ITEM 2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain statements that may be deemed to be "forward-looking statements" that anticipate results based on our 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 report not dealing with historical results or current facts are forward-looking and are based on estimates, assumptions, and projections. Statements which include the words "believes," "seeks," "expects," "may," "should," "intends," "likely," "targets," "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, premium, 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 and financial markets (including interest rates), the adequacy or accuracy of Infinity's pricing methodologies, determinations with respect to reserve adequacy, realized gains or losses on the investment portfolio including other-than-temporary impairments for credit losses, 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), 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 see "Risk Factors" contained in Part II, Item 1A of this report, as well as in Part I, Item 1A of Infinity's Annual Report on Form 10-K for the twelve months ended December 31, 2008.

OVERVIEW

Weak economic conditions and rising unemployment continued to pose a challenge with regard to growing revenue in the third quarter of 2009. However, favorable loss costs trends throughout the year have contributed to strong earnings.

Net earnings and diluted earnings per share for the three months ended September 30, 2009 were $8.2 million and $0.60, respectively, compared to $4.4 million and $0.28, respectively, for the three months ended September 30, 2008. Net earnings and diluted earnings per share for the nine months ended September 30, 2009 were $35.9 million and $2.58, respectively, compared to $30.5 million and $1.90, respectively, for the nine months ended September 30, 2008. The increase in diluted earnings per share for the three and nine months ended September 30, 2009 is primarily due to an increase in underwriting income.

Included in net earnings for the three and nine months ended September 30, 2009 were $8.6 million ($13.2 million pre-tax) and $21.7 million ($33.4 million pre-tax), respectively, of favorable development on prior accident period loss and LAE reserves compared to $0.8 million ($1.3 million pre-tax) and $8.8 million ($13.5 million pre-tax), respectively, for the three and nine months ended September 30, 2008. See Results of Operations - Underwriting - Profitability for a more detailed discussion of Infinity's underwriting results.

Net realized losses on investments were $18.1 million for the first nine months of 2009 as compared to $14.8 million for the same period of 2008. Infinity had net realized losses on investments of $12.1 million for the third quarter of 2009 compared to losses of $11.6 million in the third quarter of 2008. Included in the net realized loss for the first nine months of 2009 is $19.4 million of other-than-temporary impairments on fixed income securities compared with $21.5 million of impairments during the first nine months of 2008. Included in the net realized loss for the third quarter of 2009 is $11.0 million of other-than-temporary impairments on fixed income securities compared with $13.8 million of impairments during the third quarter of 2008.

Total revenues declined 10.0% and 9.9% for the three and nine months ended September 30, 2009 compared with the same periods in 2008. The decline for both periods is primarily attributable to a decline in earned premiums as a result of decreases in gross written premiums in states such as Arizona, Florida and Georgia. See Results of Operations - Underwriting - Premiums for a more detailed discussion of Infinity's gross written premium growth.

Infinity's book value per share increased $6.51 or 17.6% from $37.05 at September 30, 2008 to $43.56 at September 30, 2009. This increase was primarily due to earnings and change in unrealized net gains on investments, net of shareholder dividends, for the twelve months ended September 30, 2009. Also increasing book value per share over this period by approximately $0.89 per share was the $13.3 million reduction in the deferred tax valuation reserve associated with the $38.1 million reclassification of other-than-temporary

Management's Discussion and Analysis of Financial Condition and Results of Operations

impairment reserve to unrealized losses required under FASB ASC 320-10-65 on April 1, 2009. Annualized return on equity for the three and nine months ended September 30, 2009 was 5.7% and 8.6%, respectively, compared with 3.0% and 7.0% for the three and nine months ended September 30, 2008.

RESULTS OF OPERATIONS

Underwriting

Premium

Infinity's insurance subsidiaries provide personal automobile insurance products with a concentration on nonstandard auto insurance. While there is no industry-recognized definition of nonstandard auto insurance, Infinity believes that it is generally understood to mean coverage for drivers who, because of their driving record, age or vehicle type, represent higher than normal risks and pay higher rates for comparable coverage. Infinity also writes commercial vehicle insurance and insurance for classic collectible automobiles ("Classic Collector").

