0000080661us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-01-012021-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2022March 31, 2023
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 class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, $1.00 Par Value | PGR | New 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, a 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: 584,915,205585,366,448 outstanding at June 30, 2022March 31, 2023
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
| | | Three Months | | Six Months | |
Periods Ended June 30, | 2022 | | 2021 | | 2022 | | 2021 | |
Three Months Ended March 31, | | Three Months Ended March 31, | | 2023 | | 2022 |
(millions — except per share amounts) | (millions — except per share amounts) | | | | | | | | (millions — except per share amounts) | | | | |
Revenues | Revenues | | Revenues | | |
Net premiums earned | Net premiums earned | $ | 12,147.9 | | | $ | 10,982.3 | | | $ | 23,950.8 | | | $ | 21,402.5 | | Net premiums earned | | $ | 13,533.1 | | | $ | 11,802.9 | |
Investment income | Investment income | 292.4 | | | 210.7 | | | 534.6 | | | 430.9 | | Investment income | | 419.6 | | | 242.2 | |
Net realized gains (losses) on securities: | Net realized gains (losses) on securities: | | Net realized gains (losses) on securities: | | |
Net realized gains (losses) on security sales | Net realized gains (losses) on security sales | 546.6 | | | 410.1 | | | 492.1 | | | 553.9 | | Net realized gains (losses) on security sales | | (30.3) | | | (54.5) | |
Net holding period gains (losses) on securities | Net holding period gains (losses) on securities | (1,722.2) | | | 54.2 | | | (2,110.8) | | | 495.7 | | Net holding period gains (losses) on securities | | 104.4 | | | (388.6) | |
Net impairment losses recognized in earnings | Net impairment losses recognized in earnings | (2.1) | | | (2.5) | | | (4.3) | | | (2.5) | | Net impairment losses recognized in earnings | | (2.3) | | | (2.2) | |
Total net realized gains (losses) on securities | Total net realized gains (losses) on securities | (1,177.7) | | | 461.8 | | | (1,623.0) | | | 1,047.1 | | Total net realized gains (losses) on securities | | 71.8 | | | (445.3) | |
Fees and other revenues | Fees and other revenues | 176.5 | | | 176.2 | | | 350.5 | | | 341.9 | | Fees and other revenues | | 206.2 | | | 174.0 | |
Service revenues | Service revenues | 80.1 | | | 74.5 | | | 147.8 | | | 128.3 | | Service revenues | | 72.5 | | | 67.7 | |
Total revenues | Total revenues | 11,519.2 | | | 11,905.5 | | | 23,360.7 | | | 23,350.7 | | Total revenues | | 14,303.2 | | | 11,841.5 | |
Expenses | Expenses | | Expenses | | |
Losses and loss adjustment expenses | Losses and loss adjustment expenses | 9,421.1 | | | 8,406.4 | | | 18,279.5 | | | 15,516.9 | | Losses and loss adjustment expenses | | 10,624.0 | | | 8,858.4 | |
Policy acquisition costs | Policy acquisition costs | 933.6 | | | 928.8 | | | 1,897.0 | | | 1,803.2 | | Policy acquisition costs | | 1,115.8 | | | 963.4 | |
Other underwriting expenses | Other underwriting expenses | 1,431.2 | | | 1,440.5 | | | 2,937.5 | | | 2,921.6 | | Other underwriting expenses | | 1,857.9 | | | 1,506.3 | |
Investment expenses | Investment expenses | 5.9 | | | 6.3 | | | 11.6 | | | 11.9 | | Investment expenses | | 5.5 | | | 5.7 | |
Service expenses | Service expenses | 75.5 | | | 67.9 | | | 138.7 | | | 117.2 | | Service expenses | | 82.3 | | | 63.2 | |
Interest expense | Interest expense | 63.0 | | | 56.4 | | | 117.3 | | | 112.8 | | Interest expense | | 63.3 | | | 54.3 | |
Goodwill impairment1 | 224.8 | | | 0 | | | 224.8 | | | 0 | | |
| Total expenses | Total expenses | 12,155.1 | | | 10,906.3 | | | 23,606.4 | | | 20,483.6 | | Total expenses | | 13,748.8 | | | 11,451.3 | |
Net Income (Loss) | | |
Income (loss) before income taxes | (635.9) | | | 999.2 | | | (245.7) | | | 2,867.1 | | |
Provision (benefit) for income taxes | (93.0) | | | 209.1 | | | (16.7) | | | 597.0 | | |
Net income (loss) | (542.9) | | | 790.1 | | | (229.0) | | | 2,270.1 | | |
Net Income | | Net Income | | |
Income before income taxes | | Income before income taxes | | 554.4 | | | 390.2 | |
Provision for income taxes | | Provision for income taxes | | 106.5 | | | 76.3 | |
Net income | | Net income | | 447.9 | | | 313.9 | |
Other Comprehensive Income (Loss) | Other Comprehensive Income (Loss) | | Other Comprehensive Income (Loss) | | |
Changes in: | Changes in: | | Changes in: | | |
Total net unrealized gains (losses) on fixed-maturity securities | Total net unrealized gains (losses) on fixed-maturity securities | (822.8) | | | 91.1 | | | (2,249.7) | | | (448.5) | | Total net unrealized gains (losses) on fixed-maturity securities | | 603.2 | | | (1,426.9) | |
Net unrealized losses on forecasted transactions | Net unrealized losses on forecasted transactions | 0 | | | 0.3 | | | 0.2 | | | 0.5 | | Net unrealized losses on forecasted transactions | | 0.1 | | | 0.2 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (0.4) | | | (0.5) | | | (0.2) | | | (0.5) | | Foreign currency translation adjustment | | 0 | | | 0.2 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | (823.2) | | | 90.9 | | | (2,249.7) | | | (448.5) | | Other comprehensive income (loss) | | 603.3 | | | (1,426.5) | |
Comprehensive income (loss) | Comprehensive income (loss) | $ | (1,366.1) | | | $ | 881.0 | | | $ | (2,478.7) | | | $ | 1,821.6 | | Comprehensive income (loss) | | $ | 1,051.2 | | | $ | (1,112.6) | |
Computation of Earnings Per Common Share | Computation of Earnings Per Common Share | | Computation of Earnings Per Common Share | | |
Net income (loss) | $ | (542.9) | | | $ | 790.1 | | | $ | (229.0) | | | $ | 2,270.1 | | |
Less: Preferred share dividends | 6.7 | | | 6.7 | | | 13.4 | | | 13.4 | | |
Net income (loss) available to common shareholders | $ | (549.6) | | | $ | 783.4 | | | $ | (242.4) | | | $ | 2,256.7 | | |
Net income | | Net income | | $ | 447.9 | | | $ | 313.9 | |
Less: Preferred share dividends1 | | Less: Preferred share dividends1 | | 7.3 | | | 6.7 | |
Net income available to common shareholders | | Net income available to common shareholders | | $ | 440.6 | | | $ | 307.2 | |
Average common shares outstanding - Basic | Average common shares outstanding - Basic | 584.3 | | | 584.6 | | | 584.3 | | | 584.7 | | Average common shares outstanding - Basic | | 584.9 | | | 584.3 | |
Net effect of dilutive stock-based compensation | Net effect of dilutive stock-based compensation | 2.2 | | | 2.2 | | | 2.1 | | | 2.1 | | Net effect of dilutive stock-based compensation | | 2.1 | | | 2.0 | |
Total average equivalent common shares - Diluted | Total average equivalent common shares - Diluted | 586.5 | | | 586.8 | | | 586.4 | | | 586.8 | | Total average equivalent common shares - Diluted | | 587.0 | | | 586.3 | |
Basic: Earnings per common share | Basic: Earnings per common share | $ | (0.94) | | | $ | 1.34 | | | $ | (0.41) | | | $ | 3.86 | | Basic: Earnings per common share | | $ | 0.75 | | | $ | 0.53 | |
Diluted: Earnings per common share | Diluted: Earnings per common share | $ | (0.94) | | | $ | 1.34 | | | $ | (0.41) | | | $ | 3.85 | | Diluted: Earnings per common share | | $ | 0.75 | | | $ | 0.52 | |
|
1 Changed to a floating dividend rate. See Note 121 – Goodwill and Intangible AssetsBasis of Presentation for further discussion.
See notes to consolidated financial statements.
The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)
| | | June 30, | | December 31, | | March 31, | | December 31, |
(millions — except per share amounts) | (millions — except per share amounts) | 2022 | | 2021 | | 2021 | (millions — except per share amounts) | 2023 | | 2022 | | 2022 |
Assets | Assets | | Assets | |
Available-for-sale securities, at fair value: | Available-for-sale securities, at fair value: | | Available-for-sale securities, at fair value: | |
Fixed maturities (amortized cost: $46,028.8, $42,378.0, and $43,794.2) | $ | 43,172.5 | | | $ | 43,031.0 | | | $ | 43,873.1 | | |
Short-term investments (amortized cost: $4,611.8, $1,710.6, and $942.6) | 4,611.8 | | | 1,710.6 | | | 942.6 | | |
Fixed maturities (amortized cost: $53,123.9, $48,082.7, and $50,264.0) | | Fixed maturities (amortized cost: $53,123.9, $48,082.7, and $50,264.0) | $ | 50,289.2 | | | $ | 46,316.4 | | | $ | 46,651.9 | |
Short-term investments (amortized cost: $2,524.1, $529.9, and $2,861.7) | | Short-term investments (amortized cost: $2,524.1, $529.9, and $2,861.7) | 2,524.1 | | | 529.9 | | | 2,861.7 | |
Total available-for-sale securities | Total available-for-sale securities | 47,784.3 | | | 44,741.6 | | | 44,815.7 | | Total available-for-sale securities | 52,813.3 | | | 46,846.3 | | | 49,513.6 | |
Equity securities, at fair value: | Equity securities, at fair value: | | Equity securities, at fair value: | |
Nonredeemable preferred stocks (cost: $1,522.5, $1,511.2, and $1,571.8) | 1,360.5 | | | 1,609.8 | | | 1,639.9 | | |
Common equities (cost: $783.6, $1,238.4, and $1,264.1) | 2,784.7 | | | 4,591.4 | | | 5,058.5 | | |
Nonredeemable preferred stocks (cost: $1,197.7, $1,545.5, and $1,364.2) | | Nonredeemable preferred stocks (cost: $1,197.7, $1,545.5, and $1,364.2) | 1,078.8 | | | 1,527.5 | | | 1,213.2 | |
Common equities (cost: $740.5, $1,281.7, and $826.1) | | Common equities (cost: $740.5, $1,281.7, and $826.1) | 2,794.3 | | | 4,812.6 | | | 2,821.5 | |
Total equity securities | Total equity securities | 4,145.2 | | | 6,201.2 | | | 6,698.4 | | Total equity securities | 3,873.1 | | | 6,340.1 | | | 4,034.7 | |
Total investments | Total investments | 51,929.5 | | | 50,942.8 | | | 51,514.1 | | Total investments | 56,686.4 | | | 53,186.4 | | | 53,548.3 | |
Cash and cash equivalents | Cash and cash equivalents | 226.1 | | | 99.5 | | | 187.1 | | Cash and cash equivalents | 273.7 | | | 272.7 | | | 203.5 | |
Restricted cash and cash equivalents | Restricted cash and cash equivalents | 14.4 | | | 15.1 | | | 15.0 | | Restricted cash and cash equivalents | 14.9 | | | 14.6 | | | 17.4 | |
Total cash, cash equivalents, restricted cash, and restricted cash equivalents | Total cash, cash equivalents, restricted cash, and restricted cash equivalents | 240.5 | | | 114.6 | | | 202.1 | | Total cash, cash equivalents, restricted cash, and restricted cash equivalents | 288.6 | | | 287.3 | | | 220.9 | |
Accrued investment income | Accrued investment income | 216.7 | | | 179.3 | | | 181.7 | | Accrued investment income | 299.5 | | | 193.4 | | | 282.5 | |
Premiums receivable, net of allowance for credit losses of $265.8, $245.2, and $280.4 | 10,561.8 | | | 9,436.2 | | | 9,399.5 | | |
Premiums receivable, net of allowance for credit losses of $340.9, $276.2, and $343.3 | | Premiums receivable, net of allowance for credit losses of $340.9, $276.2, and $343.3 | 12,411.4 | | | 10,519.0 | | | 10,416.9 | |
Reinsurance recoverables | Reinsurance recoverables | 4,961.2 | | | 4,709.1 | | | 4,980.5 | | Reinsurance recoverables | 5,616.2 | | | 5,025.0 | | | 5,832.1 | |
Prepaid reinsurance premiums | Prepaid reinsurance premiums | 464.3 | | | 620.0 | | | 457.6 | | Prepaid reinsurance premiums | 269.6 | | | 455.1 | | | 295.5 | |
Deferred acquisition costs | Deferred acquisition costs | 1,498.4 | | | 1,360.6 | | | 1,355.6 | | Deferred acquisition costs | 1,626.8 | | | 1,407.7 | | | 1,544.4 | |
Property and equipment, net of accumulated depreciation of $1,512.6, $1,396.5, and $1,407.4 | 1,124.7 | | | 1,086.4 | | | 1,137.3 | | |
Property and equipment, net of accumulated depreciation of $1,576.2, $1,455.7, and $1,551.1 | | Property and equipment, net of accumulated depreciation of $1,576.2, $1,455.7, and $1,551.1 | 949.0 | | | 1,104.4 | | | 1,034.0 | |
Goodwill | Goodwill | 227.9 | | | 452.7 | | | 452.7 | | Goodwill | 227.9 | | | 452.7 | | | 227.9 | |
Intangible assets, net of accumulated amortization of $147.7, $354.6, and $383.8 | 97.2 | | | 146.5 | | | 117.3 | | |
Intangible assets, net of accumulated amortization of $164.0, $142.2, and $158.6 | | Intangible assets, net of accumulated amortization of $164.0, $142.2, and $158.6 | 80.9 | | | 102.7 | | | 86.3 | |
Net federal deferred income taxes | Net federal deferred income taxes | 955.6 | | | 0 | | | 0 | | Net federal deferred income taxes | 1,057.0 | | | 370.5 | | | 1,131.5 | |
Other assets | Other assets | 779.4 | | | 776.1 | | | 1,333.9 | | Other assets | 893.8 | | | 825.4 | | | 844.7 | |
Total assets | Total assets | $ | 73,057.2 | | | $ | 69,824.3 | | | $ | 71,132.3 | | Total assets | $ | 80,407.1 | | | $ | 73,929.6 | | | $ | 75,465.0 | |
Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity | |
Unearned premiums | Unearned premiums | $ | 17,274.8 | | | $ | 15,555.9 | | | $ | 15,615.8 | | Unearned premiums | $ | 19,844.3 | | | $ | 16,991.4 | | | $ | 17,293.6 | |
Loss and loss adjustment expense reserves | Loss and loss adjustment expense reserves | 27,812.0 | | | 23,895.6 | | | 26,164.1 | | Loss and loss adjustment expense reserves | 31,026.4 | | | 26,754.2 | | | 30,359.3 | |
Net federal deferred income taxes | 0 | | | 219.4 | | | 152.9 | | |
Accounts payable, accrued expenses, and other liabilities | Accounts payable, accrued expenses, and other liabilities | 5,931.2 | | | 6,080.3 | | | 6,069.1 | | Accounts payable, accrued expenses, and other liabilities | 6,278.7 | | | 6,747.2 | | | 5,532.8 | |
Debt1 | Debt1 | 6,386.5 | | | 5,397.5 | | | 4,898.8 | | Debt1 | 6,389.3 | | | 6,385.6 | | | 6,388.3 | |
Total liabilities | Total liabilities | 57,404.5 | | | 51,148.7 | | | 52,900.7 | | Total liabilities | 63,538.7 | | | 56,878.4 | | | 59,574.0 | |
Serial Preferred Shares (authorized 20.0) | Serial Preferred Shares (authorized 20.0) | | 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) | 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 | | 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 | |
Common shares, $1.00 par value (authorized 900.0; issued 797.6, including treasury shares of 212.7, 212.4, and 213.2) | 584.9 | | | 585.2 | | | 584.4 | | |
Common shares, $1.00 par value (authorized 900.0; issued 797.6, including treasury shares of 212.2, 212.7, and 212.7) | | Common shares, $1.00 par value (authorized 900.0; issued 797.6, including treasury shares of 212.2, 212.7, and 212.7) | 585.4 | | | 584.9 | | | 584.9 | |
Paid-in capital | Paid-in capital | 1,815.2 | | | 1,712.3 | | | 1,772.9 | | Paid-in capital | 1,907.7 | | | 1,788.6 | | | 1,893.0 | |
Retained earnings | Retained earnings | 14,967.7 | | | 15,401.0 | | | 15,339.7 | | Retained earnings | 16,080.1 | | | 15,569.6 | | | 15,721.2 | |
Accumulated other comprehensive income (loss): | Accumulated other comprehensive income (loss): | | Accumulated other comprehensive income (loss): | |
Net unrealized gains (losses) on fixed-maturity securities | Net unrealized gains (losses) on fixed-maturity securities | (2,193.5) | | | 498.8 | | | 56.2 | | Net unrealized gains (losses) on fixed-maturity securities | (2,183.1) | | | (1,370.7) | | | (2,786.3) | |
Net unrealized losses on forecasted transactions | Net unrealized losses on forecasted transactions | (14.7) | | | (15.1) | | | (14.9) | | Net unrealized losses on forecasted transactions | (14.4) | | | (14.7) | | | (14.5) | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (0.8) | | | (0.5) | | | (0.6) | | Foreign currency translation adjustment | (1.2) | | | (0.4) | | | (1.2) | |
Total accumulated other comprehensive income (loss) | Total accumulated other comprehensive income (loss) | (2,209.0) | | | 483.2 | | | 40.7 | | Total accumulated other comprehensive income (loss) | (2,198.7) | | | (1,385.8) | | | (2,802.0) | |
Total shareholders’ equity | Total shareholders’ equity | 15,652.7 | | | 18,675.6 | | | 18,231.6 | | Total shareholders’ equity | 16,868.4 | | | 17,051.2 | | | 15,891.0 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 73,057.2 | | | $ | 69,824.3 | | | $ | 71,132.3 | | Total liabilities and shareholders’ equity | $ | 80,407.1 | | | $ | 73,929.6 | | | $ | 75,465.0 | |
1 Consists of long-term debt. See Note 4 – Debt 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, | 2022 | | 2021 | | 2022 | | 2021 | |
Three Months Ended March 31, | | Three Months Ended March 31, | | 2023 | | 2022 |
(millions — except per share amounts) | (millions — except per share amounts) | | (millions — except per share amounts) | | |
Serial Preferred Shares, No Par Value | Serial Preferred Shares, No Par Value | | Serial Preferred Shares, No Par Value | | |
Balance, beginning of period | Balance, beginning of period | $ | 493.9 | | | $ | 493.9 | | | $ | 493.9 | | | $ | 493.9 | | Balance, beginning of period | | $ | 493.9 | | | $ | 493.9 | |
Balance, end of period | Balance, end of period | 493.9 | | | 493.9 | | | 493.9 | | | 493.9 | | Balance, end of period | | 493.9 | | | 493.9 | |
Common Shares, $1.00 Par Value | Common Shares, $1.00 Par Value | | Common Shares, $1.00 Par Value | | |
Balance, beginning of period | Balance, beginning of period | 584.9 | | | 585.2 | | | 584.4 | | | 585.2 | | Balance, beginning of period | | 584.9 | | | 584.4 | |
Treasury shares purchased | Treasury shares purchased | 0 | | | (0.2) | | | (0.3) | | | (1.1) | | Treasury shares purchased | | (0.2) | | | (0.3) | |
Net restricted equity awards issued/vested | Net restricted equity awards issued/vested | 0 | | | 0.2 | | | 0.8 | | | 1.1 | | Net restricted equity awards issued/vested | | 0.7 | | | 0.8 | |
Balance, end of period | Balance, end of period | 584.9 | | | 585.2 | | | 584.9 | | | 585.2 | | Balance, end of period | | 585.4 | | | 584.9 | |
Paid-In Capital | Paid-In Capital | | Paid-In Capital | | |
Balance, beginning of period | Balance, beginning of period | 1,788.6 | | | 1,685.5 | | | 1,772.9 | | | 1,672.9 | | Balance, beginning of period | | 1,893.0 | | | 1,772.9 | |
Amortization of equity-based compensation | Amortization of equity-based compensation | 26.4 | | | 26.9 | | | 43.7 | | | 42.7 | | Amortization of equity-based compensation | | 15.9 | | | 17.3 | |
Treasury shares purchased | Treasury shares purchased | (0.1) | | | (0.3) | | | (0.9) | | | (3.0) | | Treasury shares purchased | | (0.8) | | | (0.8) | |
Net restricted equity awards issued/vested | Net restricted equity awards issued/vested | 0 | | | (0.2) | | | (0.8) | | | (1.1) | | Net restricted equity awards issued/vested | | (0.7) | | | (0.8) | |
Reinvested dividends on restricted stock units | Reinvested dividends on restricted stock units | 0.3 | | | 0.4 | | | 0.3 | | | 0.8 | | Reinvested dividends on restricted stock units | | 0.3 | | | 0 | |
Balance, end of period | Balance, end of period | 1,815.2 | | | 1,712.3 | | | 1,815.2 | | | 1,712.3 | | Balance, end of period | | 1,907.7 | | | 1,788.6 | |
Retained Earnings | Retained Earnings | | Retained Earnings | | |
Balance, beginning of period | Balance, beginning of period | 15,569.6 | | | 14,679.6 | | | 15,339.7 | | | 13,354.9 | | Balance, beginning of period | | 15,721.2 | | | 15,339.7 | |
Net income (loss) | (542.9) | | | 790.1 | | | (229.0) | | | 2,270.1 | | |
Net income | | Net income | | 447.9 | | | 313.9 | |
Treasury shares purchased | Treasury shares purchased | (0.7) | | | (10.1) | | | (28.3) | | | (91.3) | | Treasury shares purchased | | (31.7) | | | (27.6) | |
Cash dividends declared on common shares ($0.10, $0.10, $0.20, and $0.20 per share) | (58.4) | | | (58.4) | | | (116.8) | | | (116.8) | | |
Cash dividends declared on common shares ($0.10 and $0.10 per share) | | Cash dividends declared on common shares ($0.10 and $0.10 per share) | | (58.5) | | | (58.4) | |
| Reinvested dividends on restricted stock units | Reinvested dividends on restricted stock units | (0.3) | | | (0.4) | | | (0.3) | | | (0.8) | | Reinvested dividends on restricted stock units | | (0.3) | | | 0 | |
Other, net | Other, net | 0.4 | | | 0.2 | | | 2.4 | | | (15.1) | | Other, net | | 1.5 | | | 2.0 | |
Balance, end of period | Balance, end of period | 14,967.7 | | | 15,401.0 | | | 14,967.7 | | | 15,401.0 | | Balance, end of period | | 16,080.1 | | | 15,569.6 | |
Accumulated Other Comprehensive Income (Loss) | Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income (Loss) | | |
Balance, beginning of period | Balance, beginning of period | (1,385.8) | | | 392.3 | | | 40.7 | | | 931.7 | | Balance, beginning of period | | (2,802.0) | | | 40.7 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | (823.2) | | | 90.9 | | | (2,249.7) | | | (448.5) | | Other comprehensive income (loss) | | 603.3 | | | (1,426.5) | |
Balance, end of period | Balance, end of period | (2,209.0) | | | 483.2 | | | (2,209.0) | | | 483.2 | | Balance, end of period | | (2,198.7) | | | (1,385.8) | |
Total shareholders’ equity | Total shareholders’ equity | $ | 15,652.7 | | | $ | 18,675.6 | | | $ | 15,652.7 | | | $ | 18,675.6 | | Total shareholders’ equity | | $ | 16,868.4 | | | $ | 17,051.2 | |
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, | 2022 | | 2021 |
(millions) | | | |
Cash Flows From Operating Activities | | | |
Net income (loss) | $ | (229.0) | | | $ | 2,270.1 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation | 149.6 | | | 129.4 | |
Amortization of intangible assets | 20.1 | | | 28.5 | |
Net amortization of fixed-income securities | 29.2 | | | 62.1 | |
Amortization of equity-based compensation | 43.7 | | | 42.7 | |
Net realized (gains) losses on securities | 1,623.0 | | | (1,047.1) | |
Net (gains) losses on disposition of property and equipment | 2.0 | | | 0.5 | |
Goodwill impairment | 224.8 | | | 0 | |
Changes in: | | | |
Premiums receivable | (1,162.3) | | | (1,183.5) | |
Reinsurance recoverables | 19.3 | | | (237.3) | |
Prepaid reinsurance premiums | (6.7) | | | (244.6) | |
Deferred acquisition costs | (142.8) | | | (123.4) | |
Income taxes | (377.2) | | | (81.0) | |
Unearned premiums | 1,659.0 | | | 2,051.5 | |
Loss and loss adjustment expense reserves | 1,647.9 | | | 2,481.0 | |
Accounts payable, accrued expenses, and other liabilities | 436.5 | | | 717.8 | |
Other, net | (45.2) | | | 71.7 | |
Net cash provided by operating activities | 3,891.9 | | | 4,938.4 | |
Cash Flows From Investing Activities | | | |
Purchases: | | | |
Fixed maturities | (14,332.3) | | | (18,364.5) | |
Equity securities | (91.1) | | | (416.1) | |
Sales: | | | |
Fixed maturities | 9,378.7 | | | 8,703.2 | |
Equity securities | 1,350.3 | | | 590.2 | |
Maturities, paydowns, calls, and other: | | | |
Fixed maturities | 2,409.1 | | | 3,898.2 | |
Equity securities | 39.3 | | | 67.1 | |
Net (purchases) sales of short-term investments | (3,665.1) | | | 3,587.0 | |
Net unsettled security transactions | (143.4) | | | 316.6 | |
Acquisition of Protective Insurance Corporation, net of cash, cash equivalents, and restricted cash acquired | 0 | | | (313.2) | |
Purchases of property and equipment | (136.7) | | | (98.5) | |
Sales of property and equipment | 11.6 | | | 11.5 | |
Net cash used in investing activities | (5,179.6) | | | (2,018.5) | |
Cash Flows From Financing Activities | | | |
Dividends paid to common shareholders | (117.0) | | | (2,753.0) | |
Dividends paid to preferred shareholders | (13.4) | | | (13.4) | |
Acquisition of treasury shares for restricted stock tax liabilities | (29.5) | | | (30.4) | |
Acquisition of treasury shares acquired in open market | 0 | | | (65.0) | |
Net proceeds from debt issuances | 1,486.0 | | | 0 | |
Payment of acquired company debt | 0 | | | (20.0) | |
Net cash provided by (used in) financing activities | 1,326.1 | | | (2,881.8) | |
Increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | 38.4 | | | 38.1 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents – January 1 | 202.1 | | | 76.5 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents – June 30 | $ | 240.5 | | | $ | 114.6 | |
| | | | | | | | | | | |
Three Months Ended March 31, | 2023 | | 2022 |
(millions) | | | |
Cash Flows From Operating Activities | | | |
Net income | $ | 447.9 | | | $ | 313.9 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 68.0 | | | 71.1 | |
Amortization of intangible assets | 5.4 | | | 14.6 | |
Net amortization (accretion) of fixed-income securities | (5.0) | | | 27.0 | |
Amortization of equity-based compensation | 15.9 | | | 17.3 | |
Net realized (gains) losses on securities | (71.8) | | | 445.3 | |
Net (gains) losses on disposition of property and equipment | 16.5 | | | 3.3 | |
| | | |
Changes in: | | | |
Premiums receivable | (1,994.5) | | | (1,119.5) | |
Reinsurance recoverables | 215.9 | | | (44.5) | |
Prepaid reinsurance premiums | 25.9 | | | 2.5 | |
Deferred acquisition costs | (82.4) | | | (52.1) | |
Income taxes | 106.6 | | | 76.2 | |
Unearned premiums | 2,550.7 | | | 1,375.6 | |
Loss and loss adjustment expense reserves | 667.1 | | | 590.1 | |
Accounts payable, accrued expenses, and other liabilities | 565.5 | | | 545.1 | |
Other, net | (82.2) | | | 236.4 | |
Net cash provided by operating activities | 2,449.5 | | | 2,502.3 | |
Cash Flows From Investing Activities | | | |
Purchases: | | | |
Fixed maturities | (6,119.5) | | | (11,453.4) | |
Equity securities | (17.8) | | | (74.3) | |
Sales: | | | |
Fixed maturities | 2,202.6 | | | 5,889.9 | |
Equity securities | 277.3 | | | 59.2 | |
Maturities, paydowns, calls, and other: | | | |
Fixed maturities | 976.0 | | | 1,177.6 | |
Equity securities | 25.1 | | | 39.3 | |
Net (purchases) sales of short-term investments | 360.8 | | | 413.1 | |
Net change in unsettled security transactions | 57.2 | | | 212.6 | |
Purchases of property and equipment | (43.2) | | | (73.0) | |
Sales of property and equipment | 4.3 | | | 6.5 | |
Net cash used in investing activities | (2,277.2) | | | (3,802.5) | |
Cash Flows From Financing Activities | | | |
Dividends paid to common shareholders | (58.5) | | | (58.5) | |
Dividends paid to preferred shareholders | (13.4) | | | (13.4) | |
Acquisition of treasury shares for restricted stock tax liabilities | (32.7) | | | (28.7) | |
| | | |
Net proceeds from debt issuances | 0 | | | 1,486.0 | |
Net cash provided by (used in) financing activities | (104.6) | | | 1,385.4 | |
Increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | 67.7 | | | 85.2 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents – January 1 | 220.9 | | | 202.1 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents – March 31 | $ | 288.6 | | | $ | 287.3 | |
See notes to consolidated financial statements.
The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1Basis of Presentation — 1. BASIS OF REPORTING AND ACCOUNTING
The accompanying consolidated financial statements include the accounts of The Progressive Corporation, our wholly owned insurance and non-insurance subsidiaries and affiliates in which we have a controlling financial interest (Progressive).
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, 2022,March 31, 2023, 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, 2021 (20212022 (2022 Annual Report to Shareholders).
Insurance Premiums and Receivables
We perform analyses to evaluate our premiums receivable for expected credit losses. See the 20212022 Annual Report to Shareholders for a discussion on our premiums receivable allowance for credit loss policy. The following table summarizes changes in our allowance for credit loss exposure on our premiums receivable:
| | | | | | | | | | | | | | | | | |
| Three Months | | Six Months |
Periods Ended June 30, | 2022 | 2021 | | 2022 | 2021 |
(millions) | | | | | |
Allowance for credit losses, beginning of period | $ | 276.2 | | $ | 265.3 | | | $ | 280.4 | | $ | 356.2 | |
Allowance acquired during period1 | 0 | | 3.5 | | | 0 | | 3.5 | |
Increase in allowance2 | 95.8 | | 87.4 | | | 189.7 | | 148.3 | |
Write-offs3 | (106.2) | | (111.0) | | | (204.3) | | (262.8) | |
Allowance for credit losses, end of period | $ | 265.8 | | $ | 245.2 | | | $ | 265.8 | | $ | 245.2 | |
| | | | | | | | | | | |
| | | Three Months Ended March 31, |
(millions) | | | | 2023 | 2022 |
Allowance for credit losses, beginning of period | | | | $ | 343.3 | | $ | 280.4 | |
Increase in allowance1 | | | | 116.9 | | 93.9 | |
Write-offs2 | | | | (119.3) | | (98.1) | |
Allowance for credit losses, end of period | | | | $ | 340.9 | | $ | 276.2 | |
1Represents the amount of the allowance acquired in the Protective Insurance Corporation and subsidiaries (Protective Insurance) acquisition.
2 Represents the incremental increase in other underwriting expenses.
32 Represents the portion of allowance that is reversed when premiums receivable are written off.
The year-over-year increase in the balance of the allowance for credit losses at June 30, 2022, compared to June 30, 2021, primarily reflects a higher amount of premiums receivable determined to be at risk of being uncollectible, driven by the growth in our premiums receivable balance. During the first six months of 2021, we experienced greater collections than anticipated, in part due to changes in consumer spending habits and government stimulus spending during the period, which resulted in a lower “increase in allowance” when compared to the six months ended June 30, 2022.
Premiums receivable balances are written off once we have exhausted our collection efforts. We recognized higher write-offs during the six months ended June 30, 2021, reflecting the premiums receivable that were reserved during 2020, when moratoriums and billing leniency efforts were put into place during the novel coronavirus, COVID-19, pandemic, which delayed the write-off of these uncollectible balances into 2021.
Property and Equipment
OtherIncluded in other assets onin the consolidated balance sheets include certain long-lived assets that are considered ““held for sale” property. When property is transferred to held for sale.” The carryingsale, the property is written down to its fair value of these held-for-sale assets was $24.9 million at June 30,less estimated costs to sell the property. At March 31, 2023 and 2022, $57.5 million at June 30, 2021, and $10.8 million at December 31, 2021.2022, we had held for sale property of $67.8 million, $20.2 million, and $48.7 million, respectively.
GoodwillEarnings Per Share
Net income is reduced by preferred share dividends to determine net income available to common shareholders, and Intangible Assets
In preparationis used in our calculation of the second quarter 2022 financial statements, we evaluated goodwillper common share amounts. Beginning March 15, 2023, the annual dividend rate for impairment usingour Series B Preferred Shares switched to a quantitative approach given changes in circumstances that indicated thatfloating rate. The floating nature of the carrying valuedividend rate will impact the amount of certain portions of goodwill may not be recoverable.the adjustment required to calculate net income available to common shareholders. See Note 129 – Goodwill and Intangible AssetsDividends for further discussion.
Earnings per Common Share
For the three and six months ended June 30, 2022, earnings per common share were calculated using basic average equivalent shares since diluted earnings per share would be antidilutive given the net loss reported for both periods. Amounts are reported on a diluted basis for the second quarter and first six months of 2021.
