The Progressive Corporation (PGR) 8-K Progressive Reports February Results

NEWS RELEASE

The Progressive Corporation	Company Contact:
6300 Wilson Mills Road	Julia Hornack
Mayfield Village, Ohio 44143	(440) 395-2164
http://www.progressive.com

PROGRESSIVE REPORTS FEBRUARY RESULTS

MAYFIELD VILLAGE, OHIO -- March 13, 2019 -- The Progressive Corporation (NYSE:PGR) today reported the following results for February 2019:

	February		February
(millions, except per share amounts and ratios; unaudited)	2019		2018			Change
Net premiums written	$	3,107.0	$	2,700.9		15	%
Net premiums earned	$	2,601.3	$	2,204.7		18	%
Net income attributable to Progressive	$	327.6	$	129.1		154	%
Per share available to common shareholders	$	0.55	$	0.22		152	%
Total pretax net realized gains (losses) on securities	$	109.9	$	(139.6	)	(179)	%
Combined ratio	90.9		87.8			3.1 pts.
Average diluted equivalent common shares	586.6		585.6			0	%

(thousands; unaudited)	February	February
	2019	2018	Change
Policies in Force
Vehicle businesses:
Agency – auto	6,497.4	5,822.0	12 %
Direct – auto	7,189.9	6,279.9	14 %
Total personal auto	13,687.3	12,101.9	13 %
Total special lines	4,380.7	4,274.8	2 %
Total Personal Lines	18,068.0	16,376.7	10 %
Total Commercial Lines	703.8	653.4	8 %
Property business	1,978.1	1,612.1	23 %

Progressive offers personal and commercial insurance throughout the United States. Our Personal Lines business writes insurance for personal autos and special lines products. Our Commercial Lines business writes primary liability, physical damage, and other auto-related insurance for autos and trucks owned and/or operated predominantly by small businesses. Our Property business writes residential property insurance for homeowners, other property owners, and renters.

See the “Comprehensive Income Statements” and “Supplemental Information” for further month and year-to-date information and

the "Monthly Commentary" at the end of this release for additional discussion.

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

COMPREHENSIVE INCOME STATEMENT

February 2019

(millions)

(unaudited)

	Current Month			Comments on Monthly Results1
Net premiums written	$	3,107.0
Revenues:
Net premiums earned	$	2,601.3
Investment income	81.8
Net realized gains (losses) on securities:
Net realized gains (losses) on security sales	22.5
Net holding period gains (losses) on securities	87.4
Total net realized gains (losses) on securities	109.9
Fees and other revenues	40.5
Service revenues	12.6
Total revenues	2,846.1
Expenses:
Losses and loss adjustment expenses	1,829.2
Policy acquisition costs	218.5
Other underwriting expenses	357.0
Investment expenses	1.7
Service expenses	11.3
Interest expense	15.8
Total expenses	2,433.5
Income before income taxes	412.6
Provision for income taxes	85.9
Net income	326.7
Net (income) loss attributable to noncontrolling interest (NCI)	0.9
Net income attributable to Progressive	327.6
Other comprehensive income (loss)
Changes in:
Total net unrealized gains (losses) on fixed-maturity securities	(2.9		)
Net unrealized losses on forecasted transactions	0.1
Other comprehensive income (loss)	(2.8		)
Other comprehensive (income) loss attributable to NCI	0.4
Total comprehensive income attributable to Progressive	$	325.2

¹ See the Monthly Commentary at the end of this release. For a description of our financial reporting and accounting policies, see Note 1 to our 2018 audited consolidated financial statements included in our 2018 Shareholders’ Report, which can be found at www.progressive.com/annualreport.

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

COMPREHENSIVE INCOME STATEMENTS

February 2019

(millions)

(unaudited)

