01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
Progressive (PGR) reported a sharp earnings decline for 2022 even as the franchise kept growing.
Net income fell 78% to $721.5 milliona, or $1.18 per diluted share, from $3.35 billion in 2021, and comprehensive income swung to a $2.1 billion loss. The drivers were a $2.1 billion net holding period loss, mostly on its common equity portfolio, a $2.8 billion decline in fixed-maturity valuations as interest rates rose, and a $224.8 million goodwill write-off on the Property segment (ARX acquisition). Core underwriting remained profitable: the underwriting margin was 4.2% (versus a 4% target), with underwriting income of about $2.1 billion, though down from a 4.7% margin in 2021 due to catastrophe losses (3.4 points, including Hurricane Ian) and rising claim severity.
Top-line growth was strong. Net premiums written rose 10% to $51.1 billionb, driven by about 13% average personal auto rate increases across 49 states, a roughly 19% Property rate increase, and 17% Commercial Lines growth. Policies in force grew 3% to 27.4 million.
Management is prioritizing profitability over volume, which slowed new business in the first half of 2022. Investment income rose 46% to $1.26 billionc as reinvestment yields climbed, and the company issued $1.5 billion of senior notes. Debt-to-total-capital reached 28.7%, close to the company's 30% ceiling, while statutory surplus grew to $17.9 billion and the premium-to-surplus ratio rose to 2.9:1.
For investors, the key questions are whether pricing actions restore margins as severity trends moderate, how Property returns to profitability after Hurricane Ian, and how much mark-to-market volatility affects book value, which fell to $26.32d per share from $30.35. The board declined to declare an annual variable dividend for 2022, leaving only the $0.10 quarterly dividend. Litigation exposure is broad, with numerous pending class actions, though none is currently accrued as probable and estimable.
02—Key points
Key Highlights
- Net income fell 78% to $721.5M ($1.18 diluted EPS) from $3.35B, driven by a $2.1B net holding period loss on equities, a $2.8B decline in fixed-income valuations, and a $224.8M Property goodwill impairment.
- Underwriting margin was 4.2% (above the 4% target) with about $2.1B of underwriting income, though down from 4.7% in 2021 due to catastrophe losses (3.4 points) and higher severity.
- Net premiums written grew 10% to $51.1B; personal auto rates rose about 13% in 2022, and Property rates rose about 19%.
- Property segment underwriting margin was -10.5% (combined ratio 110.5%), including 25.6 points of catastrophe losses; Hurricane Ian retained losses were $200M net.
- Investment income rose 46% to $1.26B as the recurring book yield increased to 2.4% from 1.9%; the total portfolio returned -7.8% on a fully taxable equivalent basis.
- Book value per share fell to $26.32 from $30.35; debt-to-capital reached 28.7% versus a 30% policy ceiling after a $1.5B notes issuance.
- No annual variable common dividend was declared for 2022; only the $0.10 quarterly dividend was paid.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $49.61B$47.70B | +4.0% |
| Interest Expense | $244.00M$218.60M | +11.6% |
| Net Income | $722.00M$3.35B | −78.5% |
| EPS (Basic) | $1.19$5.69 | −79.1% |
| EPS (Diluted) | $1.18$5.66 | −79.2% |
| Shares Outstanding (Basic) | 584.40M584.50M | 0.0% |
| Shares Outstanding (Diluted) | 587.10M587.10M | 0.0% |
05—Questions
Frequently Asked Questions
Why did Progressive's net income fall so sharply in 2022 if the underwriting business stayed profitable?
Underwriting still earned about $2.1B with a 4.2% margin, but net income was hit by non-operating items. Equity holdings lost about $2.0B in value, fixed-income securities lost value as interest rates rose, and a $224.8M goodwill write-off related to the ARX/Property business was recorded. Investment results flow through net income, so market volatility dominated the 2022 bottom line.
Is Progressive's pricing working to restore profitability?
Management reports that personal auto rate increases (about 13% countrywide in 2022) and property rate increases (about 19%) are beginning to earn into the book. Frequency fell about 6% while severity rose about 13%, and the personal auto combined ratio was 96.0%, still above the company's 96 target. Management has said it will continue targeted rate and non-rate actions as needed.
What risks does the Property business present?
Property is concentrated in catastrophe-exposed states such as Florida and hail-prone areas, and it posted a combined ratio of 110.5% in 2022 with 25.6 catastrophe points. The company has restructured reinsurance for 2023, including a $185M aggregate layer and a higher second-event retention, and it is restricting new business growth in coastal areas to reduce concentration.
Will Progressive pay a variable dividend and has its capital position weakened?
No annual variable dividend was declared for 2022, and only the $0.10 quarterly dividend is being paid. Debt-to-total-capital rose to 28.7%, close to the 30% policy limit, and the premiums-to-surplus ratio rose to 2.9:1. However, statutory surplus grew to $17.9B and the company held $4.4B in a non-insurance subsidiary that is available to support the insurers.
06—Continue