Progressive Corp. (PGR) holds a dominant position in product, service and distribution innovation, especially in personal auto. The company continues to focus on customer retention as well as actively manages its capital position and returns wealth to its shareholders.
However, these positives are somewhat tempered by headwinds at its Commercial Auto businesses as well as volatile underwriting margins. We thus retain out Neutral recommendation on Progressive.
The company is also a leader in underwriting technology and the application of quantitative analytics in pricing and risk selection. The company’s rates are very competitive in all its markets and it continues to benefit from its expanded multi-product offering.
Progressive is also effectively lowering its combined ratios. The ratio improved from 94.6% in 2008 to 91.6% in 2009. Though the ratio deteriorated slightly to 92.4% in 2010, the company bounced back with a lower combined ratio of 90.3% in the first quarter of 2011.
Moreover, the policy life expectancy, a measure for customer retention, for its Agency and Direct personal auto products is now higher than the year-ago level.
During the first quarter of 2011, Progressive bought back 6.8 million shares for $138.0 million and paid a dividend of $0.3987 per share. The company is also effectively lowering the debt-to-total-capital ratio. The ratio was 23.7% as of March 2011, down from 24.4% as of December 2010 and 27.5% as of December 31, 2009.
On the flip side, the sluggish economy combined with increasing competition has adversely affected the Commercial Auto market.
Deteriorating loss cost trends are expected to affect underwriting margins. In a roller coaster ride, margins were 5.4% in 2008, deteriorating to 8.4% in 2009, improving to 7.6% in 2010 and again deteriorating to 9.7% in the first quarter of 2011.
Progressive reported first quarter earnings per share of 12 cents, ahead of the Zacks Consensus Estimate, driven by higher investment gains and premiums earned.
The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Headquartered in Mayfield Village, Ohio, The Progressive Corporation is one of the largest auto insurers in the country. It is a leading independent agency writer of private passenger auto coverage, market leader for the motorcycle product and is one of the leading companies in the commercial auto insurance market. It competes with Allstate Corporation (ALL).
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