	Year-to-Date
	2019			2018			% Change
Net premiums written	$	6,280.2		$	5,430.1		16
Revenues:
Net premiums earned	$	5,791.2		$	4,894.3		18
Investment income	166.1			105.0			58
Net realized gains (losses) on securities:
Net realized gains (losses) on security sales	32.8			104.1			(68)
Net holding period gains (losses) on securities	346.6			(62.6		)	NM
Total net realized gains (losses) on securities	379.4			41.5			NM
Fees and other revenues	86.9			67.4			29
Service revenues	27.5			21.1			30
Total revenues	6,451.1			5,129.3			26
Expenses:
Losses and loss adjustment expenses	3,980.3			3,282.0			21
Policy acquisition costs	486.9			405.0			20
Other underwriting expenses	809.5			666.1			22
Investment expenses	3.9			3.8			3
Service expenses	24.0			18.2			32
Interest expense	31.6			23.7			33
Total expenses	5,336.2			4,398.8			21
Income before income taxes	1,114.9			730.5			53
Provision for income taxes	228.1			143.0			60
Net income	886.8			587.5			51
Net (income) loss attributable to noncontrolling interest (NCI)	(3.2		)	(10.1		)	(68)
Net income attributable to Progressive	883.6			577.4			53
Other comprehensive income (loss)
Changes in:
Total net unrealized gains (losses) on fixed-maturity securities	122.7			(173.0		)	(171)
Net unrealized losses on forecasted transactions	0.1			0.1			0
Other comprehensive income (loss)	122.8			(172.9		)	(171)
Other comprehensive (income) loss attributable to NCI	(0.5		)	4.6			(111)
Total comprehensive income attributable to Progressive	$	1,005.9		$	409.1		146
NM = Not Meaningful

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

COMPUTATION OF NET INCOME AND COMPREHENSIVE INCOME PER SHARE

&

INVESTMENT RESULTS

February 2019

(millions – except per share amounts)

(unaudited)

The following table sets forth the computation of per share results:
	Current		Year-to-Date
	Month		2019		2018
Net income attributable to Progressive	$	327.6	$	883.6	$	577.4
Less: Preferred share dividends	2.3		4.5		0
Net income available to common shareholders	$	325.3	$	879.1	$	577.4
Per common share:
Basic	$	0.56	$	1.51	$	0.99
Diluted	$	0.55	$	1.50	$	0.99
Comprehensive income (loss) attributable to Progressive	$	325.2	$	1,005.9	$	409.1
Less: Preferred share dividends	2.3		4.5		0
Comprehensive income (loss) attributable to common shareholders	$	322.9	$	1,001.4	$	409.1
Per common share:
Diluted	$	0.55	$	1.71	$	0.70
Average common shares outstanding - Basic	583.5		583.5		582.0
Net effect of dilutive stock-based compensation	3.1		3.0		3.6
Total average equivalent common shares - Diluted	586.6		586.5		585.6

The following table sets forth the investment results for the period:
		Current	Year-to-Date
		Month	2019	2018
	Fully taxable equivalent (FTE) total return:
	Fixed-income securities	0.3%	1.3%	(0.6)%
	Common stocks	3.1%	11.5%	2.0%
	Total portfolio	0.6%	2.1%	(0.2)%
	Pretax annualized investment income book yield	3.1%	3.1%	2.5%

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

February 2019

($ in millions)

(unaudited)

Current Month
	Vehicles
										Commercial
	Personal Lines Business									Lines			Property			Companywide
	Agency			Direct			Total			Business			Business			Total
Net Premiums Written	$	1,258.2		$	1,321.1		$	2,579.3		$	414.9		$	112.8		$	3,107.0
% Growth in NPW	12		%	14		%	13		%	26		%	17		%	15%
Net Premiums Earned	$	1,079.3		$	1,098.5		$	2,177.8		$	310.8		$	112.7		$	2,601.3
% Growth in NPE	15		%	18		%	16		%	26		%	27%			18%
GAAP Ratios
Loss/LAE ratio	68.6			72.1			70.4			64.0			86.01			70.3
Expense ratio	19.2			20.6			19.9			21.3			31.72			20.6
Combined ratio	87.8			92.7			90.3			85.3			117.72			90.9
Actuarial Adjustments3
Reserve Decrease/(Increase)
Prior accident years																$	1.6
Current accident year																1.6
Calendar year actuarial adjustment	$	0.7		$	0.4		$	1.1		$	1.2		$	0.9		$	3.2
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment																$	1.6
All other development																(3.0		)
Total development																$	(1.4	)
Calendar year loss/LAE ratio																70.3
Accident year loss/LAE ratio																70.2

¹ Includes 7.2 points of catastrophe losses as well as additional losses and LAE from non-catastrophe winter storms that occurred during the month. We have not recorded a reinsurance recoverable under our aggregate stop loss agreement since total covered losses and certain allocated loss adjustment expenses have not exceeded the threshold under the agreement, which is calculated on a year-to-date basis.