New Accounting Standards
During the first quarter 2023, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU), which permits an election to amortize the cost of tax equity investments to the provision for income taxes if certain conditions are met. Currently, these investments are accounted for under the equity method of accounting. This ASU will be effective for fiscal years (including interim periods within those fiscal years) beginning after December 15, 2023 (2024 for calendar-year companies). If elected, this standard must be applied on either a modified retrospective or a retrospective basis. We are still evaluating whether we will elect this new standard, however, we do not expect this standard to have a material impact on our financial position or results of operations
Note 2Investments — 2. INVESTMENTS
The following tables present the composition of our investment portfolio by major security type. Our securities are reported in our consolidated 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 (loss), net of deferred income taxes, in our consolidated
balance sheets. The net holding period gains (losses) reported below represent the inception-to-date changes in fair value offor the hybrid and equity 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 statements of comprehensive income.
| ($ in millions) | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | |
U.S. government obligations | U.S. government obligations | $ | 19,832.3 | | | $ | 3.7 | | | $ | (1,116.8) | | | $ | 0 | | | $ | 18,719.2 | | | 36.0 | % | U.S. government obligations | $ | 28,490.9 | | | $ | 68.8 | | | $ | (1,209.6) | | | $ | 0 | | | $ | 27,350.1 | | | 48.3 | % |
State and local government obligations | State and local government obligations | 2,281.9 | | | 0.6 | | | (147.1) | | | 0 | | | 2,135.4 | | | 4.1 | | State and local government obligations | 2,222.4 | | | 0.9 | | | (161.7) | | | 0 | | | 2,061.6 | | | 3.6 | |
Foreign government obligations | Foreign government obligations | 17.7 | | | 0 | | | (1.3) | | | 0 | | | 16.4 | | | 0.1 | | Foreign government obligations | 16.9 | | | 0 | | | (1.1) | | | 0 | | | 15.8 | | | 0.1 | |
Corporate debt securities | Corporate debt securities | 10,869.6 | | | 1.6 | | | (655.0) | | | (48.4) | | | 10,167.8 | | | 19.6 | | Corporate debt securities | 11,195.8 | | | 45.6 | | | (525.4) | | | (34.7) | | | 10,681.3 | | | 18.8 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 826.5 | | | 0.5 | | | (10.7) | | | (17.0) | | | 799.3 | | | 1.5 | | Residential mortgage-backed securities | 655.0 | | | 0.2 | | | (16.3) | | | (8.9) | | | 630.0 | | | 1.1 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,739.4 | | | 1.2 | | | (646.0) | | | 0 | | | 6,094.6 | | | 11.7 | | Commercial mortgage-backed securities | 5,252.6 | | | 1.6 | | | (751.2) | | | 0 | | | 4,503.0 | | | 7.9 | |
Other asset-backed securities | Other asset-backed securities | 5,239.4 | | | 0.1 | | | (201.7) | | | (1.8) | | | 5,036.0 | | | 9.7 | | Other asset-backed securities | 5,087.8 | | | 1.8 | | | (222.5) | | | (1.3) | | | 4,865.8 | | | 8.6 | |
Redeemable preferred stocks | Redeemable preferred stocks | 222.0 | | | 0 | | | (5.5) | | | (12.7) | | | 203.8 | | | 0.4 | | Redeemable preferred stocks | 202.5 | | | 0 | | | (5.2) | | | (15.7) | | | 181.6 | | | 0.3 | |
Total fixed maturities | Total fixed maturities | 46,028.8 | | | 7.7 | | | (2,784.1) | | | (79.9) | | | 43,172.5 | | | 83.1 | | Total fixed maturities | 53,123.9 | | | 118.9 | | | (2,893.0) | | | (60.6) | | | 50,289.2 | | | 88.7 | |
Short-term investments | Short-term investments | 4,611.8 | | | 0 | | | 0 | | | 0 | | | 4,611.8 | | | 8.9 | | Short-term investments | 2,524.1 | | | 0 | | | 0 | | | 0 | | | 2,524.1 | | | 4.5 | |
Total available-for-sale securities | Total available-for-sale securities | 50,640.6 | | | 7.7 | | | (2,784.1) | | | (79.9) | | | 47,784.3 | | | 92.0 | | Total available-for-sale securities | 55,648.0 | | | 118.9 | | | (2,893.0) | | | (60.6) | | | 52,813.3 | | | 93.2 | |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 1,522.5 | | | 0 | | | 0 | | | (162.0) | | | 1,360.5 | | | 2.6 | | Nonredeemable preferred stocks | 1,197.7 | | | 0 | | | 0 | | | (118.9) | | | 1,078.8 | | | 1.9 | |
Common equities | Common equities | 783.6 | | | 0 | | | 0 | | | 2,001.1 | | | 2,784.7 | | | 5.4 | | Common equities | 740.5 | | | 0 | | | 0 | | | 2,053.8 | | | 2,794.3 | | | 4.9 | |
Total equity securities | Total equity securities | 2,306.1 | | | 0 | | | 0 | | | 1,839.1 | | | 4,145.2 | | | 8.0 | | Total equity securities | 1,938.2 | | | 0 | | | 0 | | | 1,934.9 | | | 3,873.1 | | | 6.8 | |
Total portfolio1 | Total portfolio1 | $ | 52,946.7 | | | $ | 7.7 | | | $ | (2,784.1) | | | $ | 1,759.2 | | | $ | 51,929.5 | | | 100.0 | % | Total portfolio1 | $ | 57,586.2 | | | $ | 118.9 | | | $ | (2,893.0) | | | $ | 1,874.3 | | | $ | 56,686.4 | | | 100.0 | % |
| ($ in millions) | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value |
June 30, 2021 | | |
March 31, 2022 | | March 31, 2022 | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | |
U.S. government obligations | U.S. government obligations | $ | 19,339.3 | | | $ | 171.3 | | | $ | (72.9) | | | $ | 0 | | | $ | 19,437.7 | | | 38.1 | % | U.S. government obligations | $ | 20,399.6 | | | $ | 5.9 | | | $ | (876.7) | | | $ | 0 | | | $ | 19,528.8 | | | 36.7 | % |
State and local government obligations | State and local government obligations | 2,379.1 | | | 64.7 | | | (3.3) | | | 0 | | | 2,440.5 | | | 4.8 | | State and local government obligations | 2,236.9 | | | 4.4 | | | (97.1) | | | 0 | | | 2,144.2 | | | 4.0 | |
Foreign government obligations | Foreign government obligations | 12.7 | | | 0 | | | 0 | | | 0 | | | 12.7 | | | 0.1 | | Foreign government obligations | 18.3 | | | 0 | | | (0.9) | | | 0 | | | 17.4 | | | 0.1 | |
Corporate debt securities | Corporate debt securities | 10,314.8 | | | 372.1 | | | (9.9) | | | 1.2 | | | 10,678.2 | | | 20.9 | | Corporate debt securities | 11,590.2 | | | 31.2 | | | (315.5) | | | (25.9) | | | 11,280.0 | | | 21.2 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 666.9 | | | 4.6 | | | (1.1) | | | 0.9 | | | 671.3 | | | 1.3 | | Residential mortgage-backed securities | 962.3 | | | 1.1 | | | (5.1) | | | (7.2) | | | 951.1 | | | 1.8 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,628.2 | | | 91.4 | | | (11.5) | | | 0 | | | 5,708.1 | | | 11.2 | | Commercial mortgage-backed securities | 7,296.4 | | | 2.2 | | | (380.1) | | | 0 | | | 6,918.5 | | | 13.0 | |
Other asset-backed securities | Other asset-backed securities | 3,865.9 | | | 34.6 | | | (1.5) | | | 0 | | | 3,899.0 | | | 7.7 | | Other asset-backed securities | 5,359.9 | | | 1.1 | | | (103.6) | | | (1.5) | | | 5,255.9 | | | 9.9 | |
Redeemable preferred stocks | Redeemable preferred stocks | 171.1 | | | 1.7 | | | (1.4) | | | 12.1 | | | 183.5 | | | 0.4 | | Redeemable preferred stocks | 219.1 | | | 0.1 | | | (1.8) | | | 3.1 | | | 220.5 | | | 0.4 | |
Total fixed maturities | Total fixed maturities | 42,378.0 | | | 740.4 | | | (101.6) | | | 14.2 | | | 43,031.0 | | | 84.5 | | Total fixed maturities | 48,082.7 | | | 46.0 | | | (1,780.8) | | | (31.5) | | | 46,316.4 | | | 87.1 | |
Short-term investments | Short-term investments | 1,710.6 | | | 0 | | | 0 | | | 0 | | | 1,710.6 | | | 3.3 | | Short-term investments | 529.9 | | | 0 | | | 0 | | | 0 | | | 529.9 | | | 1.0 | |
Total available-for-sale securities | Total available-for-sale securities | 44,088.6 | | | 740.4 | | | (101.6) | | | 14.2 | | | 44,741.6 | | | 87.8 | | Total available-for-sale securities | 48,612.6 | | | 46.0 | | | (1,780.8) | | | (31.5) | | | 46,846.3 | | | 88.1 | |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 1,511.2 | | | 0 | | | 0 | | | 98.6 | | | 1,609.8 | | | 3.2 | | Nonredeemable preferred stocks | 1,545.5 | | | 0 | | | 0 | | | (18.0) | | | 1,527.5 | | | 2.9 | |
Common equities | Common equities | 1,238.4 | | | 0 | | | 0 | | | 3,353.0 | | | 4,591.4 | | | 9.0 | | Common equities | 1,281.7 | | | 0 | | | 0 | | | 3,530.9 | | | 4,812.6 | | | 9.0 | |
Total equity securities | Total equity securities | 2,749.6 | | | 0 | | | 0 | | | 3,451.6 | | | 6,201.2 | | | 12.2 | | Total equity securities | 2,827.2 | | | 0 | | | 0 | | | 3,512.9 | | | 6,340.1 | | | 11.9 | |
Total portfolio1 | Total portfolio1 | $ | 46,838.2 | | | $ | 740.4 | | | $ | (101.6) | | | $ | 3,465.8 | | | $ | 50,942.8 | | | 100.0 | % | Total portfolio1 | $ | 51,439.8 | | | $ | 46.0 | | | $ | (1,780.8) | | | $ | 3,481.4 | | | $ | 53,186.4 | | | 100.0 | % |
Note: Included in the table above is a $52.5 million fair value ($25.0 million cost) reclassification from nonredeemable preferred stock to common equities to reflect the prior year conversion of a security and to conform to the current year classification.
| ($ in millions) | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value | ($ in millions) | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Net Holding Period Gains (Losses) | | Fair Value | | % of Total Fair Value |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | |
U.S. government obligations | U.S. government obligations | $ | 18,586.1 | | | $ | 92.9 | | | $ | (190.8) | | | $ | 0 | | | $ | 18,488.2 | | | 35.9 | % | U.S. government obligations | $ | 26,770.7 | | | $ | 1.4 | | | $ | (1,604.7) | | | $ | 0 | | | $ | 25,167.4 | | | 47.0 | % |
State and local government obligations | State and local government obligations | 2,162.6 | | | 36.7 | | | (14.0) | | | 0 | | | 2,185.3 | | | 4.2 | | State and local government obligations | 2,180.0 | | | 0 | | | (202.9) | | | 0 | | | 1,977.1 | | | 3.7 | |
Foreign government obligations | Foreign government obligations | 17.9 | | | 0 | | | 0 | | | 0 | | | 17.9 | | | 0.1 | | Foreign government obligations | 16.8 | | | 0 | | | (1.3) | | | 0 | | | 15.5 | | | 0.1 | |
Corporate debt securities | Corporate debt securities | 10,526.2 | | | 202.6 | | | (33.4) | | | (3.3) | | | 10,692.1 | | | 20.7 | | Corporate debt securities | 10,125.8 | | | 9.8 | | | (676.1) | | | (46.8) | | | 9,412.7 | | | 17.6 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 787.7 | | | 2.3 | | | (0.6) | | | 0.6 | | | 790.0 | | | 1.5 | | Residential mortgage-backed securities | 696.1 | | | 0.3 | | | (17.5) | | | (12.1) | | | 666.8 | | | 1.2 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,561.0 | | | 38.9 | | | (64.3) | | | 0 | | | 6,535.6 | | | 12.7 | | Commercial mortgage-backed securities | 5,446.0 | | | 1.5 | | | (784.0) | | | 0 | | | 4,663.5 | | | 8.7 | |
Other asset-backed securities | Other asset-backed securities | 4,981.8 | | | 13.3 | | | (12.4) | | | (0.4) | | | 4,982.3 | | | 9.7 | | Other asset-backed securities | 4,826.0 | | | 0.9 | | | (260.5) | | | (1.8) | | | 4,564.6 | | | 8.5 | |
Redeemable preferred stocks | Redeemable preferred stocks | 170.9 | | | 0.7 | | | (0.5) | | | 10.6 | | | 181.7 | | | 0.4 | | Redeemable preferred stocks | 202.6 | | | 0 | | | (4.5) | | | (13.8) | | | 184.3 | | | 0.3 | |
Total fixed maturities | Total fixed maturities | 43,794.2 | | | 387.4 | | | (316.0) | | | 7.5 | | | 43,873.1 | | | 85.2 | | Total fixed maturities | 50,264.0 | | | 13.9 | | | (3,551.5) | | | (74.5) | | | 46,651.9 | | | 87.1 | |
Short-term investments | Short-term investments | 942.6 | | | 0 | | | 0 | | | 0 | | | 942.6 | | | 1.8 | | Short-term investments | 2,861.7 | | | 0 | | | 0 | | | 0 | | | 2,861.7 | | | 5.4 | |
Total available-for-sale securities | Total available-for-sale securities | 44,736.8 | | | 387.4 | | | (316.0) | | | 7.5 | | | 44,815.7 | | | 87.0 | | Total available-for-sale securities | 53,125.7 | | | 13.9 | | | (3,551.5) | | | (74.5) | | | 49,513.6 | | | 92.5 | |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 1,571.8 | | | 0 | | | 0 | | | 68.1 | | | 1,639.9 | | | 3.2 | | Nonredeemable preferred stocks | 1,364.2 | | | 0 | | | 0 | | | (151.0) | | | 1,213.2 | | | 2.3 | |
Common equities | Common equities | 1,264.1 | | | 0 | | | 0 | | | 3,794.4 | | | 5,058.5 | | | 9.8 | | Common equities | 826.1 | | | 0 | | | 0 | | | 1,995.4 | | | 2,821.5 | | | 5.2 | |
Total equity securities | Total equity securities | 2,835.9 | | | 0 | | | 0 | | | 3,862.5 | | | 6,698.4 | | | 13.0 | | Total equity securities | 2,190.3 | | | 0 | | | 0 | | | 1,844.4 | | | 4,034.7 | | | 7.5 | |
Total portfolio1 | Total portfolio1 | $ | 47,572.7 | | | $ | 387.4 | | | $ | (316.0) | | | $ | 3,870.0 | | | $ | 51,514.1 | | | 100.0 | % | Total portfolio1 | $ | 55,316.0 | | | $ | 13.9 | | | $ | (3,551.5) | | | $ | 1,769.9 | | | $ | 53,548.3 | | | 100.0 | % |
1 Includes $0, $412.1At March 31, 2023 and 2022, we had $22.8 million and $143.4$356.0 million, respectively, of net unsettled security purchase transactions at June 30, 2022 and 2021, and December 31, 2021, respectively, with the offsetting payable included in other liabilities.liabilities, compared to $34.4 million included in other assets at December 31, 2022.
The total fair value of the portfolio at June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, included $4.9$4.1 billion, $3.3$5.1 billion, and $4.2$4.4 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.
At June 30, 2022,March 31, 2023, bonds and certificates of deposit in the principal amount of $468.9$604.4 million were on deposit to meet state insurance regulatory requirements. We did not 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,March 31, 2023 or 2022, or 2021, or December 31, 2021.2022. At June 30, 2022,March 31, 2023, we did not 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.
We invested indid not enter into any repurchase andor reverse repurchase transactions during 2022 and 2021,the first quarter 2023, but did invest in repurchase transactions during 2022; however, we did not have any open positions at June 30,March 31, 2023 and 2022, and 2021, or December 31, 2021.2022. 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 onin 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 Certain securities in our fixed-maturity 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. These securities are reported at fair value: | | | | | | | | | | | | | | | | | |
| March 31, | | |
(millions) | 2023 | | 2022 | | Dec. 31, 2022 |
Fixed Maturities: | | | | | |
Corporate debt securities | $ | 548.6 | | | $ | 535.8 | | | $ | 535.4 | |
Residential mortgage-backed securities | 482.1 | | | 721.7 | | | 509.6 | |
Other asset-backed securities | 33.8 | | | 75.0 | | | 42.0 | |
Redeemable preferred stocks | 132.8 | | | 152.1 | | | 134.7 | |
Total hybrid securities | $ | 1,197.3 | | | $ | 1,484.6 | | | $ | 1,221.7 | |
| | | | | | | | | | | | | | | | | |
| June 30, | | |
(millions) | 2022 | | 2021 | | December 31, 2021 |
Fixed Maturities: | | | | | |
Corporate debt securities | $ | 513.8 | | | $ | 296.7 | | | $ | 479.1 | |
Residential mortgage-backed securities | 604.3 | | | 163.1 | | | 536.2 | |
Other asset-backed securities | 62.3 | | | 66.9 | | | 89.2 | |
Redeemable preferred stocks | 136.3 | | | 132.2 | | | 130.8 | |
Total hybrid securities | $ | 1,316.7 | | | $ | 658.9 | | | $ | 1,235.3 | |
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 electeduse the fair value option to record the changes in fair value of these securities through income as a component of net realized gains or losses.
Fixed Maturities The composition of fixed maturities by maturity at June 30, 2022,March 31, 2023, was:
| (millions) | (millions) | Cost | | Fair Value | (millions) | Cost | | Fair Value |
Less than one year | Less than one year | $ | 5,294.8 | | | $ | 5,210.9 | | Less than one year | $ | 7,941.7 | | | $ | 7,706.0 | |
One to five years | One to five years | 27,925.6 | | | 26,532.2 | | One to five years | 31,574.9 | | | 30,132.2 | |
Five to ten years | Five to ten years | 12,763.0 | | | 11,389.5 | | Five to ten years | 13,505.5 | | | 12,353.0 | |
Ten years or greater | Ten years or greater | 45.4 | | | 39.9 | | Ten years or greater | 101.8 | | | 98.0 | |
Total | Total | $ | 46,028.8 | | | $ | 43,172.5 | | Total | $ | 53,123.9 | | | $ | 50,289.2 | |
Asset-backed securities are classified in the maturity distribution table based upon their projected cash flows. All other securities that 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 | | Total No. of Sec. | Total Fair Value | Gross Unrealized Losses | Less than 12 Months | | | 12 Months or Greater |
($ in millions) | ($ in millions) | No. of Sec. | Fair Value | Unrealized Losses | | No. of Sec. | Fair Value | Unrealized Losses | ($ in millions) | No. of Sec. | Fair Value | Unrealized Losses | | | No. of Sec. | Fair Value | Unrealized Losses |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | | | |
U.S. government obligations | U.S. government obligations | 140 | | $ | 17,907.2 | | $ | (1,116.8) | | 114 | | $ | 15,254.3 | | $ | (874.0) | | | 26 | | $ | 2,652.9 | | $ | (242.8) | | U.S. government obligations | 148 | | $ | 19,446.8 | | $ | (1,209.6) | | 40 | | $ | 5,938.5 | | $ | (127.5) | | | | 108 | | $ | 13,508.3 | | $ | (1,082.1) | |
State and local government obligations | State and local government obligations | 331 | | 1,954.9 | | (147.1) | | 318 | | 1,816.1 | | (126.1) | | | 13 | | 138.8 | | (21.0) | | State and local government obligations | 343 | | 1,943.6 | | (161.7) | | 72 | | 350.7 | | (7.4) | | | | 271 | | 1,592.9 | | (154.3) | |
Foreign government obligations | Foreign government obligations | 1 | | 16.4 | | (1.3) | | 1 | | 16.4 | | (1.3) | | | 0 | | 0 | | 0 | | Foreign government obligations | 1 | | 15.8 | | (1.1) | | 0 | | 0 | | 0 | | | | 1 | | 15.8 | | (1.1) | |
Corporate debt securities | Corporate debt securities | 466 | | 9,174.2 | | (655.0) | | 435 | | 8,843.2 | | (612.0) | | | 31 | | 331.0 | | (43.0) | | Corporate debt securities | 390 | | 8,129.9 | | (525.4) | | 93 | | 2,239.3 | | (75.5) | | | | 297 | | 5,890.6 | | (449.9) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 39 | | 183.7 | | (10.7) | | 32 | | 172.1 | | (8.8) | | | 7 | | 11.6 | | (1.9) | | Residential mortgage-backed securities | 43 | | 141.7 | | (16.3) | | 13 | | 10.0 | | (0.4) | | | | 30 | | 131.7 | | (15.9) | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 254 | | 6,058.4 | | (646.0) | | 234 | | 5,624.1 | | (569.8) | | | 20 | | 434.3 | | (76.2) | | Commercial mortgage-backed securities | 220 | | 4,484.5 | | (751.2) | | 11 | | 53.4 | | (1.5) | | | | 209 | | 4,431.1 | | (749.7) | |
Other asset-backed securities | Other asset-backed securities | 289 | | 4,915.7 | | (201.7) | | 269 | | 4,611.8 | | (188.9) | | | 20 | | 303.9 | | (12.8) | | Other asset-backed securities | 267 | | 4,391.9 | | (222.5) | | 61 | | 884.8 | | (6.2) | | | | 206 | | 3,507.1 | | (216.3) | |
Redeemable preferred stocks | Redeemable preferred stocks | 5 | | 67.5 | | (5.5) | | 4 | | 56.7 | | (3.8) | | | 1 | | 10.8 | | (1.7) | | Redeemable preferred stocks | 4 | | 48.8 | | (5.2) | | 1 | | 10.6 | | (1.4) | | | | 3 | | 38.2 | | (3.8) | |
Total fixed maturities | Total fixed maturities | 1,525 | | $ | 40,278.0 | | $ | (2,784.1) | | 1,407 | | $ | 36,394.7 | | $ | (2,384.7) | | | 118 | | $ | 3,883.3 | | $ | (399.4) | | Total fixed maturities | 1,416 | | $ | 38,603.0 | | $ | (2,893.0) | | 291 | | $ | 9,487.3 | | $ | (219.9) | | | | 1,125 | | $ | 29,115.7 | | $ | (2,673.1) | |
| | | Total No. of Sec. | Total Fair Value | Gross Unrealized Losses | Less than 12 Months | | 12 Months or Greater | | Total No. of Sec. | Total Fair Value | Gross Unrealized Losses | Less than 12 Months | | 12 Months or Greater |
($ in millions) | ($ in millions) | No. of Sec. | Fair Value | Unrealized Losses | | No. of Sec. | Fair Value | Unrealized Losses | ($ in millions) | No. of Sec. | Fair Value | Unrealized Losses | | No. of Sec. | Fair Value | Unrealized Losses |
June 30, 2021 | | |
March 31, 2022 | | March 31, 2022 | |
U.S. government obligations | U.S. government obligations | 59 | | $ | 10,629.4 | | $ | (72.9) | | 55 | | $ | 10,162.4 | | $ | (66.8) | | | 4 | | $ | 467.0 | | $ | (6.1) | | U.S. government obligations | 116 | | $ | 18,478.0 | | $ | (876.7) | | 97 | | $ | 15,467.4 | | $ | (649.4) | | | 19 | | $ | 3,010.6 | | $ | (227.3) | |
State and local government obligations | State and local government obligations | 81 | | 436.2 | | (3.3) | | 72 | | 400.0 | | (2.6) | | | 9 | | 36.2 | | (0.7) | | State and local government obligations | 290 | | 1,767.7 | | (97.1) | | 279 | | 1,627.3 | | (82.1) | | | 11 | | 140.4 | | (15.0) | |
Foreign government obligations | | Foreign government obligations | 1 | | 17.4 | | (0.9) | | 1 | | 17.4 | | (0.9) | | | 0 | | 0 | | 0 | |
Corporate debt securities | Corporate debt securities | 292 | | 1,142.5 | | (9.9) | | 288 | | 1,065.2 | | (9.5) | | | 4 | | 77.3 | | (0.4) | | Corporate debt securities | 416 | | 7,830.6 | | (315.5) | | 407 | | 7,623.8 | | (294.2) | | | 9 | | 206.8 | | (21.3) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 77 | | 192.2 | | (1.1) | | 64 | | 172.4 | | (0.7) | | | 13 | | 19.8 | | (0.4) | | Residential mortgage-backed securities | 32 | | 201.8 | | (5.1) | | 26 | | 189.0 | | (4.1) | | | 6 | | 12.8 | | (1.0) | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 68 | | 1,272.0 | | (11.5) | | 61 | | 1,006.9 | | (10.5) | | | 7 | | 265.1 | | (1.0) | | Commercial mortgage-backed securities | 264 | | 6,584.4 | | (380.1) | | 245 | | 6,133.0 | | (327.9) | | | 19 | | 451.4 | | (52.2) | |
Other asset-backed securities | Other asset-backed securities | 119 | | 1,073.6 | | (1.5) | | 113 | | 1,043.7 | | (1.3) | | | 6 | | 29.9 | | (0.2) | | Other asset-backed securities | 269 | | 4,927.4 | | (103.6) | | 263 | | 4,873.8 | | (102.7) | | | 6 | | 53.6 | | (0.9) | |
Redeemable preferred stocks | Redeemable preferred stocks | 1 | | 11.1 | | (1.4) | | 0 | | 0 | | 0 | | | 1 | | 11.1 | | (1.4) | | Redeemable preferred stocks | 3 | | 37.4 | | (1.8) | | 2 | | 26.4 | | (0.3) | | | 1 | | 11.0 | | (1.5) | |
Total fixed maturities | Total fixed maturities | 697 | | $ | 14,757.0 | | $ | (101.6) | | 653 | | $ | 13,850.6 | | $ | (91.4) | | | 44 | | $ | 906.4 | | $ | (10.2) | | Total fixed maturities | 1,391 | | $ | 39,844.7 | | $ | (1,780.8) | | 1,320 | | $ | 35,958.1 | | $ | (1,461.6) | | | 71 | | $ | 3,886.6 | | $ | (319.2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
December 31, 2021 | | | | | | | | | | |
U.S. government obligations | 92 | | $ | 14,745.8 | | $ | (190.8) | | 85 | | $ | 13,790.8 | | $ | (158.5) | | | 7 | | $ | 955.0 | | $ | (32.3) | |
State and local government obligations | 127 | | 954.2 | | (14.0) | | 122 | | 927.3 | | (13.1) | | | 5 | | 26.9 | | (0.9) | |
Corporate debt securities | 220 | | 3,496.6 | | (33.4) | | 219 | | 3,491.7 | | (33.3) | | | 1 | | 4.9 | | (0.1) | |
Residential mortgage-backed securities | 20 | | 138.6 | | (0.6) | | 14 | | 135.4 | | (0.5) | | | 6 | | 3.2 | | (0.1) | |
Commercial mortgage-backed securities | 168 | | 4,315.4 | | (64.3) | | 165 | | 4,295.0 | | (63.9) | | | 3 | | 20.4 | | (0.4) | |
Other asset-backed securities | 178 | | 3,204.7 | | (12.4) | | 176 | | 3,200.6 | | (12.3) | | | 2 | | 4.1 | | (0.1) | |
Redeemable preferred stocks | 1 | | 12.0 | | (0.5) | | 0 | | 0 | | 0 | | | 1 | | 12.0 | | (0.5) | |
Total fixed maturities | 806 | | $ | 26,867.3 | | $ | (316.0) | | 781 | | $ | 25,840.8 | | $ | (281.6) | | | 25 | | $ | 1,026.5 | | $ | (34.4) | |
The increase in the number of securities in an unrealized loss position since both June 30, 2021 and December 31, 2021, was primarily the result of an increase in interest rates. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
December 31, 2022 | | | | | | | | | | |
U.S. government obligations | 160 | | $ | 24,802.5 | | $ | (1,604.7) | | 90 | | $ | 17,327.2 | | $ | (699.2) | | | 70 | | $ | 7,475.3 | | $ | (905.5) | |
State and local government obligations | 348 | | 1,948.8 | | (202.9) | | 239 | | 1,124.2 | | (76.8) | | | 109 | | 824.6 | | (126.1) | |
Foreign government obligations | 1 | | 15.5 | | (1.3) | | 0 | | 0 | | 0 | | | 1 | | 15.5 | | (1.3) | |
Corporate debt securities | 422 | | 8,449.6 | | (676.1) | | 285 | | 5,717.6 | | (426.1) | | | 137 | | 2,732.0 | | (250.0) | |
Residential mortgage-backed securities | 45 | | 151.0 | | (17.5) | | 27 | | 65.1 | | (6.8) | | | 18 | | 85.9 | | (10.7) | |
Commercial mortgage-backed securities | 226 | | 4,651.1 | | (784.0) | | 99 | | 1,702.0 | | (192.1) | | | 127 | | 2,949.1 | | (591.9) | |
Other asset-backed securities | 262 | | 4,247.8 | | (260.5) | | 130 | | 2,144.8 | | (100.9) | | | 132 | | 2,103.0 | | (159.6) | |
Redeemable preferred stocks | 4 | | 49.6 | | (4.5) | | 3 | | 38.5 | | (3.1) | | | 1 | | 11.1 | | (1.4) | |
Total fixed maturities | 1,468 | | $ | 44,315.9 | | $ | (3,551.5) | | 873 | | $ | 28,119.4 | | $ | (1,505.0) | | | 595 | | $ | 16,196.5 | | $ | (2,046.5) | |
As of June 30, 2022,March 31, 2023, we had 2 corporate debtfour securities and 1 residential mortgage-backed security that had their credit ratings downgraded during the quarter, with a combined fair value of $18.3$28.8 million and an unrealized loss of $2.1$1.7 million.
A review of the securities in an unrealized loss position indicated that the issuers were current with respect to their interest obligations and that there was no evidence of deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity.
Allowance For Credit and Uncollectible Losses We are required to measure the amount of potential credit losses for all fixed-maturity securities in an unrealized loss position. We did not record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible during the first sixthree months of 20222023 or 2021,2022, and did not have a material credit loss allowance balance as of June 30,March 31, 2023 and 2022, and 2021, or December 31, 2021.2022. We considered several factors and inputs related to the individual 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, we initially reviewed securities in a loss position to determine whether it was likely that we would be required, or intended, to sell any of the securities prior to the recovery of their respective cost bases (which could be maturity). If we were likely to, or intended to, sell prior to a potential recovery, we would write off the unrealized loss. For those securities that we determined we were not likely to, or did not intend to, sell prior to a potential recovery, we
performed additional analysis to determine if the loss was credit related. For securities subject to credit related loss, we calculated the net present value (NPV) of the cash flows expected (i.e., expected recovery value) using the current book yield for each security. The NPV was then compared to the security’s current amortized value to determine if a credit loss existed. In the event that the NPV was below the amortized value, and the amount was determined to be material individually, or in aggregate, a credit loss would be deemed to exist, and either an allowance for credit losses would be created, or if an allowance currently existed, either a recovery of the previous allowance, or an incremental loss, would be recorded to net realized gains (losses) on securities.
As of June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, we believe none of the unrealized losses relatewere related to material credit losses on any specific securities, or in the aggregate, based on our review.aggregate. We continue to expect all the securities in our portfolio to pay their principal and interest obligations.
In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, 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 not write off any accrued income as uncollectible at June 30,March 31, 2023 and 2022, and 2021, or December 31, 2021.2022.
Realized Gains (Losses) The components of net realized gains (losses) for the three and six months ended June 30,March 31, were:
| | | Three Months | | Six Months | | | | Three Months |
(millions) | (millions) | 2022 | | 2021 | | 2022 | | 2021 | (millions) | | | 2023 | | 2022 |
Gross realized gains on security sales | Gross realized gains on security sales | | Gross realized gains on security sales | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | | |
U.S. government obligations | U.S. government obligations | $ | 1.3 | | | $ | 11.3 | | | $ | 4.6 | | | $ | 77.9 | | U.S. government obligations | | | $ | 3.8 | | | $ | 3.3 | |
State and local government obligations | 0 | | | 14.1 | | | 0 | | | 44.3 | | |
Corporate and other debt securities | 2.0 | | | 40.1 | | | 6.5 | | | 60.8 | | |
| Corporate debt securities | | Corporate debt securities | | | 0.1 | | | 4.5 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 0.6 | | | 0.3 | | | 0.7 | | | 0.3 | | Residential mortgage-backed securities | | | 0 | | | 0.1 | |
Commercial mortgage-backed securities | 0 | | | 9.5 | | | 0 | | | 39.3 | | |
| Other asset-backed securities | Other asset-backed securities | 0 | | | 0 | | | 0.1 | | | 0.7 | | Other asset-backed securities | | | 0 | | | 0.1 | |
Redeemable preferred stocks | 0 | | | 1.5 | | | 0 | | | 1.5 | | |
| | Total available-for-sale securities | Total available-for-sale securities | 3.9 | | | 76.8 | | | 11.9 | | | 224.8 | | Total available-for-sale securities | | | 3.9 | | | 8.0 | |
Equity securities: | Equity securities: | | Equity securities: | | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 0.2 | | | 6.4 | | | 17.5 | | | 23.7 | | Nonredeemable preferred stocks | | | 0.1 | | | 17.3 | |
Common equities | Common equities | 830.6 | | | 345.0 | | | 831.1 | | | 346.1 | | Common equities | | | 132.0 | | | 0.5 | |
Total equity securities | Total equity securities | 830.8 | | | 351.4 | | | 848.6 | | | 369.8 | | Total equity securities | | | 132.1 | | | 17.8 | |
| Subtotal gross realized gains on security sales | Subtotal gross realized gains on security sales | 834.7 | | | 428.2 | | | 860.5 | | | 594.6 | | Subtotal gross realized gains on security sales | | | 136.0 | | | 25.8 | |
Gross realized losses on security sales | Gross realized losses on security sales | | Gross realized losses on security sales | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | | |
U.S. government obligations | U.S. government obligations | (164.3) | | | (6.9) | | | (233.5) | | | (26.5) | | U.S. government obligations | | | (11.5) | | | (69.2) | |
State and local government obligations | State and local government obligations | 0 | | | (2.8) | | | (1.0) | | | (3.0) | | State and local government obligations | | | 0 | | | (1.0) | |
Corporate and other debt securities | (30.1) | | | (3.3) | | | (37.8) | | | (5.4) | | |
Corporate debt securities | | Corporate debt securities | | | (20.4) | | | (7.7) | |
| Commercial mortgage-backed securities | Commercial mortgage-backed securities | (13.8) | | | (0.5) | | | (13.8) | | | (1.1) | | Commercial mortgage-backed securities | | | (34.5) | | | 0 | |
Other asset-backed securities | Other asset-backed securities | (2.0) | | | (0.3) | | | (2.1) | | | (0.4) | | Other asset-backed securities | | | (0.2) | | | (0.1) | |
| Short-term investments | Short-term investments | (0.3) | | | 0 | | | (0.3) | | | 0 | | Short-term investments | | | (0.1) | | | 0 | |
Total available-for-sale securities | Total available-for-sale securities | (210.5) | | | (13.8) | | | (288.5) | | | (36.4) | | Total available-for-sale securities | | | (66.7) | | | (78.0) | |
Equity securities: | Equity securities: | | Equity securities: | | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | (0.2) | | | (0.4) | | | (1.9) | | | (0.4) | | Nonredeemable preferred stocks | | | (101.0) | | | (1.7) | |
Common equities | Common equities | (77.4) | | | (3.9) | | | (78.0) | | | (3.9) | | Common equities | | | (11.8) | | | (0.6) | |
Total equity securities | Total equity securities | (77.6) | | | (4.3) | | | (79.9) | | | (4.3) | | Total equity securities | | | (112.8) | | | (2.3) | |
Subtotal gross realized losses on security sales | Subtotal gross realized losses on security sales | (288.1) | | | (18.1) | | | (368.4) | | | (40.7) | | Subtotal gross realized losses on security sales | | | (179.5) | | | (80.3) | |
Net realized gains (losses) on security sales | Net realized gains (losses) on security sales | | Net realized gains (losses) on security sales | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | | |
U.S. government obligations | U.S. government obligations | (163.0) | | | 4.4 | | | (228.9) | | | 51.4 | | U.S. government obligations | | | (7.7) | | | (65.9) | |
State and local government obligations | State and local government obligations | 0 | | | 11.3 | | | (1.0) | | | 41.3 | | State and local government obligations | | | 0 | | | (1.0) | |
Corporate and other debt securities | (28.1) | | | 36.8 | | | (31.3) | | | 55.4 | | |
Corporate debt securities | | Corporate debt securities | | | (20.3) | | | (3.2) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 0.6 | | | 0.3 | | | 0.7 | | | 0.3 | | Residential mortgage-backed securities | | | 0 | | | 0.1 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | (13.8) | | | 9.0 | | | (13.8) | | | 38.2 | | Commercial mortgage-backed securities | | | (34.5) | | | 0 | |
Other asset-backed securities | Other asset-backed securities | (2.0) | | | (0.3) | | | (2.0) | | | 0.3 | | Other asset-backed securities | | | (0.2) | | | 0 | |
Redeemable preferred stocks | 0 | | | 1.5 | | | 0 | | | 1.5 | | |
| Short-term investments | Short-term investments | (0.3) | | | 0 | | | (0.3) | | | 0 | | Short-term investments | | | (0.1) | | | 0 | |
Total available-for-sale securities | Total available-for-sale securities | (206.6) | | | 63.0 | | | (276.6) | | | 188.4 | | Total available-for-sale securities | | | (62.8) | | | (70.0) | |
Equity securities: | Equity securities: | | Equity securities: | | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 0 | | | 6.0 | | | 15.6 | | | 23.3 | | Nonredeemable preferred stocks | | | (100.9) | | | 15.6 | |
Common equities | Common equities | 753.2 | | | 341.1 | | | 753.1 | | | 342.2 | | Common equities | | | 120.2 | | | (0.1) | |
Total equity securities | Total equity securities | 753.2 | | | 347.1 | | | 768.7 | | | 365.5 | | Total equity securities | | | 19.3 | | | 15.5 | |
| Subtotal net realized gains (losses) on security sales | Subtotal net realized gains (losses) on security sales | 546.6 | | | 410.1 | | | 492.1 | | | 553.9 | | Subtotal net realized gains (losses) on security sales | | | (43.5) | | | (54.5) | |
Other assets | | Other assets | | |
Gain | | Gain | | | 13.2 | | | 0 | |
Impairment | | Impairment | | | (2.3) | | | (2.2) | |
Subtotal net realized gains (losses) on other assets | | Subtotal net realized gains (losses) on other assets | | | 10.9 | | | (2.2) | |
Net holding period gains (losses) | Net holding period gains (losses) | | Net holding period gains (losses) | | |
Hybrid securities | Hybrid securities | (48.4) | | | 9.9 | | | (87.4) | | | (1.0) | | Hybrid securities | | | 13.9 | | | (39.0) | |
Equity securities | Equity securities | (1,673.8) | | | 44.3 | | | (2,023.4) | | | 496.7 | | Equity securities | | | 90.5 | | | (349.6) | |
| Subtotal net holding period gains (losses) | Subtotal net holding period gains (losses) | (1,722.2) | | | 54.2 | | | (2,110.8) | | | 495.7 | | Subtotal net holding period gains (losses) | | | 104.4 | | | (388.6) | |
| Other asset impairment | (2.1) | | | (2.5) | | | (4.3) | | | (2.5) | | |
| | Total net realized gains (losses) on securities | Total net realized gains (losses) on securities | $ | (1,177.7) | | | $ | 461.8 | | | $ | (1,623.0) | | | $ | 1,047.1 | | Total net realized gains (losses) on securities | | | $ | 71.8 | | | $ | (445.3) | |
Realized gains (losses) on securities sold are computed using the first-in-first-out method. DuringFor the second quarter 2022, we soldfirst three months of 2023, the gross gains in common equities reflected sales of securities, in our common equity portfolio, which were in a realized gain position, as part of our plan to incrementally reduce risk in the portfolio in response to the likelihoodpotential of a more difficult economic environment over the near term. The majority of the sales in the fixed-maturity portfolio were from U.S. Treasuries, which were sold to shorten duration. Thegross loss from the fixed-maturity sales reflectsreflected the continued rise in interest rates during the second quarterthroughout 2022, which resulted in valuation declines for most of our available-for-sale securities. In addition, during the first quarter 2023, we selectively sold securities, which were primarily corporate debt securities and commercial
mortgage-backed securities. The gross loss incurred in our nonredeemable preferred stocks is primarily related to the sale of certain of our holdings in U. S. bank preferred stocks. The other asset gain for 2023, related to proceeds received as the result of litigation in conjunction with three renewable energy investments we made from 2016 through 2018 (the original investments were previously written down in full). The other asset impairment loss was recorded as a result of our investment in a federal new markets tax credit fund, which was entered into during the second quarter 2021, and is reported in other assets in the consolidated balance sheets.
