3,697			(11,407		)	(31,830		)

Earned premium:
Personal Auto	298,449			305,925			600,835			609,713
Commercial Auto	36,851			31,098			72,054			59,911
Classic Collector	3,848			3,692			7,627			7,276
Total earned premium	339,147			340,715			680,516			676,899

Installment and other fee income:
Personal Auto	23,558			22,851			47,706			46,023
Commercial Auto	2,903			2,534			5,705			4,880
Classic Collector	0			0			0			0
Total installment and other fee income	26,461			25,385			53,410			50,903

Net investment income	9,001			8,927			17,696			16,990
Net realized gains on investments	1,886			(164		)	2,396			(25		)
Other income	391			220			666			478
Total revenues	$	376,886		$	375,084		$	754,683		$	745,246

(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 three and six months ended June 30, 2017 includes the return of $2.6 million of unearned premium due to the termination of the previous excess of loss contract.

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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 June 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	$	(2,384	)	102.2	%	$	1,207		94.0	%	$	(57	)	92.6	%	$	(1,235	)	101.2	%
Bad debt charge-offs	3,672					466					1					4,138
Favorable (unfavorable) development on prior accident years	9,060					(2,234		)			(90		)			6,736
Statutory calendar year underwriting income	10,347			97.8	%	(561		)	99.0	%	(146		)	95.0	%	9,639			97.9	%
Statutory-to-GAAP underwriting income differences																(7,892		)
GAAP calendar year underwriting income																1,747			99.5	%

Net investment income																9,001
Net realized gains on investments																1,886
Other income																391
Interest expense																(3,511		)
Corporate general and administrative expenses																(2,447		)
Other expenses																(507		)
Earnings before income taxes																$	6,559
(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.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements



	Three months ended June 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	$	3,467	99.6	%	$	(765	)	97.6	%	$	28		90.6	%	$	2,730		99.4	%
Bad debt charge-offs	4,334				459					7					4,800
Favorable (unfavorable) development on prior accident years	11,426				1,042					(295		)			12,173
Statutory calendar year underwriting income	19,227		94.4	%	736			93.0	%	(261		)	98.5	%	19,703			94.4	%
Statutory-to-GAAP underwriting income differences															(6,280		)
GAAP calendar year underwriting income															13,422			96.1	%

Net investment income															8,927
Net realized gains on investments															(164		)
Other income															220
Interest expense															(3,508		)
Corporate general and administrative expenses															(2,060		)
Other expenses															(797		)
Earnings before income taxes															$	16,040
(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.



	Six months ended June 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	$	(790	)	100.2	%	$	1,836		94.6	%	$	278	93.7	%	$	1,323		99.5	%
Bad debt charge-offs	5,923					756					11				6,690
Favorable (unfavorable) development on prior accident years	16,046					(3,108		)			166				13,104
Statutory calendar year underwriting income	21,178			96.4	%	(517		)	98.0	%	456		91.4	%	21,117			96.6	%
Statutory-to-GAAP underwriting income differences															(7,667		)
GAAP calendar year underwriting income															13,450			98.0	%

Net investment income															17,696
Net realized gains on investments															2,396
Other income															666
Interest expense															(7,023		)
Corporate general and administrative expenses															(4,718		)
Other expenses															(829		)
Earnings before income taxes															$	21,637
(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.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

Condensed Notes to Consolidated Financial Statements



	Six months ended June 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	$	1,417	99.2	%	$	(1,480	)	99.1	%	$	818	87.0	%	$	754		99.0	%
Bad debt charge-offs	7,366				813					17				8,197
Favorable (unfavorable) development on prior accident years	15,080				2,922					53				18,056
Statutory calendar year underwriting income	23,863		95.4	%	2,255			93.0	%	888		86.0	%	27,007			95.2	%
Statutory-to-GAAP underwriting income differences														(5,773		)
GAAP calendar year underwriting income														21,234			96.9	%

Net investment income														16,990
Net realized gains on investments														(25		)
Other income														478
Interest expense														(7,017		)
Corporate general and administrative expenses														(3,764		)
Other expenses														(1,080		)
Earnings before income taxes														$	26,816
(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.

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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 states. We undertake no obligation to publicly update or revise any of the forward-looking statements. For a more detailed discussion of some of the foregoing risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements refer to Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016.

