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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20192020
or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     
Commission File Number: 001-09518
 
 
THE PROGRESSIVE CORPORATION
(Exact name of registrant as specified in its charter)
 
Ohio 34-0963169
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
6300 Wilson Mills Road,Mayfield Village,Ohio 44143
(Address of principal executive offices) (Zip Code)
(440) 461-5000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, $1.00 Par ValuePGRNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated filer ☐  Smaller reporting company ☐
    Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Shares, $1.00 par value: 584,647,532585,396,906 outstanding at July 31, 2019June 30, 2020
 


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Six MonthsThree Months Six Months
Periods Ended June 30,2019
 2018
 2019
 2018
2020
 2019
 2020
 2019
(millions — except per share amounts)              
Revenues              
Net premiums earned$8,824.7
 $7,634.2
 $17,284.5
 $14,808.2
$9,648.6
 $8,824.7
 $19,079.3
 $17,284.5
Investment income261.3
 192.1
 514.2
 358.4
243.8
 261.3
 485.0
 514.2
Net realized gains (losses) on securities:              
Net realized gains (losses) on security sales67.5
 (9.6) 113.6
 97.4
260.0
 67.5
 575.2
 113.6
Net holding period gains (losses) on securities112.4
 53.5
 505.1
 (101.7)630.8
 112.4
 (238.0) 505.1
Net impairment losses recognized in earnings0
 (11.1) (24.3) (11.1)0
 0
 0
 (24.3)
Total net realized gains (losses) on securities179.9
 32.8
 594.4
 (15.4)890.8
 179.9
 337.2
 594.4
Fees and other revenues134.8
 116.0
 265.0
 219.8
129.5
 134.8
 283.0
 265.0
Service revenues50.0
 42.9
 92.6
 77.1
59.0
 50.0
 110.6
 92.6
Total revenues9,450.7
 8,018.0
 18,750.7
 15,448.1
10,971.7
 9,450.7
 20,295.1
 18,750.7
Expenses              
Losses and loss adjustment expenses6,138.1
 5,375.3
 11,897.1
 10,246.1
5,321.4
 6,138.1
 11,476.6
 11,897.1
Policy acquisition costs738.6
 630.8
 1,449.2
 1,227.0
795.5
 738.6
 1,578.3
 1,449.2
Other underwriting expenses1,231.5
 1,046.9
 2,402.7
 2,027.1
1,438.9
 1,231.5
 2,848.8
 2,402.7
Policyholder credit expense1,033.4
 0
 1,033.4
 0
Investment expenses6.2
 6.2
 12.4
 12.2
4.5
 6.2
 9.8
 12.4
Service expenses45.3
 37.0
 83.4
 66.3
52.8
 45.3
 100.3
 83.4
Interest expense47.4
 41.7
 94.8
 78.5
56.4
 47.4
 104.4
 94.8
Total expenses8,207.1
 7,137.9
 15,939.6
 13,657.2
8,702.9
 8,207.1
 17,151.6
 15,939.6
Net Income              
Income before income taxes1,243.6
 880.1
 2,811.1
 1,790.9
2,268.8
 1,243.6
 3,143.5
 2,811.1
Provision for income taxes264.6
 178.9
 749.3
 359.9
478.4
 264.6
 654.0
 749.3
Net income979.0
 701.2
 2,061.8
 1,431.0
1,790.4
 979.0
 2,489.5
 2,061.8
Net (income) loss attributable to noncontrolling interest (NCI)0.4
 3.0
 (4.0) (8.8)0
 0.4
 0
 (4.0)
Net income attributable to Progressive979.4

704.2
 2,057.8
 1,422.2
1,790.4

979.4
 2,489.5
 2,057.8
Other Comprehensive Income (Loss)              
Changes in:              
Total net unrealized gains (losses) on fixed-maturity securities277.4
 (50.1) 578.5
 (204.6)567.4
 277.4
 630.2
 578.5
Net unrealized losses on forecasted transactions0.2
 0.2
 0.4
 0.4
0.2
 0.2
 0.4
 0.4
Other comprehensive income (loss)277.6
 (49.9) 578.9
 (204.2)567.6
 277.6
 630.6
 578.9
Other comprehensive (income) loss attributable to NCI(2.6) 0.6
 (4.9) 4.6
0
 (2.6) 0
 (4.9)
Comprehensive income attributable to Progressive$1,254.4
 $654.9
 $2,631.8
 $1,222.6
$2,358.0
 $1,254.4
 $3,120.1
 $2,631.8
Computation of Earnings Per Common Share              
Net income attributable to Progressive$979.4
 $704.2
 $2,057.8
 $1,422.2
$1,790.4
 $979.4
 $2,489.5
 $2,057.8
Less: Preferred share dividends6.7
 6.7
 13.4
 7.9
6.7
 6.7
 13.4
 13.4
Net income available to common shareholders$972.7
 $697.5
 $2,044.4
 $1,414.3
$1,783.7
 $972.7
 $2,476.1
 $2,044.4
Average common shares outstanding - Basic583.6
 582.0
 583.5
 582.0
584.8
 583.6
 584.8
 583.5
Net effect of dilutive stock-based compensation3.3
 3.8
 3.2
 3.6
2.4
 3.3
 2.3
 3.2
Total average equivalent common shares - Diluted586.9
 585.8
 586.7
 585.6
587.2
 586.9
 587.1
 586.7
Basic: Earnings per common share$1.67
 $1.20
 $3.50
 $2.43
$3.05
 $1.67
 $4.23
 $3.50
Diluted: Earnings per common share$1.66
 $1.19
 $3.48
 $2.42
$3.04
 $1.66
 $4.22
 $3.48


See notes to consolidated financial statements.


The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)
June 30, December 31,June 30, December 31,
(millions — except per share amounts)2019
 2018
 2018
(millions — except per share amount)2020
 2019
 2019
Assets          
Available-for-sale securities, at fair value:          
Fixed maturities (amortized cost: $30,588.2, $24,061.8, and $28,255.9)$31,188.2
 $23,789.2
 $28,111.5
Short-term investments (amortized cost: $1,360.9, $3,231.2, and $1,795.9)1,360.9
 3,231.2
 1,795.9
Fixed maturities (amortized cost: $33,467.9, $30,588.2, and $32,643.1)$34,726.4
 $31,188.2
 $33,110.3
Short-term investments (amortized cost: $4,700.5, $1,360.9, and $1,798.8)4,700.5
 1,360.9
 1,798.8
Total available-for-sale securities32,549.1
 27,020.4
 29,907.4
39,426.9
 32,549.1
 34,909.1
Equity securities, at fair value:          
Nonredeemable preferred stocks (cost: $1,060.3, $677.0, and $1,002.6)1,130.0
 758.6
 1,033.9
Common equities (cost: $1,203.7, $1,314.0, and $1,148.9)3,135.5
 3,142.2
 2,626.1
Nonredeemable preferred stocks (cost: $1,205.4, $1,060.3, and $971.3)1,180.6
 1,130.0
 1,038.9
Common equities (cost: $1,128.8, $1,203.7, and $1,125.5)3,170.4
 3,135.5
 3,306.3
Total equity securities4,265.5
 3,900.8
 3,660.0
4,351.0
 4,265.5
 4,345.2
Total investments36,814.6
 30,921.2
 33,567.4
43,777.9
 36,814.6
 39,254.3
Cash and cash equivalents91.9
 154.8
 69.5
108.0
 91.9
 226.2
Restricted cash1.0
 2.9
 5.5
1.1
 1.0
 1.2
Total cash, cash equivalents, and restricted cash92.9
 157.7
 75.0
109.1
 92.9
 227.4
Accrued investment income187.5
 146.3
 190.8
190.8
 187.5
 181.3
Premiums receivable, net of allowance for doubtful accounts of $240.7, $210.5, and $252.17,167.1
 6,230.2
 6,497.1
Premiums receivable, net of allowance of $437.9, $240.7, and $283.27,557.4
 7,167.1
 7,507.3
Reinsurance recoverables3,051.5
 2,410.7
 2,696.1
3,654.3
 3,051.5
 3,378.9
Prepaid reinsurance premiums338.0
 289.8
 309.7
361.3
 338.0
 626.5
Deferred acquisition costs1,047.4
 895.7
 951.6
1,154.8
 1,047.4
 1,056.5
Property and equipment, net of accumulated depreciation of $1,105.6, $984.7, and $1,033.21,174.9
 1,116.4
 1,131.7
Property and equipment, net of accumulated depreciation of $1,241.7, $1,105.6, and $1,138.11,189.8
 1,174.9
 1,213.7
Goodwill452.7
 452.7
 452.7
452.7
 452.7
 452.7
Intangible assets, net of accumulated amortization of $283.6, $211.7, and $247.7258.7
 330.6
 294.6
Net deferred income taxes0
 0
 43.2
Intangible assets, net of accumulated amortization of $297.8, $283.6, and $314.0199.7
 258.7
 228.3
Other assets738.9
 412.2
 365.1
758.3
 738.9
 768.4
Total assets$51,324.2
 $43,363.5
 $46,575.0
$59,406.1
 $51,324.2
 $54,895.3
Liabilities          
Unearned premiums$11,796.7
 $10,245.9
 $10,686.5
$13,055.6
 $11,796.7
 $12,388.8
Loss and loss adjustment expense reserves16,568.6
 14,070.8
 15,400.8
18,512.0
 16,568.6
 18,105.4
Net deferred income taxes134.5
 46.0
 0
197.1
 134.5
 132.5
Accounts payable, accrued expenses, and other liabilities4,867.5
 3,922.3
 5,046.5
5,576.1
 4,867.5
 5,962.7
Debt1
4,406.0
 3,859.5
 4,404.9
5,394.7
 4,406.0
 4,407.1
Total liabilities37,773.3
 32,144.5
 35,538.7
42,735.5
 37,773.3
 40,996.5
Redeemable noncontrolling interest (NCI)2
220.1
 218.2
 214.5
0
 220.1
 225.6
Shareholders’ Equity
          
Serial Preferred Shares (authorized 20.0)          
Serial Preferred Shares, Series B, no par value (cumulative, liquidation preference $1,000 per share) (authorized, issued, and outstanding 0.5)493.9
 493.9
 493.9
493.9
 493.9
 493.9
Common shares, $1.00 par value (authorized 900.0; issued 797.5, including treasury shares of 213.4, 215.0, and 214.3)584.1

582.5

583.2
Common shares, $1.00 par value (authorized 900.0; issued 797.5, including treasury shares of 212.1, 213.4, and 212.9)585.4

584.1

584.6
Paid-in capital1,523.3

1,425.9

1,479.0
1,614.5

1,523.3

1,573.4
Retained earnings10,276.4

8,720.4

8,386.6
13,001.8

10,276.4

10,679.6
Accumulated other comprehensive income (loss):









Net unrealized gains (losses) on fixed-maturity securities472.9
 (210.9) (105.6)991.0
 472.9
 360.8
Net unrealized losses on forecasted transactions(16.8) (17.6) (17.2)(16.0) (16.8) (16.4)
Accumulated other comprehensive (income) loss attributable to NCI(3.0) 6.6
 1.9
0
 (3.0) (2.7)
Total accumulated other comprehensive income (loss) attributable to Progressive453.1
 (221.9) (120.9)975.0
 453.1
 341.7
Total shareholders’ equity13,330.8
 11,000.8
 10,821.8
16,670.6
 13,330.8
 13,673.2
Total liabilities, redeemable NCI, and shareholders’ equity$51,324.2
 $43,363.5
 $46,575.0
$59,406.1
 $51,324.2
 $54,895.3

1 Consists of long-term debt. See Note 4 – Debt for further discussion.
2 See Note 12 – Redeemable Noncontrolling Interest for further discussion.

See notes to consolidated financial statements.


The Progressive Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
 
Three Months Six Months
Periods Ended June 30,Three Months Six Months2020
 2019
 2020
 2019
(millions — except per share amounts)2019
 2018
 2019
 2018
       
Serial Preferred Shares, No Par Value              
Balance, Beginning of period$493.9
 $493.9
 $493.9
 $0
Issuance of Serial Preferred Shares, Series B0
 0
 0
 493.9
Balance, End of period493.9
 493.9
 493.9
 493.9
Balance, beginning of period$493.9
 $493.9
 $493.9
 $493.9
Balance, end of period493.9
 493.9
 493.9
 493.9
Common Shares, $1.00 Par Value              
Balance, Beginning of period584.0
 582.4
 583.2
 581.7
Balance, beginning of period585.3
 584.0
 584.6
 583.2
Treasury shares purchased(0.1) 0
 (0.5) (0.7)(0.1) (0.1) (0.4) (0.5)
Net restricted equity awards issued/vested0.2
 0.1
 1.4
 1.5
0.2
 0.2
 1.2
 1.4
Balance, End of period584.1
 582.5
 584.1
 582.5
Balance, end of period585.4
 584.1
 585.4
 584.1
Paid-In Capital              
Balance, Beginning of period1,496.6
 1,401.6
 1,479.0
 1,389.2
Balance, beginning of period1,601.9
 1,496.6
 1,573.4
 1,479.0
Amortization of equity-based compensation26.5
 20.3
 46.1
 37.5
21.9
 26.5
 45.2
 46.1
Treasury shares purchased0
 (0.1) (1.1) (1.7)0
 0
 (1.0) (1.1)
Net restricted equity awards issued/vested(0.2) (0.1) (1.4) (1.5)(0.2) (0.2) (1.2) (1.4)
Reinvested dividends on restricted stock units0.6
 (0.3) 0.9
 (0.8)0.4
 0.6
 0.7
 0.9
Adjustment to carrying amount of redeemable noncontrolling interest(0.2) 4.5
 (0.2) 3.2
(9.5) (0.2) (2.6) (0.2)
Balance, End of period1,523.3
 1,425.9
 1,523.3
 1,425.9
Balance, end of period1,614.5
 1,523.3
 1,614.5
 1,523.3
Retained Earnings              
Balance, Beginning of period9,358.1
 8,017.9
 8,386.6
 6,031.7
Balance, beginning of period11,266.2
 9,358.1
 10,679.6
 8,386.6
Net income attributable to Progressive979.4
 704.2
 2,057.8
 1,422.2
1,790.4
 979.4
 2,489.5
 2,057.8
Treasury shares purchased(2.2) (2.1) (26.8) (37.0)(2.5) (2.2) (27.7) (26.8)
Cash dividends declared on common shares ($0.10, $0, $0.20, and $0 per share)(58.3) 0
 (116.6) 0
Cash dividends declared on Serial Preferred Shares, Series B ($0, $0, $26.875, and $0 per share)0
 0
 (13.4) 0
Cash dividends declared on common shares ($0.10, $0.10, $0.20, and $0.20 per share)(58.4) (58.3) (116.8) (116.6)
Cash dividends declared on Serial Preferred Shares, Series B ($0, $0, $26.875, and $26.875 per share)0
 0
 (13.4) (13.4)
Reinvested dividends on restricted stock units(0.6) 0.3
 (0.9) 0.8
(0.4) (0.6) (0.7) (0.9)
Cumulative effect of change in accounting principle0
 0
 0
 1,300.2
Reclassification of disproportionate tax effects0
 0
 0
 4.3
Other, net0
 0.1
 (10.3) (1.8)6.5
 0
 (8.7) (10.3)
Balance, End of period10,276.4
 8,720.4
 10,276.4
 8,720.4
Balance, end of period13,001.8
 10,276.4
 13,001.8
 10,276.4
Accumulated Other Comprehensive Income (Loss) Attributable to Progressive              
Balance, Beginning of period178.1
 (172.6) (120.9) 1,282.2
Balance, beginning of period404.2
 178.1
 341.7
 (120.9)
Attributable to noncontrolling interest(2.6) 0.6
 (4.9) 4.6
3.2
 (2.6) 2.7
 (4.9)
Other comprehensive income277.6
 (49.9) 578.9
 (204.2)567.6
 277.6
 630.6
 578.9
Cumulative effect of change in accounting principle0
 0
 0
 (1,300.2)
Reclassification of disproportionate tax effects0
 0
 0
 (4.3)
Balance, End of period453.1
 (221.9) 453.1
 (221.9)
Total Shareholders’ Equity$13,330.8
 $11,000.8
 $13,330.8
 $11,000.8
Balance, end of period975.0
 453.1
 975.0
 453.1
Total shareholders’ equity$16,670.6
 $13,330.8
 $16,670.6
 $13,330.8

There are 5.0 million Voting Preference Shares authorized; no such shares have been issued.

See notes to consolidated financial statements.


The Progressive Corporation and Subsidiaries
Consolidated Statements of Cash Flows        
(unaudited)
Six Months Ended June 30,2019
 2018
2020
 2019
(millions)      
Cash Flows From Operating Activities      
Net income$2,061.8
 $1,431.0
$2,489.5
 $2,061.8
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation114.6
 86.6
130.3
 114.6
Amortization of intangible assets35.9
 36.0
28.6
 35.9
Net amortization of fixed-income securities1.9
 23.2
42.5
 1.9
Amortization of equity-based compensation46.0
 38.5
45.2
 46.0
Net realized (gains) losses on securities(594.4) 15.4
(337.2) (594.4)
Net (gains) losses on disposition of property and equipment(1.6) 1.7
1.8
 (1.6)
Changes in:      
Premiums receivable(670.0) (807.7)(50.1) (670.0)
Reinsurance recoverables(355.4) (137.3)(275.4) (355.4)
Prepaid reinsurance premiums(28.3) (86.5)265.2
 (28.3)
Deferred acquisition costs(95.8) (115.2)(98.3) (95.8)
Income taxes157.4
 2.0
590.6
 157.4
Unearned premiums1,110.2
 1,342.4
666.8
 1,110.2
Loss and loss adjustment expense reserves1,167.8
 983.9
406.6
 1,167.8
Accounts payable, accrued expenses, and other liabilities605.8
 700.4
(2.0) 605.8
Other, net(181.2) (31.1)(25.5) (181.2)
Net cash provided by operating activities3,374.7
 3,483.3
3,878.6
 3,374.7
Cash Flows From Investing Activities      
Purchases:      
Fixed maturities(13,008.4) (10,780.0)(18,193.5) (13,008.4)
Equity securities(230.7) (136.4)(671.3) (230.7)
Sales:      
Fixed maturities8,162.1
 3,916.1
13,749.2
 8,162.1
Equity securities131.6
 460.0
382.1
 131.6
Maturities, paydowns, calls, and other:      
Fixed maturities2,589.0
 2,936.2
4,106.4
 2,589.0
Equity securities0
 15.0
79.0
 0
Net sales (purchases) of short-term investments458.3
 (343.8)
Net (purchases) sales of short-term investments(2,883.1) 458.3
Net unsettled security transactions297.6
 367.9
266.0
 297.6
Purchases of property and equipment(203.2) (102.0)(110.7) (203.2)
Sales of property and equipment24.6
 6.7
4.8
 24.6
Acquisition of additional shares of ARX Holding Corp.(11.2) (295.9)
Net cash used in investing activities(1,790.3) (3,956.2)(3,271.1) (1,779.1)
Cash Flows From Financing Activities      
Dividends paid to common shareholders(1,526.3) (654.9)(1,433.9) (1,526.3)
Dividends paid to preferred shareholders(13.4) 0
(13.4) (13.4)
Acquisition of treasury shares for restricted stock tax liabilities(28.4) (39.0)(29.1) (28.4)
Acquisition of treasury shares acquired in open market0
 (0.4)
Acquisition of additional shares of ARX Holding Corp.(243.0) (11.2)
Net proceeds from debt issuances986.3
 0
Proceeds from exercise of equity options1.6
 3.3
7.3
 1.6
Net proceeds from issuance of Serial Preferred Shares, Series B0
 493.9
Net proceeds from debt issuances0
 589.5
Payments of debt0
 (37.1)
Net cash provided by (used in) financing activities(1,566.5) 355.3
Net cash used in financing activities(725.8) (1,577.7)
Increase (decrease) in cash, cash equivalents, and restricted cash17.9
 (117.6)(118.3) 17.9
Cash, cash equivalents, and restricted cash – January 1
75.0
 275.3
227.4
 75.0
Cash, cash equivalents, and restricted cash – June 30
$92.9
 $157.7
$109.1
 $92.9



See notes to consolidated financial statements.


The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1 Basis of Presentation — The accompanying consolidated financial statements include the accounts of The Progressive Corporation, and ARX Holding Corp. (ARX), and their respectiveits wholly owned insurance and non-insurance subsidiaries, and affiliates in which Progressive or ARX has a controlling financial interest.affiliates. On April 1, 2020, The Progressive Corporation owned 87.1%acquired the remaining outstanding stock of ARX Holding Corp. (ARX), bringing Progressive’s ownership interest of the outstanding capital stock of ARX at June 30, 2019to 100.0%, 86.7%compared to 87.1% at June 30, 2018,2019 and 86.8% at December 31, 2018, respectively.2019. See Note 12 – Redeemable Noncontrolling Interest for further discussion.
The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. The results of operations for the period ended June 30, 2019,2020, are not necessarily indicative of the results expected for the full year. These consolidated financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2018 (“20182019 (“2019 Annual Report to Shareholders”Shareholders”).
We perform analyses to evaluate our premium receivables for expected credit losses. As part of these analyses, we determine historical collectability rates and modify those rates based on current economic assumptions, to establish estimates on default. These rates are applied to the stratified subsets of our consumer receivable balances, based on the age of the receivable, to establish an allowance for credit loss. Progressive’s premiums receivable are short-term in nature and, generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk.
At June 30, 2020, our allowance for credit loss exposure on our premium receivables was $437.9 million. During the three and six months ended June 30, 2020, we increased our allowance by $196.2 million and $366.5 million, respectively, and reduced it by $103.0 million and $211.8 million. In addition to increasing the allowance for credit loss arising out of the normal course of business, we recorded an additional $120.0 million and $191.0 million for the three and six months ended June 30, 2020, respectively, to reflect the estimated impact from moratoriums and billing leniency efforts that we put in place from March through May 2020, to help policyholders who may be experiencing financial hardships as a result of the spread of the novel coronavirus, COVID-19, and federal, state, and local social distancing and shelter-in-place restrictions (“COVID-19 restrictions”). This additional increase to the allowance was determined through analyzing our ultimate at-risk exposure of receivables related to policyholders impacted by the moratorium and leniency efforts. Collectability reserving factors were applied to this ultimate exposure based on historical moratorium and leniency specific collections experience, as well as current collections experience. The reductions to the allowance for credit loss represents the premiums receivable written off during the respective periods.
Other assets on the consolidated balance sheets include certain long-lived assets that are considered “held for sale.” The fair value of these held for sale assets, less the estimated sales costs, was $57.2 million at June 30, 2019, $17.4$31.1 million at June 30, 2018,2020, $57.2 million at June 30, 2019, and $39.3$32.9 million at December 31, 2018.2019.
Included on our consolidated balance sheets are certain operating leases for office space, computer equipment, and vehicles. The leased assets represent our right to use an underlying asset for the lease term, and the lease liabilities, represent our obligation to make lease payments arising from the leases. At June 30, 2020 and 2019, and December 31, 2019, we had operating lease assets of $170.0 million, $189.1 million, and $188.2 million, respectively, as a component of other assets, and operating lease liabilities of $182.4 million, $204.2 million, and $201.5 million, respectively, as a component of accounts payable, accrued expenses, and other liabilities. See Note 13 – Leases in our 2019 Annual Report to Shareholders for further discussion.


Note 2 Investments — The following tables present the composition of our investment portfolio by major security type, consistent with our classification of how we manage, monitor, and measure the portfolio. Our securities are reported in our Consolidated Balance Sheetsconsolidated balance sheets at fair value. The changes in fair value for our fixed-maturity securities (other than hybrid securities) are reported as a component of accumulated other comprehensive income, net of deferred income taxes, in our Consolidated Balance Sheets.consolidated balance sheets. The net holding period gains (losses) reported below represent the inception-to-date changes in fair value of the securities. The changes in the net holding period gains (losses) between periods for the hybrid securities and equity securities are recorded as a component of net realized gains (losses) on securities in our Consolidated Statementsconsolidated statements of Comprehensive Income.comprehensive income. During the second quarter 2020, the portfolio’s valuation significantly recovered from the decline experienced at the end of the first quarter 2020.
($ in millions)Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

June 30, 2019           
June 30, 2020           
Available-for-sale securities:                      
Fixed maturities:                      
U.S. government obligations$12,121.9
 $259.7
 $(2.2) $0
 $12,379.4
 33.6%$8,814.5
 $463.4
 $(0.1) $0
 $9,277.8
 21.2%
State and local government obligations1,563.6
 27.4
 (1.3) 0
 1,589.7
 4.3
3,426.0
 148.9
 (0.6) 0
 3,574.3
 8.2
Corporate debt securities7,176.7
 210.1
 (1.8) 0.7
 7,385.7
 20.1
10,493.2
 571.4
 (3.4) 1.3
 11,062.5
 25.3
Residential mortgage-backed securities660.4
 6.2
 (1.4) 0
 665.2
 1.8
541.0
 5.4
 (3.4) 0
 543.0
 1.2
Commercial mortgage-backed securities4,361.2
 83.3
 (2.6) 0
 4,441.9
 12.1
5,728.5
 89.1
 (55.8) 0
 5,761.8
 13.2
Other asset-backed securities4,478.2
 19.9
 (1.0) 0.1
 4,497.2
 12.2
4,313.3
 45.3
 (3.7) 0
 4,354.9
 9.9
Redeemable preferred stocks226.2
 3.4
 (1.6) 1.1
 229.1
 0.6
151.4
 2.0
 (1.4) 0.1
 152.1
 0.3
Total fixed maturities30,588.2
 610.0
 (11.9) 1.9
 31,188.2
 84.7
33,467.9
 1,325.5
 (68.4) 1.4
 34,726.4
 79.3
Short-term investments1,360.9
 0
 0
 0
 1,360.9
 3.7
4,700.5
 0
 0
 0
 4,700.5
 10.8
Total available-for-sale securities31,949.1
 610.0
 (11.9) 1.9
 32,549.1
 88.4
38,168.4
 1,325.5
 (68.4) 1.4
 39,426.9
 90.1
Equity securities:                      
Nonredeemable preferred stocks1,060.3
 0
 0
 69.7
 1,130.0
 3.1
1,205.4
 0
 0
 (24.8) 1,180.6
 2.7
Common equities1,203.7
 0
 0
 1,931.8
 3,135.5
 8.5
1,128.8
 0
 0
 2,041.6
 3,170.4
 7.2
Total equity securities2,264.0
 0
 0
 2,001.5
 4,265.5
 11.6
2,334.2
 0
 0
 2,016.8
 4,351.0
 9.9
Total portfolio1,2
$34,213.1
 $610.0
 $(11.9) $2,003.4
 $36,814.6
 100.0%$40,502.6
 $1,325.5
 $(68.4) $2,018.2
 $43,777.9
 100.0%



($ in millions)Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

June 30, 2018           
June 30, 2019           
Available-for-sale securities:                      
Fixed maturities:                      
U.S. government obligations$8,005.8
 $0.9
 $(141.3) $0
 $7,865.4
 25.4%$12,121.9
 $259.7
 $(2.2) $0
 $12,379.4
 33.6%
State and local government obligations1,678.9
 4.3
 (15.9) 0
 1,667.3
 5.4
1,563.6
 27.4
 (1.3) 0
 1,589.7
 4.3
Corporate debt securities7,422.4
 4.2
 (94.3) (2.0) 7,330.3
 23.7
7,176.7
 210.1
 (1.8) 0.7
 7,385.7
 20.1
Residential mortgage-backed securities819.6
 8.4
 (5.4) 0
 822.6
 2.7
660.4
 6.2
 (1.4) 0
 665.2
 1.8
Commercial mortgage-backed securities2,725.5
 2.9
 (31.5) 0
 2,696.9
 8.7
4,361.2
 83.3
 (2.6) 0
 4,441.9
 12.1
Other asset-backed securities3,189.2
 2.0
 (13.7) 0.1
 3,177.6
 10.3
4,478.2
 19.9
 (1.0) 0.1
 4,497.2
 12.2
Redeemable preferred stocks220.4
 14.1
 (2.0) (3.4) 229.1
 0.7
226.2
 3.4
 (1.6) 1.1
 229.1
 0.6
Total fixed maturities24,061.8
 36.8
 (304.1) (5.3) 23,789.2
 76.9
30,588.2
 610.0
 (11.9) 1.9
 31,188.2
 84.7
Short-term investments3,231.2
 0
 0
 0
 3,231.2
 10.5
1,360.9
 0
 0
 0
 1,360.9
 3.7
Total available-for-sale securities27,293.0
 36.8
 (304.1) (5.3) 27,020.4
 87.4
31,949.1
 610.0
 (11.9) 1.9
 32,549.1
 88.4
Equity securities:                      
Nonredeemable preferred stocks677.0
 0
 0
 81.6
 758.6
 2.4
1,060.3
 0
 0
 69.7
 1,130.0
 3.1
Common equities1,314.0
 0
 0
 1,828.2
 3,142.2
 10.2
1,203.7
 0
 0
 1,931.8
 3,135.5
 8.5
Total equity securities1,991.0
 0
 0
 1,909.8
 3,900.8
 12.6
2,264.0
 0
 0
 2,001.5
 4,265.5
 11.6
Total portfolio1,2
$29,284.0
 $36.8
 $(304.1) $1,904.5
 $30,921.2
 100.0%$34,213.1
 $610.0
 $(11.9) $2,003.4
 $36,814.6
 100.0%
 
($ in millions)Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

Cost
 
Gross
Unrealized Gains

 
Gross
Unrealized
Losses

 
Net
Holding Period Gains
(Losses)

 
Fair
Value

 
% of
Total
Fair
Value

December 31, 2018           
December 31, 2019           
Available-for-sale securities:                      
Fixed maturities:                      
U.S. government obligations$9,897.4
 $71.2
 $(52.1) $0
 $9,916.5
 29.5%$13,100.7
 $194.1
 $(43.7) $0
 $13,251.1
 33.7%
State and local government obligations1,654.6
 7.3
 (12.8) 0
 1,649.1
 4.9
1,686.0
 30.0
 (2.7) 0
 1,713.3
 4.4
Corporate debt securities8,808.5
 13.6
 (125.3) (2.5) 8,694.3
 25.9
6,860.3
 206.6
 (0.5) 1.3
 7,067.7
 18.0
Residential mortgage-backed securities733.5
 6.0
 (5.1) 0
 734.4
 2.2
625.0
 4.5
 (2.0) 0
 627.5
 1.6
Commercial mortgage-backed securities3,332.8
 7.8
 (39.0) 0
 3,301.6
 9.8
5,020.7
 61.5
 (6.0) 0
 5,076.2
 12.9
Other asset-backed securities3,585.4
 3.6
 (11.8) 0.1
 3,577.3
 10.7
5,164.7
 16.2
 (1.4) 0
 5,179.5
 13.2
Redeemable preferred stocks243.7
 5.9
 (3.5) (7.8) 238.3
 0.7
185.7
 4.1
 (1.3) 6.5
 195.0
 0.5
Total fixed maturities28,255.9
 115.4
 (249.6) (10.2) 28,111.5
 83.7
32,643.1
 517.0
 (57.6) 7.8
 33,110.3
 84.3
Short-term investments1,795.9
 0
 0
 0
 1,795.9
 5.4
1,798.8
 0
 0
 0
 1,798.8
 4.6
Total available-for-sale securities30,051.8
 115.4
 (249.6) (10.2) 29,907.4
 89.1
34,441.9
 517.0
 (57.6) 7.8
 34,909.1
 88.9
Equity securities:                      
Nonredeemable preferred stocks1,002.6
 0
 0
 31.3
 1,033.9
 3.1
971.3
 0
 0
 67.6
 1,038.9
 2.7
Common equities1,148.9
 0
 0
 1,477.2
 2,626.1
 7.8
1,125.5
 0
 0
 2,180.8
 3,306.3
 8.4
Total equity securities2,151.5
 0
 0
 1,508.5
 3,660.0
 10.9
2,096.8
 0
 0
 2,248.4
 4,345.2
 11.1
Total portfolio1,2
$32,203.3
 $115.4
 $(249.6) $1,498.3
 $33,567.4
 100.0%$36,538.7
 $517.0
 $(57.6) $2,256.2
 $39,254.3
 100.0%

1Our portfolio reflects the effect of net unsettled security transactions; at June 30, 2019,2020, we had $277.9 million in other liabilities, compared to $303.5 million included in “other liabilities,” compared to $362.1 million and $5.9$11.9 million at June 30, 20182019 and December 31, 2018,2019, respectively.
2The total fair value of the portfolio at June 30, 20192020 and 2018,2019, and December 31, 2018,2019, included $2.3 billion, $1.2 billion, $1.7 billion, and $2.9$3.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.




