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Progressive Corp. (PGR) Net Premiums Earned Rose 12% in August

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September 17, 2015 8:52 AM EDT

Progressive Corp. (NYSE: PGR) reported the following results for August 2015:

August
August
(millions, except per share amounts and ratios; unaudited)
2015
2014
Change
Net premiums written
$
1,678.1
$
1,499.4
12
%
Net premiums earned
$
1,565.9
$
1,395.3
12
%
Net income available to Progressive
$
101.5
$
84.8
20
%
Per share
$
0.17
$
0.14
21
%
Total pretax net realized gains (losses) on securities
(including net impairment losses)
$
5.3
$
2.4
121
%
Combined ratio
92.1
92.8
(0.7) pts.
Average diluted equivalent shares
589.3
593.4
(1)
%
We acquired a controlling interest in ARX Holding Corp. (ARX), parent company of American Strategic Insurance (ASI) and other subsidiaries, on April 1, 2015. Beginning in April 2015, our companywide results include the results of ARX and its subsidiaries, which are included in the "Property business" throughout the release. Periods prior to April 1, 2015, do not include ARX's results.
(thousands; unaudited)
August
August
Change
2015
2014
Policies in Force
Vehicle businesses:
Agency – auto
4,736.1
4,790.8
(1) %
Direct – auto
4,785.4
4,415.6
8 %
Total personal auto
9,521.5
9,206.4
3 %
Total special lines
4,154.6
4,088.9
2 %
Total Personal Lines
13,676.1
13,295.3
3 %
Total Commercial Lines
546.9
517.7
6 %
Property business
1,064.8
'--
NM
NM = Not meaningful; Property business written by Progressive prior to April 2015 was negligible.
Progressive offers insurance to personal and commercial auto drivers throughout the United States. Our Personal Lines business writes insurance for personal autos and recreational vehicles. Our Commercial Lines business writes primary liability, physical damage, and other auto-related insurance for autos and trucks owned and/or operated predominantly by small businesses. Our Property business writes personal and commercial property insurance for homeowners, other property owners, and renters.
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPREHENSIVE INCOME STATEMENT
August 2015
(millions)
(unaudited)
Current Month
Comments on Monthly Results1
Net premiums written
$
1,678.1
Revenues:
Net premiums earned
$
1,565.9
Investment income
41.4
Net realized gains (losses) on securities:
Net impairment losses recognized in earnings
0
Net realized gains (losses) on securities
5.3
Total net realized gains (losses) on securities
5.3
Fees and other revenues
23.0
Service revenues
7.5
Gains (losses) on extinguishment of debt
0.0
Total revenues
1,643.1
Expenses:
Losses and loss adjustment expenses
1,111.9
Policy acquisition costs
130.9
Other underwriting expenses
223.0
Investment expenses
1.9
Service expenses
6.9
Interest expense
11.5
Total expenses
1,486.1
Income before income taxes
157.0
Provision for income taxes
52.0
Net income
105.0
Less: Income attributable to noncontrolling interest (NCI)
3.5
Net income available to Progressive
101.5
Other comprehensive income, net of tax
Changes in:
Total net unrealized gains (losses) on securities
(139.7
)
Net unrealized gains on forecasted transactions
(0.1
)
Foreign currency translation adjustment
(0.2
)
Other comprehensive income (loss)
(140.0
)
Other comprehensive (income) loss attributable to NCI
$
0.4
Total comprehensive income (loss) available to Progressive
$
(38.1
)
1For a description of our financial reporting and accounting policies, see Note 1 to our 2014 audited consolidated financial statements included in our 2014 Shareholders’ Report, and Note 1 - Basis of Presentation in our Second Quarter 2015 Shareholders' Report, both of which can be found at www.progressive.com/annualreport.