OVERVIEW

Gross written premium declined during the quarter driven by an $18.3 million premium adjustment in California. Excluding the adjustment, gross written premium increased 1.5% as a result of new business growth and higher average premium in Texas and Arizona and renewal business growth and higher average premium in Commercial Auto, partially offset by declines in new business in Florida and renewal business in California. Refer to Results of Operations – Underwriting – Premium for a more detailed discussion of our gross written premium and Note 9 - Commitments and Contingencies for a more detailed discussion of the premium adjustment.

Net earnings and diluted earnings per share for the three months ended June 30, 2017, were $5.0 million and $0.46, respectively, compared with $11.0 million and $0.99, respectively, for the same periods of 2016. Net earnings and diluted earnings per share for the six months ended June 30, 2017, were $15.7 million and $1.41, respectively, compared with $18.7 million and $1.68, respectively, for the same periods of 2016. The decrease in net earnings and diluted earnings per share for the three and six months ended June 30, 2017, was primarily due to the premium adjustments recorded during the first six months of 2017.

Included in net earnings for the three and six months ended June 30, 2017, was $4.4 million ($6.7 million pre-tax) and $8.5 million ($13.1 million million pre-tax), respectively, of favorable development on prior accident year loss and LAE reserves. The development during the three and six months ended June 30, 2017, was primarily due to decreases in ultimate frequency and severity estimates in California along with lower ultimate frequency estimates in Florida related to material damage and uninsured motorists bodily injury coverages for accident year 2016. This favorable development was partially offset by increases in ultimate severity estimates in bodily injury and personal injury protection coverages in our commercial auto product as well as from personal injury protection in our personal auto product.

Included in net earnings for the three and six months ended June 30, 2016, was $7.9 million ($12.2 million pre-tax) and $11.7 million ($18.1 million pre-tax), respectively, of favorable development on prior accident year loss and LAE reserves. The development was primarily due to decreases in severity estimates related to Florida personal injury protection and bodily injury coverages and a decrease in California bodily injury loss adjustment expenses, and primarily related to accident years 2014 and prior. The favorable development for the six months ended June 30, 2016, was partially offset by unfavorable development from accident year 2015 in California material damage coverages, driven by an increase in severity.

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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 June 30, 2017:



	Accident Year Combined Ratio Developed Through										Prior Accident Year (Favorable) / Unfavorable Development ($ in millions)
	Dec 2015		June 2016		Dec 2016		Mar 2017		June 2017		Q2 2017					YTD 2017
Accident Year
Prior													$	0.1				$	0.4
2009	92.4	%	92.4	%	92.4	%	92.4	%	92.5	%	0.0	%	0.2			0.0	%	0.3
2010	99.4	%	99.3	%	99.3	%	99.3	%	99.3	%	0.0	%	0.2			0.0	%	0.3
2011	100.2	%	100.0	%	99.8	%	99.9	%	99.9	%	0.0	%	0.3			0.1	%	0.5
2012	100.1	%	99.8	%	99.6	%	99.5	%	99.4	%	(0.1	)%	(1.1		)	(0.2	)%	(2.6		)
2013	95.5	%	95.1	%	94.8	%	94.9	%	94.9	%	(0.0	)%	(0.6		)	0.1	%	0.8
2014	95.4	%	94.6	%	94.4	%	94.4	%	94.5	%	0.0	%	0.3			0.1	%	1.1
2015	97.8	%	98.0	%	98.3	%	98.4	%	98.3	%	(0.0	)%	(0.2		)	0.0	%	0.1
2016			99.5	%	98.4	%	97.8	%	97.4	%	(0.4	)%	(6.0		)	(1.0	)%	(14.0		)
2017 YTD							98.4	%	99.9	%
													$	(6.7	)			$	(13.1	)

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

Pre-tax net investment income for the three and six months ended June 30, 2017, was $9.0 million and $17.7 million respectively, compared with $8.9 million and $17.0 million, respectively, for the same periods of 2016. The increase for the six months ended June 30, 2017, was primarily due to lower premium amortization on mortgage-backed securities and an increase in bond issuer tender offers during 2017.

Our book value per share increased 1.8% from $63.31 at December 31, 2016, to $64.48 at June 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.