At June 30, 2019,2020, bonds and certificates of deposit in the principal amount of $251.0$281.1 million were on deposit to meet state insurance regulatory requirements. We did 0t hold any securities of any one issuer, excluding U.S. government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at June 30, 2020 and 2019, or December 31, 2019. At June 30, 2020, we did 0t hold any debt securities that were non-income producing during the preceding 12 months.

Short-Term Investments Our short-term investments may include commercial paper and other investments that are expected to mature or are redeemable within one year.

Although we did investinvested in repurchase and reverse repurchase transactions during the first six months of 20192020 and at various times during 2018,throughout 2019, we did not0t have any open repurchase or reverse repurchase transactions in our short-term investment portfoliopositions at June 30, 20192020 and 2018,2019, or December 31, 2018.2019. To the extent we enter into repurchase or reverse repurchase transactions, consistent with past practice, we would elect not to offset these transactions and would report them on a gross basis on our consolidated balance sheets, despite the option to elect to offset these transactions as long as they were with the same counterparty and subject to an enforceable master netting arrangement.

Hybrid Securities Included in our fixed-maturity securities are hybrid securities, which are reported at fair value:

June 30,  June 30,  
(millions)2019
 2018
 December 31, 2018
2020
 2019
 December 31, 2019
Fixed maturities:          
State and local government obligations$3.5
 $3.6
 $3.6
$3.4
 $3.5
 $3.5
Corporate debt securities91.3
 170.3
 158.9
84.3
 91.3
 91.2
Other asset-backed securities3.5
 5.5
 4.5
2.2
 3.5
 2.6
Redeemable preferred stocks86.7
 67.3
 77.7
90.2
 86.7
 92.1
Total hybrid securities$185.0
 $246.7
 $244.7
$180.1
 $185.0
 $189.4


Certain securities in our portfolio are accounted for as hybrid securities because they contain embedded derivatives that are not deemed to be clearly and closely related to the host investments. Since the embedded derivatives (e.g., change-in-control put option, debt-to-equity conversion, or any other feature unrelated to the credit quality or risk of default of the issuer that could impact the amount or timing of our expected future cash flows) do not have observable intrinsic values, we have elected to record the changes in fair value of these securities through income as realized gains or losses.
Fixed Maturities The composition of fixed maturities by maturity at June 30, 20192020, was:
(millions)Cost
 Fair Value
Cost
 Fair Value
Less than one year$5,388.1
 $5,394.3
$5,936.5
 $5,962.1
One to five years18,518.4
 18,833.0
18,030.7
 18,599.1
Five to ten years6,551.9
 6,829.2
8,958.7
 9,588.6
Ten years or greater129.8
 131.7
542.0
 576.6
Total$30,588.2
 $31,188.2
$33,467.9
 $34,726.4

 
Asset-backed securities are classified in the maturity distribution table based upon their projected cash flows. All other securities which do not have a single maturity date are reported based upon expected average maturity. Contractual maturities may differ from expected maturities because the issuers of the securities may have the right to call or prepay obligations.









Gross Unrealized Losses The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:
 Total No. of Sec.
Total
Fair
Value
Gross Unrealized Losses
Less than 12 Months 12 Months or Greater
($ in millions)No. of Sec.
Fair
Value
Unrealized Losses
 No. of Sec.
Fair
Value
Unrealized Losses
June 30, 2020          
Fixed maturities:          
U.S. government obligations4
$120.6
$(0.1)4
$120.6
$(0.1) 0
$0
$0
State and local government obligations17
135.0
(0.6)16
131.2
(0.6) 1
3.8
0
Corporate debt securities21
292.8
(3.4)21
292.8
(3.4) 0
0
0
Residential mortgage-backed securities40
188.2
(3.4)21
93.7
(1.7) 19
94.5
(1.7)
Commercial mortgage-backed securities113
2,536.6
(55.8)91
2,106.6
(48.3) 22
430.0
(7.5)
Other asset-backed securities29
331.7
(3.7)21
299.0
(3.4) 8
32.7
(0.3)
Redeemable preferred stocks1
11.0
(1.4)0
0
0
 1
11.0
(1.4)
Total fixed maturities225
$3,615.9
$(68.4)174
$3,043.9
$(57.5) 51
$572.0
$(10.9)
 Total No. of Sec.
Total
Fair
Value
Gross Unrealized Losses
Less than 12 Months 12 Months or Greater
($ in millions)No. of Sec.
Fair
Value
Unrealized Losses
 No. of Sec.
Fair
Value
Unrealized Losses
June 30, 2019          
Fixed maturities:          
U.S. government obligations16
$572.8
$(2.2)0
$0
$0
 16
$572.8
$(2.2)
State and local government obligations85
398.3
(1.3)11
133.6
(0.1) 74
264.7
(1.2)
Corporate debt securities68
928.9
(1.8)4
42.3
(0.1) 64
886.6
(1.7)
Residential mortgage-backed securities43
203.8
(1.4)8
24.5
0
 35
179.3
(1.4)
Commercial mortgage-backed securities57
963.7
(2.6)26
485.5
(1.1) 31
478.2
(1.5)
Other asset-backed securities92
674.6
(1.0)23
265.6
(0.2) 69
409.0
(0.8)
Redeemable preferred stocks2
26.3
(1.6)1
15.0
(0.5) 1
11.3
(1.1)
Total fixed maturities363
$3,768.4
$(11.9)73
$966.5
$(2.0) 290
$2,801.9
$(9.9)
 Total No. of Sec.
Total
Fair
Value
Gross Unrealized Losses
Less than 12 Months 12 Months or Greater
($ in millions)No. of Sec.
Fair
Value
Unrealized Losses
 No. of Sec.
Fair
Value
Unrealized Losses
June 30, 2018          
Fixed maturities:          
U.S. government obligations70
$7,503.2
$(141.3)33
$4,543.5
$(73.6) 37
$2,959.7
$(67.7)
State and local government obligations355
1,050.9
(15.9)219
631.9
(7.1) 136
419.0
(8.8)
Corporate debt securities391
6,153.5
(94.3)322
5,439.3
(77.2) 69
714.2
(17.1)
Residential mortgage-backed securities227
380.3
(5.4)52
188.6
(0.9) 175
191.7
(4.5)
Commercial mortgage-backed securities142
2,300.9
(31.5)85
1,371.4
(14.4) 57
929.5
(17.1)
Other asset-backed securities219
2,479.7
(13.7)148
2,055.1
(8.5) 71
424.6
(5.2)
Redeemable preferred stocks3
30.2
(2.0)1
4.6
(0.2) 2
25.6
(1.8)
Total fixed maturities1,407
$19,898.7
$(304.1)860
$14,234.4
$(181.9) 547
$5,664.3
$(122.2)
Total No. of Sec.
Total
Fair
Value
Gross Unrealized Losses
Less than 12 Months 12 Months or GreaterTotal No. of Sec.
Total
Fair
Value
Gross Unrealized Losses
Less than 12 Months 12 Months or Greater
($ in millions)No. of Sec.
Fair
Value
Unrealized Losses
 No. of Sec.
Fair
Value
Unrealized Losses
No. of Sec.
Fair
Value
Unrealized Losses
 No. of Sec.
Fair
Value
Unrealized Losses
December 31, 2018       
December 31, 2019       
Fixed maturities:              
U.S. government obligations51
$4,438.0
$(52.1)2
$126.6
$(0.1) 49
$4,311.4
$(52.0)23
$5,152.4
$(43.7)19
$5,057.2
$(43.6) 4
$95.2
$(0.1)
State and local government obligations299
972.4
(12.8)49
192.7
(0.3) 250
779.7
(12.5)67
314.3
(2.7)52
287.5
(2.6) 15
26.8
(0.1)
Corporate debt securities368
6,723.3
(125.3)133
2,613.3
(33.4) 235
4,110.0
(91.9)16
247.6
(0.5)12
191.4
(0.5) 4
56.2
0
Residential mortgage-backed securities228
450.2
(5.1)32
248.8
(0.8) 196
201.4
(4.3)41
292.8
(2.0)12
163.7
(0.9) 29
129.1
(1.1)
Commercial mortgage-backed securities140
2,328.5
(39.0)48
741.2
(8.9) 92
1,587.3
(30.1)98
1,742.4
(6.0)79
1,400.0
(5.3) 19
342.4
(0.7)
Other asset-backed securities203
2,691.3
(11.8)84
1,551.7
(3.2) 119
1,139.6
(8.6)61
1,000.6
(1.4)43
938.5
(0.9) 18
62.1
(0.5)
Redeemable preferred stocks3
48.5
(3.5)1
18.9
(0.6) 2
29.6
(2.9)1
11.2
(1.3)0
0
0
 1
11.2
(1.3)
Total fixed maturities1,292
$17,652.2
$(249.6)349
$5,493.2
$(47.3) 943
$12,159.0
$(202.3)307
$8,761.3
$(57.6)217
$8,038.3
$(53.8) 90
$723.0
$(3.8)


Since bothDuring the second quarter of 2020, we had 5 securities included in the table above that had their credit ratings downgraded, including 3 in our corporate debt portfolio and 2 in our residential mortgage-backed portfolio, with a combined fair value of $29.2 million and an unrealized loss of $0.3 million as of June 30, 2018 and December 31, 2018, the number of2020. Additionally, 6 securities in our fixed-maturity portfoliothe table above had their credit ratings upgraded during the quarter, including 1 corporate debt security, 3 commercial mortgage-backed securities, and 2 other asset-backed securities, with a combined fair value of $58.7 million and an unrealized losses decreased, primarily due to valuation increases in nearly all sectors since interest rates declined and credit spreads tightened. We had no material decreases in valuationloss of $0.4 million as a result of credit rating downgrades.June 30, 2020. A review of theall securities in the table above indicated that the issuers were current with respect to their interest obligations and that there was no evidence of significant deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity.




Other-Than-Temporary Impairment (OTTI)Allowance For Credit and Uncollectible Losses The following table shows the total non-credit portion of the OTTI recorded in accumulated other comprehensive income, reflecting the original non-credit loss at the time the credit impairment was determined (i.e., unadjusted for valuation changes subsequent to the original write-down):
 June 30, December 31,
2018
(millions)2019
 2018
 
Fixed maturities:     
Residential mortgage-backed securities$(19.7) $(19.7) $(19.7)
Commercial mortgage-backed securities(0.1) (0.3) (0.1)
Total fixed maturities$(19.8) $(20.0) $(19.8)


The following tables provide rollforwards of the amounts related to credit losses recognized in earnings for the periods ended June 30, 2019 and 2018, for which a portion of the OTTI losses were also recognized in accumulated other comprehensive income at the time the credit impairments were determined and recognized:
 Three Months Ended June 30, 2019
 Mortgage-Backed  
(millions)Residential 
 Commercial 
 Total
Balance at March 31, 2019$0
 $0.5
 $0.5
Change in recoveries of future cash flows expected to be collected1
0
 0
 0
Balance at June 30, 2019$0
 $0.5
 $0.5
      
 Six Months Ended June 30, 2019
 Mortgage-Backed  
(millions)Residential 
 Commercial 
 Total
Balance at December 31, 2018$0
 $0.5
 $0.5
Change in recoveries of future cash flows expected to be collected1
0
 0
 0
Balance at June 30, 2019$0
 $0.5
 $0.5
 Three Months Ended June 30, 2018
 Mortgage-Backed  
(millions)Residential 
 Commercial 
 Total
Balance at March 31, 2018$0
 $0.5
 $0.5
Change in recoveries of future cash flows expected to be collected1
0.3
 0
 0.3
Balance at June 30, 2018$0.3
 $0.5
 $0.8
      
 Six Months Ended June 30, 2018
 Mortgage-Backed  
(millions)Residential 
 Commercial 
 Total
Balance at December 31, 2017$0
 $0.5
 $0.5
Change in recoveries of future cash flows expected to be collected1
0.3
 0
 0.3
Balance at June 30, 2018$0.3
 $0.5
 $0.8
1Reflects the current period change in the expected recovery of prior impairments that will be accreted into income over the remaining life of the security.
Although it is not likely that we will be required to sell the securities prior to the recovery of their respective cost bases (which could be maturity), weWe are required to measure the amount of potential credit losses on thefor all fixed-maturity securities that were in an unrealized loss position. In that process, weWe did 0t record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible for the first six months of 2020 and did 0t have a credit loss allowance balance as of June 30, 2020. We considered a number ofseveral factors and inputs related to the individual securities.securities as part of our analysis. The methodology and significant inputs used to measure the amount of credit losses in our portfolio included: current performance indicators on the business model or underlying assets (e.g., delinquency rates, foreclosure rates, and default rates); credit support (via current levels of subordination); historical credit ratings; and updated cash flow expectations based upon these performance indicators.
In order to determine the amount of credit loss, if any, the net present value of the cash flows expected (i.e., expected recovery value) was calculated using the current book yield for each security, and was compared to its current amortized value. In the event that the net present value was below the amortized value, a credit loss would be deemed to exist, and an allowance for credit losses would be created, or if a change in the current allowance has occurred, either a recovery of the previous allowance or an incremental loss would be recorded to realized gains (losses). We also deemed it is not likely that we will be required to sell the securities in an unrealized loss position prior to the recovery of their respective cost bases (which could be maturity).
As of June 30, 2020, we believe none of the unrealized losses relate to material credit losses on any specific securities, or in the aggregate, based on our review. We continue to expect all the securities in our portfolio to pay their principal and interest obligations, which is consistent with our expectations at the end of first quarter.

In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at June 30, 2020, to determine if the accrued interest amounts were determined to be uncollectible. Based on our analysis, we believe the issuers have sufficient liquidity and capital reserves to meet their current interest, and future principal, obligations and, therefore, did 0t write off any accrued income as uncollectible at June 30, 2020.







and the security would be written down. We did not have any credit impairment write-downs for the six months ended June 30, 2019 or 2018.
Realized Gains (Losses) The components of net realized gains (losses) for the three and six months ended June 30, were:
Three Months Six MonthsThree Months Six Months
(millions)2019
 2018
 2019
 2018
2020
 2019
 2020
 2019
Gross realized gains on security sales              
Available-for-sale securities:              
U.S. government obligations$34.9
 $1.7
 $71.5
 $1.7
$224.5
 $34.9
 $475.6
 $71.5
State and local government obligations0.6
 0.6
 2.2
 9.2
13.0
 0.6
 15.0
 2.2
Corporate and other debt securities31.1
 0.3
 47.2
 0.4
34.3
 31.1
 66.7
 47.2
Residential mortgage-backed securities0.2
 0
 0.2
 0
0
 0.2
 0
 0.2
Commercial mortgage-backed securities2.9
 0.3
 3.6
 2.0
4.3
 2.9
 10.4
 3.6
Other asset-backed securities0.7
 0.1
 0.7
 0.1
0
 0.7
 0
 0.7
Redeemable preferred stocks0
 3.2
 0
 4.3
Total available-for-sale securities70.4
 6.2
 125.4
 17.7
276.1
 70.4
 567.7
 125.4
Equity securities:              
Nonredeemable preferred stocks11.7
 0
 16.6
 3.6
0.1
 11.7
 19.7
 16.6
Common equities0.2
 18.5
 4.7
 138.4
9.1
 0.2
 75.1
 4.7
Total equity securities11.9
 18.5
 21.3
 142.0
9.2
 11.9
 94.8
 21.3
Subtotal gross realized gains on security sales82.3
 24.7
 146.7

159.7
285.3
 82.3
 662.5

146.7
Gross realized losses on security sales              
Available-for-sale securities:              
U.S. government obligations(5.3) (29.9) (12.4) (38.8)(0.6) (5.3) (3.3) (12.4)
State and local government obligations(0.1) (0.6) (0.7) (1.9)0
 (0.1) 0
 (0.7)
Corporate and other debt securities(1.4) (1.0) (7.5) (4.1)(5.5) (1.4) (6.5) (7.5)
Residential mortgage-backed securities0
 0
 (2.3) 0
0
 0
 0
 (2.3)
Commercial mortgage-backed securities0
 0
 (2.1) (6.3)(9.8) 0
 (9.8) (2.1)
Other asset-backed securities0
 (0.9) (0.1) (1.0)0
 0
 0
 (0.1)
Redeemable preferred stocks(0.1) 0
 (0.1) 0
0
 (0.1) 0
 (0.1)
Total available-for-sale securities(6.9) (32.4) (25.2) (52.1)(15.9) (6.9) (19.6) (25.2)
Equity securities:              
Nonredeemable preferred stocks0
 (1.9) 0
 (2.3)(3.0) 0
 (7.4) 0
Common equities(7.9) 0
 (7.9) (7.9)(6.4) (7.9) (60.3) (7.9)
Total equity securities(7.9) (1.9) (7.9) (10.2)(9.4) (7.9) (67.7) (7.9)
Subtotal gross realized losses on security sales(14.8) (34.3) (33.1) (62.3)(25.3) (14.8) (87.3) (33.1)
Net realized gains (losses) on security sales              
Available-for-sale securities:              
U.S. government obligations29.6
 (28.2) 59.1
 (37.1)223.9
 29.6
 472.3
 59.1
State and local government obligations0.5
 0
 1.5
 7.3
13.0
 0.5
 15.0
 1.5
Corporate and other debt securities29.7
 (0.7) 39.7
 (3.7)28.8
 29.7
 60.2
 39.7
Residential mortgage-backed securities0.2
 0
 (2.1) 0
0
 0.2
 0
 (2.1)
Commercial mortgage-backed securities2.9
 0.3
 1.5
 (4.3)(5.5) 2.9
 0.6
 1.5
Other asset-backed securities0.7
 (0.8) 0.6
 (0.9)0
 0.7
 0
 0.6
Redeemable preferred stocks(0.1) 3.2
 (0.1) 4.3
0
 (0.1) 0
 (0.1)
Total available-for-sale securities63.5
 (26.2) 100.2
 (34.4)260.2
 63.5
 548.1
 100.2
Equity securities:              
Nonredeemable preferred stocks11.7
 (1.9) 16.6
 1.3
(2.9) 11.7
 12.3
 16.6
Common equities(7.7) 18.5
 (3.2) 130.5
2.7
 (7.7) 14.8
 (3.2)
Total equity securities4.0
 16.6
 13.4
 131.8
(0.2) 4.0
 27.1
 13.4
Subtotal net realized gains (losses) on security sales67.5
 (9.6) 113.6
 97.4
260.0
 67.5
 575.2
 113.6
Net holding period gains (losses)              
Hybrid securities1.4
 (2.3) 12.1
 (5.5)24.8
 1.4
 (6.4) 12.1
Equity securities111.0
 55.8
 493.0
 (96.2)606.0
 111.0
 (231.6) 493.0
Subtotal net holding period gains (losses)112.4
 53.5
 505.1
 (101.7)630.8
 112.4
 (238.0) 505.1
Other-than-temporary impairment losses       
Impairment losses       
Other asset impairment0
 (11.1) (24.3) (11.1)0
 0
 0
 (24.3)
Subtotal other-than-temporary impairment losses0
 (11.1) (24.3) (11.1)
Subtotal impairment losses0
 0
 0
 (24.3)
Total net realized gains (losses) on securities$179.9
 $32.8
 $594.4
 $(15.4)$890.8
 $179.9
 $337.2
 $594.4


Realized gains (losses) on securities sold are computed using the first-in-first-out method. During the second quarter of 2020, our common and nonredeemable preferred stocks’ valuations experienced a significant, although not a complete, recovery from the declines experienced during the first quarter. Net realized gains on security sales were primarily in U.S. Treasury securities, which were sold in order to selectively increase holdings across the remainder of the portfolio, predominantly in our corporate debt portfolio. The sales in our common stock portfolio were the result of rebalancing the indexed equity portfolio. We had net security gains on the sales of our common stocks due to the extensive holding periods of these investments, in some cases more than ten years, which created significant valuation increases that more than offset the decline experienced.




For both 2019, and 2018, the other asset impairment losses related to federal renewable energy tax credit fund investments, which were reported in “other assets”other assets on the consolidated balance sheet,sheets, based on an analysis that our investments in those funds will not generate the cash flows that we anticipated. See Note 5 – Income Taxes for additional discussion related to 2019 activity.





The following table reflects our holding period realized gains (losses) on equity securities recognized for the three and six months ended June 30, 20192020 and 2018,2019, for equity securities held at the respective quarter end:
 Three Months Six Months
(millions)2019
2018
 2019
2018
Total net gains (losses) recognized during the period on equity securities$115.0
$72.4
 $506.4
$35.6
Less: Net gains (losses) recognized on equity securities sold during the period4.0
16.6
 13.4
131.8
Net holding period gains (losses) recognized during the period on equity securities held at period end$111.0
$55.8
 $493.0
$(96.2)

 Three Months Six Months
(millions)2020
2019
 2020
2019
Total net gains (losses) recognized during the period on equity securities$605.8
$115.0
 $(204.5)$506.4
Less: Net gains (losses) recognized on equity securities sold during the period(0.2)4.0
 27.1
13.4
Net holding period gains (losses) recognized during the period on equity securities held at period end$606.0
$111.0
 $(231.6)$493.0
Net Investment Income  The components of net investment income for the three and six months ended June 30, were: 
Three Months Six MonthsThree Months Six Months
(millions)2019
2018
 2019
2018
2020
2019
 2020
2019
Available-for-sale securities:      
Fixed maturities:      
U.S. government obligations$69.2
$45.9
 $122.9
$85.7
$35.7
$69.2
 $98.3
$122.9
State and local government obligations8.9
9.1
 18.2
19.1
16.1
8.9
 25.7
18.2
Corporate debt securities67.5
51.8
 144.7
88.0
76.6
67.5
 134.6
144.7
Residential mortgage-backed securities4.6
6.6
 11.2
13.5
3.8
4.6
 8.0
11.2
Commercial mortgage-backed securities33.4
20.2
 65.1
41.4
42.6
33.4
 76.9
65.1
Other asset-backed securities28.1
16.1
 54.1
29.7
24.8
28.1
 54.0
54.1
Redeemable preferred stocks8.5
2.9
 12.2
5.5
2.1
8.5
 10.0
12.2
Total fixed maturities220.2
152.6
 428.4
282.9
201.7
220.2
 407.5
428.4
Short-term investments11.2
14.9
 27.2
25.0
13.7
11.2
 20.7
27.2
Total available-for-sale securities231.4
167.5
 455.6
307.9
215.4
231.4
 428.2
455.6
Equity securities:      
Nonredeemable preferred stocks15.9
10.4
 31.4
21.3
14.7
15.9
 28.5
31.4
Common equities14.0
14.2
 27.2
29.2
13.7
14.0
 28.3
27.2
Total equity securities29.9
24.6
 58.6
50.5
28.4
29.9
 56.8
58.6
Investment income261.3
192.1
 514.2
358.4
243.8
261.3
 485.0
514.2
Investment expenses(6.2)(6.2) (12.4)(12.2)(4.5)(6.2) (9.8)(12.4)
Net investment income$255.1
$185.9
 $501.8
$346.2
$239.3
$255.1
 $475.2
$501.8


The amount of investment income (interest and dividends) we recognizeearn varies based on the average assets held during the year and the book yields of the securities in our portfolio. The increase in net investment income onOn a year-over-year basis, investment income decreased 7% for the threesecond quarter and 6% for the first six months, ended June 30, 2019, wascompared to the same periods last year, due to a combinationdecrease in the portfolio yield, which was partially offset by an increase in average assets. The recurring investment book yield decreased about 21% in the second quarter 2020 and 16% for the first six months of 2020, compared to the same period in 2019, as a result of investing cash from operations and reinvesting cash from sales, maturities, paydowns, and other redemptions at market yields that were significantly lower than the portfolio’s overall yield. The income reduction from negative yield change was offset by income earned as a result of an increase in average assets and an increase in portfolio yields. The increase in average assets was due toresulting from new debt issued during the first quarter 2020, strong underwritingpremium growth, and underwriting profitability, as well as the proceeds from debtnet of common and preferred stock issuances during 2018, partially offset by our common and preferred share dividend payments during the first half of 2019.dividends. The increase in portfolio yields was a result of our decision to hold a short-duration portfolio, which allowed us to take advantage of opportunities to invest in higher yielding securities with cash from operations and portfolio maturities and paydowns. The portfolioportfolio’s duration at June 30, 20192020 was 2.73.0 years, compared to 2.62.7 years at June 30, 2018.2019. The decrease in investment expenses for both periods in 2020, compared to 2019, primarily reflects lower expenses incurred due to our decision to no longer maintain an actively managed portfolio, and lower incentive-based compensation recognized.

Trading Securities At June 30, 2019 and 2018, and December 31, 2018, we did not hold any trading securities and did not have any net realized gains (losses) on trading securities for the three and six months ended June 30, 2019 and 2018.



Derivative Instruments
At June 30, 2019 and 2018, and December 31, 2018, we had no open derivative positions.
Note 3 Fair Value — We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, into a fair value hierarchy of three levels, as follows:
•
Level 1: Inputs are unadjusted quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. government obligations, which are continually priced on a daily, basis, active exchange-traded equity securities, and certain short-term securities).

•
Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•
Level 3: Inputs that are unobservable. Unobservable inputs reflect our subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).
Determining the fair value of the investment portfolio is the responsibility of management. As part of the responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio. We review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances exist to create an active market. Based on this evaluation, we concluded that there was sufficient activity related to the sectors and securities for which we obtained valuations.


The composition of the investment portfolio by major security type and our outstanding debt was:
Fair Value  Fair Value  
(millions)Level 1
 Level 2
 Level 3
 Total
 Cost
Level 1
 Level 2
 Level 3
 Total
 Cost
June 30, 2019         
June 30, 2020         
Fixed maturities:                  
U.S. government obligations$12,379.4
 $0
 $0
 $12,379.4
 $12,121.9
$9,277.8
 $0
 $0
 $9,277.8
 $8,814.5
State and local government obligations0
 1,589.7
 0
 1,589.7
 1,563.6
0
 3,574.3
 0
 3,574.3
 3,426.0
Corporate debt securities0
 7,385.7
 0
 7,385.7
 7,176.7
0
 11,062.5
 0
 11,062.5
 10,493.2
Subtotal12,379.4
 8,975.4
 0
 21,354.8
 20,862.2
9,277.8
 14,636.8
 0
 23,914.6
 22,733.7
Asset-backed securities:                  
Residential mortgage-backed0
 665.2
 0
 665.2
 660.4
0
 543.0
 0
 543.0
 541.0
Commercial mortgage-backed0
 4,441.9
 0
 4,441.9
 4,361.2
0
 5,761.8
 0
 5,761.8
 5,728.5
Other asset-backed0
 4,497.2
 0
 4,497.2
 4,478.2
0
 4,354.9
 0
 4,354.9
 4,313.3
Subtotal asset-backed securities0
 9,604.3
 0
 9,604.3
 9,499.8
0
 10,659.7
 0
 10,659.7
 10,582.8
Redeemable preferred stocks:                  
Financials0
 51.4
 0
 51.4
 51.7
0
 51.1
 0
 51.1
 51.3
Utilities0
 10.3
 0
 10.3
 10.0
0
 10.8
 0
 10.8
 10.0
Industrials10.4
 157.0
 0
 167.4
 164.5
9.7
 80.5
 0
 90.2
 90.1
Subtotal redeemable preferred stocks10.4
 218.7
 0
 229.1
 226.2
9.7
 142.4
 0
 152.1
 151.4
Total fixed maturities12,389.8
 18,798.4
 0
 31,188.2
 30,588.2
9,287.5
 25,438.9
 0
 34,726.4
 33,467.9
Short-term investments1,287.0
 73.9
 0
 1,360.9
 1,360.9
4,428.0
 272.5
 0
 4,700.5
 4,700.5
Total available-for-sale securities13,676.8
 18,872.3
 0
 32,549.1
 31,949.1
13,715.5
 25,711.4
 0
 39,426.9
 38,168.4
Equity securities:                  
Nonredeemable preferred stocks:                  
Financials82.2
 974.3
 27.1
 1,083.6
 1,015.4
108.2
 958.3
 38.1
 1,104.6
 1,125.3
Utilities0
 41.4
 0
 41.4
 39.9
0
 38.7
 0
 38.7
 40.0
Industrials0
 0
 5.0
 5.0
 5.0
0
 22.1
 15.2
 37.3
 40.1
Subtotal nonredeemable preferred stocks82.2
 1,015.7
 32.1
 1,130.0
 1,060.3
108.2
 1,019.1
 53.3
 1,180.6
 1,205.4
Common equities:                  
Common stocks3,135.2
 0
 0
 3,135.2
 1,203.4
3,170.1
 0
 0
 3,170.1
 1,128.5
Other risk investments0
 0
 0.3
 0.3
 0.3
0
 0
 0.3
 0.3
 0.3
Subtotal common equities3,135.2
 0
 0.3
 3,135.5
 1,203.7
3,170.1
 0
 0.3
 3,170.4
 1,128.8
Total equity securities3,217.4
 1,015.7
 32.4

4,265.5
 2,264.0
3,278.3
 1,019.1
 53.6

4,351.0
 2,334.2
Total portfolio$16,894.2
 $19,888.0
 $32.4
 $36,814.6
 $34,213.1
$16,993.8
 $26,730.5
 $53.6
 $43,777.9
 $40,502.6
Debt$0
 $4,955.2
 $0
 $4,955.2
 $4,406.0
$0
 $6,664.3
 $0
 $6,664.3
 $5,394.7


Fair Value  Fair Value  
(millions)Level 1
 Level 2
 Level 3
 Total
 Cost
Level 1
 Level 2
 Level 3
 Total
 Cost
June 30, 2018         
June 30, 2019         
Fixed maturities:      
        
  
U.S. government obligations$7,865.4
 $0
 $0
 $7,865.4
 $8,005.8
$12,379.4
 $0
 $0
 $12,379.4
 $12,121.9
State and local government obligations0
 1,667.3
 0
 1,667.3
 1,678.9
0
 1,589.7
 0
 1,589.7
 1,563.6
Corporate debt securities0
 7,330.3
 0
 7,330.3
 7,422.4
0
 7,385.7
 0
 7,385.7
 7,176.7
Subtotal7,865.4
 8,997.6
 0
 16,863.0
 17,107.1
12,379.4
 8,975.4
 0
 21,354.8
 20,862.2
Asset-backed securities:                  
Residential mortgage-backed0
 822.6
 0
 822.6
 819.6
0
 665.2
 0
 665.2
 660.4
Commercial mortgage-backed0
 2,696.9
 0
 2,696.9
 2,725.5
0
 4,441.9
 0
 4,441.9
 4,361.2
Other asset-backed0
 3,177.6
 0
 3,177.6
 3,189.2
0
 4,497.2
 0
 4,497.2
 4,478.2
Subtotal asset-backed securities0
 6,697.1
 0
 6,697.1
 6,734.3
0
 9,604.3
 0
 9,604.3
 9,499.8
Redeemable preferred stocks:                  
Financials0
 67.7
 0
 67.7
 65.3
0
 51.4
 0
 51.4
 51.7
Utilities0
 4.6
 0
 4.6
 4.8
0
 10.3
 0
 10.3
 10.0
Industrials10.1
 146.7
 0
 156.8
 150.3
10.4
 157.0
 0
 167.4
 164.5
Subtotal redeemable preferred stocks10.1
 219.0
 0
 229.1
 220.4
10.4
 218.7
 0
 229.1
 226.2
Total fixed maturities7,875.5
 15,913.7
 0
 23,789.2
 24,061.8
12,389.8
 18,798.4
 0
 31,188.2
 30,588.2
Short-term investments2,954.2
 277.0
 0
 3,231.2
 3,231.2
1,287.0
 73.9
 0
 1,360.9
 1,360.9
Total available-for-sale securities10,829.7
 16,190.7
 0
 27,020.4
 27,293.0
13,676.8
 18,872.3
 0
 32,549.1
 31,949.1
Equity securities:                  
Nonredeemable preferred stocks:                  
Financials77.4
 676.2
 0
 753.6
 672.0
82.2
 974.3
 27.1
 1,083.6
 1,015.4
Utilities0
 0
 0
 0
 0
0
 41.4
 0
 41.4
 39.9
Industrials0
 0
 5.0
 5.0
 5.0
0
 0
 5.0
 5.0
 5.0
Subtotal nonredeemable preferred stocks77.4
 676.2
 5.0
 758.6
 677.0
82.2
 1,015.7
 32.1
 1,130.0
 1,060.3
Common equities:                  
Common stocks3,141.9
 0
 0
 3,141.9
 1,313.7
3,135.2
 0
 0
 3,135.2
 1,203.4
Other risk investments0
 0
 0.3
 0.3
 0.3
0
 0
 0.3
 0.3
 0.3
Subtotal common equities3,141.9
 0
 0.3
 3,142.2
 1,314.0
3,135.2
 0
 0.3
 3,135.5
 1,203.7
Total equity securities3,219.3
 676.2

