Merrill Lynch, based in New York, listed several positive factors for its strong rating. One favorable factor mentioned is the continuing hard market for auto insurance, especially for nonstandard auto rates.

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

The firm also noted that nonstandard auto rates, which are Infinity's focus, have been rising even faster, with rate increases averaging more than 10 percent. Merrill Lynch said it expects price increases to slow but to at least keep pace with claims inflation.

The brokerage firm also looked favorably on Infinity's culling process, which it said is reducing premiums in states with weak profitability. This ongoing process, Merrill Lynch predicted, will gradually accelerate growth.

Currently, one of Infinity's strongest growth areas is its coverage tailored to Hispanic market segments. This segment is among the fastest-growing segments of the U.S. population with 4.2 million Latin Americans in Los Angeles County alone, making up more than 40 percent of the population in that area, Merrill Lynch said.

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

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

"Infinity is currently trading right around book value despite a relatively clean book value and an ROE that should exceed the company's equity cost of capital," the brokerage firm said in its report.

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 12 months, Merrill suggested in its report.

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

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