Progressive Profit Up, Helped By Higher Rates

By Michael Ha

NU Online News Service, July 17, 3:08 p.m. EDT?The Progressive Corporation reported second quarter net income of $286.3 million--a 78 percent increase from the $160.4 million profit posted a year ago--thanks to increased premium rates and gains from securities.

The Mayfield Village, Ohio-based insurer's net premiums written also improved in the second quarter, to $3.02 billion, up 27 percent compared to one year ago. Net premiums earned increased to $ 2.77 billion, a 30 percent jump from the 2002 second quarter.

"Our second quarter was an excellent continuation of the first," said Glenn Renwick, chief executive officer at Progressive, the fourth-largest U.S. auto insurer, during today's conference call. "Top line characterization would be excellent profitability, strong growth, along with signs of increasing competition, and solid performance on staffing execution measures," he said.

And commenting on the current market, he observed, "We currently see no strong signs of price reductions."

Mr. Renwick pointed out that Progressive's personal lines businesses produced "very consistent profitability" for each month of the quarter. "Within personal lines, both the agency and direct business had similar results of between 88 and 90 combined ratio, with a variation well within expected monthly norms," he said.

Mr. Renwick said generally favorable loss frequency relative to pricing assumptions continues to be the big contributor to wider-than-planned margins.

Additionally, all states but one have been profitable so far this year. "Our top 10 states, representing about 58 percent of personal lines earned premiums, individually had profitability consistent with our overall results," he noted.

Vinay Saqi, equity analyst at New York-based Morgan Stanley, said in a report that this was "another good quarter" for Progressive. Mr. Saqi added that profitability continues to be "outstanding" for the insurer. "We liked the continued balance in results between the direct and agent channels," he said.

Mr. Saqi also noted that the company's commercial-lines results seem to be improving steadily. "For those with a long enough memory, the words 'excellent' and 'commercial auto' don't seem to belong in the same sentence," he mused. "Maybe, just maybe, Progressive has rewritten the model for underwriting small commercial business."

Despite the strong quarterly result, losses from the adverse spring weather did affect Progressive's bottom line. Mr. Renwick noted today that during his previous conference call, "I noted very adverse weather in Texas, Missouri and Mississippi in April."

While monthly profits for those three states reflected significant number of hail claims, Texas and Missouri still ended up profitable for the quarter while Mississippi broke even, he pointed out.

"Weather catastrophe did not dramatically affect the results for the rest of the quarter," Mr. Renwick said.

And commenting on Progressive's special lines products--primarily motorcycle, motor home, personal watercraft and boat--Mr. Renwick acknowledged that they did experience increased [loss] frequency, which corresponds to the use patterns during summer months, but they are also "performing better than our expectations."

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Progressive Profit Up, Helped By Higher Rates

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