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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2005

Commission File No. 0-50167

INFINITY PROPERTY AND CASUALTY CORPORATION

3700 Colonnade Parkway, Birmingham, Alabama 35243

(205) 870-4000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is an accelerated filer.    Yes  x    No  ¨

As of May 1, 2005, there were 20,688,967 shares of the Registrant’s Common Stock outstanding.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INDEX

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

PART I

FINANCIAL INFORMATION

ITEM 1

Financial Statements

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(unaudited)

See Notes to Consolidated Financial Statements

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

See Notes to Consolidated Financial Statements

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

See Notes to Consolidated Financial Statements

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

See Notes to Consolidated Financial Statements

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and should be read in conjunction with Infinity Property and Casualty Corporation’s (“Infinity” or the “Company”) annual report on Form 10-K for the year ended December 31, 2004. This quarterly report on Form 10-Q, including the Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, focuses on Infinity’s financial performance since the beginning of the year.

These financial statements reflect certain adjustments necessary for a fair presentation of Infinity’s results of operations and financial position. Such adjustments consist of normal, recurring accruals recorded to accurately match expenses with their related revenue streams and the elimination of all significant inter-company transactions and balances. In addition, certain reclassification adjustments have been made to historical results to achieve consistency in presentation.

Certain accounts and balances within these financial statements are based upon management’s estimates and assumptions. The amount of reserves for claims not yet paid, for example, is an item that can only be recorded by estimation. Unrealized capital gains and losses on investments are subject to market fluctuations and managerial judgment is required in the determination of whether unrealized losses on certain securities are temporary or other-than-temporary. Should actual results differ significantly from these estimates, the effects on Infinity’s results of operations could be material.

The results of operations for the periods presented may not be indicative of the Company’s results for the entire year.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 2 Stock-Based Compensation

Infinity’s Stock Option Plan and Restricted Stock Plan were established in 2002. There were 2,000,000 and 500,000 shares of Infinity common stock reserved for issuance under the Stock Option Plan and Restricted Stock Plan, respectively. Options generally become exercisable at the rate of 20% per year commencing one year after grant. For restricted stock awards, one-third of the shares vest on each of the first three anniversaries of the date of grant of the award.

As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation,” Infinity accounts for stock options and other stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The fair value of shares issued under Infinity’s Restricted Stock Plan is recorded as unearned compensation and expensed over the vesting periods of the awards. Under Infinity’s Stock Option Plan, options are granted to officers, directors and key employees at exercise prices equal to the fair value of the shares at the dates of grant. No compensation expense is recognized for stock option grants. In December 2004, the Financial Accounting Standards Board issued SFAS 123 (revised), “Share Based Payment” that requires the recognition of compensation expense for employee stock options. The mandatory effective date of this revised standard was delayed on April 14, 2005 by the Securities and Exchange Commission (“SEC”) until the first fiscal year beginning after June 15, 2005. In accordance with SEC requirements, Infinity plans to adopt this new standard prospectively in 2006. Had the standard been effective for the periods presented, Infinity does not believe its actual results would have differed materially from the pro forma results shown below.

The following table illustrates the effect on net earnings (in thousands) and earnings per share had compensation cost related to stock options been determined and recognized based on “fair values” at grant dates consistent with the method prescribed by SFAS No. 123. For SFAS No. 123 purposes, the “fair values” were calculated using a modified version of the Black-Scholes option pricing model. There is no single reliable method to determine the actual value of options at grant date. Accordingly, the actual value of the option grants may be higher or lower than the SFAS No. 123 “fair value.”

The following table illustrates the assumptions used to obtain the pro forma stock option expense figures.

(a) No options have been granted in 2005.

For 2005, Infinity’s Board of Directors approved the implementation of a cash-based long-term incentive compensation plan for key management in lieu of the issuance of stock options or other stock-based incentive compensation.

