Progressive Corp. said today its July earnings rose 3 percent,posting net income of $149 million compared with $144 million inthe year-ago period.

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Net premiums written rose 2 percent to $1.43 billion, while thecombined ratio fell slightly to 86.6 from 86.9 in July 2005.

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Bear Stearns analyst David Small said in a note to investors theresults continued to show strong underlying profitability whiletop-line growth remained sluggish.

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“In particular, policies in-force were essentially flatyear-over-year in the agent channel,” he wrote. “This is the firsttime the company has not grown PIF since it began reporting thisdata roughly five years ago.”

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An increasingly competitive environment in the independentagency channel, where players like St. Paul Travelers seek toexpand their presence, could account for that fact, heasserted.

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The 3 percent premium per policy rise in the direct channelindicates that Progressive has decided lowering prices is not aneffective way to drive growth. “As management indicated at itsanalyst day, price does not appear to be stimulating increasedshopping, a trend that should buoy profitability for the larger andbetter quality players yet constrain growth,” he wrote.

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The Mayfield, Ohio-based company also announced a partnershipwith Homesite Insurance that would allow independent agents tooffer standalone homeowners products to eligible Progressivecustomers in three test markets.

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