Good Future Seen For High Risk Auto Market

Michael Ha

NU Online News Service, April 14, 11:26 a.m.EDT?Merrill Lynch announced it has commenced analystcoverage of Birmingham, Ala.-based auto insurer Infinity Propertyand Casualty and given the firm's securities a "buy" rating.

Infinity went public on the NASDAQ Stock Market in February.

Merrill Lynch, based in New York, listed several positivefactors for its strong rating. One favorable factor mentioned isthe continuing hard market for auto insurance, especially fornonstandard auto rates.

"Standard and preferred private passenger auto rates are risingat about six to nine percent, although the increases vary bystate," Merrill Lynch said in its coverage initiation report.

The firm also noted that nonstandard auto rates, which areInfinity's focus, have been rising even faster, with rate increasesaveraging more than 10 percent. Merrill Lynch said it expects priceincreases to slow but to at least keep pace with claimsinflation.

The brokerage firm also looked favorably on Infinity's cullingprocess, which it said is reducing premiums in states with weakprofitability. This ongoing process, Merrill Lynch predicted, willgradually accelerate growth.

Currently, one of Infinity's strongest growth areas is itscoverage tailored to Hispanic market segments. This segment isamong the fastest-growing segments of the U.S. population with 4.2million Latin Americans in Los Angeles County alone, making up morethan 40 percent of the population in that area, Merrill Lynchsaid.

Additional factors mentioned include Infinity's adequate lossreserve level and its conservative investment portfolio, with 98percent of the portfolio in fixed maturities and short-termsecurities.

Considering these factors, Merrill Lynch said it is bullish onInfinity's 2003 prospect.

"Infinity is currently trading right around book value despite arelatively clean book value and an ROE that should exceed thecompany's equity cost of capital," the brokerage firm said in itsreport.

Infinity stock, which currently trades in a range around $18 to$19 per share, can move up to around $23 per share in the next 12months, Merrill suggested in its report.

Prior to its initial public offering, Infinity was owned byCincinnati-based American Financial Group, which continues to holdabout 40 percent stake in the company.

Infinity primarily provides personal nonstandard auto policies.It is the second-largest writer of policies for high-risk driversin the United States, behind The Progressive Corporation inMayfield Village, Ohio.