Ruane Cunniff on Progressive Insurance (PGR)

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Mar 13, 2007
For most of its history, Progressive's aim has been to earn at least a 4% operating margin and grow as fast as possible. In 2006, it earned a 14% margin. This windfall occurred largely because of a number of structural changes that cumulatively have significantly reduced the frequency of automobile accidents.


When Progressive tested lower rates in recent years, it found little elasticity of demand. Therefore, at the risk of holding a pricing umbrella over less efficient competitors, the company opted to preserve higher margins. Although it anticipated that such pricing would reduce growth, it did not contemplate that the growth would cease altogether.


Looking ahead, Progressive may be forced to cut rates more aggressively to attract policyholders, as more surgical price cuts have not worked. This almost certainly will lead to lower profits for shareholders.


Progressive is an outstanding company that currently faces two great challenges: 1) increasing retention or policy lives through a number of measures; and 2) improving both its brand proposition and its marketing and advertising. Fortunately, management embraces change and the company could not have a better change agent than CEO Glenn Renwick.


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