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The Progressive Corp. Reports Operating Results (10-Q)

November 08, 2010 | About:
10qk

10qk

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The Progressive Corp. (PGR) filed Quarterly Report for the period ended 2010-09-30.

The Progressive Corp. has a market cap of $14.56 billion; its shares were traded at around $21.94 with a P/E ratio of 13.89 and P/S ratio of 1. The dividend yield of The Progressive Corp. stocks is 0.74%.PGR is in the portfolios of Todd Combs of Castle Point Capital Management, LLC, Chris Davis of Davis Selected Advisers, Lee Ainslie of Maverick Capital, Manning & Napier Advisors, Inc, Murray Stahl of Horizon Asset Management, PRIMECAP Management, Tom Russo of Gardner Russo & Gardner, Bruce Kovner of Caxton Associates, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Pioneer Investments, Wallace Weitz of Weitz Wallace R & Co, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

During the third quarter 2010, our underwriting operations continued to generate solid growth in both premiums written and policies in force. The Progressive Corporations insurance subsidiaries produced underwriting profitability of 7.1%, or $255.0 million. We generated net income of $261.6 million for the third quarter 2010, compared to $269.9 million for the same period last year; net income per share was $0.40 for both periods. Despite repurchasing $222.9 million of debt during the quarter, our total capital increased $188.3 million, including net unrealized gains on our portfolio of $228.7 million during the third quarter. Our total capital was $8.7 billion at September 30, 2010.

Our 7.1% companywide underwriting profit margin for the third quarter 2010 exceeded our target of 4% and was 0.2 points lower than in the third quarter 2009. All of the businesses contributed to these strong results. During the third quarter 2010, we experienced $109.3 million, or 3.0 points, of favorable prior accident year development, with $43.4 million of the development derived from adjustments made by our actuarial department and the remaining $65.9 million from all other development (e.g., claims settling for less than reserved). Nearly two-thirds of the development was in our Personal Lines business, with the balance in Commercial Auto. On a year-over-year basis, for the third quarter 2010, we experienced decreases of about 3% in severity for our personal auto products, while frequency was relatively flat.

At September 30, 2010, our total capital (debt plus equity) was $8.7 billion, up from the $8.5 billion held at June 30, 2010. We continue to manage our investing and financing activities in order to maintain sufficient capital to support all of the insurance we can profitably underwrite and service. During the third quarter 2010, we completed a Tender Offer for, and repurchased $222.9 million principal amount of, our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067. The total cost of the Tender Offer and Consent Solicitation (discussed below) was $214.3 million. The net gain from the transaction was $6.4 million. See Financial Condition and Note 4 Debt for further discussion.

Progressives insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. For the nine months ended September 30, 2010 and 2009, operations generated positive cash flows of $1,677.9 million and $1,415.1 million, respectively. During the third quarter 2010, we repurchased 5.0 million of our common shares at a total cost of $98.2 million (average cost of $19.65 per share). Year-to-date, we have repurchased 10.7 million common shares at a total cost of $205.5 million (average cost of $19.13 per share).

The total cost of the Consent Solicitation and debt Tender Offer, including all associated fees, was $214.3 million, resulting in a net gain of $6.4 million on the debt extinguishment. See Note 4 - Debt for additional information. In addition, we reclassified $5.8 million (pretax) from accumulated other comprehensive income (balance sheet) to net realized gains (losses) on securities (income statement), reflecting the portion of the unrealized gain on forecasted transactions that was related to the Debentures that were extinguished pursuant to the Tender Offer.

At all times during 2009 and the first nine months of 2010, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency load. At September 30, 2010, we held total capital (debt plus equity) of $8.7 billion at book value, compared to $7.9 billion at December 31, 2009 and $7.7 billion at September 30, 2009.

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