² Included in both the expense ratio and combined ratio is 5.3 points of amortization expense predominately associated with the acquisition of a controlling interest in ARX. Excluding these additional expenses, the Property business would have reported an expense ratio of 26.4 and a combined ratio of 112.4.

³ Represents adjustments solely based on our actuarial reviews. For our Property business, the actuarial reserving methodology includes changes to catastrophe losses, while the reviews in our vehicle businesses do not include catastrophes.

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

February 2019

($ in millions)

(unaudited)

Year-to-Date
	Vehicles
										Commercial
	Personal Lines Business									Lines			Property			Companywide
	Agency			Direct			Total			Business			Business			Total
Net Premiums Written	$	2,553.7		$	2,704.4		$	5,258.1		$	808.6		$	213.5		$	6,280.2
% Growth in NPW	13		%	15		%	14		%	26		%	20		%	16%
Net Premiums Earned	$	2,410.2		$	2,451.8		$	4,862.0		$	693.3		$	235.9		$	5,791.2
% Growth in NPE	15		%	19		%	17		%	27		%	27%			18%
GAAP Ratios
Loss/LAE ratio	68.0			70.9			69.4			64.0			67.4			68.7
Expense ratio	19.7			21.3			20.5			21.0			29.01			20.9
Combined ratio	87.7			92.2			89.9			85.0			96.41			89.6
Actuarial Adjustments2
Reserve Decrease/(Increase)
Prior accident years																$	(20.7	)
Current accident year																6.2
Calendar year actuarial adjustment	$	(5.5	)	$	(7.7	)	$	(13.2	)	$	1.2		$	(2.5	)	$	(14.5	)
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment																$	(20.7	)
All other development																(133.8		)
Total development																$	(154.5	)
Calendar year loss/LAE ratio																68.7
Accident year loss/LAE ratio																66.0

¹ Included in both the expense ratio and combined ratio is 5.1 points of amortization expense predominately associated with the acquisition of a controlling interest in ARX. Excluding these additional expenses, the Property business would have reported an expense ratio of 23.9 and a combined ratio of 91.3.

² Represents adjustments solely based on our actuarial reviews. For our Property business, the actuarial reserving methodology includes changes to catastrophe losses, while the reviews in our vehicle businesses do not include catastrophes.

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THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

BALANCE SHEET AND OTHER INFORMATION

(millions - except per share amounts)

(unaudited)

	February 2019
CONDENSED GAAP BALANCE SHEET:
Investments, at fair value:
Available-for-sale securities:
Fixed maturities1 (amortized cost: $27,562.5)	$	27,581.1
Short-term investments (amortized cost: $2,527.9)	2,527.9
Total available-for-sale securities	30,109.0
Equity securities:
Nonredeemable preferred stocks(cost: $1,023.1)	1,095.6
Common equities (cost: $1,178.3)	2,953.2
Total equity securities	4,048.8
Total investments2	34,157.8
Net premiums receivable	7,072.6
Deferred acquisition costs	977.1
Goodwill and intangible assets	735.4
Other assets3	5,216.3
Total assets	$	48,159.2
Unearned premiums	$	11,336.3
Loss and loss adjustment expense reserves3	15,682.2
Other liabilities2	4,788.2
Debt	4,405.3
Total liabilities	36,212.0
Redeemable noncontrolling interest (NCI)	218.2
Shareholders' equity	11,729.0
Total liabilities, NCI, and shareholders' equity	$	48,159.2
Common shares outstanding	584.0
Common shares repurchased - February	0.05
Average cost per common share	$	71.38
Book value per common share	$	19.24
Trailing 12-month return on average common shareholders' equity
Net income attributable to Progressive	27.0		%
Comprehensive income attributable to Progressive	28.8		%
Net unrealized pretax gains (losses) on fixed-maturity securities	$	21.1
Increase (decrease) from January 2019	$	(3.7	)
Increase (decrease) from December 2018	$	155.3
Debt-to-total capital ratio4	27.3		%
Fixed-income portfolio duration	2.6
Weighted average credit quality	AA-

¹ As of February 28, 2019, we held certain hybrid securities and recognized a change in fair value of $2.5 million as a realized loss during the period we held these securities.

² At February 28, 2019, we had $314.7 million of net unsettled security transactions classified in "other liabilities."

³ Loss and loss adjustment expense reserves are stated gross of reinsurance recoverables on unpaid losses of $2,605.5 million, which are included in "other assets."