The following table reflects our holding period realized gains (losses) recognized on equity securities held at the respective quarter ends:
| | | Three Months | | Six Months | | | | Three Months |
(millions) | (millions) | 2022 | 2021 | | 2022 | 2021 | (millions) | | | 2023 | 2022 |
Total net gains (losses) recognized during the period on equity securities | Total net gains (losses) recognized during the period on equity securities | $ | (920.6) | | $ | 391.4 | | | $ | (1,254.7) | | $ | 862.2 | | Total net gains (losses) recognized during the period on equity securities | | | $ | 109.8 | | $ | (334.1) | |
Less: Net gains (losses) recognized on equity securities sold during the period | Less: Net gains (losses) recognized on equity securities sold during the period | 753.2 | | 347.1 | | | 768.7 | | 365.5 | | Less: Net gains (losses) recognized on equity securities sold during the period | | | 19.3 | | 15.5 | |
Net holding period gains (losses) recognized during the period on equity securities held at period end | Net holding period gains (losses) recognized during the period on equity securities held at period end | $ | (1,673.8) | | $ | 44.3 | | | $ | (2,023.4) | | $ | 496.7 | | Net holding period gains (losses) recognized during the period on equity securities held at period end | | | $ | 90.5 | | $ | (349.6) | |
Net Investment Income The components of net investment income for the three and six months ended June 30,March 31, were:
| | | Three Months | | Six Months | | | | Three Months |
(millions) | (millions) | 2022 | 2021 | | 2022 | 2021 | (millions) | | | 2023 | 2022 |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | | |
U.S. government obligations | U.S. government obligations | $ | 67.9 | | $ | 37.4 | | | $ | 119.3 | | $ | 67.8 | | U.S. government obligations | | | $ | 163.2 | | $ | 51.4 | |
State and local government obligations | State and local government obligations | 10.3 | | 11.5 | | | 19.5 | | 24.9 | | State and local government obligations | | | 10.6 | | 9.2 | |
Foreign government obligations | Foreign government obligations | 0 | | 0 | | | 0.1 | | 0 | | Foreign government obligations | | | 0.1 | | 0.1 | |
Corporate debt securities | Corporate debt securities | 75.5 | | 73.2 | | | 143.6 | | 158.4 | | Corporate debt securities | | | 83.6 | | 68.1 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 9.6 | | 2.8 | | | 14.4 | | 6.2 | | Residential mortgage-backed securities | | | 9.2 | | 4.8 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 46.5 | | 34.4 | | | 89.8 | | 70.2 | | Commercial mortgage-backed securities | | | 50.0 | | 43.3 | |
Other asset-backed securities | Other asset-backed securities | 39.3 | | 15.1 | | | 64.4 | | 31.0 | | Other asset-backed securities | | | 48.5 | | 25.1 | |
Redeemable preferred stocks | Redeemable preferred stocks | 3.0 | | 2.3 | | | 5.5 | | 4.8 | | Redeemable preferred stocks | | | 2.9 | | 2.5 | |
Total fixed maturities | Total fixed maturities | 252.1 | | 176.7 | | | 456.6 | | 363.3 | | Total fixed maturities | | | 368.1 | | 204.5 | |
Short-term investments | Short-term investments | 4.4 | | 0.7 | | | 4.8 | | 2.2 | | Short-term investments | | | 24.7 | | 0.4 | |
Total available-for-sale securities | Total available-for-sale securities | 256.5 | | 177.4 | | | 461.4 | | 365.5 | | Total available-for-sale securities | | | 392.8 | | 204.9 | |
Equity securities: | Equity securities: | | Equity securities: | | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 18.1 | | 17.3 | | | 36.3 | | 35.2 | | Nonredeemable preferred stocks | | | 15.1 | | 18.2 | |
Common equities | Common equities | 17.8 | | 16.0 | | | 36.9 | | 30.2 | | Common equities | | | 11.7 | | 19.1 | |
Total equity securities | Total equity securities | 35.9 | | 33.3 | | | 73.2 | | 65.4 | | Total equity securities | | | 26.8 | | 37.3 | |
Investment income | Investment income | 292.4 | | 210.7 | | | 534.6 | | 430.9 | | Investment income | | | 419.6 | | 242.2 | |
Investment expenses | Investment expenses | (5.9) | | (6.3) | | | (11.6) | | (11.9) | | Investment expenses | | | (5.5) | | (5.7) | |
Net investment income | Net investment income | $ | 286.5 | | $ | 204.4 | | | $ | 523.0 | | $ | 419.0 | | Net investment income | | | $ | 414.1 | | $ | 236.5 | |
On a year-over-year basis, investment income (interest and dividends) increased 39%73% and 24% for the first three and six months of 2022, respectively,recurring investment book yield increased 50%, compared to the same periods last year, primarily due to an increase in average assets resulting from premium growth, underwriting profitability,interest rates on
floating-rate securities in our portfolio and investing the $1.5 billion of proceeds from debt issued in March 2022. The recurring investment book yield increased 19% for the second quarter 2022 and 7% for the first six months of 2022, compared to the same periods in 2021, reflecting investing new cash and cash from maturities in higher interest rate securities given the rising interest rate environment.
Note 3Fair Value — 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 thethat 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) | (millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost | (millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | |
U.S. government obligations | U.S. government obligations | $ | 18,719.2 | | | $ | 0 | | | $ | 0 | | | $ | 18,719.2 | | | $ | 19,832.3 | | U.S. government obligations | $ | 27,350.1 | | | $ | 0 | | | $ | 0 | | | $ | 27,350.1 | | | $ | 28,490.9 | |
State and local government obligations | State and local government obligations | 0 | | | 2,135.4 | | | 0 | | | 2,135.4 | | | 2,281.9 | | State and local government obligations | 0 | | | 2,061.6 | | | 0 | | | 2,061.6 | | | 2,222.4 | |
Foreign government obligations | Foreign government obligations | 0 | | | 16.4 | | | 0 | | | 16.4 | | | 17.7 | | Foreign government obligations | 0 | | | 15.8 | | | 0 | | | 15.8 | | | 16.9 | |
Corporate debt securities | Corporate debt securities | 0 | | | 10,167.8 | | | 0 | | | 10,167.8 | | | 10,869.6 | | Corporate debt securities | 0 | | | 10,681.3 | | | 0 | | | 10,681.3 | | | 11,195.8 | |
Subtotal | Subtotal | 18,719.2 | | | 12,319.6 | | | 0 | | | 31,038.8 | | | 33,001.5 | | Subtotal | 27,350.1 | | | 12,758.7 | | | 0 | | | 40,108.8 | | | 41,926.0 | |
Asset-backed securities: | Asset-backed securities: | | Asset-backed securities: | |
Residential mortgage-backed | Residential mortgage-backed | 0 | | | 799.3 | | | 0 | | | 799.3 | | | 826.5 | | Residential mortgage-backed | 0 | | | 630.0 | | | 0 | | | 630.0 | | | 655.0 | |
Commercial mortgage-backed | Commercial mortgage-backed | 0 | | | 6,094.6 | | | 0 | | | 6,094.6 | | | 6,739.4 | | Commercial mortgage-backed | 0 | | | 4,503.0 | | | 0 | | | 4,503.0 | | | 5,252.6 | |
Other asset-backed | Other asset-backed | 0 | | | 5,036.0 | | | 0 | | | 5,036.0 | | | 5,239.4 | | Other asset-backed | 0 | | | 4,865.8 | | | 0 | | | 4,865.8 | | | 5,087.8 | |
Subtotal asset-backed securities | Subtotal asset-backed securities | 0 | | | 11,929.9 | | | 0 | | | 11,929.9 | | | 12,805.3 | | Subtotal asset-backed securities | 0 | | | 9,998.8 | | | 0 | | | 9,998.8 | | | 10,995.4 | |
Redeemable preferred stocks: | Redeemable preferred stocks: | | Redeemable preferred stocks: | |
Financials | Financials | 0 | | | 58.7 | | | 0 | | | 58.7 | | | 62.5 | | Financials | 0 | | | 40.0 | | | 0 | | | 40.0 | | | 43.5 | |
Utilities | Utilities | 0 | | | 8.8 | | | 0 | | | 8.8 | | | 10.5 | | Utilities | 0 | | | 8.8 | | | 0 | | | 8.8 | | | 10.5 | |
Industrials | Industrials | 9.9 | | | 126.4 | | | 0 | | | 136.3 | | | 149.0 | | Industrials | 9.6 | | | 123.2 | | | 0 | | | 132.8 | | | 148.5 | |
Subtotal redeemable preferred stocks | Subtotal redeemable preferred stocks | 9.9 | | | 193.9 | | | 0 | | | 203.8 | | | 222.0 | | Subtotal redeemable preferred stocks | 9.6 | | | 172.0 | | | 0 | | | 181.6 | | | 202.5 | |
Total fixed maturities | Total fixed maturities | 18,729.1 | | | 24,443.4 | | | 0 | | | 43,172.5 | | | 46,028.8 | | Total fixed maturities | 27,359.7 | | | 22,929.5 | | | 0 | | | 50,289.2 | | | 53,123.9 | |
Short-term investments | Short-term investments | 4,549.8 | | | 62.0 | | | 0 | | | 4,611.8 | | | 4,611.8 | | Short-term investments | 2,524.1 | | | 0 | | | 0 | | | 2,524.1 | | | 2,524.1 | |
Total available-for-sale securities | Total available-for-sale securities | 23,278.9 | | | 24,505.4 | | | 0 | | | 47,784.3 | | | 50,640.6 | | Total available-for-sale securities | 29,883.8 | | | 22,929.5 | | | 0 | | | 52,813.3 | | | 55,648.0 | |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks: | Nonredeemable preferred stocks: | | Nonredeemable preferred stocks: | |
Financials | Financials | 87.8 | | | 1,099.7 | | | 64.9 | | | 1,252.4 | | | 1,402.5 | | Financials | 40.0 | | | 884.5 | | | 67.4 | | | 991.9 | | | 1,102.7 | |
Utilities | Utilities | 0 | | | 67.3 | | | 0 | | | 67.3 | | | 79.9 | | Utilities | 0 | | | 70.5 | | | 0 | | | 70.5 | | | 80.0 | |
Industrials | Industrials | 0 | | | 23.8 | | | 17.0 | | | 40.8 | | | 40.1 | | Industrials | 0 | | | 0 | | | 16.4 | | | 16.4 | | | 15.0 | |
Subtotal nonredeemable preferred stocks | Subtotal nonredeemable preferred stocks | 87.8 | | | 1,190.8 | | | 81.9 | | | 1,360.5 | | | 1,522.5 | | Subtotal nonredeemable preferred stocks | 40.0 | | | 955.0 | | | 83.8 | | | 1,078.8 | | | 1,197.7 | |
Common equities: | Common equities: | | Common equities: | |
Common stocks | Common stocks | 2,716.8 | | | 49.4 | | | 0 | | | 2,766.2 | | | 765.1 | | Common stocks | 2,755.7 | | | 0 | | | 18.3 | | | 2,774.0 | | | 720.2 | |
Other risk investments | Other risk investments | 0 | | | 0 | | | 18.5 | | | 18.5 | | | 18.5 | | Other risk investments | 0 | | | 0 | | | 20.3 | | | 20.3 | | | 20.3 | |
Subtotal common equities | Subtotal common equities | 2,716.8 | | | 49.4 | | | 18.5 | | | 2,784.7 | | | 783.6 | | Subtotal common equities | 2,755.7 | | | 0 | | | 38.6 | | | 2,794.3 | | | 740.5 | |
Total equity securities | Total equity securities | 2,804.6 | | | 1,240.2 | | | 100.4 | | | 4,145.2 | | | 2,306.1 | | Total equity securities | 2,795.7 | | | 955.0 | | | 122.4 | | | 3,873.1 | | | 1,938.2 | |
Total portfolio | Total portfolio | $ | 26,083.5 | | | $ | 25,745.6 | | | $ | 100.4 | | | $ | 51,929.5 | | | $ | 52,946.7 | | Total portfolio | $ | 32,679.5 | | | $ | 23,884.5 | | | $ | 122.4 | | | $ | 56,686.4 | | | $ | 57,586.2 | |
Debt | Debt | $ | 0 | | | $ | 6,028.9 | | | $ | 0 | | | $ | 6,028.9 | | | $ | 6,386.5 | | Debt | $ | 0 | | | $ | 5,881.0 | | | $ | 0 | | | $ | 5,881.0 | | | $ | 6,389.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | |
(millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost |
March 31, 2022 | | | | | | | | | |
Fixed maturities: | | | | | | | | | |
U.S. government obligations | $ | 19,528.8 | | | $ | 0 | | | $ | 0 | | | $ | 19,528.8 | | | $ | 20,399.6 | |
State and local government obligations | 0 | | | 2,144.2 | | | 0 | | | 2,144.2 | | | 2,236.9 | |
Foreign government obligations | 0 | | | 17.4 | | | 0 | | | 17.4 | | | 18.3 | |
Corporate debt securities | 0 | | | 11,280.0 | | | 0 | | | 11,280.0 | | | 11,590.2 | |
Subtotal | 19,528.8 | | | 13,441.6 | | | 0 | | | 32,970.4 | | | 34,245.0 | |
Asset-backed securities: | | | | | | | | | |
Residential mortgage-backed | 0 | | | 951.1 | | | 0 | | | 951.1 | | | 962.3 | |
Commercial mortgage-backed | 0 | | | 6,918.5 | | | 0 | | | 6,918.5 | | | 7,296.4 | |
Other asset-backed | 0 | | | 5,255.9 | | | 0 | | | 5,255.9 | | | 5,359.9 | |
Subtotal asset-backed securities | 0 | | | 13,125.5 | | | 0 | | | 13,125.5 | | | 13,618.6 | |
Redeemable preferred stocks: | | | | | | | | | |
Financials | 0 | | | 61.2 | | | 0 | | | 61.2 | | | 62.6 | |
Utilities | 0 | | | 7.2 | | | 0 | | | 7.2 | | | 7.5 | |
Industrials | 10.3 | | | 141.8 | | | 0 | | | 152.1 | | | 149.0 | |
Subtotal redeemable preferred stocks | 10.3 | | | 210.2 | | | 0 | | | 220.5 | | | 219.1 | |
Total fixed maturities | 19,539.1 | | | 26,777.3 | | | 0 | | | 46,316.4 | | | 48,082.7 | |
Short-term investments | 512.9 | | | 17.0 | | | 0 | | | 529.9 | | | 529.9 | |
Total available-for-sale securities | 20,052.0 | | | 26,794.3 | | | 0 | | | 46,846.3 | | | 48,612.6 | |
Equity securities: | | | | | | | | | |
Nonredeemable preferred stocks: | | | | | | | | | |
Financials | 92.2 | | | 1,237.3 | | | 61.4 | | | 1,390.9 | | | 1,425.4 | |
Utilities | 0 | | | 78.1 | | | 0 | | | 78.1 | | | 80.0 | |
Industrials | 0 | | | 24.6 | | | 33.9 | | | 58.5 | | | 40.1 | |
Subtotal nonredeemable preferred stocks | 92.2 | | | 1,340.0 | | | 95.3 | | | 1,527.5 | | | 1,545.5 | |
Common equities: | | | | | | | | | |
Common stocks | 4,743.2 | | | 49.3 | | | 0 | | | 4,792.5 | | | 1,261.6 | |
Other risk investments | 0 | | | 0 | | | 20.1 | | | 20.1 | | | 20.1 | |
Subtotal common equities | 4,743.2 | | | 49.3 | | | 20.1 | | | 4,812.6 | | | 1,281.7 | |
Total equity securities | 4,835.4 | | | 1,389.3 | | | 115.4 | | | 6,340.1 | | | 2,827.2 | |
Total portfolio | $ | 24,887.4 | | | $ | 28,183.6 | | | $ | 115.4 | | | $ | 53,186.4 | | | $ | 51,439.8 | |
Debt | $ | 0 | | | $ | 6,692.6 | | | $ | 0 | | | $ | 6,692.6 | | | $ | 6,385.6 | |
| | | Fair Value | | | | Fair Value | | |
(millions) | (millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost | (millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost |
June 30, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Fixed maturities: | Fixed maturities: | | Fixed maturities: | |
U.S. government obligations | U.S. government obligations | $ | 19,437.7 | | | $ | 0 | | | $ | 0 | | | $ | 19,437.7 | | | $ | 19,339.3 | | U.S. government obligations | $ | 25,167.4 | | | $ | 0 | | | $ | 0 | | | $ | 25,167.4 | | | $ | 26,770.7 | |
State and local government obligations | State and local government obligations | 0 | | | 2,440.5 | | | 0 | | | 2,440.5 | | | 2,379.1 | | State and local government obligations | 0 | | | 1,977.1 | | | 0 | | | 1,977.1 | | | 2,180.0 | |
Foreign government obligations | Foreign government obligations | 0 | | | 12.7 | | | 0 | | | 12.7 | | | 12.7 | | Foreign government obligations | 0 | | | 15.5 | | | 0 | | | 15.5 | | | 16.8 | |
Corporate debt securities | Corporate debt securities | 0 | | | 10,678.2 | | | 0 | | | 10,678.2 | | | 10,314.8 | | Corporate debt securities | 0 | | | 9,412.7 | | | 0 | | | 9,412.7 | | | 10,125.8 | |
Subtotal | Subtotal | 19,437.7 | | | 13,131.4 | | | 0 | | | 32,569.1 | | | 32,045.9 | | Subtotal | 25,167.4 | | | 11,405.3 | | | 0 | | | 36,572.7 | | | 39,093.3 | |
Asset-backed securities: | Asset-backed securities: | | Asset-backed securities: | |
Residential mortgage-backed | Residential mortgage-backed | 0 | | | 671.3 | | | 0 | | | 671.3 | | | 666.9 | | Residential mortgage-backed | 0 | | | 666.8 | | | 0 | | | 666.8 | | | 696.1 | |
Commercial mortgage-backed | Commercial mortgage-backed | 0 | | | 5,708.1 | | | 0 | | | 5,708.1 | | | 5,628.2 | | Commercial mortgage-backed | 0 | | | 4,663.5 | | | 0 | | | 4,663.5 | | | 5,446.0 | |
Other asset-backed | Other asset-backed | 0 | | | 3,899.0 | | | 0 | | | 3,899.0 | | | 3,865.9 | | Other asset-backed | 0 | | | 4,564.6 | | | 0 | | | 4,564.6 | | | 4,826.0 | |
Subtotal asset-backed securities | Subtotal asset-backed securities | 0 | | | 10,278.4 | | | 0 | | | 10,278.4 | | | 10,161.0 | | Subtotal asset-backed securities | 0 | | | 9,894.9 | | | 0 | | | 9,894.9 | | | 10,968.1 | |
Redeemable preferred stocks: | Redeemable preferred stocks: | | Redeemable preferred stocks: | |
Financials | Financials | 0 | | | 51.3 | | | 0 | | | 51.3 | | | 50.9 | | Financials | 0 | | | 40.5 | | | 0 | | | 40.5 | | | 43.6 | |
Utilities | Utilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Utilities | 0 | | | 9.1 | | | 0 | | | 9.1 | | | 10.5 | |
Industrials | Industrials | 10.8 | | | 121.4 | | | 0 | | | 132.2 | | | 120.2 | | Industrials | 9.2 | | | 125.5 | | | 0 | | | 134.7 | | | 148.5 | |
Subtotal redeemable preferred stocks | Subtotal redeemable preferred stocks | 10.8 | | | 172.7 | | | 0 | | | 183.5 | | | 171.1 | | Subtotal redeemable preferred stocks | 9.2 | | | 175.1 | | | 0 | | | 184.3 | | | 202.6 | |
Total fixed maturities | Total fixed maturities | 19,448.5 | | | 23,582.5 | | | 0 | | | 43,031.0 | | | 42,378.0 | | Total fixed maturities | 25,176.6 | | | 21,475.3 | | | 0 | | | 46,651.9 | | | 50,264.0 | |
Short-term investments | Short-term investments | 1,679.8 | | | 30.8 | | | 0 | | | 1,710.6 | | | 1,710.6 | | Short-term investments | 2,800.7 | | | 61.0 | | | 0 | | | 2,861.7 | | | 2,861.7 | |
Total available-for-sale securities | Total available-for-sale securities | 21,128.3 | | | 23,613.3 | | | 0 | | | 44,741.6 | | | 44,088.6 | | Total available-for-sale securities | 27,977.3 | | | 21,536.3 | | | 0 | | | 49,513.6 | | | 53,125.7 | |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks: | Nonredeemable preferred stocks: | | Nonredeemable preferred stocks: | |
Financials | Financials | 98.4 | | | 1,332.5 | | | 76.4 | | | 1,507.3 | | | 1,431.2 | | Financials | 39.0 | | | 994.4 | | | 67.4 | | | 1,100.8 | | | 1,244.2 | |
Utilities | Utilities | 0 | | | 42.5 | | | 0 | | | 42.5 | | | 39.9 | | Utilities | 0 | | | 71.2 | | | 0 | | | 71.2 | | | 79.9 | |
Industrials | Industrials | 0 | | | 25.6 | | | 34.4 | | | 60.0 | | | 40.1 | | Industrials | 0 | | | 24.8 | | | 16.4 | | | 41.2 | | | 40.1 | |
Subtotal nonredeemable preferred stocks | Subtotal nonredeemable preferred stocks | 98.4 | | | 1,400.6 | | | 110.8 | | | 1,609.8 | | | 1,511.2 | | Subtotal nonredeemable preferred stocks | 39.0 | | | 1,090.4 | | | 83.8 | | | 1,213.2 | | | 1,364.2 | |
Common equities: | Common equities: | | Common equities: | |
Common stocks | Common stocks | 4,527.3 | | | 0 | | | 52.5 | | | 4,579.8 | | | 1,226.8 | | Common stocks | 2,783.4 | | | 0 | | | 18.3 | | | 2,801.7 | | | 806.3 | |
Other risk investments | Other risk investments | 0 | | | 0 | | | 11.6 | | | 11.6 | | | 11.6 | | Other risk investments | 0 | | | 0 | | | 19.8 | | | 19.8 | | | 19.8 | |
Subtotal common equities | Subtotal common equities | 4,527.3 | | | 0 | | | 64.1 | | | 4,591.4 | | | 1,238.4 | | Subtotal common equities | 2,783.4 | | | 0 | | | 38.1 | | | 2,821.5 | | | 826.1 | |
Total equity securities | Total equity securities | 4,625.7 | | | 1,400.6 | | | 174.9 | | | 6,201.2 | | | 2,749.6 | | Total equity securities | 2,822.4 | | | 1,090.4 | | | 121.9 | | | 4,034.7 | | | 2,190.3 | |
Total portfolio | Total portfolio | $ | 25,754.0 | | | $ | 25,013.9 | | | $ | 174.9 | | | $ | 50,942.8 | | | $ | 46,838.2 | | Total portfolio | $ | 30,799.7 | | | $ | 22,626.7 | | | $ | 121.9 | | | $ | 53,548.3 | | | $ | 55,316.0 | |
Debt | Debt | $ | 0 | | | $ | 6,446.7 | | | $ | 0 | | | $ | 6,446.7 | | | $ | 5,397.5 | | Debt | $ | 0 | | | $ | 5,717.9 | | | $ | 0 | | | $ | 5,717.9 | | | $ | 6,388.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | |
(millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Cost |
December 31, 2021 | | | | | | | | | |
Fixed maturities: | | | | | | | | | |
U.S. government obligations | $ | 18,488.2 | | | $ | 0 | | | $ | 0 | | | $ | 18,488.2 | | | $ | 18,586.1 | |
State and local government obligations | 0 | | | 2,185.3 | | | 0 | | | 2,185.3 | | | 2,162.6 | |
Foreign government obligations | 0 | | | 17.9 | | | 0 | | | 17.9 | | | 17.9 | |
Corporate debt securities | 0 | | | 10,692.1 | | | 0 | | | 10,692.1 | | | 10,526.2 | |
Subtotal | 18,488.2 | | | 12,895.3 | | | 0 | | | 31,383.5 | | | 31,292.8 | |
Asset-backed securities: | | | | | | | | | |
Residential mortgage-backed | 0 | | | 790.0 | | | 0 | | | 790.0 | | | 787.7 | |
Commercial mortgage-backed | 0 | | | 6,535.6 | | | 0 | | | 6,535.6 | | | 6,561.0 | |
Other asset-backed | 0 | | | 4,982.3 | | | 0 | | | 4,982.3 | | | 4,981.8 | |
Subtotal asset-backed securities | 0 | | | 12,307.9 | | | 0 | | | 12,307.9 | | | 12,330.5 | |
Redeemable preferred stocks: | | | | | | | | | |
Financials | 0 | | | 50.9 | | | 0 | | | 50.9 | | | 50.7 | |
Utilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Industrials | 10.7 | | | 120.1 | | | 0 | | | 130.8 | | | 120.2 | |
Subtotal redeemable preferred stocks | 10.7 | | | 171.0 | | | 0 | | | 181.7 | | | 170.9 | |
Total fixed maturities | 18,498.9 | | | 25,374.2 | | | 0 | | | 43,873.1 | | | 43,794.2 | |
Short-term investments | 942.4 | | | 0.2 | | | 0 | | | 942.6 | | | 942.6 | |
Total available-for-sale securities | 19,441.3 | | | 25,374.4 | | | 0 | | | 44,815.7 | | | 44,736.8 | |
Equity securities: | | | | | | | | | |
Nonredeemable preferred stocks: | | | | | | | | | |
Financials | 115.3 | | | 1,305.7 | | | 76.4 | | | 1,497.4 | | | 1,451.7 | |
Utilities | 0 | | | 82.9 | | | 0 | | | 82.9 | | | 80.0 | |
Industrials | 0 | | | 25.2 | | | 34.4 | | | 59.6 | | | 40.1 | |
Subtotal nonredeemable preferred stocks | 115.3 | | | 1,413.8 | | | 110.8 | | | 1,639.9 | | | 1,571.8 | |
Common equities: | | | | | | | | | |
Common stocks | 4,991.6 | | | 50.0 | | | 0 | | | 5,041.6 | | | 1,247.2 | |
Other risk investments | 0 | | | 0 | | | 16.9 | | | 16.9 | | | 16.9 | |
Subtotal common equities | 4,991.6 | | | 50.0 | | | 16.9 | | | 5,058.5 | | | 1,264.1 | |
Total equity securities | 5,106.9 | | | 1,463.8 | | | 127.7 | | | 6,698.4 | | | 2,835.9 | |
Total portfolio | $ | 24,548.2 | | | $ | 26,838.2 | | | $ | 127.7 | | | $ | 51,514.1 | | | $ | 47,572.7 | |
Debt | $ | 0 | | | $ | 5,857.4 | | | $ | 0 | | | $ | 5,857.4 | | | $ | 4,898.8 | |
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 investments 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 investments 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, 2022,March 31, 2023, vendor-quoted prices represented 87%91% of our Level 1 classifications (excluding short-term investments), compared to 81% and 79%90% at June 30, 2021March 31, 2022 and December 31, 2021,2022, 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, 2022March 31, 2023 and December 31, 2021,2022, vendor-quoted prices comprised 98% of our Level 2 classifications (excluding short-term investments and common stock), while dealer-quoted prices represented the remaining 2%, compared to 99%97% and 1%3% at June 30, 2021.March 31, 2022. 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.
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 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 other 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 ourFor 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.
After all the valuations are received and our review of Level 2 securities is complete, if the inputs used by vendors are determined to not contain sufficient observable market information, we will reclassify the affected securities to Level 3.
Except as described below, our Level 3 securities are 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.
To the extent we receive prices from external sources (e.g., broker, valuation firm) for the Level 3 securities, we review those prices for reasonableness using internally developed assumptions and then compare our derived prices to the prices received from the external sources. Based on our review, all prices received from external sources remained unadjusted.
If we do not receive prices from an external source, we perform an internal fair value comparison, which includes a review and analysis of market-comparable securities, to determine if fair value changes are needed. Based on this analysis, certain private equity investments included in the Level 3 category remain valued at cost or were priced using a recent transaction as the basis for fair value. At least annually, these private equity investments are priced by an external source.
Our Level 3 other risk investments include securities accounted for under the equity method of accounting and, therefore, are not subject to fair value reporting. Since these securities represent less than 0.1% of our total portfolio, we will continue to include them in our Level 3 disclosures and report the activity from these investments as “other” changes in the summary of changes in fair value table and categorize these securities as “pricing exemption securities” in the quantitative information table.
During 2021, we reclassified aThe Level 3 nonredeemable preferred2 common stock held at DecemberMarch 31, 2020 to a Level 3 common stock to reflect that the security had converted during 2020. The security2022 was transferred to Level 23 at December 31, 2021.2022. At June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, we did not have any securities in our fixed-maturity portfolio listed as Level 3.
Other than goodwill, duringDuring the second quarter and first sixthree months of 20222023 and 2021,2022, there were no material assets or liabilities measured at fair value on a nonrecurring basis.During the second quarter 2022, we determined that the fair value of the goodwill related to our ARX Holding Corp. (ARX) reporting unit was less than the carrying value and we wrote down $224.8 million of our total goodwill asset. See Note 12 – Goodwill and Intangible Assets for further discussion.
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, 2022March 31, 2023 and 2021:2022:
| | Level 3 Fair Value | |
(millions) | Fair Value at March 31, 2022 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at June 30, 2022 | |
| | | Equity securities: | | |
Nonredeemable preferred stocks: | | |
Financials | $ | 61.4 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 3.5 | | $ | 0 | | $ | 64.9 | | |
Industrials | 33.9 | | 0 | | 0 | | 0 | | 0 | | (16.9) | | 0 | | 17.0 | | |
Common equities: | | |
| Other risk investments | 20.1 | | (1.6) | | 0 | | 0 | | 0 | | 0 | | 0 | | 18.5 | | |
Total Level 3 securities | $ | 115.4 | | $ | (1.6) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | (13.4) | | $ | 0 | | $ | 100.4 | | |
| | | | | | | | Level 3 Fair Value | | Level 3 Fair Value |
(millions) | (millions) | Fair Value at March 31, 2021 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at June 30, 2021 | (millions) | Fair Value at Dec. 31, 2022 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at March 31, 2023 |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks: | Nonredeemable preferred stocks: | | Nonredeemable preferred stocks: | |
Financials | Financials | $ | 10.0 | | $ | 0 | | $ | 60.2 | | $ | 0 | | $ | 0 | | $ | 6.2 | | $ | 0 | | $ | 76.4 | | Financials | $ | 67.4 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 67.4 | |
Industrials | Industrials | 16.6 | | 0 | | 5.0 | | (5.0) | | (4.5) | | 22.3 | | 0 | | 34.4 | | Industrials | 16.4 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 16.4 | |
Common equities: | Common equities: | | Common equities: | |
Common stocks | Common stocks | 25.0 | | 0 | | 0 | | 0 | | 0 | | 27.5 | | 0 | | 52.5 | | Common stocks | 18.3 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 18.3 | |
Other risk investments | Other risk investments | 3.2 | | 8.4 | | 0 | | 0 | | 0 | | 0 | | 0 | | 11.6 | | Other risk investments | 19.8 | | 0.5 | | 0 | | 0 | | 0 | | 0 | | 0 | | 20.3 | |
Total Level 3 securities | Total Level 3 securities | $ | 54.8 | | $ | 8.4 | | $ | 65.2 | | $ | (5.0) | | $ | (4.5) | | $ | 56.0 | | $ | 0 | | $ | 174.9 | | Total Level 3 securities | $ | 121.9 | | $ | 0.5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 122.4 | |
| | | | Level 3 Fair Value | | Level 3 Fair Value |
(millions) | (millions) | Fair Value at Dec. 31, 2021 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at June 30, 2022 | (millions) | Fair Value at Dec. 31, 2021 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at March 31, 2022 |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks: | Nonredeemable preferred stocks: | | Nonredeemable preferred stocks: | |
Financials | Financials | $ | 76.4 | | $ | 0 | | $ | 0 | | $ | (15.0) | | $ | (17.2) | | $ | 20.7 | | $ | 0 | | $ | 64.9 | | Financials | $ | 76.4 | | $ | 0 | | $ | 0 | | $ | (15.0) | | $ | (17.2) | | $ | 17.2 | | $ | 0 | | $ | 61.4 | |
Industrials | Industrials | 34.4 | | (0.5) | | 0 | | 0 | | 0 | | (16.9) | | 0 | | 17.0 | | Industrials | 34.4 | | (0.5) | | 0 | | 0 | | 0 | | 0 | | 0 | | 33.9 | |
Common equities: | Common equities: | | Common equities: | |
| Other risk investments | Other risk investments | 16.9 | | 1.6 | | 0 | | 0 | | 0 | | 0 | | 0 | | 18.5 | | Other risk investments | 16.9 | | 3.2 | | 0 | | 0 | | 0 | | 0 | | 0 | | 20.1 | |
Total Level 3 securities | Total Level 3 securities | $ | 127.7 | | $ | 1.1 | | $ | 0 | | $ | (15.0) | | $ | (17.2) | | $ | 3.8 | | $ | 0 | | $ | 100.4 | | Total Level 3 securities | $ | 127.7 | | $ | 2.7 | | $ | 0 | | $ | (15.0) | | $ | (17.2) | | $ | 17.2 | | $ | 0 | | $ | 115.4 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 Fair Value |
(millions) | Fair Value at Dec. 31, 2020 | Calls/ Maturities/ Paydowns/Other | Purchases | Sales | Net Realized (Gain)/Loss on Sales | Change in Valuation | Net Transfers In (Out) | Fair Value at June 30, 2021 |
Equity securities: | | | | | | | | |
Nonredeemable preferred stocks: | | | | | | | | |
Financials | $ | 10.0 | | $ | 0 | | $ | 60.2 | | $ | 0 | | $ | 0 | | $ | 6.2 | | $ | 0 | | $ | 76.4 | |
Industrials | 16.7 | | 0 | | 5.0 | | (5.0) | | (4.5) | | 22.2 | | 0 | | 34.4 | |
Common equities: | | | | | | | | |
Common stocks | 25.0 | | 0 | | 0 | | 0 | | 0 | | 27.5 | | 0 | | 52.5 | |
Other risk investments | 3.1 | | 8.5 | | 0 | | 0 | | 0 | | 0 | | 0 | | 11.6 | |
Total Level 3 securities | $ | 54.8 | | $ | 8.5 | | $ | 65.2 | | $ | (5.0) | | $ | (4.5) | | $ | 55.9 | | $ | 0 | | $ | 174.9 | |
|
The following tables provide a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021:2022:
| | | Quantitative Information about Level 3 Fair Value Measurements | | Quantitative Information about Level 3 Fair Value Measurements |
($ in millions) | ($ in millions) | Fair Value at June 30, 2022 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) | ($ in millions) | Fair Value at March 31, 2023 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) |
Equity securities: | Equity securities: | | Equity securities: | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | $ | 81.9 | | Market comparables | Weighted average market capitalization price change % | (47.3)% to (2.2)% | (13.3) | % | Nonredeemable preferred stocks | $ | 83.8 | | Market comparables | Weighted average market capitalization price change % | 2.7% to 23.3% | 9.2 | % |
| Common stocks | | Common stocks | 18.3 | | Market comparables | Weighted average market capitalization price change % | (51.3)% to 48.3% | 15.6 | % |
Subtotal Level 3 securities | Subtotal Level 3 securities | 81.9 | | | Subtotal Level 3 securities | 102.1 | | |
Pricing exemption securities | Pricing exemption securities | 18.5 | | | Pricing exemption securities | 20.3 | | |
Total Level 3 securities | Total Level 3 securities | $ | 100.4 | | | Total Level 3 securities | $ | 122.4 | | |
| | | | | | | | | | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements |
($ in millions) | Fair Value at June 30, 2021 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) |
Equity securities: | | | | | |
Nonredeemable preferred stocks | $ | 110.8 | | Market comparables | Weighted average market capitalization price change % | (8.0)% to 9.9% | 4.2 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Common stocks | 52.5 | | Market comparables | Weighted average market capitalization price change % | (12.1)% to 24.5% | 12.1 | % |
Subtotal Level 3 securities | 163.3 | | | | | |
Pricing exemption securities | 11.6 | | | | | |
Total Level 3 securities | $ | 174.9 | | | | | |
Note: The table was updated to agree with the current year presentation and to reflect the purchase of a nonredeemable preferred stock security in the second quarter 2020 that was subject to an automatic conversion to common stock during third quarter 2020.
| | | | | | | | | | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements |
($ in millions) | Fair Value at March 31, 2022 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) |
Equity securities: | | | | | |
Nonredeemable preferred stocks | $ | 95.3 | | Market comparables | Weighted average market capitalization price change % | (27.9)% to (12.7)% | 20.1 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Subtotal Level 3 securities | 95.3 | | | | | |
Pricing exemption securities | 20.1 | | | | | |
Total Level 3 securities | $ | 115.4 | | | | | |
| | | | | | | | | | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements | |
($ in millions) | Fair Value at Dec. 31, 2021 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) |
Equity securities: | | | | | |
Nonredeemable preferred stocks | $ | 110.8 | | Market comparables | Weighted average market capitalization price change % | (20.2)% to (2.3)% | (7.7)% |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Subtotal Level 3 securities | 110.8 | | | | | |
Pricing exemption securities | 16.9 | | | | | |
Total Level 3 securities | $ | 127.7 | | | | | |
| | | | | | | | | | | | | | | | | |
| Quantitative Information about Level 3 Fair Value Measurements | |
($ in millions) | Fair Value at Dec. 31, 2022 | Valuation Technique | Unobservable Input | Range of Input Values Increase (Decrease) | Weighted Average Increase (Decrease) |
Equity securities: | | | | | |
Nonredeemable preferred stocks | $ | 83.8 | | Market comparables | Weighted average market capitalization price change % | (0.6)% to 19.9% | 10.5% |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Common stocks | 18.3 | | Market comparables | Weighted average market capitalization price change % | (42.5)% to 59.1% | 0.3% |
Subtotal Level 3 securities | 102.1 | | | | | |
Pricing exemption securities | 19.8 | | | | | |
Total Level 3 securities | $ | 121.9 | | | | | |
4. DEBT
Debt at each of the balance sheet periods consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 | | December 31, 2021 |
(millions) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
3.75% Senior Notes due 2021 (issued: $500.0, August 2011) | $ | 0 | | | $ | 0 | | | $ | 499.9 | | | $ | 502.5 | | | $ | 0 | | | $ | 0 | |
2.45% Senior Notes due 2027 (issued: $500.0, August 2016) | 497.9 | | | 471.3 | | | 497.5 | | | 529.9 | | | 497.7 | | | 517.9 | |
2.50% Senior Notes due 2027 (issued: $500.0, March 2022) | 497.2 | | | 472.6 | | | 0 | | | 0 | | | 0 | | | 0 | |
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) | 297.3 | | | 340.6 | | | 297.0 | | | 396.1 | | | 297.2 | | | 388.2 | |
4.00% Senior Notes due 2029 (issued: $550.0, October 2018) | 546.2 | | | 543.3 | | | 545.7 | | | 631.5 | | | 545.9 | | | 621.0 | |
3.20% Senior Notes due 2030 (issued: $500.0, March 2020) | 496.7 | | | 463.0 | | | 496.3 | | | 549.0 | | | 496.5 | | | 536.3 | |
3.00% Senior Notes due 2032 (issued: $500.0, March 2022) | 495.7 | | | 448.3 | | | 0 | | | 0 | | | 0 | | | 0 | |
6.25% Senior Notes due 2032 (issued: $400.0, November 2002) | 396.3 | | | 459.2 | | | 396.1 | | | 553.7 | | | 396.2 | | | 547.9 | |
4.35% Senior Notes due 2044 (issued: $350.0, April 2014) | 346.9 | | | 324.6 | | | 346.8 | | | 434.8 | | | 346.8 | | | 428.4 | |
3.70% Senior Notes due 2045 (issued: $400.0, January 2015) | 395.7 | | | 332.4 | | | 395.6 | | | 458.1 | | | 395.6 | | | 447.1 | |
4.125% Senior Notes due 2047 (issued: $850.0, April 2017) | 842.0 | | | 769.3 | | | 841.8 | | | 1,041.4 | | | 841.9 | | | 1,029.3 | |
4.20% Senior Notes due 2048 (issued: $600.0, March 2018) | 590.3 | | | 550.5 | | | 590.1 | | | 747.0 | | | 590.2 | | | 741.3 | |
3.95% Senior Notes due 2050 (issued: $500.0, March 2020) | 490.9 | | | 437.8 | | | 490.7 | | | 602.7 | | | 490.8 | | | 600.0 | |
3.70% Senior Notes due 2052 (issued: $500.0, March 2022) | 493.4 | | | 416.0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total | $ | 6,386.5 | | | $ | 6,028.9 | | | $ | 5,397.5 | | | $ | 6,446.7 | | | $ | 4,898.8 | | | $ | 5,857.4 | |
The Progressive Corporation issued $500 million of 2.50% Senior Notes due 2027, $500 million of 3.00% Senior Notes due 2032, and $500 million of 3.70% Senior Notes due 2052 in March 2022, in an underwritten public offering. The net proceeds from the issuances, after deducting underwriters’ discounts, commissions, and other issuance costs, were approximately $1,486.0 million in aggregate. Consistent with the other senior notes issued by Progressive, interest on these notes is payable semiannually, principal is due at maturity, and the notes are redeemable, in whole or in part, at any time, subject to a treasury “make whole” provision. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
(millions) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
2.45% Senior Notes due 2027 (issued: $500.0, August 2016) | $ | 498.3 | | | $ | 464.2 | | | $ | 497.8 | | | $ | 487.9 | | | $ | 498.2 | | | $ | 457.7 | |
2.50% Senior Notes due 2027 (issued: $500.0, March 2022) | 497.7 | | | 463.8 | | | 497.1 | | | 489.4 | | | 497.5 | | | 460.3 | |
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) | 297.6 | | | 329.6 | | | 297.3 | | | 358.8 | | | 297.5 | | | 326.8 | |
4.00% Senior Notes due 2029 (issued: $550.0, October 2018) | 546.5 | | | 538.5 | | | 546.1 | | | 573.5 | | | 546.4 | | | 527.8 | |
3.20% Senior Notes due 2030 (issued: $500.0, March 2020) | 497.0 | | | 460.0 | | | 496.6 | | | 496.2 | | | 496.9 | | | 448.6 | |
3.00% Senior Notes due 2032 (issued: $500.0, March 2022) | 496.0 | | | 446.9 | | | 495.6 | | | 487.0 | | | 495.9 | | | 438.1 | |
6.25% Senior Notes due 2032 (issued: $400.0, November 2002) | 396.5 | | | 448.1 | | | 396.2 | | | 494.8 | | | 396.4 | | | 435.4 | |
4.35% Senior Notes due 2044 (issued: $350.0, April 2014) | 346.9 | | | 312.3 | | | 346.8 | | | 368.7 | | | 346.9 | | | 298.4 | |
3.70% Senior Notes due 2045 (issued: $400.0, January 2015) | 395.8 | | | 324.0 | | | 395.7 | | | 386.0 | | | 395.7 | | | 310.2 | |
4.125% Senior Notes due 2047 (issued: $850.0, April 2017) | 842.1 | | | 743.8 | | | 841.9 | | | 894.5 | | | 842.1 | | | 716.2 | |
4.20% Senior Notes due 2048 (issued: $600.0, March 2018) | 590.4 | | | 530.0 | | | 590.3 | | | 637.4 | | | 590.4 | | | 507.0 | |
3.95% Senior Notes due 2050 (issued: $500.0, March 2020) | 491.0 | | | 420.3 | | | 490.8 | | | 514.9 | | | 490.9 | | | 404.9 | |
3.70% Senior Notes due 2052 (issued: $500.0, March 2022) | 493.5 | | | 399.5 | | | 493.4 | | | 503.5 | | | 493.5 | | | 386.5 | |
Total | $ | 6,389.3 | | | $ | 5,881.0 | | | $ | 6,385.6 | | | $ | 6,692.6 | | | $ | 6,388.3 | | | $ | 5,717.9 | |
There was no short-term debt outstanding at June 30,March 31, 2023 and 2022, and December 31, 2021. Short-term debt outstanding at June 30, 2021 consisted of the $500 million 3.75% Senior Notes that matured in August 2021.2022.
The Progressive Corporation has a line of credit with PNC Bank, National Association (PNC), in the maximum principal amount of $250 million, which has the same terms as the line of credit with PNC that expired in April 2022.million. See the 20212022 Annual Report to Shareholders for a discussion of the terms of this line of credit. We had no borrowings under the line of credit during the periods presented.
5. INCOME TAXES
Note 5Income 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,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, we determined that we did not 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. At March 31, 2023 and 2022, and December 31, 2022, the net deferred tax asset includes a gross deferred tax asset of $582.6 million, $364.3 million,
For
and $742.9 million, respectively, related to unrealized losses on fixed-maturity securities. We believe this deferred tax asset will be realized based on the six months ended June 30, 2022, there have been no material changesexistence of prior year capital gains, current temporary differences related to unrealized gains in our reserveequity portfolio, and other tax planning strategies.
At March 31, 2023 and 2022, and December 31, 2022, we had no reserves for uncertain tax positions.
The effective tax rate for the three and six months ended June 30, 2022,March 31, 2023, was 14.6% and 6.8%19.2%, respectively, compared to 20.9% and 20.8%19.6% for the same periods last year. Excluding the effect of the goodwill impairment, which was a one-time charge, the effective tax rate for the three and six months ended June 30, 2022, were 22.6% and 79.9%, respectively. The higher effective rates for the current quarter and year, excluding the goodwill impairment charge, are in part due to our permanent tax differences having a greater impact on the effective rate given our pretax loss, compared to pretax income in the same periodsperiod last year.
Note 6
Loss and Loss Adjustment Expense Reserves —
6. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Activity in the loss and loss adjustment expense reserves is summarized as follows:
| | | | | | | | | | | |
| June 30, |
(millions) | 2022 | | 2021 |
Balance at January 1 | $ | 26,164.1 | | | $ | 20,265.8 | |
Less reinsurance recoverables on unpaid losses | 4,733.6 | | | 3,798.2 | |
Net balance at January 1 | 21,430.5 | | | 16,467.6 | |
Net loss and loss adjustment expense reserves acquired1 | 0 | | | 732.5 | |
Total beginning reserves | 21,430.5 | | | 17,200.1 | |
Incurred related to: | | | |
Current year | 18,134.6 | | | 15,319.9 | |
Prior years | 144.9 | | | 197.0 | |
Total incurred | 18,279.5 | | | 15,516.9 | |
Paid related to: | | | |
Current year | 9,298.3 | | | 7,849.6 | |
Prior years | 7,284.3 | | | 5,436.7 | |
Total paid | 16,582.6 | | | 13,286.3 | |
Net balance at June 30 | 23,127.4 | | | 19,430.7 | |
Plus reinsurance recoverables on unpaid losses | 4,684.6 | | | 4,464.9 | |
Balance at June 30 | $ | 27,812.0 | | | $ | 23,895.6 | |
1 Net reserves acquired in the Protective Insurance acquisition. | | | | | | | | | | | |
| March 31, |
(millions) | 2023 | | 2022 |
Balance at January 1 | $ | 30,359.3 | | | $ | 26,164.1 | |
Less reinsurance recoverables on unpaid losses | 5,559.2 | | | 4,733.6 | |
Net balance at January 1 | 24,800.1 | | | 21,430.5 | |
Incurred related to: | | | |
Current year | 10,002.8 | | | 8,667.6 | |
Prior years | 621.2 | | | 190.8 | |
Total incurred | 10,624.0 | | | 8,858.4 | |
Paid related to: | | | |
Current year | 3,962.6 | | | 3,601.4 | |
Prior years | 5,736.2 | | | 4,691.7 | |
Total paid | 9,698.8 | | | 8,293.1 | |
Net balance at March 31 | 25,725.3 | | | 21,995.8 | |
Plus reinsurance recoverables on unpaid losses | 5,301.1 | | | 4,758.4 | |
Balance at March 31 | $ | 31,026.4 | | | $ | 26,754.2 | |
We experienced unfavorable reserve development of $144.9$621.2 million and $197.0$190.8 million during the first sixthree months of 20222023 and 2021,2022, respectively, which is reflected as “incurred related to prior years” in the table above.
Year-to-date June 30, 2022First Quarter 2023
•Approximately $97 million of theThe unfavorable prior year reserve development included approximately $498 million attributable to accident year 2022, $30 million to accident year 2021, and the remainder to accident years 2020 and prior.
•Our personal auto products incurred about $428 million of unfavorable loss and loss adjustment expense (LAE) reserve development, with the Agency and Direct auto businesses each contributing about half. The unfavorable development was primarily attributable to higher than anticipated severity in auto property and physical damage coverages, higher than anticipated late reported injury claims, and, to a lessor extent, increased loss costs in Florida injury and medical coverages in small part due to the impact of the legislation enacted in March 2023 in Florida.
•Our Commercial Lines business experienced about $144 million of unfavorable development, primarily due to higher than anticipated severity of injury case reserves and higher than anticipated severity and frequency of late reported injury claims.
•Our Property business experienced $42 million of unfavorable development, primarily from higher than anticipated claims expenses and higher than anticipated severity in our homeowner liability peril and umbrella products.
First Quarter 2022
•The unfavorable prior year reserve development included $146 million attributable to accident year 2021, $16$23 million to accident year 2020, and the remainder to accident years 2019 and prior.
•Our personal auto products incurred about $45$106 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 higher than anticipated severity and frequency of auto property damage payments on previously closed claims and late reported injury claims, partially offset by more subrogation and salvage recoveries and lower loss adjustment expenses than originally anticipated.claims.
•Our Commercial Lines business experienced about $98$99 million of unfavorable development, primarily due to higher than anticipated severity and frequency of late reported claims.
Year-to-date June 30, 2021
•Approximately $100 million of the unfavorable prior year reserve development was attributable to accident year 2019 and $114 million to 2018 and prior accident years, partially offset by favorable development attributable to accident year 2020.
•Our personal auto products incurred about $111 million of unfavorable loss and LAE reserve development, with about $67 million attributable to the Agency business. The unfavorable development was primarily attributable to a higher than anticipated frequency of reopened personal injury protection (PIP) claims, primarily in Florida, and higher than anticipated bodily injury severity, partially offset by less late reported claims than anticipated for accident year 2020.
•Our Commercial Lines business experienced about $73 million of unfavorable development, primarily due to increased injury severity, and the emergence of large injury claims settling at ratescosts higher than originally anticipated primarily in Texas and Florida.anticipated.
•Our Property business experienced about $20$16 million of unfavorablefavorable development, primarily dueattributable to higherlower losses than anticipated severity, reopen activity in Florida, and loss adjustment expense for prior loss years.on 2021 catastrophe events.
•Our special lines businessproducts experienced about $7$2 million of favorableunfavorable development.
Note 7Supplemental Cash Flow Information — 7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include bank demand deposits and daily overnight reverse repurchase commitments of funds held in bank demand deposit accounts by certain subsidiaries. The amount of reverse repurchase commitments, which are not considered part of the investment portfolio, held by these subsidiaries at June 30,
March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, were $140.6$177.5 million, $90.5$152.2 million, and $137.1$125.9 million, respectively.
Restricted cash and cash equivalents include collateral held against unpaid deductibles and cash that is restricted to pay flood claims under the National Flood
Insurance Program’s “Write Your Own” program, for which certain subsidiaries are administrators.participants.
Non-cash activity included the following in the respective periods:
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
(millions) | (millions) | 2022 | | 2021 | (millions) | 2023 | | 2022 |
Common share dividends1 | Common share dividends1 | $ | 58.5 | | | $ | 58.5 | | Common share dividends1 | $ | 58.5 | | | $ | 58.5 | |
Operating lease liabilities2 | Operating lease liabilities2 | 22.5 | | | 55.9 | | Operating lease liabilities2 | 9.3 | | | 10.8 | |
1 Declared but unpaid. See Note 9 – Dividends for further discussion.
2 From obtaining right-of-use assets.
WeIn the respective periods, we paid the following in the respective periods:following:
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
(millions) | (millions) | 2022 | | 2021 | (millions) | 2023 | | 2022 |
Income taxes | Income taxes | $ | 363.2 | | | $ | 574.1 | | Income taxes | $ | 0.1 | | | $ | 0 | |
Interest | Interest | 102.6 | | | 112.0 | | Interest | 87.9 | | | 64.9 | |
Operating lease liabilities | Operating lease liabilities | 41.8 | | | 44.8 | | Operating lease liabilities | 21.5 | | | 22.0 | |
Note 8Segment Information — 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 liability and physical damage insurance, workers’ compensation insurance primarily for the transportation industry, and business-related general liability and property insurance predominately for small businesses.businesses, and workers’ compensation insurance primarily for the transportation industry. Our Property segment writes residential property insurance for homeowners, other property owners, and renters. 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 programs in our direct Personal Lines and Commercial Lines businesses. As previously disclosed in our 2022 Annual Report to Shareholders, during 2022, our contract to act as a servicing agent for processing Commercial Automobile Insurance Procedures/Plans (CAIP) business expired in 2022 and we did not renew the contract. This non-renewal did not materially affect our financial condition, results of operations, or cash flows. 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 March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
(millions) | (millions) | Revenues | | Pretax Profit (Loss) | | Revenues | | Pretax Profit (Loss) | | Revenues | | Pretax Profit (Loss) | | Revenues | | Pretax Profit (Loss) | (millions) | | Revenues | | Pretax Profit (Loss) | | Revenues | | Pretax Profit (Loss) |
Personal Lines | Personal Lines | | Personal Lines | | | | | | |
Agency | Agency | $ | 4,366.5 | | | $ | 260.3 | | | $ | 4,220.3 | | | $ | 207.5 | | | $ | 8,689.8 | | | $ | 548.9 | | | $ | 8,318.5 | | | $ | 755.0 | | Agency | | $ | 4,860.2 | | | $ | 162.6 | | | $ | 4,323.3 | | | $ | 288.6 | |
Direct | Direct | 4,905.9 | | | 198.4 | | | 4,633.9 | | | 128.4 | | | 9,699.5 | | | 348.8 | | | 9,065.6 | | | 543.0 | | Direct | | 5,717.4 | | | (22.1) | | | 4,793.6 | | | 150.4 | |
Total Personal Lines1 | Total Personal Lines1 | 9,272.4 | | | 458.7 | | | 8,854.2 | | | 335.9 | | | 18,389.3 | | | 897.7 | | | 17,384.1 | | | 1,298.0 | | Total Personal Lines1 | | 10,577.6 | | | 140.5 | | | 9,116.9 | | | 439.0 | |
Commercial Lines | Commercial Lines | 2,304.4 | | | 243.0 | | | 1,621.8 | | | 130.1 | | | 4,431.6 | | | 445.4 | | | 3,039.6 | | | 358.6 | | Commercial Lines | | 2,356.1 | | | 37.2 | | | 2,127.2 | | | 202.4 | |
Property2 | Property2 | 570.5 | | | (156.9) | | | 502.3 | | | (83.3) | | | 1,128.6 | | | (148.6) | | | 974.8 | | | (154.0) | | Property2 | | 598.7 | | | (32.7) | | | 558.1 | | | 8.3 | |
Other indemnity3 | Other indemnity3 | 0.6 | | | (6.3) | | | 4.0 | | | 0.1 | | | 1.3 | | | (7.2) | | | 4.0 | | | 0.1 | | Other indemnity3 | | 0.7 | | | (3.4) | | | 0.7 | | | (0.9) | |
Total underwriting operations | Total underwriting operations | 12,147.9 | | | 538.5 | | | 10,982.3 | | | 382.8 | | | 23,950.8 | | | 1,187.3 | | | 21,402.5 | | | 1,502.7 | | Total underwriting operations | | 13,533.1 | | | 141.6 | | | 11,802.9 | | | 648.8 | |
Fees and other revenues4 | Fees and other revenues4 | 176.5 | | | NA | | 176.2 | | | NA | | 350.5 | | | NA | | 341.9 | | | NA | Fees and other revenues4 | | 206.2 | | | NA | | 174.0 | | | NA |
Service businesses | Service businesses | 80.1 | | | 4.6 | | | 74.5 | | | 6.6 | | | 147.8 | | | 9.1 | | | 128.3 | | | 11.1 | | Service businesses | | 72.5 | | | (9.8) | | | 67.7 | | | 4.5 | |
Investments5 | Investments5 | (885.3) | | | (891.2) | | | 672.5 | | | 666.2 | | | (1,088.4) | | | (1,100.0) | | | 1,478.0 | | | 1,466.1 | | Investments5 | | 491.4 | | | 485.9 | | | (203.1) | | | (208.8) | |
Interest expense | Interest expense | NA | | (63.0) | | | NA | | (56.4) | | | NA | | (117.3) | | | NA | | (112.8) | | Interest expense | | NA | | (63.3) | | | NA | | (54.3) | |
Property - Goodwill impairment2 | NA | | (224.8) | | | NA | | 0 | | | NA | | (224.8) | | | NA | | 0 | | |
| Consolidated total | Consolidated total | $ | 11,519.2 | | | $ | (635.9) | | | $ | 11,905.5 | | | $ | 999.2 | | | $ | 23,360.7 | | | $ | (245.7) | | | $ | 23,350.7 | | | $ | 2,867.1 | | Consolidated total | | $ | 14,303.2 | | | $ | 554.4 | | | $ | 11,841.5 | | | $ | 390.2 | |
NA = Not applicable
1 Personal auto productsinsurance accounted for 94% of the total Personal Lines segment net premiums earned during the three and six months ended June 30, 2022March 31, 2023 and 2021;2022; 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 The total pretax loss, including goodwill impairment, for the Property segment was $381.7 million and $373.4 million for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30,March 31, 2023 and 2022, pretax profit (loss) also included $5.0 million and $19.1$14.1 million, respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment, and $14.1 million and $28.3 million for the same periods in 2021.
segment. See Note 12 – Goodwill and Intangible Assets for further discussion.
3 Primarily includesIncludes other underwriting business and run-off business operations.
4 Pretax profit (loss) for fees and other revenues is allocated to operating segments.segments based on revenue.
5 Revenues represent recurring investment income and total net realized gains (losses) on securities; pretax profit (loss) is net of investment expense.expenses.
Our management uses underwriting margin and combined ratio as primary measures of underwriting profitability. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from underwriting operations). Pretax underwriting profit (loss) is calculated as net premiums earned plus fees and other revenues, less: (i) losses and loss adjustment expenses; (ii) policy acquisition costs; and (iii) other underwriting expenses. 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 March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| | 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 | Personal Lines | | Personal Lines | | | | | | |
Agency | Agency | 6.0 | % | | 94.0 | | | 4.9 | % | | 95.1 | | | 6.3 | % | | 93.7 | | | 9.1 | % | | 90.9 | | Agency | | 3.3 | % | | 96.7 | | | 6.7 | % | | 93.3 | |
Direct | Direct | 4.0 | | | 96.0 | | | 2.8 | | | 97.2 | | | 3.6 | | | 96.4 | | | 6.0 | | | 94.0 | | Direct | | (0.4) | | | 100.4 | | | 3.1 | | | 96.9 | |
Total Personal Lines | Total Personal Lines | 4.9 | | | 95.1 | | | 3.8 | | | 96.2 | | | 4.9 | | | 95.1 | | | 7.5 | | | 92.5 | | Total Personal Lines | | 1.3 | | | 98.7 | | | 4.8 | | | 95.2 | |
Commercial Lines | Commercial Lines | 10.5 | | | 89.5 | | | 8.0 | | | 92.0 | | | 10.1 | | | 89.9 | | | 11.8 | | | 88.2 | | Commercial Lines | | 1.6 | | | 98.4 | | | 9.5 | | | 90.5 | |
Property1 | Property1 | (27.5) | | | 127.5 | | | (16.6) | | | 116.6 | | | (13.2) | | | 113.2 | | | (15.8) | | | 115.8 | | Property1 | | (5.5) | | | 105.5 | | | 1.5 | | | 98.5 | |
Total underwriting operations | Total underwriting operations | 4.4 | | | 95.6 | | | 3.5 | | | 96.5 | | | 5.0 | | | 95.0 | | | 7.0 | | | 93.0 | | Total underwriting operations | | 1.0 | | | 99.0 | | | 5.5 | | | 94.5 | |
1 Included in the three and six months ended June 30,March 31, 2023 and 2022, is 0.90.8 points and 1.72.5 points, respectively, of amortization expense associated with intangible assets and 2.8 points and 2.9 points, respectively, for the three and six months ended June 30, 2021.assets.
Note 9Dividends — Following is a summary of our common and preferred share dividends that were declared and/or paid during the sixthree months ended June 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | |
(millions, except per share amounts) | Amount |
Declared | Payable | Per Share | Accrued/Paid1 | |
Common - Quarterly Dividends: | | | | |
May 2022 | July 2022 | $ | 0.10 | | $ | 58.5 | | |
March 2022 | April 2022 | 0.10 | | 58.5 | | |
December 2021 | January 2022 | 0.10 | | 58.5 | | |
May 2021 | July 2021 | 0.10 | | 58.5 | | |
March 2021 | April 2021 | 0.10 | | 58.5 | | |
December 2020 | January 2021 | 0.10 | | 58.6 | | |
| | | | |
Common - Annual Variable Dividends: | | | | |
December 2020 | January 2021 | 4.50 | | 2,635.9 | | |
| | | | |
Preferred Dividends: | | | | |
December 2021 | March 2022 | 26.875 | | 13.4 | | |
December 2020 | March 2021 | 26.875 | | 13.4 | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | |
(millions, except per share amounts) | Amount |
Declared | Payable | Per Share | Accrued/Paid1 | |
Common – Quarterly Dividends: | | | | |
March 2023 | April 2023 | $ | 0.10 | | $ | 58.5 | | |
December 2022 | January 2023 | 0.10 | | 58.5 | | |
March 2022 | April 2022 | 0.10 | | 58.5 | | |
December 2021 | January 2022 | 0.10 | | 58.5 | | |
| | | | |
Preferred Dividends: | | | | |
December 2022 | March 2023 | 26.875 | | 13.4 | | |
December 2021 | March 2022 | 26.875 | | 13.4 | | |
1 The accrual is based on an estimate of common shares outstanding as of the record date and the common share accrual is recorded as a partcomponent of accounts payable, accrued expenses, and other liabilities on the consolidated balance sheets.sheets until paid; the prior year common share dividend accrual was reclassified into this line item from dividends payable on common shares to conform to the current year presentation.
Beginning March 15, 2023, the annual dividend rate for our Series B Preferred Shares switched to a floating rate equal to the three-month London Interbank Offered Rate (LIBOR), or a comparable successor base rate, plus a spread of 2.539% applied to the stated amount per share. During the floating rate period, dividends on the Series B Preferred Shares will be payable quarterly, if and when declared by the Board of Directors.
See Note 14 – Dividends in our 20212022 Annual Report to Shareholders for a discussion of our quarterly and annual common share dividends and our preferred share dividend policies, including a discussion of the $1.50 per common share, or $876.5 million in the aggregate, 2021 annual variable common share dividend that was declared and paid in the fourth quarter 2021.policies.
10. OTHER COMPREHENSIVE INCOME (LOSS)
Note 10Other 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) | | | | | | | | | | | | | |
(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 | | Foreign currency translation adjustment | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | $ | (1,753.4) | | | $ | 367.6 | | | $ | (1,385.8) | | | $ | (1,370.7) | | | $ | (14.7) | | | $ | (0.4) | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | (1,246.7) | | | 261.8 | | | (984.9) | | | (984.9) | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | (0.5) | | | 0.1 | | | (0.4) | | | 0 | | | 0 | | | (0.4) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) before reclassifications | (1,247.2) | | | 261.9 | | | (985.3) | | | (984.9) | | | 0 | | | (0.4) | | | | | | | | | | | | | | | | |
Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gains (losses) on securities | (205.1) | | | 43.0 | | | (162.1) | | | (162.1) | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
Interest expense | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
Total reclassification adjustment for amounts realized in net income | (205.1) | | | 43.0 | | | (162.1) | | | (162.1) | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | (1,042.1) | | | 218.9 | | | (823.2) | | | (822.8) | | | 0 | | | (0.4) | | | | | | | | | | | | | | | | |
Balance at June 30, 2022 | $ | (2,795.5) | | | $ | 586.5 | | | $ | (2,209.0) | | | $ | (2,193.5) | | | $ | (14.7) | | | $ | (0.8) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 | | Foreign currency translation adjustment | | | | | | | | | | | | | | | |
Balance at March 31, 2021 | $ | 504.6 | | | $ | (112.3) | | | $ | 392.3 | | | $ | 407.7 | | | $ | (15.4) | | | $ | 0 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | 174.7 | | | (36.7) | | | 138.0 | | | 138.0 | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | (0.6) | | | 0.1 | | | (0.5) | | | 0 | | | 0 | | | (0.5) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) before reclassifications | 174.1 | | | (36.6) | | | 137.5 | | | 138.0 | | | 0 | | | (0.5) | | | | | | | | | | | | | | | | |
Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gains (losses) on securities | 59.4 | | | (12.5) | | | 46.9 | | | 46.9 | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
Interest expense | (0.3) | | | 0 | | | (0.3) | | | 0 | | | (0.3) | | | 0 | | | | | | | | | | | | | | | | |
Total reclassification adjustment for amounts realized in net income | 59.1 | | | (12.5) | | | 46.6 | | | 46.9 | | | (0.3) | | | 0 | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | 115.0 | | | (24.1) | | | 90.9 | | | 91.1 | | | 0.3 | | | (0.5) | | | | | | | | | | | | | | | | |
Balance at June 30, 2021 | $ | 619.6 | | | $ | (136.4) | | | $ | 483.2 | | | $ | 498.8 | | | $ | (15.1) | | | $ | (0.5) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 | | Foreign currency translation adjustment | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | $ | 52.3 | | | $ | (11.6) | | | $ | 40.7 | | | $ | 56.2 | | | $ | (14.9) | | | $ | (0.6) | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | (3,098.4) | | | 650.7 | | | (2,447.7) | | | (2,447.7) | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | (0.2) | | | 0 | | | (0.2) | | | 0 | | | 0 | | | (0.2) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) before reclassifications | (3,098.6) | | | 650.7 | | | (2,447.9) | | | (2,447.7) | | | 0 | | | (0.2) | | | | | | | | | | | | | | | | |
Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gains (losses) on securities | (250.6) | | | 52.6 | | | (198.0) | | | (198.0) | | | 0 | | | 0 | | | | | | | | | | | | | | | | |
Interest expense | (0.2) | | | 0 | | | (0.2) | | | 0 | | | (0.2) | | | 0 | | | | | | | | | | | | | | | | |
Total reclassification adjustment for amounts realized in net income | (250.8) | | | 52.6 | | | (198.2) | | | (198.0) | | | (0.2) | | | 0 | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | (2,847.8) | | | 598.1 | | | (2,249.7) | | | (2,249.7) | | | 0.2 | | | (0.2) | | | | | | | | | | | | | | | | |
Balance at June 30, 2022 | $ | (2,795.5) | | | $ | 586.5 | | | $ | (2,209.0) | | | $ | (2,193.5) | | | $ | (14.7) | | | $ | (0.8) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Components of Changes in Accumulated Other Comprehensive Income (after tax) | | | | | | | | Components of Changes in Accumulated Other Comprehensive Income (after tax) | |
(millions) | (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 | | Foreign currency translation adjustment | | (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 losses on forecasted transactions | | Foreign currency translation adjustment | |
Balance at December 31, 2020 | $ | 1,187.4 | | | $ | (255.7) | | | $ | 931.7 | | | $ | 947.3 | | | $ | (15.6) | | | $ | 0 | | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | $ | (3,556.9) | | | $ | 754.9 | | | $ | (2,802.0) | | | $ | (2,786.3) | | | $ | (14.5) | | | $ | (1.2) | | |
Other comprehensive income (loss) before reclassifications: | | Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | |
Investment securities | | Investment securities | 705.6 | | | (148.2) | | | 557.4 | | | 557.4 | | | 0 | | | 0 | | |
| Total other comprehensive income (loss) before reclassifications | | Total other comprehensive income (loss) before reclassifications | 705.6 | | | (148.2) | | | 557.4 | | | 557.4 | | | 0 | | | 0 | | |
Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | |
| Net realized gains (losses) on securities | | Net realized gains (losses) on securities | (57.9) | | | 12.1 | | | (45.8) | | | (45.8) | | | 0 | | | 0 | | |
Interest expense | | Interest expense | (0.1) | | | 0 | | | (0.1) | | | 0 | | | (0.1) | | | 0 | | |
Total reclassification adjustment for amounts realized in net income | | Total reclassification adjustment for amounts realized in net income | (58.0) | | | 12.1 | | | (45.9) | | | (45.8) | | | (0.1) | | | 0 | | |
Total other comprehensive income (loss) | | Total other comprehensive income (loss) | 763.6 | | | (160.3) | | | 603.3 | | | 603.2 | | | 0.1 | | | 0 | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | $ | (2,793.3) | | | $ | 594.6 | | | $ | (2,198.7) | | | $ | (2,183.1) | | | $ | (14.4) | | | $ | (1.2) | | |
| | | | | | | | | Components of Changes in Accumulated Other Comprehensive Income (after tax) | |
(millions) | | (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 losses on forecasted transactions | | Foreign currency translation adjustment | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 52.3 | | | $ | (11.6) | | | $ | 40.7 | | | $ | 56.2 | | | $ | (14.9) | | | $ | (0.6) | | |
| Other comprehensive income (loss) before reclassifications: | Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | | Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | | |
Investment securities | Investment securities | (376.7) | | | 79.1 | | | (297.6) | | | (297.6) | | | 0 | | | 0 | | | Investment securities | (1,851.7) | | | 388.9 | | | (1,462.8) | | | (1,462.8) | | | 0 | | | 0 | | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | (0.6) | | | 0.1 | | | (0.5) | | | 0 | | | 0 | | | (0.5) | | | Foreign currency translation adjustment | 0.3 | | | (0.1) | | | 0.2 | | | 0 | | | 0 | | | 0.2 | | |
| Total other comprehensive income (loss) before reclassifications | Total other comprehensive income (loss) before reclassifications | (377.3) | | | 79.2 | | | (298.1) | | | (297.6) | | | 0 | | | (0.5) | | | Total other comprehensive income (loss) before reclassifications | (1,851.4) | | | 388.8 | | | (1,462.6) | | | (1,462.8) | | | 0 | | | 0.2 | | |
Less: Reclassification adjustment for amounts realized in net income by income statement line item: | Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | | Less: Reclassification adjustment for amounts realized in net income by income statement line item: | | | | | | | | | | | | |
| Net realized gains (losses) on securities | Net realized gains (losses) on securities | 191.1 | | | (40.2) | | | 150.9 | | | 150.9 | | | 0 | | | 0 | | | Net realized gains (losses) on securities | (45.5) | | | 9.6 | | | (35.9) | | | (35.9) | | | 0 | | | 0 | | |
Interest expense | Interest expense | (0.6) | | | 0.1 | | | (0.5) | | | 0 | | | (0.5) | | | 0 | | | Interest expense | (0.2) | | | 0 | | | (0.2) | | | 0 | | | (0.2) | | | 0 | | |
Total reclassification adjustment for amounts realized in net income | Total reclassification adjustment for amounts realized in net income | 190.5 | | | (40.1) | | | 150.4 | | | 150.9 | | | (0.5) | | | 0 | | | Total reclassification adjustment for amounts realized in net income | (45.7) | | | 9.6 | | | (36.1) | | | (35.9) | | | (0.2) | | | 0 | | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | (567.8) | | | 119.3 | | | (448.5) | | | (448.5) | | | 0.5 | | | (0.5) | | | Total other comprehensive income (loss) | (1,805.7) | | | 379.2 | | | (1,426.5) | | | (1,426.9) | | | 0.2 | | | 0.2 | | |
Balance at June 30, 2021 | $ | 619.6 | | | $ | (136.4) | | | $ | 483.2 | | | $ | 498.8 | | | $ | (15.1) | | | $ | (0.5) | | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | $ | (1,753.4) | | | $ | 367.6 | | | $ | (1,385.8) | | | $ | (1,370.7) | | | $ | (14.7) | | | $ | (0.4) | | |
In an effort to manage interest rate risk, we entered into forecasted transactions on certain of Progressive’s debt issuances. We expect to reclassify $0.5$0.6 million (pretax) into interest expense during the next 12 months, related to net unrealized losses on these forecasted transactions (see Note 4 – Debt in our 20212022 Annual Report to Shareholders for further discussion).
