Auto Rates Could Turn Next Year: Progressive CEO

While not predicting a dramatic upsurge in rates, Mr. Renwick said that pricing trends will likely respond to loss trends, which now show increasing severity (average claim costs) outstripping declines in frequency (the number of claims per car).

His remarks came during a conference call this morning, held a day after the Mayfield Village, Ohio-based insurer filed its second-quarter 2005 Quarterly Report on Form 10-Q.

The filing revealed a 2 percent increase in net income and a 7 percent increase in net written premiums for the quarter.

Mr. Renwick's marketplace assessment outlined an environment that will initially be less favorable for auto insurers, who will see profit margins slip as loss costs tick upward, but will eventually be less favorable for consumers currently enjoying declining premiums in a competitive pricing environment.

Mr. Renwick commented on general nationwide frequency and severity trends for the benefit of analysts, although he stressed that one of the company's competitive advantages in the marketplace is that, with separate product managers in place "for each and every coverage," it analyzes these trends on both a state-by-state and product-by-product basis.

Generally, however, he said that frequency is still declining overall but there are also pockets where frequency trends are flattening out.

"The real story is severity," he said, putting average severity jumps in the 5-to-6 percent range. He said that such percentages are "not extreme by any stretch" and also "not unexpected in our industry." But they are notable trends in that they come after a period of declines in overall loss costs (the product of frequency and severity trends together), he said.

Referring to language in the SEC filing, he said: "The statement in our 10-Q–that severity is outstripping the declines previously driven from frequency–is one of the most important…of this period. We're back now, I believe, in a positive trend environment."

Second-quarter reported net written premiums rose 6.6 percent to $3.6 billion, compared to $3.4 billion in the same period last year.

The company said the combined ratio was 86.1 for the quarter, compared to 85.4 in last year's second quarter.

For the first six months, net income was 5 percent lower than in 2005–coming in at $807 million for first-half 2005 compared to $846.3 million.

Net premiums through six months were more than $7 billion, rising 6.5 percent over last year, and the six-month combined ratio was 85.6, compared to 84.3 for first-half 2004.

During the conference call, Mr. Renwick also was questioned about the impact of a disclosure regarding agents' commissions that is now included in Progressive's policies.

Describing the disclosure, he said, "In recent months we have added to the [policy] declaration, a statement that agents are paid a percentage of the premium. And, if in fact that agent is paid or entitled to a contingency, that is noted on the statement."

While the amounts are not disclosed, he said consumers are given notice "that the agent is paid a percentage and may be entitled to a contingency."

"That's a total voluntary disclosure that we've made. We feel good about it. We feel it's consistent with our transparency approach," he continued, noting, however, that the company cannot measure the impact of the disclosure. "I do not sense that there will be a significant negative effect," he offered.