10-QPeriod: Q2 FY2014

PROGRESSIVE CORP/OH/ Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 30, 2014For Securities:PGR

Summary

Progressive Corporation (PGR) reported its second quarter and year-to-date results for 2014, showcasing a 3% increase in total revenues for the quarter and a 5% increase year-to-date, driven by growth in net premiums earned across its Personal and Commercial Lines segments. Despite a decrease in net income for the quarter ($293.4 million, down 10% from Q2 2013) primarily due to lower net realized gains on investments, the company demonstrated strong operational performance with a 16% increase in pretax underwriting profitability for the quarter. The company's investment portfolio remained robust at $18.8 billion, with a focus on high-quality, liquid securities. Capital management remained a priority, with total capital increasing to $9.0 billion. Progressive also continued its focus on growth initiatives, including its usage-based insurance program (Snapshot®) and expansion of mobile acquisition capabilities. The company maintained a strong liquidity position supported by positive operating cash flows.

Financial Highlights

38 data points
Beta

Revenue

$4.74B

Net Income

$293.40M

6.2% Net Margin

EPS (Diluted)

$0.49

Total Assets

$25.45B

Cash & Equivalents

$126.10M

Free Cash Flow

$352.10M

Financial Statements
Beta
Revenue$4.74B
Interest Expense$29.60M
Net Income$293.40M
EPS (Basic)$0.50
EPS (Diluted)$0.49
Shares Outstanding (Basic)591.20M
Shares Outstanding (Diluted)595.50M

Key Highlights

  • 1Total revenues increased by 3% for the quarter ($4.74 billion) and 5% year-to-date ($9.45 billion), primarily driven by growth in net premiums earned.
  • 2Net income for the second quarter decreased by 10% to $293.4 million ($0.49 per share) compared to $324.6 million ($0.54 per share) in Q2 2013, largely due to a significant reduction in net realized investment gains.
  • 3Pretax underwriting profitability increased by 16% to $332.3 million for the quarter, indicating improved operational performance.
  • 4The investment portfolio stood at $18.8 billion at June 30, 2014, with a focus on high-quality fixed-income securities and a weighted average credit quality of AA-.
  • 5Total capital increased to $9.0 billion, with the company issuing $350 million in 4.35% Senior Notes due 2044 during the quarter.
  • 6Policies in force grew by 3% year-over-year, with Personal Lines showing similar growth and Commercial Lines experiencing a 2% decline.
  • 7The company continues to invest in growth initiatives such as its Snapshot® usage-based insurance program and mobile acquisition capabilities.

Frequently Asked Questions

The primary reason for the decrease in net income was a significant reduction in net realized gains on securities. Net realized gains were $40.4 million in Q2 2014, down from $132.9 million in Q2 2013.

Progressive's underwriting performance showed improvement, with pretax underwriting profitability increasing by 16% to $332.3 million in the second quarter of 2014 compared to the same period in 2013. The combined ratio for total underwriting operations improved slightly to 92.6% from 93.3%.

As of June 30, 2014, Progressive's investment portfolio was valued at $18.8 billion. The portfolio was primarily composed of fixed-income securities (87.3%), with the remainder in common equities (12.7%). The fixed-income portfolio maintained a high credit quality with a weighted average rating of AA-.

Yes, Progressive issued $350 million of 4.35% Senior Notes due 2044 in April 2014. The net proceeds were added to the company's investment portfolios for general corporate purposes.