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. These cases include and/or typically have included those alleging damages as a result of, among other things,things: our subsidiaries’ methods used for evaluating and paying medical or injury claims or benefits, including, but not limited to, certain bodily injury, personal injury protection (PIP), uninsured motorist/underinsured motorist (UM/UIM), and medical payment claims and for reimbursing medical costs incurred by Medicare/Medicaid beneficiaries; other claims handling procedures, including, but not limited to, challenges relating to our network of repair facilities, our methods used for estimating physical damage to vehicles for repair purposes and for evaluating the actual cash value of total loss vehicles, the application of a negotiation adjustment in calculating total loss valuations, our payment of fees and taxes, our subrogation practices, our salvage practices, and our handling of diminution of value claims; homeowner claims handling practices and procedures; our assessment of fees related to insufficient funds or reversed payments; interpretations of the provisions of our insurance policies; our insurance product design; certain of our premium actions, including those in response to the COVID-19 pandemic; rating practices; certain marketing, sales, services, implementation and renewal practices and procedures, including with respect to accessibility; our usage-based insurance program; certain relationships with independent insurance agents; patent matters; alleged violation of the Telephone Consumer Protection Act; commercial disputes, including breach of contract; and certain employment practices, including claims relating to pay practices and fair employment practices, among other matters. As of March 31, 2023, lawsuits have been certified or conditionally certified as class/collective actions in cases alleging: we improperly value total loss claims in Florida, New York and Washington; we improperly fail to pay fees and taxes associated with total losses in Florida, Michigan and New York; we improperly adjust medical bills in Washington;
we improperly calculate basic economic loss as it relates to wage loss coverage in New York; we improperly fail to timely process and pay PIP claims in Texas; and that certain of our compensation practices and overtime payment practices are improper, including our classification of certain employees as exempt from overtime pay requirements. Other insurance companies face many of these same issues.
The nature and volume of litigation pending against The Progressive Corporation and/or its insurance subsidiaries is similar to that which was disclosed in Note 12 – Litigation in our 20212022 Annual Report to Shareholders.
We plan to contest the pending lawsuits vigorously, but may pursue settlement negotiations in some cases, as we deem appropriate. Although outcomes of pending cases are uncertain until final disposition, 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 ornor estimable, or is considered probable but not estimable, we do not establish an accrual. Nevertheless, we continue to evaluate 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,March 31, 2023 and 2022, and 2021, or December 31, 2021,2022, and there were no material settlements during 20212022 or the first sixthree months of 2022.2023. 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 20212022 Annual Report to Shareholders. In the event that any one or more of these lawsuits results in a substantial judgment against us, 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 20212022 Annual Report to Shareholders.
Note 1212. GOODWILL AND INTANGIBLE ASSETS Goodwill and Intangible Assets
Goodwill
The majority of the goodwill recorded as of June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, related to the April 1, 2015, acquisition of a controlling interest in ARX. ARX Holding Corp. (ARX). During the three months ended March 31, 2023, there were no changes to the carrying amount of goodwill.
In connection with the preparation of our second quarter 2022, financial results, we performed an interim impairment test of our goodwill allocated to the ARX
reporting unit and recorded an impairment loss of $224.8 million which is disclosed as a separate line item in our consolidated statements of comprehensive income.. The impairment loss was fully allocated to our Property operating segment. There were no previously recorded accumulated impairment losses and there are no other accumulated goodwill impairment losses on any of the outstanding goodwill.
We performed the interim test See Note 15 – Goodwill and Intangible Assets in our 2022 Annual Report to Shareholders for a discussion of our goodwill for impairment for the ARX reporting unit. The indicators of impairment primarily related to the magnitude of recent weather events relative to forecasted expectations, as well as other factors impacting our plans to restore our Property business to target profitability in a timely fashion and the subsequent reduced forecasted profitability of ARX. As a result, we determined it was more likely than not that the fair value of the ARX reporting unit was less than its carrying value.evaluation.
The quantitative goodwill impairment assessment consisted of comparing the fair value of the reporting unit to its carrying value. To determine the fair value of a reporting unit, we use a discounted cash flow model. The model uses assumptions including, but not limited to, discount rate, and forecasted growth, profitability, investment return, and capital requirements. The assumptions and estimates are consistent with those we believe other non-related marketplace participants would use and are based on management’s best estimates at the time of the analysis. The calculated fair value of the ARX reporting unit was below its carrying value at June 30, 2022, which resulted in recording a goodwill impairment. There was no indication of impairment on the remaining $227.9 million goodwill, of which 98% was attributable to our Personal Lines Agency business and related to the ARX acquisition.
Intangible Assets
The following table is a summary of the net carrying amount of other intangible assets:
| (millions) | (millions) | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | (millions) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Intangible assets subject to amortization | Intangible assets subject to amortization | $ | 84.8 | | | $ | 134.1 | | | $ | 104.9 | | Intangible assets subject to amortization | $ | 68.5 | | | $ | 90.3 | | | $ | 73.9 | |
Indefinite-lived intangible assets1 | Indefinite-lived intangible assets1 | 12.4 | | | 12.4 | | | 12.4 | | Indefinite-lived intangible assets1 | 12.4 | | | 12.4 | | | 12.4 | |
Total | Total | $ | 97.2 | | | $ | 146.5 | | | $ | 117.3 | | Total | $ | 80.9 | | | $ | 102.7 | | | $ | 86.3 | |
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) | (millions) | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | (millions) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Category | Category | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Category | 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 | $ | 0 | | $ | 0 | | $ | 0 | | | $ | 256.2 | | $ | 228.7 | | $ | 27.5 | | | $ | 256.2 | | $ | 247.1 | | $ | 9.1 | | |
Agency relationships | Agency relationships | 159.2 | | 82.5 | | 76.7 | | | 159.2 | | 71.1 | | 88.1 | | | 159.2 | | 76.8 | | 82.4 | | Agency relationships | $ | 159.2 | | $ | 91.0 | | $ | 68.2 | | | $ | 159.2 | | $ | 79.6 | | $ | 79.6 | | | $ | 159.2 | | $ | 88.1 | | $ | 71.1 | |
Software rights | Software rights | 69.1 | | 62.6 | | 6.5 | | | 69.1 | | 54.0 | | 15.1 | | | 69.1 | | 58.3 | | 10.8 | | Software rights | 69.1 | | 69.1 | | 0 | | | 69.1 | | 60.5 | | 8.6 | | | 69.1 | | 67.0 | | 2.1 | |
Trade name | Trade name | 3.6 | | 2.0 | | 1.6 | | | 3.6 | | 0.2 | | 3.4 | | | 3.6 | | 1.0 | | 2.6 | | Trade name | 3.6 | | 3.3 | | 0.3 | | | 3.6 | | 1.5 | | 2.1 | | | 3.6 | | 2.9 | | 0.7 | |
Total | Total | $ | 231.9 | | $ | 147.1 | | $ | 84.8 | | | $ | 488.1 | | $ | 354.0 | | $ | 134.1 | | | $ | 488.1 | | $ | 383.2 | | $ | 104.9 | | Total | $ | 231.9 | | $ | 163.4 | | $ | 68.5 | | | $ | 231.9 | | $ | 141.6 | | $ | 90.3 | | | $ | 231.9 | | $ | 158.0 | | $ | 73.9 | |
Amortization expense was $5.5 million and $20.1 millionfor the three and six months ended June 30, 2022, respectively,March 31, 2023 was $5.4 million, compared to $14.3$14.6 million and $28.5 million duringfor the same periodsperiod last year. During the first quarter 2022, the policies in
force intangible asset, with a gross carrying value of $256.2 million, was fully amortized.
Note 13 New Accounting Standards— We did not adopt any new accounting standards during the six months ended June 30, 2022. We assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our consolidated financial statements as well as material updates to previous assessments, if any, from our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There were no new material accounting standards issued in the six months ended June 30, 2022, that are expected to impact The Progressive Corporation or its subsidiaries.
ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
I. OVERVIEW
During the first quarter 2023, The Progressive Corporation’s insurance subsidiaries recognized strong growth in both premiums during the second quarter 2022,written and policies in force, compared to the same period last year, driven primarily by rate increases taken during 2021 andbut the underwriting margin fell short of our goal to earn 4% on an aggregate calendar-year basis.
Our combined ratio of 99.0 for the first halfquarter 2023 was 4.5 points higher than the same period last year. The variance from the prior year was due, in large part, to unfavorable prior accident years reserve development of 4.6 points for the first quarter 2023, compared to 1.6 points in the prior year first quarter. The development during the first quarter 2023 was primarily in our personal auto products and reflected higher than anticipated severity, more late reported injury claims than expected, and increased loss costs in Florida due, in part, to recently passed legislation in the state, as discussed below.
During the first quarter 2023, companywide net premiums written grew 22% over the first quarter last year with all operating segments contributing to the growth. We generated $16.1 billion of net premiums written, which was an increase of $2.9 billion, compared to first quarter 2022. On a companywide basis,We ended the quarter with 28.8 million policies in force, which was an increase of 2.3 million policies, or 9%, over March 2022, and 1.4 million, or 5%, over year-end 2022. We believe that the growth during the quarter, in part, reflected our price competitiveness as many competitors continued to take rate increases. While growth is an important objective, achieving our target profit margin takes precedence over growing premiums. As discussed below, we plan to take actions that we believe are necessary to allow us to achieve our calendar-year underwriting profitability goal of 4%, which could result in less premium and policy growth.
On a year-over-year basis, net income increased 43% for the first quarter 2023. This growth reflected increases in both our recurring investment income, which grew 73% over the first quarter last year, as well as recognizing $104.4 million of net holding period gains on our common equity portfolio this quarter, compared to $388.6 million of net holding period losses for the first quarter last year. These strong investment results were relatively flat year overoffset, in part, by a 78% decrease in our underwriting profit due to the reasons discussed above.
For the first quarter 2023, we recognized comprehensive income of $1.1 billion, compared to a comprehensive loss of $1.1 billion in the same period last year. The fair value of our fixed-maturity securities increased by $0.6 billion during the first quarter, compared to a decrease in fair value of $1.4 billion for the first quarter 2022. The change in fair value reflected a modest decline in interest rates
during the first quarter 2023, compared to a significant rise in interest rates in the first quarter last year.
Total capital (debt plus shareholders’ equity) at March 31, 2023, was $23.3 billion, which was up $1.0 billion from year-end 2022, primarily due to our comprehensive income earned in the first quarter 2023.
A. Insurance Operations
During the secondfirst quarter 2022, we2023, our Personal Lines and Commercial Lines businesses generated an underwriting profit margin of 4.4%1.3% and 1.6%, which was above our 4.0%respectively. Our Property operating segment recognized a 5.5% underwriting profit goal and 0.9 points better than the same period last year.
Duringloss margin during the quarter, we generated $12.4 billion of net premiums written, which is an increase of $0.9 billion, or 8%, comparedincluded 24.3 points due to second quarter 2021. We ended the second quarter 2022 with 26.5 million companywide policies in force, which is 130 thousand more policies than were in force at June 30, 2021. Personal auto policies in force decreased 2% year over year, while our Commercial Lines, Property,significant losses incurred from tornado, wind, and thunderstorm catastrophe losses. The special lines products grew policies 12%, 6%, and 5%, respectively. The decrease in our personal auto policies reflects the significant decrease experienced in new personal auto applications during the first half of 2022, compared to the same period last year, reflecting the personal auto rate increases taken since the first quarter of 2021 and decreased advertising spend, on a year-over-year basis, during the last 12 months.
On a year-over-year basis, for the second quarter 2022, net income and comprehensive income decreased 169% and 255%, respectively. The decrease in net income was primarily driven by a $1,722.2 million net holding period loss on securities during the period, due to the change in equity market valuations, compared to a net holding period gain of $54.2 million in the second quarter of 2021. In addition, while preparing our financial statements for the second quarter 2022, we analyzed our goodwill for impairment given our revised forecasted profitability in our Property segment in light of the magnitude of recent weather events and the slower projected pace to restore profitability to this segment. Based on this analysis, we determined the carrying value of the ARX Holding Corp. (ARX) reporting unit exceeded its fair value and, therefore, recorded a $224.8 million goodwill impairment charge during the second quarter.
Similar to the decrease in net income, the decrease in comprehensive income was also primarily driven by changes in the value of our investment portfolio, as we recognized net unrealized losses on our fixed-maturity securities of $822.8 million in the second quarter of 2022, compared to net unrealized gains of $91.1 million in the prior year, primarily reflecting an increase in interest rates throughout 2021 and into the second quarter 2022.
We ended the quarter with $22.0 billion of total capital (debt plus shareholders’ equity), a decrease of $1.1 billion from year-end 2021. The decrease is primarily due to the comprehensive loss for the six months ended June 30, 2022, partially offset by the issuance of $1.5 billion of senior notes during the first quarter 2022.
A. Insurance Operations
For2023 contributed about a favorable 2 points to the second quarter 2022, we experienced a companywidePersonal Lines underwriting profit margin of 4.4%, compared to our target profit margin of 4% and an underwriting profit margin of 3.5% for the same period last year. Net premiums written grew 8% over the second quarter last year, reflecting rate increases taken sincequarter.
During the first quarter 2023, we experienced companywide unfavorable prior accident years reserve development of 2021, while policies$621.2 million, or 4.6 points, as a result of claims settling for more than reserved and changes in force growth was flat on a companywide basis. The distribution of profitability and growth varied by segment duringour reserve estimates. Throughout the second quarter, 2022 as discussed below.
During the second quarter 2022, our Personal and Commercial Lines operating segments generated an underwriting profit margin of 4.9% and 10.5%, respectively, while our Property business generated an underwriting loss margin of 27.5%, due to significant catastrophe losses incurred during the quarter. Our personal auto incurred accident frequency was down about 8% for the second quarter 2022, compared to the prior year, in part reflecting a modest tailwind from reduced driving resulting from record high fuel costs. Wewe continued to see inflationary pressurevolatility in our severity trends as the average costs to settle a claim which, along withincreased over the increasesame period last year.
Nearly 70% of the unfavorable development was in our personal auto products and primarily resulted from higher than anticipated severity and increases in incurred losses on previously closed claims. For the valuation of used vehiclesfirst quarter 2023, our personal auto incurred severity was up about 10%, while accident frequency was relatively flat on a year-over-year basis, contributedbasis.
In addition, to an increasea lesser extent, the unfavorable personal auto development reflected the impact of the recently passed legislation in severityFlorida that resulted in a significant number of about 16% overlawsuits being filed prior to its March 2023 effective date. While this tort reform could have a positive impact on the second quarter last year. During the quarter, catastrophe losses were fairly consistent on a year-over-year basisinsurance industry in our Personal Lines and Commercial Lines businesses but were up substantially in our Property business. For the second quarter 2022, our Property business recognized 40.9 points of weather-related catastrophe losses, primarily due to thunderstorms, hail, and tornadoes throughout the United States, compared to 25.5 points during same periodFlorida in the prior year.
During the quarter, we continued to take actions to address profitability, in response to the continued rising loss costs and other factors, and to strive to achieve our target goal of a 96 combined ratio on a calendar-year basis. During the second quarter 2022, we implemented personal auto rate increases in 17 states that represented nearly 40% of our trailing 12-month written premium. In the aggregate, rate changes for personal autolong term, during the second quarter increased rates on a countrywide basis about 2%, which follows an increase of about 7% in the first quarter 2022we increased our reserves for the potential exposure on existing claims, which had less than a one-point impact on our companywide combined ratio for the first quarter 2023. Since its passage, legislative efforts have arisen that, if adopted, could undo or dilute the potentially positive long-term benefits of the March legislation. We will continue to monitor the ever-changing regulatory environment and a full year increasewill respond as necessary.
Our Commercial Lines business represented almost 25% of about 8%the unfavorable development and was mainly due to late reported claims from prior accident periods and changes in 2021. Ofreserve estimates (e.g., aging of the ratereserves, changes to estimates by adjusters, and inflation factors). The
remaining unfavorable development was primarily in our Property business with our special lines products experiencing minor unfavorable development during the quarter.
During the first quarter 2023, we increased personal auto rates in 31 states, with an aggregate countrywide increase of about 4% and we continue to earn in the aggregate countrywide net increases of 13% that we elevatedtook during 2022.
Returning to profitability in prior periods,our Property business continues to remain a priority for us. In addition to our focus on shifting our concentration mix between states, we estimate thatcontinued to adjust rates to address profitability concerns. In the first quarter 2023, we have nearly 5 points stillincreased rates by about 3% across our Property product lines, bringing the trailing four quarters close to earn into our underwriting results. We currentlyan aggregate rate increase of about 20%.
As stated above, we strongly believe that achieving our target profit margin takes precedence over growing premiums. With focus on achieving our calendar-year underwriting profitability goal of 4% and the fact that inflation has not abated, we are re-evaluating our rate plans and intend to be aggressive with the exception of a few key states, the major personal auto rate increases are behind us forraising rates over the remainder of 2022. However, management continuesthe year in both our personal and commercial auto products. Of course, some of these rate increases will be subject to assessregulatory approval. We will also continue to monitor the factors that could impact our loss costs for both our vehicle and Property businesses, which can include new and used car prices, miles driven, driving patterns, loss severity, weather events, building materials, constructions costs, inflation, and other components, of expected loss costs on a state-by-state basis, and these factors could change our current plans for rate increases. In addition, we routinely monitor our advertising spend and have recently begun to reduce these costs based on performance against our underwriting targets in certain markets and in certain types of advertising. As a result of these actions to address profitability, growth in premiums and/or policies in force could be adversely impacted.
For the first quarter 2023, net premiums written grew 22% on a companywide basis over the same period last year, primarily driven by new business applications and rate increases that continued through the first quarter 2023. Personal Lines grew 25%, Commercial Lines 15%, and Property 17%. Changes in net premiums written are a function of new business applications (i.e., policies sold), premium per policy, and retention.
The Personal Lines increase reflected growth in both our Agency and Direct businesses. On a year-over-year basis, new personal auto applications grew 83% for the first quarter 2023, compared to the first quarter 2022. During the quarter, we believe increased advertising spend and competitor rate increases spurred the new personal auto application growth, compared to the decreases in new auto applications experienced during the first half of 2022 when we took significant rate increases and reduced our advertising spend to focus on profitability.
The increase in net premiums written in our Commercial Lines business reflected growth in our transportation network company (TNC) business, due to rate increases on the renewal of certain TNC policies, an increase in projected mileage (which is the basis for determining premiums written for this business), and will filewriting new TNC policies in three additional states. Excluding the growth from the TNC business, our Commercial Lines net premiums written growth was relatively flat for the first quarter 2023, compared to the same period last year. All of our business market targets (BMTs) experienced growth during the quarter, except our for-hire transportation BMT that reflected the continued slowdown in the rate adjustmentsof economic activity and deteriorating freight market conditions.
We have concentrated our recent growth in the Property business in markets that are less susceptible to catastrophes and have lower exposure to coastal and hail-prone states. New applications in the states where deemed necessary. we are focused on growth were up about 30% over the first quarter last year. In regions where our appetite to write new business is limited, we are prioritizing Progressive auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs. New applications were down about 10% in these more volatile weather states. In addition, the Property business benefited from growth in Robinsons, our bundled auto and home policies. In total, Property new applications were up 12% over the first quarter 2022.
During the quarter, the number of quotes and the rate of conversion increased in both the Direct auto and Agency auto channels, which contributed to the 83% increase in total personal auto new business applications on a year-over-year basis. This growth reflects that our competitors continued to raise rates to address their underwriting profitability issues. In addition, during the first quarter 2023, we increased advertising spend, which had a positive impact on our competitive positioning that we believe contributed to our new business application growth.
We believe a key element in improving the accuracy of our rating is Snapshot®, our usage-based insurance offering. During the first six months of 2022,quarter 2023, the adoption rates for consumers enrolling in the program when given the option, increased nearly 20%about 40% in Agency auto and nearly 10%20% in Direct auto, compared to the same period last year. Ourfirst quarter 2022. Snapshot is available in all states, other than California, and our latest segmentation model iswas available in states that represented about 70%45% of our countrywide personal auto premium.premium at March 31, 2023. We continue to invest in our mobile application, with mobile devices being chosen for Snapshot monitoring for the majority of new enrollments.
In addition to rate actions, during the second quarter 2022, we also continued to tighten underwriting criteria, limit bill plan payment options, and reduce advertising spend during the period in states where losses indicated rates are not meeting our profitability goals in our personal auto business. We reduced total advertising spend 7%, or 0.9 combined ratio points, compared to the second quarter last year, based on performance against our media and underwriting targets in certain types of advertising. Consistent with rate actions, management will continue to assess where additional non-rate actions may be needed. These rate and non-rate measures resulted in fewer new business auto applications during the year and could continue to impact personal auto growth in net premiums written and policies in force in future periods.
During the secondfirst quarter 2022, our Property business continued to experience high volatility in underwriting profitability, primarily attributable to the impact from weather-related catastrophe losses. We remain focused on taking rate and non-rate actions in our Property business to reduce volatility in our underwriting results. We increased rates in our Property businesses 7% and 8% during the second quarter and first six months of 2022, respectively, and 10% during the last 12 months. These targeted rate increases are continuing to be earned into the book of business.
We continue to focus our Property growth efforts in states with traditionally less catastrophe exposure and limit growth in the coastal and hail prone states. In response to this effort, in 2021, we announced plans to non-renew about 60,000 policies in Florida, which we started doing in the second quarter 2022. This effort to non-renew Florida policies was curtailed, in part, as new legislation was introduced in Florida potentially prohibiting the non-renewal of certain policies based on the age of the roof of the insured structure. While the outcome is still pending, we believe we will non-renew significantly less of the policies previously intended for non-renewal, which will slow our efforts to reduce the volatility in Property underwriting results.
We realized that our current pricing actions and underwriting activities to reduce our exposure in states with traditionally less catastrophe exposure and limit growth in the coastal and hail prone states will require more time than originally anticipated for our efforts to take effect to achieve our target combined ratio for the Property business. This information, combined with the continued extent of the weather-related losses, prompted us to reevaluate the forecasted combined ratio assumptions used in our 2021 annual goodwill impairment model for the ARX reporting unit as we were preparing our financial results for the second quarter 2022. In performing an interim goodwill impairment quantitative assessment, we determined the carrying value of ARX exceeded its currently forecasted fair value and recorded a non-cash goodwill impairment charge of $224.8 million during the quarter, which represented the entire amount of goodwill assigned to the ARX reporting unit. The write down is a nonrecurring item and did not impact underwriting profitability for the second quarter 2022. There are no indications of impairment on the remaining $227.9 million of goodwill, which is predominantly related to the ARX acquisition and assigned to our Personal Lines Agency auto business, since the primary intent of the acquisition was to give us the ability to better penetrate the Robinsons segment (i.e., bundled auto and home) within our independent agency distribution channel.
We evaluate growth in terms of both net premiums written and policies in force growth. The rate and non-rate actions that began in 2021, and continued into the second quarter 2022, impacted premium and volume growth on a year-over-year basis. For the second quarter 2022, our companywide net premiums written grew 8%, with Personal Lines growing 6%, Commercial Lines 16%, and Property 8%, primarily reflecting higher average written premium per policy. On a companywide basis, policies in force growth was flat, with Personal Lines decreasing 1%, and Commercial Lines and Property growing 12% and 6%, respectively. Within Personal Lines, policies in force in Agency auto decreased 5% and were flat in Direct auto year over year, while the special lines policies increased 5%. The decrease in our personal auto policy in force growth is attributable to the decrease in the growth of new applications during the six months ended June 30, 2022, as discussed below, as well as a decrease in the rate of growth in our renewal applications.
During the second quarter 2022,2023, on a year-over-year basis, average written premiums per policy grew 11%8% in personal auto, 14%1% in commercial auto, (excluding our transportation network company (TNC), business owners policy (BOP), and Protective Insurance Corporation and subsidiaries (Protective Insurance) products), and 4%10% in Property, reflectingProperty. The growth primarily reflected rate increases taken beginning in 2021throughout 2022 that continued into the first quarter 2023, in response to rising loss costs. Growth may continue to be impacted by the actions we are taking to addressGiven that our commercial auto and
profitability in response to rising loss costs and increasing severity trends. Given that our Property policies are predominately written for 12-month terms, compared to primarily 6-month policies in our personal auto business, these rate actions will take longer to earn in.in for these products.
The rate and non-rate measures we started taking during 2021, which continued into the second quarter 2022, resulted in fewer new business personal auto applications. During the second quarter 2022, new applications (i.e., issued policies) decreased 13% in our Personal Lines segment, with total new personal auto applications decreasing 15%. Agency auto new applications decreased 20% and Direct auto decreased 11%. We began to see slight improvement in new business auto applications toward the end of the second quarter as our competitors have more recently begun to increase rates. New applications for our special lines products were down 7% during the second quarter 2022, primarily reflecting the significant new application growth experienced during 2021, due to growth in RV, boat, and motorcycle demand. On a year-over-year basis for the second quarter 2022, renewal applications increased 2% in Personal Lines, with total personal auto renewal applications up 1% over the second quarter last year.
On a year-over-year basis for the second quarter 2022, in our Commercial Lines business (excluding our TNC, BOP, and Protective Insurance products) new applications decreased 6%, primarily reflecting the significant new application growth experienced during 2021, while renewal applications increased 15%. In addition, we have begun to see growth headwinds in our for-hire transportation product as the transportation freight market softens. In our Property business, new applications decreased 5% and renewal applications increased 8% on a year-over-year basis for the second quarter.
While the rate and non-rate actions resulted in fewer new business personal auto applications during the quarter, we strongly believe that achieving our target profit margin takes precedence over growing premiums and that the actions discussed above are necessary to position us well for the future. Nevertheless, we remain focused on growth and realize that to grow policies in force, it is critical that we retain our customers for longer periods. Consequently, increasing retention continues to be one of our most important priorities. Our efforts to increase our share of multi-product households remains a key initiative and we will continue to make investments to improve the customer experience in order to support that goal. 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, is our primary measure of customer retention in our Personal Lines, Commercial Lines, and Property businesses.
We evaluate total auto retention using a trailing 12-month and a trailing 3-month policy life expectancy. The latter does not address seasonality and can reflect more volatility.volatility and is more sensitive to seasonality. As of the end of the secondfirst quarter 2022,2023, our trailing 12-month total personal auto policy life expectancy decreased 11%16%, compared to last year, with theyear. The Agency channel trailing 12-month measure was down 13%19% and the Direct channel was down 9%, respectively.14%. We believe that the decreases in our trailing 12-month policy life expectancy primarily reflects the impact of the rate actions we have taken in prior years. Future rate increases could also adversely impact our retention. Although retention is still down from the prior year, we have seen improvement in our trailing 12-month policy life expectancy over the last several months. Our trailing 3-month policy life expectancy for total personal auto was down 32%up 10%, compared to the same period last year.
At the end of the first quarter 2023, our special lines trailing 12-month policy life expectancy increased 3%, Commercial Lines decreased 14%, and Property was flat, compared to the same period last year. The decreasesdecrease in policy life expectancy reflect the impact of the rate actions we have taken, beginning in the second quarter 2021. Our Commercial Lines and special lines trailing 12-month policy life expectancy increased 1% and 6%, respectively, year over year, and Property decreased 8%.was across all BMTs, but was primarily due to a decrease in for-hire transportation BMT demand.
B. Investments
The fair value of our investment portfolio was $51.9$56.7 billion at June 30, 2022,March 31, 2023, compared to $51.5$53.5 billion at
December 31, 2021. Declines in valuations of our portfolio nearly offset the2022. The increase in invested assets generated from theyear-end 2022 reflects solid cash flows from our underwriting operations and the proceeds of the $1.5 billion debt offeringvaluation increases in March.nearly all portfolio sectors.
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)Investments). At June 30, 2022, 11%March 31, 2023, 9% of our portfolio was allocated to Group I securities and 89%91% to Group II securities, compared to 17%10% and 83%90%, respectively, at December 31, 2021. The decrease in the percentage of Group I securities since year end was primarily driven by sales in our common equity portfolio with proceeds reinvested in Group II short-term investments.
2022.
Our recurring investment income generated a pretax book yield of 2.3%3.0% for the secondfirst quarter 2022,2023, compared to 1.9%2.0% for the same period in 2021,2022, due to the increase in interest rates on our floating-rate securities and the investment of cash and maturities at currentrelatively higher interest rates. Our investment portfolio produced a fully taxable equivalent (FTE) total return of (3.6)%2.3% and 1.7%(3.8)% for the secondfirst quarter 20222023 and 2021,2022, respectively. Our fixed-income and common stock portfolios had FTE total returns of (2.4)%2.0% and (16.3)%7.3%, respectively, for the secondfirst quarter 2022,2023, compared to 1.1%(3.6)% and 7.3%(4.9)%, respectively, last year. The increase in the fixed-income return variance reflects the impact of higherreflected portfolio valuation increases as interest rates and wider credit spreadsdeclined during the last twelve months.first quarter 2023. The common stock return variance reflectsincrease reflected general market conditions.
At June 30, 2022,March 31, 2023, the fixed-income portfolio had a weighted average credit quality of AA-AA and a duration of 2.83.0 years, compared to AA- and 3.1 years at June 30, 2021March 31, 2022, and AA-AA and 3.02.9 years at December 31, 2021. We have shortened2022.
The London Interbank Offered Rate (LIBOR) will cease as an official reference rate on June 30, 2023. The Federal Reserve Board identified the Secured Overnight Financing Rate (SOFR) as the recommended replacement to U.S. LIBOR. As of March 31, 2023, we owned 164 unique securities with an aggregate par value of $3.3 billion that are still based on LIBOR, with our portfolio duration overother asset-backed securities, mainly collateralized loan obligations, making up the previous twelve months,majority of these securities. Due to the provisions in the terms of the securities, which allows a change in the underlying rate if a rate is discontinued, we believe provides some protection against further increases in interest rates.are expecting a relatively smooth transition to an alternate reference rate.
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. As primarily an auto insurer, our claims liabilities generally have a short-term duration. Operations generated positive cash flows of $3.9$2.4 billion and $4.9$2.5 billion for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. While we continued to collect premiums at a faster rate than losses were paid, the decrease in operating cash flow for the six months ended June 30, 2022, is primarily driven by higher paid losses as the costs of losses continue to rise, compared to last year. We believe cash flows are expected towill remain positive in the reasonably foreseeable future and do not expect we will have a need to raise capital to
support our operations in that timeframe, although changes in market or regulatory conditions affecting the insurance industry, or other unforeseen events, may necessitate otherwise.
As of March 31, 2023, we held $29.9 billion in short-term investments and U.S. Treasury securities, which represented 53% of our total portfolio. Based on our portfolio allocation and investment strategies, we believe
that we have sufficient readily available marketable securities to cover our claims payments and short-term obligations in the event our cash flow from operations were to be negative. While U.S. Treasury securities are viewed as having lower risk than many other investment opportunities, the U.S. Treasury announced it had reached its authorized borrowing limit and defaults under government obligations, including payments related to U.S. Treasury securities, could occur as soon as this summer. Although perhaps unlikely, it is possible that the federal government could fail to raise the federal debt ceiling to avoid default. Any such default would likely have a materially adverse impact on our cash flows and the value of our portfolio and our capital position. See Item 1A,Risk Factors in our Form 10-K filed with the U.S. Securities and Exchange Commission for the year ended December 31, 2022 for a discussion of certain matters that may affect our portfolio and capital position.
Our total capital (debt plus shareholders’ equity) was $22.0$23.3 billion, at book value, at June 30, 2022,March 31, 2023, compared to $24.1$23.4 billion at June 30, 2021,March 31, 2022, and $23.1$22.3 billion at December 31, 2021.2022. The decreaseincrease from December primarily reflected the prior periods primarily reflects our comprehensive loss forincome recognized during the first half of 2022,quarter 2023, primarily driven by the negative market impact on the valuation of our investment portfolio, and the maturity of our 3.75% Senior Notes during the third quarter 2021, in part offset by the issuance in March 2022 of $500 million of 2.50% Senior Notes due 2027, $500 million of 3.00% Senior Notes due 2032, and $500 million of 3.70% Senior Notes due 2052.portfolio. Our debt-to-total capital ratio was 29.0%27.5% at June 30,March 31, 2023, 27.2% at March 31, 2022, 22.4% at June 30, 2021, and 21.2%28.7% at December 31, 2021. 2022, and, in each case, consistent with our financial policy of maintaining a ratio of less than 30%.
While our financial policies include a goal of maintaining debt below 30% of total capital at book value, which we achieved for all periods presented, a continued rise inrecognize that various factors, including rising interest rates, widening credits spreads, further declines in the equity markets, or erosion in operating results, may result in that ratio exceeding 30% at times. WeIn such a situation, as we did during 2022, we may choose to remain above 30% for some time, dependent upon market conditions and the capital needs of our operating business. However, in such a situation, we would expectbusinesses. We will continue to return to being consistent withmonitor this ratio, market conditions, and our stated policy in an appropriate timeframe.capital needs going forward.
None of the covenants on our outstanding debt securities include rating or credit triggers that would require an adjustment of interest rates or an acceleration of principal payments in the event that our debt securities are downgraded by a rating agency. In April 2022,2023, we renewedamended the unsecured discretionary line of credit (the “LineLine of Credit”)Credit) with PNC Bank, National Association, inand raised the maximum principal amount to $300 million from the previous amount of $250 million.million, with a new interest rate of 1-month term SOFR plus 1.10%. We did not engage in short-term borrowings, including any borrowings under our Line of Credit, to fund our operations or for liquidity purposes during the reported periods.
During the first sixthree months of 2022,2023, we returned capital to shareholders primarily through common share dividends. Ourdividends and common share repurchases. In March 2023, our Board
of Directors declared a $0.10 per common share dividend, in both the first and second quarters of 2022. These dividends, which were eachor $58.5 million in the aggregate, werethat was paid in April 2022 and July 2022, respectively.2023. In January 2022,2023, we also paid common share dividends declared in the fourth quarter 2022, in the aggregate amount of $58.5 million, or $0.10 per share (see Note 9 – Dividends for further discussion). In addition to the common share dividends, in March 2022,2023, we paid Series B Preferred Share dividends in the aggregate amount of $13.4 million.
Pursuant toConsistent with our financial policies, we will repurchase common shares to neutralize dilution from equity-based compensation granted during the year and opportunistically when we believe our shares are trading below our determination of long-term fair value. During the first six months of 2022,quarter 2023, we did not repurchase any shares in the open market and repurchased 0.30.2 million common shares, at a total cost of $29.5$32.7 million, to satisfy tax withholding obligations in connection with the vesting of equity awards under our equity compensation plans. We will continue to make decisions on returning capital to shareholders based on the strength of our overall capital position, the capital strength of our subsidiaries, and potential capital needs to expand our business operations.
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.
Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares and dividends on our Series B Preferred Shares, our contractual obligations, and other expected capital requirements for the foreseeable future. We did not experienceAt March 31, 2023, we had $4.1 billion in a significant change in our liquidity needs duringconsolidated, non-insurance subsidiary of the first six months of 2022. At all times measured duringholding company that can be used to fund corporate obligations and provide additional capital to the first six months of 2022 and during 2021, which at a minimum occurs at the end of each month, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency layer, as described in Exhibit 13insurance subsidiaries to our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report to Shareholders).fund potential future growth. As of June 30, 2022,March 31, 2023, our estimated consolidated statutory surplus was $16.6$18.5 billion.
During the first sixthree months of 2022,2023, our contractual obligations and critical accounting policies have not changed materially from those discussed in our 20212022 Annual Report to Shareholders. Pursuant to our critical accounting policy for goodwill, we test our goodwill balance for impairment at the reporting unit level annually as of October 1, or more frequently if indicators of
impairment exist. In conjunction with the preparation of our second quarter 2022 financial results, we performed a quantitative analysis of the goodwill attributable to our Property segment based on indications that impairment might exist. Based on this analysis, we wrote down $224.8 million of goodwill during the second quarter 2022. See Note 12 – Goodwill and Intangible Assets for further discussion. There have not been any material changes in off-balance-sheet leverage, which includes purchase obligations and catastrophe excess of loss reinsurance contracts, from those discusseddisclosed in our 20212022 Annual Report to Shareholders.
We may decide to raise additional capital to take advantage of attractive terms in the market and provide additional financial flexibility. We have an effective shelf registration with the U.S. Securities and Exchange Commission so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities,
preferred stock, depository shares, common stock, purchase contracts, warrants, and units. The shelf registration enables us to raise funds from the offering of
any securities covered by the shelf registration as well as any combination thereof, subject to market conditions.
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.
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 March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Personal Lines | Personal Lines | | Personal Lines | | |
Agency | Agency | 36 | % | | 38 | % | | 35 | % | | 38 | % | Agency | | 34 | % | | 34 | % |
Direct | Direct | 40 | | | 40 | | | 40 | | | 41 | | Direct | | 41 | | | 40 | |
Total Personal Lines1 | Total Personal Lines1 | 76 | | | 78 | | | 75 | | | 79 | | Total Personal Lines1 | | 75 | | | 74 | |
Commercial Lines | Commercial Lines | 19 | | | 17 | | | 20 | | | 16 | | Commercial Lines | | 21 | | | 22 | |
Property | Property | 5 | | | 5 | | | 5 | | | 5 | | Property | | 4 | | | 4 | |
Total underwriting operations | Total underwriting operations | 100 | % | | 100 | % | | 100 | % | | 100 | % | Total underwriting operations | | 100 | % | | 100 | % |
1 Personal auto products accounted for 91%95% of the total Personal Lines segment net premiums written during the three months ended March 31, 2023 and 93% during the six months ended June 30, 2022, and 2021, and our special lines products accounted for the balance.
The shift between our Personal Lines and Commercial Lines segments during both the second quarter and first six months of 2022, compared to the same periods last year, reflects Commercial Lines (including Protective Insurance products) growing at a faster rate than Personal Lines.
