IPCC Downgraded to Strong Sell

Zacks Investment Research downgraded Infinity Property and Casualty Corp. (IPCC) to a Zacks Rank #5 (Strong Sell) on Dec 5, 2013.

Why the Downgrade?

Infinity Property and Casualty witnessed downward estimate revisions after reporting mixed third-quarter 2013 results. Additionally, Infinity Property and Casualty delivered negative earnings surprise in all of the last four quarters with a negative average surprise of 28.05%. Over the last 30 days, one out of two estimates was nudged down, leading to a 3.8% decline in the 2013 Zacks Consensus Estimate to $2.53 per share.

On Nov 7, Infinity Property and Casualty reported third-quarter earnings per share of 63 cents, which though above the year-ago earnings, missed the Zacks Consensus Estimate by 7 cents. The top line also improved from the prior-year quarter but missed the Zacks Consensus Estimate.

The quarter witnessed a nearly 6% increase in total expenses, mainly owing to high loss and loss adjustment expenses, commissions and other underwriting expenses, and corporate general and administrative expenses. Investment income also declined during the quarter and a consistent rise in interest rates pose the risk of further decline. Moreover, although combined ratio of Infinity Property and Casualty improved in the reported quarter, the improvement was less than expected due to an increase in the loss cost stemming from property damage.

For 2013, Infinity Property and Casualty reduced the range of premium growth from 5%–8% to 6%–7%. An expected increase in the loss cost stemming from property damage should further affect the combined ratio of the company going forward. Thus, Infinity Property and Casualty increased its 2013 combined ratio guidance. Based on all of these, management also reduced its operating earnings guidance from $2.90–$3.40 per share to $2.40–$2.90.

Other Stocks to Consider

Some better-ranked stocks in the property and casualty insurance space include RLI Corp. (RLI), Montpelier Re Holdings Ltd. (MRH) and Allied World Assurance Company Holdings, AG (AWH). While Montpelier and RLI Corp. carry a Zacks Rank #1 (Strong Buy), Allied World carries a Zacks Rank #2 (Buy).

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