App.-A-1
Consolidated Statements of Income
For the years ended December 31,
(millions — except per share amounts) | 2007 | 2006 | 2005 | |||||||||
Revenues | ||||||||||||
Net premiums earned | $ | 13,877.4 | $ | 14,117.9 | $ | 13,764.4 | ||||||
Investment income | 680.8 | 647.8 | 536.7 | |||||||||
Net realized gains (losses) on securities | 106.3 | (9.7 | ) | (37.9 | ) | |||||||
Service revenues | 22.3 | 30.4 | 40.2 | |||||||||
Total revenues | 14,686.8 | 14,786.4 | 14,303.4 | |||||||||
Expenses | ||||||||||||
Losses and loss adjustment expenses | 9,926.2 | 9,394.9 | 9,364.8 | |||||||||
Policy acquisition costs | 1,399.9 | 1,441.9 | 1,448.2 | |||||||||
Other underwriting expenses | 1,526.2 | 1,402.8 | 1,312.2 | |||||||||
Investment expenses | 12.4 | 11.9 | 12.1 | |||||||||
Service expenses | 20.5 | 24.4 | 24.6 | |||||||||
Interest expense | 108.6 | 77.3 | 82.6 | |||||||||
Total expenses | 12,993.8 | 12,353.2 | 12,244.5 | |||||||||
Net Income | ||||||||||||
Income before income taxes | 1,693.0 | 2,433.2 | 2,058.9 | |||||||||
Provision for income taxes | 510.5 | 785.7 | 665.0 | |||||||||
Net income | $ | 1,182.5 | $ | 1,647.5 | $ | 1,393.9 | ||||||
Computation of Earnings Per Share | ||||||||||||
Basic: | ||||||||||||
Average shares outstanding | 710.4 | 774.3 | 787.7 | |||||||||
Per share | $ | 1.66 | $ | 2.13 | $ | 1.77 | ||||||
Diluted: | ||||||||||||
Average shares outstanding | 710.4 | 774.3 | 787.7 | |||||||||
Net effect of dilutive stock-based compensation | 8.1 | 9.5 | 11.6 | |||||||||
Total equivalent shares | 718.5 | 783.8 | 799.3 | |||||||||
Per share | $ | 1.65 | $ | 2.10 | $ | 1.74 | ||||||
App.-A-2
Consolidated Balance Sheets
December 31,
(millions) | 2007 | 2006 | ||||||
Assets | ||||||||
Investments - Available-for-sale, at fair value: | ||||||||
Fixed maturities (amortized cost: $9,135.6 and $9,959.6) | $ | 9,184.9 | $ | 9,958.9 | ||||
Equity securities: | ||||||||
Preferred stocks (cost: $2,578.1 and $1,761.4) | 2,270.3 | 1,781.0 | ||||||
Common equities (cost: $1,361.0 and $1,469.0) | 2,327.5 | 2,368.1 | ||||||
Short-term investments (amortized cost: $382.4 and $581.0) | 382.4 | 581.2 | ||||||
Total investments | 14,165.1 | 14,689.2 | ||||||
Cash | 5.8 | 5.6 | ||||||
Accrued investment income | 142.1 | 134.4 | ||||||
Premiums receivable, net of allowance for doubtful accounts of $118.1 and $122.0 | 2,395.1 | 2,498.2 | ||||||
Reinsurance recoverables, including $47.6 and $72.4 on paid losses | 335.1 | 433.8 | ||||||
Prepaid reinsurance premiums | 69.8 | 89.5 | ||||||
Deferred acquisition costs | 426.3 | 441.0 | ||||||
Income taxes | 106.0 | 16.8 | ||||||
Property and equipment, net of accumulated depreciation of $605.7 and $557.0 | 1,000.4 | 973.4 | ||||||
Other assets | 197.4 | 200.2 | ||||||
Total assets | $ | 18,843.1 | $ | 19,482.1 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Unearned premiums | $ | 4,210.4 | $ | 4,335.0 | ||||
Loss and loss adjustment expense reserves | 5,942.7 | 5,725.0 | ||||||
Accounts payable, accrued expenses and other liabilities1 | 1,580.6 | 1,390.0 | ||||||
Debt2 | 2,173.9 | 1,185.5 | ||||||
Total liabilities | 13,907.6 | 12,635.5 | ||||||
Shareholders’ equity: | ||||||||
Common Shares, $1.00 par value (authorized 900.0; issued 798.1 and 798.7, including treasury shares of 117.9 and 50.7) | 680.2 | 748.0 | ||||||
Paid-in capital | 834.8 | 847.4 | ||||||
Accumulated other comprehensive income: | ||||||||
Net unrealized gains on securities | 465.0 | 596.8 | ||||||
Net unrealized gains on forecasted transactions | 27.8 | 7.5 | ||||||
Retained earnings | 2,927.7 | 4,646.9 | ||||||
Total shareholders’ equity | 4,935.5 | 6,846.6 | ||||||
Total liabilities and shareholders’ equity | $ | 18,843.1 | $ | 19,482.1 | ||||
App.-A-3
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31,
(millions — except per share amounts) | 2007 | 2006 | 2005 | |||||||||||||||||||||
Retained Earnings | ||||||||||||||||||||||||
Balance, Beginning of year | $ | 4,646.9 | $ | 4,726.0 | $ | 3,812.9 | ||||||||||||||||||
Net income | 1,182.5 | $ | 1,182.5 | 1,647.5 | $ | 1,647.5 | 1,393.9 | $ | 1,393.9 | |||||||||||||||
Cash dividends declared on Common Shares ($2.1450, $.0325 and $.0300 per share)1 | (1,507.6 | ) | (25.0 | ) | (23.7 | ) | ||||||||||||||||||
Treasury shares purchased2 | (1,388.4 | ) | (1,111.6 | ) | (457.0 | ) | ||||||||||||||||||
Capitalization of stock split | — | (585.9 | ) | — | ||||||||||||||||||||
Other, net3 | (5.7 | ) | (4.1 | ) | (.1 | ) | ||||||||||||||||||
Balance, End of year | $ | 2,927.7 | $ | 4,646.9 | $ | 4,726.0 | ||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax | ||||||||||||||||||||||||
Balance, Beginning of year | $ | 604.3 | $ | 398.7 | $ | 444.8 | ||||||||||||||||||
Changes in: | ||||||||||||||||||||||||
Net unrealized gains on securities | (131.8 | ) | 206.7 | (45.0 | ) | |||||||||||||||||||
Net unrealized gains on forecasted transactions | 20.3 | (1.1 | ) | (1.1 | ) | |||||||||||||||||||
Other comprehensive income | (111.5 | ) | (111.5 | ) | 205.6 | 205.6 | (46.1 | ) | (46.1 | ) | ||||||||||||||
Balance, End of year | $ | 492.8 | $ | 604.3 | $ | 398.7 | ||||||||||||||||||
Comprehensive Income | $ | 1,071.0 | $ | 1,853.1 | $ | 1,347.8 | ||||||||||||||||||
Common Shares, $1.00 Par Value | ||||||||||||||||||||||||
Balance, Beginning of year | $ | 748.0 | $ | 197.3 | $ | 200.4 | ||||||||||||||||||
Stock options exercised | 3.4 | 3.7 | 1.6 | |||||||||||||||||||||
Treasury shares purchased2 | (72.9 | ) | (39.1 | ) | (5.2 | ) | ||||||||||||||||||
Restricted stock issued, net of forfeitures | 1.7 | .2 | .5 | |||||||||||||||||||||
Capitalization of stock split | — | 585.9 | — | |||||||||||||||||||||
Balance, End of year | $ | 680.2 | $ | 748.0 | $ | 197.3 | ||||||||||||||||||
Paid-In Capital | ||||||||||||||||||||||||
Balance, Beginning of year | $ | 847.4 | $ | 848.2 | $ | 743.3 | ||||||||||||||||||
Stock options exercised | 27.4 | 39.6 | 42.6 | |||||||||||||||||||||
Tax benefits from exercise/vesting of stock-based compensation | 15.5 | 38.8 | 41.2 | |||||||||||||||||||||
Treasury shares purchased2 | (87.1 | ) | (63.8 | ) | �� | (20.6 | ) | |||||||||||||||||
Restricted stock issued, net of forfeitures | (1.7 | ) | (.2 | ) | 41.7 | |||||||||||||||||||
Amortization of stock-based compensation | 28.0 | 27.8 | — | |||||||||||||||||||||
SFAS 123(R) reclass4 | — | (51.5 | ) | — | ||||||||||||||||||||
Other3 | 5.3 | 8.5 | — | |||||||||||||||||||||
Balance, End of year | $ | 834.8 | $ | 847.4 | $ | 848.2 | ||||||||||||||||||
Unamortized Restricted Stock | ||||||||||||||||||||||||
Balance, Beginning of year | $ | — | $ | (62.7 | ) | $ | (46.0 | ) | ||||||||||||||||
Restricted stock issued, net of forfeitures | — | — | (42.2 | ) | ||||||||||||||||||||
Restricted stock market value adjustment | — | — | (8.2 | ) | ||||||||||||||||||||
Amortization of restricted stock | — | — | 33.7 | |||||||||||||||||||||
SFAS 123(R) reclass4 | — | 62.7 | — | |||||||||||||||||||||
Balance, End of year | $ | — | $ | — | $ | (62.7 | ) | |||||||||||||||||
Total Shareholders’ Equity | $ | 4,935.5 | $ | 6,846.6 | $ | 6,107.5 | ||||||||||||||||||
4 | Upon adoption of SFAS 123(R), companies were required to eliminate any unearned compensation (i.e., contra-equity) accounts against the appropriate equity accounts. As a result, as of January 1, 2006, we were required to reclassify $62.7 million of “Unamortized restricted stock,” of which $51.5 million related to equity awards and $11.2 million related to liability awards. |
App.-A-4
Consolidated Statements of Cash Flows
For the years ended December 31,
(millions) | 2007 | 2006 | 2005 | |||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 1,182.5 | $ | 1,647.5 | $ | 1,393.9 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 106.9 | 103.4 | 92.4 | |||||||||
Amortization of fixed maturities | 284.1 | 225.6 | 189.6 | |||||||||
Amortization of stock-based compensation | 26.5 | 27.6 | 33.7 | |||||||||
Net realized (gains) losses on securities | (106.3 | ) | 9.7 | 37.9 | ||||||||
Net loss on disposition of property and equipment | .4 | .9 | — | |||||||||
Changes in: | ||||||||||||
Premiums receivable | 103.1 | 2.5 | (213.5 | ) | ||||||||
Reinsurance recoverables | 98.7 | (28.1 | ) | (24.1 | ) | |||||||