In February 2005, 44,792 shares of restricted stock vested under Infinity’s Restricted Stock Plan. Two executive officers holding restricted shares surrendered a total of 4,294 shares to the Company to satisfy their income tax obligation resulting from this event. As a result, the Company recorded this surrender as an acquisition of treasury stock at its fair market value.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Note 3 Computations of Earnings Per Share

The following table illustrates the reconciliation of the denominators in Infinity’s computations of basic and diluted earnings per common share (in thousands, except per share figures):

Note 4 Long-Term Debt

In February 2004, Infinity issued $200 million principal of senior notes (the “Senior Notes”) due 2014. The net proceeds of $197.2 million were used to repay and extinguish the $195.5 million balance due on a term loan and for general corporate purposes. Infinity recorded a $3.4 million loss on the term loan extinguishment, which represented the unamortized balance of previously capitalized debt issuance costs. The Senior Notes accrue interest at an effective rate of 5.55% and bear a coupon of 5.5%, payable semiannually. Infinity capitalized $2.1 million of debt issuance costs which are being amortized over the term of the Senior Notes. The fair value of the Senior Notes as of March 31, 2005 ($195.5 million) was calculated using a 135 basis point spread to the ten-year U.S. Treasury Note of 4.48%, which was obtained from Bloomberg, a national broker quotation network.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 5 Unrealized Gain on Marketable Securities

The change in unrealized gain on marketable securities for the three-month periods ended March 31 included the following (in thousands):

Note 6 Effective Tax Rate

The following table reconciles Infinity’s statutory federal income tax rate to its effective rates.

Note 7 Supplemental Cash Flow Information

During the three-month periods ended March 31, 2005 and 2004, the company paid interest on its outstanding debt of $5.5 and $1.1 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 8 Insurance Reserves

The following table provides an analysis of changes in the liability for losses and loss adjustment expenses on a GAAP basis (in millions):

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

ITEM 2

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The information set forth below should be read in conjunction with “Forward-Looking Statements” below.

OVERVIEW

Infinity’s profitability improved in the first quarter of 2005 over the first quarter of 2004. Diluted earnings per share increased 42% from $0.81 for the three months ended March 31, 2004, to $1.15 for the same period in 2005. Net income also increased substantially from $16.9 million for the three months ended March 31, 2004, to $24.0 million for the same period in 2005.

Increased earnings were substantially a result of continued improvements in underwriting profitability and capital gains from the sale of securities. Underwriting income, defined as earned premiums less loss and loss adjustment expenses, commissions and other underwriting expenses, increased from $18.1 million to $20.4 million for the three-month periods ended March 31, 2004 and 2005, respectively. In the three months ended March 31,2005, Infinity experienced $9.0 million of favorable loss reserve development from prior accident years as compared with $2.5 million of favorable development for the same period in 2004. Excluding the favorable loss reserve development from both periods reveals deterioration in underwriting results. This deterioration resulted from higher claims frequencies in Infinity’s California business as winter weather in 2005 returned to more normal patterns of rainfall, and an increase in claims frequencies and severities in Florida.

Infinity took advantage of relatively low interest rates in the three months ended March 31, 2005 by realizing $12.1 million of capital gains from the sale of securities as compared to $1.6 million of realized capital gains for the same period in 2004.

Investment income increased from $16.0 million for the three months ended March 31, 2004, as compared with $16.6 million for the same period in 2005. This increase was primarily the result of lower interest credited to reinsurers on funds held balances under Infinity’s reinsurance agreement, which was eliminated in 2004. Average investment balances increased 4%, primarily from cash from operations. This increase in average investment balances was offset by lower yields on the portfolio as overall debt market rates remained at historically low levels. Infinity continued to invest over 95% of its available funds in fixed income and cash equivalent securities. The average duration for the fixed income portfolio was 4.1 years, which was comparable to that at December 31, 2004, but down from the 4.6 year duration at March 31, 2004.

Book value per share at March 31, 2005 was essentially unchanged from December 31, 2004. The contribution of earnings in excess of shareholder dividends was offset by a reduction in unrealized gains on the investment portfolio that resulted from the increase in overall market interest rates.

Revenues increased for the three months ended March 31, 2005, to $260.6 million, up 13.2% as compared with the same period in 2004. This increase resulted from a lower utilization of reinsurance in 2005, an increase in investment income for reasons cited earlier, as well as an increase in capital gains from security sales.