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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 June 30,
	2017			2016			Change			% Change
Gross written premium:
Personal Auto	$	276,928		$	294,654		$	(17,726	)	(6.0	)%
Commercial Auto	41,806			37,409			4,396			11.8	%
Classic Collector	5,056			4,898			159			3.2	%
Total gross written premium	323,790			336,961			(13,171		)	(3.9	)%
Ceded reinsurance	39			57			(18		)	(31.0	)%
Net written premium	323,829			337,018			(13,189		)	(3.9	)%
Change in unearned premium	15,318			3,697			11,621			314.3	%
Net earned premium	$	339,147		$	340,715		$	(1,568	)	(0.5	)%

	Six months ended June 30,
	2017			2016			Change			% Change
Gross written premium:
Personal Auto	$	601,280		$	632,154		$	(30,874	)	(4.9	)%
Commercial Auto	84,591			72,649			11,942			16.4	%
Classic Collector	8,621			8,126			495			6.1	%
Total gross written premium	694,491			712,929			(18,438		)	(2.6	)%
Ceded reinsurance	(2,569		)	(4,199		)	1,631			(38.8	)%
Net written premium	691,923			708,730			(16,807		)	(2.4	)%
Change in unearned premium	(11,407		)	(31,830		)	20,423			(64.2	)%
Net earned premium	$	680,516		$	676,899		$	3,616		0.5	%

The following table summarizes our policies in force:



	At June 30,
	2017	2016	Change		% Change
Personal Auto	697,005	737,983	(40,978	)	(5.6	)%
Commercial Auto	55,214	51,862	3,352		6.5	%
Classic Collector	41,442	41,354	88		0.2	%
Total policies in force	793,661	831,199	(37,538	)	(4.5	)%

During the first six months of 2017, we implemented rate revisions in various states with an overall rate increase of 2.9%. Policies in force at June 30, 2017, decreased 4.5% compared with the same period in 2016.

The decrease in gross written premium in Personal Auto during the second quarter and first six months of 2017 was primarily due to premium adjustments in California of $18.3 million and $22.2 million, respectively. Refer to Note 9 - Commitments and Contingencies for a more detailed discussion of the premium adjustments. Excluding the premium adjustments, gross written premium increased 1.5% during the quarter and 0.5% during the first six months of 2017 driven by growth in Texas, Arizona and Commercial Auto, partially offset by reductions in new business in Florida and renewal business in California. Growth during the first six months in Texas and Arizona was primarily due to new business growth and higher average premium.

The gross written premium growth during the second quarter and first six months of 2017 in our Commercial Auto product was primarily due to renewal policy growth and higher average premium.

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

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:



	Three months ended June 30,
	2017						2016						% Point Change
	Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio
Personal Auto	80.8	%	17.0	%	97.8	%	78.0	%	16.4	%	94.4	%	2.8	%	0.6	%	3.4	%
Commercial Auto	84.0	%	15.0	%	99.0	%	74.2	%	18.9	%	93.0	%	9.8	%	(3.9	)%	5.9	%
Classic Collector	61.1	%	33.9	%	95.0	%	67.6	%	30.9	%	98.5	%	(6.6	)%	3.0	%	(3.6	)%
Total statutory ratios	80.9	%	17.0	%	97.9	%	77.6	%	16.8	%	94.4	%	3.4	%	0.2	%	3.5	%
Total statutory ratios excluding development	83.5	%	17.0	%	100.5	%	79.1	%	16.8	%	95.9	%	4.4	%	0.2	%	4.6	%
GAAP ratios	80.7	%	18.8	%	99.5	%	77.3	%	18.7	%	96.1	%	3.3	%	0.1	%	3.4	%
GAAP ratios excluding development	83.2	%	18.8	%	102.0	%	78.8	%	18.7	%	97.6	%	4.4	%	0.1	%	4.5	%