Prepaid reinsurance premiums | 19.7 | 14.2 | 16.1 | |||||||||
Deferred acquisition costs | 14.7 | 3.8 | (12.6 | ) | ||||||||
Income taxes | (30.3 | ) | 10.1 | (140.0 | ) | |||||||
Unearned premiums | (124.6 | ) | (.1 | ) | 227.1 | |||||||
Loss and loss adjustment expense reserves | 217.7 | 64.7 | 374.7 | |||||||||
Accounts payable, accrued expenses and other liabilities | 2.4 | 7.1 | 49.5 | |||||||||
Tax benefits from exercise/vesting of stock-based compensation1 | — | — | 41.2 | |||||||||
Other, net | (4.5 | ) | (64.3 | ) | (71.9 | ) | ||||||
Net cash provided by operating activities | 1,791.0 | 2,024.6 | 1,994.0 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchases: | ||||||||||||
Fixed maturities | (8,184.6 | ) | (6,294.9 | ) | (9,154.4 | ) | ||||||
Equity securities | (1,490.3 | ) | (1,131.6 | ) | (852.9 | ) | ||||||
Short-term investments — auction rate securities | (7,156.6 | ) | (2,999.3 | ) | (7,935.3 | ) | ||||||
Sales: | ||||||||||||
Fixed maturities | 8,327.6 | 5,668.2 | 7,068.6 | |||||||||
Equity securities | 775.2 | 323.1 | 152.3 | |||||||||
Short-term investments — auction rate securities | 7,325.4 | 3,215.5 | 8,053.4 | |||||||||
Maturities, paydowns, calls and other: | ||||||||||||
Fixed maturities | 557.9 | 686.1 | 572.6 | |||||||||
Equity securities | 10.7 | 223.5 | 114.4 | |||||||||
Net sales (purchases) of short-term investments — other | 30.0 | (22.3 | ) | 491.8 | ||||||||
Net unsettled security transactions | 35.1 | (116.6 | ) | 126.6 | ||||||||
Purchases of property and equipment | (136.3 | ) | (334.3 | ) | (219.3 | ) | ||||||
Sale of property and equipment | 2.0 | 15.4 | 36.1 | |||||||||
Net cash provided by (used in) investing activities | 96.1 | (767.2 | ) | (1,546.1 | ) | |||||||
Cash Flows From Financing Activities | ||||||||||||
Proceeds from exercise of stock options | 30.8 | 43.3 | 44.2 | |||||||||
Tax benefits from exercise/vesting of stock-based compensation1 | 15.5 | 38.8 | — | |||||||||
Proceeds from debt2 | 1,021.7 | — | — | |||||||||
Payment of debt | — | (100.0 | ) | — | ||||||||
Dividends paid to shareholders | (1,406.5 | ) | (25.0 | ) | (23.7 | ) | ||||||
Acquisition of treasury shares | (1,548.4 | ) | (1,214.5 | ) | (482.8 | ) | ||||||
Net cash used in financing activities | (1,886.9 | ) | (1,257.4 | ) | (462.3 | ) | ||||||
Increase (decrease) in cash | .2 | — | (14.4 | ) | ||||||||
Cash, Beginning of year | 5.6 | 5.6 | 20.0 | |||||||||
Cash, End of year | $ | 5.8 | $ | 5.6 | $ | 5.6 | ||||||
App.-A-5
• | Changes in fair value of an asset or liability (fair value hedge); |
App.-A-6
• | Foreign currency of an investment in a foreign operation (foreign currency hedge); or |
• | Variable cash flows of a forecasted transaction (cash flow hedge). |
• | Fair value hedge: changes in fair value of the hedge, as well as the hedged item, would be recognized in income in the period of change while the hedge was in effect. |
• | Foreign currency hedge: changes in fair value of the hedge, as well as the hedged item, would be reflected as a change in translation adjustment as part of accumulated other comprehensive income. Gains and losses on the foreign currency hedge would offset the foreign exchange gains and losses on the foreign investment as they are recognized into income. |
• | Cash flow hedge: changes in fair value of the hedge would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction. |
• | Fair value hedge: the derivative instrument would continue to be adjusted through income, while the adjustment in the change in value of the hedged item would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income. |
• | Foreign currency hedge: changes in the value of the hedged item would continue to be reflected as a change in translation adjustment as part of accumulated other comprehensive income, but the derivative instrument would be adjusted through income for the current period. |
• | Cash flow hedge: changes in fair value of the derivative instrument would be reported in income for the current period. |
App.-A-7
App.-A-8
(millions, except per share amounts) | 2005 | |||
Net income, as reported | $ | 1,393.9 | ||
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all stock option awards, net of related tax effects | (2.6 | ) | ||
Net income, pro forma | $ | 1,391.3 | ||
Earnings per share | ||||
Basic — as reported | $ | 1.77 | ||
Basic — pro forma | 1.77 | |||
Diluted — as reported | $ | 1.74 | ||
Diluted — pro forma | 1.74 |
App.-A-9
App.-A-10
2. | INVESTMENTS |
Gross | Gross | % of | ||||||||||||||||||
Unrealized | Unrealized | Fair | Total | |||||||||||||||||
(millions) | Cost | Gains | Losses | Value | Portfolio | |||||||||||||||
2007 | ||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||
U.S. government obligations1 | $ | 1,166.7 | $ | 40.4 | $ | — | $ | 1,207.1 | 8.5 | % | ||||||||||
State and local government obligations | 3,706.3 | 44.0 | (5.2 | ) | 3,745.1 | 26.5 | ||||||||||||||
Foreign government obligations | 29.9 | .3 | — | 30.2 | .2 | |||||||||||||||
Corporate and U.S. agency debt securities | 1,075.0 | 12.1 | (8.7 | ) | 1,078.4 | 7.6 | ||||||||||||||
Asset-backed securities | 2,503.6 | 35.9 | (27.9 | ) | 2,511.6 | 17.7 | ||||||||||||||
Redeemable preferred stock | 654.1 | 4.4 | (46.0 | ) | 612.5 | 4.3 | ||||||||||||||
Total fixed maturities | 9,135.6 | 137.1 | (87.8 | ) | 9,184.9 | 64.8 | ||||||||||||||
Short-term investments: | ||||||||||||||||||||
Other short-term investments | 382.4 | — | — | 382.4 | 2.7 | |||||||||||||||
Preferred stocks2 | 2,578.1 | 6.0 | (306.4 | ) | 2,270.3 | 16.0 | ||||||||||||||
Common equities | 1,361.0 | 986.8 | (20.3 | ) | 2,327.5 | 16.5 | ||||||||||||||
Total portfolio2, 3 | $ | 13,457.1 | $ | 1,129.9 | $ | (414.5 | ) | $ | 14,165.1 | 100.0 | % | |||||||||
2006 | ||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||
U.S. government obligations | $ | 3,195.1 | $ | 23.3 | $ | (15.0 | ) | $ | 3,203.4 | 21.8 | % | |||||||||
State and local government obligations | 3,124.2 | 18.4 | (22.9 | ) | 3,119.7 | 21.2 | ||||||||||||||
Foreign government obligations | 29.8 | .1 | (.1 | ) | 29.8 | .2 | ||||||||||||||
Corporate and U.S. agency debt securities | 1,125.0 | 5.6 | (13.8 | ) | 1,116.8 | 7.6 | ||||||||||||||
Asset-backed securities | 2,387.4 | 24.0 | (21.3 | ) | 2,390.1 | 16.3 | ||||||||||||||
Redeemable preferred stock | 98.1 | 3.4 | (2.4 | ) | 99.1 | .7 | ||||||||||||||
Total fixed maturities | 9,959.6 | 74.8 | (75.5 | ) | 9,958.9 | 67.8 | ||||||||||||||
Short-term investments: | ||||||||||||||||||||
Auction rate municipal obligations | 99.4 | — | — | 99.4 | .7 | |||||||||||||||
Auction rate preferred stocks | 69.2 | .2 | — | 69.4 | .5 | |||||||||||||||
Other short-term investments | 412.4 | — | — | 412.4 | 2.8 | |||||||||||||||
Total short-term investments | 581.0 | .2 | — | 581.2 | 4.0 | |||||||||||||||
Preferred stocks | 1,761.4 | 31.5 | (11.9 | ) | 1,781.0 | 12.1 | ||||||||||||||
Common equities | 1,469.0 | 904.0 | (4.9 | ) | 2,368.1 | 16.1 | ||||||||||||||
Total portfolio3 | $ | 13,771.0 | $ | 1,010.5 | $ | (92.3 | ) | $ | 14,689.2 | 100.0 | % | |||||||||
1 | Includes $53.8 million of gains on our open interest rate swap positions. Also includes $34.1 million of collateral, in the form of Treasury Notes that were delivered to the counterparty on our open credit default swaps. See theDerivative Instrumentssection below for further discussion. |
2 | At December 31, 2007, the fair value included a $7.4 million change in certain hybrid securities that was recognized as a realized loss. |
App.-A-11
(millions) | 2007 | 2006 | 2005 | |||||||||
Fixed maturities | $ | 478.6 | $ | 481.7 | $ | 399.0 | ||||||
Preferred stocks | 126.9 | 84.4 | 61.5 | |||||||||
Common equities | 46.2 | 43.1 | 37.2 | |||||||||
Short-term investments: | ||||||||||||
Auction rate municipal obligations | 2.6 | 1.8 | 5.4 | |||||||||
Auction rate preferred stocks | .8 | 5.8 | 6.8 | |||||||||
Other short-term investments | 25.7 | 31.0 | 26.8 | |||||||||
Investment income | 680.8 | 647.8 | 536.7 | |||||||||
Investment expenses | (12.4 | ) | (11.9 | ) | (12.1 | ) | ||||||
Net investment income | $ | 668.4 | $ | 635.9 | $ | 524.6 | ||||||