5.3
 3,900.8
 1,991.0
3,217.4
 1,015.7

32.4
 4,265.5
 2,264.0
Total portfolio$14,049.0
 $16,866.9
 $5.3
 $30,921.2
 $29,284.0
$16,894.2
 $19,888.0
 $32.4
 $36,814.6
 $34,213.1
Debt$0
 $3,959.0
 $0
 $3,959.0
 $3,859.5
$0
 $4,955.2
 $0
 $4,955.2
 $4,406.0


Fair Value  Fair Value  
(millions)Level 1
 Level 2
 Level 3
 Total
 Cost
Level 1
 Level 2
 Level 3
 Total
 Cost
December 31, 2018         
December 31, 2019         
Fixed maturities:                  
U.S. government obligations$9,916.5
 $0
 $0
 $9,916.5
 $9,897.4
$13,251.1
 $0
 $0
 $13,251.1
 $13,100.7
State and local government obligations0
 1,649.1
 0
 1,649.1
 1,654.6
0
 1,713.3
 0
 1,713.3
 1,686.0
Corporate debt securities0
 8,694.3
 0
 8,694.3
 8,808.5
0
 7,067.7
 0
 7,067.7
 6,860.3
Subtotal9,916.5
 10,343.4
 0
 20,259.9
 20,360.5
13,251.1
 8,781.0
 0
 22,032.1
 21,647.0
Asset-backed securities:                  
Residential mortgage-backed0
 734.4
 0
 734.4
 733.5
0
 627.5
 0
 627.5
 625.0
Commercial mortgage-backed0
 3,301.6
 0
 3,301.6
 3,332.8
0
 5,076.2
 0
 5,076.2
 5,020.7
Other asset-backed0
 3,577.3
 0
 3,577.3
 3,585.4
0
 5,179.5
 0
 5,179.5
 5,164.7
Subtotal asset-backed securities0
 7,613.3
 0
 7,613.3
 7,651.7
0
 10,883.2
 0
 10,883.2
 10,810.4
Redeemable preferred stocks:                  
Financials0
 78.2
 0
 78.2
 79.3
0
 51.7
 0
 51.7
 51.5
Utilities0
 0
 0
 0
 0
0
 11.1
 0
 11.1
 10.0
Industrials9.5
 150.6
 0
 160.1
 164.4
11.1
 121.1
 0
 132.2
 124.2
Subtotal redeemable preferred stocks9.5
 228.8
 0
 238.3
 243.7
11.1
 183.9
 0
 195.0
 185.7
Total fixed maturities9,926.0
 18,185.5
 0
 28,111.5
 28,255.9
13,262.2
 19,848.1
 0
 33,110.3
 32,643.1
Short-term investments1,722.1
 73.8
 0
 1,795.9
 1,795.9
1,797.4
 1.4
 0
 1,798.8
 1,798.8
Total available-for-sale securities11,648.1
 18,259.3
 0
 29,907.4
 30,051.8
15,059.6
 19,849.5
 0
 34,909.1
 34,441.9
Equity securities:                  
Nonredeemable preferred stocks:                  
Financials71.9
 887.1
 25.1
 984.1
 951.6
77.4
 850.7
 27.1
 955.2
 891.3
Utilities0
 44.8
 0
 44.8
 46.0
0
 42.3
 0
 42.3
 39.9
Industrials0
 0
 5.0
 5.0
 5.0
0
 25.4
 16.0
 41.4
 40.1
Subtotal nonredeemable preferred stocks71.9
 931.9
 30.1
 1,033.9
 1,002.6
77.4
 918.4
 43.1
 1,038.9
 971.3
Common equities:                  
Common stocks2,625.8
 0
 0
 2,625.8
 1,148.6
3,306.0
 0
 0
 3,306.0
 1,125.2
Other risk investments0
 0
 0.3
 0.3
 0.3
0
 0
 0.3
 0.3
 0.3
Subtotal common equities2,625.8
 0
 0.3
 2,626.1
 1,148.9
3,306.0
 0
 0.3
 3,306.3
 1,125.5
Total equity securities2,697.7
 931.9
 30.4
 3,660.0
 2,151.5
3,383.4
 918.4
 43.4
 4,345.2
 2,096.8
Total portfolio$14,345.8
 $19,191.2
 $30.4
 $33,567.4
 $32,203.3
$18,443.0
 $20,767.9
 $43.4
 $39,254.3
 $36,538.7
Debt$0
 $4,532.3
 $0
 $4,532.3
 $4,404.9
$0
 $5,119.6
 $0
 $5,119.6
 $4,407.1

Our portfolio valuations, excluding short-term investments, classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including: pricing vendors, dealers/market makers, and exchange-quoted prices.
Our short-term security holdingsinvestments classified as Level 1 are highly liquid, actively marketed, and have a very short duration, primarily 90 days or less to redemption. These securities are held at their original cost, adjusted for any accretion of discount, since that value very closely approximates what an active market participant would be willing to pay for such securities. The remainder of our short-term securitiesinvestments are classified as Level 2 and are not priced externally since these securities continually trade at par value. These securities are classified as Level 2 since they are primarily longer-dated securities issued by municipalities that contain either liquidity facilities or mandatory put features within one year.
At June 30, 20192020, vendor-quoted prices represented 80%75% of our Level 1 classifications (excluding short-term investments), compared to 72% and 79%80% at both June 30, 20182019 and December 31, 2018,2019, respectively. The securities quoted by vendors in Level 1 primarily represent our holdings in U.S. Treasury Notes, which are frequently traded, and the quotes are considered similar to exchange-traded quotes. The balance of our Level 1 pricing comes from quotes obtained directly from trades made on active exchanges.


At both June 30, 2019 and 2018,2020, vendor-quoted prices comprised 98%97% of our Level 2 classifications in each period (excluding short-term investments), while dealer-quoted prices represented the remaining 2%3%, compared to 98% and 2%, and 99% and 1%, respectively, at June 30, 2019 and December 31, 2018.2019. In our process for selecting a source (e.g., dealer or pricing service) to provide pricing for securities in our portfolio, we reviewed documentation from the sources that detailed the pricing techniques and methodologies used by these sources and determined if their policies adequately considered market activity, either based on specific transactions for the particular security type or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted. Once a source is chosen, we continue to monitor any changes or modifications to their processes by reviewing their documentation on internal controls for pricing and market reviews. We review quality control measures of our sources as they become available to determine if any significant changes have occurred from period to period that might indicate issues or concerns regarding their evaluation or market coverage.
As part of our pricing procedures, we obtain quotes from more than one source to help us fully evaluate the market price of securities. However, our internal pricing policy is to use a consistent source for individual securities in order to maintain the integrity of our valuation process. Quotes obtained from the sources are not considered binding offers to transact. Under our policy, when a review of the valuation received from our selected source appears to be outside of what is considered market level activity (which is defined as trading at spreads or yields significantly different than those of comparable securities or outside the general sector level movement without a reasonable explanation), we may use an alternate source’s price. To the extent we determine that it may be prudent to substitute one source’s price for another, we will contact the initial source to obtain an understanding of the factors that may be contributing to the significant price variance, which often leads the source to adjust their pricing input data for future pricing.variance.
To allow us to determine if our initial source is providing a price that is outside of a reasonable range, we review our portfolio pricing on at least a weekly basis. When necessary, we challenge prices from our sources when a price provided does not match our expectations based on our evaluation of market trends and activity. Initially, we perform a review of our portfolio by sector to identify securities whose prices appear outside of a reasonable range. We then perform a more detailed review of fair values for securities disclosed as Level 2. We review dealer bids and quotes for these and/or similar securities to determine the market level context for our valuations. We then evaluate inputs relevant for each class of securities disclosed in the preceding hierarchy tables.
For our structured debt securities, including commercial, residential, and asset-backed securities, we evaluate available market-related data for these, and similar securities, related to collateral, delinquencies, and defaults for historical trends and reasonably estimable projections, as well as historical prepayment rates and current prepayment assumptions and cash flow estimates. We further stratify each class of our structured debt securities into more finite sectors (e.g., planned amortization class, first pay, second pay, senior, subordinated, etc.) and use duration, credit quality, and coupon to determine if the fair value is appropriate.

For our corporate debt and preferred stock (redeemable and nonredeemable) portfolios, as well as the notes issued by The Progressive Corporation (see Note 4 – Debt), we review securities by duration, coupon, and credit quality, as well as changes in interest rate and credit spread movements within that stratification. The review also includes recent trades, including: volume traded at various levels that establish a market, issuer specific fundamentals, and industry specific economic news as it comes to light.
For our municipal securities (e.g., general obligations, revenue, and housing), we stratify the portfolio to evaluate securities by type, coupon, credit quality, and duration to review price changes relative to credit spread and interest rate changes. Additionally, we look to economic data as it relates to geographic location as an indication of price-to-call or maturity predictors. For municipal housing securities, we look to changes in cash flow projections, both historical and reasonably estimable projections, to understand yield changes and their effect on valuation.
Lastly, for our short-term securities, we look at acquisition price relative to the coupon or yield. Since our short-term securities are typically 90 days or less to maturity, with the majority listed in Level 2 being 30 days or less to redemption, we believe that acquisition price is the best estimate of fair value.
We also review data assumptions as supplied by our sources to determine if that data is relevant to current market conditions. In addition, we independently review each sector for transaction volumes, new issuances, and changes in spreads, as well as the overall movement of interest rates along the yield curve to determine if sufficient activity and liquidity exists to provide a credible source for our market valuations.


During each valuation period, we create internal estimations of portfolio valuation (performance returns), based on current market-related activity (i.e., interest rate and credit spread movements and other credit-related factors) within each major sector of our portfolio. We compare our internally generated portfolio results with those generated based on quotes we receive externally and research material valuation differences. We compare our results to index returns for each major sector adjusting


for duration and credit quality differences to better understand our portfolio’s results. Additionally, we review on a monthly basis our external sales transactions and compare the actual final market sales prices to previous market valuation prices. This review provides us further validation that our pricing sources are providing market level prices, since we are able to explain significant price changes (i.e., greater than 2%) as known events occur in the marketplace and affect a particular security’s price at sale.
This analysis provides us with additional comfort regarding the source’s process, the quality of its review, and its willingness to improve its analysis based on feedback from clients. We believe this effort helps ensure that we are reporting the most representative fair values for our securities.
Except as described below, our Level 3 securities are also priced externally; however, due to several factors (e.g., nature of the securities, level of activity, and lack of similar securities trading to obtain observable market level inputs), these valuations are more subjective in nature. Certain private equity investments and fixed-income investments included in the Level 3 category are valued using external pricing supplemented by internal review and analysis.
After all the valuations are received and our review is complete, if the inputs used by vendors are determined to not contain sufficient observable market information, we will reclassify the affected security valuations to Level 3. At June 30, 20192020 and 2018,2019, and December 31, 2018,2019, we did not0t have any securities in our fixed-maturity portfolio listed as Level 3.
At June 30, 2020, we held 4 private nonredeemable preferred securities that were priced internally or by a pricing firm, compared to 2 securities at June 30, 2019 and 3 securities at December 31, 2019. At June 30, 2020 and 2019, and December 31, 2018,2019, we held two private nonredeemable preferred securities with a combined value of $32.1 million and $30.1 million, respectively, that were priced internally, and held one private nonredeemable preferred security with a value of $5.0 million that was priced internally at June 30, 2018. At June 30, 2019 and 2018, and December 31, 2018, we held one1 Level 3 other risk investment with a value of $0.3 million.that was priced using the equity method.
To the extent we receive prices from external sources for the Level 3 securities, we would review those prices for reasonableness using internally developed assumptions and then compare our derived prices to the prices we received. During 20192020 and 2018,2019, there were no material assets or liabilities measured at fair value on a nonrecurring basis. During the second quarter 2020, we purchased a new Level 3 security and the fair value at June 30, 2020, reflects the unadjusted purchase price due to the timing of the purchase. The remaining Level 3 securities were priced in-house, using a capitalization-based model of similarly structured public company competitors and a weighted average capitalization formula (i.e., guideline public company method) to calculate a valuation change for our securities. We utilized this methodology at March 31, 2020, rather than having our external pricing source update their valuation models, due to the timing of the market decline, relative to our quarter end. We determined that this pricing methodology was still appropriate at June 30, 2020. Based on our review, all prices received from external sources for 2019 remained unadjusted. Due to the relative size of the Level 3 securities’ fair values compared to the total portfolio’s fair value, any changes in pricing methodology would not have a significant change in valuation that would materially impact net or comprehensive income.
The following tables provide a summary of changes in fair value associated with Level 3 assets for the three and six months ended June 30, 20192020 and 2018:2019:
Level 3 Fair ValueLevel 3 Fair Value
(millions)Fair Value at March 31, 2019
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out) 

Fair Value at June 30, 2019
Fair Value at March 31, 2020
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2020
Equity securities:  
Nonredeemable preferred stocks:  
Financials$25.1
$0
$2.0
$0
$0
$0
$0
$27.1
$13.1
$0
$25.0
$0
$0
$0
$0
$38.1
Industrials5.0
0
0
0
0
0
0
5.0
15.2
0
0
0
0
0
0
15.2
Common equities:  
Other risk investments0.3
0
0
0
0
0
0
0.3
0.3
0
0
0
0
0
0
0.3
Total Level 3 securities$30.4
$0
$2.0
$0
$0
$0
$0
$32.4
$28.6
$0
$25.0
$0
$0
$0
$0
$53.6



Level 3 Fair ValueLevel 3 Fair Value
(millions)Fair Value at Dec. 31, 2018
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out) 

Fair Value at June 30, 2019
Fair Value at March 31, 2019
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2019
Equity securities:  
Nonredeemable preferred stocks:  
Financials$25.1
$0
$2.0
$0
$0
$0
$0
$27.1
$25.1
$0
$2.0
$0
$0
$0
$0
$27.1
Industrials5.0
0
0
0
0
0
0
5.0
5.0
0
0
0
0
0
0
5.0
Common equities:  
Other risk investments0.3
0
0
0
0
0
0
0.3
0.3
0
0
0
0
0
0
0.3
Total Level 3 securities$30.4
$0
$2.0
$0
$0
$0
$0
$32.4
$30.4
$0
$2.0
$0
$0
$0
$0
$32.4

Level 3 Fair ValueLevel 3 Fair Value
(millions)Fair Value at March 31, 2018
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2018
Fair Value at December 31, 2019
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2020
Equity securities:  
Nonredeemable preferred stocks:  
Financials$0
$0
$0
$0
$0
$0
$0
$0
$27.1
$0
$25.0
$0
$0
$(14.0)$0
$38.1
Industrials5.0
0
0
0
0
0
0
5.0
16.0
0
0
0
0
(0.8)0
15.2
Common equities:  
Other risk investments0.3
0
0
0
0
0
0
0.3
0.3
0
0
0
0
0
0
0.3
Total Level 3 securities$5.3
$0
$0
$0
$0
$0
$0
$5.3
$43.4
$0
$25.0
$0
$0
$(14.8)$0
$53.6


  Level 3 Fair Value
(millions)Fair Value at December 31, 2018
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2019
Equity securities:        
Nonredeemable preferred stocks:        
Financials$25.1
$0
$2.0
$0
$0
$0
$0
$27.1
Industrials5.0
0
0
0
0
0
0
5.0
Common equities:        
Other risk investments0.3
0
0
0
0
0
0
0.3
Total Level 3 securities$30.4
$0
$2.0
$0
$0
$0
$0
$32.4

  Level 3 Fair Value
(millions)Fair Value at Dec. 31, 2017
Calls/
Maturities/
Paydowns

Purchases
Sales
Net Realized
(Gain)/Loss
on Sales

Change in
Valuation

Net
Transfers
In (Out)

Fair Value at June 30, 2018
Equity securities:        
Nonredeemable preferred stocks:        
Financials$0
$0
$0
$0
$0
$0
$0
$0
Industrials5.0
0
0
0
0
0
0
5.0
Common equities:        
Other risk investments0.3
0
0
0
0
0
0
0.3
Total Level 3 securities$5.3
$0
$0
$0
$0
$0
$0
$5.3
















The following tables provide a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at June 30, 20192020 and 2018,2019, and December 31, 2018:2019:
 Quantitative Information about Level 3 Fair Value Measurements
($ in millions)Fair Value at June 30, 2020
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Equity securities:    
Nonredeemable preferred stocks:    
Financials$13.1
Guideline public company method
Weighted average capitalization %(51.5)
Financials1
25.0
Internal priceUnadjusted purchase price per share3.7
Industrials15.2
Guideline public company method
Weighted average capitalization %(19.2)
Subtotal Level 3 securities53.3
   
Pricing exemption securities0.3
   
Total Level 3 securities$53.6
   
1 The security was purchased in May 2020.

Quantitative Information about Level 3 Fair Value MeasurementsQuantitative Information about Level 3 Fair Value Measurements
($ in millions)Fair Value at June 30, 2019
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Fair Value at June 30, 2019
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Equity securities:      
Nonredeemable preferred stocks:      
Financials1
$27.1
internal priceunadjusted purchase price per share9.0
$27.1
Internal priceUnadjusted purchase price per share9.0
Industrials2
5.0
internal priceprice-to-sales ratio5.5
Industrials5.0
Internal pricePrice-to-sales ratio5.5
Subtotal Level 3 securities32.1
  32.1
  
Pricing exemption securities3
0.3
  
Pricing exemption securities0.3
  
Total Level 3 securities$32.4
  $32.4
  
1The security was internally-priced since it is privately held. The security was initially purchased duringin December 2018 and additional shares were purchased during second quarter 2019. The value at June 30, 2019 reflects the unadjusted purchase price per share (all purchases were at the same price).2018.

 Quantitative Information about Level 3 Fair Value Measurements
($ in millions)Fair Value at December 31, 2019
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Equity securities:    
Nonredeemable preferred stocks:    
Financials$27.1
Pricing firmRecent transaction price per share9.0
Industrials6.0
Pricing firmPerformance-based transaction price adjustment per share4.8
Industrials1
10.0
Internal priceUnadjusted purchase price per share4.9
Subtotal Level 3 securities43.1
   
Pricing exemption securities0.3
   
Total Level 3 securities$43.4
   
21 The security was internally-priced since it is privately held. The price at June 30, 2019, was calculated using a price-to-sales ratio.
3The unobservable input is not reasonably available to us.
 Quantitative Information about Level 3 Fair Value Measurements
($ in millions)Fair Value at June 30, 2018
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Equity securities:    
Nonredeemable preferred stocks:    
Financials$0
NANANA
Industrials1
5.0
internal priceunadjusted purchase price per share3.9
Subtotal Level 3 securities5.0
   
Pricing exemption securities2
0.3
   
Total Level 3 securities$5.3
   
NA= Not Available
1The security was internally-priced since it is privately held. The value at June 30, 2018 reflects the unadjusted purchase price per share.
2The unobservable input is not reasonably available to us.
 Quantitative Information about Level 3 Fair Value Measurements
($ in millions)Fair Value at Dec. 31, 2018
Valuation TechniqueUnobservable InputUnobservable Input Assumption
Equity securities:    
Nonredeemable preferred stocks:    
Financials1
$25.1
internal priceunadjusted purchase price per share9.0
Industrials2
5.0
internal priceprice-to-sales ratio5.5
Subtotal Level 3 securities30.1
   
Pricing exemption securities3
0.3
   
Total Level 3 securities$30.4
   
1The security was internally-priced since it is privately held. The security was purchased during December 2018 and the value at December 31, 2018 reflects the unadjusted purchase price per share.
2 The security was internally-priced since it is privately held. The price at December 31, 2018, was calculated using a price-to-sales ratio.
3The unobservable input is not reasonably available to us.in November 2019.


Note 4 Debt — Debt at each of the balance sheet periods consisted of:
 
June 30, 2019 June 30, 2018 December 31, 2018June 30, 2020 June 30, 2019 December 31, 2019
(millions)
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
3.75% Senior Notes due 2021$499.2
 $516.5
 $498.9
 $506.4
 $499.1
 $506.5
$499.6
 $519.0
 $499.2
 $516.5
 $499.4
 $515.6
2.45% Senior Notes due 2027496.7
 494.7
 496.3
 451.3
 496.5
 455.5
497.1
 533.7
 496.7
 494.7
 496.9
 501.5
6 5/8% Senior Notes due 2029296.5
 385.7
 296.2
 364.4
 296.4
 368.5
296.8
 420.7
 296.5
 385.7
 296.6
 392.5
4.00% Senior Notes due 2029544.8
 608.9
 0
 0
 544.5
 562.4
545.2
 654.2
 544.8
 608.9
 545.0
 614.3
3.20% Senior Notes due 2030496.0
 567.6
 0
 0
 0
 0
6.25% Senior Notes due 2032395.6
 531.3
 395.4
 492.5
 395.5
 496.6
395.8
 569.6
 395.6
 531.3
 395.7
 552.6
4.35% Senior Notes due 2044346.6
 392.5
 346.6
 356.7
 346.6
 350.2
346.7
 444.9
 346.6
 392.5
 346.7
 417.0
3.70% Senior Notes due 2045395.4
 411.1
 395.3
 363.9
 395.3
 366.7
395.5
 471.4
 395.4
 411.1
 395.4
 434.2
4.125% Senior Notes due 2047841.5
 943.0
 841.3
 831.5
 841.4
 831.9
841.6
 1,080.8
 841.5
 943.0
 841.6
 986.1
4.20% Senior Notes due 2048589.7
 671.5
 589.5
 592.3
 589.6
 594.0
589.9
 773.8
 589.7
 671.5
 589.8
 705.8
3.95% Senior Notes due 2050490.5
 628.6
 0
 0
 0
 0
Total$4,406.0
 $4,955.2
 $3,859.5
 $3,959.0
 $4,404.9
 $4,532.3
$5,394.7
 $6,664.3
 $4,406.0
 $4,955.2
 $4,407.1
 $5,119.6

The Progressive Corporation issued $550$500 million of 4.00%3.20% Senior Notes due 20292030 (the “4.00%“3.20% Senior Notes”) and $500 million of 3.95% Senior Notes due 2050 (the “3.95% Senior Notes”) in October 2018,March 2020, in an underwritten public offering. The net proceeds from the issuance,issuances, after deducting underwriters’ discounts, commissions, and other issuance costs, was $544.5 million.were approximately $986.3 million in aggregate. Consistent with the other senior notes issued by Progressive, interest on the 4.00%3.20% and 3.95% Senior Notes is payable semiannually, principal is due at maturity, and the note isnotes are redeemable, in whole or in part, at any time, subject to a treasury “make whole” provision.
During the second quarter 2019,2020, The Progressive Corporation renewed itsthe line of credit with PNC Bank, National Association (PNC), in the maximum principal amount of $250 million, on the same terms and conditions.that expired in April 2020. Subject to the terms and conditions of the line of credit documents, advances under the line of credit (if any) will bear interest at a variable rate equal to the higher of PNC’s Prime Rate or the sum of the Federal Funds Open Rate plus 50175 basis points. Each advance must be repaid on the 30th day after the advance or, if earlier, on April 30, 2020,2021, the expiration date of the line of credit. Prepayments are permitted without penalty. The line of credit is uncommitted and, as such, all advances are subject to PNC’s discretion. We had no0 borrowings under either line of credit during any of the periods presented.
Note 5 Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. We review our deferred tax assets regularly for recoverability. At June 30, 20192020 and 2018,2019, and December 31, 2018,2019, we determined that we did not0t need a valuation allowance on our gross deferred tax assets. Although realization of the deferred tax assets is not assured, management believes that it is more likely than not the deferred tax assets will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.
For the six months ended June 30, 2019,2020, there have been no material changes in our reserve for uncertain tax positions.
The effective tax ratesrate for the three and six months ended June 30, 2019 were2020, was 21.1% and 20.8% respectively, compared to 21.3% and 26.7%, respectively, compared to 20.3% and 20.1% for the same periods last year. DuringFor the first quartersix months of 2019, we increased our provision for income taxes $156.1 million, principally reflecting the totalhigher effective rate was due primarily to the reversal of the tax credits and other tax benefits previously recognized from certain renewable energy investments, plus interest. From 2016 to 2018, we invested in federal renewable energy tax credit funds. In late December 2018 and during the first two months of 2019, we learned of allegations of potential fraudulent conduct bywhere the sponsor of three of these tax credit fund investments, including information about ongoing federal investigations. Based on our continuing investigations and information that became availablepled guilty to us beginning late in the first quarter, we believe that the sponsor committed fraud through these tax credit fundsinvestments and that all of the tax credits and other tax benefits related to those investments arewere not valid. See Note 5 – Income Taxes in our 2019 Annual Report to Shareholders for further discussion.


Note 6 Loss and Loss Adjustment Expense Reserves — Activity in the loss and loss adjustment expense reserves is summarized as follows:
June 30,June 30,
(millions)2019 20182020 2019
Balance, Beginning of period$15,400.8
 $13,086.9
Balance at January 1$18,105.4
 $15,400.8
Less reinsurance recoverables on unpaid losses2,572.7
 2,170.1
3,212.2
 2,572.7
Net balance, Beginning of period12,828.1
 10,916.8
Net balance at January 114,893.2
 12,828.1
Incurred related to:
 

 
Current year11,687.1
 10,164.6
11,360.5
 11,687.1
Prior years210.0
 81.5
116.1
 210.0
Total incurred11,897.1
 10,246.1
11,476.6
 11,897.1
Paid related to:
 

 
Current year6,407.5
 5,533.7
6,180.4
 6,407.5
Prior years4,664.1
 3,851.5
5,180.1
 4,664.1
Total paid11,071.6
 9,385.2
11,360.5
 11,071.6
Net balance, End of period13,653.6
 11,777.7
Net balance at June 3015,009.3
 13,653.6
Plus reinsurance recoverables on unpaid losses2,915.0
 2,293.1
3,502.7
 2,915.0
Balance, End of period$16,568.6
 $14,070.8
Balance at June 30$18,512.0
 $16,568.6


We experienced unfavorable reserve development of $116.1 million and $210.0 million and $81.5 million forduring the first six months of 20192020 and 2018,2019, respectively, which is reflected as “Incurred related to prior years” in the table above.
Year-to-date June 30, 2020
Approximately 68% of the unfavorable prior year reserve development was attributable to accident year 2018, while only 1% was attributable to accident year 2019, with the remainder related to 2017 and prior accident years. During the second quarter 2020, we experienced favorable development on accident year 2019, primarily due to higher than anticipated salvage and subrogation recoveries, which almost fully offset the unfavorable development from accident year 2019 we experienced during the first quarter 2020.
Our personal auto products incurred about $37 million of unfavorable loss and loss adjustment expense (LAE) reserve development, with about two thirds attributable to the Agency business. The unfavorable LAE development was primarily attributable to revised estimates of our per claim settlement costs taken during the first quarter. We also experienced higher than anticipated frequency of reopened personal injury protection (PIP) claims, primarily in Florida, and late reported losses occurring toward the end 2019 but not reported until 2020, which was significantly offset by higher than anticipated salvage and subrogation recoveries.
Our Commercial Lines business experienced about $98 million of unfavorable development, primarily due to increased injury severity and the emergence of large injury claims at rates higher than originally anticipated.
Our special lines and Property businesses experienced about $15 million and $4 million, respectively, of favorable development.
Year-to-date June 30, 2019
About 50% of the unfavorable prior year reserve development was attributable to accident year 2018, with the remainder split evenly between accident year 2017 and accident years 2016 and prior.
Our personal auto products incurred about $116 million of unfavorable loss and loss adjustment expense (LAE)LAE reserve development, with the Agency and Direct auto businesses each contributing about half. The unfavorable development was primarily attributable to increased injury severity, a higher than anticipated frequency of reopened personal injury protection (PIP)PIP claims, primarily in Florida, and late reported losses occurring late 2018 but not reported until 2019.
Our Commercial Lines business experienced about $57 million of unfavorable development primarily due to increased injury severity and more emergence of large injury claims than originally anticipated.
•
Our Property business experienced about $20
Our Property business experienced about $20 million of unfavorable development, primarily due to higher than originally anticipated homeowner and dwelling, and fire liability costs.
Our special lines business experienced about $17 million of unfavorable development primarily due to less salvage and subrogation recoveries than originally anticipated.
Year-to-date June 30, 2018
Approximately $72 million of the unfavorable prior year reserve development was attributable to accident years 2017 and 2016.
Our personal auto business incurred about $57 million of unfavorable loss and LAE reserve development, with the Agency and Direct auto businesses contributing about $36 million and $21 million, respectively, of unfavorable development. The unfavorable development was primarily due to an increase in reopened PIP claims.
Our Commercial Lines business experienced about $17 million of unfavorable development primarily due to late reported losses and higher LAE than anticipated.
Our Property business recognized unfavorable development of about $7 million, while our special lines products had minimal development during the first half of the year.



Note 7 Supplemental Cash Flow Information — Cash and cash equivalents include bank demand deposits and daily overnight reverse repurchase commitments ofused to safeguard funds held in those bank demand deposit accounts, on ARX’s subsidiaries.and are not considered part of the investment portfolio. The amount of these reverse repurchase commitments held by ARX’s subsidiaries at June 30, 20192020 and 2018,2019, and December 31, 2018,2019, were $96.4 million, $138.2 million, $155.9 million, and $117.3$46.3 million, respectively.
Restricted cash on our consolidated balance sheets represents cash that is restricted to pay flood claims under the National Flood Insurance Program’s “Write Your Own” program, for which subsidiaries of ARXour Property business are administrators.
During the six months ended June 30, 2019,2020, non-cash activity includes declared but unpaid common share dividends of $58.4$58.5 million (see Note 9 – Dividends for further discussion) and changes in operating lease liabilities arising from obtaining right-of-use assets of $21.0 million (see Note 14 – Leases for further discussion).$23.9 million.
We paid the following in the respective periods: 
Six Months Ended June 30,Six Months Ended June 30,
(millions)2019
 2018
2020
 2019
Income taxes$592.8
 $358.9
$18.0
 $592.8
Interest90.9
 70.9
94.1
 90.9
Operating lease liabilities37.4
 NA
44.7
 37.4

NA - Not applicableDuring the six months ended June 30, 2020, we did not make any estimated federal tax payments as the Internal Revenue Service, in response to the impact of COVID-19 restrictions, postponed the due date of these estimated payments until July 15, 2020.