	Six months ended June 30,
	2017						2016						% Point Change
	Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio		Loss & LAE Ratio		Underwriting Ratio		Combined Ratio
Personal Auto	80.2	%	16.2	%	96.4	%	78.8	%	16.6	%	95.4	%	1.4	%	(0.4	)%	1.0	%
Commercial Auto	82.5	%	15.5	%	98.0	%	75.7	%	17.4	%	93.0	%	6.9	%	(1.9	)%	5.0	%
Classic Collector	56.1	%	35.3	%	91.4	%	54.7	%	31.3	%	86.0	%	1.4	%	3.9	%	5.4	%
Total statutory ratios	80.2	%	16.4	%	96.6	%	78.3	%	16.9	%	95.2	%	1.9	%	(0.5	)%	1.4	%
Total statutory ratios excluding development	82.1	%	16.4	%	98.5	%	81.0	%	16.9	%	97.9	%	1.2	%	(0.5	)%	0.7	%
GAAP ratios	80.0	%	18.0	%	98.0	%	78.1	%	18.7	%	96.9	%	1.9	%	(0.7	)%	1.2	%
GAAP ratios excluding development	81.9	%	18.0	%	99.9	%	80.8	%	18.7	%	99.5	%	1.1	%	(0.7	)%	0.4	%

During the first six months 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 three months ended June 30, 2017, written and earned premiums were reduced by $18.3 million and $12.4 million, respectively. For the six months ended June 30, 2017, written and earned premiums were reduced by $22.1 million and $16.2 million, respectively. Excluding the adjustments, the statutory combined ratios for the three and six months ended June 30, 2017 would have both been 94.3%. The GAAP combined ratios for the same periods would have been 95.8% and 95.7%, respectively.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

The statutory combined ratio for the three and six months ended June 30, 2017, increased by 3.5 points and 1.4 points, respectively, from the same periods of 2016. The second quarter of 2017 included $2.0 million of favorable development from the first accident quarter of 2017 compared with $7.0 million of unfavorable development from the first accident quarter of 2016. The second quarter and six months ended June 30, 2017 included $6.7 million and $13.1 million of favorable reserve development on prior accident year loss and LAE reserves primarily due to decreases in ultimate frequency and severity estimates in California along with lower ultimate frequency estimates in Florida related to material damage and uninsured motorists bodily injury coverages for accident year 2016. This favorable development was partially offset by increases in ultimate severity estimates in bodily injury and personal injury protection coverages in our commercial auto product as well as from personal injury protection in our personal auto product.

The second quarter and first six months of 2016 included $12.2 million and $18.1 million, respectively, of favorable development on prior accident year loss and LAE reserves primarily due to decreases in severity estimates related to Florida personal injury protection and bodily injury coverages and a decrease in California bodily injury loss adjustment expenses, and primarily related to accident years 2014 and prior. The favorable development for the six months ended June 30, 2016, was partially offset by unfavorable development from accident year 2015 in California material damage coverages, driven by an increase in severity.

The GAAP combined ratio for the three and six months ended June 30, 2017, increased by 3.4 points and 1.2 points, respectively, from the same periods of 2016. Excluding the effect of development, the GAAP combined ratio increased by 4.5 points and 0.4 point, respectively, during the second quarter and first six months of 2017, respectively, primarily due to the premium adjustments.

Losses from catastrophes were $1.7 million and $3.2 million for the three and six months ended June 30, 2017, respectively, compared with $5.2 million and $6.3 million for the same periods of 2016.

The 3.4 points and 1.0 point increase in the Personal Auto combined ratio for the three and six months ended June 30, 2017, compared with the same periods of 2016, was primarily due to the premium adjustments in California. Partially offsetting this increase for the six months ending June 30, 2017, was a reduction in commission expense in Florida and Texas and an increase in fee income in Texas.

The 5.9 points and 5.0 points increase in the Commercial Auto combined ratio for the three and six months ended June 30, 2017, was primarily due to an increase in large losses paid during the first six months of 2017.

Installment and Other Fee Income



	Three months ended June 30,				Six months ended June 30,
($ in thousands)	2017		2016		2017		2016
Installment and other fee income	$	26,461	$	25,385	$	53,410	$	50,903

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

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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 June 30,						Six months ended June 30,
	2017			2016			2017			2016
Gross investment income:
Interest income on fixed maturities, cash and cash equivalents	$	8,888		$	8,766		$	17,777		$	17,047
Dividends on equity securities	651			718			1,027			1,063
Gross investment income	9,539			9,484			18,804			18,110
Investment expenses	(538		)	(557		)	$	(1,108	)	$	(1,120	)
Net investment income	9,001			8,927			17,696			16,990
Average investment balance, at cost	$	1,556,705		$	1,498,837		$	1,550,929		$	1,502,468
Annualized returns excluding realized gains and losses	2.3%			2.4%			2.3%			2.3%
Annualized returns including realized gains and losses	2.8%			2.3%			2.6%			2.3%

The increase in pre-tax net investment income for the three and six months ended June 30, 2017, was primarily due to lower premium amortization on mortgage-backed securities and an increase in bond issuer tender offers during 2017.

