10-QPeriod: Q1 FY2008

PROGRESSIVE CORP/OH/ Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 6, 2008For Securities:PGR

Summary

The Progressive Corporation reported a decrease in net income for the first quarter of 2008, with net income falling to $239.4 million ($0.35 per diluted share) from $363.5 million ($0.49 per diluted share) in the same period of 2007. This decline is primarily attributed to prior rate reductions implemented by the company. Total revenues also saw a modest decrease of 3% year-over-year, driven by lower net premiums earned. Despite the revenue and income dip, policies in force across the company increased by 3%, indicating strong customer retention initiatives are beginning to yield positive results, particularly in the Direct auto segment. Investment income and realized gains showed mixed performance, with net realized gains on securities increasing significantly, while investment income slightly decreased. The company's investment portfolio experienced a negative total return of (2.0)% for the quarter, largely due to market-related issues affecting financial sector preferred stocks. Management is focused on adjusting rates to counter loss cost inflation and improve underwriting profitability, aiming for an aggregate underwriting margin of 4%. The company also continued its share repurchase program and paid dividends to shareholders.

Key Highlights

  • 1Net income decreased by 34% to $239.4 million in Q1 2008 compared to $363.5 million in Q1 2007.
  • 2Diluted earnings per share decreased to $0.35 from $0.49 year-over-year.
  • 3Total revenues declined by 3% to $3,585.9 million.
  • 4Policies in force increased by 3% year-over-year, indicating improved customer retention.
  • 5Underwriting profit margin was 5.4% for Q1 2008, down from 10.5% in Q1 2007, largely due to prior rate reductions and unfavorable prior accident year development.
  • 6The investment portfolio reported a negative total return of (2.0)% for the quarter.
  • 7The company repurchased 6.5 million shares of common stock for $116.1 million during the quarter.

Frequently Asked Questions

The decrease in net income and earnings per share was primarily driven by prior rate reductions that the company had implemented. These reductions impacted earned premiums and, consequently, profitability, even as policies in force showed growth.

Progressive is focusing on adjusting its rates to counter loss cost inflation and aims to achieve an aggregate underwriting margin of 4%. The company is also observing positive trends in customer retention, which is a key initiative to support profitable growth.

The investment portfolio experienced a negative total return of (2.0)% for the quarter. The company noted that its preferred stock holdings, particularly in the financial sector, were negatively impacted by market disruptions related to credit markets. Progressive continues to maintain high credit quality and low exposure to interest rate risk in its fixed-income portfolio.

The increase in policies in force is attributed to successful customer retention initiatives. The company has seen an upward trend in policy life expectancy for both its Agency and Direct auto businesses, indicating that customers are staying with Progressive for longer periods.