Our Personal Lines business writes insurance for personal autos and special lines products (e.g., motorcycles, RVs, watercraft, and RVs)snowmobiles). Within Personal Lines, we often refer to our four consumer segments, which include:we refer to as:
•Sam - inconsistently insured;
•Diane - consistently insured and maybe a renter;
•Wrights - homeowners who do not bundle auto and home; and
•Robinsons - homeowners who bundle auto and home.
While our personal auto policies are primarily written for 6-month terms, we write 12-month auto policies in our Platinum agencies to promote bundled auto and home growth. At June 30,March 31, 2023 and 2022, 14% of our Agency auto policies in force were 12-month policies, compared to 13% a year earlier. While the shift to 12-month policies is slow, topolicies. To the extent our Agency application mix of annual policies grows, thatthe shift in policy term could increase our written premium mix by channel as 12-month policies have about twice the amount of net premiums written compared to 6-month policies. Our special lines products are written for 12-month terms.
Our Commercial Lines business writes auto-related liability and physical damage insurance, workers’ compensation insurance primarily for the transportation industry, and business-related general liability and property insurance predominately for small businesses.businesses, and workers’ compensation insurance primarily for the transportation industry. The majority of our Commercial Lines business is written through the independent agency channel although we continue to focus on growing our direct business is growing.business. To serve our direct channel customers, we continuedcontinue to expand our product offerings, including adding states where we offer BOP and include theour business owners policy (BOP) product, onas well as adding these product offerings to our digital platform servingthat serves direct small business consumers (BusinessQuote Explorer®). The amount ofdirect commercial auto business, written through the direct channel, excluding our TNC business grew 4% on a quarter-over-prior-year-quarter basis. However, given the growth in our commercial auto agency book of business, which includes theand Protective Insurance products, the direct commercial auto businessCorporation and subsidiaries (Protective Insurance), represented 9%11% of our commercial auto premiums written for the first quarter 2023, compared to 10% a year earlier.for the first quarter 2022. We write about 90% of Commercial Lines policies for 12-month terms.
Our Property business writes residential property insurance for homeowners, other property owners, renters, and renters.umbrella products. We write the majority of our Property business through the independent agency channel; however, wechannel. We continue to expand the direct distribution of our Property product offerings and, for the first quarter 2023, about a quarter of our Property business premiums were written in the direct channel, which represented about 24%channel. All of premiums written for the second quarter 2022, compared to 22% for the same period last year.our Property policies are written for 12-month terms.
B. Profitability
Profitability for our underwriting operations is defined by pretax underwriting profit or loss, 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. 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 March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| | Underwriting Profit (Loss) | | Underwriting Profit (Loss) | | Underwriting Profit (Loss) | | Underwriting Profit (Loss) | | | Underwriting Profit (Loss) | | Underwriting Profit (Loss) |
($ in millions) | ($ in millions) | $ | | Margin | | $ | | Margin | | $ | | Margin | | $ | | Margin | ($ in millions) | | $ | | Margin | | $ | | Margin |
Personal Lines | Personal Lines | | Personal Lines | | |
Agency | Agency | $ | 260.3 | | | 6.0 | % | | $ | 207.5 | | | 4.9 | % | | $ | 548.9 | | | 6.3 | % | | $ | 755.0 | | | 9.1 | % | Agency | | $ | 162.6 | | | 3.3 | % | | $ | 288.6 | | | 6.7 | % |
Direct | Direct | 198.4 | | | 4.0 | | | 128.4 | | | 2.8 | | | 348.8 | | | 3.6 | | | 543.0 | | | 6.0 | | Direct | | (22.1) | | | (0.4) | | | 150.4 | | | 3.1 | |
Total Personal Lines | Total Personal Lines | 458.7 | | | 4.9 | | | 335.9 | | | 3.8 | | | 897.7 | | | 4.9 | | | 1,298.0 | | | 7.5 | | Total Personal Lines | | 140.5 | | | 1.3 | | | 439.0 | | | 4.8 | |
Commercial Lines | Commercial Lines | 243.0 | | | 10.5 | | | 130.1 | | | 8.0 | | | 445.4 | | | 10.1 | | | 358.6 | | | 11.8 | | Commercial Lines | | 37.2 | | | 1.6 | | | 202.4 | | | 9.5 | |
Property1 | Property1 | (156.9) | | | (27.5) | | | (83.3) | | | (16.6) | | | (148.6) | | | (13.2) | | | (154.0) | | | (15.8) | | Property1 | | (32.7) | | | (5.5) | | | 8.3 | | | 1.5 | |
Other indemnity2 | Other indemnity2 | (6.3) | | | NM | | 0.1 | | | NM | | (7.2) | | | NM | | 0.1 | | | NM | Other indemnity2 | | (3.4) | | | NM... | | (0.9) | | | NM... |
Total underwriting operations | Total underwriting operations | $ | 538.5 | | | 4.4 | % | | $ | 382.8 | | | 3.5 | % | | $ | 1,187.3 | | | 5.0 | % | | $ | 1,502.7 | | | 7.0 | % | Total underwriting operations | | $ | 141.6 | | | 1.0 | % | | $ | 648.8 | | | 5.5 | % |
1 For the three and six months ended June 30,March 31, 2023 and 2022, underwritingpretax profit (loss) includes $5.0 million and $19.1$14.1 million, respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment, compared to $14.1 million and $28.3 million forsegment. The year-over-year decrease in amortization expense reflects intangible assets that were fully amortized during the respective periods last year.first quarter 2022.
2 Underwriting margins for our other indemnity businessbusinesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such business.businesses.
During the second quarter 2022, the increase in our underwriting profitability primarily reflected a decrease in our expenses, which in part were due to a decrease in advertising spend and personnel costs, reflecting a decrease in our annual cash-incentive Gainshare program accrual. For the first sixthree months of 2022, our profitability decreased fromended March 31, 2023, the lower pretax underwriting profit, compared to the same period last year, primarily driven by higherreflects the impact from unfavorable prior accident severityyears reserve development and catastrophe losses. losses incurred. During the first quarter 2023, we experienced unfavorable prior accident years reserve development of 4.6 points, compared to 1.6 points for the first quarter last year. We have continued to see volatility in our severity trends as inflation continued to influence higher vehicle prices and costs to repair vehicles. Our
catastrophe losses reduced our underwriting profitability 1.8 points for the quarter, compared to 1.2 points in the first quarter 2022.
See the Losses and Loss Adjustment Expenses (LAE) section below for further discussion of our frequency and severity trends, reserve development and catastrophe losses incurred during the period.periods.
The pandemic has shifted consumer behavior and impacted general economic conditions. We have seen volatility in our severity trends as inflation continued to influence higher vehicle prices and costs to repair vehicles. We have responded, and will continue to respond, to these market changes through rate increases, underwriting restrictions, and other non-rate actions.
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 March 31, |
Underwriting Performance1 | Underwriting Performance1 | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | Underwriting Performance1 | | 2023 | | 2022 | | Change |
Personal Lines – Agency | Personal Lines – Agency | | Personal Lines – Agency | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 77.3 | | | 76.5 | | | 0.8 | | | 76.3 | | | 72.2 | | | 4.1 | | Loss & loss adjustment expense ratio | | 78.0 | | | 75.1 | | | 2.9 | |
Underwriting expense ratio | Underwriting expense ratio | 16.7 | | | 18.6 | | | (1.9) | | | 17.4 | | | 18.7 | | | (1.3) | | Underwriting expense ratio | | 18.7 | | | 18.2 | | | 0.5 | |
Combined ratio | Combined ratio | 94.0 | | | 95.1 | | | (1.1) | | | 93.7 | | | 90.9 | | | 2.8 | | Combined ratio | | 96.7 | | | 93.3 | | | 3.4 | |
Personal Lines – Direct | Personal Lines – Direct | | Personal Lines – Direct | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 77.9 | | | 77.0 | | | 0.9 | | | 77.5 | | | 72.8 | | | 4.7 | | Loss & loss adjustment expense ratio | | 79.7 | | | 77.2 | | | 2.5 | |
Underwriting expense ratio | Underwriting expense ratio | 18.1 | | | 20.2 | | | (2.1) | | | 18.9 | | | 21.2 | | | (2.3) | | Underwriting expense ratio | | 20.7 | | | 19.7 | | | 1.0 | |
Combined ratio | Combined ratio | 96.0 | | | 97.2 | | | (1.2) | | | 96.4 | | | 94.0 | | | 2.4 | | Combined ratio | | 100.4 | | | 96.9 | | | 3.5 | |
Total Personal Lines | Total Personal Lines | | Total Personal Lines | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 77.7 | | | 76.8 | | | 0.9 | | | 76.9 | | | 72.5 | | | 4.4 | | Loss & loss adjustment expense ratio | | 79.0 | | | 76.2 | | | 2.8 | |
Underwriting expense ratio | Underwriting expense ratio | 17.4 | | | 19.4 | | | (2.0) | | | 18.2 | | | 20.0 | | | (1.8) | | Underwriting expense ratio | | 19.7 | | | 19.0 | | | 0.7 | |
Combined ratio | Combined ratio | 95.1 | | | 96.2 | | | (1.1) | | | 95.1 | | | 92.5 | | | 2.6 | | Combined ratio | | 98.7 | | | 95.2 | | | 3.5 | |
Commercial Lines | Commercial Lines | | Commercial Lines | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 70.4 | | | 71.8 | | | (1.4) | | | 70.6 | | | 67.9 | | | 2.7 | | Loss & loss adjustment expense ratio | | 76.3 | | | 71.0 | | | 5.3 | |
Underwriting expense ratio | Underwriting expense ratio | 19.1 | | | 20.2 | | | (1.1) | | | 19.3 | | | 20.3 | | | (1.0) | | Underwriting expense ratio | | 22.1 | | | 19.5 | | | 2.6 | |
Combined ratio | Combined ratio | 89.5 | | | 92.0 | | | (2.5) | | | 89.9 | | | 88.2 | | | 1.7 | | Combined ratio | | 98.4 | | | 90.5 | | | 7.9 | |
Property | Property | | Property | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 101.7 | | | 87.5 | | | 14.2 | | | 86.4 | | | 86.2 | | | 0.2 | | Loss & loss adjustment expense ratio | | 75.4 | | | 70.6 | | | 4.8 | |
Underwriting expense ratio2 | Underwriting expense ratio2 | 25.8 | | | 29.1 | | | (3.3) | | | 26.8 | | | 29.6 | | | (2.8) | | Underwriting expense ratio2 | | 30.1 | | | 27.9 | | | 2.2 | |
Combined ratio2 | Combined ratio2 | 127.5 | | | 116.6 | | | 10.9 | | | 113.2 | | | 115.8 | | | (2.6) | | Combined ratio2 | | 105.5 | | | 98.5 | | | 7.0 | |
Total Underwriting Operations | Total Underwriting Operations | | Total Underwriting Operations | | |
Loss & loss adjustment expense ratio | Loss & loss adjustment expense ratio | 77.4 | | | 76.5 | | | 0.9 | | | 76.2 | | | 72.5 | | | 3.7 | | Loss & loss adjustment expense ratio | | 78.4 | | | 75.0 | | | 3.4 | |
Underwriting expense ratio | Underwriting expense ratio | 18.2 | | | 20.0 | | | (1.8) | | | 18.8 | | | 20.5 | | | (1.7) | | Underwriting expense ratio | | 20.6 | | | 19.5 | | | 1.1 | |
Combined ratio | Combined ratio | 95.6 | | | 96.5 | | | (0.9) | | | 95.0 | | | 93.0 | | | 2.0 | | Combined ratio | | 99.0 | | | 94.5 | | | 4.5 | |
Accident year – Loss & loss adjustment expense ratio3 | Accident year – Loss & loss adjustment expense ratio3 | 77.8 | | | 75.8 | | | 2.0 | | | 75.6 | | | 71.6 | | | 4.0 | | Accident year – Loss & loss adjustment expense ratio3 | | 73.8 | | | 73.4 | | | 0.4 | |
1 Ratios are expressed as a percentage of net premiums earned. The portion of fees and other revenues related to our loss adjustment activities are netted against loss adjustment expenses and the portion of fees and other revenues related to our underwriting operations are netted against underwriting expenses in the ratio calculations.
2 Included in the three and six months ended June 30,March 31, 2023 and 2022, are 0.90.8 points and 1.72.5 points, respectively, of amortization expense on acquisition-related intangible assets attributable to our Property segment, and 2.8 points and 2.9 points for the respective periods last year. Excluding this expense, for the three months ended June 30, 2022 and 2021, the Property business would have reported expense ratios of 24.9 and 26.3, respectively, and combined ratios of 126.6 and 113.8, respectively. For the six months ended June 30, 2022 and 2021, excluding this expense, the Property business would have reported expense ratios of 25.1 and 26.7, respectively, and combined ratios of 111.5 and 112.9, respectively.segment.
3 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, |
(millions) | 2022 | | 2021 | | 2022 | | 2021 |
Change in net loss and LAE reserves | $ | 1,131.6 | | | $ | 1,603.1 | | | $ | 1,696.9 | | | $ | 2,230.6 | |
Paid losses and LAE | 8,289.5 | | | 6,803.3 | | | 16,582.6 | | | 13,286.3 | |
Total incurred losses and LAE | $ | 9,421.1 | | | $ | 8,406.4 | | | $ | 18,279.5 | | | $ | 15,516.9 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(millions) | | | | | 2023 | | 2022 |
Change in net loss and LAE reserves | | | | | $ | 925.2 | | | $ | 565.3 | |
Paid losses and LAE | | | | | 9,698.8 | | | 8,293.1 | |
Total incurred losses and LAE | | | | | $ | 10,624.0 | | | $ | 8,858.4 | |
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 needed to adjust or settle 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 increased 0.93.4 points for the secondfirst quarter 2022,2023, compared to the same period last year, and 3.7 points on a year-to-date basis, primarily due to increased severity, unfavorable prior accident severity in both our personal and commercial auto businessesyears reserve development, and higher catastrophe losses, in all of our operating segments, partially offset by lower accident frequency in our personal auto business and the higher premium per vehiclepolicy due to rate increases in bothincreases. On an accident year basis, our personalfirst quarter loss and commercial auto businesses.LAE ratio was 0.4 points higher than the first quarter 2022.
The following table shows our consolidated catastrophe losses and related combined ratio point impact, excluding loss adjustment expenses, incurred during the periods:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
($ in millions) | ($ in millions) | $ | | Point | | $ | | Point | | $ | | Point | | $ | | Point | ($ in millions) | | $ | | Point1 | | $ | | Point1 |
Personal Lines | Personal Lines | $ | 285.2 | | | 3.1 | | | $ | 211.8 | | | 2.4 | | | $ | 329.7 | | | 1.8 | | | $ | 276.9 | | | 1.6 | | Personal Lines | | $ | 92.1 | | | 0.9 | | | $ | 44.5 | | | 0.5 | |
Commercial Lines | Commercial Lines | 9.6 | | | 0.4 | | | 6.6 | | | 0.4 | | | 12.4 | | | 0.3 | | | 8.4 | | | 0.3 | | Commercial Lines | | 3.5 | | | 0.1 | | | 2.8 | | | 0.1 | |
Property | Property | 233.5 | | | 40.9 | | | 128.0 | | | 25.5 | | | 332.8 | | | 29.5 | | | 272.6 | | | 28.0 | | Property | | 145.3 | | | 24.3 | | | 99.3 | | | 17.8 | |
Total net catastrophe losses incurred | Total net catastrophe losses incurred | $ | 528.3 | | | 4.3 | | | $ | 346.4 | | | 3.2 | | | $ | 674.9 | | | 2.8 | | | $ | 557.9 | | | 2.6 | | Total net catastrophe losses incurred | | $ | 240.9 | | | 1.8 | | | $ | 146.6 | | | 1.2 | |
1 Represents catastrophe losses incurred during the period, including the impact of reinsurance, as a percent of net premiums earned for each segment.
In the first quarter 2023, we were affected by 24 catastrophic weather events, compared to 11 events in the first quarter 2022. During the second quarter 2022,three months ended March 31, 2023, the majority of our catastrophe losses were due to tornadoes, thunderstorms, hail, and tornadoes,hail throughout the United States. Netted against our catastrophe losses for the quarter was about a $40 million, or 0.3 points on a companywide basis, reduction to the loss estimate for Hurricane Ian in our vehicle businesses. There was no change to our estimate of the ultimate loss and allocated loss adjustment expenses (ALAE) from Hurricane Ian for our Property business during the first quarter 2023. We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide exemplary claims service to our customers.
FutureChanges in our estimate of our ultimate losses on current catastrophes along with potential future catastrophes could have a material impact on our financial condition, cash flows, or results of operations. As a result, weWe reinsure various risks including, but not limited to, catastrophic losses. We do not have catastrophe-specific reinsurance for our Personal Lines or commercial auto businesses, but we reinsure portions of our Property business. The Property business reinsurance programs include catastrophe occurrence excess of loss contracts and aggregate excess of loss contracts. We also purchase non-weather-related catastrophe reinsurance on our Protective Insurance workers’ compensation insurance.
We evaluate our reinsurance programs during the renewal process, if not more frequently, to ensure our programs continue to effectively address the company’s risk tolerance. During the secondfirst quarter 2022,2023, we entered into new reinsurance contracts under our per occurrence excess of loss program for our Property business. The reinsurance program has retention thresholds for losses and allocated loss adjustment expense (ALAE) from a single catastrophic event of $200 million, which is unchanged from the retention threshold on the prior contracts. During 2022, we also entered into a new aggregate excess of loss reinsurance contract that increased ourhas multiple layers of coverage, with the first retention layer threshold ranging from $475$500 million to $575 million, excluding named tropical storms and reduced aggregate potentialhurricanes, and the second retention layer threshold of $600 million, including named tropical storms and hurricanes. The first and second layers provide coverage by $50up to $100 million to a total of $175and $85 million, compared to our 2021 program. In our view, our capital position and growing balance sheet enabled us to assume more of these risks via higher retention levels.respectively. While the total coverage limit and per-event retention willwill evolve to fit the growth of our business, we expect to remain a consistent purchaser of reinsurance coverage. Consistent with this history, we were able to fully place our desired coverage at both January 1st and June 1st renewal events. See Item 1 – Description of Business-Reinsurance in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, for a discussion of our various reinsurance programs. During the secondfirst quarter and first six months of 2022,2023, we did not experience significant excess of loss reinsurance activity and we have not exceededexceed the annual retention thresholds under our 20222023 catastrophe aggregate excess of loss program.
The following discussion of our severity and frequency trends in our personal auto business 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 16% duringover the second quarter and first six months of 2022, compared to the same periods last year. These increases reflectprior-year period was as follows:
| | | | | | | | | |
| Growth Over Prior Year Quarter |
| | | |
Coverage Type | 2023 | | | | |
Bodily injury | 10 | % | | | | |
Collision | 5 | | | | | |
Personal injury protection | 3 | | | | | |
Property damage | 15 | | | | | |
Total | 10 | | | | | |
The year-over-year increase in severity, in part, reflects the impact of inflation, which continues to increase in the valuation of used vehicles and our total loss, repair, and repairmedical costs.
Following are the changes we experienced in severity in our auto coverages on a year-over-year basis:
•Collision increased 23% and 26% for the second quarter and first six months of 2022, respectively, and auto property damage increased about 24% and 23%, respectively, in part due to increased used car prices.
•Bodily injury increased about 9% and 8% for the second quarter and first six months of 2022, respectively, due in part to increasing non-medical losses.
•Personal injury protection (PIP) decreased about 7% during the second quarter and first six months of 2022, due in part to coverage reform in Michigan and high reopen activity in Florida during the first half of 2021.
To address inherent seasonality trends and lessen the effects of month-to-month variability in the commercial auto products, we use a trailing 12-month period in assessing severity. In the secondfirst quarter 2022,2023, our commercial auto products’ incurred severity, excluding Protective Insurance and our TNC business, increased 12%5%, compared to the same period last year. In addition to general trends in the marketplace, the increase in our commercial auto products’ severity primarily reflects shifts in the mix of business to for-hire transportation, which has higher average severity than the business auto and contractor business market targets. Since the loss patterns in the TNC businessand Protective Insurance businesses are not indicative of our other commercial auto products, disclosing severity and frequency trends excluding that businessthose businesses is more representative of our overall experience for the majority of our commercial auto products.
It is a challenge to estimate future severity, but we continue to monitor changes in the underlying costs, such as general
inflation, used car prices, vehicle repair costs, medical costs, health care reform, court decisions, and jury verdicts, along with regulatory changes and other factors that may affect severity.
Our personal auto incurred frequency, on a year-over-yearcalendar-year basis, decreased about 8% and 4% forover the second quarter and first six months of 2022, respectively, compared to the same periods last year. Following are the frequency changes we experienced by coverage:prior-year period, was as follows:
•PIP and bodily injury decreased about 11% and 9%, respectively, for the second quarter 2022 and 5% for the first six months of 2022.
•Collision and auto property damage decreased about 10% and 8%, respectively, for the second quarter and 5% and 3% for the first six months of 2022. | | | | | | | | | |
| Growth Over Prior Year Quarter |
| | | |
Coverage Type | 2023 | | | | |
Bodily injury | 7 | % | | | | |
Collision | (6) | | | | | |
Personal injury protection | 5 | | | | | |
Property damage | 2 | | | | | |
Total | 0 | | | | | |
On a trailing 12-month basis, our commercial auto products’ incurred frequency, excluding Protective Insurance and our TNC business, increased 5%2% during the secondfirst quarter 2022,2023, compared to the same period last year. The frequency increase was in part due to an uneven recovery across different commercial auto business markets, many of which have not yet returned to pre-pandemic levels and are continuing to see increasing frequency since the COVID-19 pandemic lows.
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 degree of confidence, and this challenge is exacerbated by the uncertainty of the current environment.certainty. 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, vehicle usage, gasoline prices, advances in vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business or changes in driving patterns, to allow us to react quickly to price for these trends and to reserve more accurately for our loss exposures.
The table below presents the actuarial adjustments implemented and the loss reserve development experienced on a companywide basis in the following periods:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
($ in millions) | ($ in millions) | 2022 | | 2021 | | 2022 | | 2021 | ($ in millions) | | 2023 | | 2022 |
ACTUARIAL ADJUSTMENTS | ACTUARIAL ADJUSTMENTS | | ACTUARIAL ADJUSTMENTS | | |
Reserve decrease (increase) | Reserve decrease (increase) | | Reserve decrease (increase) | | |
Prior accident years | Prior accident years | $ | (65.5) | | | $ | (22.1) | | | $ | (50.4) | | | $ | (44.2) | | Prior accident years | | $ | 0.3 | | | $ | 15.1 | |
Current accident year | Current accident year | (14.4) | | | 15.5 | | | (53.2) | | | 18.4 | | Current accident year | | (140.8) | | | (38.8) | |
Calendar year actuarial adjustments | Calendar year actuarial adjustments | $ | (79.9) | | | $ | (6.6) | | | $ | (103.6) | | | $ | (25.8) | | Calendar year actuarial adjustments | | $ | (140.5) | | | $ | (23.7) | |
PRIOR ACCIDENT YEARS DEVELOPMENT | PRIOR ACCIDENT YEARS DEVELOPMENT | | PRIOR ACCIDENT YEARS DEVELOPMENT | | |
Favorable (unfavorable) | Favorable (unfavorable) | | Favorable (unfavorable) | | |
Actuarial adjustments | Actuarial adjustments | $ | (65.5) | | | $ | (22.1) | | | $ | (50.4) | | | $ | (44.2) | | Actuarial adjustments | | $ | 0.3 | | | $ | 15.1 | |
All other development | All other development | 111.4 | | | (50.5) | | | (94.5) | | | (152.8) | | All other development | | (621.5) | | | (205.9) | |
Total development | Total development | $ | 45.9 | | | $ | (72.6) | | | $ | (144.9) | | | $ | (197.0) | | Total development | | $ | (621.2) | | | $ | (190.8) | |
(Increase) decrease to calendar year combined ratio | (Increase) decrease to calendar year combined ratio | 0.4 | pts. | | (0.7) | pts. | | (0.6) | pts. | | (0.9) | pts. | (Increase) decrease to calendar year combined ratio | | (4.6) | pts. | | (1.6) | pts. |
Total development consists of both actuarial adjustments and “all other development” on prior accident years. 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, 100% of catastrophe losses are reviewed monthly, and any development on catastrophe reserves are included as part of the actuarial adjustments. For the Personal Lines and Commercial Lines businesses, development for catastrophe losses in 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, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors.
About 70% of the total unfavorable development was in our personal auto products and primarily reflects higher than anticipated severity in auto property and physical damage coverages, higher than anticipated late reported injury claims, and increased loss costs in Florida injury and medical coverages. Part of the changes in Florida losses are due to the impact of recently passed legislation in Florida, which had less than a 1.0 point impact on the combined ratio for the first quarter 2023.
Our Commercial Lines business represented almost 25% of the unfavorable development for the quarter and was mainly due to higher than anticipated severity of injury case reserves and higher than anticipated severity and frequency of late reported injury claims.
The remaining unfavorable development for the first quarter 2023, was primarily in our Property business, and mostly due to higher than anticipated claims expenses and higher than anticipated severity in our homeowner liability peril and umbrella products.
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. Our ability to meet this objective is impacted by many factors. Changes in case law, particularly in case law related to PIP,personal injury protection, can make it difficult to estimate reserves timely and with minimal variation. See Note 6 – Loss and Loss Adjustment Expense Reserves, for a more detailed discussion of our prior accident years development.development and Critical Accounting Policies in our 2022 Annual Report to Shareholders for discussion of the application of estimates and assumptions in the establishment of our loss reserves.
Underwriting Expenses
The companywide underwriting expense ratio (i.e.,Underwriting expenses include policy acquisition costs and other underwriting expenses. The underwriting expense ratio is our underwriting expenses, net of certain fees and other revenues, expressed as a percentage of net premiums earned) decreased 1.8earned. For the first quarter 2023, our underwriting expense ratio was up 1.1 points, for the second quarter 2022, compared to the same period last year, and 1.7 points on a year-to-date basis, primarily reflecting a decreaseincreases in our employee-related costs and advertising spend. In total, our companywide advertising spend increased 23%, or 0.4 points, compared to the first quarter 2022. As we continue to focus on profitability, we monitor advertising spend and a decreasewill reduce these costs based on performance against our underwriting targets in personnel costs. In total, our advertising spend decreased 7% for both the second quartercertain markets and first six monthsin certain types of 2022, compared to the same periods last year in an effort to improve profitability to reach our 96 combined ratio goal, and had a 0.9 and 1.0 point, respectively, impact on our companywide expense ratio. We experienced a decrease in personnel costs primarily resulting from a decrease in our annual cash-incentive Gainshare program accrual, reflecting lower year-to-date segment profitability, which had a 0.9 and 0.8 point, respective, impact on our companywide expense ratio.advertising.
To analyze underwriting expenses, we also review our non-acquisition expense ratio (NAER), which excludes costs related to policy acquisition, including advertising and agency commissions, from our underwriting expense ratio. By excluding acquisition costs from our underwriting expense ratio, we are able to understand costs other than those necessary to acquire new policies and grow the business. During the secondfirst quarter 2023, our NAER decreased 0.5 points,increased 0.6 points, and 0.8 points in our Personal Lines, Commercial Lines, and Property businesses, respectively, compared to the same period last year. On a year-to-date basis, our NAER decreased 0.2 points, 0.42.0 points, and 0.71.2 points in our Personal Lines, Commercial Lines, and Property businesses, respectively, compared to the same period last year.
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 March 31, |
($ in millions) | ($ in millions) | 2022 | | 2021 | | % Growth | | 2022 | | 2021 | | % Growth | ($ in millions) | | 2023 | | 2022 | | % Growth |
NET PREMIUMS WRITTEN | NET PREMIUMS WRITTEN | | NET PREMIUMS WRITTEN | | |
Personal Lines | Personal Lines | | Personal Lines | | |
Agency | Agency | $ | 4,493.6 | | | $ | 4,326.1 | | | 4 | % | | $ | 9,010.0 | | | $ | 8,784.8 | | | 3 | % | Agency | | $ | 5,414.4 | | | $ | 4,516.4 | | | 20 | % |
Direct | Direct | 4,978.9 | | | 4,574.1 | | | 9 | | | 10,181.4 | | | 9,576.8 | | | 6 | | Direct | | 6,698.8 | | | 5,202.5 | | | 29 | |
Total Personal Lines | Total Personal Lines | 9,472.5 | | | 8,900.2 | | | 6 | | | 19,191.4 | | | 18,361.6 | | | 5 | | Total Personal Lines | | 12,113.2 | | | 9,718.9 | | | 25 | |
Commercial Lines | Commercial Lines | 2,308.8 | | | 1,986.3 | | | 16 | | | 5,234.5 | | | 3,780.4 | | | 38 | | Commercial Lines | | 3,366.9 | | | 2,925.7 | | | 15 | |
Property | Property | 639.6 | | | 590.9 | | | 8 | | | 1,175.7 | | | 1,064.5 | | | 10 | | Property | | 629.4 | | | 536.1 | | | 17 | |
Other indemnity1 | Other indemnity1 | 1.2 | | | 2.9 | | | (59) | | | 1.5 | | | 2.9 | | | (48) | | Other indemnity1 | | 0.2 | | | 0.3 | | | (33) | |
Total underwriting operations | Total underwriting operations | $ | 12,422.1 | | | $ | 11,480.3 | | | 8 | % | | $ | 25,603.1 | | | $ | 23,209.4 | | | 10 | % | Total underwriting operations | | $ | 16,109.7 | | | $ | 13,181.0 | | | 22 | % |
NET PREMIUMS EARNED | NET PREMIUMS EARNED | | NET PREMIUMS EARNED | | |
Personal Lines | Personal Lines | | Personal Lines | | |
Agency | Agency | $ | 4,366.5 | | | $ | 4,220.3 | | | 3 | % | | $ | 8,689.8 | | | $ | 8,318.5 | | | 4 | % | Agency | | $ | 4,860.2 | | | $ | 4,323.3 | | | 12 | % |
Direct | Direct | 4,905.9 | | | 4,633.9 | | | 6 | | | 9,699.5 | | | 9,065.6 | | | 7 | | Direct | | 5,717.4 | | | 4,793.6 | | | 19 | |
Total Personal Lines | Total Personal Lines | 9,272.4 | | | 8,854.2 | | | 5 | | | 18,389.3 | | | 17,384.1 | | | 6 | | Total Personal Lines | | 10,577.6 | | | 9,116.9 | | | 16 | |
Commercial Lines | Commercial Lines | 2,304.4 | | | 1,621.8 | | | 42 | | | 4,431.6 | | | 3,039.6 | | | 46 | | Commercial Lines | | 2,356.1 | | | 2,127.2 | | | 11 | |
Property | Property | 570.5 | | | 502.3 | | | 14 | | | 1,128.6 | | | 974.8 | | | 16 | | Property | | 598.7 | | | 558.1 | | | 7 | |
Other indemnity1 | Other indemnity1 | 0.6 | | | 4.0 | | | (85) | | | 1.3 | | | 4.0 | | | (68) | | Other indemnity1 | | 0.7 | | | 0.7 | | | 0 | |
Total underwriting operations | Total underwriting operations | $ | 12,147.9 | | | $ | 10,982.3 | | | 11 | % | | $ | 23,950.8 | | | $ | 21,402.5 | | | 12 | % | Total underwriting operations | | $ | 13,533.1 | | | $ | 11,802.9 | | | 15 | % |
1 Represents Protective Insurance’s run-off business. | | | | |
1 Includes other underwriting business and run-off operations. | | 1 Includes other underwriting business and run-off operations. | | | |
| | June 30, | | | March 31, |
(thousands) | (thousands) | | 2022 | | 2021 | | % Growth | (thousands) | | 2023 | | 2022 | | % Growth |
POLICIES IN FORCE | POLICIES IN FORCE | | POLICIES IN FORCE | | |
Personal Lines | Personal Lines | | Personal Lines | | |
Agency auto | Agency auto | | 7,619.5 | | | 8,014.2 | | | (5) | % | Agency auto | | 8,172.9 | | | 7,758.4 | | | 5 | % |
Direct auto | Direct auto | | 9,557.0 | | | 9,581.3 | | | 0 | | Direct auto | | 10,995.5 | | | 9,541.3 | | | 15 | |
Total auto | Total auto | | 17,176.5 | | | 17,595.5 | | | (2) | | Total auto | | 19,168.4 | | | 17,299.7 | | | 11 | |
Special lines1 | Special lines1 | | 5,485.0 | | | 5,211.7 | | | 5 | | Special lines1 | | 5,637.3 | | | 5,345.9 | | | 5 | |
Personal Lines — total | Personal Lines — total | | 22,661.5 | | | 22,807.2 | | | (1) | | Personal Lines — total | | 24,805.7 | | | 22,645.6 | | | 10 | |
Commercial Lines | Commercial Lines | | 1,024.6 | | | 916.6 | | | 12 | | Commercial Lines | | 1,071.2 | | | 999.8 | | | 7 | |
Property | Property | | 2,823.0 | | | 2,655.5 | | | 6 | | Property | | 2,912.6 | | | 2,802.2 | | | 4 | |
Companywide total | Companywide total | | 26,509.1 | | | 26,379.3 | | | 0 | % | Companywide total | | 28,789.5 | | | 26,447.6 | | | 9 | % |
1 Includes insurance for motorcycles, watercraft, RVs, and similar items. | | 1 Includes insurance for motorcycles, watercraft, RVs, and similar items. | | |
1 Includes insurance for motorcycles, watercraft, RVs, and similar items.
To analyze growth, we review new policies, rate levels, and the retention characteristics of our segments. Although new policies are necessary to maintain a growing book of business, we 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 review our customer retention for our personal auto products using both a trailing 3-month and a trailing 12-month period. We believe changes in policy life expectancy using a trailing 12-month period measure is indicative of recent experience, mitigates the effects of month-to-month variability, and addresses seasonality. Although using a trailing 3-month measure does not addressis sensitive to 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. We believe the second quarter 2021 year-over-year change in the trailing 3-month policy life expectancy is not representative of true retention activity due to the significant renewal activity during the second quarter 2020, as a result of suspending cancellations of policies for non-payment, and, therefore, we have chosen not to disclose this measure in the tables below as we do not believe the change is meaningful.
D. Personal Lines
The following table shows our year-over-year changes for our Personal Lines business:
| | | Growth Over Prior Year | | Growth Over Prior Year Quarter |
| | Quarter | | Year-to-date | |
| | 2022 | 2021 | | 2022 | 2021 | | 2023 | 2022 | |
Applications | Applications | | Applications | | |
New | New | (13) | % | 7 | % | | (18) | % | 11 | % | New | 70 | % | (24) | % | |
Renewal | Renewal | 2 | | 9 | | | 4 | | 11 | | Renewal | 1 | | 5 | | |
Written premium per policy - Auto | Written premium per policy - Auto | 11 | | (2) | | | 8 | | (3) | | Written premium per policy - Auto | 8 | | 6 | | |
Policy life expectancy - Auto | Policy life expectancy - Auto | | Policy life expectancy - Auto | | |
Trailing 3 months | Trailing 3 months | (32) | | NM | | | Trailing 3 months | 10 | | (15) | | |
Trailing 12 months | Trailing 12 months | (11) | | 3 | | | | Trailing 12 months | (16) | | (5) | | |
NM = Not meaningful
NewIn our Personal Lines business, we experienced significant quote volume and new application growth in the first quarter 2023, which we believe was, in part, driven by competitor rate increases and increased media spend. The increase in new applications during the first quarter 2023 were primarily attributable to our personal auto products although we also had new application growth in our Personal Lines products were down during the second quarter and first six months of 2022, with our personal auto new application growth down 15% and 21%, respectively, and our special lines new application growth downproducts.
Personal auto policies in force grew between 7% and 8%. The decrease in personal auto new applications is primarily attributable to the rate actions and underwriting restrictions that began in the second quarter of 2021 and continued through the second quarter 2022. The decrease in special lines new applications primarily reflects a decrease in demand for RV, boat, and motorcycle products, as compared to the first half 2021 when sales of these products was strong. We continued to see personal auto and special lines renewal application growth.
Results varied by consumer segment. At the end of the second quarter 2022, Robinsons saw single-digit personal auto policy in force growth, compared to the second quarter last year, while Sams saw a low double-digit decline in policy in force growth. New auto applications experienced a decrease12% across all four consumer segments induring the secondfirst quarter year over2023, compared to the same period last year. Quote volume increased inNew business auto application growth was also up significantly across all segments during the second quarter, on a year-over-year basis, in all of our consumer segments, except Sams, with all consumer segments seeing a decreased rate of conversion.quarter.
During the secondfirst quarter 2022, we implemented rate increases in 17 states. In the aggregate,2023, on a countrywide basis, we implemented personal auto net rate increases werein 31 states that, in the aggregate, increased rates about 2% for the quarter. During the second quarter 2022, we also reduced advertising spend and tightened underwriting criteria in consumer segments where losses indicated rates are not meeting4%, following rate increases of 13% during 2022. We believe that our profitability goals. These actionsprior year rate increases had and may continue to have a negative impact on our new and renewal business applications and policy life expectancy in the near term, as indicated by the decline in the trailing 3-month and trailing 12-month policy life expectancy. As competitors raised rates, our retention started to lengthen as evidenced by the growth in our trailing 3-month policy life expectancy.