The following table provides information about our fixed maturity investments at June 30, 2017, 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,
2017	$	33,977	$	65,982	$	99,959	2.4%
2018	58,836		116,538		175,374		2.3%
2019	53,140		184,791		237,931		2.0%
2020	44,827		194,145		238,972		2.5%
2021	37,449		133,246		170,695		2.8%
Thereafter	203,922		236,934		440,855		2.7%
Total	$	432,152	$	931,635	$	1,363,787	2.5%

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

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INFINITY PROPERTY AND CASUALTY CORPORATION 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 as follows (before tax, $ in thousands):



	Three months ended June 30, 2017									Three months ended June 30, 2016
	Net Realized Gains (Losses) on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Gains (Losses) on Investments			Net Realized Gains (Losses) on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Losses on Investments
Fixed maturities	$	301		$	0		$	301		$	34		$	(198	)	$	(164	)
Equity securities	1,586			0			1,586			0			0			0
Short-term investments	(0		)	0			(0		)	(0		)	0			(0		)
Total	$	1,886		$	0		$	1,886		$	34		$	(198	)	$	(164	)

	Six months ended June 30, 2017									Six months ended June 30, 2016
	Net Realized Gains on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Gains on Investments			Net Realized Gains (Losses) on Sales			Net Impairment Losses Recognized in Earnings			Total Net Realized Losses on Investments
Fixed maturities	$	249		$	(10	)	$	239		$	293		$	(316	)	$	(23	)
Equity securities	2,155			0			2,155			0			0			0
Short-term investments	1			0			1			(2		)	0			(2		)
Total	$	2,406		$	(10	)	$	2,396		$	291		$	(316	)	$	(25	)

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

Interest Expense



	Three months ended June 30,				Six months ended June 30,
($ in thousands)	2017		2016		2017		2016
5.0% Senior Notes	$	3,438	$	3,438	$	6,875	$	6,875
Amortization of debt issuance costs	54		52		108		102
Capital leases	19		19		40		40
Total	$	3,511	$	3,508	$	7,023	$	7,017

At June 30, 2017, we had $275 million principal outstanding of senior notes. These notes carry a coupon rate of 5.0% and require no principal payment until maturity in September 2022. Refer to Note 5 – Long-Term Debt to the Consolidated Financial Statements for additional information on the 5.0% Senior Notes.

Income Taxes

Our GAAP effective tax rate was 23.1% and 27.5% for the three and six months ended June 30, 2017, respectively, compared with 31.3% and 30.2%, respectively, for the same periods of 2016. The GAAP effective tax rate has decreased in 2017 primarily as a result of a decrease in pre-tax income. Refer to Note 6 – Income Taxes to the Consolidated Financial Statements for additional information on income taxes.

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

LIQUIDITY AND CAPITAL RESOURCES

Sources of Funds

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

Funds to meet expenditures at the holding company level come primarily from dividends and tax payments from the insurance subsidiaries, as well as cash and investments held by the holding company. As of June 30, 2017, the holding company had $163.9 million of cash and investments. In 2017 our insurance subsidiaries may pay us up to $66.2 million in ordinary dividends without prior regulatory approval. For the six months ended June 30, 2017, our insurance subsidiaries have paid us ordinary dividends of $29.0 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 $28.8 million and $57.1 million during the three and six months ended June 30, 2017, respectively, compared with positive operating cash flows of $14.3 million and $37.4 million during the same periods of 2016.

At June 30, 2017, 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.

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

In February 2017 we increased our quarterly dividend to $0.58 per share from $0.52 per share. At this current amount, our 2017 annualized dividend payments would be approximately $25.6 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. As of June 30, 2017, we had $32.4 million of authority remaining under this program. Share repurchases during the first six months of 2017 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
Total	26,157	$	92.86

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.

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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 six months ended June 30, 2017, was ($0.0) million and $2.6 million, respectively, compared with ($0.1) million and $4.2 million, respectively, for the same periods 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 three and six months ended June 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, for more information on our reinsurance contracts.