Infinity is licensed to write insurance in all 50 states and the District of Columbia, but focuses its operations in targeted urban areas ("Urban Zones") identified within selected focus states that management believes offer the greatest opportunity for premium growth and profitability.

Infinity classifies the states in which it operates into three categories:

• "Focus States" - Infinity has identified Urban Zones in these states which include: Arizona, California, Florida, Georgia, Illinois, Nevada, Pennsylvania and Texas.

• "Maintenance States" - Infinity is maintaining its writings in these states which include: Alabama, Colorado, Connecticut, Missouri, Ohio, South Carolina, and Tennessee. Infinity believes each state offers the Company an opportunity for underwriting profit.

• "Other States" - Includes all remaining states.

Infinity further classifies territories within the Focus States into two categories:

• "Urban Zones" - include the following urban areas:

• Arizona - Phoenix and Tucson

• California - Bay Area, Los Angeles, Sacramento, San Diego, and San Joaquin Valley

• Florida - Jacksonville, Miami, Orlando, Sarasota and Tampa

• Georgia - Atlanta

• Illinois - Chicago

• Nevada - Las Vegas

• Pennsylvania - Allentown and Philadelphia

• Texas - Dallas, Fort Worth, Houston and San Antonio

• "Non-Urban Zones" - include all remaining areas in the Focus States located outside of a designated Urban Zone.

Infinity continually evaluates its market opportunities; thus the Focus States, Urban Zones, Maintenance States and Other States may change over time as new market opportunities arise, as the allocation of resources changes or as regulatory environments change. In the tables below, Infinity has restated 2008 premium, policies-in-force and combined ratios to be consistent with the 2009 definition of Urban Zones, Focus States, Maintenance States and Other States.

                INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations



The following table shows Infinity's net earned premium for the three months
ended September 30, 2009 and 2008 ($ in thousands):



                                            Three months ended September 30,
                                     2009           2008         $ Change       Change
     Net earned premium
     Gross written premium
     Personal auto insurance:
     Focus States:
     Urban Zones                   $ 166,928      $ 168,741      $  (1,813 )      (1.1 )%
     Non-Urban Zones                  21,799         25,535         (3,736 )     (14.6 )%

     Total Focus States              188,727        194,276         (5,549 )      (2.9 )%
     Maintenance States                7,151         10,600         (3,449 )     (32.5 )%
     Other States                        418            837           (419 )     (50.0 )%

     Subtotal                        196,297        205,713         (9,417 )      (4.6 )%

     Commercial Vehicle               13,331         11,086          2,245        20.3 %
     Classic Collector                 2,956          5,876         (2,920 )     (49.7 )%
     Other                                (1 )          177           (178 )    (100.4 )%

     Total gross written premium     212,583        222,852        (10,269 )      (4.6 )%
     Ceded reinsurance                (1,236 )         (916 )         (319 )      34.9 %

     Net written premium             211,348        221,936        (10,588 )      (4.8 )%
     Change in unearned premium       (1,010 )        9,158        (10,169 )    (111.0 )%

     Net earned premium            $ 210,337      $ 231,094      $ (20,757 )      (9.0 )%

The following table shows Infinity's net earned premium for the nine months ended September 30, 2009 and 2008 ($ in thousands):

                                             Nine months ended September 30,
                                     2009           2008         $ Change       Change
     Net earned premium
     Gross written premium
     Personal auto insurance:
     Focus States:
     Urban Zones                   $ 505,501      $ 531,935      $ (26,433 )      (5.0 )%
     Non-Urban Zones                  66,905         82,956        (16,052 )     (19.3 )%

     Total Focus States              572,406        614,891        (42,485 )      (6.9 )%
     Maintenance States               24,408         35,946        (11,538 )     (32.1 )%
     Other States                      1,347          2,839         (1,492 )     (52.6 )%

     Subtotal                        598,160        653,676        (55,516 )      (8.5 )%