Our written premium per policy increased during the secondfirst quarter and first six months of 2022,2023, primarily due to the rate increases which startedtaken in the second quarter 2021 and continued throughout the first half of 2022.2022, as previously discussed. Our focus on achieving our target underwriting profitability takes precedence over growth. We will continue to manage growth and profitability in accordance with our long-standing goal of growing as fast as we can, as long as we can provide great customer service, at or below a companywide 96 combined ratio on a calendar-year basis.
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 channel discussions below are focused on personal auto insurance since this product accounted for 91% and 93%95% of the Personal Lines segment net premiums written during the secondfirst quarter and first six months of 2022, respectively.
The Agency Business
| | | | | | | | | | | | | | | | | |
| Growth Over Prior Year |
| Quarter | | Year-to-date |
| 2022 | 2021 | | 2022 | 2021 |
Applications - Auto | | | | | |
New | (20) | % | 9 | % | | (24) | % | 7 | % |
Renewal | (2) | | 6 | | | (1) | | 9 | |
Written premium per policy - Auto | 12 | | (1) | | | 10 | | (1) | |
Policy life expectancy - Auto | | | | | |
Trailing 3 months | (34) | | NM | | | |
Trailing 12 months | (13) | | 3 | | | | |
NM = Not meaningful | | | | | | | | | | | |
| Growth Over Prior Year Quarter |
| | | |
| 2023 | 2022 | | | |
Applications - Auto | | | | | |
New | 68 | % | (28) | % | | | |
Renewal | (3) | | 1 | | | | |
Written premium per policy - Auto | 10 | | 8 | | | | |
Policy life expectancy - Auto | | | | | |
Trailing 3 months | 10 | | (17) | | | | |
Trailing 12 months | (19) | | (6) | | | | |
The Agency business includes business written by more than 40,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. During the secondfirst quarter 2022, only four2023, 49 states and the District of Columbia generated new Agency auto application growth, including only oneall of our top 10 largest Agency states. During the secondfirst quarter 2023, total auto applications increased 8%, due to growth in new applications. During the first quarter, each of our consumer segments experienced a reductionsignificant increase in new applications and policiesyear over year. Policies in force grew by single digit percentages in each consumer segment, except Sams who were flat, compared to the same period last year.
During the secondfirst quarter and first six months of 2022,2023, we experienced an increase in Agency auto quote volume of 9%14% and 7%, respectively, with a 49% increase in the rate of conversion (i.e., converting a quote to a sale) decrease of 26% and 29%, compared to the same periods last year. For the second quarter and year-to-date periods,with both increasing in each consumer segment, other than Sams, saw increases in quote volume, compared to last year. The rate of conversion was down significantly in the second quarter and first six months of 2022, compared to the same periods last year, reflecting rate increases and the impact from tightening underwriting criteria.segment. Written premium per policy for new and renewal Agency auto business increased 6%13% and 14%10%, respectively, compared to the secondfirst quarter 2021.2022. The decreasesdecrease in the trailing 12-month policy life expectancy werewas expected given the rate actions taken over the last year, andwhile the increase in the trailing 3-month policy life expectancy may continueshows what we believe to be negatively impacted by our current rate actions.increased competitiveness in the marketplace.
The Direct Business
| | | | | | | | | | | | | | | | | |
| Growth Over Prior Year |
| Quarter | | Year-to-date |
| 2022 | 2021 | | 2022 | 2021 |
Applications - Auto | | | | | |
New | (11) | % | 10 | % | | (19) | % | 13 | % |
Renewal | 4 | | 12 | | | 6 | | 15 | |
Written premium per policy - Auto | 10 | | (4) | | | 7 | | (4) | |
Policy life expectancy - Auto | | | | | |
Trailing 3 months | (29) | | NM | | | |
Trailing 12 months | (9) | | 3 | | | | |
NM = Not meaningful | | | | | | | | | | | |
| Growth Over Prior Year Quarter |
| | | |
| 2023 | 2022 | | | |
Applications - Auto | | | | | |
New | 92 | % | (25) | % | | | |
Renewal | 4 | | 7 | | | | |
Written premium per policy - Auto | 7 | | 5 | | | | |
Policy life expectancy - Auto | | | | | |
Trailing 3 months | 10 | | (12) | | | | |
Trailing 12 months | (14) | | (4) | | | | |
The Direct business includes business written directly by Progressive online, through our Progressive mobile devices,app, and over the phone. During the first quarter 212023, 48 states and the District of Columbia generated new auto application growth, including threenine of our top 10 largest Direct states. During the secondfirst quarter 2022,2023, total auto applications increased 1%19%, primarily due to growth in policy renewals.new applications. During the secondfirst quarter, each of our consumer segments experienced a significant increase in new applications decreased across all consumer segments except Robinsons, while policiesyear over year. Policies in force grew between 10% and 20% in our Wrights and Robinsonseach consumer segments,segment, compared to the same period last year.
During the secondfirst quarter and first six months of 2022, we experienced an increase in2023, Direct auto quote volume of 5%increased 73% and a decrease of 6%, respectively, while our rate of conversion decreased 14%increased 13%, compared to the same periodsperiod last year, forwith both increasing in each consumer segment. Despite taking rate increases, the quarter and year-to-date periods. The decreaseincrease we experienced in our quote volume primarily reflected the decrease incompetitors raising rates and our increased advertising spending duringspend compared to the first half ofquarter 2022. All consumer segments saw an increase in quotes during the quarter except for Sams, with all consumer segments experiencing decreased quote volume, except Robinsons, during the first six months of 2022.
During the secondfirst quarter 2022,2023, written premium per policy for new and renewal Direct auto business increased 6%7% and 10%9%, respectively, compared to the same period last year, primarily driven by rate increases. Consistent with our Agency business, the Direct business decrease in policy life expectancy for the trailing 12-months reflects the rate actions taken over the last year.year and the increase in the trailing 3-month measure shows what we believe to be our increased competitiveness in the marketplace.
E. Commercial Lines
The following table shows our year-over-year changes for our Commercial Lines business, excluding our TNC, BOP, and Protective Insurance products:
| | | | | | | | | | | | | | | | | |
| Growth Over Prior Year |
| Quarter | | Year-to-date |
| 2022 | 2021 | | 2022 | 2021 |
Applications | | | | | |
New | (6) | % | 52 | % | | 1 | % | 40 | % |
Renewal | 15 | | 8 | | | 14 | | 10 | |
Written premium per policy | 14 | | 20 | | | 17 | | 16 | |
Policy life expectancy - Trailing 12 months | 1 | | 5 | | | | |
Our Commercial Lines business operates in five traditional business markets, which include business auto, for-hire transportation, contractor, for-hire specialty, and tow markets, primarily written through the agency channel. We also write TNC business, BOP insurance, and, BOP insurance. In the second quarter 2021, we acquiredthrough Protective Insurance, which expanded our portfolio of offerings to larger fleet and workers’ compensation insurance for trucking, along with trucking industry independent contractors, and affinity programs; these products are excluded from theprograms.
The following table above.and discussion shows our commercial auto product, excluding our TNC, BOP, and Protective Insurance products. Year-over-year changes in our commercial auto product were as follows:
| | | | | | | | | | | |
| Growth Over Prior Year Quarter |
| 2023 | 2022 | | | |
Applications | | | | | |
New | 2 | % | 8 | % | | | |
Renewal | 7 | | 13 | | | | |
Written premium per policy | 1 | | 19 | | | | |
Policy life expectancy Trailing 12 months | (14) | | 7 | | | | |
During the secondfirst quarter 2022, the decrease in Commercial Lines2023, commercial auto new application growth primarily reflected a slow down fromwas positive in each of our business market targets, except for the significant amount of growth experienced in 2021, primarily in our for-hire transportation business market.market, which reflects the continued slowdown in the rate of economic activity and deteriorating freight market conditions. During the secondfirst quarter 2022,2023, we experienced a 2% decline3% increase in quote volume and a 4% declinedecrease of 1% in the rate of conversion, compared to the same period last year, primarily driven by the for-hire transportation market. During the first six months of 2022, quote volume increased 4%, while conversion decreased 3%, compared to the same period last year.
During the secondfirst quarter 2023, written premium per policy for new commercial auto business increased 8%decreased 7%, while renewal business increased 20%6%, compared to the same period last year. The increasesincrease in written premiums were primarily due to rate increases.increases and were partially offset by shifts in the mix of business. Our policy life expectancy increaseddecreased in all business market targets, primarily duedriven by our for-hire transportation business market. Given the rise in costs to product model enhancements, comparedoperate a trucking business, many independent owner/operators, who were our core customers in the for-hire transportation business market, have begun to 2021.migrate back to leasing with larger motor carriers.
F. Property
The following table shows our year-over-year changes for our Property business:
| | | Growth Over Prior Year | | Growth Over Prior Year Quarter |
| | Quarter | | Year-to-date | |
| | 2022 | 2021 | | 2022 | 2021 | | 2023 | 2022 | |
Applications | Applications | | Applications | | |
New | New | (5) | % | 29 | % | | (6) | % | 28 | % | New | 12 | % | (6) | % | |
Renewal | Renewal | 8 | | 8 | | | 9 | | 10 | | Renewal | 6 | | 12 | | |
Written premium per policy | Written premium per policy | 4 | | 0 | | | 4 | | 0 | | Written premium per policy | 10 | | 5 | | |
Policy life expectancy - Trailing 12 months | (8) | | (6) | | | | |
Policy life expectancy Trailing 12 months | | Policy life expectancy Trailing 12 months | 0 | | (7) | | |
Our Property business writes residential property insurance for homeowners, other property owners, and renters, and umbrella insurance in the agency and direct channels. During the secondfirst quarter and first six months of 2022,2023, the increase in new applications experienced in our Property business experienced a decrease in new applications,was primarily due to the rateunderwriting changes made in an effort to promote growth in less volatile weather states and other actions taken to address theincreased advertising spending.
Improving profitability concerns.
During 2022, weand reducing concentration exposure continued to make underwriting changes to reducebe the top priority for our concentration risks by focusingProperty business during the first quarter 2023. We have concentrated our growth efforts in states with traditionally less catastrophe exposure and limit growth in the Property business in markets that are less susceptible to catastrophes and have lower exposure to coastal and hail pronehail-prone states. During 2021,New applications in these growth-oriented states were up about 30% over the first quarter last year. In regions where our appetite to write new business is limited, we announced plans to non-reneware prioritizing Progressive auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs. New applications were down just over 10% in these more volatile weather states. In addition, we increased rates an average of about 60,000 policies3% in Florida, startingour Property segment during the secondfirst quarter 2022. During the second quarter 2022, new legislation was introduced prohibiting the non-renewal of certain policies. In response, we changed our process to provide impacted policyholders the opportunity to have their policy renewed if meeting certain criteria. We expect to non-renew significantly less of the policies previously intended for non-renewal.
The targeted rate increases taken during the last 12 months, are beginning to be earned into the book of business; however, we realize that our current pricing actions and underwriting activities to limit growthincrease in the coastal and hail prone states and to increase our exposure in states with traditionally less catastrophe exposure will require more time than originally anticipated. This information, combined with the continued extent of the weather-related losses, prompted us to reevaluate the portion of goodwill assigned to our Property business for impairment, resulting in a non-cash goodwill impairment charge of $224.8 million during the second quarter 2022, which represented the entire amount of goodwill assigned to the ARX reporting unit.
In addition to rate increases, as part of the underwriting changes discussed above, during the second quarter 2022 our written premium per policy, increased, compared to the same periodfirst quarter last year, was primarily due to a shift inrate increases taken over the mix of business towardlast 12 months and providing coveragehigher premium coverages to higher valued properties.account for inflation. The written premium per policy impact from rate increases and underwriting changes wereincrease was partially offset by a shift in the mix of business to a larger share of renters policies, which have lower written premiums per policy. Our policy, life expectancy decreased from the same period last year, primarily due to the targeted rate increasesand less homeowners growth in volatile states where we were not achieving our profitability targets.that have higher average premiums. We intend to continue to make targeted rate increases in states where we believe it is necessary to achieve our profitability targets.
G. Income Taxes
At March 31, 2023 and 2022, and December 31, 2022, we had net current income taxes payable of $203.3 million, $201.1 million, and $10.9 million, respectively, which were reported in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets. The increase in the payable balance at March 31, 2023 and 2022, compared to December 31, 2022, in part reflects that first quarter estimated payments are not due until the second quarter of the year.
A deferred tax asset or liability is a tax benefit or expense, respectively, that is expected to be realized in a future period.tax return. At June 30,March 31, 2023 and 2022, and December 31, 2022, we reported a net federal deferred tax asset, comparedassets of $1.1 billion, $0.4 billion, and $1.1 billion, respectively.
We are required to net federalassess our deferred tax liabilities at June 30, 2021assets for recoverability and, December 31, 2021. The changebased on our analysis, determined that we did not need a valuation allowance on our gross deferred tax assets in each period. Although realization of the gross deferred tax assets is not assured, management believes it is more likely than not that the gross deferred tax assets will be realized based on our expectation we will be able to afully utilize the deductions that are ultimately recognized for tax purposes. We believe our deferred asset from a deferred liability was primarily duetax assets related to net unrealized losses on fixed-maturity securities in the fixed-income and equity portfolios. At June 30, 2022 and 2021, we had net current income taxes payable of $114.0 million and $37.2 million, respectively, which were reported as part of accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets. At December 31, 2021, we reported recoverable income taxes of $19.2 million, which was reflected as part of other assets. The taxes payable/recoverable vary from period to periodwill be realized based on the amountexistence of estimated taxes paid.prior year capital gains, current temporary differences related to unrealized gains in our equity portfolio, and other tax planning strategies.
TheOur effective tax rate for the three and six months ended June 30, 2022,March 31, 2023, was 14.6% and 6.8%19.2%, respectively, compared to 20.9% and 20.8%19.6% for the same periods last year. Excluding the effect of the goodwill impairment, which was a one-time charge, the effective tax rate for the three and six months ended June 30, 2022, were 22.6% and 79.9%, respectively. The higher effective rates for the current quarter and year, excluding the goodwill impairment charge, are in part due to our permanent tax differences having a greater impact on the effective rate given our pretax loss, compared to pretax income in the same periodsperiod last year.
Consistent with prior years, we had no uncertain tax positions. See Note 5 – Income Taxes for further information.
IV. RESULTS OF OPERATIONS – INVESTMENTS
A. Investment Results
Our management philosophy governing the portfolio is to evaluate investment 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:March 31:
| | | Three Months | | Six Months | | Three Months | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Pretax recurring investment book yield (annualized) | Pretax recurring investment book yield (annualized) | 2.3 | % | | 1.9 | % | | 2.1 | % | | 2.0 | % | Pretax recurring investment book yield (annualized) | 3.0 | % | | 2.0 | % | |
| FTE total return: | FTE total return: | | FTE total return: | | |
Fixed-income securities | Fixed-income securities | (2.4) | | | 1.1 | | | (5.9) | | | 0.2 | | Fixed-income securities | 2.0 | | | (3.6) | | |
Common stocks | Common stocks | (16.3) | | | 7.3 | | | (20.4) | | | 20.7 | | Common stocks | 7.3 | | | (4.9) | | |
Total portfolio | Total portfolio | (3.6) | | | 1.7 | | | (7.2) | | | 1.9 | | Total portfolio | 2.3 | | | (3.8) | | |
The increase in the book yield, compared to last year, for both periods,primarily reflected investing new cash from operations and proceeds from maturing bonds at higher interest rates and an increase in interest rates on our floating ratefloating-rate securities. The decreaseincrease in the fixed-income total return, compared to last year, reflected the impact of risingdeclining interest rates, duringwhile the last twelve months, as well as widening credit spreads.increase in common stocks reflected general market conditions.
A further break-down of our FTE total returns for our fixed-income portfolio for the periods ended June 30,March 31, follows:
| | | Three Months | | Six Months | | | | Three Months |
| | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 |
Fixed-income securities: | Fixed-income securities: | | | | Fixed-income securities: | | | | |
U.S. Treasury Notes | U.S. Treasury Notes | (1.7) | % | | 0.4 | % | | (5.8) | % | | (0.7) | % | U.S. Treasury Notes | | | 2.4 | % | | (4.1) | % |
Municipal bonds | Municipal bonds | (1.9) | | | 1.4 | | | (6.7) | | | 0.4 | | Municipal bonds | | | 2.7 | | | (4.9) | |
Corporate bonds | Corporate bonds | (3.1) | | | 1.3 | | | (6.7) | | | (0.3) | | Corporate bonds | | | 2.6 | | | (3.6) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | (0.6) | | | 0.5 | | | (1.5) | | | 0.9 | | Residential mortgage-backed securities | | | 2.0 | | | (0.9) | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | (3.6) | | | 1.8 | | | (7.7) | | | 1.0 | | Commercial mortgage-backed securities | | | 1.0 | | | (4.3) | |
Other asset-backed securities | Other asset-backed securities | (1.2) | | | 0.5 | | | (2.7) | | | 0.7 | | Other asset-backed securities | | | 1.9 | | | (1.5) | |
Preferred stocks | Preferred stocks | (8.1) | | | 6.2 | | | (10.9) | | | 6.1 | | Preferred stocks | | | (4.1) | | | (3.1) | |
Short-term investments | Short-term investments | 0.1 | | | 0 | | | 0.2 | | | 0.1 | | Short-term investments | | | 1.1 | | | <0.1 |
B. Portfolio Allocation
The composition of the investment portfolio was:
| ($ in millions) | ($ in millions) | Fair Value | | % of Total Portfolio | | Duration (years) | | Rating1 | ($ in millions) | Fair Value | | % of Total Portfolio | | Duration (years) | | Average Rating1 |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | |
U.S. government obligations | U.S. government obligations | $ | 18,719.2 | | | 36.0 | % | | 3.7 | | AAA | U.S. government obligations | $ | 27,350.1 | | | 48.3 | % | | 3.7 | | AAA |
State and local government obligations | State and local government obligations | 2,135.4 | | | 4.1 | | | 3.7 | | AA+ | State and local government obligations | 2,061.6 | | | 3.6 | | | 3.4 | | AA+ |
Foreign government obligations | Foreign government obligations | 16.4 | | | 0.1 | | | 4.0 | | AAA | Foreign government obligations | 15.8 | | | 0.1 | | | 3.3 | | AAA |
Corporate debt securities | Corporate debt securities | 10,167.8 | | | 19.6 | | | 3.0 | | BBB | Corporate debt securities | 10,681.3 | | | 18.8 | | | 3.0 | | BBB |
Residential mortgage-backed securities | Residential mortgage-backed securities | 799.3 | | | 1.5 | | | 0.4 | | A | Residential mortgage-backed securities | 630.0 | | | 1.1 | | | 0.4 | | A |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,094.6 | | | 11.7 | | | 2.7 | | A+ | Commercial mortgage-backed securities | 4,503.0 | | | 7.9 | | | 2.5 | | A |
Other asset-backed securities | Other asset-backed securities | 5,036.0 | | | 9.7 | | | 1.1 | | AA | Other asset-backed securities | 4,865.8 | | | 8.6 | | | 1.1 | | AA |
Preferred stocks | Preferred stocks | 1,564.3 | | | 3.0 | | | 3.0 | | BBB- | Preferred stocks | 1,260.4 | | | 2.2 | | | 2.5 | | BBB- |
Short-term investments | Short-term investments | 4,611.8 | | | 8.9 | | | <0.1 | | AA | Short-term investments | 2,524.1 | | | 4.5 | | | <0.1 | | AA+ |
Total fixed-income securities | Total fixed-income securities | 49,144.8 | | | 94.6 | | | 2.8 | | AA- | Total fixed-income securities | 53,892.1 | | | 95.1 | | | 3.0 | | AA |
Common equities | Common equities | 2,784.7 | | | 5.4 | | | na | | na | Common equities | 2,794.3 | | | 4.9 | | | na | | na |
Total portfolio2 | Total portfolio2 | $ | 51,929.5 | | | 100.0 | % | | 2.8 | | AA- | Total portfolio2 | $ | 56,686.4 | | | 100.0 | % | | 3.0 | | AA |
June 30, 2021 | | | |
March 31, 2022 | | March 31, 2022 | | |
U.S. government obligations | U.S. government obligations | $ | 19,437.7 | | | 38.1 | % | | 3.4 | | AAA | U.S. government obligations | $ | 19,528.8 | | | 36.7 | % | | 3.9 | | AAA |
State and local government obligations | State and local government obligations | 2,440.5 | | | 4.8 | | | 3.8 | | AA | State and local government obligations | 2,144.2 | | | 4.0 | | | 3.4 | | AA+ |
Foreign government obligations | Foreign government obligations | 12.7 | | | 0.1 | | | 1.6 | | AA+ | Foreign government obligations | 17.4 | | | 0.1 | | | 4.3 | | AAA |
Corporate debt securities | Corporate debt securities | 10,678.2 | | | 20.9 | | | 3.3 | | BBB | Corporate debt securities | 11,280.0 | | | 21.2 | | | 3.1 | | BBB |
Residential mortgage-backed securities | Residential mortgage-backed securities | 671.3 | | | 1.3 | | | 1.2 | | AA- | Residential mortgage-backed securities | 951.1 | | | 1.8 | | | 0.3 | | A- |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,708.1 | | | 11.2 | | | 3.6 | | A+ | Commercial mortgage-backed securities | 6,918.5 | | | 13.0 | | | 2.7 | | A+ |
Other asset-backed securities | Other asset-backed securities | 3,899.0 | | | 7.7 | | | 1.3 | | AA | Other asset-backed securities | 5,255.9 | | | 9.9 | | | 1.2 | | AA |
Preferred stocks | Preferred stocks | 1,793.3 | | | 3.6 | | | 3.6 | | BBB- | Preferred stocks | 1,748.0 | | | 3.3 | | | 3.5 | | BBB- |
Short-term investments | Short-term investments | 1,710.6 | | | 3.3 | | | 0.1 | | A+ | Short-term investments | 529.9 | | | 1.0 | | | 0.2 | | A- |
Total fixed-income securities | Total fixed-income securities | 46,351.4 | | | 91.0 | | | 3.1 | | AA- | Total fixed-income securities | 48,373.8 | | | 91.0 | | | 3.1 | | AA- |
Common equities | Common equities | 4,591.4 | | | 9.0 | | | na | | na | Common equities | 4,812.6 | | | 9.0 | | | na | | na |
Total portfolio2 | Total portfolio2 | $ | 50,942.8 | | | 100.0 | % | | 3.1 | | AA- | Total portfolio2 | $ | 53,186.4 | | | 100.0 | % | | 3.1 | | AA- |
December 31, 2021 | | | |
December 31, 2022 | | December 31, 2022 | | |
U.S. government obligations | U.S. government obligations | $ | 18,488.2 | | | 35.9 | % | | 3.6 | | AAA | U.S. government obligations | $ | 25,167.4 | | | 47.0 | % | | 3.7 | | AAA |
State and local government obligations | State and local government obligations | 2,185.3 | | | 4.2 | | | 3.6 | | AA+ | State and local government obligations | 1,977.1 | | | 3.7 | | | 3.5 | | AA+ |
Foreign government obligations | Foreign government obligations | 17.9 | | | 0.1 | | | 4.5 | | AAA | Foreign government obligations | 15.5 | | | 0.1 | | | 3.5 | | AAA |
Corporate debt securities | Corporate debt securities | 10,692.1 | | | 20.7 | | | 2.9 | | BBB | Corporate debt securities | 9,412.7 | | | 17.6 | | | 2.8 | | BBB |
Residential mortgage-backed securities | Residential mortgage-backed securities | 790.0 | | | 1.5 | | | 0.4 | | A- | Residential mortgage-backed securities | 666.8 | | | 1.2 | | | 0.4 | | A |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,535.6 | | | 12.7 | | | 3.2 | | A+ | Commercial mortgage-backed securities | 4,663.5 | | | 8.7 | | | 2.7 | | A+ |
Other asset-backed securities | Other asset-backed securities | 4,982.3 | | | 9.7 | | | 1.2 | | AA | Other asset-backed securities | 4,564.6 | | | 8.5 | | | 1.1 | | AA+ |
Preferred stocks | Preferred stocks | 1,821.6 | | | 3.6 | | | 3.6 | | BBB- | Preferred stocks | 1,397.5 | | | 2.6 | | | 2.8 | | BBB- |
Short-term investments | Short-term investments | 942.6 | | | 1.8 | | | 0.2 | | AA | Short-term investments | 2,861.7 | | | 5.4 | | | 0.1 | | AAA- |
Total fixed-income securities | Total fixed-income securities | 46,455.6 | | | 90.2 | | | 3.0 | | AA- | Total fixed-income securities | 50,726.8 | | | 94.8 | | | 2.9 | | AA |
Common equities | Common equities | 5,058.5 | | | 9.8 | | | na | | na | Common equities | 2,821.5 | | | 5.2 | | | na | | na |
Total portfolio2 | Total portfolio2 | $ | 51,514.1 | | | 100.0 | % | | 3.0 | | AA- | Total portfolio2 | $ | 53,548.3 | | | 100.0 | % | | 2.9 | | AA |
na = not applicable | na = not applicable | | | na = not applicable | | |
1 Represents 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 assign an internal rating of AAA-.
2 Includes $0, $412.1At March 31, 2023 and 2022, we had $22.8 million, and $143.4$356.0 million, respectively, of net unsettled security purchase transactions at June 30, 2022 and 2021, and December 31, 2021, respectively, with the offsetting payable included in other liabilities.liabilities, compared to $34.4 million included in other assets at December 31, 2022.
The total fair value of the portfolio at June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, included $4.9$4.1 billion, $3.3$5.1 billion, and $4.2$4.4 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.
Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities.
We define Group I securities to include:
•common equities,
•nonredeemable preferred stocks,
•redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends, which are included in Group II, and
•all other non-investment-grade fixed-maturity securities.
Group II securities include:
•short-term securities, and
•all other fixed-maturity securities, including 50% of the investment-grade redeemable preferred stocks with cumulative dividends.
We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators.
The following table shows the composition of our Group I and Group II securities:
| | | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
($ in millions) | ($ in millions) | Fair Value | % of Total Portfolio | | Fair Value | % of Total Portfolio | | Fair Value | % of Total Portfolio | ($ in millions) | Fair Value | % of Total Portfolio | | Fair Value | % of Total Portfolio | | Fair Value | % of Total Portfolio |
Group I securities: | Group I securities: | | Group I securities: | |
Non-investment-grade fixed maturities | Non-investment-grade fixed maturities | $ | 1,648.7 | | 3.2 | % | | $ | 1,834.2 | | 3.6 | % | | $ | 2,032.4 | | 3.9 | % | Non-investment-grade fixed maturities | $ | 1,019.5 | | 1.8 | % | | $ | 2,265.0 | | 4.3 | % | | $ | 1,249.2 | | 2.3 | % |
Redeemable preferred stocks1 | Redeemable preferred stocks1 | 101.9 | | 0.2 | | | 91.7 | | 0.2 | | | 90.9 | | 0.2 | | Redeemable preferred stocks1 | 90.8 | | 0.2 | | | 110.2 | | 0.2 | | | 92.1 | | 0.2 | |
Nonredeemable preferred stocks | Nonredeemable preferred stocks | 1,360.5 | | 2.6 | | | 1,609.8 | | 3.2 | | | 1,639.9 | | 3.2 | | Nonredeemable preferred stocks | 1,078.8 | | 1.9 | | | 1,527.5 | | 2.9 | | | 1,213.2 | | 2.3 | |
Common equities | Common equities | 2,784.7 | | 5.4 | | | 4,591.4 | | 9.0 | | | 5,058.5 | | 9.8 | | Common equities | 2,794.3 | | 4.9 | | | 4,812.6 | | 9.0 | | | 2,821.5 | | 5.2 | |
Total Group I securities | Total Group I securities | 5,895.8 | | 11.4 | | | 8,127.1 | | 16.0 | | | 8,821.7 | | 17.1 | | Total Group I securities | 4,983.4 | | 8.8 | | | 8,715.3 | | 16.4 | | | 5,376.0 | | 10.0 | |
Group II securities: | Group II securities: | | Group II securities: | |
Other fixed maturities | Other fixed maturities | 41,421.9 | | 79.7 | | | 41,105.1 | | 80.7 | | | 41,749.8 | | 81.1 | | Other fixed maturities | 49,178.9 | | 86.7 | | | 43,941.2 | | 82.6 | | | 45,310.6 | | 84.6 | |
Short-term investments | Short-term investments | 4,611.8 | | 8.9 | | | 1,710.6 | | 3.3 | | | 942.6 | | 1.8 | | Short-term investments | 2,524.1 | | 4.5 | | | 529.9 | | 1.0 | | | 2,861.7 | | 5.4 | |
Total Group II securities | Total Group II securities | 46,033.7 | | 88.6 | | | 42,815.7 | | 84.0 | | | 42,692.4 | | 82.9 | | Total Group II securities | 51,703.0 | | 91.2 | | | 44,471.1 | | 83.6 | | | 48,172.3 | | 90.0 | |
Total portfolio | Total portfolio | $ | 51,929.5 | | 100.0 | % | | $ | 50,942.8 | | 100.0 | % | | $ | 51,514.1 | | 100.0 | % | Total portfolio | $ | 56,686.4 | | 100.0 | % | | $ | 53,186.4 | | 100.0 | % | | $ | 53,548.3 | | 100.0 | % |
1 We did not hold any non-investment-grade redeemable preferred stocks at June 30,March 31, 2023 and 2022, and 2021, or December 31, 2021.2022.
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) to classify our residential and commercial mortgage-backed securities, excluding interest-only (IO) securities, and the credit ratings from nationally recognized statistical rating organizations (NRSRO) to classify 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.
The decrease in the percentage of Group I securities since year end was driven by sales and valuation declines in our common equity portfolio with the proceeds from the common stock sales and the $1.5 billion debt offering in March 2022, reinvested in Group II short-term investments.
Unrealized Gains and Losses
During the first quarter 2023, our total net unrealized losses on fixed-maturity securities decreased $0.6 billion, resulting from declining interest rates during the period, compared to an increase in net unrealized losses of $1.4 billion in the first quarter of last year when interest rates were rising. The valuation changes for both periods were primarily in our U.S. government and corporate debt portfolios, with our commercial mortgage-backed securities also declining in value during the first quarter last year. As of June 30, 2022,March 31, 2023, our fixed-maturity portfolio had pretaxtotal after-tax net unrealized losses, which are recorded as part of accumulated other comprehensive income (loss) on the consolidated balance sheets, of $2,776.4 million,$2.2 billion, compared to net unrealized gains of $638.8 million$1.4 billion and $71.4 million$2.8 billion at June 30, 2021March 31, 2022 and December 31, 2021,2022, respectively. The decreases from both periods in 2021 were due to increasing interest rates across our fixed-maturity portfolio and wider credit spreads outside of our short-term and Treasury portfolios.
See Note 2 – Investments for a further break-out of our gross unrealized gains (losses).
Holding Period Gains and Losses
The following table provides the balance and activity for both the gross and net holding period gains (losses) for the sixthree months ended June 30, 2022:March 31, 2023:
| (millions) | (millions) | Gross Holding Period Gains | Gross Holding Period Losses | Net Holding Period Gains (Losses) | (millions) | Gross Holding Period Gains | Gross Holding Period Losses | Net Holding Period Gains (Losses) |
Balance at December 31, 2021 | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | |
Hybrid fixed-maturity securities | Hybrid fixed-maturity securities | $ | 13.0 | | $ | (5.5) | | $ | 7.5 | | Hybrid fixed-maturity securities | $ | 1.3 | | $ | (75.8) | | $ | (74.5) | |
Equity securities | 3,877.2 | | (14.7) | | 3,862.5 | | |
Equity securities1 | | Equity securities1 | 2,026.6 | | (182.2) | | 1,844.4 | |
Total holding period securities | Total holding period securities | 3,890.2 | | (20.2) | | 3,870.0 | | Total holding period securities | 2,027.9 | | (258.0) | | 1,769.9 | |
Current year change in holding period securities | Current year change in holding period securities | | Current year change in holding period securities | |
Hybrid fixed-maturity securities | Hybrid fixed-maturity securities | (13.0) | | (74.4) | | (87.4) | | Hybrid fixed-maturity securities | 0.6 | | 13.3 | | 13.9 | |
Equity securities | (1,859.8) | | (163.6) | | (2,023.4) | | |
Equity securities1 | | Equity securities1 | 45.2 | | 45.3 | | 90.5 | |
Total changes in holding period securities | Total changes in holding period securities | (1,872.8) | | (238.0) | | (2,110.8) | | Total changes in holding period securities | 45.8 | | 58.6 | | 104.4 | |
Balance at June 30, 2022 | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | |
Hybrid fixed-maturity securities | Hybrid fixed-maturity securities | 0 | | (79.9) | | (79.9) | | Hybrid fixed-maturity securities | 1.9 | | (62.5) | | (60.6) | |
Equity securities | 2,017.4 | | (178.3) | | 1,839.1 | | |
Equity securities1 | | Equity securities1 | 2,071.8 | | (136.9) | | 1,934.9 | |
Total holding period securities | Total holding period securities | $ | 2,017.4 | | $ | (258.2) | | $ | 1,759.2 | | Total holding period securities | $ | 2,073.7 | | $ | (199.4) | | $ | 1,874.3 | |
1Equity securities include common equities and nonredeemable preferred stocks.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.
Fixed-Income Securities
The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks.
Following are the primary exposures for our fixed-income portfolio. Details of our policies related to these exposures can be found in the
Management’s Discussion and Analysis included in our 2021 Annual Report to Shareholders.
•Interest Rate RiskInterest rate risk - our Our duration of 2.83.0 years at June 30,March 31, 2023, 3.1 years at March 31, 2022, and 2.9 years at December 31, 2022 fell within our acceptable range of 1.5 to 5 years. We shortened our portfolio duration from 3.0 years at December 31, 2021, which we believe provides some protection against further increases in interest rates. 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 Distribution | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | |
Duration Distribution (excluding short-term securities) | | Duration Distribution (excluding short-term securities) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
1 year | 1 year | 18.4 | % | | 21.9 | % | | 22.0 | % | 1 year | 19.2 | % | | 16.2 | % | | 17.5 | % |
2 years | 2 years | 17.9 | | | 18.5 | | | 18.8 | | 2 years | 14.0 | | | 18.5 | | | 16.9 | |
3 years | 3 years | 23.6 | | | 24.4 | | | 23.5 | | 3 years | 22.5 | | | 24.9 | | | 21.3 | |
5 years | 5 years | 20.8 | | | 17.1 | | | 17.6 | | 5 years | 26.9 | | | 20.0 | | | 25.1 | |
7 years | 7 years | 14.3 | | | 12.2 | | | 13.1 | | 7 years | 12.8 | | | 14.8 | | | 14.0 | |
10 years | 10 years | 5.0 | | | 5.9 | | | 5.0 | | 10 years | 4.6 | | | 5.6 | | | 5.2 | |
| Total fixed-income portfolio | Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % | Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % |
•Credit risk -Risk This exposure is managed by maintaining an A+ minimum average portfolio credit quality rating, as defined by NRSROs. At both March 31, 2023 and December 31, 2022, our credit quality rating of AA- was above our minimum threshold during the second quarter 2022.AA and at March 31, 2022 it was AA-. The credit quality distribution of the fixed-income portfolio was:
| Rating | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | |
Average Rating1 | | Average Rating1 | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
AAA | AAA | 57.7 | % | | 55.8 | % | | 54.7 | % | AAA | 65.2 | % | | 54.2 | % | | 65.5 | % |
AA | AA | 8.5 | | | 7.5 | | | 8.7 | | AA | 6.1 | | | 8.8 | | | 6.4 | |
A | A | 8.4 | | | 9.3 | | | 8.6 | | A | 7.5 | | | 8.8 | | | 7.6 | |
BBB | BBB | 21.0 | | | 22.1 | | | 21.7 | | BBB | 18.7 | | | 22.2 | | | 17.2 | |
Non-investment grade/non-rated1 | | |
Non-investment grade/non-rated | | Non-investment grade/non-rated | |
BB | BB | 3.5 | | | 4.3 | | | 4.8 | | BB | 2.0 | | | 4.7 | | | 2.5 | |
B | B | 0.6 | | | 0.5 | | | 1.1 | | B | 0.3 | | | 1.0 | | | 0.5 | |
CCC and lower | CCC and lower | 0.1 | | | 0.1 | | | 0.1 | | CCC and lower | 0.1 | | | 0.1 | | | 0.1 | |
Non-rated | Non-rated | 0.2 | | | 0.4 | | | 0.3 | | Non-rated | 0.1 | | | 0.2 | | | 0.2 | |
Total fixed-income portfolio | Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % | Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % |
1 The ratings in the table above are assigned by NRSROs.
•
Concentration risk - weRisk We did not have any investments in a single issuer, either overall or in the context of individual asset classes and sectors, that exceeded our thresholds during the secondfirst quarter 2022.2023.