Our consolidated statement of cash flows for the six months ended June 30, 2019, was revised to correct the classification of our acquisition of additional shares of ARX Holding Corp. from an investing activity to a financing activity; there was no overall impact on the increase in cash, cash equivalents, and restricted cash that was reported for June 30, 2019.
Note 8 Segment Information — Our Personal Lines segment writes insurance for personal autos and recreational vehicles (our special lines products). Our Commercial Lines segment writes auto-related primary liability and physical damage insurance, general liability, and other auto-relatedproperty insurance, predominately for automobiles and trucks owned and/or operated predominantly by small businesses in the business auto, for-hire transportation, contractor, for-hire specialty, tow, and for-hire livery markets.businesses. Our Property segment writes residential property insurance for homeowners, other property owners, and renters. Our other indemnity businesses include our run-off businesses. Our service businesses provide insurance-related services, including processing Commercial Automobile Insurance Procedures/Plans (CAIP) business and serving as an agent for homeowners, general liability, and workers’ compensation insurance, among other products, through our programs with ASI and unaffiliated insurance companies. All segment revenues are generated from external customers; all intercompany transactions are eliminated in consolidation.



Following are the operating results for the respective periods:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 20182020 2019 2020 2019
(millions)Revenues 
Pretax
Profit (Loss)
 Revenues 
Pretax
Profit (Loss)
 Revenues Pretax Profit (Loss) Revenues Pretax Profit (Loss)Revenues 
Pretax
Profit (Loss)
 Revenues 
Pretax
Profit (Loss)
 Revenues Pretax Profit (Loss) Revenues Pretax Profit (Loss)
Personal Lines                              
Agency$3,639.6
 $434.7
 $3,225.7
 $360.9
 $7,148.1
 $887.7
 $6,289.5
 $770.0
$3,919.0
 $550.6
 $3,639.6
 $434.7
 $7,747.7
 $1,152.2
 $7,148.1
 $887.7
Direct3,733.4
 326.6
 3,211.8
 287.9
 7,309.7
 648.5
 6,228.1
 585.9
4,167.9
 647.2
 3,733.4
 326.6
 8,160.3
 1,120.2
 7,309.7
 648.5
Total Personal Lines1
7,373.0
 761.3
 6,437.5
 648.8
 14,457.8
 1,536.2
 12,517.6
 1,355.9
8,086.9
 1,197.8
 7,373.0
 761.3
 15,908.0
 2,272.4
 14,457.8
 1,536.2
Commercial Lines1,070.5
 124.4
 884.3
 100.3
 2,083.5
 291.0
 1,692.9
 195.1
1,129.0
 179.8
 1,070.5
 124.4
 2,318.0
 292.3
 2,083.5
 291.0
Property2
381.2
 (34.4) 312.4
 (51.9) 743.2
 (26.7) 597.7
 (23.4)432.7
 (188.7) 381.2
 (34.4) 853.3
 (139.5) 743.2
 (26.7)
Other indemnity0
 0
 0
 0
 0
 0
 0
 0.2
Total underwriting operations8,824.7
 851.3
 7,634.2
 697.2
 17,284.5
 1,800.5
 14,808.2
 1,527.8
9,648.6
 1,188.9
 8,824.7
 851.3
 19,079.3
 2,425.2
 17,284.5
 1,800.5
Fees and other revenues3
134.8
 NA
 116.0
 NA
 265.0
 NA
 219.8
 NA
129.5
 NA
 134.8
 NA
 283.0
 NA
 265.0
 NA
Service businesses50.0
 4.7
 42.9
 5.9
 92.6
 9.2
 77.1
 10.8
59.0
 6.2
 50.0
 4.7
 110.6
 10.3
 92.6
 9.2
Investments4
441.2
 435.0
 224.9
 218.7
 1,108.6
 1,096.2
 343.0
 330.8
1,134.6
 1,130.1
 441.2
 435.0
 822.2
 812.4
 1,108.6
 1,096.2
Interest expenseNA
 (47.4) NA
 (41.7) NA
 (94.8) NA
 (78.5)NA
 (56.4) NA
 (47.4) NA
 (104.4) NA
 (94.8)
Consolidated total$9,450.7
 $1,243.6
 $8,018.0
 $880.1
 $18,750.7
 $2,811.1
 $15,448.1
 $1,790.9
$10,971.7
 $2,268.8
 $9,450.7
 $1,243.6
 $20,295.1
 $3,143.5
 $18,750.7
 $2,811.1
NA -= Not applicable
1 Personal auto insurance accounted for 94% of the total Personal Lines segment net premiums earned during the three and six months ended June 30, 20192020 and 2018;2019; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.
2 For the three and six months ended June 30, 2019,2020, pretax profit (loss) includes $18.0$14.1 million and $35.9$28.6 million, respectively, of amortization expense predominately associated with the acquisition of a controlling interest in ARX and $18.0 million and $36.0$35.9 million for the same periods in 2018. Although this expense is included in our Property segment, it is not reported in the consolidated results of ARX2019. See Note 13 – Goodwill and therefore, does not affect the value of net income attributable to noncontrolling interest.Intangible Assets for further discussion.
3 Pretax profit (loss) for fees and other revenues is attributableallocated to operating segments.
4 Revenues represent recurring investment income and total net realized gains (losses) on securities; pretax profit is net of investment expense.

Our management uses underwriting margin and combined ratio as primary measures of underwriting profitability. Underwriting profitability is calculated by subtracting losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses, and policyholder credits from the total of net premiums earned and fees and other revenues. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from underwriting operations). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins and combined ratios for our underwriting operations for the respective periods:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 20182020 2019 2020 2019
Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
 Under-writing
Margin		 
Combined
Ratio
Personal Lines                    
Agency11.9 % 88.1 11.2 % 88.8
 12.4 % 87.6 12.2 % 87.814.0 % 86.0 11.9 % 88.1
 14.9 % 85.1 12.4 % 87.6
Direct8.7
 91.3 9.0
 91.0
 8.9
 91.1 9.4
 90.615.5
 84.5 8.7
 91.3
 13.7
 86.3 8.9
 91.1
Total Personal Lines10.3
 89.7 10.1
 89.9
 10.6
 89.4 10.8
 89.214.8
 85.2 10.3
 89.7
 14.3
 85.7 10.6
 89.4
Commercial Lines11.6
 88.4 11.3
 88.7
 14.0
 86.0 11.5
 88.515.9
 84.1 11.6
 88.4
 12.6
 87.4 14.0
 86.0
Property1
(9.0) 109.0 (16.6) 116.6
 (3.6) 103.6 (3.9) 103.9(43.6) 143.6 (9.0) 109.0
 (16.3) 116.3 (3.6) 103.6
Total underwriting operations9.6
 90.4 9.1
 90.9
 10.4
 89.6 10.3
 89.712.3
 87.7 9.6
 90.4
 12.7
 87.3 10.4
 89.6

1 Included in the three and six months ended June 30, 2019,2020, is 4.73.3 points and 4.83.4 points, respectively, of amortization expense predominately associated with the acquisition of a controlling interest in ARX and 5.84.7 points and 6.04.8 points, respectively, for the three and six months ended June 30, 2018.2019.



Note 9 Dividends
Common Share Dividends
The Board — Following is a summary of Directors expects to declare regular, quarterlyour common and preferred share dividends that were declared and/or paid during the six months ended June 30, 2020 and 2019:
(millions, except per share amounts)Amount
DeclaredPayablePer Share
Accrued1

Common - Quarterly Dividends:   
May 2020July 2020$0.10
$58.5
February 2020April 20200.10
58.5
December 2019January 20200.10
58.5
May 2019July 20190.10
58.4
February 2019April 20190.10
58.4
Common - Annual Variable Dividends:   
December 2019January 20202.25
1,316.9
December 2018February 20192.5140
1,467.9
Preferred Dividends:   
February 2020March 202026.875
13.4
February 2019March 201926.875
13.4
1 The accrual is based on at least an annual basis, to consider declaring an additional common share dividend. Prior to 2019, we hadestimate of shares outstanding as of the record date and is recorded as a policycomponent of paying an annual variable dividend (seeaccounts payable, accrued expenses, and other liabilities on the consolidated balance sheets.
See Note 14 – Dividends in our 20182019 Annual Report to Shareholders). Following isShareholders for a summarydiscussion of our common and preferred share dividends


that were declared or paid during the six months ended June 30, 2019 and 2018:
(millions, except per share amounts) Amount of Common Share Dividends
Dividend TypeDeclaredPaidPer Share
Accrued1

Paid1

QuarterlyMay 2019NA$0.10
$58.4
$ NA
QuarterlyFebruary 2019April 20190.10
58.4
58.4
Annual – VariableDecember 2018February 20192.5140
1,467.9
1,467.9
Annual – VariableDecember 2017February 20181.1247
655.1
654.9
NA - Dividend not paid as of June 30, 2019.
1 Variance between accrued and paid, if any, reflects the difference between the number of estimated and actual shares outstanding as of the record date.
Preferred Share Dividends
During the first quarter of 2019, the Board declared, and we paid, a $26.875 per share, or $13.4 million, dividend on our Series B Fixed-to-Floating Rate Cumulative Perpetual Serial Preferred Shares, without par value (the “Series B Preferred Shares”). There are 500,000 Series B Preferred Shares outstanding, which are cumulative and have a liquidation preference of $1,000 per share (the “stated amount”). Holders of the Series B Preferred Shares will be entitled to receive cumulative cash dividends semi-annually in March and September, if and when declared by the Board of Directors. Until March 15, 2023 (the “fixed-rate period”), the annual dividend rate is fixed at 5.375% of the stated amount per share. Beginning March 15, 2023, the annual dividend rate switches to a floating rate equal to the three-month LIBOR rate (or, if LIBOR is not available, a substitute rate determined in accordance with the terms of the Series B Preferred Shares) plus a spread of 2.539% applied to the stated amount per share. After the fixed-rate period and up until redemption of the Series B Preferred Shares, the dividends would be payable quarterly, if and when declared by the Board of Directors. The Series B Preferred Shares are perpetual and have no stated maturity date. After the fixed-rate period, we may redeem the Series B Preferred Shares at the stated amount plus all accrued and unpaid dividends.policies.
Note 10 Other Comprehensive Income (Loss) — The components of other comprehensive income (loss), including reclassification adjustments by income statement line item, were as follows: 
      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
(millions)
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 
Net
unrealized
gains
(losses) on
forecasted
transactions

 (Income) loss attributable to NCI
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 
Net
unrealized
gains
(losses) on
forecasted
transactions

 (Income) loss attributable to NCI
Balance at March 31, 2019$225.5
 $(47.4) $178.1
 $195.5
 $(17.0) $(0.4)
Balance at March 31, 2020$514.9
 $(110.7) $404.2
 $423.6
 $(16.2) $(3.2)
Reclassification of disproportionate amounts1

4.0
 (0.8) 3.2
 0
 0
 3.2
Adjusted balance at March 31, 2020518.9
 (111.5) 407.4
 423.6
 (16.2) 0
Other comprehensive income (loss) before reclassifications:                      
Investment securities404.7
 (85.0) 319.7
 319.7
 0
 0
966.2
 (202.9) 763.3
 763.3
 0
 0
Loss attributable to noncontrolling interest (NCI)(3.3) 0.7
 (2.6) 0
 0
 (2.6)0
 0
 0
 0
 0
 0
Total other comprehensive income (loss) before reclassifications401.4
 (84.3) 317.1
 319.7
 0
 (2.6)966.2
 (202.9) 763.3
 763.3
 0
 0
Less: Reclassification adjustment for amounts realized in net income by income statement line item:                      
Net realized gains (losses) on securities53.5
 (11.2) 42.3
 42.3
 0
 0
248.0
 (52.1) 195.9
 195.9
 0
 0
Interest expense(0.2) 0
 (0.2) 0
 (0.2) 0
(0.2) 0
 (0.2) 0
 (0.2) 0
Total reclassification adjustment for amounts realized in net income53.3
 (11.2) 42.1
 42.3
 (0.2) 0
247.8
 (52.1) 195.7
 195.9
 (0.2) 0
Total other comprehensive income (loss)348.1
 (73.1) 275.0
 277.4
 0.2
 (2.6)718.4
 (150.8) 567.6
 567.4
 0.2
 0
Balance at June 30, 2019$573.6
 $(120.5) $453.1
 $472.9
 $(16.8) $(3.0)
Balance at June 30, 2020$1,237.3
 $(262.3) $975.0
 $991.0
 $(16.0) $0



       
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
(millions)
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 
Net
unrealized
gains
(losses) on
forecasted
transactions

 (Income) loss attributable to NCI
Balance at December 31, 2018$(153.0) $32.1
 $(120.9) $(105.6) $(17.2) $1.9
Other comprehensive income (loss) before reclassifications:           
Investment securities819.2
 (172.0) 647.2
 647.2
 0
 0
Loss attributable to noncontrolling interest (NCI)(6.2) 1.3
 (4.9) 0
 0
 (4.9)
Total other comprehensive income (loss) before reclassifications813.0
 (170.7) 642.3
 647.2
 0
 (4.9)
Less: Reclassification adjustment for amounts realized in net income by income statement line item:           
Net realized gains (losses) on securities86.9
 (18.2) 68.7
 68.7
 0
 0
Interest expense(0.5) 0.1
 (0.4) 0
 (0.4) 0
Total reclassification adjustment for amounts realized in net income86.4
 (18.1) 68.3
 68.7
 (0.4) 0
Total other comprehensive income (loss)726.6
 (152.6) 574.0
 578.5
 0.4
 (4.9)
Balance at June 30, 2019$573.6
 $(120.5) $453.1
 $472.9
 $(16.8) $(3.0)






       
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
(millions)
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 
Net
unrealized
gains
(losses) on
forecasted
transactions

 (Income) loss attributable to NCI
Balance at March 31, 2019$225.5
 $(47.4) $178.1
 $195.5
 $(17.0) $(0.4)
Other comprehensive income (loss) before reclassifications:           
Investment securities404.7
 (85.0) 319.7
 319.7
 0
 0
Loss attributable to noncontrolling interest (NCI)(3.3) 0.7
 (2.6) 0
 0
 (2.6)
Total other comprehensive income (loss) before reclassifications

401.4

(84.3)
317.1

319.7

0

(2.6)
Less: Reclassification adjustment for amounts realized in net income by income statement line item:           
Net realized gains (losses) on securities53.5
 (11.2) 42.3
 42.3
 0
 0
Interest expense(0.2) 0
 (0.2) 0
 (0.2) 0
Total reclassification adjustment for amounts realized in net income53.3
 (11.2) 42.1
 42.3
 (0.2) 0
Total other comprehensive income (loss)348.1
 (73.1) 275.0
 277.4
 0.2
 (2.6)
Balance at June 30, 2019$573.6
 $(120.5) $453.1
 $472.9
 $(16.8) $(3.0)

      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
(millions)
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 Net
unrealized
gains
(losses) on
forecasted
transactions
 (Income) loss attributable to NCI
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 
Net
unrealized
gains
(losses) on
forecasted
transactions

 (Income) loss attributable to NCI
Balance at March 31, 2018$(218.6) $46.0
 $(172.6) $(160.8) $(17.8) $6.0
Balance at December 31, 2019$435.7
 $(94.0) $341.7
 $360.8
 $(16.4) $(2.7)
Reclassification of disproportionate amounts1
3.4
 (0.7) 2.7
 0
 0
 2.7
Adjusted balance at December 31, 2019439.1
 (94.7) 344.4
 360.8
 (16.4) 0
Other comprehensive income (loss) before reclassifications:                      
Investment securities(90.4) 18.8
 (71.6) (71.6) 0
 0
1,284.4
 (269.7) 1,014.7
 1,014.7
 0
 0
Loss attributable to noncontrolling interest (NCI)0.7
 (0.1) 0.6
 0
 0
 0.6
0
 0
 0
 0
 0
 0
Total other comprehensive income (loss) before reclassifications(89.7) 18.7
 (71.0) (71.6) 0
 0.6
1,284.4
 (269.7) 1,014.7
 1,014.7
 0
 0
Less: Reclassification adjustment for amounts realized in net income by income statement line item:                      
Net realized gains (losses) on securities(27.2) 5.7
 (21.5) (21.5) 0
 0
486.7
 (102.2) 384.5
 384.5
 0
 0
Interest expense(0.3) 0.1
 (0.2) 0
 (0.2) 0
(0.5) 0.1
 (0.4) 0
 (0.4) 0
Total reclassification adjustment for amounts realized in net income(27.5) 5.8
 (21.7) (21.5) (0.2) 0
486.2
 (102.1) 384.1
 384.5
 (0.4) 0
Total other comprehensive income (loss)(62.2) 12.9
 (49.3) (50.1) 0.2
 0.6
798.2
 (167.6) 630.6
 630.2
 0.4
 0
Balance at June 30, 2018$(280.8) $58.9
 $(221.9) $(210.9) $(17.6) $6.6
Balance at June 30, 2020$1,237.3
 $(262.3) $975.0
 $991.0
 $(16.0) $0


      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
      
Components of Changes in
Accumulated Other
Comprehensive Income (after tax)
(millions)
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 Net
unrealized
gains
(losses) on
forecasted
transactions
 (Income) loss attributable to NCI
Pretax total
accumulated
other
comprehensive
income (loss)

 
Total tax
(provision)
benefit

 
After tax total
accumulated
other
comprehensive
income (loss)

 
Total net
unrealized
gains
 (losses)
on securities

 Net
unrealized
gains
(losses) on
forecasted
transactions
 (Income) loss attributable to NCI
Balance at December 31, 2017$1,977.8
 $(695.6) $1,282.2
 $1,295.0
 $(14.8) $2.0
Cumulative effect adjustment(2,006.0) 705.8
 (1,300.2) (1,300.2) 0
 0
Reclassification of disproportionate amounts0
 (4.3) (4.3) (1.1) (3.2) 0
Adjusted balance at December 31, 2017(28.2) 5.9
 (22.3) (6.3) (18.0) 2.0
Balance at December 31, 2018$(153.0) $32.1
 $(120.9) $(105.6) $(17.2) $1.9
Other comprehensive income (loss) before reclassifications:                      
Investment securities(293.8) 61.6
 (232.2) (232.2) 0
 0
819.2
 (172.0) 647.2
 647.2
 0
 0
Loss attributable to noncontrolling interest (NCI)5.8
 (1.2) 4.6
 0
 0
 4.6
(6.2) 1.3
 (4.9) 0
 0
 (4.9)
Total other comprehensive income (loss) before reclassifications(288.0) 60.4
 (227.6) (232.2) 0
 4.6
813.0
 (170.7) 642.3
 647.2
 0
 (4.9)
Less: Reclassification adjustment for amounts realized in net income by income statement line item:                      
Net realized gains (losses) on securities(34.9) 7.3
 (27.6) (27.6) 0
 0
86.9
 (18.2) 68.7
 68.7
 0
 0
Interest expense(0.5) 0.1
 (0.4) 0
 (0.4) 0
(0.5) 0.1
 (0.4) 0
 (0.4) 0
Total reclassification adjustment for amounts realized in net income(35.4) 7.4
 (28.0) (27.6) (0.4) 0
86.4
 (18.1) 68.3
 68.7
 (0.4) 0
Total other comprehensive income (loss)(252.6) 53.0
 (199.6) (204.6) 0.4
 4.6
726.6
 (152.6) 574.0
 578.5
 0.4
 (4.9)
Balance at June 30, 2018$(280.8) $58.9
 $(221.9) $(210.9) $(17.6) $6.6
Balance at June 30, 2019$573.6

$(120.5)
$453.1

$472.9

$(16.8)
$(3.0)

1Adjustment to reflect the change in value on (income) loss attributable to NCI in conjunction with the purchase transaction (See Note 12 – Redeemable Noncontrolling Interest for additional information).
In an effort to manage interest rate risk, we often enterentered into forecasted transactions on Progressive’s debt issuances.issuances prior to 2018. We expect to reclassify $1.0$1.1 million (pretax) into interest expense during the next 12 months, related to net unrealized losses on forecasted transactions (see Note 4 – Debt in our 20182019 Annual Report to Shareholders for further discussion).
Note 11 Litigation — The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies written by our insurance subsidiaries in the ordinary course of business. We consider all legal actions relating to such claims in establishing our loss and loss adjustment expense reserves. In


addition, The Progressive Corporation and/or its subsidiaries are named as defendants in a number of class action or individual lawsuits that challenge certain of the operations of the subsidiaries. Other insurance companies face many of these same issues.
These cases include those alleging damages as a result of our subsidiaries’ practices in evaluating or paying medical or injury claims or benefits, including, but not limited to, personal injury protection, medical payments, and bodily injury benefits; the utilization, content, or appearance of policy documents; labor rates paid to auto body repair shops; wage and hour issues; and cases challenging other aspects of our subsidiaries’ claims, marketing, or sales practices, or other business operations. Other insurance companies face many of these same issues.
The nature and volume of litigation to which The Progressive Corporation is subject is similar to that which was disclosed in Note 12 – Litigation in our 20182019 Annual Report to Shareholders.
We plan to contest the pending lawsuits vigorously, but may pursue settlement negotiations in some cases, as we deem appropriate. The outcomes of pending cases are uncertain at this time. We establish accruals for these lawsuits when it is probable that a loss has been or will be incurred and we can reasonably estimate potential loss exposure, which may include a range of loss. As to lawsuits for which the loss is considered neither probable or estimable, or is considered probable but not estimable, we do not establish an accrual. Nevertheless, we continue to evaluate this pending litigation to determine if any losses not deemed probable and estimable become so, at which point we would establish an accrual at our best estimate of the loss or range of loss.


With respect to our pending lawsuits that are not related to claims under insurance policies, the accruals that we have established, if any, were not material at June 30, 20192020 or 2018,2019, and there were no material settlements during 20182019 or the first six months of 2019.2020. For most of these lawsuits, we do not consider any losses to be both probable and estimable, and we are unable to estimate a meaningful range of loss, if any, at this time, due to the factors discussed in Note 12 – Litigation in our 20182019 Annual Report to Shareholders. In the event that any one or more of these lawsuits results in a substantial judgment against or settlement by us, or if our accruals (if any) prove to be inadequate by a significant amount, the resulting liability could have a material adverse effect on our consolidated financial condition, cash flows, and/or results of operations. For a further discussion on our pending litigation and related reserving policies, see Note 12 – Litigation in our 20182019 Annual Report to Shareholders.
Note 12 Redeemable Noncontrolling Interest — In connection with the April 2015 acquisition of a controlling interest in ARX, The Progressive Corporation entered into a stockholders’ agreement with the other ARX stockholders. Pursuant to the stockholders’ agreement, the minority ARX stockholders “put” a portion of their ARX shares toOn April 1, 2020, Progressive in 2018, and have the right to putpurchased all of their remaining shares to Progressive in 2021. During 2018, minority ARX stockholders put 204,527 shares, including 5,483 shares that were issued upon the exercise of outstanding stock options. Progressive acquired these additional shares, inof ARX under a cash transaction, for a totalseparately negotiated purchase agreement. The cost of $295.9 million. If ARX stockholders do not put all of theirpurchasing the remaining outstanding stock and shares to Progressivefrom exercised stock options was $243.0 million in 2021, Progressive has the ability to “callaggregate.” all of the outstanding shares shortly thereafter and to bring its ownership stake to 100% in 2021. See Note 15 – Redeemable Noncontrolling Interest in our 2018 Annual Report to Shareholders for a discussion of the purchase price for shares to be purchased by Progressive pursuant to these put or call rights. At June 30, 2019, Progressive’s share ownership interest in ARX was 87.1%.
Since these securities are redeemable upon the occurrence of an event that is not solely within the control of Progressive, we have recorded the redeemable noncontrolling interest (NCI) as mezzanine equity on our consolidated balance sheets, which represents the minority shares at the current estimated purchase price pursuant to the put and call provisions of the stockholders’ agreement. The estimated purchase price is based, in part, on the change in tangible net book value of ARX from December 31, 2014, to the balance sheet dates.
In addition to these minority shares, at June 30, 2019, ARX employees held options to purchase 10,438 ARX shares. These options and any shares issued upon exercise are subject to the stockholders’ agreement, including the “put” and “call” rights described above. Until the options are exercised, the underlying obligation of approximately $15.6 million is not recorded as part of redeemable NCI. See Note 9 – Employee Benefit Plans in our 2018 Annual Report to Shareholders for a discussion of ARX employee stock options.


The changes in the components of redeemable NCI were:
Six Months Ended June 30, Year Ended
(millions)June 30, 2019
 June 30, 2018
 December 31, 2018
2020 2019 December 31, 2019
Balance, Beginning of period$214.5
 $503.7
 $503.7
Balance, beginning of period$225.6
 $214.5
 $214.5
Net income attributable to NCI4.0
 8.8
 5.7
0
 4.0
 9.7
Other comprehensive income (loss) attributable to NCI1
4.9
 (4.6) (3.3)0
 4.9
 4.6
Exercise of employee stock options7.7
 9.4
 9.4
16.0
 7.7
 7.7
Purchase/change of ARX minority shares(11.2) (295.9) (298.2)(241.6) (11.2) (11.2)
Change in redemption value of NCI0.2
 (3.2) (2.8)0
 0.2
 0.3
Balance, End of period$220.1
 $218.2
 $214.5
Balance, end of period$0
 $220.1
 $225.6

1 Amount represents the other comprehensive income (loss) attributable to NCI, as reflected on the the Consolidated Statementsconsolidated statements of Comprehensive Income;comprehensive income; changes in accumulated other comprehensive income (loss) attributable to NCI due to a change in the minority ownership percentage does not impact the amount of redeemable NCI.
Note 13 Goodwill and Intangible Assets
Goodwill
During the six months ended June 30, 2019,2020, there were no0 changes to the carrying amount of goodwill. NoNaN accumulated goodwill impairment losses exist.
Intangible Assets
The following table is a summary of the net carrying amount of other intangible assets:
(millions)June 30, 2019
 June 30, 2018
 December 31, 2018
June 30, 2020
 June 30, 2019
 December 31, 2019
Intangible assets subject to amortization$246.3
 $318.2
 $282.2
$187.3
 $246.3
 $215.9
Indefinite-lived intangible assets1
12.4
 12.4
 12.4
12.4
 12.4
 12.4
Total$258.7
 $330.6
 $294.6
$199.7
 $258.7
 $228.3

1 Indefinite-lived intangible assets are comprised of state insurance and agent licenses. State insurance licenses were previously subject to amortization under superseded accounting guidance and have $0.6 million of accumulated amortization for all periods presented.



Intangible assets subject to amortization consisted of the following:
(millions)June 30, 2019 June 30, 2018 December 31, 2018June 30, 2020 June 30, 2019 December 31, 2019
CategoryGross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
 Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Policies in force$256.2
$155.6
$100.6
 $256.2
$119.0
$137.2
 $256.2
$137.3
$118.9
$256.2
$192.2
$64.0
 $256.2
$155.6
$100.6
 $256.2
$173.9
$82.3
Agency relationships159.2
48.3
110.9
 159.2
37.0
122.2
 159.2
42.6
116.6
159.2
59.7
99.5
 159.2
48.3
110.9
 159.2
54.0
105.2
Software rights79.1
45.4
33.7
 79.1
34.7
44.4
 79.1
40.1
39.0
69.1
45.3
23.8
 79.1
45.4
33.7
 79.1
50.7
28.4
Trade name34.8
33.7
1.1
 34.8
20.4
14.4
 34.8
27.1
7.7
0
0
0
 34.8
33.7
1.1
 34.8
34.8
0
Total$529.3
$283.0
$246.3
 $529.3
$211.1
$318.2
 $529.3
$247.1
$282.2
$484.5
$297.2
$187.3
 $529.3
$283.0
$246.3
 $529.3
$313.4
$215.9

Amortization expense was $18.0$14.1 million and $35.9$28.6 million for the three and six months ended June 30, 2019,2020, respectively, compared to $18.0 million and $36.0$35.9 million during the same periods last year.
As During the first quarter 2020, 1 software rights intangible asset, with a gross carrying value of June 30, 2019, the remaining average life of all of our intangible assets is 3.4 years.$10.0 million, was fully amortized.


Note 14 Leases — Included in our consolidated balance sheet for the period ended June 30, 2019, are certain noncancelable operating leases for office space, computer equipment, and vehicles, all with expected terms greater than one year, that are reported as a component of “other assets” and “accounts payable, accrued expenses, and other liabilities.” The leased assets represent our right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. We use an incremental borrowing rate to calculate the present value of the remaining lease payments. At June 30, 2019, we had operating lease assets of $189.1 million and operating lease liabilities of $204.2 million.
At June 30, 2019, the following table shows our operating lease liabilities, on an undiscounted basis for the periods indicated, along with key inputs used to discount our lease liabilities, in accordance with the new accounting standard adopted on January 1, 2019 (see Note 15 – New Accounting Standards for further discussion):
($ in millions) 
2019 (excluding the six months ended June 30, 2019)$39.4
202073.2
202157.3
202227.6
202311.8
Thereafter5.8
   Total215.1
Interest(10.9)
Present value of lease liabilities$204.2
Weighted-average remaining term3.1 years
Weighted-average discount rate3.5%

We had certain noncancelable operating lease commitments with lease terms greater than one year for property and computer equipment. The minimum commitments under these agreements at December 31, 2018, were as follows:
(millions)Commitments
2019$64.1
202065.5
202152.8
202224.3
20238.5
Thereafter3.8
Total$219.0

We review each contract at inception to determine if it contains a lease and whether— On January 1, 2020, we adopted the lease qualifies as an operating or financing lease. Operating leases are expensed on a straight-line basis over the term of the lease. For the six months ended June 30, 2019, we incurred operating lease costs of $52.5 million. In determining the lease term, we consider the probability of exercising renewal options. We elected to account for leases with both lease and non-lease components as a single lease component and to apply a portfolio approach to account for our vehicle leases.
Note 15 New Accounting Standards

Issued

In August 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU), on a prospective basis, which provides additional guidance on the requirements for capitalizing and amortizing implementation costs incurred in a cloud computing arrangement that does not include a software license. This ASU will be effective for fiscal years (including interim periods within those fiscal years) beginning after December 15, 2019 (2020 for calendar-year companies). We do not expect this standard to have a material impactFor the six months ended June 30, 2020, we capitalized $14.2 million of cloud computing arrangement implementation costs, which is included in other assets on our financial condition, cash flows, or results of operations.consolidated balance sheet.

In August 2018,On January 1, 2020, we adopted the FASB issued an ASU which amends the disclosure requirements for fair value measurements. The ASU requires companies to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU also removes current


disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and should be applied prospectively for the additions to the disclosure requirements and applied retrospectively to all periods presented for all other amendments. As permitted by the ASU, we elected to partially early adopt the removal of the then current disclosure requirements in 2018 and will adoptadopted the newremaining disclosure requirements as of the effective date. We do not expectJanuary 1, 2020. As this standard to have anonly affects disclosure requirements, there was no impact on our financial condition, cash flows, or results of operations.

InOn January 2017,1, 2020, we adopted the FASB issued an ASU which eliminates the requirement to determine the implied fair value of goodwill in measuring an impairment loss. Upon adoption,The standard requires the measurement of a goodwill impairment willto represent the excess of the reporting unit’s carrying value over fair value, limited to the carrying value of goodwill. ThisThe adoption of this ASU is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019 (2020 for calendar-year companies), with early adoption permitted. We do not expect this standard to have a materialhad no impact on our financial positioncondition, cash flows, or results of operations.

In June 2016,On January 1, 2020, we adopted the FASB issued an ASU intended to improve the timing, and enhance the accounting and disclosure, of credit losses on financial assets. Additionally, thisThis update will modifymodified the existing accounting guidance related to the impairment evaluation for available-for-sale debt securities and will resultresulted in the creation of an allowance for credit losses as a contra asset account. The ASU will require cumulative-effectrequires prospective changes to retained earnings in the period of adoption, if any occur, and will also require prospective changes on previously recorded impairments. This ASU is effective for fiscal years (including interim periods within those fiscal years) beginning after December 15, 2019 (2020 for calendar-year companies), with early adoption permissible (including interim periods within that fiscal year) beginning after December 15, 2018 (2019 for calendar-year companies). WhileTo determine the ASU creates additional accounting complexities related to the recognitionexistence of theany credit-related impairment losses on our available-for-sale debt securities, we reviewed all such securities by applying estimates of future cash flows and subsequent recoveries, through anperformance of those securities in a loss position and identifying market-related versus performance-related losses. For our reinsurance recoverables, we assessed the current credit quality and credit outlook for reinsurers with at-risk uncollateralized recoverables. Based on these analyses, we determined that our allowance for credit losses account, we currently dowas not expect the ASUmaterial relative to have a material impact on our current method of evaluatingavailable-for-sale debt securities premiums receivables, orand reinsurance recoverables for credit losses or the timing or recognition of the amounts of the impairment losses.

