10-QPeriod: Q1 FY2020

PROGRESSIVE CORP/OH/ Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 5, 2020For Securities:PGR

Summary

In the first quarter of 2020, Progressive Corporation (PGR) reported net income of $692.7 million, or $1.17 per diluted share, a decrease from $1,078.4 million, or $1.83 per diluted share, in the prior year's quarter. This decline was largely attributable to significant holding period losses on equity securities, exacerbated by the onset of the COVID-19 pandemic in March. Despite the net income decrease, the company demonstrated resilience in its core insurance operations, with net premiums written increasing by 7% to $9.87 billion and total policies in force growing by 9% to 22.9 million. The underwriting profit margin remained strong at 13.1%, driven by a favorable decrease in accident frequency, particularly in the personal auto segment. The company's investment portfolio experienced a decline in value, with a total portfolio return of (0.6)% for the quarter, heavily influenced by market volatility in March. The fixed-income portfolio saw a positive return due to declining interest rates, while the common stock portfolio experienced a significant loss. Progressive proactively managed its capital, issuing $1.0 billion in senior notes and temporarily suspending open market share repurchases to preserve liquidity amidst economic uncertainty. Management noted that the COVID-19 pandemic significantly impacted the latter part of March, affecting new business applications and leading to increased allowances for doubtful accounts due to billing leniency programs.

Financial Statements
Beta
Revenue$9.32B
Interest Expense$48.00M
Net Income$692.70M
EPS (Basic)$1.17
EPS (Diluted)$1.17
Shares Outstanding (Basic)584.70M
Shares Outstanding (Diluted)586.90M

Key Highlights

  • 1Net income decreased by 36% year-over-year to $692.7 million, primarily due to substantial holding period losses on equity securities impacted by COVID-19 market volatility.
  • 2Net premiums written increased by 7% to $9.87 billion, reflecting growth in Personal Lines (8%) and Property (15%), partially offset by a decline in Commercial Lines (-2%).
  • 3Policies in force grew by 9% to 22.9 million, demonstrating continued customer retention and acquisition in core insurance segments.
  • 4Underwriting profit margin remained robust at 13.1%, supported by a significant decrease in personal auto accident frequency (down 47% in March) due to COVID-19 related restrictions.
  • 5The investment portfolio's total return was negative (0.6)% for the quarter, with fixed-income securities performing positively but equity securities experiencing substantial declines.
  • 6The company issued $1.0 billion in senior notes during the quarter to bolster capital and liquidity in response to economic uncertainty.
  • 7Progressive implemented customer-friendly billing leniencies and moratoriums in response to COVID-19, leading to an increase in the allowance for doubtful accounts but aimed at customer retention.

Frequently Asked Questions

COVID-19 significantly impacted Progressive's results, particularly in the last three weeks of March. It led to substantial holding period losses on equity securities, a decrease in new business applications (especially in Personal and Commercial Lines), and necessitated billing leniencies for policyholders, which increased the allowance for doubtful accounts. However, it also contributed to a significant decrease in auto accident frequency, boosting underwriting margins. The company also took steps to preserve liquidity, including issuing debt and suspending share repurchases.

The investment portfolio experienced significant volatility due to COVID-19. While fixed-income securities benefited from declining interest rates, equity securities suffered substantial losses. The total portfolio return was negative (0.6)% for the quarter. The company's fixed-income portfolio saw a positive return of 1.2%, while common stocks returned (20.5)%.

Progressive strengthened its capital position by issuing $1.0 billion in senior notes during the quarter. They also temporarily suspended open market share repurchases to preserve liquidity. The company indicated that its operations generated positive cash flows and that its liquidity from current operations and investment portfolio is sufficient to meet near-term needs.

The decrease in driving led to a significant reduction in auto accident frequency, which positively impacted underwriting margins. However, new business applications saw a decline in March due to COVID-19 restrictions. The company announced plans to issue approximately $1.0 billion in credits to personal auto customers in May and June, which will reduce underwriting profitability in the second quarter. Management expects continued impacts from COVID-19 but cannot predict the duration or ultimate extent.