Premiums written gross of all reinsurance for the three months ended March 31, 2005 grew 14.3% as compared with that for the same period in 2004. As of March 31, 2005, Infinity had 770,000 policies-in-force, a 6.5% increase from March 31, 2004. In its seventeen Focus States (see Results of Operations), personal auto insurance written premiums and personal auto insurance policies-in-force increased 19.3% and 9.4%, respectively, for the three months ended March 31, 2005, as compared with the same period in 2004.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Funds

Infinity is organized as a holding company with all of its operations being conducted by its insurance subsidiaries. Accordingly, Infinity has continuing cash needs for administrative expenses, the payment of principal and interest on borrowings, shareholder dividends, share repurchases and taxes. Administrative expenses at the holding company have averaged approximately $6.4 to $6.9 million annually since 2003. Interest payments of $5.5 million are due each February and August through maturity on Infinity’s Senior Notes (Refer to Note 4 of the Consolidated Financial Statements for more information on the Senior Notes). In January 2005, Infinity announced its intent to repurchase up to $50 million of its common stock in the open market or through privately negotiated transactions over the next three years. No stock repurchases have been made to date. In February 2005, Infinity increased its quarterly dividend to $.06 per share. This equates to a common stock dividend of approximately $5.0 million per year.

Funds to meet these obligations come primarily from dividends from the insurance subsidiaries, as well as cash and investments held at the holding company. In 2005, Infinity’s insurance subsidiaries may pay to Infinity up to $62.7 million in ordinary dividends without prior regulatory approval. As of March 31, 2005, Infinity had $82.2 million of cash and investments. Other sources of additional liquidity include an unused line of credit in the amount of $20 million and capital funds that could be supplied by additional debt or equity offerings.

Infinity’s insurance subsidiaries generate liquidity to satisfy their obligations, primarily by collecting and investing premiums in advance of paying claims. Infinity’s insurance subsidiaries had positive cash flow from operations of approximately $14.1 million and $34.6 million for the three-month periods ended March 31, 2005 and 2004, respectively. In addition, to satisfy their obligations, Infinity’s insurance subsidiaries have cash from maturing securities from its $1.3 billion fixed maturity portfolio. Management believes that cash balances, cash flows generated from operations and maturing investments are adequate to meet the future liquidity needs for Infinity and its insurance subsidiaries.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations - Continued

Reinsurance

Infinity has utilized the reinsurance market to manage its capital and surplus levels relative to its reserve liabilities, supporting its capacity for growth. In the first quarter of 2004, Infinity’s insurance subsidiaries (excluding the in-force personal insurance business assumed through a reinsurance contract from Great American Insurance Company) ceded 10% of their personal auto physical damage business on a funds withheld basis to American Re-Insurance Company (“American Re”). Premiums ceded under the American Re agreement were $6.2 million for the three-month period ended March 31, 2004. The American Re agreement was commuted on December 31, 2004 and was not renewed for 2005.

Investments

Infinity’s investment portfolio at March 31, 2005 contained approximately $1.3 billion in fixed maturity securities and $25.8 million in equity securities, all carried at market value with unrealized gains and losses reported as a separate component of shareholders’ equity on an after-tax basis. At March 31, 2005, Infinity had pre-tax net unrealized gains of $11.1 million on fixed maturities and $0.5 million on equity securities. Combined, these figures decreased by $35.0 million for the three-month period ended March 31, 2005, primarily due to an increase in market interest rates during the period, and to a lesser extent, from increased sales of securities with unrealized gain positions in order to take advantage of unused capital loss tax carryforwards.

Approximately 95.4% of Infinity’s investments in fixed maturities at March 31, 2005 were rated “investment grade.” Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated or non-investment grade. Management believes that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

Since all of these securities are carried at market value in the balance sheet, there is virtually no effect on liquidity or financial condition upon the sale and ultimate realization of unrealized gains and losses.

The average duration of Infinity’s fixed maturity portfolio was 4.1 years at March 31, 2005.

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INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q

Management’s Discussion and Analysis

of Financial Condition and Results of Operations - Continued

Summarized information for Infinity’s investment portfolio follows (in thousands):