     Commercial Vehicle               40,533         32,742          7,791        23.8 %
     Classic Collector                11,131         16,766         (5,635 )     (33.6 )%
     Other                               111            685           (574 )     (83.8 )%

     Total gross written premium     649,936        703,868        (53,932 )      (7.7 )%
     Ceded reinsurance                (3,813 )       (3,125 )         (688 )      22.0 %

     Net written premium             646,123        700,743        (54,620 )      (7.8 )%
     Change in unearned premium       (7,389 )       (1,222 )       (6,167 )     504.8 %

     Net earned premium            $ 638,734      $ 699,521      $ (60,787 )      (8.7 )%

                INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations



The following table shows Infinity's policies-in-force as of September 30, 2009
and 2008:



                                                 As of September 30,
                                        2009      2008     Change       Change
       Policies-in-force
       Personal auto insurance:
       Focus States:
       Urban Zones                     593,003   597,378    (4,375 )      (0.7 )%
       Non-Urban Zones                  68,025    82,053   (14,028 )     (17.1 )%

       Total Focus States              661,028   679,431   (18,403 )      (2.7 )%
       Maintenance States               24,394    35,211   (10,817 )     (30.7 )%
       Other States                      1,090     2,370    (1,280 )     (54.0 )%

       Total personal auto insurance   686,512   717,012   (30,500 )      (4.3 )%

       Commercial Vehicle               26,601    18,449     8,152        44.2 %
       Classic Collector                47,172    61,206   (14,034 )     (22.9 )%
       Other                                 2       485      (483 )     (99.6 )%

       Total policies-in-force         760,287   797,152   (36,865 )      (4.6 )%

Gross written premium decreased 4.6% and 7.7% during the third quarter and first nine months of 2009, respectively, compared with the same periods of 2008. During the first nine months of 2009, Infinity implemented 25 rate revisions in various states with an overall rate increase of less than 1%. Policies-in-force at September 30, 2009 decreased 4.6% compared with the same period in 2008. Gross written premium declined more than policies-in-force due to a shift in the business mix to more liability only policies, which have lower average premium. Infinity believes customers are opting for these minimum coverage policies as a result of the economic downturn.

Infinity's agents and policyholders were affected by a continued deterioration in the economy in the third quarter as unemployment rates in five of eight Focus States were above 10% and consumer confidence remained weak. Agents report that many policyholders are reducing purchases of some auto coverage, raising deductibles or dropping coverage altogether, all of which have decreased Infinity's premium volume. In states such as Florida and Georgia, Infinity has taken aggressive actions over the past year to improve profit margins, including raising rates, which has further reduced written premium.

During the third quarter and first nine months of 2009, personal auto insurance gross written premium in Infinity's eight Focus States decreased 2.9% and 6.9% compared with the same periods in 2008. The decline in gross written premium is primarily a result of declines in Florida, Georgia and Arizona. Gross written premium in Florida declined 12.1% and 22.1% during the third quarter and first nine months of 2009, respectively, as compared with the same periods of 2008. The decline is due primarily to Infinity raising rates 15.1% during 2008 and tightening underwriting standards to improve profitability. In Georgia, gross written premium declined 29.9% and 27.9% during the third quarter and first nine months of 2009 as compared with the same periods of 2008. This decline is primarily a result of rate increases intended to improve profitability in the state. Gross written premium in Arizona declined 21.5% and 29.1% during the third quarter and first nine months of 2009, respectively, as compared with the same periods of 2008. This decline is primarily due to competitor rate decreases and worsening economic conditions in the state. Personal auto gross written premiums grew during the three months ended September 30, 2009 in California, Illinois and Pennsylvania. Gross written premium in California, Infinity's largest state by premium volume, was up 2.9% for the third quarter and down just 0.2% for the first nine months of 2009 as compared to the same periods of 2008.

Gross written premium in the Maintenance States declined 32.5% and 32.1% during the third quarter and first nine months of 2009, respectively, compared to the same periods of 2008. Infinity has increased rates in several of the Maintenance States over the last twelve months in an effort to improve profitability.

