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“By the fourth quarter, To Our Shareholders, Customers, Agents and Employees: This annual report marks Infinity’s second year as a public company. It has again been a successful one. Net earnings of $96.4 million were 66% higher than in 2003; diluted net earnings per share were 63% higher; book value per share was up by 19%; and return on average equity soared to 17%. In early 2005, we took further actions to enhance shareholder value by increasing our dividend by 9.1% and putting in place a $50 million share repurchase program. Our total return to shareholders since our IPO in February 2003 is 120%. Strong performance during 2004 and a conservatively managed balance sheet contributed to our retaining an A.M. Best financial strength rating of “A.” In today’s competitive environment, maybe more than ever, we see this “Excellent” rating as an imperative when competing for agents who need to assure that their customers are placed with a stable and strong insurer. A Strong Finish Leads To A Promising Start The theme for this year’s Report, “Unlimited Opportunities,” is much more than an optimistic expression of the possibilities we see in the coming year. The relevance of this theme has as much to do with where we have been as where we see ourselves heading. This is because opportunities for us in 2005 began with a well developed operating strategy, the setting of both short and long-term priorities, and the efforts of employees willing to devote themselves to, and be held accountable for, the successful execution of a sound business plan. In last year’s letter, I identified the following priorities for 2004. I would grade our overall performance as a success, but I see room for continued improvement in many of these areas in 2005.
To improve our market share with our agents, we continued to provide better support and service, including the introduction of state-of-the-art desktop software, enhancements to the P.A.S.S. program, and continued progress toward paper-less workflow between Infinity and our producers. Enhanced P.A.S.S. benefits included new training classes, more support at community events and an offering of Errors and Omissions insurance for our agents through a third party insurer. By the end of 2004, one in four of our agents were members of P.A.S.S. in those states in which we rolled-out the program. We also continued to expand relationships with strategic partners. These are relationships where a standard and preferred auto insurance carrier uses Infinity for their non-standard auto risks. Premium growth in 2004 attributable to this business source was 10.7%. We will be adding new partners in 2005, and expect to grow the business in this important distribution channel. Customers and agents benefited in 2004 from broader roll-out of our three-tiered product structure. By year end, 11 of our 17 target states had the Low Cost product, and 14 of 17 had the Value-Added product. Rolling-out our products in the remaining target states and expanding into several new states are high priorities in 2005. To better service our agents and policyholders, we moved to a regional organizational structure in late 2004. This structure places marketing, product management and claims operations in each of the four regions under common management. Those functions had previously reported to a manager responsible for that department on a countrywide basis. We’re convinced that the new structure will increase focus on executing our business plan, ensure accountability, and foster camaraderie among our employees. Over the past decade, we have actively developed close relationships with agents serving the Hispanic market by supporting businesses and customers in their local communities. In 2004, 84% of our co-op advertising dollars was spent on advertisements in Spanish. We also began a program to help Hispanics, as well as others, obtain licenses to become insurance agents. We supported and attended a host of events within the Latino Community and were awarded a Certificate of Congressional Recognition for our contributions to the success of a toy drive in California that benefited underprivileged children and their families. Our solid progress in 2004 could not have been accomplished without the hard work and dedication of our employees. Infinity recognized those efforts by paying nearly 9% of employee compensation in performance bonuses and incentive compensation, including over 4% profit sharing to the employees’ 401(K) program. New assistance programs along with training and education programs were also introduced during the year. We are now establishing a wellness program so that all of our employees can enjoy a fulfilling and healthy career at Infinity. All in all, 2004 was a very good year. As we set our sights to the open road ahead, we see opportunities for profitable growth in 2005 as well. We are mindful, nonetheless, that the personal automobile insurance market today will be a more difficult one in which to operate than in 2004. The challenges we must prepare for include: more intense competition for independent agents’ business; maintenance of disciplined and accurate pricing in a soft market cycle while striving to improve market share; and expense management while aggressively pursuing new business opportunities in current and expanding markets. Overall, we feel prepared, but not over-confident, to confront these challenges and to take full advantage of the opportunities in today’s marketplace. We are on a good course because of the commitment our people have to improve all phases of our operations. I know this because I see and experience it everyday. My thanks to all 2,000 of our employees and our thousands of independent agents who have contributed so much to the past year’s success and upon whom our future success is dependent. And lastly, thanks to our shareholders for believing in us and our strategy. Your support and confidence is deeply appreciated.
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