(millions) | 2007 | 2006 | 2005 | |||||||||
Fixed maturities | $ | 113.3 | $ | 37.9 | $ | 47.4 | ||||||
Preferred stocks | 3.1 | .6 | — | |||||||||
Common equities | 55.4 | 24.7 | 15.6 | |||||||||
Short-term investments: | ||||||||||||
Auction rate municipal obligations | .1 | .1 | .1 | |||||||||
Derivatives | 63.1 | 10.0 | — | |||||||||
Total gross realized gains | 235.0 | 73.3 | 63.1 | |||||||||
Fixed maturities | (23.6 | ) | (62.4 | ) | (68.6 | ) | ||||||
Preferred stocks | (28.0 | ) | (11.1 | ) | (2.3 | ) | ||||||
Common equities | (33.7 | ) | (9.2 | ) | (22.5 | ) | ||||||
Short-term investments: | ||||||||||||
Auction rate municipal obligations | — | (.1 | ) | — | ||||||||
Auction rate preferred stocks | — | (.2 | ) | — | ||||||||
Derivatives | (43.4 | ) | — | (7.6 | ) | |||||||
Total gross realized losses | (128.7 | ) | (83.0 | ) | (101.0 | ) | ||||||
Fixed maturities | 89.7 | (24.5 | ) | (21.2 | ) | |||||||
Preferred stocks | (24.9 | ) | (10.5 | ) | (2.3 | ) | ||||||
Common equities | 21.7 | 15.5 | (6.9 | ) | ||||||||
Short-term investments: | ||||||||||||
Auction rate municipal obligations | .1 | — | .1 | |||||||||
Auction rate preferred stocks | — | (.2 | ) | — | ||||||||
Derivatives | 19.7 | 10.0 | (7.6 | ) | ||||||||
Total net realized gains (losses) on securities | $ | 106.3 | $ | (9.7 | ) | $ | (37.9 | ) | ||||
Per share (diluted basis) | $ | .10 | $ | (.01 | ) | $ | (.03 | ) | ||||
App.-A-12
Total | Unrealized Losses | |||||||||||||||
Fair | Less than 12 | 12 Months or | ||||||||||||||
(millions) | Value | Total | Months | Greater1 | ||||||||||||
2007 | ||||||||||||||||
Fixed maturities | $ | 2,509.3 | $ | (87.8 | ) | $ | (51.4 | ) | $ | (36.4 | ) | |||||
Preferred stocks | 1,975.3 | (306.4 | ) | (245.3 | ) | (61.1 | ) | |||||||||
Common equities | 160.5 | (20.3 | ) | (18.3 | ) | (2.0 | ) | |||||||||
Total | $ | 4,645.1 | $ | (414.5 | ) | $ | (315.0 | ) | $ | (99.5 | ) | |||||
2006 | ||||||||||||||||
Fixed maturities | $ | 6,128.4 | $ | (75.5 | ) | $ | (6.7 | ) | $ | (68.8 | ) | |||||
Preferred stocks | 494.3 | (11.9 | ) | (.4 | ) | (11.5 | ) | |||||||||
Common equities | 97.2 | (4.9 | ) | (4.3 | ) | (.6 | ) | |||||||||
Total | $ | 6,719.9 | $ | (92.3 | ) | $ | (11.4 | ) | $ | (80.9 | ) | |||||
1 | The fair value for securities in an unrealized loss position for 12 months or greater was $2,038.9 million at December 31, 2007 and $4,832.2 million at December 31, 2006. |
App.-A-13
(millions) | Cost | Fair Value | ||||||
Less than one year | $ | 527.1 | $ | 529.0 | ||||
One to five years | 5,723.3 | 5,750.6 | ||||||
Five to ten years | 2,678.8 | 2,701.0 | ||||||
Ten years or greater | 152.6 | 150.5 | ||||||
Total | $ | 9,081.8 | $ | 9,131.1 | ||||
3. | INCOME TAXES |
(millions) | 2007 | 2006 | 2005 | |||||||||
Current tax provision | $ | 503.7 | $ | 798.6 | $ | 696.7 | ||||||
Deferred tax expense (benefit) | 6.8 | (12.9 | ) | (31.7 | ) | |||||||
Total income tax provision | $ | 510.5 | $ | 785.7 | $ | 665.0 | ||||||
($ in millions) | 2007 | 2006 | 2005 | |||||||||||||||||||||||||
Income before income taxes | $ | 1,693.0 | $ | 2,433.2 | $ | 2,058.9 | ||||||||||||||||||||||
Tax at statutory rate | $ | 592.6 | 35 | % | $ | 851.6 | 35 | % | $ | 720.6 | 35 | % | ||||||||||||||||
Tax effect of: | ||||||||||||||||||||||||||||
Exempt interest income | (40.3 | ) | (3 | ) | (35.9 | ) | (2 | ) | (34.8 | ) | (2 | ) | ||||||||||||||||
Dividends received deduction | (35.4 | ) | (2 | ) | (27.2 | ) | (1 | ) | (22.2 | ) | (1 | ) | ||||||||||||||||
Other items, net | (6.4 | ) | — | (2.8 | ) | — | 1.4 | — | ||||||||||||||||||||
Total income tax provision | $ | 510.5 | 30 | % | $ | 785.7 | 32 | % | $ | 665.0 | 32 | % | ||||||||||||||||
App.-A-14
(millions) | 2007 | 2006 | ||||||
Deferred tax assets: | ||||||||
Unearned premiums reserve | $ | 293.2 | $ | 300.7 | ||||
Non-deductible accruals | 149.7 | 145.8 | ||||||
Loss reserves | 121.7 | 120.6 | ||||||
Write-downs on securities | 12.7 | 13.9 | ||||||
Other | 7.9 | 5.2 | ||||||
Deferred tax liabilities: | ||||||||
Deferred acquisition costs | (149.2 | ) | (154.4 | ) | ||||
Net unrealized gains on securities | (250.4 | ) | (321.4 | ) | ||||
Hedges on forecasted transactions | (15.0 | ) | (4.0 | ) | ||||
Depreciable assets | (63.7 | ) | (52.4 | ) | ||||
Other | (14.7 | ) | (15.0 | ) | ||||
Net deferred tax assets | 92.2 | 39.0 | ||||||
Net income taxes (payable) recoverable | 13.8 | (22.2 | ) | |||||
Income taxes | $ | 106.0 | $ | 16.8 | ||||
4. | DEBT |
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
(millions) | Value | Value | Value | Value | ||||||||||||
6.375% Senior Notes due 2012 (issued: $350.0, December 2001) | $ | 348.6 | $ | 367.8 | $ | 348.3 | $ | 365.4 | ||||||||
7% Notes due 2013 (issued: $150.0, October 1993) | 149.2 | 162.9 | 149.1 | 163.2 | ||||||||||||
65/8% Senior Notes due 2029 (issued: $300.0, March 1999) | 294.4 | 311.8 | 294.3 | 325.2 | ||||||||||||
6.25% Senior Notes due 2032 (issued: $400.0, November 2002) | 393.9 | 397.6 | 393.8 | 414.0 | ||||||||||||
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (issued: $1,000.0, June 2007) | 987.8 | 936.5 | — | — | ||||||||||||
Total | $ | 2,173.9 | $ | 2,176.6 | $ | 1,185.5 | $ | 1,267.8 | ||||||||
App.-A-15
App.-A-16
5. | LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES |
(millions) | 2007 | 2006 | 2005 | |||||||||
Balance at January 1 | $ | 5,725.0 | $ | 5,660.3 | $ | 5,285.6 | ||||||
Less reinsurance recoverables on unpaid losses | 361.4 | 347.2 | 337.1 | |||||||||
Net balance at January 1 | 5,363.6 | 5,313.1 | 4,948.5 | |||||||||
Incurred related to: | ||||||||||||
Current year | 9,845.9 | 9,641.8 | 9,720.7 | |||||||||
Prior years | 80.3 | (246.9 | ) | (355.9 | ) | |||||||
Total incurred | 9,926.2 | 9,394.9 | 9,364.8 | |||||||||
Paid related to: | ||||||||||||
Current year | 6,737.2 | 6,682.3 | 6,644.7 | |||||||||
Prior years | 2,897.4 | 2,662.1 | 2,355.5 | |||||||||
Total paid | 9,634.6 | 9,344.4 | 9,000.2 | |||||||||
Net balance at December 31 | 5,655.2 | 5,363.6 | 5,313.1 | |||||||||
Plus reinsurance recoverables on unpaid losses | 287.5 | 361.4 | 347.2 | |||||||||
Balance at December 31 | $ | 5,942.7 | $ | 5,725.0 | $ | 5,660.3 | ||||||
6. | REINSURANCE |
2007 | 2006 | 2005 | ||||||||||||||||||||||
(millions) | Written | Earned | Written | Earned | Written | Earned | ||||||||||||||||||
Direct premiums | $ | 13,982.4 | $ | 14,107.0 | $ | 14,386.2 | $ | 14,386.3 | $ | 14,293.4 | $ | 14,066.2 | ||||||||||||
Ceded | (209.9 | ) | (229.6 | ) | (254.2 | ) | (268.4 | ) | (285.8 | ) | (301.8 | ) | ||||||||||||
Net premiums | $ | 13,772.5 | $ | 13,877.4 | $ | 14,132.0 | $ | 14,117.9 | $ | 14,007.6 | $ | 13,764.4 | ||||||||||||
App.-A-17
7. | STATUTORY FINANCIAL INFORMATION (unaudited) |
8. | EMPLOYEE BENEFIT PLANS |
(millions) | 2007 | 2006 | 2005 | |||||||||
Cash | $ | 126.2 | $ | 197.7 | $ | 235.9 | ||||||
Stock-based | 26.5 | 27.6 | 33.7 |
App.-A-18
2007 | 2006 | 2005 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | Average | Number | Average | Number | Average | |||||||||||||||||||
of | Grant Date | of | Grant Date | of | Grant Date | |||||||||||||||||||
Restricted Shares | Shares | Fair Value | Shares | Fair Value | Shares | Fair Value | ||||||||||||||||||
Beginning of year | 6,232,522 | $ | 22.27 | 5,442,988 | $ | 20.21 | 3,663,364 | $ | 18.89 | |||||||||||||||
Add (deduct): | ||||||||||||||||||||||||
Granted | 2,318,637 | 21.01 | 1,828,198 | 26.50 | 1,942,784 | 22.62 | ||||||||||||||||||
Vested | (1,005,680 | ) | 18.80 | (567,824 | ) | 16.60 | (2,728 | ) | 18.45 | |||||||||||||||
Forfeited | (676,629 | ) | 22.44 | (470,840 | ) | 21.74 | (160,432 | ) | 19.37 | |||||||||||||||
End of year | 6,868,850 | $ | 22.33 | 6,232,522 | $ | 22.27 | 5,442,988 | $ | 20.21 | |||||||||||||||
Available, end of year1 | 11,287,225 | 13,448,514 | 15,276,712 | |||||||||||||||||||||
1 | Represents shares available under the 2003 Incentive Plan. The 1995 Incentive Plan expired in February 2005, and the remaining shares thereunder are no longer available for future issuance. |
App.-A-19
2007 | 2006 | ||||||||||||||
Weighted | Weighted | ||||||||||||||
Number | Average | Number | Average | ||||||||||||
of | Grant Date | of | Grant Date | ||||||||||||