•
Prepayment and extension risk - weExtension Risk We did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio during the secondfirst quarter 2022.2023.
•
Liquidity risk - ourRisk 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 $2.6$4.3 billion, or 9.9%19%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments, during 2022.the remainder of 2023. Cash from interest and dividend payments and our short-term portfolio provide additional sources of recurring liquidity.
◦
The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at June 30, 2022:March 31, 2023:
| ($ in millions) | ($ in millions) | Fair Value | | Duration (years) | ($ in millions) | Fair Value | | Duration (years) |
U.S. Treasury Notes | U.S. Treasury Notes | | U.S. Treasury Notes | |
Less than one year | Less than one year | $ | 219.5 | | | 0.5 | | Less than one year | $ | 1,961.0 | | | 0.7 | |
One to two years | One to two years | 4,094.7 | | | 1.6 | | One to two years | 4,469.4 | | | 1.5 | |
Two to three years | Two to three years | 4,102.8 | | | 2.5 | | Two to three years | 4,065.4 | | | 2.5 | |
Three to five years | Three to five years | 5,235.1 | | | 4.0 | | Three to five years | 10,295.7 | | | 4.1 | |
Five to seven years | Five to seven years | 3,946.2 | | | 5.8 | | Five to seven years | 4,495.2 | | | 5.6 | |
Seven to ten years | Seven to ten years | 1,120.9 | | | 8.3 | | Seven to ten years | 2,063.4 | | | 7.8 | |
Total U.S. Treasury Notes | Total U.S. Treasury Notes | $ | 18,719.2 | | | 3.7 | | Total U.S. Treasury Notes | $ | 27,350.1 | | | 3.7 | |
|
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) | ($ in millions) | Fair Value | | Net Unrealized Gains (Losses) | | % of Asset- Backed Securities | | Duration (years) | | Rating (at period end)1 | ($ in millions) | Fair Value | | Net Unrealized Gains (Losses) | | % of Asset- Backed Securities | | Duration (years) | | Average Rating (at period end)1 |
June 30, 2022 | | |
March 31, 2023 | | March 31, 2023 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 799.3 | | | $ | (10.2) | | | 6.7 | % | | 0.4 | | | A | Residential mortgage-backed securities | $ | 630.0 | | | $ | (16.1) | | | 6.3 | % | | 0.4 | | | A |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,094.6 | | | (644.8) | | | 51.1 | | | 2.7 | | | A+ | Commercial mortgage-backed securities | 4,503.0 | | | (749.6) | | | 45.0 | | | 2.5 | | | A |
Other asset-backed securities | Other asset-backed securities | 5,036.0 | | | (201.6) | | | 42.2 | | | 1.1 | | | AA | Other asset-backed securities | 4,865.8 | | | (220.7) | | | 48.7 | | | 1.1 | | | AA |
Total asset-backed securities | Total asset-backed securities | $ | 11,929.9 | | | $ | (856.6) | | | 100.0 | % | | 1.9 | | | AA- | Total asset-backed securities | $ | 9,998.8 | | | $ | (986.4) | | | 100.0 | % | | 1.7 | | | AA- |
June 30, 2021 | | | |
March 31, 2022 | | March 31, 2022 | | |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 671.3 | | | $ | 3.5 | | | 6.5 | % | | 1.2 | | | AA- | Residential mortgage-backed securities | $ | 951.1 | | | $ | (4.0) | | | 7.3 | % | | 0.3 | | | A- |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,708.1 | | | 79.9 | | | 55.6 | | | 3.6 | | | A+ | Commercial mortgage-backed securities | 6,918.5 | | | (377.9) | | | 52.7 | | | 2.7 | | | A+ |
Other asset-backed securities | Other asset-backed securities | 3,899.0 | | | 33.1 | | | 37.9 | | | 1.3 | | | AA | Other asset-backed securities | 5,255.9 | | | (102.5) | | | 40.0 | | | 1.2 | | | AA |
Total asset-backed securities | Total asset-backed securities | $ | 10,278.4 | | | $ | 116.5 | | | 100.0 | % | | 2.6 | | | AA- | Total asset-backed securities | $ | 13,125.5 | | | $ | (484.4) | | | 100.0 | % | | 1.9 | | | AA- |
December 31, 2021 | | | |
December 31, 2022 | | December 31, 2022 | | |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 790.0 | | | $ | 1.7 | | | 6.4 | % | | 0.4 | | | A- | Residential mortgage-backed securities | $ | 666.8 | | | $ | (17.2) | | | 6.7 | % | | 0.4 | | | A |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 6,535.6 | | | (25.4) | | | 53.1 | | | 3.2 | | | A+ | Commercial mortgage-backed securities | 4,663.5 | | | (782.5) | | | 47.1 | | | 2.7 | | | A+ |
Other asset-backed securities | Other asset-backed securities | 4,982.3 | | | 0.9 | | | 40.5 | | | 1.2 | | | AA | Other asset-backed securities | 4,564.6 | | | (259.6) | | | 46.2 | | | 1.1 | | | AA+ |
Total asset-backed securities | Total asset-backed securities | $ | 12,307.9 | | | $ | (22.8) | | | 100.0 | % | | 2.2 | | | AA- | Total asset-backed securities | $ | 9,894.9 | | | $ | (1,059.3) | | | 100.0 | % | | 1.8 | | | AA- |
|
1 The credit quality ratings in the table above are assigned by NRSROs.
Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at June 30, 2022,March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
| Residential Mortgage-Backed Securities (at June 30, 2022) | |
($ in millions) Rating1 | Non-Agency | | | | Government/GSE2 | | Total | | % of Total | |
Residential Mortgage-Backed Securities (at March 31, 2023) | | Residential Mortgage-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating1 | | ($ in millions) Average Rating1 | Non-Agency | | | | Government/GSE2 | | Total | | % of Total |
AAA | AAA | $ | 138.4 | | | | | $ | 1.3 | | | $ | 139.7 | | | 17.5 | % | AAA | $ | 115.8 | | | | | $ | 1.1 | | | $ | 116.9 | | | 18.5 | % |
AA | AA | 34.6 | | | | | 0.4 | | | 35.0 | | | 4.4 | | AA | 25.2 | | | | | 0.4 | | | 25.6 | | | 4.0 | |
A | A | 400.1 | | | | | 0 | | | 400.1 | | | 50.0 | | A | 370.9 | | | | | 0 | | | 370.9 | | | 58.9 | |
BBB | BBB | 213.0 | | | | | 0 | | | 213.0 | | | 26.6 | | BBB | 108.9 | | | | | 0 | | | 108.9 | | | 17.3 | |
Non-investment grade/non-rated: | Non-investment grade/non-rated: | | | | | | Non-investment grade/non-rated: | | | | | |
BB | BB | 0.6 | | | | | 0 | | | 0.6 | | | 0.1 | | BB | 0.3 | | | | | 0 | | | 0.3 | | | 0.1 | |
B | B | 0 | | | | | 0 | | | 0 | | | 0 | | B | 0.1 | | | | | 0 | | | 0.1 | | | 0.1 | |
CCC and lower | CCC and lower | 3.2 | | | | | 0 | | | 3.2 | | | 0.4 | | CCC and lower | 1.8 | | | | | 0 | | | 1.8 | | | 0.2 | |
Non-rated | Non-rated | 7.7 | | | | | 0 | | | 7.7 | | | 1.0 | | Non-rated | 5.5 | | | | | 0 | | | 5.5 | | | 0.9 | |
Total fair value | Total fair value | $ | 797.6 | | | | | $ | 1.7 | | | $ | 799.3 | | | 100.0 | % | Total fair value | $ | 628.5 | | | | | $ | 1.5 | | | $ | 630.0 | | | 100.0 | % |
Increase (decrease) in value | Increase (decrease) in value | (3.3) | % | | | | 0.7 | % | | (3.3) | % | | Increase (decrease) in value | (3.8) | % | | | | (3.6) | % | | (3.8) | % | |
1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our RMBS, 92.6%100% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.securities.
2 The 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). .
In the residential mortgage-backed sector, our portfolio consists of deals that are backed by high-credit quality borrowers or have strong structural protections through underlying loan collateralization. During the secondfirst quarter 2022,2023, the portfolio decreased as a result of maturities on securities and we selectively added to our portfolio and opportunistically tendered some of the securities at attractive levels.did not have any purchase or sales activity.
Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at June 30, 2022,March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
| Commercial Mortgage-Backed Securities (at June 30, 2022) | |
($ in millions) Rating1 | Multi-Borrower | | Single-Borrower | | Total | | % of Total | |
Commercial Mortgage-Backed Securities (at March 31, 2023) | | Commercial Mortgage-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating1 | | ($ in millions) Average Rating1 | Multi-Borrower | | Single-Borrower | | Total | | % of Total |
AAA | AAA | $ | 246.5 | | | $ | 1,536.0 | | | $ | 1,782.5 | | | 29.2 | % | AAA | $ | 209.9 | | | $ | 1,126.3 | | | $ | 1,336.2 | | | 29.7 | % |
AA | AA | 0 | | | 1,754.5 | | | 1,754.5 | | | 28.9 | | AA | 0 | | | 986.9 | | | 986.9 | | | 21.9 | |
A | A | 0 | | | 1,034.8 | | | 1,034.8 | | | 17.0 | | A | 0 | | | 920.5 | | | 920.5 | | | 20.4 | |
BBB | BBB | 0 | | | 1,026.2 | | | 1,026.2 | | | 16.8 | | BBB | 0 | | | 882.9 | | | 882.9 | | | 19.6 | |
Non-investment grade/non-rated: | Non-investment grade/non-rated: | | Non-investment grade/non-rated: | |
BB | BB | 0 | | | 496.4 | | | 496.4 | | | 8.1 | | BB | 0 | | | 376.4 | | | 376.4 | | | 8.3 | |
B | 0.2 | | | 0 | | | 0.2 | | | 0 | | |
| CCC and lower | | CCC and lower | 0.1 | | | 0 | | | 0.1 | | | 0.1 | |
| Total fair value | Total fair value | $ | 246.7 | | | $ | 5,847.9 | | | $ | 6,094.6 | | | 100.0 | % | Total fair value | $ | 210.0 | | | $ | 4,293.0 | | | $ | 4,503.0 | | | 100.0 | % |
Increase (decrease) in value | Increase (decrease) in value | (3.4) | % | | (9.8) | % | | (9.6) | % | | Increase (decrease) in value | (5.2) | % | | (14.7) | % | | (14.3) | % | |
1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our CMBS, 36.9%30% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.
The CMBS portfolio experienced wider spreads and highheightened volatility in the second first quarter 2023, as commercial real estate has been a focal point of 2022.investor concern. In addition to concerns around employees returning to the office, stress in the regional banking sector could translate into less availability of financing for this asset class. New issuancesissuance has remained slow in the single-asset single-borrower (SASB) market slowed significantly due to less favorable market conditions, as well as low trading volumes and liquidity in the secondary trading market.has continued to be challenged. Given ongoingcontinued uncertainty about the future trajectory of the economy and its impact on real estate, we did not add to our portfolioreduced certain positions, during the quarter, and reduced certain positions that we believe willbelieved would be sensitive to potential future economic weakness. OurAs of the end of the first quarter 2023, we had no delinquencies in our CMBS portfolio.
With renewed focus continueson the commercial real estate sector, the following table shows the composition of our CMBS portfolio by maturity year and sector:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Mortgage-Backed Securities Sector Details (at March 31, 2023) | |
($ in millions) Maturity1 | Office | Lab Office | Multi-family | Multi-family IO | Retail | Industrial | Self- Storage | Casino | Defeased | Total | Average Original LTV | Average Current DSCR |
2023 | $ | 103.4 | | $ | 0 | | $ | 0 | | $ | 33.5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 22.8 | | $ | 159.7 | | 53.7 | % | 3.7 |
2024 | 169.4 | | 24.1 | | 21.7 | | 40.4 | | 36.7 | | 176.0 | | 155.8 | | 0 | | 0 | | 624.1 | | 57.3 | | 2.2 |
2025 | 7.7 | | 41.3 | | 0 | | 36.8 | | 63.2 | | 42.6 | | 0 | | 0 | | 0 | | 191.6 | | 67.0 | | 1.8 |
2026 | 556.4 | | 79.8 | | 328.4 | | 32.8 | | 0 | | 116.2 | | 76.1 | | 106.4 | | 0 | | 1,296.1 | | 62.0 | | 1.8 |
2027 | 432.3 | | 0 | | 51.8 | | 29.6 | | 0 | | 115.4 | | 256.4 | | 0 | | 0 | | 885.5 | | 59.3 | | 1.8 |
2028 | 256.6 | | 0 | | 0 | | 22.5 | | 0 | | 0 | | 0 | | 0 | | 0 | | 279.1 | | 51.9 | | 3.2 |
2029 | 482.6 | | 0 | | 0 | | 10.7 | | 0 | | 0 | | 0 | | 62.3 | | 0 | | 555.6 | | 57.6 | | 3.0 |
2030 | 72.5 | | 54.6 | | 0 | | 3.7 | | 0 | | 0 | | 0 | | 83.3 | | 0 | | 214.1 | | 55.5 | | 3.1 |
2031 | 213.1 | | 84.1 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 297.2 | | 66.5 | | 1.9 |
Total fair value | $ | 2,294.0 | | $ | 283.9 | | $ | 401.9 | | $ | 210.0 | | $ | 99.9 | | $ | 450.2 | | $ | 488.3 | | $ | 252.0 | | $ | 22.8 | | $ | 4,503.0 | | | |
LTV= loan to value | | | | | | | | | |
DSCR= debt service coverage ratio | | | | | | | | | |
1The floating-rate securities were extended to their full maturity and fixed-rate securities are shown to their anticipated repayment date (if applicable) or otherwise, their maturity date.
We show the average loan to value (LTV) of each maturity year when the loans were originated. The LTV ratio that management uses, which is commonly expressed as a percentage, compares the size of the entire mortgage loan to the appraised value of the underlying property collateralizing the loan at issuance. A LTV ratio less than 100% indicates excess collateral value over the loan amount. LTV ratios greater than 100% indicate that the loan amount exceeds the collateral value. We believe this ratio provides a conservative view of our actual risk of loss, as this number displays the entire mortgage LTV, while our ownership is only a portion of the structure of the mortgage loan-backed security. For many of the mortgage loans in our portfolio, our exposure is in a more senior part of the structure, which means that the LTV on our actual exposure is even lower than the ratios presented.
In addition to the LTV ratio, we also examine the credit of our CMBS portfolio by reviewing the debt service coverage ratio (DSCR) of the securities. The DSCR ratio compares the underlying property's annual net operating income to its annual debt service payments. DSCR ratios less than 1.0 times indicate that property operations do not generate enough income over the debt service payments, while a DSCR ratio greater than 1.0 times indicates that there is an excess of operating income over the debt service payments. A number above 1.0 generally indicates that there would not be on SASB with high-quality collateralan incentive for the borrower to default in light of the borrower's excess income. The DSCR calculation reported in the office, self-storage, multi-family,table is calculated based on the most currently available net operating income and industrial sectors.mortgage payments for the borrower, which, for most securities, is full year 2022 data.
Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at June 30, 2022,March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
| Other Asset-Backed Securities (at June 30, 2022) | |
($ in millions) Rating | Automobile | Collateralized Loan Obligations | Student Loan | Whole Business Securitizations | Equipment | Other | Total | % of Total | |
Other Asset-Backed Securities (at March 31, 2023) | | Other Asset-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating | | ($ in millions) Average Rating | Automobile | Collateralized Loan Obligations | Student Loan | Whole Business Securitizations | Equipment | Other | Total | % of Total |
AAA | AAA | $ | 1,094.7 | | $ | 1,207.8 | | $ | 48.9 | | $ | 0 | | $ | 561.8 | | $ | 200.3 | | $ | 3,113.5 | | 61.8 | % | AAA | $ | 1,154.0 | | $ | 1,072.8 | | $ | 39.1 | | $ | 0 | | $ | 533.7 | | $ | 228.9 | | $ | 3,028.5 | | 62.3 | % |
AA | AA | 217.9 | | 570.2 | | 5.7 | | 0 | | 146.3 | | 29.9 | | 970.0 | | 19.3 | | AA | 86.7 | | 576.6 | | 5.1 | | 0 | | 98.2 | | 12.8 | | 779.4 | | 16.0 | |
A | A | 17.7 | | 0 | | 7.7 | | 0 | | 107.4 | | 146.0 | | 278.8 | | 5.5 | | A | 12.0 | | 0 | | 6.6 | | 0 | | 131.6 | | 138.7 | | 288.9 | | 5.9 | |
BBB | BBB | 6.6 | | 0 | | 0 | | 598.6 | | 0 | | 36.3 | | 641.5 | | 12.7 | | BBB | 6.7 | | 0 | | 0 | | 696.6 | | 0 | | 35.2 | | 738.5 | | 15.2 | |
Non-investment grade/non-rated: | Non-investment grade/non-rated: | | Non-investment grade/non-rated: | |
BB | BB | 0 | | 0 | | 0 | | 0 | | 0 | | 32.2 | | 32.2 | | 0.7 | | BB | 0 | | 0 | | 0 | | 0 | | 0 | | 30.5 | | 30.5 | | 0.6 | |
| Total fair value | Total fair value | $ | 1,336.9 | | $ | 1,778.0 | | $ | 62.3 | | $ | 598.6 | | $ | 815.5 | | $ | 444.7 | | $ | 5,036.0 | | 100.0 | % | Total fair value | $ | 1,259.4 | | $ | 1,649.4 | | $ | 50.8 | | $ | 696.6 | | $ | 763.5 | | $ | 446.1 | | $ | 4,865.8 | | 100.0 | % |
Increase (decrease) in value | Increase (decrease) in value | (1.6) | % | (3.3) | % | (5.0) | % | (9.8) | % | (1.9) | % | (7.6) | % | (3.9) | % | | Increase (decrease) in value | (0.9) | % | (4.8) | % | (10.3) | % | (9.6) | % | (1.3) | % | (7.7) | % | (4.4) | % | |
During the first quarter 2023, we selectively added to our automobile, equipment, and whole business securitization as we viewed spreads, and potential returns, across this sector to be attractive. Our allocation to OABS remained fairly consistent overautomobile and equipment additions were mainly through new issue purchases, primarily focusing on higher credit tranche securities in the last 12 months. As valuations across other asset classes were more attractive, our OABS portfolio offered less relative value.capital structure.
MUNICIPAL SECURITIES
The following table details the credit quality rating of our municipal securities at June 30, 2022,March 31, 2023, without the benefit of credit or bond insurance:
| Municipal Securities (at June 30, 2022) | |
(millions) Rating | General Obligations | | Revenue Bonds | | Total | |
Municipal Securities (at March 31, 2023) | | Municipal Securities (at March 31, 2023) |
(millions) Average Rating | | (millions) Average Rating | General Obligations | Revenue Bonds | Total |
AAA | AAA | $ | 629.2 | | | $ | 248.4 | | | $ | 877.6 | | AAA | $ | 567.7 | | $ | 308.1 | | $ | 875.8 | |
AA | AA | 506.0 | | | 709.8 | | | 1,215.8 | | AA | 441.3 | | 705.3 | | 1,146.6 | |
A | A | 0 | | | 41.1 | | | 41.1 | | A | 0 | | 37.2 | | 37.2 | |
BBB | BBB | 0 | | | 0.7 | | | 0.7 | | BBB | 0 | | 1.8 | | 1.8 | |
Non-rated | Non-rated | 0 | | | 0.2 | | | 0.2 | | Non-rated | 0 | | 0.2 | | 0.2 | |
Total | Total | $ | 1,135.2 | | | $ | 1,000.2 | | | $ | 2,135.4 | | Total | $ | 1,009.0 | | $ | 1,052.6 | | $ | 2,061.6 | |
Included in revenue bonds were $498.8$502.3 million of single-family housing revenue bonds issued by state housing finance agencies, of which $352.5$311.0 million were supported by individual mortgages held by the state housing finance agencies and $146.3$191.3 million were supported by mortgage-backed securities.
Of the programs supported by mortgage-backed securities, 82%84% were collateralized by Ginnie Mae mortgages, which are fully guaranteed by the U.S. government; the remaining 18%16% were collateralized by Fannie Mae and Freddie Mac mortgages. Of the programs supported by individual mortgages held by the state housing finance agencies, the overall credit quality rating was AA+. Most of these mortgages were supported by the Federal Housing Administration, the U.S. Department of Veterans Affairs, or private mortgage insurance providers.
Credit spreads forof both tax-exempt and taxable municipal bonds tightened during the secondfirst quarter 2022, while spreads for taxable municipal bonds widened.2023. Our allocation to thethis sector declined modestly and we were not active during the quarter.
CORPORATE DEBT SECURITIES
The following table details the credit quality rating of our corporate debt securities at June 30, 2022:March 31, 2023:
| Corporate Securities (at June 30, 2022) | |
(millions) Rating | Consumer | Industrial | Communication | Financial Services | | Technology | Basic Materials | Energy | Total | |
| Corporate Securities (at March 31, 2023) | | Corporate Securities (at March 31, 2023) |
(millions) Average Rating | | (millions) Average Rating | Consumer | Industrial | Communication | Financial Services | | Technology | Basic Materials | Energy | Total |
AAA | | AAA | $ | 0 | | $ | 0 | | $ | 0 | | $ | 50.8 | | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 50.8 | |
AA | AA | $ | 22.5 | | $ | 0 | | $ | 0 | | $ | 223.1 | | | $ | 13.6 | | $ | 0 | | $ | 43.0 | | $ | 302.2 | | AA | 64.1 | | 0 | | 0 | | 443.0 | | | 0 | | 0 | | 62.0 | | 569.1 | |
A | A | 325.7 | | 271.4 | | 203.6 | | 1,093.2 | | | 44.8 | | 114.7 | | 183.5 | | 2,236.9 | | A | 392.5 | | 232.4 | | 121.3 | | 1,114.3 | | | 68.5 | | 115.1 | | 348.7 | | 2,392.8 | |
BBB | BBB | 2,305.8 | | 1,314.2 | | 123.3 | | 1,040.5 | | | 618.0 | | 12.8 | | 912.0 | | 6,326.6 | | BBB | 2,615.0 | | 1,337.1 | | 310.8 | | 1,027.9 | | | 559.7 | | 12.7 | | 1,079.4 | | 6,942.6 | |
Non-investment grade/non-rated: | Non-investment grade/non-rated: | | | | Non-investment grade/non-rated: | | | |
BB | BB | 362.7 | | 195.9 | | 195.1 | | 96.5 | | | 37.7 | | 30.8 | | 60.0 | | 978.7 | | BB | 175.0 | | 124.1 | | 105.7 | | 82.2 | | | 24.1 | | 0 | | 37.4 | | 548.5 | |
B | B | 245.8 | | 24.7 | | 0 | | 8.9 | | | 0 | | 0 | | 0 | | 279.4 | | B | 147.5 | | 0 | | 0 | | 0 | | | 0 | | 25.1 | | 0 | | 172.6 | |
CCC and lower | CCC and lower | 44.0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | 44.0 | | CCC and lower | 4.9 | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | 4.9 | |
| Total fair value | Total fair value | $ | 3,306.5 | | $ | 1,806.2 | | $ | 522.0 | | $ | 2,462.2 | | | $ | 714.1 | | $ | 158.3 | | $ | 1,198.5 | | $ | 10,167.8 | | Total fair value | $ | 3,399.0 | | $ | 1,693.6 | | $ | 537.8 | | $ | 2,718.2 | | | $ | 652.3 | | $ | 152.9 | | $ | 1,527.5 | | $ | 10,681.3 | |
During the second quarter of 2022, theThe size of our corporate debt portfolio sawincreased to $10.7 billion at March 31, 2023 from $9.4 billion at December 31, 2022 as we increased our allocation to the investment-grade corporate sector. At the same time, we continued to reduce our exposure to high-yield securities given a modest decrease primarily due to sales of securities withless certain macro environment and less attractive risk/reward profiles andprofile of these securities. At March 31, 2023, our corporate debt securities that matured. Themade up approximately 20% of the fixed-income portfolio, valuation also declined duecompared to the increase in interest rates and wider credit spreads. In addition, we have agreements to purchase bank loan investments and have an associated open funding commitment of $14.0 millionapproximately 19% at June 30,December 31, 2022.
We slightly shortenedlengthened the maturity profile of the corporate debt portfolio during the secondfirst quarter 2022.2023. The duration of the corporate portfolio was 3.0 years at June 30, 2022,March 31, 2023, compared to 3.12.8 years at MarchDecember 31, 2022. Overall,2022, as our corporatepurchases focused on securities as a percentage of the fixed-income portfolio decreased during the second quarter 2022. At June 30, 2022, our corporate securities made up approximately 21% of the fixed-income portfolio, compared to approximately 23% at March 31, 2022.with somewhat longer maturities which provided attractive risk reward profiles.
PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE
The table below shows the exposure break-down by sector and rating at June 30, 2022:March 31, 2023:
| Preferred Stocks (at June 30, 2022) | |
Preferred Stocks (at March 31, 2023) | | Preferred Stocks (at March 31, 2023) |
| | Financial Services | | | Financial Services | |
(millions) Rating | U.S. Banks | Foreign Banks | Insurance | Other Financial | Industrials | Utilities | Total | |
(millions) Average Rating | | (millions) Average Rating | U.S. Banks | Foreign Banks | Insurance | Other Financial | Industrials | Utilities | Total |
| BBB | BBB | $ | 874.7 | | $ | 33.6 | | $ | 111.2 | | $ | 37.6 | | $ | 136.3 | | $ | 41.7 | | $ | 1,235.1 | | BBB | $ | 734.1 | | $ | 30.4 | | $ | 87.5 | | $ | 27.6 | | $ | 132.8 | | $ | 41.9 | | $ | 1,054.3 | |
Non-investment grade/non-rated: | Non-investment grade/non-rated: | | Non-investment grade/non-rated: | |
BB | BB | 151.4 | | 37.7 | | 0 | | 0 | | 23.8 | | 34.4 | | 247.3 | | BB | 64.9 | | 20.0 | | 0 | | 0 | | 0 | | 37.4 | | 122.3 | |
| Non-rated | Non-rated | 0 | | 0 | | 43.8 | | 21.1 | | 17.0 | | 0 | | 81.9 | | Non-rated | 0 | | 0 | | 43.8 | | 23.6 | | 16.4 | | 0 | | 83.8 | |
Total fair value | Total fair value | $ | 1,026.1 | | $ | 71.3 | | $ | 155.0 | | $ | 58.7 | | $ | 177.1 | | $ | 76.1 | | $ | 1,564.3 | | Total fair value | $ | 799.0 | | $ | 50.4 | | $ | 131.3 | | $ | 51.2 | | $ | 149.2 | | $ | 79.3 | | $ | 1,260.4 | |
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. Our non-investment-grade preferred stocks were all with issuers that maintain investment-grade senior debt ratings.
We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely. AsDuring the quarter, we had exposure to one institution that was put into receivership by the Federal Deposit Insurance Corporation in March 2023. The effect of June 30,this action, along with broader weakness in securities issued by financial institutions, drove the majority of the decline in the portfolio’s value from $1.4 billion at December 31, 2022 all of our preferred securities continued to pay their dividends in full and on time.$1.3 billion at March 31, 2023. Additionally, we had an industrial position that was called during the quarter. Approximately 81%82% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable.
During the second quarter 2022, the portfolio market valuation decreased as credit spreads widened, interest rates increased, and we sold some preferred positions. We primarily sold nonredeemable preferred securities with less attractive risk/reward profiles.
Common Equities
Common equities, as reported on the balance sheets, were comprised of the following:
| ($ in millions) | ($ in millions) | June 30, 2022 | | June 30, 2021 | | December 31, 2021 | ($ in millions) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Common stocks | Common stocks | $ | 2,766.2 | | | 99.3 | % | | $ | 4,579.8 | | | 99.7 | % | | $ | 5,041.6 | | | 99.7 | % | Common stocks | $ | 2,774.0 | | | 99.3 | % | | $ | 4,792.5 | | | 99.6 | % | | $ | 2,801.7 | | | 99.3 | % |
Other risk investments | 18.5 | | | 0.7 | | | 11.6 | | | 0.3 | | | 16.9 | | | 0.3 | | |
Other risk investments1 | | Other risk investments1 | 20.3 | | | 0.7 | | | 20.1 | | | 0.4 | | | 19.8 | | | 0.7 | |
Total common equities | Total common equities | $ | 2,784.7 | | | 100.0 | % | | $ | 4,591.4 | | | 100.0 | % | | $ | 5,058.5 | | | 100.0 | % | Total common equities | $ | 2,794.3 | | | 100.0 | % | | $ | 4,812.6 | | | 100.0 | % | | $ | 2,821.5 | | | 100.0 | % |
|
1The other risk investments consist of limited partnership interests.
The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index. We held 783787 out of 1,020,1,007, or 77%78%, of the common stocks comprising the index at June 30, 2022,March 31, 2023, which made up 94%95% of the total market capitalization of the index. At June 30,March 31, 2023 and 2022, and 2021, and December 31, 2021,2022, the year-to-date total return, based on GAAP income, was within our targeted tracking error, which is +/- 50 basis points.
The other risk investments consist of limited partnership interests. During the second quarter 2022, we did not fund any partnership investments, and we have an open funding commitmentsold common equity securities, which were in a realized gain position, as part of $7.3 million at June 30, 2022.our plan to incrementally reduce risk in the portfolio in response to the potential of a more difficult economic environment over the near term.
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,” “goal,” “target,” “anticipate,” “will,” “could,” “likely,” “may,” “should,” 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 not guarantees of future performance, 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:
•our ability to underwrite and price risks accurately and to charge adequate rates to policyholders;
•our ability to establish accurate loss reserves;
•the impact of severe weather, other catastrophe events and climate change;
•the effectiveness of our reinsurance programs and the continued availability of reinsurance and performance by reinsurers;
•the highly competitive naturesecure and uninterrupted operation of property-casualty insurance markets;the systems, facilities and business functions and the operation of various third-party systems that are critical to our business;
•the impacts of a security breach or other attack involving our technology systems or the systems of one or more of our vendors;
•our ability to maintain a recognized and trusted brand and reputation;
•whether we innovate effectively and respond to our competitors’ initiatives;
•whether we effectively manage complexity as we develop and deliver products and customer experiences;
•how intellectual property rights affect our competitiveness and our 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;
•the impact of misconduct or fraudulent acts by employees, agents, and third parties to our business and/or exposure to regulatory assessments;
•the highly competitive nature of property-casualty insurance markets;
•whether we adjust claims accurately;
•compliance with complex and changing 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 moresuccess of our vendors;
•the securebusiness strategy and uninterrupted operation of the facilities, systems, and business functions that are critical to our business;
•the success of our efforts to acquire or develop new products or enter into new areas of business and navigate related risks;
•how intellectual property rights affect our continued ability to sendcompetitiveness and accept electronic payments;
•the possible impairment of our goodwill or intangible assets;business operations;
•the performance of our fixed-income and equity investment portfolios;
•the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, governance and other public policy matters;
•the elimination of the London Interbank Offered Rate;
•our continued ability to access our cash accounts and/or convert securitiesinvestments into cash on favorable terms;
•the impact if one or more parties with which we enter into significant contracts or transact business fail to perform;
•legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation;
•limitations on our ability to pay dividends on our common shares under the terms of our outstanding preferred shares;
•our ability to obtain capital when necessary to support our business and potential growth;
•evaluations by credit rating and other rating agencies;
•the variable nature of our common share dividend policy;
•whether our investments in certain tax-advantaged projects generate the anticipated returns;
•the impact from not managing to short-term earnings expectations in light of our goal to maximize the long-term value of the enterprise;
•the impacts of the COVID-19 pandemic and measures taken in response;epidemics, pandemics or other widespread health risks; 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, including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2021.2022.
Any forward-looking statements are made only as of the date presented. Except as required by applicable law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or developments or otherwise.
In addition, investors should be aware that accounting principles generally accepted accounting principlesin the United States 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 we 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 2.83.0 years at June 30, 2022,March 31, 2023, 3.1 years at June 30, 2021,March 31, 2022, and 3.02.9 years at December 31, 2021.2022. The weighted average beta of the equity portfolio was 1.001.02 at June 30,March 31, 2023, 1.04 at March 31, 2022, and was 1.041.0 at both June 30, 2021 and December 31, 2021.2022. We have not experienced a material impact 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, 2021.2022.
Item 4. Controls and Procedures.
We, under the direction of our Chief Executive Officer and our Chief Financial Officer, have 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 our disclosure controls and procedures as of the end of the period covered by this report. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our 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 changes in our 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 1. Legal Proceedings.
For a discussion of legal proceedings see Note 11 – Litigation to the consolidated financial statements, which is incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes in the risk factors from those discussed in Item 1A, Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Share Repurchases
| | | | | | | | | | | | | | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
2022 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 |
April | 3,486 | | | $ | 112.36 | | | 1,770,572 | | | 23,229,428 | |
May - prior authorization | 2,529 | | | 109.01 | | | 1,773,101 | | | — | |
May - current authorization | — | | | — | | | — | | | 25,000,000 | |
June | 1,169 | | | 117.42 | | | 1,169 | | | 24,998,831 | |
Total | 7,184 | | | $ | 112.00 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
2023 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 |
January | 229,106 | | | $ | 129.54 | | | 800,854 | | | 24,199,146 | |
February | 19,038 | | | 141.51 | | | 819,892 | | | 24,180,108 | |
March | 2,135 | | | 143.18 | | | 822,027 | | | 24,177,973 | |
Total | 250,279 | | | $ | 130.56 | | | | | |
In May 2022, 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 23,226,899 shares that remained under the Board’s May 2021 authorization to repurchase 25 million shares.
date. Share repurchases under this authorization may be accomplished through open market purchases, including trading plans entered into with one or more brokerage firms in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, through privately negotiated transactions, pursuant to our equity incentive awards, or otherwise. During the secondfirst quarter 2022,2023, all repurchases were accomplished in conjunction with our equity incentive awards 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 under leveragedunderleveraged capital.
Item 5. Other Information.
•President and CEO Susan Patricia Griffith’s quarterly letter to shareholders is included as Exhibit 99 to this Quarterly Report on Form 10-Q.
•On April 28, 2023, The Progressive Corporation entered into an Amendment to Discretionary Line Documents (the Amendment) to its unsecured, discretionary line of credit dated April 28, 2017, as amended (the Line of Credit), between The Progressive Corporation and PNC Bank, National Association (PNC), to renew the Line of Credit. The Amendment increased the Line of Credit to a principal amount of $300 million from $250 million and extended the expiration date to April 30, 2024. 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 1-month term Secured Overnight Financing Rate (SOFR) plus 1.10%. Each advance under the Line of Credit must be repaid on the 30th day after the date of the advance or, if earlier, April 30, 2024, 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. The Progressive Corporation also entered into an Amended and Restated Discretionary Line of Credit Note (the Note) substantially in the form filed herewith reflecting the increased amount, the new interest rate and other terms and conditions as more fully set forth therein.
Item 6. Exhibits.
See exhibit index beginning on page 60.The foregoing description of the Amendment and the Note does not purport to be complete and is qualified in its entirety by reference to the Amendment and the Note, copies of which are filed as Exhibits 4.1 and 4.2 hereto and are incorporated herein by reference.
Item 6. Exhibits.
See exhibit index contained herein beginning on page 57, which is incorporated by reference from information with respect to this item.
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: | AugustMay 2, 20222023 | | | By: /s/ John P. Sauerland |
| | | | John P. Sauerland |
| | | | Vice President and Chief Financial Officer |
| | | | |
| | | | |
| | | | |
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| EXHIBIT INDEX | EXHIBIT INDEX | EXHIBIT INDEX |
Exhibit No. Under Reg. S-K, Item 601 | 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 | 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 |
4 | | 4 | | 4.1 | | | | Filed herewith |
4 | | 4 | | 4.2 | | | | Filed herewith |
10 | | 10 | | 10.1 | | | | Filed herewith |
10 | | 10 | | 10.2 | | | | Filed herewith |
10 | 10 | | 10.1 | | | | Current Report on Form 8-K (filed May 16, 2022; Exhibit 10 therein) | 10 | | 10.3 | | | | Filed herewith |
10 | 10 | | 10.2 | | | | Filed herewith | 10 | | 10.4 | | | | Filed herewith |
31 | 31 | | 31.1 | | | | Filed herewith | 31 | | 31.1 | | | | Filed herewith |
31 | 31 | | 31.2 | | | | Filed herewith | 31 | | 31.2 | | | | Filed herewith |
32 | 32 | | 32.1 | | | | Furnished herewith | 32 | | 32.1 | | | | Furnished herewith |
32 | 32 | | 32.2 | | | | Furnished herewith | 32 | | 32.2 | | | | Furnished herewith |
99 | 99 | | 99 | | | | Furnished herewith | 99 | | 99 | | | | Furnished herewith |
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101 | 101 | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith | 101 | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith |
101 | 101 | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith | 101 | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith |
101 | 101 | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith | 101 | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith |
101 | 101 | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith | 101 | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith |
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