Adopted

On January 1, 2019, we adopted the ASU, which required lessees to report their operating leases as both an asset and liability on the statement of financial position and to disclose key information about leasing arrangements in the financial statement footnotes. We are reporting our operating leased assets and liabilities as a component of “other assets” and “accounts payable, accrued expenses, and other liabilities,” respectively. We did not restate prior year information. Uponupon adoption of the ASU, basedASU.
In assessing premium receivables, which are short-term in nature, we assessed customer balances leveraging our current process for analyzing the collectibility of premium receivables. Based on our lease portfolio on January 1, 2019, and after applyinganalysis, no adjustment to the practical expedient under which we were notbeginning balance of retained earnings was required to reassess any of our existing contracts, classification of our leases, or the initial direct costs for existing leases, we recorded a transition adjustment of $213.0 million for leased assets and $217.6 million for liabilities. The adoption of this ASU had no impact on our results of operations or cash flows.upon adoption. See Note 141 – LeasesBasis of Presentation for further information.

On January 1, 2019, we adoptedchanges in the ASUallowance for doubtful accounts related to premium amortization on purchased callable debt securities. Under the ASU, the premium is required to be amortized to the earliest call date, which more closely aligns interest income recorded on bonds held at a premium with the economics of the underlying instrument. We applied the ASU on a modified retrospective basis, as required under the standard. Since we have historically used a yield-to-worst scenario for our securities that were purchased at a premium, and the first call on a premium security most often produces the lowest and most conservative yield, the adoption of this standard did not have an impact on our financial condition, cash flows, or results of operations.premiums receivable balance.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

I. OVERVIEW
The Progressive Corporation’s insurance subsidiaries recognized strong growth in both premiums and policies in force in the second quarter 2019,2020, compared to the same period last year. During the quarter, we generated $9.1$10.1 billion of net premiums written, which is an increase of $1.0 billion, or 13%11%, compared to the second quarter 2018. In addition, on a quarter-over-prior-year-quarter basis,2019. We had 23.8 million companywide net premiums earned increased 16% and policies in force grew 10%. We ended the quarter with 21.6 million total policies in force,at June 30, 2020, which is 2.02.1 million more policies than were in force onat June 30, 2018.2019. Our underwriting profit margin of 12.3% for the second quarter 2020 was 2.7 points better than the same period last year.
On a year-over-year basis, net income attributable to Progressive increased 39%83% for the second quarter and 45%21% for the first six months. The underwriting margin was 9.6%months of 2020, and 10.4%comprehensive income increased 88% and 19%, respectively. Underwriting income increased 40% for the second quarter and 35% for the first six months of 2019, respectively,2020, compared to the same periods last year. The increased underwriting profitability reflects a 0.5 pointsignificant decrease in loss and 0.1 point improvement onloss adjustment expenses due to lower auto accident frequency, as a year-over-year basis.result of fewer vehicle miles driven following the restrictions put in place to stop or slow the spread of the novel coronavirus, COVID-19, which began in March 2020 and lasted into mid-second quarter before the restrictions slowly started to be lifted. Partially offsetting the favorable loss experience were higher expenses reflecting credits issued to personal auto policyholders during the second quarter 2020 and additional bad debt expense related to the billing leniencies and moratoriums that were in place through the middle of May 2020. In addition to the increases instrong underwriting income,results, we recognized a significant increase in net realized gains on securities year-over-year for both the second quarter and first six months of 2019, due to greater net holding periodunrealized gains on our equity securities and forfixed-maturity securities, respectively, during the second quarter, net realized gains on security sales. Comprehensive income increasedas the portfolios’ valuation rebounded following the decline experienced at a greater rate than net income for both the secondend of the first quarter andwhen the COVID-19 restrictions were first six months of 2019, reflecting an increaseput in the value of our fixed-maturity securities during 2019, compared to a decrease in value of these securities during the same periods last year.place.
During the second quarter 2019,2020, our total capital (debt plus shareholders’ equity) increased $1.2$2.4 billion, to $17.7$22.1 billion, primarily reflecting comprehensive income earned during the quarter.
A. Insurance OperationsCOVID-19    
Our results for the first quarter 2020 were significantly impacted by the spread of the COVID-19 and federal, state, and local social distancing and shelter-in-place restrictions (“COVID-19 restrictions”) that were enacted. As the COVID-19 restrictions remained in place during the first part of the second quarter, we continued to experience a decrease in new business volume, which began to rebound as the COVID-19 restrictions started to be lifted in May 2020. In April 2020, on a year-over-year basis for the month, new applications decreased 14% and 26% for our Personal Lines and Commercial Lines operating segmentsbusinesses, respectively. In total for the second quarter 2020, Personal Lines new applications increased 2% and Commercial Lines decreased 10%. The increase in Personal Lines new applications was due to growth in our Direct auto business, as well as 22% new applications growth in our special lines products.
Our companywide underwriting margin for the second quarter 2020 was strong at 12.3%, which was 2.7 points better than the same period last year and only 0.8 points higher than the first quarter 2020. Vehicle accidents were profitablesignificantly lower than the prior year as COVID-related restrictions remained in effect, and remained lower even after many of the restrictions were lifted. Our personal auto incurred accident frequency, which continued to moderate as the quarter progressed, was down about 39% for the second quarter 2020, as compared to the prior year.
On the other hand, our expense ratio was adversely impacted 10.7 points due to the $1 billion of credits we issued to our personal auto policyholders in response to the expected reduction in auto accident frequency and the financial hardships imposed by the impact of COVID-19 restrictions throughout the United States. These credits or payments represented 20% of monthly premiums for customers with a policy in force on each of April 30 and May 31, 2020. In addition to the credits, during the second quarter 2019, while2020 we recorded a $120.0 million increase in the allowance for doubtful accounts relating to our Property business generated an underwriting loss, primarily duebilling leniency efforts, such as suspending cancellations and non-renewals for non-payment and pausing collection activities that we put in place through May 15, 2020, to catastrophe losses incurred during the quarter.help policyholders who were experiencing financial hardships. There still remains state mandated moratoriums in several states.
Our Personal Lines underwriting profit margin was 10.3%non-U.S. Treasury fixed-income and Commercial Lines was 11.6%, both of which were slightly better thanequity investment portfolios valuations rebounded throughout the second quarter last year. Our Property segment had2020. The combination of strong fiscal and monetary stimulus provided a positive backdrop to the financial markets throughout the quarter. Nevertheless, we currently view the market environment as very uncertain and believe the relatively conservative position of our investment portfolio continues to remain appropriate.
From an underwriting loss marginoperations perspective, we continue to institute work-from-home measures, which we believe will be largely in place throughout the remainder of 9.0%, which was 7.6 points better than the second quarter last year, reflecting 4.6 points less catastrophe losses2020. In this challenging environment, we continue to believe that we are effectively maintaining our insurance and investment operations, our financial reporting systems, and our internal controls over financial reporting. For those employees whose jobs require them to remain in the second quarter 2019,office, we continue to practice enhanced social distancing, cleaning, and expenses increasing atother protocols to promote employee health and safety. To help employees other than senior leaders, we paid a much lower rate than earned premiums. On a companywide basis,portion of


their annual bonus in April and July. We continue to make investments in our catastrophe lossesinfrastructure and are currently maintaining our staffing levels, as a percent of premiums earned were down 0.3 points forwe are returning to more normal insurance markets and economic conditions.
We are continuing to investigate the quarter, on a year-over-year basis. The majorityimpact of the catastrophe lossesCoronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, and monitor related guidance. Based on current guidance, we do not expect the CARES Act to materially impact us. We are, however, electing to defer the payment of our portion of Social Security payroll taxes, as permitted under the CARES Act. We estimate that we will defer about $130 million of payments in 2020, with half of that amount being paid by the end of each of 2021 and 2022. As of June 30, 2020, we deferred approximately $50 million of payments related to our portion of Social Security payroll taxes.
Even after the current COVID-19 restrictions were lifted, there remains significant uncertainty regarding the potential for and timing of any economic recovery, whether and when driving and insurance shopping patterns will return to historical patterns, and the near-term and longer-term impacts on insurance markets, small businesses, our critical vendors and counterparties, the investment markets, and the regulatory environment, among many other issues and, ultimately, how our businesses and financial results will be impacted during these recovery periods. Although the second quarter 2019 were due to windnature of these impacts may change over time, we cannot predict the likely duration or extent of these impacts.
B. Insurance Operations
We evaluate growth in terms of both net premiums written and hail stormspolicy in Texas, as well as tornadoes across the United States. Our special lines products were profitable in the second quarter, however, they did not have a significant impact on our total Personal Lines combined ratio.
force growth. All three of our operating segments contributed to our solid premium and policy in force growth during the second quarter on a year-over-year basis. Our companywide net premiums written grew 13%11%, with Personal Lines growing 13%, Commercial Lines 13%1%, and Property 15%12%, primarily reflecting an increase in volume.
During the second quarter, on a year-over-year basis, our written premium per policy for our personal auto businesses increased about 2%, primarily reflecting a shift in the mix of business. We continue to see signs of a softening marketplace and are prepared to continue to take rate actions to maintain our competitive position. Written premium per policy increased 3% for our special lines products and increased 10% for our Commercial Lines business. The Commercial Lines increase reflected shifts inpremiums growth was negatively impacted as a result of reducing our mix of businesses to higher premium market tiers, as well as rate actions taken throughout 2018. We did not take significant rate actionstransportation network company business’ premiums $29.0 million and $139.5 million, during the first halfthree and six months ended June 30, 2020, respectively, as we continued to revise estimated miles to be driven during the remainder of 2019the policy terms. On a policy-by-policy basis, we determine the premiums on these policies monthly based on actual miles driven and an estimate of miles to be driven during the remaining policy terms. Due to COVID-19 restrictions, the estimate of miles driven was reduced. Changes in actual and estimated miles driven will continue to impact our commercial auto products. Written premium per policy for thenet premiums written in future periods. Policies in force grew 10% companywide, with Personal Lines, Commercial Lines, and Property business increased 3%growing 10%, reflecting rate increases partially offset by an increase in the amount of renters business written, which has lower average premium policies. We continue earning in previous rate level increases taken in our Property business during 20186%, and the first half of 2019, to help meet our profitability targets.13%, respectively.
During the quarter, total new personal auto applications (i.e., issued policies) increased 6%decreased 4% on a year-over-year basis, with both Agency new applications decreasing 13% and Direct new applications increasing 6%4%. We continuedIn light of social distancing requirements, many independent agents are still working to generate new business application growthget their operations back to pre-COVID levels, which contributed to the slower pace of recovery in our bundled auto and home customers (i.e., Robinsons) in both the Agency and Direct channels. We experienced solid year-over-year new application growth in our auto products inchannel. By the end of the second quarter 2019, however,we saw overall shopping return to pre-COVID levels, contributing to the rate of growth was slightly less than6% increase in Direct auto quotes, compared to the first quarter 2019 and lower than the significant growth we experienced insame period last year. Total personal auto renewal applications increased 13% over the second quarter last year, which is reflected in our higher growth in renewal applications. The slowdown in new application growth in part reflects competitors lowering rates. Nevertheless, we continue to believe that we are well positioned with competitive product offerings and will continue to spend on marketing when we believe that it is an efficient use ofdriven by our dollars.billing leniency efforts during the period. New applications for our special lines products were up 4%22% during the second quarter 2019, compared2020, primarily due to overall industry growth as consumers habits shifted toward focusing on new ways to enjoy the same period last year.


summer and take vacations while maintaining social distance.
For the Commercial Lines business, new applications, increased 11%which also continued to be impacted by COVID-19 restrictions, decreased 10% on a year-over-year basis during the second quarter 2019, which is consistent2020, with renewal applications increasing 7%. The Property business saw new homeowner and condo policy sales decline during April and May, due to the increase we sawshelter-in-place restrictions, but sales activity recovered in the first quarter 2019. We had some underwriting restrictions in place during the first quarter last year, most of which were liftedJune. Property new applications increased 4% and renewal applications increased 15% during the second quarter 2018. We will continue to monitor our rate levels with a view toward continuing to manage profitably while providing high-quality customer service.
The Property business had a 6% decrease in new applications for the second quarter 2019, compared to an 81% increase in new applications for the same period last year. Throughout 2017 and the first half of 2018, we increased our state footprint in the Property business and, in addition, we generated additional new applications when an unaffiliated carrier stopped offering homeowners insurance through our in-house agency in 2018.2020.
We endedrealize the second quarter 2019 with 14.3 million personal auto policies in force, with Agent auto and Direct auto growing 11% and 13%, respectively, over the the same period last year. Our special lines products policies in force grew 3% over the second quarter last year, Commercial Lines grew 8%, and Property grew 17%. On a year-over-year basis, Personal Lines increased policies in force by about 1.7 million policies, Commercial Lines increased policies by just over 55,000, and Property increased policies by 305,000.
Toimportance of retaining customers to grow policies in force it is critical that we retain our customers for longer periods. Consequently, increasing retention isand this remains one of our most important priorities. Our efforts to increaseWe remain focused on increasing our share of multi-product households and will continue to be a key initiativemake investments to improve the customer experience to continue to support that goal. PolicyWe also will continue to monitor policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, isand report it as our primary measure of customer retention in our Personal Lines and Commercial Lines auto businesses (referredbusiness. Due to asinsurance market volatility brought on by the COVID-19 virus, it may be difficult to assess the progress we are making against our “vehicle businesses”). Ourretention goals. As of the end of the second quarter 2020, our trailing 12-month total personal auto policy life expectancy was down 2% overincreased 7% compared to last year, as a portion of policy cancellations were suppressed by the billing leniency and our trailing 3-month total auto policy life expectancy, which does not address seasonalitystate moratoriums enacted in March 2020 and can reflect more volatility, was up 1%.remained in place through May 15, 2020. Our Agency auto trailing 12-month policy life expectancy was flat, whileup 9%, and Direct auto was down 4%up 5%. Our Commercial Lines trailing 12-month policy life expectancy decreased 7%increased 6% year over year and special lines was down 2%up 7%. The decline in policy life expectancy growth is due, in part, to targeted underwriting changes introduced
Our Personal and Commercial Lines operating segments were profitable during 2018. The unfavorable impact from these targeted underwriting changes continued through much of the second quarter 2019,2020, while our Property business generated an underwriting loss, primarily due to catastrophe losses incurred during the quarter. Our Personal Lines segment generated an underwriting profit margin of 14.8% for the second quarter 2020. Although our special lines products


generated an underwriting profit during the second quarter, the seasonal nature of these products unfavorably impacted our total Personal Lines combined ratio by about 0.5 points. Our Commercial Lines underwriting profit margin for the second quarter was 15.9%. Our Property segment had an underwriting loss margin of 43.6% for the second quarter. On a net basis (i.e., after reinsurance), our Property business incurred catastrophe losses during the second quarter of $234.8 million, or 54.3 points on their combined ratio. As of June 30, 2020, we have retained approximately $330 million of catastrophe losses and associated allocated loss adjustment expenses (ALAE) in the Property business, which has not exceeded the $375 million annual retention threshold under our catastrophe aggregate excess of loss reinsurance program and, therefore, we are seeing our trailing-3 measures beginhave not recorded a reinsurance recoverable related to improve. We remain focused in our retention effortsthese losses and are also continuing to make investments to improve the customer experience in an effort to lengthen retention.ALAE.
B.C. Investments

The fair value of our investment portfolio was $36.8$43.8 billion at June 30, 2020, compared to $39.3 billion at December 31, 2019. The increase from year-end 2019, primarily reflects the $1.0 billion of proceeds from the debt issued during March, comprehensive income of $3.1 billion, and $0.3 billion of unsettled security transactions at the end of the second quarter, offset by $1.6 billion related to the payment of shareholder dividends and the purchase of ARX Holding Corp. during the period.
Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities (the securities allocated to Group I and II are defined below under Results of Operations – Investments). At June 30, 2019, 13%2020, 11% of our portfolio was allocated to Group I securities and 87%89% to Group II securities, compared to 14%12% and 86%88%, respectively, at December 31, 2018.2019. The allocation to Group I securities declined slightly year over year as available cash was invested in Group II securities and Group I valuations declined while Group II valuations increased during the period.
Our recurring investment income generated a pretax book yield of 3.2%2.5% for the second quarter 2019,2020, compared to 2.7%3.2% for the same period in 2018. Over the last 12 months, the size of our portfolio grew as a result of significant cash inflows from our issuance of debt and preferred stock during 2018, strong growth and profitability from our insurance operations, and portfolio turnover through maturities, calls, and paydowns. As interest rates rose in 2018, we opportunistically increased our duration in the fourth quarter, which enabled us2019, primarily due to invest the availableinvesting new cash at yields in excess of the portfolio’s average yield.lower interest rates. Our investment portfolio produced a fully taxable equivalent (FTE) total return of 4.5% and 2.2% for the second quarter 2020 and 2019, compared to 0.6% for the same period in 2018.respectively. Our fixed-income and common stock portfolios had FTE total returns of 2.1%3.4% and 4.0%21.5%, respectively, for the second quarter 2019,2020, compared to 0.3%2.1% and 3.1%4.0%, respectively, last year. We generatedThere was a positive return in the fixed-income portfolio this quarter as interest rates and risk premium pricing declined resulting in valuation increasessignificant narrowing of our securities. The equity market continued its recovery from a sharp fourth quarter 2018 decline,credit spreads, which resulted in a 4.6% FTE total return on our fixed-income securities for the positive equityfirst six months of 2020. Our common stock portfolio’s FTE total return duringwas a (3.4)% for the quarter.first six months of 2020 and, while still negative, is a significant increase from the first quarter 2020.
At June 30, 2019,2020, the fixed-income portfolio had a weighted average credit quality of AA- and a duration of 2.73.0 years, compared to AA- and 2.82.7 years respectively,and AA and 3.0 years at June 30, 2019 and December 31, 2018. We shortened2019, respectively. During the quarter, with valuations improving in several market sectors, we were able to add some attractive investments to our portfolio. While we have lengthened our portfolio duration modestly duringover the first sixprevious twelve months, of the year in response to lower interest rates. Our durationit remains slightly below the mid-pointmidpoint of our 1.5 year to 5 year range, as a means to limit a decline in portfolio value from a significantwhich we believe provides some protection against an increase in rates from current levels.interest rates.



II. FINANCIAL CONDITION
A. Liquidity and Capital Resources
Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. Operations generated positive cash flows of about $3.4$3.9 billion and $3.5$3.4 billion for the first six months of 2020 and 2019, respectively.
We did not experience a significant change in our liquidity needs during the second quarter 2020. When COVID-19 restrictions remained in place during the first half of the second quarter, we saw a continued decrease in new applications, which, along with the suspending collections and 2018, respectively.cancellations for non-payments, reduced the amount of cash we would have collected from customers. However, we also saw a significant decrease in accident claim frequency and, as a result, the amount of cash required to pay claims also decreased. We continue to believe that we have sufficient liquidity from our current operations and in our investment portfolio to meet all of our near-term operating cash needs.
Our total capital (debt plus shareholders’ equity) was $17.7$22.1 billion, at book value, at June 30, 2019,2020, compared to $14.9$17.7 billion at June 30, 2018,2019, and $15.2$18.1 billion at December 31, 2018.2019. The increase since year end primarily reflectedreflects the increase in comprehensive income during that period.period as well as the issuance of $500 million of 3.20% Senior Notes due 2030 and $500 million of 3.95% Senior Notes due 2050, in underwritten public offerings during the first quarter 2020.
Our debt-to-total capital ratio remained below 30% during all reported periods, consistent with our financial policy. This ratio, which reflects debt as a percent of debt plus shareholders’ equity and excludes redeemable noncontrolling interest, if any, was 24.4% at June 30, 2020, 24.8% at June 30, 2019, 26.0% at June 30, 2018, and 28.9%24.4% at December 31, 2018.2019. None of our outstanding senior notes have restrictive financial covenants or credit rating triggers.
We seek to deploy capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic and other insured losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs.
During the year,first six months of 2020, we deployedreturned capital to shareholders primarily through dividends although we did repurchase some of our common shares.dividends. Our Board of Directors declared a $0.10 per common share dividend in both the first and second quarters 2019.2020. These dividends, which were each $58.4$58.5 million in the aggregate, were paid in April 20192020 and July 2019,2020, respectively. In February 2019, we also paid $1.5 billion related to the $2.5140 per common share dividend declared by the Board in December 2018. In addition to the common share dividends, in February 2019,2020, the Board also declared a Series B Preferred Share dividend of $13.4 million, which was paid duringMarch 2020. In January 2020, we also paid the first quarter 2019. Although we did not repurchase any$2.25 and $0.10 common sharesshare dividends declared in December 2019, in the open market during 2019,aggregate amount of $1.4 billion (see Note 9 – Dividends for further discussion). During the year, we also repurchased 0.50.4 million common shares, at a total cost of $28.4$29.1 million, pursuant to satisfy tax withholding obligations, as permitted under our equity compensation plans.
In April 2020, The Progressive Corporation acquired the remaining outstanding stock of ARX Holding Corp., for an aggregate cost of $243.0 million, which included the acquisition of vested stock options, making ARX a wholly owned subsidiary of Progressive. While this acquisition was originally expected to occur in April 2021, we believe that completing it a year earlier will benefit our continued efforts to expand our reach and grow our bundled home and auto customers.
During the first six months of 20192020 and at all times during 2018,2019, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency layer, as described in our Annual Report to Shareholderson Form 10-K for the year ended December 31, 2018.2019. Based upon our capital planning and forecasting efforts, we believe that we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, dividends on common shares and Series B Preferred Shares, our contractual obligations, and other expected capital requirements for the foreseeable future.
OurIn April 2020, we renewed the unsecured discretionary line of credit (the “Line of Credit”) with PNC Bank, National Association, in the maximum principal amount of $250 million, was renewed duringthat expired in April 2019, on2020. Subject to the same terms and conditions andof the line of credit documents, advances under the line of credit (if any) will expirebear interest at a variable rate equal to the higher of PNC’s Prime Rate or the sum of the Federal Funds Open Rate plus 175 basis points. Each advance must be repaid on the 30th day after the advance or, if earlier, on April 30, 2020.2021, the expiration date of the line of credit. We did not engage in short-term borrowings, including any borrowings under our discretionary Line of Credit, to fund our operations or for liquidity purposes during the reported periods.


B. Commitments and Contingencies
Contractual Obligations
During the first six months of 2019,2020, our contractual obligations have not changed materially from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. We are not aware of any significant changes to our contractual obligations that are likely to occur as a result of COVID-19.
Off-Balance-Sheet Arrangements
Our off-balance-sheet leverage includes purchase obligations. Beginning January 1, 2019, we adopted new accounting guidance eliminating off-balance-sheet accounting treatment for operating leases (see Note 14 – Leasesobligations and Note 15 – New Accounting Standards for further discussion).catastrophe excess of loss reinsurance contracts. There have not been no otherany material changes in off-balance-sheet items from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.


III. RESULTS OF OPERATIONS – UNDERWRITING
A. Segment Overview
We report our underwriting operations in three segments: Personal Lines, Commercial Lines, and Property. As a component of our Personal Lines segment, we report our Agency and Direct business results to provide further understanding of our products by distribution channel. Our other indemnity businesses include our run-off businesses.
The following table shows the composition of our companywide net premiums written, by segment, for the respective periods:
Three Months Ended June 30, Six months ended June 30,Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 20182020 2019 2020 2019
Personal Lines              
Agency41% 42% 41% 42%40% 41% 41% 41%
Direct41
 40
 42
 42
43
 41
 43
 42
Total Personal Lines1
82
 82
 83
 84
83
 82
 84
 83
Commercial Lines13
 13
 13
 12
12
 13
 12
 13
Property5
 5
 4
 4
5
 5
 4
 4
Total underwriting operations100% 100% 100% 100%100% 100% 100% 100%
1 Personal auto insurance accounted for 91% of the total Personal Lines segment net premiums written during the three months and 93% during the six months ended June 30, 2019,2020 and 2018, respectively;2019; insurance for our special lines products accounted for the balance.
Our Personal Lines business writes insurance for personal autos and special lines products (e.g., motorcycles, watercraft, and RVs). We currently write our Personal Lines products in all 50 states. We also offer our personal auto products (not special lines products) in the District of Columbia. Our personal auto policies are primarily written for 6-month terms, while thealthough we do write 12-month personal auto policies mainly through our Platinum agents who are focused on selling bundled auto and home policies. At June 30, 2020, 11% of our Agency auto policies in force were 12-month policies, compared to 9% a year earlier. Our special lines products are written for 12-month terms.
Our Commercial Lines business writes auto-related primary liability and physical damage insurance, and other auto-relatedliability and property insurance, predominately for automobiles and trucks owned and/or operated predominantly by small businesses. The majority of our Commercial Lines business is written through the independent agency channel. The amount of commercial auto business written through the direct channel represented about 11%8% of premiums written for the first six months of 2019.second quarter 2020, excluding our transportation network company business, compared to 7% for the same period last year. We write Commercial Lines business in all 50 states and our policies are primarily written for 12-month terms.
Our Property business writes residential property insurance for single family homes, condominium unit owners, renters, etc., and primarily consists of the operations of the ARX organization. We write the majority of our Property business through the independent agency channel; however, we continue to expand the distribution of our Property product offerings in the direct channel.channel, which represented about 17% of premiums written for the second quarter of 2020, compared to 15% for the same period last year. Property policies are written for 12-month terms. WeDuring the second quarter 2020, we began writing residential property and renters insurance in New Hampshire, bringing the total number of states where we write residential property and flood insurance in 44 states and the District of Columbia, renters insurance into 45 states and the Districtrenters insurance to 46 states; we also write all of Columbia, and flood insurancethese products in 44 states and the District of Columbia. Our flood insurance is written primarily through the National Flood Insurance Program. FloridaProgram and Texas remain the largest states for the Property business, together comprising about 40% of the year-to-date written premium volume.is 100% reinsured.


B. Profitability
Profitability for our underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned plus fees and other revenues less losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses.expenses, and policy holder credits. We also use underwriting margin, which is underwriting profit or loss expressed as a percentage of net premiums earned, to analyze our results. For the respective periods, our underwriting profitability results were as follows:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 20182020 2019 2020 2019
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
 
Underwriting
Profit (Loss)
($ in millions)$ Margin   $ Margin   $ Margin   $ Margin  $ Margin   $ Margin   $ Margin   $ Margin  
Personal Lines                              
Agency$434.7
 11.9 % $360.9
 11.2 % $887.7
 12.4 % $770.0
 12.2 %$550.6
 14.0 % $434.7
 11.9 % $1,152.2
 14.9 % $887.7
 12.4 %
Direct326.6
 8.7
 287.9
 9.0
 648.5
 8.9
 585.9
 9.4
647.2
 15.5
 326.6
 8.7
 1,120.2
 13.7
 648.5
 8.9
Total Personal Lines761.3
 10.3
 648.8
 10.1
 1,536.2
 10.6
 1,355.9
 10.8
1,197.8
 14.8
 761.3
 10.3
 2,272.4
 14.3
 1,536.2
 10.6
Commercial Lines124.4
 11.6
 100.3
 11.3
 291.0
 14.0
 195.1
 11.5
179.8
 15.9
 124.4
 11.6
 292.3
 12.6
 291.0
 14.0
Property1
(34.4) (9.0) (51.9) (16.6) (26.7) (3.6) (23.4) (3.9)(188.7) (43.6) (34.4) (9.0) (139.5) (16.3) (26.7) (3.6)
Other indemnity2
0
 NM
 0
 NM
 0
  NM
 0.2
  NM
Total underwriting operations$851.3
 9.6 % $697.2
 9.1 % $1,800.5
 10.4 % $1,527.8
 10.3 %$1,188.9
 12.3 % $851.3
 9.6 % $2,425.2
 12.7 % $1,800.5
 10.4 %
1 For the three and six months ended June 30, 2019,2020, pretax profit (loss) includes $18.0$14.1 million and$35.9 $28.6 million, respectively, of amortization expense predominately associated with the acquisition of a controlling interest in ARX, and $18.0 million and $36.0$35.9 million for the respective periods last year.
2 Underwriting margins for our other indemnity businesses are not meaningful (NM) dueyear; the decrease in amortization expense reflects intangible assets that were fully amortized subsequent to the lack of premiums earned by, and the variability of loss costs in, such businesses.second quarter 2019.
The increases in the companywide underwriting profit margins during three and six months ended June 30, 2020, compared to the same periods last year, were driven primarily by premium growth exceeding the increases in our loss and LAE costs, primarily reflecting lower autoaccident frequency experienced as a result of COVID-19 restrictions, partially offset by the policyholder credits issued to personal auto customers and additional bad debt expense recognized as part of the billing leniency and moratoriums in 2019 compared to 2018.the second quarter of 2020.


Further underwriting results for our Personal Lines business, including results by distribution channel, the Commercial Lines business, the Property business, and our underwriting operations in total, were as follows:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
Underwriting Performance1
2019
 2018
 Change
 2019
 2018
 Change
2020
 2019
 Change
 2020
 2019
 Change
Personal Lines—Agency                      
Loss & loss adjustment expense ratio68.9
 69.4
 (0.5) 68.3
 68.6
 (0.3)53.2
 68.9
 (15.7) 58.8
 68.3
 (9.5)
Underwriting expense ratio19.2
 19.4
 (0.2) 19.3
 19.2
 0.1
32.8
 19.2
 13.6
 26.3
 19.3
 7.0
Combined ratio88.1
 88.8
 (0.7) 87.6
 87.8
 (0.2)86.0
 88.1
 (2.1) 85.1
 87.6
 (2.5)
Personal Lines—Direct                      
Loss & loss adjustment expense ratio70.1
 70.9
 (0.8) 70.0
 70.3
 (0.3)50.3
 70.1
 (19.8) 57.9
 70.0
 (12.1)
Underwriting expense ratio21.2
 20.1
 1.1
 21.1
 20.3
 0.8
34.2
 21.2
 13.0
 28.4
 21.1
 7.3
Combined ratio91.3
 91.0
 0.3
 91.1
 90.6
 0.5
84.5
 91.3
 (6.8) 86.3
 91.1
 (4.8)
Total Personal Lines                      
Loss & loss adjustment expense ratio69.5
 70.2
 (0.7) 69.2
 69.4
 (0.2)51.7
 69.5
 (17.8) 58.3
 69.2
 (10.9)
Underwriting expense ratio20.2
 19.7
 0.5
 20.2
 19.8
 0.4
33.5
 20.2
 13.3
 27.4
 20.2
 7.2
Combined ratio89.7
 89.9
 (0.2) 89.4
 89.2
 0.2
85.2
 89.7
 (4.5) 85.7
 89.4
 (3.7)
Commercial Lines                      
Loss & loss adjustment expense ratio67.3
 68.7
 (1.4) 65.0
 68.0
 (3.0)57.3
 67.3
 (10.0) 62.9
 65.0
 (2.1)
Underwriting expense ratio21.1
 20.0
 1.1
 21.0
 20.5
 0.5
26.8
 21.1
 5.7
 24.5
 21.0
 3.5
Combined ratio88.4
 88.7
 (0.3) 86.0
 88.5
 (2.5)84.1
 88.4
 (4.3) 87.4
 86.0
 1.4
Property        
          
  
Loss & loss adjustment expense ratio77.7
 79.9
 (2.2) 73.0
 68.0
 5.0
114.0
 77.7
 36.3
 86.5
 73.0
 13.5
Underwriting expense ratio2
31.3
 36.7
 (5.4) 30.6
 35.9
 (5.3)29.6
 31.3
 (1.7) 29.8
 30.6
 (0.8)
Combined ratio2
109.0
 116.6
 (7.6) 103.6
 103.9
 (0.3)143.6
 109.0
 34.6
 116.3
 103.6
 12.7
Total Underwriting Operations3
           
Total Underwriting Operations           
Loss & loss adjustment expense ratio69.6
 70.4
 (0.8) 68.8
 69.2
 (0.4)55.2
 69.6
 (14.4) 60.2
 68.8
 (8.6)
Underwriting expense ratio20.8
 20.5
 0.3
 20.8
 20.5
 0.3
32.5
 20.8
 11.7
 27.1
 20.8
 6.3
Combined ratio90.4
 90.9
 (0.5) 89.6
 89.7
 (0.1)87.7
 90.4
 (2.7) 87.3
 89.6
 (2.3)
Accident year — Loss & loss adjustment expense ratio4
68.8
 70.1
 (1.3) 67.6
 68.6
 (1.0)
Accident year — Loss & loss adjustment expense ratio3
55.5
 68.8
 (13.3) 59.6
 67.6
 (8.0)
1 Ratios are expressed as a percentage of net premiums earned; fees and other revenues are netted with underwriting expenses in the ratio calculations.
2 Included in the three and six months ended June 30, 2019,2020, are 4.73.3 points and 4.83.4 points, respectively, of amortization expense predominately associated with our acquisition of a controlling interest in ARX, and 5.84.7 points and 6.04.8 points for the respective periods last year. Excluding these additional expenses, for the three months ended June 30, 20192020 and 2018,2019, the Property business would have reported expense ratios of 26.626.3 and 30.9,26.6, respectively, and a combined ratiosratio of 104.3140.3 and 110.8.104.3. For the six months ended June 30, 20192020 and 2018,2019, excluding these additional expenses, the Property business would have reported expense ratios of 25.826.4 and 29.9,25.8, respectively, and combined ratios of 98.8112.9 and 97.9.98.8.
3Combined ratios for the other indemnity businesses are not presented separately due to the low level of premiums earned by, and the variability of loss costs in, such businesses.
4 The accident year ratios include only the losses that occurred during the period noted. As a result, accident period results will change over time, either favorably or unfavorably, as we revise our estimates of loss costs when payments are made or reserves for that accident period are reviewed.