Nonvested Stock Options Outstanding | Shares | Fair Value | Shares | Fair Value | |||||||||||
Beginning of year | 1,087,866 | $ | 5.82 | 4,232,220 | $ | 4.76 | |||||||||
Deduct: | |||||||||||||||
Vested1 | (1,087,866 | ) | 5.82 | (3,053,352 | ) | 4.36 | |||||||||
Forfeited | — | — | (91,002 | ) | 5.81 | ||||||||||
End of year | — | $ | — | 1,087,866 | $ | 5.82 | |||||||||
1 | All remaining stock option awards vested on January 1, 2007. |
2007 | 2006 | 2005 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | Average | Number | Average | Number | Average | |||||||||||||||||||
of | Exercise | of | Exercise | of | Exercise | |||||||||||||||||||
Options Outstanding | Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||
Beginning of year | 13,747,221 | $ | 8.75 | 19,621,476 | $ | 8.44 | 26,358,004 | $ | 8.01 | |||||||||||||||
Add: | ||||||||||||||||||||||||
Antidilution adjustment | 1,201,984 | NM | — | — | — | — | ||||||||||||||||||
Deduct: | ||||||||||||||||||||||||
Exercised | (3,208,873 | ) | 9.10 | (5,649,193 | ) | 7.55 | (6,581,264 | ) | 6.67 | |||||||||||||||
Forfeited | (1,830 | ) | 11.78 | (225,062 | ) | 12.09 | (155,264 | ) | 10.82 | |||||||||||||||
End of year | 11,738,502 | $ | 7.75 | 13,747,221 | $ | 8.75 | 19,621,476 | $ | 8.44 | |||||||||||||||
Exercisable, end of year | 11,738,502 | $ | 7.75 | 12,659,355 | $ | 8.38 | 15,389,256 | $ | 7.82 | |||||||||||||||
Weighted | ||||||||||||||
Weighted | Average | |||||||||||||
Number | Average | Aggregate | Remaining | |||||||||||
of | Exercise | Intrinsic Value | Contractual | |||||||||||
Shares | Price | (in millions) | Life | |||||||||||
11,738,502 | $ | 7.75 | $ | 133.9 | 2.74 years |
App.-A-20
2007 | 2006 | 2005 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | Average | Number | Average | Number | Average | |||||||||||||||||||
of | Grant Date | of | Grant Date | of | Grant Date | |||||||||||||||||||
Restricted Shares | Shares | Fair Value | Shares | Fair Value | Shares | Fair Value | ||||||||||||||||||
Beginning of year | 66,031 | $ | 26.64 | 50,244 | $ | 21.91 | 48,968 | $ | 22.47 | |||||||||||||||
Add (deduct): | ||||||||||||||||||||||||
Granted | 76,074 | 23.52 | 66,031 | 26.64 | 50,244 | 21.91 | ||||||||||||||||||
Vested | (66,031 | ) | 26.64 | (50,244 | ) | 21.91 | (48,968 | ) | 22.47 | |||||||||||||||
Forfeited | (7,479 | ) | 23.52 | — | — | — | — | |||||||||||||||||
End of year | 68,595 | $ | 23.52 | 66,031 | $ | 26.64 | 50,244 | $ | 21.91 | |||||||||||||||
Available, end of year1 | 1,094,275 | 1,170,349 | 1,236,380 | |||||||||||||||||||||
1 | Represents shares available under the 2003 Directors Equity Incentive Plan. |
2007 | 2006 | 2005 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | Average | Number | Average | Number | Average | |||||||||||||||||||
of | Exercise | of | Exercise | of | Exercise | |||||||||||||||||||
Options Outstanding | Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||
Beginning of year | 772,664 | $ | 8.59 | 873,108 | $ | 8.20 | 969,108 | $ | 7.79 | |||||||||||||||
Add: | ||||||||||||||||||||||||
Antidilution adjustment | 55,851 | NM | — | — | — | — | ||||||||||||||||||
Deduct: | ||||||||||||||||||||||||
Exercised | (199,702 | ) | 8.16 | (100,444 | ) | 5.18 | (96,000 | ) | 4.06 | |||||||||||||||
End of year | 628,813 | $ | 7.97 | 772,664 | $ | 8.59 | 873,108 | $ | 8.20 | |||||||||||||||
Exercisable, end of year1 | 628,813 | $ | 7.97 | 772,664 | $ | 8.59 | 873,108 | $ | 8.20 | |||||||||||||||
1 | There are 1,730,708 shares available under the 1998 Directors’ Stock Option Plan. |
App.-A-21
9. | SEGMENT INFORMATION |
Net premiums earned |
Less: Losses and loss adjustment expenses Policy acquisition costs Other underwriting expenses |
Pretax underwriting profit (loss) |
App.-A-22
2007 | 2006 | 2005 | ||||||||||||||||||||||
Pretax | Pretax | Pretax | ||||||||||||||||||||||
Profit | Profit | Profit | ||||||||||||||||||||||
(millions) | Revenues | (Loss) | Revenues | (Loss) | Revenues | (Loss) | ||||||||||||||||||
Personal Lines | ||||||||||||||||||||||||
Agency | $ | 7,636.4 | $ | 500.2 | $ | 7,903.6 | $ | 936.7 | $ | 7,993.1 | $ | 857.6 | ||||||||||||
Direct | 4,372.6 | 339.9 | 4,337.4 | 568.6 | 4,076.2 | 475.7 | ||||||||||||||||||
Total Personal Lines1 | 12,009.0 | 840.1 | 12,241.0 | 1,505.3 | 12,069.3 | 1,333.3 | ||||||||||||||||||
Commercial Auto | 1,846.9 | 185.7 | 1,851.9 | 366.5 | 1,667.8 | 298.0 | ||||||||||||||||||
Other indemnity | 21.5 | (.7 | ) | 25.0 | 6.5 | 27.3 | 7.9 | |||||||||||||||||
Total underwriting operations | 13,877.4 | 1,025.1 | 14,117.9 | 1,878.3 | 13,764.4 | 1,639.2 | ||||||||||||||||||
Service businesses | 22.3 | 1.8 | 30.4 | 6.0 | 40.2 | 15.6 | ||||||||||||||||||
Investments2 | 787.1 | 774.7 | 638.1 | 626.2 | 498.8 | 486.7 | ||||||||||||||||||
Interest expense | — | (108.6 | ) | — | (77.3 | ) | — | (82.6 | ) | |||||||||||||||
Consolidated total | $ | 14,686.8 | $ | 1,693.0 | $ | 14,786.4 | $ | 2,433.2 | $ | 14,303.4 | $ | 2,058.9 | ||||||||||||
1 | Private passenger automobile insurance accounted for 91% of the total Personal Lines segment net premiums earned in both 2007 and 2006, and 92% in 2005; our special lines products accounted for the balance of the Personal Lines net premiums earned. |
2 | Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses. |
2007 | 2006 | 2005 | ||||||||||||||||||||||
Underwriting | Combined | Underwriting | Combined | Underwriting | Combined | |||||||||||||||||||
Margin | Ratio | Margin | Ratio | Margin | Ratio | |||||||||||||||||||
Personal Lines | ||||||||||||||||||||||||
Agency | 6.5 | % | 93.5 | 11.9 | % | 88.1 | 10.7 | % | 89.3 | |||||||||||||||
Direct | 7.8 | 92.2 | 13.1 | 86.9 | 11.7 | 88.3 | ||||||||||||||||||
Total Personal Lines | 7.0 | 93.0 | 12.3 | 87.7 | 11.0 | 89.0 | ||||||||||||||||||
Commercial Auto | 10.1 | 89.9 | 19.8 | 80.2 | 17.9 | 82.1 | ||||||||||||||||||
Other indemnity1 | NM | NM | NM | NM | NM | NM | ||||||||||||||||||
Total underwriting operations | 7.4 | 92.6 | 13.3 | 86.7 | 11.9 | 88.1 |
1 | Underwriting margins/combined ratios are not meaningful (NM) for our other indemnity businesses due to the low level of premiums earned by, and the variability of losses in, such businesses. |
App.-A-23
10. | OTHER COMPREHENSIVE INCOME |
2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||
Tax | Tax | Tax | ||||||||||||||||||||||||||||||||||
(Provision) | After | (Provision) | After | (Provision) | After | |||||||||||||||||||||||||||||||
(millions) | Pretax | Benefit | Tax | Pretax | Benefit | Tax | Pretax | Benefit | Tax | |||||||||||||||||||||||||||
Unrealized gains (losses) arising during period: | ||||||||||||||||||||||||||||||||||||
Fixed maturities | $ | 52.1 | $ | (18.2 | ) | $ | 33.9 | $ | 10.7 | $ | (3.7 | ) | $ | 7.0 | $ | (138.7 | ) | $ | 48.6 | $ | (90.1 | ) | ||||||||||||||
Equity securities | (189.2 | ) | 66.2 | (123.0 | ) | 292.3 | (102.3 | ) | 190.0 | 135.8 | (47.5 | ) | 88.3 | |||||||||||||||||||||||
Reclassification adjustment:1 | ||||||||||||||||||||||||||||||||||||
Fixed maturities | (2.3 | ) | .8 | (1.5 | ) | 27.5 | (9.7 | ) | 17.8 | (12.0 | ) | 4.2 | (7.8 | ) | ||||||||||||||||||||||
Equity securities | (63.4 | ) | 22.2 | (41.2 | ) | (12.4 | ) | 4.3 | (8.1 | ) | (54.4 | ) | 19.0 | (35.4 | ) | |||||||||||||||||||||
Change in unrealized gains | (202.8 | ) | 71.0 | (131.8 | ) | 318.1 | (111.4 | ) | 206.7 | (69.3 | ) | 24.3 | (45.0 | ) | ||||||||||||||||||||||
Net unrealized gains on forecasted transactions2 | 31.2 | (10.9 | ) | 20.3 | (1.8 | ) | .7 | (1.1 | ) | (1.7 | ) | .6 | (1.1 | ) | ||||||||||||||||||||||
Other comprehensive income | $ | (171.6 | ) | $ | 60.1 | $ | (111.5 | ) | $ | 316.3 | $ | (110.7 | ) | $ | 205.6 | $ | (71.0 | ) | $ | 24.9 | $ | (46.1 | ) | |||||||||||||
1 | Represents adjustments for gains (losses) realized in net income for securities held in the portfolio at December 31 of the preceding year. |
2 | Entered into for the purpose of managing interest rate risk associated with our debt issuances. SeeNote 4 — Debtfor further discussion. We expect to reclassify $4.6 million into income within the next 12 months. |
11. | LITIGATION |
App.-A-24
App.-A-25
12. | COMMITMENTS AND CONTINGENCIES |
Year | Commitment | |||
2008 | $ | 94.3 | ||