⁴ Ratio reflects debt as a percent of debt plus shareholders' equity; redeemable noncontrolling interest is not part of this calculation.

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Monthly Commentary

• As previously announced, on February 15, 2019, the Board of Directors declared a dividend on our common shares and on our Series B Fixed-to-Floating Rate Cumulative Perpetual Serial Preferred Shares. The $0.10 per common share dividend is payable April 15, 2019, to shareholders of record at the close of business on April 5, 2019 (ex-dividend date of April 4, 2019). The $26.875 per Series B Share dividend, or $13.4 million in the aggregate, is based on the annual rate of 5.375% of the stated amount of $1,000 per Series B Share and is payable March 15, 2019, to shareholders of record at the close of business on February 28, 2019.

Events

We plan to release March results on Tuesday, April 16, 2019, before the market opens.

About Progressive

The Progressive Group of Insurance Companies makes it easy to understand, buy and use auto insurance. Progressive offers choices so consumers can reach us whenever, wherever and however it's most convenient - online at progressive.com, by phone at 1-800-PROGRESSIVE, on a mobile device or in-person with a local agent.

Progressive provides insurance for personal and commercial autos and trucks, motorcycles, boats, recreational vehicles, and homes. Home insurance is underwritten by select carriers, including American Strategic Insurance Corp. and subsidiaries (ASI), our majority owned subsidiaries.

Progressive is the third largest auto insurer in the country; a leading seller of motorcycle and commercial auto insurance; and through ASI, one of the top 15 homeowners insurance carriers.

Founded in 1937, Progressive continues its long history of offering shopping tools and services that save customers time and money, like Name Your Price^®, Snapshot^®, and HomeQuote Explorer^®.

The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, trade publicly at NYSE:PGR.

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as “estimate,” “expect,” “intend,” “plan,” “believe,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions, and projections generally; inflation and changes in general economic conditions (including changes in interest rates and financial markets); the possible failure of one or more governmental, corporate, or other entities to make scheduled debt payments or satisfy other obligations; our ability to access capital markets and financing arrangements when needed to support growth or other capital needs, and the favorable evaluations by credit and other rating agencies on which this access depends; the potential or actual downgrading by one or more rating agencies of our securities or governmental, corporate, or other securities we hold; the financial condition of, and other issues relating to the strength of and liquidity available to, issuers of securities held in our investment portfolios and other companies with which we have ongoing business relationships, including reinsurers and other counterparties to certain financial transactions or under certain government programs; the accuracy and adequacy of our pricing, loss reserving, and claims methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to attract and retain more customers, including our efforts to enter into new business areas with which we have less experience; initiatives by competitors and the effectiveness of our response; our ability to obtain regulatory approval for the introduction of products to new jurisdictions, for requested rate changes and the timing thereof and for any proposed acquisitions; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments at the state and federal levels, including, but not limited to, matters relating to vehicle and homeowners insurance, health care reform and tax law changes; the outcome of disputes relating to intellectual property rights; the outcome of litigation or governmental investigations that may be pending or filed against us; severe weather conditions and other catastrophe events, and our ability to respond to changes in catastrophe loss trends; the effectiveness of our reinsurance programs; changes in vehicle usage and driving patterns, which may be influenced by oil and gas prices, changes in residential occupancy patterns, and the effects of the emerging “sharing economy”; advancements in vehicle or home technology or safety features, such as accident and loss prevention technologies or the development of autonomous or partially autonomous vehicles; our ability to accurately recognize and appropriately respond in a timely manner to changes in loss frequency and severity trends; technological advances; acts of war and terrorist activities; our ability to maintain the uninterrupted operation of our facilities, systems (including information technology systems), and business functions, and safeguard personal and sensitive information in our possession, whether from cyber attacks, other technology events or other means; our continued access to and functionality of third-party systems that are critical to our business; our ability to maintain adequate staffing levels, and the sources from which we obtain talent; our continued ability to access cash accounts and/or convert securities into cash on favorable terms when we desire to do so; restrictions on our subsidiaries’ ability to pay dividends to The Progressive Corporation; possible impairment of our goodwill or intangible assets if future results do not adequately support either, or both, of these items; court decisions, new theories of insurer liability or interpretations of insurance policy provisions and other trends in litigation; changes in health care and auto and property repair costs; and other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established 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.

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