Investments

Our consolidated investment portfolio at June 30, 2017, contained approximately $1.4 billion in fixed maturity securities, $95.5 million in equity securities and $0.4 million of short-term investments. All of these are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income, a separate component of shareholders’ equity, on an after-tax basis. At June 30, 2017, we had pre-tax net unrealized gains of $7.2 million on fixed maturities and pre-tax net unrealized gains of $21.2 million on equity securities. Combined, the pre-tax net unrealized gain increased by $17.3 million for the six months ended June 30, 2017. 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 3.3 years at June 30, 2017, and December 31, 2016.

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 90.8% of our fixed maturity investments at June 30, 2017, were rated “investment grade,” and, as of the same date, the average credit rating of our fixed maturity portfolio was AA-. Investment grade securities generally bear lower yields and have lower degrees of risk than those that are unrated or non-investment grade. We believe that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

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

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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

Summarized information for our investment portfolio at June 30, 2017, was as follows ($ in thousands):



	Amortized Cost		Fair Value		% of Total Fair Value
Fixed Maturities:
U.S. government	$	64,192	$	64,025	4.2	%
State and municipal	497,850		502,156		32.7	%
Mortgage- and asset-backed:
Residential mortgage-backed securities	353,813		351,766		22.9	%
Commercial mortgage-backed securities	42,609		42,060		2.7	%
Asset-backed securities (ABS):
Auto loans	29,566		29,611		1.9	%
Equipment leases	7,405		7,424		0.5	%
Credit card	10,364		10,380		0.7	%
All other	4,333		4,360		0.3	%
Total ABS	51,668		51,775		3.4	%
Total mortgage- and asset-backed	448,090		445,602		29.0	%
Corporates
Investment grade	296,122		298,439		19.4	%
Non-investment grade	125,562		128,813		8.4	%
Total corporates	421,684		427,252		27.8	%
Total fixed maturities	1,431,815		1,439,034		93.8	%
Equity securities	74,270		95,508		6.2	%
Short-term investments	425		425		0.0	%
Total investments	$	1,506,511	$	1,534,967	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 June 30, 2017 ($ in thousands):



	Rating
	AAA		AA		A		BBB		Non-investment Grade		Total Fair Value		% of Total Exposure
U.S. government	$	64,025	$	0	$	0	$	0	$	0	$	64,025	4.4	%
State and municipal	144,884		266,002		87,823		0		3,447		502,156		34.9	%
Mortgage- and asset-backed	425,276		15,588		1,636		3,102		0		445,602		31.0	%
Corporates	1,704		28,801		134,874		133,060		128,813		427,252		29.7	%
Total fair value	$	635,889	$	310,391	$	224,333	$	136,163	$	132,260	$	1,439,034	100.0	%
% of total fair value	44.2%		21.6%		15.6%		9.5%		9.2%		100.0%

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2017, there were no material changes to the information provided on Form 10-K for the year ended December 31, 2016, 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.

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 June 30, 2017. Based on that evaluation, we concluded that the controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission (SEC) under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended June 30, 2017, there have been no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1

Legal Proceedings

Refer to Note 9 - Commitments and Contingencies to the Consolidated Financial Statements for a discussion of developments in legal proceedings during the second quarter of 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.

ITEM 1A

Risk Factors

There have been no material changes in our risk factors as disclosed on Form 10-K for the year ended December 31, 2016. 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.

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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	Average Price Paid per Share (a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs (b)
April 1, 2017 - April 30, 2017	3,100	$	93.60	3,100	$	33,801,367
May 1, 2017 - May 31, 2017	3,001	95.57		3,001	33,513,356
June 1, 2017 - June 30, 2017	11,300	94.49		11,300	32,444,051
Total	17,401	$	94.52	17,401	$	32,444,051


(a)	Average price paid per share excludes commissions.


(b)	On November 4, 2014, our Board of Directors increased the authority under our current share and debt repurchase plan to a total of $75.0 million and extended the date to execute the program to December 31, 2016, from December 31, 2014. On November 1, 2016, our Board approved the extension of the date to execute the program from December 31, 2016, to December 31, 2017.

ITEM 6



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

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

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INFINITY PROPERTY AND CASUALTY CORPORATION FORM 10-Q

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
August 3, 2017		Robert H. Bateman
		Executive Vice President, Chief Financial Officer and Treasurer