2009 | 69.0 | |||
2010 | 46.9 | |||
2011 | 25.2 | |||
2012 | 15.6 | |||
Thereafter | 25.3 | |||
Total | $ | 276.3 | ||
App.-A-26
Year | Expense | |||
2007 | $ | 139.5 | ||
2006 | 138.8 | |||
2005 | 126.4 |
13. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
2007 | 2006 | |||||||||||||||
Fair | Fair | |||||||||||||||
(millions) | Cost | Value | Cost | Value | ||||||||||||
Investments — Available-for-sale: | ||||||||||||||||
Fixed maturities | $ | 9,135.6 | $ | 9,184.9 | $ | 9,959.6 | $ | 9,958.9 | ||||||||
Preferred stocks | 2,578.1 | 2,270.3 | 1,761.4 | 1,781.0 | ||||||||||||
Common equities | 1,361.0 | 2,327.5 | 1,469.0 | 2,368.1 | ||||||||||||
Short-term investments | 382.4 | 382.4 | 581.0 | 581.2 | ||||||||||||
Debt | (2,173.9 | ) | (2,176.6 | ) | (1,185.5 | ) | (1,267.8 | ) |
App.-A-27
App.-A-28
of The Progressive Corporation:
Cleveland, Ohio
February 27, 2008
App.-A-29
I. | OVERVIEW |
App.-A-30
App.-A-31
II. | FINANCIAL CONDITION |
A. | Holding Company |
B. | Capital Resources and Liquidity |
App.-A-32
• | The payment of an extraordinary cash dividend of $2.00 per common share. This extraordinary cash dividend, which aggregated to $1.4 billion, was declared by the Board on June 13, 2007, and was paid on September 14, 2007, to shareholders of record at the close of business on August 31, 2007. | |
• | A new Board authorization for us to repurchase up to 100 million of our common shares over the course of the next 24 months, expiring June 30, 2009. This authorization was in addition to the approximately 4 million shares that remained available for repurchase at the end of the second quarter 2007 under the Board’s April 2006 share repurchase authorization. | |
• | The issuance of $1 billion of 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “Debentures”) on June 18, 2007. The proceeds of the offering were $987.3 million, before $1.5 million of expenses related to the issuance. In addition, upon issuance of the Debentures, we closed a forecasted debt issuance hedge, which was entered into to hedge against a possible rise in interest rates, and recognized a $34.4 million pretax gain as part of shareholders’ equity; this gain is being recognized as an adjustment to interest expense and amortized over 10 years, which represents the fixed interest rate period of the Debentures. SeeNote 4 — Debtfor further discussion of the terms of the Debentures. |
C. | Commitments and Contingencies |
App.-A-33
Payments due by period | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
(millions) | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Debt | $ | 2,200.0 | $ | — | $ | — | $ | 350.0 | $ | 1,850.0 | ||||||||||
Interest payments on debt | 1,852.2 | 144.7 | 289.4 | 278.2 | 1,139.9 | |||||||||||||||
Operating leases | 276.3 | 94.3 | 115.9 | 40.8 | 25.3 | |||||||||||||||
Purchase obligations | 94.5 | 65.7 | 28.7 | .1 | — | |||||||||||||||
Loss and loss adjustment expense reserves | 5,942.7 | 3,173.0 | 2,146.2 | 477.3 | 146.2 | |||||||||||||||
Total | $ | 10,365.7 | $ | 3,477.7 | $ | 2,580.2 | $ | 1,146.4 | $ | 3,161.4 | ||||||||||
App.-A-34
III. | RESULTS OF OPERATIONS — UNDERWRITING |
A. | Growth |
(millions) | 2007 | 2006 | 2005 | |||||||||||||
NET PREMIUMS WRITTEN | ||||||||||||||||
Personal Lines | ||||||||||||||||
Agency | $ | 7,549.4 | $ | 7,854.3 | $ | 8,005.6 | ||||||||||
Direct | 4,371.8 | 4,354.5 | 4,177.3 | |||||||||||||
Total Personal Lines | 11,921.2 | 12,208.8 | 12,182.9 | |||||||||||||
Commercial Auto | 1,828.9 | 1,898.0 | 1,801.2 | |||||||||||||
Other indemnity | 22.4 | 25.2 | 23.5 | |||||||||||||
Total underwriting operations | $ | 13,772.5 | $ | 14,132.0 | $ | 14,007.6 | ||||||||||
Growth over prior years | (3 | )% | 1 | % | 5 | % | ||||||||||
NET PREMIUMS EARNED | ||||||||||||||||
Personal Lines | ||||||||||||||||
Agency | $ | 7,636.4 | $ | 7,903.6 | $ | 7,993.1 | ||||||||||
Direct | 4,372.6 | 4,337.4 | 4,076.2 | |||||||||||||
Total Personal Lines | 12,009.0 | 12,241.0 | 12,069.3 | |||||||||||||
Commercial Auto | 1,846.9 | 1,851.9 | 1,667.8 | |||||||||||||
Other indemnity | 21.5 | 25.0 | 27.3 | |||||||||||||
Total underwriting operations | $ | 13,877.4 | $ | 14,117.9 | $ | 13,764.4 | ||||||||||
Growth over prior years | (2 | )% | 3 | % | 5 | % | ||||||||||
(thousands) | 2007 | 2006 | 2005 | |||||||||||||
POLICIES IN FORCE | ||||||||||||||||
Personal Lines | ||||||||||||||||
Agency auto | 4,396.8 | 4,433.1 | 4,491.4 | |||||||||||||
Direct auto | 2,598.5 | 2,428.5 | 2,327.7 | |||||||||||||
Total auto | 6,995.3 | 6,861.6 | 6,819.1 | |||||||||||||
Special lines1 | 3,120.3 | 2,879.5 | 2,674.9 | |||||||||||||
Total Personal Lines | 10,115.6 | 9,741.1 | 9,494.0 | |||||||||||||
Growth over prior year | 4 | % | 3 | % | 9 | % | ||||||||||
Commercial Auto | 539.2 | 503.2 | 468.2 | |||||||||||||
Growth over prior year | 7 | % | 7 | % | 11 | % | ||||||||||
App.-A-35
Growth Over Prior Year | ||||||||||||||||||||||||
Personal Lines | Commercial Auto | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
New applications | 2 | % | (7 | )% | — | % | 3 | % | 1 | % | 3 | % | ||||||||||||
Renewal applications | 3 | % | 7 | % | 11 | % | 5 | % | 4 | % | 8 | % |
B. | Profitability |
2007 | 2006 | 2005 | ||||||||||||||||||||||||||
Underwriting Profit | Underwriting Profit | Underwriting Profit | ||||||||||||||||||||||||||
($ in millions) | $ | Margin | $ | Margin | $ | Margin | ||||||||||||||||||||||
Personal Lines Agency | $ | 500.2 | 6.5 | % | $ | 936.7 | 11.9 | % | $ | 857.6 | 10.7 | % | ||||||||||||||||
Direct | 339.9 | 7.8 | 568.6 | 13.1 | 475.7 | 11.7 | ||||||||||||||||||||||
Total Personal Lines | 840.1 | 7.0 | 1,505.3 | 12.3 | 1,333.3 | 11.0 | ||||||||||||||||||||||
Commercial Auto | 185.7 | 10.1 | 366.5 | 19.8 | 298.0 | 17.9 | ||||||||||||||||||||||
Other indemnity1 | (.7 | ) | NM | 6.5 | NM | 7.9 | NM | |||||||||||||||||||||
Total underwriting operations | $ | 1,025.1 | 7.4 | % | $ | 1,878.3 | 13.3 | % | $ | 1,639.2 | 11.9 | % | ||||||||||||||||
1 | Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of losses in, such businesses. |
App.-A-36
Underwriting Performance1 | 2007 | 2006 | 2005 | |||||||||
Personal Lines — Agency | ||||||||||||
Loss & loss adjustment expense ratio | 72.1 | 67.8 | 69.1 | |||||||||
Underwriting expense ratio | 21.4 | 20.3 | 20.2 | |||||||||
Combined ratio | 93.5 | 88.1 | 89.3 | |||||||||
Personal Lines — Direct | ||||||||||||
Loss & loss adjustment expense ratio | 71.3 | 66.8 | 68.4 | |||||||||
Underwriting expense ratio | 20.9 | 20.1 | 19.9 | |||||||||
Combined ratio | 92.2 | 86.9 | 88.3 | |||||||||
Total Personal Lines | ||||||||||||
Loss & loss adjustment expense ratio | 71.8 | 67.4 | 68.9 | |||||||||
Underwriting expense ratio | 21.2 | 20.3 | 20.1 | |||||||||
Combined ratio | 93.0 | 87.7 | 89.0 | |||||||||
Commercial Auto | ||||||||||||
Loss & loss adjustment expense ratio | 69.7 | 61.0 | 62.4 | |||||||||
Underwriting expense ratio | 20.2 | 19.2 | 19.7 | |||||||||
Combined ratio | 89.9 | 80.2 | 82.1 | |||||||||
Total Underwriting Operations2 | ||||||||||||
Loss & loss adjustment expense ratio | 71.5 | 66.5 | 68.0 | |||||||||
Underwriting expense ratio | 21.1 | 20.2 | 20.1 | |||||||||
Combined ratio | 92.6 | 86.7 | 88.1 | |||||||||
Accident year — Loss & loss adjustment expense ratio | 70.9 | 68.2 | 70.6 | |||||||||
1 | Ratios are expressed as a percentage of net premiums earned. |
2 | Combined ratios for the other indemnity businesses are not presented separately due to the low level of premiums earned by, and the variability of losses in, such businesses. For the years ended December 31, 2007, 2006 and 2005, these businesses generated an underwriting profit (loss) of $(.7) million, $6.5 million and $7.9 million, respectively. |
(millions) | 2007 | 2006 | 2005 | |||||||||
Change in net loss and LAE reserves | $ | 291.6 | $ | 50.5 | $ | 364.6 | ||||||
Paid losses and LAE | 9,634.6 | 9,344.4 | 9,000.2 | |||||||||
Total incurred losses and LAE | $ | 9,926.2 | $ | 9,394.9 | $ | 9,364.8 | ||||||
App.-A-37
($ in millions) | 2007 | 2006 | 2005 | |||||||||
Actuarial Adjustments | ||||||||||||
Favorable/(Unfavorable) | ||||||||||||
Prior accident years | $ | 37.3 | $ | 158.3 | $ | 127.2 | ||||||