Losses and Loss Adjustment Expenses (LAE)
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
(millions)2019
 2018
 2019
 2018
2020
 2019
 2020
 2019
Change in net loss and LAE reserves$485.4
 $585.7
 $825.5
 $860.9
Increase (decrease) in net loss and LAE reserves$146.5
 $485.4
 $116.1
 $825.5
Paid losses and LAE5,652.7
 4,789.6
 11,071.6
 9,385.2
5,174.9
 5,652.7
 11,360.5
 11,071.6
Total incurred losses and LAE$6,138.1
 $5,375.3
 $11,897.1
 $10,246.1
$5,321.4
 $6,138.1
 $11,476.6
 $11,897.1
Claims costs, our most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of our policyholders, including expenses neededrelated to adjustthe adjustment or settlesettlement of claims. Claims costs are a function of loss severity and frequency and, for our vehicle businesses, are influenced by inflation and driving patterns, among other factors, some of which are discussed below. In our Property business, severity is primarily a function of construction costs and the age of the structure. Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves. Loss reserves are estimates of future costs and our reserves are adjusted as underlying assumptions change and information develops.
Our total loss and LAE ratio decreased 0.814.4 points for the second quarter 2019,2020, compared to the same period last year, and 0.48.6 points on a year-to-date basis. The decreases werebasis, primarily due to higher average premiums and lower auto frequency, partially offset by higher prior year accident development and higher severity.severity as discussed below.
The following table shows our consolidated catastrophe losses, excluding loss adjustment expenses, incurred during the periods:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
($ in millions)2019 2018 2019 20182020 2019 2020 2019
Vehicle businesses$129.8
 $124.9
 $176.1
 $150.4
Personal Lines$164.7
 $125.0
 $201.9
 $169.8
Commercial Lines6.3
 4.8
 7.6
 6.3
Property       
Property business, net of reinsurance (excluding ASL)131.4
 122.8
 193.0
 147.4
247.9
 131.4
 289.7
 193.0
Reinsurance (recoverable)/reversal on ASL1
(49.5) (41.2) (85.5) (42.0)
Reinsurance recoverable on ASL1
(13.1) (49.5) (13.0) (85.5)
Property business, net81.9
 81.6
 107.5
 105.4
234.8
 81.9
 276.7
 107.5
Total net catastrophe losses incurred$211.7
 $206.5
 $283.6
 $255.8
$405.8
 $211.7
 $486.2
 $283.6
Increase to combined ratio2.4 pts. 2.7 pts. 1.6 pts. 1.7 pts.
Combined ratio effect4.2 pts. 2.4 pts. 2.5 pts. 1.6 pts.
1 Represents the reinsurance recoverable recorded on the losses from prior accident years under our aggregate stop-loss agreements (ASL); see table below for further information.
During the second quarter 2019, on a gross basis,2020, the majority of the catastrophe losses were due to wind, hail, and tornadoes throughout the United States, as well as wind, hail, and thunderstorms in Texas.States. We have responded, and willplan to continue to respond, promptly to catastrophic events when they occur in order to provide exemplaryhigh-quality claims service to our customers.
We do not have catastrophe-specific reinsurance for our vehicle businesses. WePersonal Lines or Commercial Lines businesses, but we reinsure mostportions of our Property business against various risks, including, but not limited to, catastrophic losses through excess of loss reinsurance andreinsurance.
We have aggregate stop-loss agreements.
The table below reports the reinsurance recoverable activity under our aggregate stop-loss agreements (ASL) related toin place, which are in effect for accident years 2019, 2018, and 2017. We did not renew our ASL program for accident year losses2020. Instead, we entered into a property catastrophe aggregate excess of loss program in January 2020. Both the ASL and development on 2018 and 2017the aggregate excess of loss (XOL) programs cover accident year losses. The 2017 and 2018 ASL agreements cover Property catastrophe losses and a portion of LAE, known as allocated loss adjustment expenses (ALAE), except those from named storms (both hurricanes and tropical storms) and liability claims,. See Item 1 – Description of Business-Reinsurance in our Annual Report on Form 10-K for Property business written by ARX subsidiaries. As such, the ASL provides protectionyear ended December 31, 2019 for further discussion. Through June 30, 2020, we have retained approximately $330 million of catastrophe losses and ALAE incurred by our Property business in the ordinary course, including those resulting from other significant severe weather events, such as hail, tornadoes, etc. These agreements provide $200 million of coverage to the extent that the net loss and ALAE ratio for the fullcurrent accident year exceeds 63%. While the 2019 ASL agreement has substantially the same terms as those described above, the 2019 ASL agreement also covers up to $100 million of retained losses and ALAE from named storms, to the extent we are belowunder the aggregate $200 million coverage.XOL program, which has not exceeded our retention threshold of $375 million.


The following table shows the total reinsurance recoverables activity under the aggregate stop-loss agreements by accident year, for the respective periods:
 Three Months Ended June 30, Six Months Ended June 30,
($ in millions)2019 2018 2019 2018
Reinsurance recoverable on ASL, Beginning of period$52.2
 $5.4
 $12.5
 $4.6
Reinsurance recoverables recognized on losses ��     
Accident year:       
201937.1
 NA
 73.4
 NA
20180
 37.7
 0
 37.7
201712.4
 3.5
 12.1
 4.3
  Total49.5
 41.2
 85.5
 42.0
Reinsurance recoverables recognized on ALAE

 

 

 

Accident year:       
20194.9
 NA
 8.1
 NA
20180
 4.1
 0
 4.1
2017(0.7) 0.5
 (0.2) 0.5
  Total4.2
 4.6
 7.9
 4.6
Total reinsurance recoverables recognized       
Accident year:       
201942.0
 NA
 81.5
 NA
20180
 41.8
 0
 41.8
201711.7
 4.0
 11.9
 4.8
  Total53.7
 45.8
 93.4
 46.6
Reinsurance recoverable on ASL, End of period$105.9
 $51.2
 $105.9
 $51.2
NA - Not applicable
 Three Months Ended June 30, Six Months Ended June 30,
($ in millions)2020 2019 2020 2019
Reinsurance recoverable on ASL, beginning of period$69.7
 $52.2
 $69.7
 $12.5
Reinsurance recoverables recognized on losses       
Accident year:       
201911.8
 37.1
 10.9
 $73.4
20180
 0
 0
 0
20171.3
 12.4
 2.1
 12.1
  Total13.1
 49.5
 13.0
 85.5
Reinsurance recoverables recognized on ALAE

 

 

 

Accident year:       
20191.3
 4.9
 1.4
 8.1
20180
 0
 0
 0
20170.2
 (0.7) 0.2
 (0.2)
  Total1.5
 4.2
 1.6
 7.9
Total reinsurance recoverables recognized       
Accident year:       
201913.1
 42.0
 12.3
 81.5
20180
 0
 0
 0
20171.5
 11.7
 2.3
 11.9
  Total14.6
 53.7
 14.6
 93.4
Reinsurance recoverable on ASL, end of period$84.3
 $105.9
 $84.3
 $105.9
In addition to the aggregate stop-loss agreements,XOL program, during the second quarter 2020, our Property business is covered byrenewed its multi-year catastrophe reinsurance contracts, whichcontracts.The renewed insurance policies carry retention thresholds for losses and LAEALAE from a single catastrophic event of $80 million, an increase from the retention threshold on the prior contracts of $60 million, as well as $200 million of additional coverage, due to the growth of the Property business (see Item 1 – Description of Business-Reinsurance in our Annual Report on Form 10-K for the year ended December 31, 20182019 for further discussion). We have not had a catastrophe event during the first six months of 2020 that exceeded our retention threshold.
During the first quarter 2020, relative to our Property business, we closed a $200 million catastrophe bond transaction. This bond replaces a similar $200 million bond that expired on December 31, 2019. The bond will provide reinsurance coverage in the unlikely event that a single catastrophe event exceeds the $1.6 billion in coverage provided by our traditional catastrophe reinsurance program.
The following discussion of our severity and frequency trends in our personal auto businesses excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. For our commercial auto products, the reported frequency and severity trends include comprehensive coverage. Comprehensive coverage insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft, falling objects, and glass breakage.
Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case reserves) on a calendar-year basis increased about 8% and 10% for both the three and six months ended June 30, 2019,2020, respectively, compared to the same periods last year. These increases reflect a reduction in incoming new claims, which led to an older aged mix of inventory, which increases incurred losses. In addition, we have seen an increase in the number of claims that were reopened, and required an additional payment, during the second quarter 2020, compared to a year ago. These supplemental payments are related to prior accident periods and were not impacted by COVID-19 restrictions.
Following are the changes we experienced in severity in our auto coverages on a year-over-year basis:
BodilyPrimarily due to an older aged mix of claims inventory and an increase in the number of claims reopened during the first six months of 2020 personal injury protection (PIP) increased about 9%30% and 20% for both the second quarter and first six months of 2019, in part due to increases in medical costs2020, respectively, bodily injury increased about 11% and actuarially determined reserve increases to reflect accelerating paid loss trends we experienced in recent quarters.
Auto10%, and auto property damage increased about 6%13% and collision coverages increased14%.


Collision decreased about 7% for both8% during the second quarter and first six months of 2019, in part due to an increase in the severity of total loss claims on newer vehicles and higher costs to repair newer vehicles.
Personal injury protection (PIP) increased about 4% for the second quarter and 6% forwas flat during the first six months of 2019, which reflects more reopened claims during the first quarter 2019, predominately2020, in part due to a mix in the changing claims environment in Florida.timing of salvage and subrogation collections.
It is a challenge to estimate future severity, especially for bodily injury and PIP claims, but we continue to monitor changes in the underlying costs, such as medical costs, health care reform, and jury verdicts, along with regulatory changes and other factors that may affect severity.


Our personal auto incurred frequency, on a calendar-year basis, decreased about 4%39% and 3%29% for the three and six months ended June 2019,30, 2020, respectively, compared to the same periods last year. Following are the frequency changes we experienced by coverage on a year-over-year basis:
PIP decreased about 6%45% and 5%33% for the second quarter and first six months of 2019,2020, respectively.
Collision decreased about 5% for both periods.
Auto property damage decreased about 4%42% for both periods.the quarter and 30% for the first six months.
Bodily injury decreased about 2%42% for the second quarter and 3%28% for the first six months of 2019.months.
Collision decreased about 36% for the quarter and 30% for the first six months.
We closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not something that we are able to predict with any certainty.certainty, given the uncertainty of the current environment. We saw the number of vehicle miles driven decrease dramatically when the COVID-19 restrictions were first put in place. Once the restrictions began to be lifted during the quarter, we did see the vehicle miles traveled increase, however, they were still lower than during the second quarter last year. We will continue to analyze trends to distinguish changes in our experience from other external factors, such as changes in the number of vehicles per household, miles driven, gasoline prices, advances in vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business, to allow us to reserve more accurately for our loss exposures.
On a year-over-year basis, our commercial auto products incurred severity increased 10% and frequency decreased 5%. WeThe changes we are disclosing changes in the paragraph below for our commercial auto products severity and frequency usinguses a trailing 12-month period and excludingexcludes our transportation network company (TNC) business. Using a trailing 12-month period mitigates the effects of month-to-month variability and addresses inherent seasonality trends in the commercial auto products.products and mitigates the effects of month-to-month variability, which includes the impact of COVID-19 restrictions. Since the loss patterns in the TNC business are not indicative of our other commercial auto products, disclosing severity and frequency trends without that business is more indicative of our overall experience for the majority of our commercial auto products.
On a year-over-year basis, our commercial auto products incurred severity increased 21% and frequency decreased 12%. In addition to general trends in the marketplace, the increase in our commercial auto products severity reflects a shiftincreased medical costs and actuarially determined reserves due to accelerating paid loss trends and shifts in the mix of business to for-hire trucking, which has higher average severity than the business auto and contractor market tiers. The frequency decrease was in part due to COVID-19 restrictions and continued product segmentation and underwriting, restrictions, which created a mix shift toward more preferred, lower-frequency, business.
The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the following periods on a companywide basis:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
($ in millions)2019 2018 2019 20182020 2019 2020 2019
ACTUARIAL ADJUSTMENTS              
Reserve decrease (increase)              
Prior accident years$(45.8) $(7.0) $(62.5) $(0.8)$(2.7) $(45.8) $(12.2) $(62.5)
Current accident year(16.3) 6.2
 (3.0) 13.9
28.6
 (16.3) 30.2
 (3.0)
Calendar year actuarial adjustment$(62.1) $(0.8) $(65.5) $13.1
$25.9
 $(62.1) $18.0
 $(65.5)
PRIOR ACCIDENT YEARS DEVELOPMENT              
Favorable (unfavorable)              
Actuarial adjustment$(45.8) $(7.0) $(62.5) $(0.8)$(2.7) $(45.8) $(12.2) $(62.5)
All other development(21.6) (18.9) (147.5) (80.7)30.7
 (21.6) (103.9) (147.5)
Total development$(67.4) $(25.9) $(210.0) $(81.5)$28.0
 $(67.4) $(116.1) $(210.0)
(Increase) decrease to calendar year combined ratio(0.8) pts. (0.3) pts. (1.2) pts. (0.6) pts.0.3 pts. (0.8) pts. (0.6) pts. (1.2) pts.
Total development consists of both actuarial adjustments and “all other development.” The actuarial adjustments represent the net changes made by our actuarial staff to both current and prior accident year reserves based on regularly scheduled reviews. Through these reviews, our actuaries identify and measure variances in the projected frequency and severity trends, which allow them to adjust the reserves to reflect the current cost trends. For our Property business, close to 100% of the outstanding catastrophe reserveslosses are reviewed monthly, and as such, any development on catastrophe lossesreserves are included as part of the actuarial adjustments. For the vehiclePersonal Lines and Commercial Lines businesses, only a subset of our reserves is reviewed monthly as part of the actuarial adjustment process. Developmentdevelopment for catastrophe losses for the vehicle businesses would be


reflected in “all other development,” discussed below, to the extent they relate to prior year reserves. We report these actuarial adjustments separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years development.
“All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than anticipated in our incurred but not recorded (IBNR) reserves, and changes in reserve estimates on specific claims. Although we believe the development from both the actuarial adjustments and “all other development” generally results from the same factors, excluding the impact from COVID-19 restrictions, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors.


Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal variation from the date the reserves are initially established until losses are fully developed. As reflected in the table above, we experienced unfavorable prior year development during the three and six months ended June 30, 2019. The unfavorable development was primarily attributable to higher than anticipated claims occurring in late 2018 but not reported until 2019, a higher than anticipated frequency of reopened PIP claims in our personal auto business, and increased bodily injury severity. See Note 6 – Loss and Loss Adjustment Expense Reserves, for a more detailed discussion of our prior accident years development. We continue to focus on our loss reserve analysis, attempting to enhance accuracy and to further our understanding of our loss costs.
Underwriting Expenses
Progressive’s other underwriting expenses, which excludes the policyholder credits, increased 18%17% for the second quarter and 19% for the first six months of 2019,2020, compared to the same periods last year, primarily reflecting anthe increase of $120.0 million and $191.0 million, respectively, in our allowance for uncollectable accounts, due to the billing leniencies that we put in place following COVID-19 restrictions, and increased advertising spend.spend in both periods. During the second quarter and first six months of 2019,2020, our advertising expenditures increased 29%12% and 30%15%, respectively, compared to the same periods last year. We will continue to invest in advertising as long as we generate sales at a cost below the maximum amount we are willing to spend to acquire a new customer. Despite the increase in our total underwriting expenses, the
The companywide underwriting expense ratio (i.e., policy acquisition costs, and other underwriting expenses and policyholder credits, net of fees and other revenues, expressed as a percentage of net premiums earned) was only 0.3increased 11.7 points higherand 6.3 points for both the three and six months ended June 30, 2019,2020, compared to the same periods last year, primarily reflecting 10.7 points and 5.4 points, respectively, of policyholder credits issued to personal auto customers in part reflecting the second quarter 2020. In addition to the credits issued to personal auto customers, our Commercial Lines business worked directly with their policyholders and agents to provide premium and billing credits during the quarter, which, along with bad debt exposure, contributed to a 4.0 point and 2.1 point increase in earned premiums we realized during the year.Commercial Lines expense ratio for the three and six months end June 30, 2020, respectively.


C. Growth
For our underwriting operations, we analyze growth in terms of both premiums and policies. Net premiums written represent the premiums from policies written during the period, less any premiums ceded to reinsurers. Net premiums earned, which are a function of the premiums written in the current and prior periods, are earned as revenue over the life of the policy using a daily earnings convention. Policies in force, our preferred measure of growth since it removes the variability due to rate changes or mix shifts, represents all policies under which coverage was in effect as of the end of the period specified.
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30, Six Months Ended June 30,
($ in millions)2019 2018 % Growth 2019 2018 % Growth2020 2019 % Growth 2020 2019 % Growth
NET PREMIUMS WRITTEN                      
Personal Lines                      
Agency$3,775.5
 $3,384.6
 12% $7,541.9
 $6,719.9
 12%$4,104.7
 $3,775.5
 9% $8,131.2
 $7,541.9
 8 %
Direct3,709.8
 3,268.3
 14
 7,665.9
 6,677.8
 15
4,326.8
 3,709.8
 17
 8,624.2
 7,665.9
 13
Total Personal Lines7,485.3
 6,652.9
 13
 15,207.8
 13,397.7
 14
8,431.5
 7,485.3
 13
 16,755.4
 15,207.8
 10
Commercial Lines1,182.7
 1,045.2
 13
 2,347.9
 1,972.1
 19
1,195.1
 1,182.7
 1
 2,339.2
 2,347.9
 0
Property458.5
 397.2
 15
 810.7
 694.3
 17
513.4
 458.5
 12
 916.7
 810.7
 13
Total underwriting operations$9,126.5
 $8,095.3
 13% $18,366.4
 $16,064.1
 14%$10,140.0
 $9,126.5
 11% $20,011.3
 $18,366.4
 9 %
NET PREMIUMS EARNED                      
Personal Lines                      
Agency$3,639.6
 $3,225.7
 13% $7,148.1
 $6,289.5
 14%$3,919.0
 $3,639.6
 8% $7,747.7
 $7,148.1
 8 %
Direct3,733.4
 3,211.8
 16
 7,309.7
 6,228.1
 17
4,167.9
 3,733.4
 12
 8,160.3
 7,309.7
 12
Total Personal Lines7,373.0
 6,437.5
 15
 14,457.8

12,517.6
 15
8,086.9
 7,373.0
 10
 15,908.0

14,457.8
 10
Commercial Lines1,070.5
 884.3
 21
 2,083.5
 1,692.9
 23
1,129.0
 1,070.5
 5
 2,318.0
 2,083.5
 11
Property381.2
 312.4
 22
 743.2
 597.7
 24
432.7
 381.2
 14
 853.3
 743.2
 15
Total underwriting operations$8,824.7
 $7,634.2
 16% $17,284.5

$14,808.2
 17%$9,648.6
 $8,824.7
 9% $19,079.3

$17,284.5
 10 %
                      
      June 30,      June 30,
(thousands)      2019 2018 % Growth      2020 2019 % Growth
POLICIES IN FORCE                      
Agency auto      6,783.7
 6,107.4
 11%      7,362.5
 6,783.7
 9 %
Direct auto      7,528.4
 6,650.9
 13
      8,507.6
 7,528.4
 13
Total auto      14,312.1
 12,758.3
 12
      15,870.1
 14,312.1
 11
Special lines1
      4,510.2
 4,387.4
 3
      4,790.5
 4,510.2
 6
Personal Lines — total
      18,822.3
 17,145.7
 10
      20,660.6
 18,822.3
 10
Commercial Lines      734.2
 678.9
 8
      775.8
 734.2
 6
Property      2,071.6
 1,766.6
 17
      2,336.1
 2,071.6
 13
Companywide total      21,628.1
 19,591.2
 10%      23,772.5
 21,628.1
 10 %
1 Includes insurance for motorcycles, watercraft, RVs, and similar items.
Although new policies are necessary to maintain a growing book of business, we continue to recognize the importance of retaining our current customers as a critical component of our continued growth. As shown in the tables below, we measure retention by policy life expectancy. We disclose our changes in policy life expectancy using a trailing 12-month period, since we believe this measure is indicative of recent experience, mitigates the effects of month-to-month variability, and addresses seasonality. We also review our customer retention for our personal auto products using both a trailing 3-month and a trailing 12-month period. Although using a trailing 3-month measure does not address seasonality and can reflect more volatility, this measure is more responsive to current experience and generally can be an indicator of how our retention rates are moving. As of June 30, 2020, however, the growth in our auto trailing 3-month policy life expectancy is artificially high due to suspending cancellations of policies for non-payment, which impacted renewal activity during the second quarter 2020. Due to these unusual circumstances, we have chosen not to disclose the year-over-year increase in the trailing 3-month measure in the tables below, as we do not believe the growth is meaningful. We continue to disclose our changes in policy life expectancy using a trailing 12-month period. We believe that the trailing 12-month measure is indicative of recent experience, mitigates the effects of month-to-month variability, and addresses seasonality. While this measure was also positively impacted by the inclusion of the items discussed above, it was to a much lesser extent.
To analyze growth, we review new policies, rate levels, and the retention characteristics of our segments.


D. Personal Lines
The following table shows our year-over-year changes for our Personal Lines business:
Growth Over Prior YearGrowth Over Prior Year
Quarter Year-to-dateQuarter Year-to-date
2019
2018
 2019
2018
2020
2019
 2020
2019
APPLICATIONS   
Applications   
New5 %21% 6%21%2%5 % 2%6%
Renewal11
9
 11
10
12
11
 11
11
WRITTEN PREMIUM PER POLICY - AUTO2
5
 3
5
RETENTION MEASURES - AUTO   
Policy life expectancy   
Written premium per policy - Auto0
2
 0
3
Policy life expectancy - Auto   
Trailing 3-months1
5
  NM
1
  
Trailing 12-months(2)10
  7
(2)  
   
NM = Not meaningful   
In our Personal Lines business, the increase in both new and renewal applications forduring both periods resulted primarily from increases in our personal auto products although2020 was driven by high demand in our special lines products, experienced increasesdue to overall industry growth, as consumers placed higher focus on engaging in applications as well. In the auto businesses, the increase in new applications was primarily attributable to our competitive product offerings and position in the marketplace and reflects our increase in advertising spend during the first half of 2019. For the quarter, on a year-over-year basis, our auto new applications were up 6% and ourrecreational activities that promote maintaining social distance. Our special lines products were up 4%, with the Agencysaw new applications increase 22% and Direct businesses contributing to both products relatively evenly. We continue to experience growth, albeit at slower rates than18% during the samequarter and year-to-date period, last year, as competitors lower ratesrespectively. During the three and we are seeing signs of a softening marketplace. In response to slowingsix months ended June 30, 2020, our personal auto new application growth we continue to take selective rate decreases on auto business policies.
We continued to experience increases in written premium per policy,was down 4% and 1%, respectively, primarily driven by a shiftdecrease in mix to productsauto quote volume and consumer segments with higher premiums during both the second quarter and first six months of 2019. We believe that our Destination Era efforts, including our efforts to improve the customer experience, continue to have a positive impact on our retention. During the second quarter 2019, we saw improvementconversion in our trailing 3-month retention measure, indicatingAgency auto business. During both periods, we continued to see strong renewal personal auto application growth, which may have been aided, in part, by our billing leniency efforts and the moratoriums that the unfavorable impact to policy life expectancy we experienced as the result of targeted underwriting changes introducedwere put in place during the first halfquarter 2020, which suspended cancellations of 2018 are beginning to diminish.policies for non-payment. The year-over-year decrease experiencedmoratoriums were lifted in our 12-month policy life expectancy continues to reflectMay of 2020 in all but eleven states and the impactDistrict of those underwriting changes.Columbia, and by June 30, 2020, moratoriums remained in eight states and the District of Columbia.
We report our Agency and Direct business results separately as components of our Personal Lines segment to provide further understanding of our products by distribution channel.
The Agency Business
 Growth Over Prior Year
  Quarter Year-to-date
 2019
2018
 2019
2018
Auto: new applications6%21% 7%20%
renewal applications11
10
 11
11
written premium per policy3
5
 3
5
Auto retention measures:     
policy life expectancy - trailing 3-months4
5
   
                                                trailing 12-months0
11
   
 Growth Over Prior Year
  Quarter Year-to-date
 2020
2019
 2020
2019
Applications - Auto     
New(13)%6% (8)%7%
Renewal11
11
 10
11
Written premium per policy - Auto1
3
 1
3
Policy life expectancy - Auto     
Trailing 3-monthsNM
4
   
Trailing 12-months9
0
   
      
NM = Not meaningful     
The Agency business includes business written by more than 35,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. New and renewal applications increased duringDuring the second quarter and the first six months of 2019, primarily reflecting2020, the Agency business experienced a decline in new application growth and an increase renewal application growth. During the year, we generated new auto application growth in only twelve states, including only one of our competitivenesstop 10 largest Agency states. While application growth during the quarter in the marketplace. renewal business was in part driven by our billing leniency efforts, new applications growth decreased significantly as it is taking longer for agents to get their operations back to pre-COVID levels.
During both the second quarter and six months ended June 30, 2019,2020, we continued to experience a decrease in Agency auto quote volume of 4% and 3%2%, respectively, with rate of conversion (i.e., converting a quote to a sale) increasing 10%decreasing 9% and 11%6%, compared to the same periods last year.


We continued to experience strong policy in forceanalyze growth in each of our consumerfour consumers segments (e.g., inconsistently insured, consistently insured and maybe a renter, homeowners who do not bundle auto and home, and homeowners who bundle auto and home). During the second quarter, while each of our segments experienced negative new application growth, our inconsistently insured (i.e., Sams) and we continued to grow our new Agency auto applications acrossconsistently insured non-homeowners segments (i.e., Diane) experienced a double digit decline; however, all consumer segments exceptexperienced year-over-year policy in force growth, with double digit increases from both our inconsistently


insured segment, with the largest percentage increase coming from ournon-bundled homeowner (i.e., Wrights) and bundled auto and home productconsumer segments (i.e., Robinsons), albeit on a smaller base.
During the year,trailing 12-month period, we generated newexperienced an increase in the percentage of bundled Agency auto application growth in 35 states andpolicies written for 12-month terms, which have about twice the Districtamount of Columbia, including fivenet premiums written compared to 6-month policies. At the end of our top 10 largest Agency states. On a year-over-year basis for the second quarter and first six months2020, 11% of 2019,our Agency auto written premium per policy increasedpolicies in force were 12-month policies, compared to about 2%-3% for new business and 1%-4% for renewal business, based on policy term, primarily reflecting shifts in the mix of business.9% a year earlier.
The Direct Business
 Growth Over Prior Year
 Quarter Year-to-date
 2019
2018
 2019
2018
Auto: new applications6 %32% 7%31%
renewal applications15
13
 16
13
written premium per policy2
5
 2
5
Auto retention measures:     
policy life expectancy - trailing 3-months(2)4
   
                                                trailing 12-months(4)9
   
 Growth Over Prior Year
 Quarter Year-to-date
 2020
2019
 2020
2019
Applications - Auto     
New4%6 % 5%7%
Renewal15
15
 13
16
Written premium per policy - Auto0
2
 0
2
Policy life expectancy - Auto     
Trailing 3-monthsNM
(2)   
Trailing 12-months5
(4)   
      
NM = Not meaningful     
The Direct business includes business written directly by Progressive on the Internet, through mobile devices, and over the phone. NewThe Direct business experienced solid new and renewal applications increasedapplication growth during the second quarter and the first six months ended June 30, 2019, primarily reflecting our competitiveness in the marketplace. During the same periods, our Direct auto quote volume was flat, with rate of conversion increases of 5% and 6%, respectively, compared to the same periods last year.2020. During the year, we generated new Direct auto application growth in 3831 states, including sevensix of our top 10 largest Direct states.
By the end of the second quarter 2020, we continued to see overall shopping volume return to pre-COVID levels. During both the second quarter and six months ended June 30, 2019,2020, we continued to grow our newexperience an increase in Direct auto applicationsquote volume of 6% and policies in force across all consumer segments, except for a slight decline5%, respectively, with rate of new applications in our non-bundled homeowner segment for the quarter. With the marketing investments that continued to target auto/home bundlers, we saw the highest growth in our Robinsons consumer segment. Written premium per policy for new Direct auto business increased 1% and 2% for the second quarter and six months ended June 30, 2019, respectively, and renewal business increasedconversion decreasing 2% and 3%1%, as compared to the same periods last year, primarily reflecting shiftsyear.
During the second quarter, our Diane and Wrights consumer segments experienced negative new application growth, with Sams and Robinsons experiencing double digit new application growth, while all consumer segments experienced strong year-over-year policy in the mix of business.force growth.
E. Commercial Lines
 Growth Over Prior Year
  Quarter Year-to-date
 2019
2018
 2019
2018
New applications11 %9% 11%17%
Renewal applications7
5
 8
4
Written premium per policy10
12
 12
13
Policy life expectancy - trailing 12-months(7)2
   
 Growth Over Prior Year
  Quarter Year-to-date
 2020
2019
 2020
2019
Applications - Auto     
New(10)%11 % (3)%11%
Renewal7
7
 8
8
Written premium per policy - Auto(1)10
 2
12
Policy life expectancy - Auto - trailing 12-months6
(7)   
      
Note: Table excludes our transportation network company business.     
Our Commercial Lines business operates in thefive traditional business markets, which include business auto, for-hire transportation, contractor, for-hire specialty, tow, and for-hire liverytow markets and is primarily written through the agency channel.
Similar to our experience in our Personal Lines Agency business, the quarterly results of our Commercial Lines experienced solid year-over-year new application growthbusiness were negatively impacted by COVID-19 restrictions that were in place during the first half of the second quarter 2020, which influenced the demands and first six months of 2019, reflecting an increasegeneral consumer habits for goods and services provided by our Commercial Lines customers and required that certain businesses undergo temporary closure.