Infinity's Commercial Vehicle gross written premium increased 20.3% and 23.8% during the third quarter and first nine months of 2009, respectively, compared to the same periods of 2008, primarily from growth in California, a new market for this product.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Profitability

A key operating performance measure of insurance companies is underwriting profitability, as opposed to overall profitability or net earnings. Underwriting profitability is measured by the combined ratio. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the ratio is over 100%, underwriting results are generally considered unprofitable. The combined ratio does not reflect investment income, other income, other expenses or federal income taxes.

While financial data is reported in accordance with GAAP for shareholder and other investment purposes it is reported on a statutory basis for insurance regulatory purposes. Infinity evaluates underwriting profitability based on a combined ratio calculated using statutory accounting principles. The statutory combined ratio represents the sum of the following ratios: (i) losses and LAE incurred as a percentage of net earned premium and (ii) underwriting expenses incurred, net of fees, as a percentage of net written premium. Certain expenses are treated differently under statutory and GAAP accounting principles. Under GAAP, commissions, premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized as deferred policy acquisition costs and amortized on a pro rata basis over the period in which the related premium are earned; on a statutory basis these items are expensed as incurred. Costs for computer software developed or obtained for internal use are capitalized under GAAP and amortized over their useful life, rather than expensed as incurred, as required for statutory purposes. Additionally, bad debt charge-offs on agent balances and premium receivables are included only in the GAAP combined ratios.

The following table presents the statutory and GAAP combined ratios:

                                                                     Three months ended September 30,
                                                             2009                                        2008                                   % Point Change
                                            Loss &                                      Loss &                                      Loss &
                                             LAE        Underwriting      Combined       LAE        Underwriting      Combined       LAE         Underwriting      Combined
                                            Ratio          Ratio           Ratio        Ratio          Ratio           Ratio        Ratio           Ratio           Ratio
Personal Auto Insurance:
Focus States:
Urban Zones                                   67.7 %            20.0 %        87.7 %      67.7 %            19.4 %        87.2 %       0.0 %              0.6 %         0.5 %
Non-Urban Zones                               66.2 %            21.3 %        87.5 %      86.5 %            21.3 %       107.8 %     (20.4 )%             0.0 %       (20.4 )%

Total Focus States                            67.5 %            20.1 %        87.7 %      70.2 %            19.7 %        89.9 %      (2.7 )%             0.5 %        (2.3 )%
Maintenance States                            53.1 %            23.6 %        76.7 %      70.5 %            21.9 %        92.4 %     (17.3 )%             1.7 %       (15.6 )%
Other States                                    NM                NM            NM          NM                NM            NM          NM                 NM            NM

Subtotal                                      66.6 %            20.3 %        86.9 %      70.2 %            19.9 %        90.1 %      (3.7 )%             0.4 %        (3.2 )%

Commercial Vehicle                            85.0 %            21.4 %       106.3 %     123.2 %            18.9 %       142.1 %     (38.2 )%             2.5 %       (35.8 )%
Classic Collector                             41.0 %            43.6 %        84.6 %      62.5 %            41.1 %       103.6 %     (21.6 )%             2.6 %       (19.0 )%
Other                                           NM                NM            NM          NM                NM            NM          NM                 NM            NM


Total statutory ratios                        67.1 %            20.7 %        87.8 %      71.6 %            20.6 %        92.2 %      (4.5 )%             0.1 %        (4.4 )%

GAAP ratios                                   67.1 %            22.4 %        89.5 %      71.4 %            22.1 %        93.5 %      (4.3 )%             0.3 %        (4.0 )%

                INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations



                                                                      Nine months ended September 30,
                                                              2009                                        2008                                    % Point Change
                                             Loss &                                      Loss &                                      Loss &
                                              LAE        Underwriting      Combined       LAE        Underwriting      Combined       LAE         Underwriting       Combined
                                             Ratio          Ratio           Ratio        Ratio          Ratio           Ratio        Ratio           Ratio            Ratio
Personal Auto Insurance:
Focus States:
Urban Zones                                    70.5 %            20.0 %        90.5 %      71.7 %            20.3 %        92.0 %      (1.2 )%            (0.3 )%        (1.5 )%
Non-Urban Zones                                68.9 %            20.9 %        89.8 %      76.1 %            21.7 %        97.8 %      (7.2 )%            (0.8 )%        (8.0 )%

