 |
I am proud to share with you the results of our operations for 2006, and eager to discuss our prospects for 2007. Strong Results in 2006
Our continued underwriting discipline contributed greatly to lower than planned combined ratios, as well as strong growth in book value and the return on equity. And even though our net written premium growth was neutral, we held our own in a year when many competitors lost ground. In the four years since Infinity’s IPO, our annual return on equity has averaged 16.2% and GAAP book value per share has grown over 84%. As always, my personal thanks to our agents and employees whose dedication and efforts made these strong results possible. Competition in our markets continued unabated in 2006, as market participants struggled to grow their revenues in spite of significant increases in spending on advertising, as well as modest decreases in rate. Many of these companies reported declines in written premiums for the year. And while we fell short of our premium growth goals, we did build momentum in the second half of 2006, where premiums were up 10.2% over the same period in 2005. We were also pleased to announce in February of 2007 a 20% increase in the dividend rate to shareholders to $0.36 per share. This is the third annual increase in shareholder dividends since our initial public offering in February 2003. Since the IPO, dividends per share have increased 64%. Another positive development was the early completion of our $50 million share repurchase program as well as the kickoff of a new, two year, $100 million program in January of 2007. Our actions certainly underscore our commitment to manage capital prudently, to return any excess created by strong financial results, but retain sufficient capital to support what we believe are very good growth prospects. The stock market has certainly taken notice of our strong financial performance and prudent capital management. Since the IPO, the Infinity stock price is up over 200%. In 2006 alone, the share price rose 30%. And while we cannot promise that our stock price will rise 30% every year, we firmly believe that the stock market will reward long-term shareholder value creation. And I can say without hesitation, we are committed to leveraging our opportunities to maximize value to our shareholders. We chose the theme and cover for this year’s Annual Report to share with you what we believe ‘marks’ the success of Infinity over its four years as a public company; and what we are certain distinguishes Infinity from other personal auto insurers:
As you read more about our progress in 2006, I trust you will see these ‘marks’ as a common thread in our achievements, and they remain at the core of our success strategy for 2007 and beyond. 2007 Will be a Greater Challenge but We are Prepared While no company in this market is completely immune to these cycles, I am optimistic about our prospects for growth and profitability in 2007 and beyond. We have built over much of the last four years a firm foundation for how and where we do business. From this foundation, Infinity is in a strong position to compete effectively in targeted markets and to build long-term value for shareholders, regardless of market conditions. Making Our Mark in California Historically we have done just that in key markets, such as California, beginning in Los Angeles. Since 1993, our results in that state have been remarkable. For example, annual premium growth over a ten-year period before the IPO was over 8%, almost four points better than the personal auto industry, and the average combined ratio over that same period was below 93%, over 10 points better than the personal auto industry. These results were generated in both soft and hard market cycles, including the 1999-2000 period when the personal auto industry sustained record underwriting losses with combined ratios in excess of 109. As we studied our success in Los Angeles, we noted several key factors that allowed us to execute on the three key disciplines of expenses, pricing and claims and achieve such tremendous financial success. In that city we focused on key underserved market segments, including the inner city, uninsured and first generation Hispanic drivers. We customized products and services suitable to these customers and we nurtured key relationships with our brokers who served these segments. We also developed a rich understanding of the needs of the Hispanic consumer, and built powerful brand recognition within that community. The market focus on urban, uninsured and Hispanic drivers permitted us to grow the business rapidly and quickly gain critical economies of scale in areas such as pricing, marketing and claims. The results of our focus were lower costs and better service. Lower costs, which yielded more competitive rates, and better service contributed to robust growth. The model created something of a virtual cycle, which continues to this day. Building Momentum with the Roll-out of the Los Angeles Model Phoenix, one of the first targeted urban zones, is an early success story. We rolled out the Los Angeles model there in 2005. The following year, premiums grew rapidly and underwriting profits were strong. Encouraged by our success in Phoenix in 2006, we will continue in 2007 to roll out the model in cities such as Houston, Philadelphia, Orlando, Hartford, San Francisco, Atlanta and others. While the implementation in these new, targeted urban zones is at various stages, we are confident that as we put the key ingredients of the model in place, we can replicate the success we have seen in Los Angeles and now Phoenix. We will continue to update you on our progress. Seizing Opportunities My thanks to our employees, shareholders and agents for supporting our efforts and showing great confidence in our future.
James R. Gober |
