01—Abstract
Summary
Summary of the 10-K filed March 1, 2021. Cited figures are marked; the original filing is the authoritative source.
Progressive (PGR) closed 2020 with a strong year driven by a sharp drop in personal auto accident frequency during COVID-19 restrictions.
Net income attributable to Progressive rose 44% to $5.70 billiona ($9.66 diluted EPS), total revenues reached $42.66 billion (up 9%), and net premiums written grew 8% to $40.6 billion. The companywide underwriting profit margin expanded to 12.3% from 9.1% in 2019, with Personal Lines at 13.2%, Commercial Lines at 13.0%, and Property a loss-making segment at (7.1%) due to $878 million of catastrophe losses across the business. The combined ratio improved to 87.7 from 90.9.
The profit improvement was partly offset by costs that management chose to pass back to customers and invest in growth. Progressive issued $1.1 billionb in policyholder credits to personal auto customers, advertising spend rose 18% to $2.2 billion, and severity increased about 10%. Personal auto rates were cut roughly 3% from April through December.
Prior-year reserve development was modestly adverse at $195 millionc, and the company continued to grow policies in force by 11% to 24.7 million. Capital strength remained solid. Statutory surplus reached $15.2 billion with a 2.7-to-1 net premiums written to surplus ratio, and debt-to-total-capital was 24.1%.
Shareholders' equity rose to $17.0 billiond, and the company paid $4.90 per share in dividends declared for 2020, including an annual variable dividend. Subsequent to year-end, Progressive agreed to acquire Protective Insurance Corporation for approximately $338 million.
02—Key points
Key Highlights
- Net income attributable to Progressive increased 44% to $5.70 billion, or $9.66 per diluted share, versus $6.72 in 2019.
- Companywide underwriting margin rose to 12.3% from 9.1%, with a combined ratio of 87.7, helped by a 24% decline in personal auto accident frequency.
- Net premiums written grew 8% to $40.6 billion, with policies in force up 11% to 24.7 million.
- Property segment posted a (7.1%) underwriting margin, with catastrophe losses of $878 million companywide (2.2 loss ratio points) and a combined ratio of 107.1.
- Progressive issued $1.1 billion of policyholder credits to personal auto customers and increased advertising spend 18%, which weighed on expense ratios.
- Shareholders' equity reached $17.0 billion and statutory surplus $15.2 billion, with debt-to-total-capital at 24.1%; dividends declared totaled $4.90 per share.
- Investment portfolio grew to $47.5 billion, but the recurring book yield fell to 2.4% from 3.1%, reducing investment income by 10%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed March 1, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $42.66B$39.02B | +9.3% |
| Interest Expense | $217.00M$189.70M | +14.4% |
| Net Income | $5.70B$3.97B | +43.7% |
| EPS (Basic) | $9.71$6.75 | +43.9% |
| EPS (Diluted) | $9.66$6.72 | +43.8% |
| Shares Outstanding (Basic) | 584.90M583.80M | +0.2% |
| Shares Outstanding (Diluted) | 587.60M587.20M | +0.1% |
05—Questions
Frequently Asked Questions
What drove the large increase in Progressive's 2020 profitability?
The main driver was a roughly 24% decline in personal auto accident frequency as COVID-19 restrictions reduced driving. That was partly offset by a roughly 10% increase in severity and the $1.1 billion of policyholder credits issued to auto customers. Underwriting income rose about 47%, and the companywide underwriting margin improved to 12.3% from 9.1%.
Is the 2020 earnings improvement likely to persist?
The filing suggests some of the benefit is temporary. Lower frequency reflects reduced driving during the pandemic, and driving patterns had not returned to historical levels by year-end. Management also cut personal auto rates about 3% from April through December and expects to keep adjusting rates as data develops. Severity trends, especially for bodily injury and PIP claims, remain a key uncertainty.
How exposed is Progressive to catastrophe losses and reinsurance?
Property is the most exposed segment, with 2020 catastrophe losses of $423.8 million net of reinsurance versus $214.5 million in 2019. Progressive relies on occurrence excess of loss, a new 2020 aggregate excess of loss program, a catastrophe bond, and state reinsurance facilities. The company retains the first $80 million of losses per event in 2020 and expects that retention to rise to at least $100 million in mid-2021. Losses above reinsurance limits would be retained.
What is the status of the Protective Insurance acquisition and how will it be funded?
On February 16, 2021, Progressive agreed to acquire all outstanding Class A and Class B common shares of Protective Insurance Corporation for $23.30 per share in cash, about $338 million in total. The deal is expected to close before the end of the third quarter of 2021, subject to regulatory approvals and a Protective Class A shareholder vote. Progressive expects to fund it from operating cash flow or securities it already holds.
06—Continue