Total Focus States                             70.3 %            20.1 %        90.4 %      72.3 %            20.5 %        92.8 %      (2.0 )%            (0.4 )%        (2.4 )%
Maintenance States                             67.4 %            23.9 %        91.3 %      73.8 %            23.0 %        96.7 %      (6.4 )%             1.0 %         (5.4 )%
Other States                                     NM                NM            NM          NM                NM            NM          NM                 NM             NM

Subtotal                                       70.1 %            20.3 %        90.3 %      72.1 %            20.7 %        92.8 %      (2.1 )%            (0.4 )%        (2.4 )%

Commercial Vehicle                             71.8 %            21.5 %        93.3 %     105.9 %            22.0 %       127.9 %     (34.1 )%            (0.5 )%       (34.6 )%
Classic Collector                              38.9 %            41.0 %        79.8 %      44.7 %            41.6 %        86.3 %      (5.9 )%            (0.6 )%        (6.5 )%
Other                                            NM                NM            NM          NM                NM            NM          NM                 NM             NM


Total statutory ratios                         69.4 %            20.6 %        90.0 %      71.5 %            21.5 %        93.0 %      (2.2 )%            (0.9 )%        (3.1 )%

GAAP ratios                                    69.4 %            21.9 %        91.3 %      71.5 %            23.0 %        94.5 %      (2.1 )%            (1.1 )%        (3.2 )%

NM: not meaningful due to the low premium for these lines.

In evaluating the profit performance of Infinity's business, the Company's management reviews underwriting profitability using statutory combined ratios. Accordingly, the discussion of underwriting results that follows will focus on these ratios and the components thereof.

The statutory combined ratio for the third quarter and first nine months of 2009 decreased 4.4 and 3.1 points, respectively, compared with the same periods of 2008. The third quarter and first nine months of 2009 benefited from $13.2 million and $33.4 million, respectively, of favorable development on loss and LAE reserves compared to $1.3 million and $13.5 million of favorable development for the same periods of 2008, respectively. Included in the favorable development for the three and nine months ended September 30, 2009 is $2.4 million and $2.6 million, pre-tax respectively, related to the cancellation of non-escheatable claim checks that accumulated over several periods. The accumulation of cancelable checks was the result of an error that occurred over multiple quarters and the impact to any previously reported annual or quarterly period was immaterial. Excluding the impact of the favorable development of loss and LAE reserves, overall statutory combined ratios for the third quarter and nine months ended September 30, 2009 were 94.0% and 95.2%, respectively. Excluding the impact of the favorable development of loss and LAE reserves, overall statutory combined ratios for the third quarter and nine months ended September 30, 2008 were 92.8% and 95.0%, respectively. Losses from catastrophes were $0.4 million and $0.6 million for the three and nine months ended September 30, 2009, respectively, compared to $1.3 million and $1.8 million for the same periods of 2008.

The combined ratio improvement in the Focus States during the third quarter and first nine months of 2009 is primarily a result of favorable development on loss and LAE reserves in California and Florida. Excluding favorable development, the loss and LAE ratio in the Focus States for the first nine months of 2009 has increased compared with the first nine months of 2008 primarily as a result of an increase in the loss ratio in California, where Infinity took rate decreases in late 2007 and mid-2008 in order to comply with the state's Fair Rate of Return regulations, as well as an increase in frequency and severity in bodily injury coverage.

The loss and LAE ratio in the Maintenance States declined for the three and nine months ended September 30, 2009 as compared with the same period in 2008 primarily as a result of favorable development on LAE reserves in Connecticut and Missouri.

The loss and LAE ratio for the Commercial Vehicle business decreased substantially during the third quarter and first nine months of 2009 compared with the same periods in 2008 primarily as a result of an extra-contractual claim in Florida recorded during 2008. Excluding this claim, the combined ratio for the third quarter and first nine months of 2008 would be 87.4% and 79.3%, . . .