- 2 -
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPREHENSIVE INCOME STATEMENTS
August 2015
(millions)
(unaudited)
Year-to-Date
2015
2014
% Change
Net premiums written
$
14,002.5
$
12,617.8
11
Revenues:
Net premiums earned
$
13,156.9
$
12,054.6
9
Investment income
295.8
266.7
11
Net realized gains (losses) on securities:
Net impairment losses recognized in earnings
(9.6
)
0
NM
Net realized gains (losses) on securities
127.1
177.6
(28)
Total net realized gains (losses) on securities
117.5
177.6
(34)
Fees and other revenues
201.4
198.5
1
Service revenues
56.9
33.7
69
Gains (losses) on extinguishment of debt
(0.9
)
0
NM
Total revenues
13,827.6
12,731.1
9
Expenses:
Losses and loss adjustment expenses
9,500.0
8,748.0
9
Policy acquisition costs
1,087.6
1,003.0
8
Other underwriting expenses
1,798.9
1,633.9
10
Investment expenses
15.5
12.7
22
Service expenses
51.0
32.1
59
Interest expense
90.5
76.8
18
Total expenses
12,543.5
11,506.5
9
Income before income taxes
1,284.1
1,224.6
5
Provision for income taxes
409.9
405.8
1
Net income
874.2
818.8
7
Less: Income attributable to noncontrolling interest (NCI)
9.3
'--
NM
Net income available to Progressive
864.9
818.8
6
Other comprehensive income (loss), net of tax
Changes in:
Total net unrealized gains (losses) on securities
(221.3
)
105.4
(310)
Net unrealized gains on forecasted transactions
(9.3
)
(1.9
)
389
Foreign currency translation adjustment
(1.0
)
0.3
(433)
Other comprehensive income (loss)
(231.6
)
103.8
(323)
Other comprehensive (income) loss attributable to NCI
2.3
'--
NM
Total comprehensive income available to Progressive
$
635.6
$
922.6
(31)
NM = Not Meaningful
- 3 -
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME AND COMPREHENSIVE INCOME PER SHARE
&
INVESTMENT RESULTS
August 2015
(millions – except per share amounts)
(unaudited)
The following table sets forth the computation of per share results:
Current
Year-to-Date
Month
2015
2014
Net income available to Progressive
$
101.5
$
864.9
$
818.8
Per share:
Basic
$
0.17
$
1.47
$
1.38
Diluted
$
0.17
$
1.47
$
1.37
Comprehensive income (loss) available to Progressive
$
(38.1
)
$
635.6
$
922.6
Per share:
Diluted
$
(0.07
)
$
1.08
$
1.55
Average shares outstanding - Basic
585.7
586.4
592.0
Net effect of dilutive stock-based compensation
3.6
3.3
4.1
Total equivalent shares - Diluted
589.3
589.7
596.1
The following table sets forth the investment results for the period:
Current
Year-to-Date
Month
2015
2014
Fully taxable equivalent (FTE) total return:
Fixed-income securities
(0.1)%
1.2%
2.8 %
Common stocks
(5.6)%
(2.6) %
9.6 %
Total portfolio
(0.8)%
0.7 %
3.6 %
Pretax annualized investment income book yield
2.5 %
2.4 %
2.4 %
- 4 -
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
August 2015
($ in millions)
(unaudited)
Current Month
Vehicles
Commercial
Personal Lines Business
Lines
Property
Companywide
Agency
Direct
Total
Business
Business
Total1
Net Premiums Written
$
729.1
$
699.3
$
1,428.4
$
172.1
$
77.6
$
1,678.1
% Growth in NPW
0
%
11
%
5
%
22
%
NM
12
%
Net Premiums Earned
$
702.3
$
636.8
$
1,339.1
$
157.8
$
69.0
$
1,565.9
% Growth in NPE
2
%
12
%
7
%
13
%
NM
12
%
GAAP Ratios
Loss/LAE ratio
71.8
73.5
72.6
65.0
53.5
71.0
Expense ratio
20.1
21.0
20.5
21.7
31.42
21.1
Combined ratio
91.9
94.5
93.1
86.7
84.92
92.1
Actuarial Adjustments3
Reserve Decrease/(Increase)
Prior accident years
$
7.4
Current accident year
5.2
Calendar year actuarial adjustment
$
5.1
$
3.8
$
8.9
$
3.6
$
0.1
$
12.6
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment
$
7.4
All other development
25.6
Total development
$
33.0
Calendar year loss/LAE ratio
71.0
Accident year loss/LAE ratio
73.1
NM=Not meaningful; Property business written by Progressive prior to April 2015 was negligible.
1 Includes results for all of our run-off businesses, including our professional liability group. For the month, our run-off businesses generated no underwriting profit or loss.
2 Included in both the expense ratio and combined ratio is $5.0 million, or 7.2 points, of amortization/depreciation expense associated with the acquisition of a controlling interest in ARX Holding Corp. Excluding this additional expense, the Property business would have reported a combined ratio of 77.7 for August 2015.
3 Represents adjustments solely based on our actuarial reviews.
- 5 -
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
August 2015
($ in millions)
(unaudited)
Year-to-Date
Vehicles
Commercial
Personal Lines Business
Lines
Property
Companywide
Agency
Direct
Total
Business
Business
Total1
Net Premiums Written
$
6,328.4
$
5,760.1
$
12,088.5
$
1,489.3
$
425.1
$
14,002.5
% Growth in NPW
2
%
12
%
7
%
16
%
NM
11
%
Net Premiums Earned
$
6,100.2
$
5,413.7
$
11,513.9
$
1,307.3
$
336.1
$
13,156.9
% Growth in NPE
2
%
11
%
6
%
9
%
NM
9
%
GAAP Ratios
Loss/LAE ratio
72.5
74.7
73.6
62.0
66.3
72.2
Expense ratio
19.5
20.4
19.9
21.7
31.82
20.4
Combined ratio
92.0
95.1
93.5
83.7
98.12
92.6
Actuarial Adjustments3
Reserve Decrease/(Increase)
Prior accident years
$
66.7
Current accident year
46.8
Calendar year actuarial adjustment
$
42.3
$
29.1
$
71.4
$
21.6
$
20.5
$
113.5
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment
$
66.7
All other development
190.8
Total development
$
257.5
Calendar year loss/LAE ratio
72.2
Accident year loss/LAE ratio
74.2
NM=Not meaningful; Property business written by Progressive prior to April 2015 was negligible.
