10-QPeriod: Q3 FY2017

PROGRESSIVE CORP/OH/ Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 2, 2017For Securities:PGR

Summary

Progressive Corporation (PGR) reported solid revenue growth for the third quarter and first nine months of 2017, with net premiums earned increasing by 14% year-over-year for both periods. Despite a 3% decrease in pretax income for the quarter, largely due to significant catastrophe losses from Hurricanes Harvey and Irma, net income attributable to Progressive saw a 13% increase. This was primarily driven by the adoption of a new accounting standard for employee share-based transactions, which resulted in recognizing a substantial tax benefit. The company demonstrated strong growth in policies in force across its Personal, Commercial, and Property lines of business, indicating effective customer acquisition and retention strategies. The investment portfolio remained robust with a fair value of $27.0 billion at September 30, 2017. The company maintained a high-quality, liquid fixed-income portfolio with a weighted average credit quality of A+ and a relatively short duration, positioning it to manage interest rate risk. Progressive's liquidity and capital resources appear strong, with significant cash flows from operations and a healthy capital base, enabling continued capital deployment through share repurchases and dividends.

Financial Highlights

36 data points
Beta

Revenue

$6.79B

Net Income

$224.00M

3.3% Net Margin

EPS (Diluted)

$0.38

Total Assets

$38.93B

Cash & Equivalents

$224.90M

Free Cash Flow

$1.16B

Financial Statements
Beta
Revenue$6.79B
Interest Expense$37.40M
Net Income$224.00M
EPS (Basic)$0.39
EPS (Diluted)$0.38
Shares Outstanding (Basic)581.30M
Shares Outstanding (Diluted)585.60M

Key Highlights

  • 1Net premiums earned grew 14% year-over-year for both the three and nine months ended September 30, 2017.
  • 2Net income attributable to Progressive increased by 13% for the third quarter of 2017, aided by a significant tax benefit from share-based compensation.
  • 3Catastrophe losses from Hurricanes Harvey and Irma significantly impacted underwriting results, totaling $431.1 million (net) in Q3 2017.
  • 4Policies in force increased by 9% companywide as of September 30, 2017, demonstrating successful growth strategies.
  • 5The investment portfolio was valued at $27.0 billion, with a focus on high-quality, liquid fixed-income securities.
  • 6The company maintained a strong capital position, with total capital (debt + equity) at $12.6 billion as of September 30, 2017.
  • 7Progressive continued to return capital to shareholders through share repurchases and an annual variable dividend program.

Frequently Asked Questions

The increase in net income attributable to Progressive for the third quarter of 2017 was primarily due to the adoption of a new accounting standard related to employee share-based transactions. This led to the recognition of a significant excess tax benefit, which was recorded as an income tax benefit in the consolidated statements of comprehensive income, rather than directly to paid-in capital as previously done.

The company's underwriting performance in the third quarter of 2017 was adversely impacted by significant catastrophe losses from Hurricanes Harvey and Irma, totaling $431.1 million net of reinsurance. This led to an underwriting loss in the Property segment and negatively affected the overall underwriting margin. While Personal and Commercial Lines segments remained profitable, their combined ratios were higher than in the prior year.

The investment portfolio, valued at $27.0 billion, is managed with a strategy focused on high-quality, liquid fixed-income securities and a relatively short duration to mitigate interest rate risk. Recurring investment income increased by 20% year-over-year for the quarter, contributing positively to overall earnings. The company continues to maintain a stable asset allocation and credit quality.

Progressive's capital position remains strong, with total capital (debt plus shareholders' equity) at $12.6 billion as of September 30, 2017. The company deployed capital through share repurchases, buying back 0.8 million shares in the third quarter of 2017, and through its annual variable dividend program. The company's financial policies support share repurchases to neutralize dilution and effectively use underleveraged capital.