Infinity Property and Casualty Corporation (IPCC)

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Infinity Property and Casualty Corporation (IPCC)

Q2 2008 Earnings Call Transcript

July 24, 2008 8:45 am ET

Executives

James Gober – Chairman, President & CEO

Roger Smith – EVP and CFO

Analysts

Michael Grasher – Piper Jaffray

John Gwynn – Morgan Keegan

Doug Mewhirter – RBC Capital Markets

Alison Jacobowitz – Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Infinity Property and Casualty Corporation earnings conference call. My name is George, and I will be your co-coordinator for today. At this time, all participants in listen only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Ms. Amy Jordan, AVP of Investor Relations. Please proceed.

Amy Jordan

Good morning and thank you for joining us for Infinity’s second quarter earnings conference call. The live event link on our web site does contain a slide presentation for this morning's call, if you would like to follow along. We also have an excel spreadsheet on our web site under the Quarterly Reports tab that provides more detailed quarterly financial data, and page 10 of the report does contain the definition and reconciliation of any non-GAAP items that we discuss this morning.

Certain statements made during this call may be deemed to be forward-looking statements that anticipate results based on estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements in this call not dealing with historical results or current facts are forward looking and are based on estimates, assumptions and projections. Statements that include the words believe, seeks, expects, may, should, intend, likely, target, 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, premiums, growth, earnings, investment performance, expected losses, rate changes and loss experience.

Actual results could differ materially from those expected by Infinity, depending on changes in economic conditions in financial markets including interest rates; the adequacy or accuracy of Infinity's pricing methodologies; actions of competitors; the approval of requested form and rate changes; judicial and regulatory developments affecting the automobile insurance industry; the outcome of pending litigation against Infinity; weather conditions including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions and changes in driving patterns and loss trends. Infinity undertakes 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, please see Infinity's filings with the SEC.

And with that I will turn it over to Jim Gober, our Chairman, President and CEO.

James Gober

Good morning, everyone, and welcome to our conference call and webcast for the second quarter of 2008. Roger Smith, our CFO is also with us this morning. And as usual, we will open the lines for questions after our comments.

Let’s begin with the highlights on slide 3. Overall premiums were down 11% in the second quarter and down 14.2% versus the first half of 2007. Of course, our six months last year benefited from the big run up of our premiums from the continued roll out of electronic enforcement of the auto insurance laws in California. Recall, that during last quarter’s earnings call, we said that we expected premiums in the second quarter of this year will be down low to mid single digits, so the decline in premiums we experienced in this quarter wasn’t a surprise. It was just more than we expected. Of course, few of us anticipated the turmoil in the general economy we’ve seen in the last three months. Rising unemployment, high gasoline and food prices, and even greater levels of consumer uncertainty combined to dampen insurance buying behavior. I will give you some more details on our thoughts regarding the premium trends a little later.

For the second quarter, premiums in our focus states fell 10.8% as compared with a strong second quarter in ’07. Within these states, business in our target urban zones fell 8.5% for the quarter, again down more than we had expected. Nevertheless, even in these tough economic times, during the second quarter, eight of our 22 targeted urban zones grew as did our commercial vehicle and classic auto programs. As a matter of fact, 7 of our 22 urban zones are running ahead of our premium plan for the second quarter this year.

As for the bottom line, operating income for the quarter was 14.2 million, down from a strong second quarter of last year. On another note, economic conditions in all of our focus states other than Texas turned noticeably worse in the second quarter. Unemployment is up over 1 point in each of our focus states except for Pennsylvania. Most of you have read about the dramatic fall off in auto sales which negatively impacts our business as well.

In other news, we surveyed several of our larger agents and brokers who told us that their overall business was down anywhere from 10 to 50% with many attributing the fall off from consumers who are economically strained from high gas prices, in some places over $4.50 per gallon, along with high food prices and worsening labor conditions. Agents say and they did confirm that many consumers were choosing not to purchase or let the coverage lapse on a new role. Others are opting for liability only coverage by dropping the physical damage coverages on their policies. As a result, our overall premiums in new application counts have declined.

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