10-QPeriod: Q2 FY2016

PROGRESSIVE CORP/OH/ Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 3, 2016For Securities:PGR

Summary

The Progressive Corporation (PGR) reported its financial results for the second quarter and first six months of 2016. For the three months ended June 30, 2016, net income attributable to Progressive decreased by 47% year-over-year to $190.9 million, or $0.33 per diluted share, compared to $363.3 million, or $0.62 per diluted share, in the prior year period. For the six months ended June 30, 2016, net income attributable to Progressive decreased by 32% year-over-year to $449.1 million, or $0.77 per diluted share, compared to $658.9 million, or $1.12 per diluted share, in the prior year period. Despite the decline in net income, total revenues showed growth, increasing by 10% for the quarter and 12% for the six-month period, primarily driven by an 11% increase in net premiums earned for the quarter and a 13% increase for the six-month period. This top-line growth was partially offset by a significant increase in losses and loss adjustment expenses, which rose 17% for both periods. The company experienced higher catastrophe losses and less favorable prior accident year development, contributing to reduced underwriting profitability.

Financial Statements
Beta
Revenue$5.82B
Interest Expense$34.30M
Net Income$190.90M
EPS (Basic)$0.33
EPS (Diluted)$0.33
Shares Outstanding (Basic)582.40M
Shares Outstanding (Diluted)585.10M

Key Highlights

  • 1Net income attributable to Progressive declined significantly by 47% for the quarter and 32% for the six-month period compared to the prior year, largely due to increased losses and loss adjustment expenses.
  • 2Total revenues demonstrated robust growth, up 10% for the quarter and 12% for the six months, driven by an 11% and 13% increase in net premiums earned, respectively.
  • 3The company's underwriting profitability was negatively impacted by a 17% increase in losses and loss adjustment expenses, attributed to higher catastrophe losses and less favorable prior accident year development.
  • 4Investment income remained stable, but net realized gains on securities decreased by 58% for the quarter due to losses on derivative positions.
  • 5Comprehensive income attributable to Progressive increased by 30% for the quarter, driven by substantial unrealized gains in the investment portfolio which more than offset the decline in underwriting income.
  • 6Policies in force showed positive growth, with total Personal Lines policies up 6% and Commercial Lines up 11% year-over-year as of June 30, 2016.
  • 7The company repurchased approximately $112.1 million of its common shares during the first six months of 2016, continuing its practice of returning capital to shareholders.

Frequently Asked Questions

The decrease in net income was primarily driven by a 17% increase in losses and loss adjustment expenses for both the quarter and the six-month period. This rise was attributed to higher catastrophe losses, less favorable prior accident year development, and increased frequency and severity of claims.

Progressive experienced strong revenue growth. Total revenues increased by 10% for the three months ended June 30, 2016, and by 12% for the six months ended June 30, 2016, compared to the prior year periods. This growth was largely fueled by an increase in net premiums earned.

The investment portfolio contributed positively to comprehensive income, with unrealized gains significantly increasing by 161% for the quarter. While recurring investment income was comparable to the prior year, net realized gains on securities decreased by 58% due to losses on derivative positions. The company maintains an asset allocation strategy focused on high-quality, liquid securities with a duration of 1.8 years at June 30, 2016.

The company's total capital (debt plus shareholders' equity) increased to $10.5 billion at June 30, 2016. Progressive continued its share repurchase program, buying back approximately $112.1 million of its common shares in the first six months of 2016. Additionally, the company paid an annual variable dividend of $0.8882 per share in February 2016.