While our renewal business was not significantly impacted, we continued to experience a significant decline in both quote volume and conversion, a generally strong economy, and competitor rate increases. We continue to monitor the growth and profitability across all of our business market targets and will impose underwriting restrictions when we believe it is necessary to meet our profitability objectives. During 2018, we increased rates and experienced shifts in business mix, to higher premium business markets, which continued into 2019, contributing to the increase in our written premium per policynew consumer shopping during the second quarter 2020, reflecting a 13% and first8% quote volume decrease during the three and six monthsmonth period ended June 30, 2020, respectively, and a 3% and 5% rate of 2019. The decrease in policy life expectancy was primarily attributableconversion increase, compared to the rate increases, prior year underwriting restrictions, and a shift to business market targets with lower policy life expectancy.
During 2019, we expanded our footprint in the transportation network company business by adding nine additional states, bringing the total number of states to 13 where we insure drivers on the Uber and Uber Eats platforms. We continue to believe we are well positioned to offer competitive rates to the best owners/operators and small fleets though Smart Haul®, our usage-based insurance program for our for-hire transportation policyholders.same periods last year.


F. Property
 Growth Over Prior Year
 Quarter Year-to-date
 2019
2018
 2019
2018
New applications(6)%81 % (2)%83 %
Renewal applications23
21
 24
20
Written premium per policy3
(5) 2
(5)
 Growth Over Prior Year
 Quarter Year-to-date
 2020
2019
 2020
2019
Applications     
New4%(6)% 5%(2)%
Renewal15
23
 16
24
Written premium per policy0
3
 0
2
Our Property business writes residential property insurance for homeowners, other property owners, and renters, primarily in the agency channel.and direct channels. During the second quarter and first six months of 2019,2020, our Property business experienced a decreasean increase in new applications, primarily reflecting the impact of targeted underwriting changes made in Texas and Colorado during the second quarter 2019 and the significant growth experienced in 2018. The significantdriven by growth in our direct channel and our Robinsons consumer segment, as discussed above, and a rebound to the housing market for new applications during the comparable periodhome sales in 2018 was largely attributable to state expansion, momentum in growing Robinsons through our Platinum agency offering, and the business we began writing when an unaffiliated carrier stopped offering homeowners’ insurance through our in-house agency during 2018.
We are starting to see some improvement inJune 2020. During 2020, our written premium per policy increased for bothour homeowners’ policies, on a year-over-year basis, but was offset by a larger share of renters policies, which have lower written premiums per policy.
While COVID-19 restrictions had a negative impact our Personal Lines and Commercial Lines segments, our Property segment was not as significantly impacted during the second quarter and firstor six months of 2019, primarily related to rate increases we took in the first half of 2019 and during 2018, where the rate increases are still being applied as policies renew. We will continue to increase rates where needed to get us in line with our profitability target.ended June 30, 2020.
G. Income Taxes
A deferred tax asset or liability is a tax benefit or expense that is expected to be realized in a future tax year.period. At June 30, 2020 and 2019, and 2018,December 31, 2019, we reported net deferred tax liabilities, and a net deferred tax asset at December 31, 2018.liabilities. At June 30, 20192020 and 2018,2019, and December 31, 2018,2019, we had net current income taxes payable of $889.0 million, $150.3 million, $60.5 million, and $16.8$195.5 million, respectively, which were reported as part of “other liabilities.” The increase During the six months ended June 30, 2020, we deferred making estimated federal tax payments. In response to the impact on businesses caused by COVID-19 restrictions, the Internal Revenue Service postponed the due date of federal income tax payments that would have otherwise been due between April 1, 2020, and July 15, 2020. On July 15, 2020, we paid $700.0 million of estimated federal taxes that would have otherwise been paid in our current tax liability from the prior periods primarily reflects the reversalfirst half of certain tax credits and other tax benefits discussed below.2020.
Our effective tax rate for the three and six months ended June 30, 20192020, were 21.3%21.1% and 26.7%20.8%, respectively, compared to 20.3%21.3% and 20.1%26.7% for the same periods last year. The increase in thehigher effective tax rate for the first six months ended June 30,of 2019 overwas due primarily to the same period last year principally reflects the total reversal of the tax credits and other tax benefits previously recognized from certain renewable energy investments, plus interest.where the sponsor pled guilty to fraud through these investments and the tax credits and other benefits related to those investments were not valid. See Note 5 – Income Taxes in our 2019 Annual Report to Shareholders for additionala further discussion.



IV. RESULTS OF OPERATIONS – INVESTMENTS
A. Investment Results
We disclose total return to reflect ourOur management philosophy governing the portfolio and our evaluation ofis to evaluate investment results.results on a total return basis. The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully taxable amount for certain securities that receive preferential tax treatment (e.g., municipal securities), and total net realized, and changes in total net unrealized, gains (losses) on securities.

The following table summarizes investment results for the periods ended June 30:
Three Months Six MonthsThree Months Six Months
2019
 2018
 2019
 2018
2020
 2019
 2020
 2019
Pretax recurring investment book yield (annualized)3.2% 2.7% 3.1% 2.6%2.5% 3.2% 2.6 % 3.1%
Weighted average FTE book yield (annualized)3.2
 2.8
 3.2
 2.7
2.6
 3.2
 2.6
 3.2
FTE total return:              
Fixed-income securities2.1
 0.3
 4.4
 0
3.4
 2.1
 4.6
 4.4
Common stocks4.0
 3.1
 17.9
 2.7
21.5
 4.0
 (3.4) 17.9
Total portfolio2.2
 0.6
 5.5
 0.3
4.5
 2.2
 3.9
 5.5

A combination of strong fiscal and monetary stimulus efforts provided a positive backdrop to the financial market improvements throughout the second quarter 2020. Our fixed-income portfolio duration was 3.0 years and 2.7 years which is consistent with the first quarter 2019. Weat June 30, 2020 and 2019, respectively. The fixed-income portfolio generated a positive return infor the fixed-income portfolio throughout 2019 asyear based on declining interest rates and risk premium pricing declined resulting in valuation increases of our securities and from interest income. The equity market continued to recover from a sharp fourth quarter drop.narrowing credit spreads during the second quarter. Our indexed portfolio generated a positive return was in line with the overall market, while our actively managed portfolio exceeded the overall market for the quarter but still lagged foras the six months.equity market recovered from the initial effects of COVID-19, and investors moved back towards instruments that contained credit risk.

A further break-down of our FTE total returns for our portfolio for the periods ended June 30, follows: 
Three Months Six MonthsThree Months Six Months
2019
 2018
 2019
 2018
2020
 2019
 2020
 2019
Fixed-income securities:              
U.S. Treasury Notes2.3% 0 % 3.9% (0.7)%0.7% 2.3% 7.0 % 3.9%
Municipal bonds1.8
 0.8
 3.7
 0.6
3.8
 1.8
 6.6
 3.7
Corporate bonds2.6
 0.3
 6.3
 (0.3)6.3
 2.6
 5.5
 6.3
Residential mortgage-backed securities1.1
 0.6
 2.0
 1.1
4.3
 1.1
 1.4
 2.0
Commercial mortgage-backed securities2.2
 0.5
 4.7
 0.5
4.0
 2.2
 1.0
 4.7
Other asset-backed securities1.1
 0.5
 2.1
 0.7
2.3
 1.1
 1.8
 2.1
Preferred stocks2.1
 0.5
 8.5
 0.5
9.2
 2.1
 (4.1) 8.5
Short-term investments0.6
 0.5
 1.3
 0.9
0.4
 0.6
 0.8
 1.3
Common stocks:              
Indexed4.0
 3.4
 17.9
 2.8
21.5
 4.0
 (3.4) 17.9
Actively managed5.0
 (1.5) 17.6
 2.3
NA
 5.0
 NA
 17.6

NA= Not applicable since we no longer maintain an actively managed portfolio.


B. Portfolio Allocation
The composition of the investment portfolio was: 
($ in millions)
Fair
Value

 
% of
Total
Portfolio

 
Duration
(years)

 
Rating1
Fair
Value

 
% of
Total
Portfolio

 
Duration
(years)

 
Rating1
June 30, 2019      
Fixed maturities$31,188.2
 84.7% 2.8
 AA
Nonredeemable preferred stocks1,130.0
 3.1
 2.5
 BBB-
June 30, 2020      
U.S. government obligations$9,277.8
 21.2% 3.8
  AAA
State and local government obligations3,574.3
 8.2
 4.5
  AA+
Corporate debt securities11,062.5
 25.3
 4.0
  BBB+
Residential mortgage-backed securities543.0
 1.2
 0.8
  AA
Commercial mortgage-backed securities5,761.8
 13.2
 2.7
  AA
Other asset-backed securities4,354.9
 9.9
 1.0
  AAA-
Preferred stocks1,332.7
 3.0
 3.2
  BBB-
Short-term investments1,360.9
 3.7
 <0.1
 AA-4,700.5
 10.8
 0.1
  BBB+
Total fixed-income securities33,679.1
 91.5
 2.7
 AA-40,607.5
 92.8
 3.0
  AA-
Common equities3,135.5
 8.5
 na
 na3,170.4
 7.2
 na
 na
Total portfolio2,3
$36,814.6
 100.0% 2.7
 AA-$43,777.9
 100.0% 3.0
  AA-
June 30, 2018      
Fixed maturities$23,789.2
 76.9% 2.9
 AA-
Nonredeemable preferred stocks758.6
 2.4
 3.1
 BBB-
June 30, 2019      
U.S. government obligations$12,379.4
 33.6% 3.7
 AAA
State and local government obligations1,589.7
 4.3
 2.9
 AA+
Corporate debt securities7,385.7
 20.1
 3.0
 BBB
Residential mortgage-backed securities665.2
 1.8
 1.1
 AA-
Commercial mortgage-backed securities4,441.9
 12.1
 2.5
 AA-
Other asset-backed securities4,497.2
 12.2
 0.9
 AAA-
Preferred stocks1,359.1
 3.7
 2.5
 BBB-
Short-term investments3,231.2
 10.5
 0.1
 AA-1,360.9
 3.7
 0.1
 AA-
Total fixed-income securities27,779.0
 89.8
 2.6
 AA-33,679.1
 91.5
 2.7
 AA-
Common equities3,142.2
 10.2
 na
 na3,135.5
 8.5
 na
 na
Total portfolio2,3
$30,921.2
 100.0% 2.6
 AA-$36,814.6
 100.0% 2.7
 AA-
December 31, 2018      
Fixed maturities$28,111.5
 83.7% 2.9
 AA-
Nonredeemable preferred stocks1,033.9
 3.1
 2.6
 BBB-
December 31, 2019      
U.S. government obligations$13,251.1
 33.7% 4.9
  AAA
State and local government obligations1,713.3
 4.4
 3.1
  AA+
Corporate debt securities7,067.7
 18.0
 2.7
  BBB
Residential mortgage-backed securities627.5
 1.6
 0.9
  AA
Commercial mortgage-backed securities5,076.2
 12.9
 2.0
  AA
Other asset-backed securities5,179.5
 13.2
 0.8
  AAA-
Preferred stocks1,233.9
 3.2
 2.6
  BBB-
Short-term investments1,795.9
 5.4
 0.1
 AA1,798.8
 4.6
 0.1
  AA-
Total fixed-income securities30,941.3
 92.2
 2.8
 AA-35,948.0
 91.6
 3.0
  AA
Common equities2,626.1
 7.8
 na
 na3,306.3
 8.4
 na
 na
Total portfolio2,3
$33,567.4
 100.0% 2.8
 AA-$39,254.3
 100.0% 3.0
  AA
na = not applicable            
1Represents ratings at period end. Credit quality ratings are assigned by nationally recognized statistical rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score of 0-5, with non-investment-grade and non-rated securities assigned a score of 0-1. To the extent the weighted average of the ratings falls between AAA and AA+, we would assign an internal rating of AAA-.
2Our portfolio reflects the effect of net unsettled security transactions; at June 30, 2019,2020, we had $277.9 million in other liabilities, compared to $303.5 million included in “other liabilities,” compared to $362.1 million and $5.9$11.9 million at June 30, 20182019 and December 31, 2018,2019, respectively.
3The total fair value of the portfolio at June 30, 20192020 and 2018,2019, and December 31, 2018,2019, included $2.3 billion, $1.2 billion, $1.7 billion, and $2.9$3.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.



Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities.

We define Group I securities to include:
common equities
nonredeemable preferred stocks
redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends, which are included in Group II, and
all other non-investment-grade fixed-maturity securities.
Group II securities include:
short-term securities, and
all other fixed-maturity securities, including 50% of the investment-grade redeemable preferred stocks with cumulative dividends.

We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators.



The following table shows the composition of our Group I and Group II securities: 
June 30, 2019 June 30, 2018 December 31, 2018June 30, 2020 June 30, 2019 December 31, 2019
($ in millions)
Fair
Value

% of Total
Portfolio

 Fair
Value
% of Total
Portfolio
 Fair
Value
% of Total
Portfolio
Fair
Value

% of Total
Portfolio

 Fair
Value
% of Total
Portfolio
 Fair
Value
% of Total
Portfolio
Group I securities:                
Non-investment-grade fixed maturities$489.5
1.3% $802.2
2.6% $754.8
2.2%$368.6
0.8% $489.5
1.3% $327.2
0.8%
Redeemable preferred stocks1
133.7
0.4
 156.3
0.5
 154.1
0.5
76.0
0.2
 133.7
0.4
 117.6
0.3
Nonredeemable preferred stocks1,130.0
3.1
 758.6
2.4
 1,033.9
3.1
1,180.6
2.7
 1,130.0
3.1
 1,038.9
2.7
Common equities3,135.5
8.5
 3,142.2
10.2
 2,626.1
7.8
3,170.4
7.2
 3,135.5
8.5
 3,306.3
8.4
Total Group I securities4,888.7
13.3
 4,859.3
15.7
 4,568.9
13.6
4,795.6
10.9
 4,888.7
13.3
 4,790.0
12.2
Group II securities:                
Other fixed maturities2
30,565.0
83.0
 22,830.7
73.8
 27,202.6
81.0
Other fixed maturities34,281.8
78.3
 30,565.0
83.0
 32,665.5
83.2
Short-term investments1,360.9
3.7
 3,231.2
10.5
 1,795.9
5.4
4,700.5
10.8
 1,360.9
3.7
 1,798.8
4.6
Total Group II securities31,925.9
86.7
 26,061.9
84.3
 28,998.5
86.4
38,982.3
89.1
 31,925.9
86.7
 34,464.3
87.8
Total portfolio$36,814.6
100.0% $30,921.2
100.0% $33,567.4
100.0%$43,777.9
100.0% $36,814.6
100.0% $39,254.3
100.0%
1Includes non-investment-grade redeemable preferred stocks of $38.3 million $83.5 million, and $69.9$40.2 million at June 30, 2019 and 2018, and December 31, 2018, respectively.
2Includes investment-grade2019, respectively; we held no non-investment-grade redeemable preferred stocks with cumulative dividends, of $95.4 million, $72.8 million, and $84.2 million at June 30, 2019 and 2018, and December 31, 2018, respectively.2020.
To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) for classifying our residential and commercial mortgage-backed securities, excluding interest-only securities, and the credit ratings from nationally recognized statistical rating organizations (NRSRO) for all other debt securities. NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and Group II securities.

Unrealized Gains and Losses
As of June 30, 2019,2020, our fixed-maturity portfolio had pretax net unrealized gains, recorded as part of accumulated other comprehensive income, of $598.1$1,257.1 million, compared to net unrealized losses of $267.3$598.1 million and $134.2$459.4 million at June 30, 20182019 and December 31, 2018,2019, respectively. The changechanges from net unrealized lossesboth June and December 2019, reflect decreasing interest rates, which resulted in 2018 to net unrealized gains at June 30, 2019, was predominantly the result of valuation increases in nearly all sectors during the first six months of 2019, most notably in our U.S. Treasury, corporate, and commercial mortgage-backed portfolios.fixed-maturity sectors.
See Note 2 – Investments for a further break-out of our gross unrealized gains and losses.



Holding Period Gains and Losses

The following table provides the gross and net holding period gain (loss) balance and activity during the six months ended June 30, 2019:2020:
(millions)Gross Holding Period Gains
Gross Holding Period Losses
Net Holding Period Gains (Losses)
Gross Holding Period Gains
Gross Holding Period Losses
Net Holding Period Gains (Losses)
Beginning of period  
Hybrid fixed-maturity securities$0.1
$(10.3)$(10.2)$7.8
$0
$7.8
Equity securities1,568.7
(60.2)1,508.5
2,263.9
(15.5)2,248.4
Balance at December 31, 20181,568.8
(70.5)1,498.3
Balance at December 31, 20192,271.7
(15.5)2,256.2
Year-to-date change in fair value











Hybrid fixed-maturity securities3.0
9.1
12.1
(4.6)(1.8)(6.4)
Equity securities467.4
25.6
493.0
(186.5)(45.1)(231.6)
Total holding period gains (losses) during the period470.4
34.7
505.1
(191.1)(46.9)(238.0)
End of period











Hybrid fixed-maturity securities3.1
(1.2)1.9
3.2
(1.8)1.4
Equity securities2,036.1
(34.6)2,001.5
2,077.4
(60.6)2,016.8
Balance at June 30, 2019$2,039.2
$(35.8)$2,003.4
Balance at June 30, 2020$2,080.6
$(62.4)$2,018.2

Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market performance as well as sales of securities based on various portfolio management decisions.
Other-Than-Temporary Impairment (OTTI)Credit Allowance and Uncollectible Losses
Net realized gains (losses) may include write-downs ofValuations in all fixed-maturity securities determined tosectors have had other-than-temporary declines in fair value. We routinely monitor our fixed-maturity portfolio for pricing changes that might indicate potential impairments and perform detailed reviews of securities with unrealized losses. In such cases, changes in fair value are evaluated to determineimproved following the extent to which such changes are attributable to: (i) fundamental factors specific toheightened volatility at the issuer, such as financial conditions, business prospects, or other factors, (ii) market-related factors, such as interest rates, or (iii) credit-related losses, where the present value of cash flows expected to be collected is lower than the amortized cost basisend of the security.
Fixed-maturity securities with declines attributable to issuer-specific fundamentals are reviewed to identify available evidence, circumstances, and influences to estimatefirst quarter. At the potential for, and timing of, recoveryend of the investment’s impairment. An other-than-temporary impairment loss is deemedsecond quarter, we continued to have occurred when the potential for recovery does not satisfy the criteria set forth in the current accounting guidance.
When a securityexpect that all securities in our fixed-maturity portfolio has an unrealized losswill pay their principal and it is more likely thaninterest obligations. In determining not that we will be required to sell the security, we write-down the security to its current fair value and recognize the entire unrealized loss through the comprehensive income statement as a realized loss. If a fixed-maturity security has an unrealized loss and it is more likely than not that we will hold the debt security until recovery (which could be maturity), then we determine if any of the decline in value is due to a credit loss (i.e., where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security) and, if so, we will recognize that portion of the impairment in net income as part of the comprehensive income statement as a realized loss; any remaining unrealized loss on the security is considered to be due to other factors (e.g., interest rate and credit spread movements) and is reflected in other comprehensive income as part of shareholders’ equity, along with unrealized gains or losses on securities that are not deemed to be other-than-temporarily impaired.
We did not record any write-downs on securities held inallowance or write-off, we considered our investment portfolioexpectation as well as how the market has improved during the first six months of 2019 or 2018. The write-downs we did take in 2019 and 2018 related to federal renewable energy tax credit fund investments, which were reported in “other assets” on the balance sheet, based on an analysis that our investments in those funds will not generate the cash flows that we anticipated.quarter. See Note 5 – Income TaxesCritical Accounting Policies for additional discussion related to the 2019 write-downs.discussion.


The following table stratifies the gross unrealized losses in our fixed-maturity portfolio at June 30, 2019, by duration in a loss position:
  
 
Total Gross Unrealized Losses1

(millions)Fair Value
 
Unrealized loss for less than 12 months$966.5
 $2.0
Unrealized loss for 12 months or greater2,801.9
 9.9
Total$3,768.4
 $11.9
1None of these securities had a decline in investment value greater than 15%.
We completed a review of the securities in a loss position and determined that, applying the procedures and criteria discussed above, these securities were not other-than-temporarily impaired. We also determined that it is not likely that we will be required to sell these securities during the period of time necessary to recover the respective cost bases of these securities, and that there are no additional credit-related impairments on our debt securities.
Since total unrealized losses are already a component of other comprehensive income and included in shareholders’ equity, any recognition of these losses as additional OTTI losses would have no effect on our comprehensive income, book value, or reported investment total return.
Fixed-Income Securities
The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks. A
Following are the primary exposureexposures for our fixed-income portfolio. Details of our policies related to these exposures can be found in the fixed-income portfolio is interestManagement’s Discussion and Analysis included in our 2019 Annual Report to Shareholders.
Interest rate risk which includes the change in value resulting from movements in the underlying market rates of debt securities held. We manage this risk by maintaining the portfolio’s duration (a measure of the portfolio’s exposure to changes in interest rates) between 1.5 years and 5 years. The- our duration of the fixed-income portfolio was 2.7 years at June 30, 2019, compared to 2.63.0 years at June 30, 2018 and 2.8 years at December 31, 2018. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security is expected to change based on a rise or fall in interest rates) is monitored on a regular basis.
The duration distribution of2020, fell within our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, was:acceptable range.
◦The duration distribution of our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, was:
Duration DistributionJune 30, 2019
 June 30, 2018
 December 31, 2018
1 year24.1% 21.9% 19.4 %
2 years20.6
 18.1
 17.0
3 years20.1
 24.9
 27.0
5 years19.8
 19.3
 22.8
7 years12.3
 10.2
 10.4
10 years3.1
 5.6
 3.5
20 years0
 0
 (0.1)
Total fixed-income portfolio100.0% 100.0% 100.0 %

The negative duration in the 20-year category at December 31, 2018, arose from the variable rate nature of the dividends on some of our preferred stocks. If not called at their call dates, the dividends on these securities will reset from a fixed rate to a floating rate, which could cause these securities to trade at a discount and, therefore, with a negative duration as the securities’ valuation will likely rise if the floating rate moves higher.
Another primary exposure related to the fixed-income portfolio is credit risk. This risk is managed by maintaining an A+ minimum weighted average portfolio credit quality rating, as defined by NRSROs, which was successfully maintained during the first six months of 2019 and all of 2018.
Duration DistributionJune 30, 2020
 June 30, 2019
 December 31, 2019
1 year25.5% 24.1% 23.9%
2 years14.1
 20.6
 11.8
3 years21.3
 20.1
 20.6
5 years20.1
 19.8
 23.1
7 years10.4
 12.3
 15.1
10 years8.6
 3.1
 5.5
Total fixed-income portfolio100.0% 100.0% 100.0%



TheCredit risk - our credit quality distribution ofrating was above our minimum threshold during the fixed-income portfolio was:second quarter 2020.
◦The credit quality distribution of the fixed-income portfolio was:
RatingJune 30, 2019
 June 30, 2018
 December 31, 2018
June 30, 2020
 June 30, 2019
 December 31, 2019
AAA58.0% 47.3% 50.5%45.6% 58.0% 60.8%
AA10.4
 11.7
 10.8
8.9
 10.4
 9.9
A8.4
 11.1
 8.4
14.5
 8.4
 7.9
BBB20.4
 24.7
 25.9
29.4
 20.4
 19.5
Non-investment grade/non-rated1
          
BB1.9
 3.3
 3.0
1.2
 1.9
 1.4
B0.6
 1.5
 1.1
0.2
 0.6
 0.3
CCC and lower0.1
 0.1
 0.1
0
 0.1
 0
Non-rated0.2
 0.3
 0.2
0.2
 0.2
 0.2
Total fixed-income portfolio100.0% 100.0% 100.0%100.0% 100.0% 100.0%
1The ratings in the table above are assigned by NRSROs. The non-investment-grade fixed-income securities based upon our Group I classification represented 2.5%1.5% of the total fixed-income portfolio at June 30, 2019,2020, compared to 3.9%2.5% at June 30, 20182019 and 3.6%1.7% at December 31, 2018.2019.

Our portfolio is also exposed to concentration risk. Our investment constraints limit investmentConcentration risk - we did not have any investments in a single issuer, other than U.S. Treasury Noteseither overall or a state’s general obligation bonds, to 2.5% of shareholders’ equity, while the single issuer guideline on preferred stocks and/or non-investment-grade debt is 1.25% of shareholders’ equity. Additionally, the guideline applicable to any state’s general obligation bonds is 6% of shareholders’ equity. We consider concentration risk both overall and in the context of individual assetassets classes and sectors, including but not limited to common equities, residential and commercial mortgage-backed securities, municipal bonds, and high-yield bonds. We were within all ofthat exceeded our thresholds during the constraints described above during all reported periods.second quarter 2020.
We monitor prepaymentPrepayment and extension risk especially in our asset-backed (i.e., structured product) and preferred stock portfolios. Prepayment risk includes the risk of early redemption of security principal that may need to be reinvested at less attractive rates. Extension risk includes the risk that a security will not be redeemed when anticipated, and that the security that is extended will have a lower yield than a security we might be able to obtain by reinvesting the expected redemption principal. Our holdings of different types of structured debt and preferred securities help manage this risk. During the first six months of 2019 and all of 2018,- we did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio.portfolio during the second quarter 2020.
Liquidity risk is another risk factor we monitor. Our- our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements.
◦The short-to-intermediate duration of our portfolio provides a source of liquidity, as we expect approximately $3.1 billion, or 11.5%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments, during the remainder of 2020. Cash from interest and dividend payments provides an additional source of recurring liquidity.
◦The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at June 30, 2020:
($ in millions)
Fair
Value

 
Duration
(years)

U.S. Treasury Notes   
Less than one year$442.3
 0.8
One to two years1,350.0
 1.6
Two to three years2,424.1
 2.6
Three to five years2,461.0
 4.1
Five to seven years1,940.7
 5.7
Seven to ten years659.7
 8.3
Total U.S. Treasury Notes$9,277.8
 3.8

We currently view the market environment as very uncertain and believe the relatively conservative position of our investment portfolio provides a source of liquidity, as we expect approximately $2.8 billion, or 14.2%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments, during the remainder of 2019. Cash from interest and dividend payments provides an additional source of recurring liquidity.

The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at June 30, 2019:
($ in millions)
Fair
Value

 
Duration
(years)

U.S. Treasury Notes   
Less than one year$371.2
 0.6
One to two years3,599.1
 1.6
Two to three years2,037.5
 2.3
Three to five years2,970.4
 4.1
Five to seven years2,603.7
 6.0
Seven to ten years797.5
 8.5
Total U.S. Treasury Notes$12,379.4
 3.7
As of June 30, 2019, we had no interest rate swaps or treasury futures.continued to be appropriate.


ASSET-BACKED SECURITIES
Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at the balance sheet dates listed: 
($ in millions)
Fair
Value

 
Net Unrealized
Gains (Losses)

 
% of Asset-
Backed
Securities

 
Duration
(years)

 
Rating
(at period end)
June 30, 2019         
Residential mortgage-backed securities:         
Collateralized mortgage obligations$388.2
 $1.4
 4.0% 1.5
  AA+
Home equity (sub-prime bonds)277.0
 3.4
 2.9
 0.6
  A
Residential mortgage-backed securities665.2
 4.8
 6.9
 1.1
  AA-
Commercial mortgage-backed securities4,441.9
 80.7
 46.3
 2.5
  AA-
Other asset-backed securities:         
Automobile2,056.8
 6.9
 21.4
 0.7
  AAA-
Credit card791.2
 1.4
 8.2
 0.5
  AAA
Student loan594.3
 1.7
 6.2
 0.8
  AAA-
Other1
1,054.9
 8.9
 11.0
 1.5
  AA
Other asset-backed securities4,497.2
 18.9
 46.8
 0.9
  AAA-
Total asset-backed securities$9,604.3
 $104.4
 100.0% 1.6
  AA

($ in millions)
Fair
Value

 
Net Unrealized
Gains (Losses)

 
% of Asset-
Backed
Securities

 
Duration
(years)

 
Rating
(at period end)
June 30, 2018         
Residential mortgage-backed securities:         
Collateralized mortgage obligations$444.9
 $(2.1) 6.7% 1.1
  AA
Home equity (sub-prime bonds)377.7
 5.1
 5.6
 0.3
  BBB+
Residential mortgage-backed securities822.6
 3.0
 12.3
 0.7
  A+
Commercial mortgage-backed securities2,696.9
 (28.6) 40.3
 2.7
  A+
Other asset-backed securities:         
Automobile1,358.6
 (4.7) 20.3
 0.9
  AAA-
Credit card513.8
 (0.2) 7.6
 0.9
  AAA
Student loan521.8
 (0.6) 7.8
 1.0
  AA
Other1
783.4
 (6.2) 11.7
 1.7
  AA-
Other asset-backed securities3,177.6
 (11.7) 47.4
 1.1
  AA+
Total asset-backed securities$6,697.1
 $(37.3) 100.0% 1.7
  AA-


($ in millions)
Fair
Value

 
Net Unrealized
Gains (Losses)

 
% of Asset-
Backed
Securities

 
Duration
(years)

 
Rating
(at period end)
December 31, 2018         
Residential mortgage-backed securities:         
Collateralized mortgage obligations$435.3
 $(2.4) 5.7% 1.5
 AA
Home equity (sub-prime bonds)299.1
 3.3
 3.9
 0.4
 A-
Residential mortgage-backed securities734.4
 0.9
 9.6
 1.0
 AA-
Commercial mortgage-backed securities3,301.6
 (31.2) 43.4
 2.7
 AA-
Other asset-backed securities:         
Automobile1,609.0
 (3.3) 21.1
 0.9
  AAA-
Credit card644.5
 (0.5) 8.5
 0.5
  AAA
Student loan475.7
 (1.0) 6.3
 1.1
 AA+
Other1
848.1
 (3.4) 11.1
 1.6
 AA-
Other asset-backed securities3,577.3
 (8.2) 47.0
 1.0
  AA+
Total asset-backed securities$7,613.3
 $(38.5) 100.0% 1.7
 AA
($ in millions)
Fair
Value

 
Net Unrealized
Gains (Losses)

 
% of Asset-
Backed
Securities

 
Duration
(years)

 
Rating
(at period end)1
June 30, 2020         
Residential mortgage-backed securities$543.0
 $2.0
 5.1% 0.8
  AA
Commercial mortgage-backed securities5,761.8
 33.3
 54.0
 2.7
  AA
Other asset-backed securities4,354.9
 41.6
 40.9
 1.0
  AAA-
Total asset-backed securities$10,659.7
 $76.9
 100.0% 1.9
  AA+
June 30, 2019         
Residential mortgage-backed securities$665.2
 $4.8
 6.9% 1.1
 AA-
Commercial mortgage-backed securities4,441.9
 80.7
 46.3
 2.5
 AA-
Other asset-backed securities4,497.2
 18.9
 46.8
 0.9
  AAA-
Total asset-backed securities$9,604.3
 $104.4
 100.0% 1.6
  AA
December 31, 2019         
Residential mortgage-backed securities$627.5
 $2.5
 5.8% 0.9
 AA
Commercial mortgage-backed securities5,076.2
 55.5
 46.6
 2.0
 AA
Other asset-backed securities5,179.5
 14.8
 47.6
 0.8
 AAA-
Total asset-backed securities$10,883.2
 $72.8
 100.0% 1.4
 AA+
1Includes equipment leases, whole business securitizations, and other types of structured debt.

The increases in asset-backed securities are primarily due to purchasescredit quality ratings in the automobile, credit card, commercial mortgage-backed and “other” categories, partially offsettable above are assigned by maturities and sales in the residential mortgage-backed sector. See below for a further discussion of our residential and commercial mortgage-backed securities. The other asset-backed securities category is not included in the discussions below due to the high credit quality, short duration, and security structure of those instruments.NRSROs.

Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBSs, along with the loan classification and a comparison of the fair value at June 30, 2019,2020, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
Residential Mortgage-Backed Securities (at June 30, 2019)
  Collateralized Mortgage Obligations    
Residential Mortgage-Backed Securities (at June 30, 2020)Residential Mortgage-Backed Securities (at June 30, 2020)
($ in millions)
Rating1
Home Equity
 Non-Agency Prime
 
Alt-A2

 
Government/GSE3

     Total % of Total
Non-Agency
 
Government/GSE2

     Total % of Total
AAA$76.9
 $311.5
 $1.6
 $2.1
 $392.1
 59.0%$378.2
 $2.0
 $380.2
 70.0%
AA64.1
 10.8
 8.1
 0.7
 83.7
 12.6
65.8
 0.6
 66.4
 12.2
A57.7
 2.4
 0
 0
 60.1
 9.0
24.0
 0
 24.0
 4.4
BBB6.4
 2.9
 0.9
 0
 10.2
 1.5
12.3
 0
 12.3
 2.3
Non-investment grade/non-rated:        

 

    

 

BB28.5
 1.9
 0.7
 0
 31.1
 4.7
0.5
 0
 0.5
 0.1
B24.4
 0
 0.8
 0
 25.2
 3.8
16.4
 0
 16.4
 3.0
CCC and lower9.5
 4.1
 0
 0
 13.6
 2.0
11.9
 0
 11.9
 2.2
Non-rated9.5
 1.9
 37.8
 0
 49.2
 7.4
31.3
 0
 31.3
 5.8
Total fair value$277.0
 $335.5
 $49.9
 $2.8
 $665.2
 100.0%$540.4
 $2.6
 $543.0
 100.0%
Increase (decrease) in value1.2% 0.1% 2.1% 0.2% 0.7%  0.3% 8.0% 0.4%  
1The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings for our RMBSs, $107.9$52.7 million of our non-investment-grade securities are rated investment-grade and classified as Group II, and $11.2$7.4 million, or 1.7%1.4% of our total RMBSs, are not rated by the NAIC and are classified as Group I.
2Represents structured securities with primary residential loans as collateral for which documentation standards for loan approval were less stringent than conventional loans; the collateral loans are often referred to as low documentation or no documentation loans.
3The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA).



Our collateralized mortgage obligation (CMO) portfolio is primarily composed of non-GSE/FHA/VA mortgage securities. The majority ofIn the residential mortgage-backed sector, our portfolio consists of older deals with predictable prepayment speeds, high levels of credit support, and stable delinquency trends. We also own a number of more recent vintage securitiesthat are backed by high-quality collateral. Althoughhigh credit quality borrowers or have strong structural protections through underlying loan collateralization. In our RMBSview, the risk/reward potential is currently lower in this portfolio decreased from year-end 2018, it increased duringrelative to other comparable investments. We made some relatively small additions in the residential mortgage-backed sector in the second quarter due to purchases of both home-equity loan-backed securities and non-agency prime CMO securities.2020.



Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBSs, along with a comparison of the fair value at June 30, 2019,2020, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
Commercial Mortgage-Backed Securities (at June 30, 2019)
Commercial Mortgage-Backed Securities (at June 30, 2020)Commercial Mortgage-Backed Securities (at June 30, 2020)
($ in millions)
Rating1
Multi-Borrower
 Single-Borrower
       Total % of Total
Multi-Borrower
 Single-Borrower
       Total % of Total
AAA$409.9
 $1,472.0
 $1,881.9
 42.4%$312.4
 $2,789.7
 $3,102.1
 53.9%
AA141.1
 1,153.2
 1,294.3
 29.1
3.4
 1,366.9
 1,370.3
 23.8
A130.9
 615.3
 746.2
 16.8
0
 783.4
 783.4
 13.6
BBB44.2
 450.6
 494.8
 11.1
33.2
 447.7
 480.9
 8.3
Non-investment grade/non-rated:              
BB0
 24.0
 24.0
 0.6
0
 24.6
 24.6
 0.4
B0.7
 0
 0.7
 0
0.5
 0
 0.5
 0
Total fair value$726.8
 $3,715.1
 $4,441.9
 100.0%$349.5
 $5,412.3
 $5,761.8
 100.0%
Increase (decrease) in value2.8% 1.7% 1.9%  1.3% 0.5% 0.6%  
1The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings for our CMBSs, $2.2$8.2 million of our non-investment-grade securities are rated investment-grade and classified as Group II, and $22.5$16.9 million, or 0.5%0.3% of our total CMBSs are not rated by the NAICnon-investment-grade and are classified as Group I.

During the quarter, we focused our purchases exclusively on secondary acquisitions of single asset, single borrower securities because primary markets were virtually shut down. In April, we purchased primarily long-duration, fixed-rate, AAA-rated securities given the CMBS sector,relative attractiveness of spreads. As spreads narrowed in May and June, we continued to add attractive single asset, single borrower securities, and we also focused on reducing securities with higher levels of unique credit risk, primarily in our focus continues to be on single-borrower transactions, which represented 83.6%conduit and Freddie Mac Class K multi-family holdings. As of the CMBS portfolioend of the quarter, we had substantially disposed of our remaining conduit securities.
Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABSs, along with a comparison of the fair value at June 30, 2019. We increased2020, to our CMBS bondoriginal investment value (adjusted for returns of principal, amortization, and write-downs):

Other Asset-Backed Securities (at June 30, 2020)
($ in millions)
Rating
Automobile
Credit Card
Student Loan
Whole Business Securitizations
Equipment
Other
Total
% of
Total

AAA$1,745.0
$400.7
$284.6
$0
$1,100.2
$134.0
$3,664.5
84.2%
AA64.4
0
36.3
0
77.6
10.0
188.3
4.3
A32.2
0
10.3
0
113.0
37.0
192.5
4.4
BBB0
0
0
309.6
0
0
309.6
7.1
       Total fair value$1,841.6
$400.7
$331.2
$309.6
$1,290.8
$181.0
$4,354.9
100.0%
Increase (decrease) in value0.9%0.9%1.0%2.1%1.1%(0.8)%1.0% 

As valuations across other asset classes were more attractive in the second quarter of 2020, asset-backed securities offered less relative value. Due to amortization and scheduled paydowns, our ABS portfolio by $535.6 million on a cost basis duringdecreased throughout the quarter. The additions wereWe selectively added across the spectrum to our other asset-backed securities portfolio, but we primarily in bondsfocused on auto, equipment, student loans, and credit card backed by multi-family, industrial, and office collateral, and bonds defeased by U.S. Treasuries. The duration of the CMBS portfolio was 2.5 years and the average credit quality was AA- at both June 30, 2019 and March 31, 2019.loans.


MUNICIPAL SECURITIES
Included in the fixed-income portfolio at June 30, 2019 and 2018, and December 31, 2018, were $1,589.7 million, $1,667.3 million, and $1,649.1 million, respectively, of state and local government obligations. These securities had a duration of 2.9 years and an overall credit quality rating of AA+ (excluding the benefit of credit support from bond insurance) at June 30, 2019, compared to 2.7 years and AA at June 30, 2018, and 2.9 years and AA+ at December 31, 2018. These securities had net unrealized gains of $26.1 million at June 30, 2019, compared to net unrealized losses of $11.6 million at June 30, 2018 and $5.5 million at December 31, 2018.

The following table details the credit quality rating of our municipal securities at June 30, 2019,2020, without the benefit of credit or bond insurance:
Municipal Securities (at June 30, 2019)
Municipal Securities (at June 30, 2020)Municipal Securities (at June 30, 2020)
(millions)
Rating
General
Obligations

 
Revenue
Bonds

 Total
General
Obligations

 
Revenue
Bonds

 Total
AAA$372.8
 $376.5
 $749.3
$775.0
 $690.9
 $1,465.9
AA355.9
 451.0
 806.9
559.1
 1,169.7
 1,728.8
A0
 24.4
 24.4
0
 375.1
 375.1
BBB3.0
 6.1
 9.1
2.9
 1.6
 4.5
Total$731.7
 $858.0
 $1,589.7
$1,337.0
 $2,237.3
 $3,574.3

Included in revenue bonds were $713.0$605.7 million of single-family housing revenue bonds issued by state housing finance agencies, of which $514.4$431.8 million were supported by individual mortgages held by the state housing finance agencies and $198.6$173.9 million were supported by mortgage-backed securities. Of the programs supported by mortgage-backed securities,


approximately 25% were collateralized by Fannie Mae and Freddie Mac mortgages; the remaining 75% were collateralized by Ginnie Mae loans,mortgages, which are fully guaranteed by the U.S. government. Of the programs supported by individual mortgages held by the state housing finance agencies, the weighted averageoverall credit quality rating was AA+. Most of these mortgages were supported by FHA, VA, or private mortgage insurance providers.

WeDuring the second quarter, we continued to reduceadd high credit quality rated state general obligations, water and sewer, airport, and higher education revenue bonds. Our focus was on longer duration securities, which we believe will have a more attractive return profile than comparable shorter duration securities. We also increased our holdingsfocus on the taxable portion of tax-exemptthe municipal bonds during the first six months of 2019, as the current corporate tax rate we usemarket, based on our view that this sector also would provide attractive returns to value our tax-exempt bonds rendered them less attractiveus, on a relative to alternative taxable investments.basis.
CORPORATE SECURITIES
Included inThe following table details the credit quality rating of our fixed-incomecorporate securities at June 30, 20192020:
Corporate Securities (at June 30, 2020)
(millions)
Rating
Consumer
Industrial
Communication
Financial Services
Technology
Basic Materials
Energy
Total
AAA$0
$0
$0
$30.1
$0
$0
$0
$30.1
AA159.1
0
0
278.2
61.0
0
11.5
509.8
A1,000.3
179.0
317.6
1,125.6
319.3
107.3
93.5
3,142.6
BBB2,885.3
1,486.0
149.6
1,345.6
410.7
43.9
714.6
7,035.7
Non-investment grade/non-rated:       

BB45.1
98.9
65.0
11.8
46.3
0
27.5
294.6
B49.7
0
0
0
0
0
0
49.7
Total fair value$4,139.5
$1,763.9
$532.2
$2,791.3
$837.3
$151.2
$847.1
$11,062.5

During the second quarter 2020, credit spreads remained attractive and 2018, and December 31, 2018, were $7,385.7 million, $7,330.3 million, and $8,694.3 million, respectively,we continued to selectively increase our allocation to corporate bonds. We focused on adding investment-grade securities that are less vulnerable to the current economic environment, while our allocation to high yield securities remained small.

Overall, our corporate securities are a larger percentage of corporate securities. These securities had a durationthe fixed-income portfolio when compared to the end of 3.0 years at2019. At June 30, 2019,2020, the portfolio was approximately 27% of our fixed-income portfolio, compared to 3.3 years at both June 30, 2018 and December 31, 2018, and a weighted average credit quality rating of BBB at June 30, 2019 and 2018, and December 31, 2018. These securities had net unrealized gains of $208.3 million at June 30, 2019, compared to net unrealized losses of $90.1 million at June 30, 2018 and $111.7 millionapproximately 20% at December 31, 2018.2019. In addition, we lengthened duration during 2020, and ended the second quarter at 4.0 years, compared to 2.7 years at the end of 2019. This extension is primarily the result of our assessment that more attractive opportunities and wider spread levels existed in the corporate sector.


We decreased the size of our corporate bond portfolio during the first six months of 2019, as valuations continued to become significantly less attractive than they were at December 31, 2018.PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

The table below shows the exposure break-down by sector and rating: 
Corporate Securities (at June 30, 2019)
(millions)
Rating
Consumer
Industrial
Communication
Financial Services
Technology
Basic Materials
Energy
Total
AAA$0
$0
$0
$32.8
$0
$0
$0
$32.8
AA0
0
0
271.5
36.2
0
0
307.7
A215.3
183.7
305.9
496.5
157.6
35.0
1.3
1,395.3
BBB2,358.5
815.4
270.1
670.5
591.7
156.6
331.3
5,194.1
Non-investment grade/non-rated:       

BB0
94.2
94.6
11.6
85.1
0
21.7
307.2
B73.8
12.7
0
27.9
9.8
0
24.4
148.6
Total fair value$2,647.6
$1,106.0
$670.6
$1,510.8
$880.4
$191.6
$378.7
$7,385.7

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE
We hold both redeemable (i.e., mandatory redemption dates) and nonredeemable (i.e., perpetual with call dates) preferred stocks. At June 30, 2019, we held $229.1 million in redeemable preferred stocks and $1,130.0 million in nonredeemable preferred stocks, compared to $229.1 million and $758.6 million, respectively, at June 30, 2018, and $238.3 million and $1,033.9 million at December 31, 2018. At June 30, 2019, our preferred stock portfolio had net unrealized gains of $1.8 million and net holding period gains of $70.8 million recorded as part of net realized gains (losses), compared to $12.1 million of net unrealized gains and $78.2 million of net holding period gainsrating at June 30, 2018 and $2.4 million of net unrealized gains and $23.5 million of net holdings period gains at 2020:December 31, 2018.

Preferred Stocks (at June 30, 2020)
 Financial Services   
(millions)
Rating
U.S. Banks
Foreign Banks
Insurance
Other
Industrials
Utilities
Total
A$47.5
$0
$0
$8.9
$0
$0
$56.4
BBB825.4
0
98.2
24.9
90.2
10.8
1,049.5
Non-investment grade/non-rated:      

BB20.3
87.5
0
0
22.1
38.7
168.6
B0
0
0
4.9
0
0
4.9
Non-rated0
0
0
38.1
15.2
0
53.3
Total fair value$893.2
$87.5
$98.2
$76.8
$127.5
$49.5
$1,332.7
The value of our preferred stock portfolio increased in second quarter 2019, as equities continued to rally from the first quarter and treasury yields moved lower. We increased our preferred stock portfolio by $21.8 million on a cost basis during the quarter.

Our preferred stock portfolio had a duration of 2.5 years at June 30, 2019, compared to 2.9 years at June 30, 2018 and 2.4 years at December 31, 2018. The majority of our preferred securities have fixed-rate dividends until a call date and then, if not called, generally convert to floating-rate dividends. The interest rate duration of our preferred securities is calculated to reflect the call, floor, and floating-rate features. Although a preferred security will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. The overall credit quality rating was BBB- for all three periods. Our non-investment-grade preferred stocks were primarily with issuers that maintain investment-grade senior debt ratings.


The table below shows the exposure break-down by sector and rating at quarter end:
Preferred Stocks (at June 30, 2019)
 Financial Services   
(millions)
Rating
U.S. Banks
Foreign Banks
Insurance
Other
Industrials
Utilities
Total
A$93.5
$0
$0
$10.0
$0
$0
$103.5
BBB607.5
0
103.9
54.2
129.2
10.3
905.1
Non-investment grade/non-rated:      

BB133.4
73.1
0
0
38.2
41.4
286.1
B0
0
0
32.3
0
0
32.3
Non-rated0
0
0
27.1
5.0
0
32.1
Total fair value$834.4
$73.1
$103.9
$123.6
$172.4
$51.7
$1,359.1
We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely. As of June 30, 2019,2020, all of our preferred securities continued to pay their dividends in full and on time. Approximately 81%80% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable.

The value of our preferred stock portfolio increased during second quarter 2020, as equities increased and credit spreads tightened.
Common Equities
Common equities, as reported on the balance sheets, were comprised of the following:
 
($ in millions)June 30, 2019 June 30, 2018 December 31, 2018June 30, 2020 June 30, 2019 December 31, 2019
Indexed common stocks$2,958.4
 94.4% $2,985.7
 95.0% $2,480.2
 94.4%$3,170.1
 100.0% $2,958.4
 94.4% $3,306.0
 100.0%
Managed common stocks176.8
 5.6
 156.2
 5.0
 145.6
 5.6
0
 0
 176.8
 5.6
 0
 0
Total common stocks3,135.2
 100.0
 3,141.9
 100.0
 2,625.8
 100.0
3,170.1
 100.0
 3,135.2
 100.0
 3,306.0
 100.0
Other risk investments0.3
 0
 0.3
 0
 0.3
 0
0.3
 0
 0.3
 0
 0.3
 0
Total common equities$3,135.5
 100.0% $3,142.2
 100.0% $2,626.1
 100.0%$3,170.4
 100.0% $3,135.5
 100.0% $3,306.3
 100.0%
In our indexed common stock portfolio, our individual holdings are selected based on their contribution to the correlation with the Russell 1000 Index. We held 928 out of 1,004, or 92%, of the common stocks comprising the index at June 30, 2020, which made up 96% of the total market capitalization of the index. At June 30, 2019,2020, the year-to-date total return, based on GAAP income, was outsidenot within our targeted tracking error, due to cash held in the indexedwhich is +/- 50 basis points. The portfolio but not invested in securities at the end ofwas rebalanced during the second quarter. This total return was withinquarter 2020, in an effort to reduce the desiredexpected tracking error when compared to the index for the other periods reported above. We held 832 out of 1,002, or 83%, of the common stocks comprising the Russell 1000 Index at June 30, 2019, which made up 94% of the total market capitalization of the index.error.

The actively managedcommon equity markets continued to be volatile during the second quarter, and our common stock portfolio reflected that market volatility. During the second quarter, stock valuations increased and we ended the quarter with a FTE total return on our common equity portfolio of (3.4%), which is managed by one external investment manager, had a cost basis of $132.4 millionwas an improvement from the (20.5)% return at June 30, 2019, compared to $123.1 million and $131.3 million at June 30, 2018 and DecemberMarch 31, 2018, respectively.2020.




V. CRITICAL ACCOUNTING POLICIES
Progressive is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates in a variety of areas. The two areas we view as most critical with respect to the application of estimates and assumptions is the establishment of our loss reserves and the methods for measuring expected credit losses on financial instruments. Below is a discussion of the expected credit losses on financial instruments. See Management’s Discussion and Analysis; Critical Accounting Policies in our 2019 Annual Report to Shareholders for further information on the estimates and assumptions related to the establishment of our loss reserves.
A. Credit Losses on Financial Instruments
An allowance for credit losses is established when the ultimate realization of a financial instrument is determined to be impaired due to a credit event. Measurement of expected credit losses is based on judgment when considering relevant information about past events, including historical loss experience, current conditions, and forecasts of the collectability of the reported financial instrument. The allowance for expected credit losses is measured and recorded at the point ultimate recoverability of the financial instrument is expected to be impaired, including upon the initial recognition of the financial instrument, where warranted. We evaluate financial instrument credit losses related to our available-for-sale securities, reinsurance recoverables, and premiums receivables.
Available-For-Sale Securities
We routinely monitor our fixed-maturity portfolio for pricing changes that might indicate potential losses exist and perform detailed reviews of securities with unrealized losses to determine if an allowance for credit losses, a change to an existing allowance (recovery or additional loss), or a write-off for an amount deemed uncollectible needs to be recorded. In such cases, changes in fair value are evaluated to determine the extent to which such changes are attributable to: (i) credit related losses, which are specific to the issuer (e.g., financial conditions, business prospects) where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security or (ii) market related factors, such as interest rates or credit spreads.
If we do not expect to hold the security to allow for a potential recovery of those expected losses, we will write-off the security to fair value and recognize a realized loss in the comprehensive income statements.
For securities whose losses are credit related losses, and for which we do not intend to sell in the near term, we will review the non-market components to determine if a potential future credit loss exists, based on existing financial data available related to the fixed-maturity securities. If we anticipate that a credit loss exists, we will record an allowance for the credit loss and recognize a realized loss in the comprehensive income statement. For all securities for which an allowance for credit losses has been established, we will re-evaluate the securities, at least quarterly, to determine if further deterioration has occurred or if we project a subsequent recovery in the expected losses, which would require an adjustment to the allowance for credit losses. If subsequent to establishing an allowance for credit losses we determine that the security is likely to be sold prior to the recovery of the credit loss or if the loss is deemed uncollectible, we will reverse the allowance for credit losses and write-off the security to its fair value.
For an unrealized loss that is determined to be related to current market conditions, we will not record an allowance for credit losses or a write-off of the fair value. We will continue to monitor these securities to determine if underlying factors other than the current market conditions are contributing to the loss in value.
Based on an analysis of our fixed-maturity portfolio, we have determined our allowance for credit losses related to available-for-sale securities was not material to our financial condition or results of operations for the period ending June 30, 2020.
Reinsurance Recoverables
We routinely monitor changes in the credit quality and concentration risks of the reinsurers who are counter parties to our reinsurance recoverables. At June 30, 2020, approximately 80% of our reinsurance recoverables were held in several mandatory state pools, including the Michigan Catastrophic Claims Association, Florida Hurricane Catastrophe Fund, and North Carolina Reinsurance Facility, and in plans where we act as a servicing agent to state-mandated involuntary plans for commercial vehicles (Commercial Automobile Insurance Procedures/Plans) and as a participant in the “Write Your Own” program for federally regulated plans for flood (National Flood Insurance Program). All of these programs are governed by insurance regulations. The remaining balance of our recoverables are composed of voluntary external contractual arrangements that primarily relate to the Property business and to our transportation network company (TNC) business written by our Commercial Lines business. For these privately placed reinsurance arrangements, we regularly monitor reinsurer credit strength and analyze our reinsurance recoverable balances for expected credit losses at least quarterly, or more frequently if indicators of reinsurer credit deterioration, either individually or in aggregate, exists. For at-risk uncollateralized recoverable balances, we evaluate a number of reinsurer specific factors, including reinsurer credit quality rating, credit rating outlook, historical experience, reinsurer surplus, recoverable duration, and collateralization composition in respect to our net exposure (i.e., the


reinsurance recoverable amount less premiums payable to the reinsurer, where the right to offset exists). Based on this assessment, reinsurers with credit risks will be individually subject to a credit default model, and an allowance for credit loss will be established, where warranted.
Based on the analysis of reinsurers, we have determined our allowance for credit losses related to our reinsurance recoverables was not material to our financial condition or results of operations for the period ending June 30, 2020.
Premium Receivables
We routinely monitor historical premium collections data for our premiums receivable balances, through actuarial analyses, to project the future recoverability of currently recorded receivables. See Note 1 – Basis of Presentation for a description of our process and a rollforward in the allowance account during the three and six months ended June 30, 2020.




Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as “estimate,” “expect,” “intend,” “plan,” “believe,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions, and projections generally; inflation and changes in general economic conditions (including changes in interest rates and financial markets); the possible failure of one or more governmental, corporate, or other entities to make scheduled debt payments or satisfy other obligations; to:

our ability to access capital marketsunderwrite and financing arrangements when neededprice risks accurately and to support growth or other capital needs, and the favorable evaluations by credit and other rating agencies on which this access depends; the potential or actual downgrading by one or more rating agencies of our securities or governmental, corporate, or other securities we hold; the financial condition of, and other issues relatingcharge adequate rates to the strength of and liquidity available to, issuers of securities held in our investment portfolios and other companies with which we have ongoing business relationships, including reinsurers and other counterparties to certain financial transactions or under certain government programs; the accuracy and adequacy of our pricing, loss reserving, and claims methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to attract and retain more customers, including our efforts to enter into new business areas with which we have less experience; initiatives by competitors and the effectiveness of our response; policyholders;
our ability to obtain regulatory approval for establish accurate loss reserves;
the introductionimpact of products to new jurisdictions, for requested rate changes and the timing thereof and for any proposed acquisitions; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments at the state and federal levels, including, but not limited to, matters relating to vehicle and homeowners insurance, health care reform and tax law changes; the outcome of disputes relating to intellectual property rights; the outcome of litigation or governmental investigations that may be pending or filed against us; severe weather, conditions and other catastrophe events and our ability to respond to changes in catastrophe loss trends; climate change;
the effectiveness of our reinsurance programs; changes in vehicle usage
the highly competitive nature of property-casualty insurance markets;
whether we innovate effectively and driving patterns, which may be influenced by oilrespond to our competitors’ initiatives;
whether we effectively manage complexity as we develop and gas prices, changes in residential occupancy patterns,deliver products and the effects of the emerging ���sharing economy”; advancements in vehicle or home technology or safety features, such as accidentcustomer experiences;
how intellectual property rights could affect our competitiveness and loss prevention technologies or the development of autonomous or partially autonomous vehicles; our ability to accurately recognize and appropriately respond in a timely manner to changes in loss frequency and severity trends; technological advances; acts of war and terrorist activities; business operations;
whether we adjust claims accurately;
our ability to maintain a recognized and trusted brand;
our ability to attract, develop and retain talent and maintain appropriate staffing levels;
compliance with complex laws and regulations;
litigation challenging our business practices, and those of our competitors and other companies;
the impacts of a security breach or other attack involving our computer systems or the systems of one or more of our vendors;
the secure and uninterrupted operation of ourthe facilities, systems, (including information technology systems), and business functions and safeguard personal and sensitive information in our possession, whether from cyber attacks, other technology events or other means; our continued access to and functionality of third-party systems that are critical to our business;
the success of our efforts to develop new products or enter into new areas of business and navigate related risks;
our continued ability to maintain adequate staffing levels,send and accept electronic payments;
the sources from which we obtain talent; possible impairment of our goodwill or intangible assets;
the performance of our fixed-income and equity investment portfolios;
the potential elimination of, or change in, the London Interbank Offered Rate;
our continued ability to access our cash accounts and/or convert securities into cash on favorable terms whenterms;
the impact if one or more parties with which we desireenter into significant contracts or transact business fail to do so;perform;
legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation; possible impairment
limitations on our ability to pay dividends on our common shares under the terms of our goodwill or intangible assets if future results do not adequatelyoutstanding preferred shares;
our ability to obtain capital when necessary to support either, or both, of these items; court decisions, new theories of insurer liability or interpretations of insurance policy provisionsour business and potential growth;
evaluations by credit rating and other trendsrating agencies;
the variable nature of our common share dividend policy;
whether our investments in litigation; changescertain tax-advantaged projects generate the anticipated returns;
the impact from not managing to short-term earnings expectations in health carelight of our goal to maximize the long-term value of the enterprise;
impacts from the outbreak of the novel coronavirus, or COVID-19, and autothe restrictions put in place to help slow and/or stop the spread of the virus; and property repair costs; and
other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission. Commission, including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2019, and our Quarterly Report on Form 10-Q for the period ending March 31, 2020.

In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is establishedwe establish reserves for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 3.0 years at both June 30, 2020 and December 31, 2019, and 2.7 years at June 30, 2019 and 2.8 years at December 31, 2018.2019. The weighted average beta of the equity portfolio was 1.02 at June 30, 2020, 1.00 at December 31, 2019, and 1.01 at both June 30, 20192019. and December 31, 2018. Although components of the portfolioWe have changed, nonot experienced a material changes have occurred in the total interest rate or market riskimpact when compared to the tabular presentations of our interest rate and market risk sensitive instruments in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Item 4. Controls and Procedures.
Progressive,We, under the direction of our Chief Executive Officer and our Chief Financial Officer, hashave established disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our Chief Executive Officer and our Chief Financial Officer reviewed and evaluated Progressive’sour disclosure controls and procedures as of the end of the period covered by this report.report, including consideration of the impact of COVID-19 restrictions and the company’s current work-from-home environment on the execution of our disclosure controls and procedures and our internal controls over financial reporting. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Progressive’sour disclosure controls and procedures are effectively serving the stated purposes as of the end of the period covered by this report.
There have not been any material changes in Progressive’sour internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




PART II—OTHER INFORMATION

Item 1A. Risk Factors.

TheThere have been no material changes in the risk factors affecting our business arefrom those discussed in Item 1A, ofRisk Factors included in both our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in2019, and our Quarterly Report on Form 10-Q for the risk factors that were discussed in that report.period ending March 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Share Repurchases
 
ISSUER PURCHASES OF EQUITY SECURITIES
2019
Calendar
Month
Total
Number of
Shares
Purchased

 
Average
Price
Paid
Per Share

 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

 
Maximum Number of
Shares That May Yet be
Purchased Under the
Plans or Programs

2020
Calendar
Month
Total
Number of
Shares
Purchased

 
Average
Price
Paid
Per Share

 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

 
Maximum Number of
Shares That May Yet be
Purchased Under the
Plans or Programs

April1,565
 $72.94
 1,100,851
 23,899,149
1,153
 $71.91
 1,140,410
 23,859,590
May - prior authorization27,018
 77.69
 1,127,869
 —
May - current authorization295
 79.77
 295
 24,999,705
May28,197
 76.34
 1,168,607
 23,831,393
June294
 79.46
 589
 24,999,411
4,412
 77.96
 1,173,019
 23,826,981
Total29,172
 $77.47
    33,762
 $76.40
    

In May 2019, the Board of Directors approved an authorization for the Company to repurchase up to 25 million of its common shares. This authorization which does not have an expiration date, terminated the 23,872,131 shares that remained under the Board’s May 2018 authorization to repurchase 25 million common shares.

date. Share repurchases under these authorizationsthis authorization may be accomplished through open market purchases, through privately negotiated transactions, pursuant to our equity incentive plans,compensation awards, or otherwise, and may include trading plans entered into with one or more brokerage firms in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. During the second quarter 2019,2020, all repurchases were accomplished in conjunction with our incentive compensation plansawards at the then-current market prices; there were no open market purchases during the quarter. Progressive’s financial policies state that we will repurchase shares to neutralize dilution from equity-based compensation in the year of issuance and as an option to effectively use underleveraged capital.
Item 5. Other Information.
President and CEO Susan Patricia Griffith’s quarterly letter to shareholders with respect to our second quarter 2019 results is included as Exhibit 99 to this Quarterly Report on Form 10-Q. The letter is also posted on Progressive’s website at progressive.com/annualreport.
Item 6. Exhibits.
See exhibit index beginning on page 61.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

                                
    THE PROGRESSIVE CORPORATION
    (Registrant)
     
Date:August 7, 20194, 2020  By: /s/ John P. Sauerland
    John P. Sauerland
    Vice President and Chief Financial Officer
     
     
     
     



EXHIBIT INDEX

EXHIBIT INDEX

EXHIBIT INDEX

Exhibit No.
Under
Reg. S-K,
Item 601
 
Form  10-Q
Exhibit
Number
 Description of Exhibit 
If Incorporated by Reference,
Documents with Which Exhibit was
Previously Filed with SEC
 
Form  10-Q
Exhibit
Number
 Description of Exhibit 
If Incorporated by Reference,
Documents with Which Exhibit was
Previously Filed with SEC
  
 
5 5.1 
Amendment to Discretionary Line Documents - Discretionary Line of Credit from PNC Bank, National Association, to The Progressive Corporation
 Filed herewith
  
10 10 
Form of Restricted Stock Award Agreement under The Progressive Corporation 2017 Directors Equity Incentive Plan (for 2019)
 Filed herewith 10.1 
Form of Restricted Stock Award Agreement under The Progressive Corporation 2017 Directors Equity Incentive Plan (for 2020)
 Filed herewith
  
31 31.1 
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer, Susan Patricia Griffith
 Filed herewith 31.1 
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer, Susan Patricia Griffith
 Filed herewith
  
31 31.2 
Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer, John P. Sauerland
 Filed herewith 31.2 
Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer, John P. Sauerland
 Filed herewith
  
32 32.1 
Section 1350 Certification of the Principal Executive Officer, Susan Patricia Griffith
 Furnished herewith 32.1 
Section 1350 Certification of the Principal Executive Officer, Susan Patricia Griffith
 Furnished herewith
  
32 32.2 
Section 1350 Certification of the Principal Financial Officer, John P. Sauerland
 Furnished herewith 32.2 
Section 1350 Certification of the Principal Financial Officer, John P. Sauerland
 Furnished herewith
  
99 99 
Letter to Shareholders from Susan Patricia Griffith, President and Chief Executive Officer (Regulation FD Disclosure)
 Furnished herewith 99 
Letter to Shareholders from Susan Patricia Griffith, President and Chief Executive Officer (Regulation FD Disclosure)
 Furnished herewith
  
101 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed herewith 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. Filed herewith
  
101 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith
  
101 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
  
101 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
  
101 101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith
  
101 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
 
104 104 Cover Page Interactive Data File (the cover page tags are embedded within the Inline XBRL document). Filed herewith


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