Current accident year | (37.1) | 57.8 | 78.4 | |||||||||
Calendar year actuarial adjustment | $ | .2 | $ | 216.1 | $ | 205.6 | ||||||
Prior Accident Years Development | ||||||||||||
Favorable/(Unfavorable) | ||||||||||||
Actuarial adjustment | $ | 37.3 | $ | 158.3 | $ | 127.2 | ||||||
All other development | (117.6) | 88.6 | 228.7 | |||||||||
Total development | $ | (80.3) | $ | 246.9 | $ | 355.9 | ||||||
(Increase) decrease to calendar year combined ratio | (.6) pts. | 1.7 pts. | 2.6 pts. | |||||||||
App.-A-38
C. | Personal Lines |
Growth Over Prior Year | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Net premiums written | (2 | )% | — | % | 4 | % | ||||||
Net premiums earned | (2 | )% | 1 | % | 4 | % | ||||||
Policies in force | 4 | % | 3 | % | 9 | % |
Growth Over Prior Year | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Net premiums written | (4 | )% | (2 | )% | 1 | % | ||||||
Net premiums earned | (3 | )% | (1 | )% | 1 | % | ||||||
Auto: policies in force | (1 | )% | (1 | )% | 6 | % | ||||||
new applications | (1 | )% | (10 | )% | (5) | % | ||||||
renewal applications | — | % | 4 | % | 9 | % |
App.-A-39
Growth Over Prior Year | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Net premiums written | — | % | 4 | % | 10 | % | ||||||
Net premiums earned | 1 | % | 6 | % | 10 | % | ||||||
Auto: policies in force | 7 | % | 4 | % | 12 | % | ||||||
new applications | 5 | % | (4) | % | 8 | % | ||||||
renewal applications | 7 | % | 9 | % | 14 | % |
D. | Commercial Auto |
Growth Over Prior Year | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Net premiums written | (4) | % | 5 | % | 11 | % | ||||||
Net premiums earned | — | % | 11 | % | 9 | % | ||||||
Policies in force | 7 | % | 7 | % | 11 | % | ||||||
New applications | 3 | % | 1 | % | 3 | % | ||||||
Renewal applications | 5 | % | 4 | % | 8 | % |
App.-A-40
E. | Other Indemnity |
F. | Service Businesses |
App.-A-41
G. | Litigation |
H. | Income Taxes |
App.-A-42
IV. | RESULTS OF OPERATIONS — INVESTMENTS |
A. | Portfolio Allocation |
Gross | Gross | % of | ||||||||||||||||||||||||||
Unrealized | Unrealized | Fair | Total | Duration | ||||||||||||||||||||||||
($ in millions) | Cost | Gains | Losses | Value | Portfolio | (years) | Rating5 | |||||||||||||||||||||
2007 | ||||||||||||||||||||||||||||
Fixed maturities1 | $ | 9,135.6 | $ | 137.1 | $ | (87.8 | ) | $ | 9,184.9 | 64.8 | % | 4.0 | AA | |||||||||||||||
Preferred stocks2 | 2,578.1 | 6.0 | (306.4 | ) | 2,270.3 | 16.0 | 1.9 | A- | ||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||
Other short-term investments | 382.4 | — | — | 382.4 | 2.7 | <1 | AA+ | |||||||||||||||||||||
Total fixed income | 12,096.1 | 143.1 | (394.2 | ) | 11,837.6 | 83.5 | 3.5 | AA | ||||||||||||||||||||
Common equities | 1,361.0 | 986.8 | (20.3 | ) | 2,327.5 | 16.5 | na | na | ||||||||||||||||||||
Total portfolio2,3,4 | $ | 13,457.1 | $ | 1,129.9 | $ | (414.5 | ) | $ | 14,165.1 | 100.0 | % | 3.5 | AA | |||||||||||||||
2006 | ||||||||||||||||||||||||||||
Fixed maturities | $ | 9,959.6 | $ | 74.8 | $ | (75.5 | ) | $ | 9,958.9 | 67.8 | % | 3.6 | AAA- | |||||||||||||||
Preferred stocks | 1,761.4 | 31.5 | (11.9 | ) | 1,781.0 | 12.1 | 1.5 | A- | ||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||
Auction rate municipal obligations | 99.4 | — | — | 99.4 | .7 | <1 | AAA- | |||||||||||||||||||||
Auction rate preferred stocks | 69.2 | .2 | — | 69.4 | .5 | <1 | A- | |||||||||||||||||||||
Other short-term investments | 412.4 | — | — | 412.4 | 2.8 | <1 | A+ | |||||||||||||||||||||
Total short-term investments | 581.0 | .2 | — | 581.2 | 4.0 | <1 | A+ | |||||||||||||||||||||
Total fixed income | 12,302.0 | 106.5 | (87.4 | ) | 12,321.1 | 83.9 | 3.1 | AA+ | ||||||||||||||||||||
Common equities | 1,469.0 | 904.0 | (4.9 | ) | 2,368.1 | 16.1 | na | na | ||||||||||||||||||||
Total portfolio3,4 | $ | 13,771.0 | $ | 1,010.5 | $ | (92.3 | ) | $ | 14,689.2 | 100.0 | % | 3.1 | AA+ | |||||||||||||||
1 | Includes $53.8 million of gains on our open interest rate swap positions. Also includes $34.1 million of collateral, in the form of Treasury Notes that were delivered to the counterparty on our open credit default swaps. See theDerivative Instrumentssection below for further discussion. |
2 | At December 31, 2007, the fair value included a $7.4 million change in certain hybrid securities that was recognized as a realized loss. |
3 | Includes net unsettled security acquisitions of $77.0 million and $41.9 million at December 31, 2007 and 2006, respectively. |
4 | December 31, 2007 and 2006 totals include $2.1 billion and $2.5 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company. |
5 | Credit quality ratings are assigned by nationally recognized securities rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score to each credit rating based on a scale from 0-5. |
App.-A-43
($ in millions) | 2007 | 2006 | ||||||||||||||||
Investment-grade fixed maturities:1 | ||||||||||||||||||
Short/intermediate term | $ | 9,084.2 | 95.0 | % | $ | 10,381.9 | 98.5 | % | ||||||||||
Long term | 147.0 | 1.5 | 70.9 | .7 | ||||||||||||||
Non-investment-grade fixed maturities2 | 336.1 | 3.5 | 87.3 | .8 | ||||||||||||||
Total | $ | 9,567.3 | 100.0 | % | $ | 10,540.1 | 100.0 | % | ||||||||||
1 | Long term includes securities with expected liquidation dates of 10 years or greater. Asset-backed securities are reported at their weighted average maturity based upon their projected cash flows. All other securities that do not have a single expected maturity date are reported at average maturity. SeeNote 2 — Investmentsfor further discussion. |
2 | Non-investment-grade fixed-maturity securities are non-rated or have a quality rating of an equivalent BB+ or lower, classified by the lowest rating from a nationally recognized rating agency. |
Rating | 2007 | 2006 | ||||||||
AAA | 49.4 | % | 61.1 | % | ||||||
AA | 20.6 | 15.0 | ||||||||
A | 16.2 | 14.4 | ||||||||
BBB | 10.6 | 8.3 | ||||||||
Non Rated/Other | 3.2 | 1.2 | ||||||||
Total | 100.0 | % | 100.0 | % | ||||||
App.-A-44
% of Asset-Backed | Duration | |||||||||||||||
($ in millions) | Fair Value | Securities | (years) | Rating | ||||||||||||
2007 | ||||||||||||||||
Collateralized mortgage obligations1 | $ | 611.4 | 24.3 | % | 1.2 | AAA- | ||||||||||
Commercial mortgage-backed obligations | 914.7 | 36.5 | 2.7 | AA | ||||||||||||
Commercial mortgage-backed obligations: interest only | 759.1 | 30.2 | 1.9 | AAA- | ||||||||||||
Subtotal commercial mortgage-backed obligations | 1,673.8 | 66.7 | 2.3 | AA+ | ||||||||||||
Other asset-backed securities: | ||||||||||||||||
Home equity2 | 148.7 | 5.9 | .1 | AA | ||||||||||||
Other | 77.7 | 3.1 | 1.1 | A | ||||||||||||
Subtotal other asset-backed securities | 226.4 | 9.0 | .4 | AA- | ||||||||||||
Total asset-backed securities | $ | 2,511.6 | 100.0 | % | 1.9 | AA+ | ||||||||||
2006 | ||||||||||||||||
Collateralized mortgage obligations1 | $ | 575.9 | 24.1 | % | 1.8 | AAA | ||||||||||
Commercial mortgage-backed obligations | 770.4 | 32.2 | 3.1 | AAA- | ||||||||||||
Commercial mortgage-backed obligations: interest only | 893.7 | 37.4 | 2.2 | AAA- | ||||||||||||
Subtotal commercial mortgage-backed obligations | 1,664.1 | 69.6 | 2.6 | AAA- | ||||||||||||
Other asset-backed securities: | ||||||||||||||||
Home equity2 | 23.0 | 1.0 | .5 | AAA | ||||||||||||
Other | 127.1 | 5.3 | 1.2 | AA- | ||||||||||||
Subtotal other asset-backed securities | 150.1 | 6.3 | 1.1 | AA- | ||||||||||||
Total asset-backed securities | $ | 2,390.1 | 100.0 | % | 2.3 | AAA- | ||||||||||
1 | Includes $52.3 million of Alt-A, non-prime bonds (low document/no document or non-conforming prime loans) with a net unrealized loss of $.1 million and a credit quality of AAA for 2007; 2006 included $63.1 million of Alt-A bonds that had a net unrealized loss of $.3 million and a credit quality of AAA. |
2 | Represents sub-prime bonds with a net unrealized loss of $12.2 million and $.1 million for 2007 and 2006, respectively; these bonds are unrelated to the asset-backed derivative position discussed below. |
App.-A-45
($ in millions) | Deal Origination Year | % of Home | ||||||||||||||||||||||||||||||
Rating (date acquired) | 2007 | 2006 | 2005 | 2004 | 2003 | Total | Equity Loans | |||||||||||||||||||||||||