1 Includes results for all of our run-off businesses, including our professional liability group. On a year-to-date basis, our professional liability group ceded $0.4 million of reinstatement premiums to our reinsurers pursuant to existing reinsurance contracts, which reduced our reported companywide net premiums written and earned. In total, our run-off businesses generated $0.5 million underwriting loss on a year-to-date basis.
2 Included in both the expense ratio and combined ratio is $25.1 million, or 7.5 points, of amortization/depreciation expense associated with the acquisition of a controlling interest in ARX Holding Corp. Excluding this additional expense, the Property business would have reported a year-to-date combined ratio of 90.6.
3 Represents adjustments solely based on our actuarial reviews.
- 6 -
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
BALANCE SHEET AND OTHER INFORMATION
(millions - except per share amounts)
(unaudited)
August
2015
CONDENSED GAAP BALANCE SHEET:
Investments – Available-for-sale, at fair value:
Fixed maturities1 (amortized cost: $15,529.4)
$
15,571.4
Equity securities:
Nonredeemable preferred stocks1(cost: $641.1)
773.9
Common equities (cost: $1,474.8)
2,538.7
Short-term investments (amortized cost: $1,951.5)
1,951.5
Total investments2
20,835.5
Net premiums receivable
4,026.2
Deferred acquisition costs
581.8
Goodwill and intangible assets
988.5
Other assets3
3,263.0
Total assets
$
29,695.0
Unearned premiums
$
6,832.6
Loss and loss adjustment expense reserves3
9,794.0
Other liabilities2
2,489.6
Debt
2,716.8
Total liabilities
21,833.0
Redeemable noncontrolling interest (NCI)
437.8
Shareholders' equity
7,424.2
Total liabilities, NCI, and shareholders' equity
$
29,695.0
Common shares outstanding
585.0
Shares repurchased - August
1.5
Average cost per share
$
29.57
Book value per share
$
12.69
Trailing 12-month return on average shareholders' equity
Net income available to Progressive
18.5
%
Comprehensive income available to Progressive
14.8
%
Net unrealized pretax gains (losses) on investments
$
1,237.6
Increase (decrease) from July 2015
$
(215.0
)
Increase (decrease) from December 2014
$
(334.6
)
Debt-to-total capital ratio4
26.8
%
Fixed-income portfolio duration
1.9
Weighted average credit quality
A+
Year-to-date Gainshare factor5
1.50
1 As of August 31, 2015, we held certain hybrid securities and recognized a change in fair value of $1.1 million as a realized gain during the period we held these securities.
2 At August 31, 2015, we had $71.3 million of net unsettled security transactions, including collateral on open derivative positions.
3 Loss and loss adjustment expense reserves are stated gross of reinsurance recoverables on unpaid losses of $1,360.3 million, which are included in "other assets."
4Ratio reflects debt as a percent of debt plus shareholders' equity; redeemable noncontrolling interest is not part of this calculation.
5 The Gainshare factor excludes the results of our Property business.
- 7 -
Monthly Commentary
•
The Company has no additional commentary regarding August's results.
Events
We plan to release September results on Friday, October 16, 2015, before the market opens.
About Progressive
The Progressive Group of Insurance Companies makes it easy to understand, buy and use auto insurance. Progressive offers choices so consumers can reach it whenever, wherever and however it's most convenient-online at progressive.com, by phone at 1-800-PROGRESSIVE, on a mobile device or in-person with a local agent.
Progressive provides insurance for personal and commercial autos and trucks, motorcycles, boats, recreational vehicles, and homes. Home insurance is underwritten by select carriers, including our majority-owned subsidiary, American Strategic Insurance (ASI).
Progressive is the fourth largest auto insurer in the country; a leading seller of motorcycle and commercial auto insurance; and through ASI, one of the top 20 homeowners carriers. Progressive also offers car insurance online in Australia at
http://www.progressiveonline.com.au.
Founded in 1937, Progressive continues its long history of offering shopping tools and services that save customers time and money, like Name Your Price®, Snapshot® and Service Centers.
The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, trade publicly at NYSE:PGR.

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