Tweedy Browne Comments on Progressive

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May 04, 2021

Progressive

One of our new buys in the Worldwide High Dividend Yield Value Fund during the quarter was Progressive Corporation (PGR, Financial), the third largest personal automobile insurance carrier in the U.S., with a market share of 13% as of December 31, 2020. While the Company has a successful history of expanding into new markets (like commercial auto insurance), personal auto insurance still dominates its profit and loss statement ("P&L"), representing 89% of Progressive's pre-tax underwriting profit in 2020.

Progressive is a best-of-breed auto insurance carrier. The company has a long track record of innovation, market share gains, industry-leading profitability (lowest 10-year average combined ratio) and generating high returns (19% average operating ROE). Over the 16 years ended December 31, 2020, the value compound (defined as growth in book value per share plus cumulative dividends per share) was +13.3%. The Company seems to have clear competitive advantages: direct distribution (low expense ratio) and superior data analytics (low loss ratio).

At purchase, we paid between $85 and $87 per share, or roughly 15 times estimated 2021 operating earnings per share (excluding net after-tax gains/losses realized on securities), approximately 75% to 80% of our conservative estimates of intrinsic value. Moreover, Progressive has paid an above average dividend in the form of a regular quarterly dividend and a discretionary additional variable dividend paid annually. In 2019 and 2020, the total dividend declared per share was $2.65 and $4.90, respectively.

From Tweedy Browne (Trades, Portfolio) Fund's first-quarter 2021 commentary.