AAA (October2003-December 2007)1 | $ | — | $ | 59.9 | $ | 4.9 | $ | — | $ | .1 | $ | 64.9 | 43.7 | % | ||||||||||||||||||
Increase (decrease) in value | — | (1.2 | )% | (.4 | )% | — | — | (1.1 | )% | |||||||||||||||||||||||
AA (August 2007-October 2007) | $ | 3.1 | — | $ | 23.2 | $ | 14.5 | — | $ | 40.8 | 27.4 | % | ||||||||||||||||||||
Increase (decrease) in value | (37.0 | )% | — | (13.6 | )% | .3 | % | — | (11.7 | )% | ||||||||||||||||||||||
A (August 2007) | — | — | $ | 34.0 | $ | 6.3 | — | $ | 40.3 | 27.1 | % | |||||||||||||||||||||
Increase (decrease) in value | — | — | (13.9 | )% | 2.2 | % | — | (11.7 | )% | |||||||||||||||||||||||
BBB (March 2007) | — | — | — | $ | 2.7 | — | $ | 2.7 | 1.8 | % | ||||||||||||||||||||||
Increase (decrease) in value | — | — | — | (21.4 | )% | — | (21.4 | )% | ||||||||||||||||||||||||
Total | $ | 3.1 | $ | 59.9 | $ | 62.1 | $ | 23.5 | $ | .1 | $ | 148.7 | 100.0 | % | ||||||||||||||||||
Increase (decrease) in value | (37.0 | )% | (1.2 | )% | (12.8 | )% | (2.3 | )% | — | % | (7.6 | )% | ||||||||||||||||||||
Rating | ||||||||||||||||||||||||||||
($ in millions) | Non-Investment | % of Total | ||||||||||||||||||||||||||
Deal Origination Year | AAA | AA | A | BBB | Grade | Fair Value | Exposure | |||||||||||||||||||||
Pre-2000 | $ | 6.1 | $ | — | $ | — | $ | 40.4 | $ | 23.5 | $ | 70.0 | 7.6 | % | ||||||||||||||
2000 | 53.2 | 24.5 | — | — | — | 77.7 | 8.5 | |||||||||||||||||||||
2001 | 140.2 | 27.5 | 7.4 | — | — | 175.1 | 19.1 | |||||||||||||||||||||
2002 | 43.1 | — | — | — | — | 43.1 | 4.7 | |||||||||||||||||||||
2003 | 155.3 | 13.5 | — | — | — | 168.8 | 18.5 | |||||||||||||||||||||
2004 | 78.9 | 8.8 | 4.8 | — | 7.1 | 99.6 | 10.9 | |||||||||||||||||||||
2005 | 71.0 | — | — | — | — | 71.0 | 7.8 | |||||||||||||||||||||
2006 | 145.5 | — | — | — | 25.2 | 170.7 | 18.7 | |||||||||||||||||||||
2007 | — | — | — | 6.9 | 31.8 | 38.7 | 4.2 | |||||||||||||||||||||
Total Fair Value | $ | 693.3 | $ | 74.3 | $ | 12.2 | $ | 47.3 | $ | 87.6 | $ | 914.7 | 100.0 | % | ||||||||||||||
% of Total Fair Value | 75.8 | % | 8.1 | % | 1.3 | % | 5.2 | % | 9.6 | % | 100.0 | % | ||||||||||||||||
App.-A-46
($ in millions) | % of Total | |||||||
Deal Origination Year | Fair Value | Exposure | ||||||
Pre-2000 | $ | 7.3 | 1.0 | % | ||||
2000 | 38.4 | 5.0 | ||||||
2001 | 29.0 | 3.8 | ||||||
2002 | 33.1 | 4.4 | ||||||
2003 | 115.5 | 15.2 | ||||||
2004 | 119.9 | 15.8 | ||||||
2005 | 192.0 | 25.3 | ||||||
2006 | 223.9 | 29.5 | ||||||
Total Fair Value | $ | 759.1 | 100.0 | % | ||||
App.-A-47
(millions) | ||||||||||||
Monoline Insurer/ | General | |||||||||||
Rating | Obligations | Revenue Bonds | Total | |||||||||
FGIC | ||||||||||||
AA | $ | 149.0 | $ | 113.1 | $ | 262.1 | ||||||
A | 77.5 | 36.6 | 114.1 | |||||||||
$ | 226.5 | $ | 149.7 | $ | 376.2 | |||||||
AMBAC | ||||||||||||
AA | $ | 129.1 | $ | 71.6 | $ | 200.7 | ||||||
A | 38.7 | 2.1 | 40.8 | |||||||||
BBB | — | 4.5 | 4.5 | |||||||||
Non-rated | — | 2.4 | 2.4 | |||||||||
$ | 167.8 | $ | 80.6 | $ | 248.4 | |||||||
MBIA | ||||||||||||
AA | $ | 95.3 | $ | 78.1 | $ | 173.4 | ||||||
A | 44.0 | 58.8 | 102.8 | |||||||||
BBB | — | 5.3 | 5.3 | |||||||||
$ | 139.3 | $ | 142.2 | $ | 281.5 | |||||||
FSA | ||||||||||||
AA | $ | 97.7 | $ | 131.5 | $ | 229.2 | ||||||
A | — | 23.5 | 23.5 | |||||||||
BBB | — | 4.5 | 4.5 | |||||||||
$ | 97.7 | $ | 159.5 | $ | 257.2 | |||||||
TOTAL | ||||||||||||
AA | $ | 471.1 | $ | 394.3 | $ | 865.4 | ||||||
A | 160.2 | 121.0 | 281.2 | |||||||||
BBB | — | 14.3 | 14.3 | |||||||||
Non-rated | — | 2.4 | 2.4 | |||||||||
$ | 631.3 | $ | 532.0 | $ | 1,163.3 | |||||||
App.-A-48
Sector | AAA | AA | A | BBB | % of Portfolio | |||||||||||||||
Financial | 2.7 | % | 16.4 | % | 21.6 | % | 3.3 | % | 44.0 | % | ||||||||||
Agency | — | — | — | — | — | |||||||||||||||
Industrial | — | — | 4.7 | 49.5 | 54.2 | |||||||||||||||
Utility | — | — | 1.8 | — | 1.8 | |||||||||||||||
Total | 2.7 | % | 16.4 | % | 28.1 | % | 52.8 | % | 100.0 | % | ||||||||||
Non-Investment | ||||||||||||||||||||
Sector | AA | A | BBB | Grade | % of Portfolio | |||||||||||||||
Financial | 7.1 | % | 40.9 | % | 13.8 | % | 3.8 | % | 65.6 | % | ||||||||||
Agency | 15.7 | — | — | — | 15.7 | |||||||||||||||
Industrial | — | 4.0 | 4.4 | 5.3 | 13.7 | |||||||||||||||
Utility | — | 1.5 | 3.5 | — | 5.0 | |||||||||||||||
Total | 22.8 | % | 46.4 | % | 21.7 | % | 9.1 | % | 100.0 | % | ||||||||||
($ in millions) | 2007 | 2006 | ||||||||||||||||||
Common stocks | $ | 2,313.8 | 99.4 | % | $ | 2,352.0 | 99.3 | % | ||||||||||||
Other risk investments | 13.7 | .6 | 16.1 | .7 | ||||||||||||||||
Total common equities | $ | 2,327.5 | 100.0 | % | $ | 2,368.1 | 100.0 | % | ||||||||||||
App.-A-49
(millions) | 2007 | 2006 | 2005 | |||||||||
Credit default swap | $ | (51.3 | ) | $ | 9.9 | $ | (6.8 | ) | ||||
Treasury Notes | 7.9 | — | (.8 | ) | ||||||||
Combined gain (loss) | $ | (43.4 | ) | $ | 9.9 | $ | (7.6 | ) | ||||
App.-A-50
B. | Investment Results |
2007 | 2006 | 2005 | ||||||||||
Pretax recurring investment book yield | 4.8% | 4.6% | 4.1% | |||||||||
Weighted average FTE book yield | 5.6% | 5.3% | 4.7% | |||||||||
FTE total return: | ||||||||||||
Fixed-income securities | 4.4% | 5.9% | 3.4% | |||||||||
Common stocks | 6.2% | 16.3% | 7.1% | |||||||||
Total portfolio | 4.7% | 7.4% | 4.0% |
App.-A-51
Write-downs | Write-downs | |||||||||
Total | on Securities | on Securities | ||||||||
Write- | Subsequently | Held at Period | ||||||||
(millions) | downs | Sold | End | |||||||
2007 | ||||||||||
Fixed income1 | $ | 19.3 | $ | — | $ | 19.3 | ||||
Common equities | 2.4 | 2.1 | .3 | |||||||
Total portfolio | $ | 21.7 | $ | 2.1 | $ | 19.6 | ||||
2006 | ||||||||||
Fixed income | $ | 1.8 | $ | .3 | $ | 1.5 | ||||
Common equities | 2.4 | 2.0 | .4 | |||||||
Total portfolio | $ | 4.2 | $ | 2.3 | $ | 1.9 | ||||
2005 | ||||||||||
Fixed income | $ | 14.6 | $ | 5.3 | $ | 9.3 | ||||
Common equities | 7.1 | — | 7.1 | |||||||
Total portfolio | $ | 21.7 | $ | 5.3 | $ | 16.4 | ||||
Equity Portfolio | Russell 1000 | Russell 1000 | Remaining Gross | |||||||||||||||
Amount of | Allocation at | Allocation at | Sector | Unrealized Loss at | ||||||||||||||
($ in millions) | Write-down | December 31, | December 31, | Return | December 31, | |||||||||||||
Sector | in 2007 | 2007 | 2007 | in 2007 | 2007 | |||||||||||||
Auto and Transportation | $ | — | 2.5 | % | 2.3 | % | — | % | $ | 1.2 | ||||||||
Consumer Discretionary | .3 | 11.7 | 12.9 | (3.2 | ) | 2.8 | ||||||||||||
Consumer Staples | — | 8.3 | 7.3 | 8.6 | .1 | |||||||||||||
Financial Services | .6 | 17.9 | 18.6 | (16.9 | ) | 10.3 | ||||||||||||
Health Care | .4 | 11.4 | 11.9 | 7.5 | 3.2 | |||||||||||||
Integrated Oil | — | 8.4 | 6.6 | 29.8 | — | |||||||||||||
Materials and Processing | .1 | 4.7 | 5.2 | 27.7 | .3 | |||||||||||||
Other Energy | — | 4.3 | 5.5 | 42.0 | .2 | |||||||||||||
Producer Durables | .9 | 5.6 | 5.0 | 13.3 | .2 | |||||||||||||
Technology | — | 13.7 | 13.7 | 16.7 | 1.1 | |||||||||||||
Utilities | .1 | 6.9 | 7.1 | 9.6 | .7 | |||||||||||||
Other Equities | — | 4.6 | 3.9 | 1.0 | .1 | |||||||||||||
Total Common Stocks | $ | 2.4 | 100.0 | % | 100.0 | % | 5.8 | % | $ | 20.2 | ||||||||
Other Risk Assets | — | .1 | ||||||||||||||||
Total Common Equities | $ | 2.4 | $ | 20.3 | ||||||||||||||
During each of the last three years, we entered into repurchase commitment transactions, whereby we loaned U.S. Treasury or U.S. Government agency securities to accredited brokerage firms in exchange for cash equal to the fair value of the securities. These internally managed transactions were typically overnight arrangements. The cash proceeds were invested in Eurodollar and commercial paper obligations issued by large, high-quality institutions with yields that exceeded our interest obligation on the borrowed cash. We are able to borrow the cash at low rates since the securities
App.-A-52
Progressive is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates in a variety of areas. The two areas that we view as most critical with respect to the application of estimates and assumptions are the establishment of our loss reserves and the method of determining impairments in our investment portfolio.
