10-QPeriod: Q1 FY2018

PROGRESSIVE CORP/OH/ Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 2, 2018For Securities:PGR

Summary

Progressive Corporation (PGR) reported robust financial results for the first quarter ending March 31, 2018. The company experienced significant growth in net premiums earned, up 19% year-over-year, driven by a 12% increase in policies in force, reaching 18.9 million. This strong underwriting performance, coupled with reduced catastrophe losses and improved auto claim frequency, led to a substantial 69% increase in net income attributable to Progressive. The underwriting margin improved to 11.6%, a 3.3-point increase from the prior year, reflecting effective pricing strategies and operational efficiencies. From an investment perspective, the fair value of the investment portfolio stood at $29.3 billion. While the overall investment portfolio returned (0.3)% for the quarter due to rising interest rates and widening credit spreads impacting fixed-income securities, the company maintained a high-quality, liquid portfolio with a weighted average credit quality of AA- and a duration of 2.6 years. Progressive also strategically increased its capital base by issuing $600 million in senior notes and $500 million in preferred shares to support projected premium growth and regulatory capital requirements. Overall, the company demonstrated strong operational execution and a solid capital position.

Financial Highlights

35 data points
Beta

Revenue

$7.43B

Net Income

$718.00M

9.7% Net Margin

EPS (Diluted)

$1.22

Total Assets

$41.33B

Cash & Equivalents

$190.10M

Free Cash Flow

$1.71B

Financial Statements
Beta
Revenue$7.43B
Interest Expense$36.80M
Net Income$718.00M
EPS (Basic)$1.23
EPS (Diluted)$1.22
Shares Outstanding (Basic)582.00M
Shares Outstanding (Diluted)585.60M

Key Highlights

  • 1Net premiums earned increased by 19% to $7.17 billion, driven by a 12% growth in policies in force to 18.9 million.
  • 2Net income attributable to Progressive surged by 69% to $718.0 million, reflecting improved underwriting profitability.
  • 3The underwriting margin improved to 11.6% from 8.3% in the prior year, driven by higher premiums per policy, lower catastrophe losses, and reduced auto claim frequency.
  • 4Investment portfolio fair value was $29.3 billion, with a total return of (0.3)% for the quarter, impacted by rising interest rates.
  • 5The company strengthened its capital position by issuing $600 million in senior notes and $500 million in Series B Preferred Shares.
  • 6The debt-to-total capital ratio remained below 30% at 27.2%.
  • 7Positive cash flow from operations of approximately $1.7 billion.

Frequently Asked Questions

The primary driver of the 69% increase in net income attributable to Progressive was the strong growth in underwriting profitability. This was achieved through a combination of higher net premiums earned, a better underwriting margin (11.6% vs. 8.3% YoY), reduced catastrophe losses, and a decrease in auto claim frequency.

While rising interest rates and widening credit spreads led to a negative total return of (0.3)% for the investment portfolio in Q1 2018, Progressive managed its risk by maintaining a high-quality, liquid portfolio with a weighted average credit quality of AA-. The company also strategically increased its fixed-income portfolio duration to 2.6 years in response to the rising rate environment and reduced its equity exposure to reallocate funds to fixed income.

Effective January 1, 2018, Progressive adopted new accounting guidance that requires changes in the fair value of equity securities to be recognized in net income, rather than in other comprehensive income. This change means that net income may show more volatility based on equity market conditions, and comprehensive income might be a more indicative measure of overall performance.

Yes, Progressive raised capital by issuing $600 million in 4.20% Senior Notes due 2048 and $500 million in Series B Fixed-to-Floating Rate Cumulative Perpetual Serial Preferred Shares in March 2018. These issuances were made to support projected premium growth and to bolster regulatory capital requirements.