Progressive Corp

We re-purchased former holding, personal auto insurer, Progressive Corporation (PGR). The company is one of the highest-quality compounders in financial services, consistently gaining market share through superior underwriting, pricing analytics and technology. Its disciplined approach to risk selection has enabled it to deliver industry-leading profitability while continuing to grow policies faster than peers. With a long runway to expand in the large U.S. auto insurance market and higher investment income from its insurance float, we believe PGR has multiple drivers of durable earnings growth. Combined with a strong balance sheet and shareholder-focused capital allocation, we think PGR is well positioned to grow intrinsic value over time.

We increased our position in Progressive during the quarter, recognizing its strong growth potential in the insurance sector. The company has demonstrated resilience and adaptability in a competitive market, which we believe positions it well for future success. Progressive's innovative approach to underwriting and claims processing, combined with its focus on technology, enhances its competitive advantage. We see significant opportunities for growth as the company continues to expand its market share and improve operational efficiencies.

Despite a slowing growth rate, Progressive Corp. reported a 7% increase in EPS for the first half of 2026, even as its share price fell 4%. The market's expectation is for lower earnings this year due to declining auto insurance rates, but the company has begun buying back its stock for the first time in years, indicating confidence in its long-term value. We believe that Progressive's strong earnings growth and the recent buyback program position it well for future performance, making it an attractive addition to our portfolio.

Progressive is highlighted as a best-in-class property-and-casualty insurer that is currently trading at a fair price. The manager believes that the market continues to misread its value, suggesting that it is an attractive investment opportunity. The mention of Progressive in the context of quality and value indicates a strong belief in its potential for durable earnings and sensible entry points, especially as the market has been indiscriminately applying discounts to businesses perceived to be at risk from AI disruption.

Progressive Corporation was one of the four new investments added during the second quarter of 2026. The manager sees opportunity across differentiated business models within insurance, indicating a positive outlook for the sector. However, no specific arguments or metrics were provided regarding the future performance or valuation of Progressive Corporation itself, leading to a neutral stance on this investment.

Progressive Corporation is mentioned as part of the financial stocks affected by market conditions. The letter discusses the broader implications of economic performance on financials, but does not provide a specific argument or stance regarding Progressive Corporation itself.

While Progressive is an incredible business, we have never felt comfortable owning a large position because insurance underwriting is both opaque and requires significant leverage to generate attractive returns on capital. This combination can be very dangerous during financial crises. Moreover, as Progressive’s market share expands, its risk pool will inevitably converge with the industry average, making it increasingly difficult to sustain its historical outperformance in underwriting. Additionally, the risk that AI agent proliferation shrinks their underwriting and cost advantages over time adds to our concerns.

During the quarter, we made a new investment in Progressive (PGR), which I believe is a great example of sharing economies of scale with customers. Progressive is currently the second largest auto insurer in the United States, and has been a leader in using data and analytics to profitably underwrite its policies. This reliance on data and analytics leads to Progressive being able to offer highly competitive rates on its policies that competitors struggle to match. Progressive aims to make money from writing insurance policies, which is in stark contrast to the rest of the industry. The company has a long runway for growth despite their current ~16% market share, and their 10-to-20-point underwriting advantage is set to grow even larger over time as they pass savings on to their customers.

Progressive Corporation (PGR) faced challenges this quarter due to investor concerns over decelerating policy and premium growth. However, we remain attracted to PGR's best-in-class operations, conservative underwriting, and shareholder-friendly capital allocation philosophy. Despite being a bottom performer, the company's strong margins and retention driven by its leadership in personal auto insurance highlight its durable competitive advantages. We believe these factors position PGR well for future growth.

Progressive Corporation has a high Corporate Resilience Score and has a role to play in calculating the genuine cost of climate change and diversifying climate risk, as well as providing access to affordable insurance. Despite strong earnings growth the company suffered from changing sentiment with analysts showing concern around policy growth, rising competition and margin compression in auto insurance.