Loss and loss adjustment expense (LAE) reserves represent our best estimate of our ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2007, we had $5.7 billion of net loss and LAE reserves, which included $4.5 billion of case reserves and $1.2 billion of incurred but not recorded (IBNR) reserves.
App.-A-53
Estimated Changes in Severity for Accident Year 2007 | |||||||||||||||||||||||||
(millions) | -2% | -1% | As Reported | +1% | +2% | ||||||||||||||||||||
Personal Auto Liability | $ | 4,125.4 | $ | 4,177.2 | $ | 4,229.0 | $ | 4,280.8 | $ | 4,332.6 | |||||||||||||||
Commercial Auto Liability | 1,291.5 | 1,300.4 | 1,309.3 | 1,318.2 | 1,327.1 | ||||||||||||||||||||
Other1 | 116.9 | 116.9 | 116.9 | 116.9 | 116.9 | ||||||||||||||||||||
Total | $ | 5,533.8 | $ | 5,594.5 | $ | 5,655.2 | $ | 5,715.9 | $ | 5,776.6 | |||||||||||||||
1 | Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves. |
Estimated Changes in Severity for Accident Years 2007, 2006 and 2005 | |||||||||||||||||||||||||
(millions) | -2% | -1% | As Reported | +1% | +2% | ||||||||||||||||||||
Personal Auto Liability | $ | 3,924.0 | $ | 4,076.5 | $ | 4,229.0 | $ | 4,381.5 | $ | 4,534.0 | |||||||||||||||
Commercial Auto Liability | 1,257.1 | 1,283.2 | 1,309.3 | 1,335.4 | 1,361.5 | ||||||||||||||||||||
Other1 | 116.9 | 116.9 | 116.9 | 116.9 | 116.9 | ||||||||||||||||||||
Total | $ | 5,298.0 | $ | 5,476.6 | $ | 5,655.2 | $ | 5,833.8 | $ | 6,012.4 | |||||||||||||||
1 | Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves. |
App.-A-54
($ in millions) | ||||||||||||||||||||||||||||||||||||||||||||
For The Years Ended | ||||||||||||||||||||||||||||||||||||||||||||
December 31, | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||||||||||||||||
Loss and LAE Reserves1 | $ | 1,867.5 | $ | 1,945.8 | $ | 2,200.2 | $ | 2,785.3 | $ | 3,069.7 | $ | 3,632.1 | $ | 4,346.4 | $ | 4,948.5 | $ | 5,313.1 | $ | 5,363.6 | $ | 5,655.2 | ||||||||||||||||||||||
Re-estimated reserves as of: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 1,683.3 | 1,916.0 | 2,276.0 | 2,686.3 | 3,073.2 | 3,576.0 | 4,237.3 | 4,592.6 | 5,066.2 | 5,443.9 | ||||||||||||||||||||||||||||||||||
Two years later | 1,668.5 | 1,910.6 | 2,285.4 | 2,708.3 | 3,024.2 | 3,520.7 | 4,103.3 | 4,485.2 | 5,130.5 | — | ||||||||||||||||||||||||||||||||||
Three years later | 1,673.1 | 1,917.3 | 2,277.7 | 2,671.2 | 2,988.7 | 3,459.2 | 4,048.0 | 4,501.6 | — | — | ||||||||||||||||||||||||||||||||||
Four years later | 1,669.2 | 1,908.2 | 2,272.3 | 2,666.9 | 2,982.7 | 3,457.8 | 4,070.0 | — | — | — | ||||||||||||||||||||||||||||||||||
Five years later | 1,664.7 | 1,919.0 | 2,277.5 | 2,678.5 | 2,993.7 | 3,475.4 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Six years later | 1,674.5 | 1,917.6 | 2,284.9 | 2,683.7 | 3,002.5 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Seven years later | 1,668.4 | 1,921.9 | 2,287.4 | 2,688.4 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Eight years later | 1,673.9 | 1,923.4 | 2,291.9 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Nine years later | 1,675.5 | 1,928.5 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Ten years later | 1,680.8 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Cumulative Development: | ||||||||||||||||||||||||||||||||||||||||||||
Favorable/(unfavorable) | $ | 186.7 | $ | 17.3 | $ | (91.7 | ) | $ | 96.9 | $ | 67.2 | $ | 156.7 | $ | 276.4 | $ | 446.9 | $ | 182.6 | $ | (80.3 | ) | ||||||||||||||||||||||
Percentage2 | 10.0 | .9 | (4.2 | ) | 3.5 | 2.2 | 4.3 | 6.4 | 9.0 | 3.4 | (1.5 | ) |
1 | Represents loss and LAE reserves net of reinsurance recoverables on net unpaid losses at the balance sheet date. |
2 | Cumulative development¸ loss and LAE reserves. |
B. | Other-than-Temporary Impairment |
App.-A-55
Total Gross | ||||||||||||||||||||||
Unrealized | Decline of Investment Value | |||||||||||||||||||||
(millions) | Fair Value | Losses | >15% | >25% | >35% | > 45% | ||||||||||||||||
Unrealized loss for 1 quarter | $ | 1,198.1 | $110.3 | $ | 67.8 | $ | 8.0 | $ | 6.8 | $ | .7 | |||||||||||
Unrealized loss for 2 quarters | 826.6 | 159.7 | 133.3 | 33.7 | 16.8 | — | ||||||||||||||||
Unrealized loss for 3 quarters | 581.5 | 45.0 | 17.9 | 7.0 | .3 | — | ||||||||||||||||
Unrealized loss for 1 year or longer | 2,038.9 | 99.5 | 33.6 | 24.6 | — | — | ||||||||||||||||
Total | $ | 4,645.1 | $414.5 | $ | 252.6 | $ | 73.3 | $ | 23.9 | $ | .7 | |||||||||||
App.-A-56
App.-A-57
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Insurance Companies Selected Financial Information and Operating Statistics — Statutory Basis | ||||||||||||||||||||
Net premiums written | $ | 13,772.5 | $ | 14,132.0 | $ | 14,007.6 | $ | 13,378.1 | $ | 11,913.4 | ||||||||||
Growth | (3 | )% | 1 | % | 5 | % | 12 | % | 26 | % | ||||||||||
Policyholders’ surplus | $ | 4,587.3 | $ | 4,963.7 | $ | 4,674.1 | $ | 4,671.0 | $ | 4,538.3 | ||||||||||
Net premiums written to policyholders’ surplus ratio | 3.0 | 2.8 | 3.0 | 2.9 | 2.6 | |||||||||||||||
Loss and loss adjustment expense ratio | 71.6 | 66.6 | 68.1 | 65.0 | 67.4 | |||||||||||||||
Underwriting expense ratio | 21.1 | 19.9 | 19.3 | 19.6 | 18.8 | |||||||||||||||
Statutory combined ratio | 92.7 | 86.5 | 87.4 | 84.6 | 86.2 | |||||||||||||||
Selected Consolidated Financial Information — GAAP Basis | ||||||||||||||||||||
Total assets | $ | 18,843.1 | $ | 19,482.1 | $ | 18,898.6 | $ | 17,184.3 | $ | 16,281.5 | ||||||||||
Total shareholders’ equity | 4,935.5 | 6,846.6 | 6,107.5 | 5,155.4 | 5,030.6 | |||||||||||||||
Common Shares outstanding | 680.2 | 748.0 | 789.3 | 801.6 | 865.8 | |||||||||||||||
Common Share price: | ||||||||||||||||||||
High | $ | 25.16 | $ | 30.09 | $ | 31.23 | $ | 24.32 | $ | 21.17 | ||||||||||
Low | 17.26 | 22.18 | 20.35 | 18.28 | 11.56 | |||||||||||||||
Close (at December 31) | 19.16 | 24.22 | 29.20 | 21.21 | 20.90 | |||||||||||||||
Market capitalization | $ | 13,032.6 | $ | 18,116.6 | $ | 23,040.7 | $ | 17,001.9 | $ | 18,088.9 | ||||||||||
Book value per Common Share | 7.26 | 9.15 | 7.74 | 6.43 | 5.81 | |||||||||||||||
Return on average common shareholders’ equity | 19.5 | % | 25.3 | % | 25.0 | % | 30.0 | % | 29.1 | % | ||||||||||
Debt outstanding | $ | 2,173.9 | $ | 1,185.5 | $ | 1,284.9 | $ | 1,284.3 | $ | 1,489.8 | ||||||||||
Ratios: | ||||||||||||||||||||
Debt to total capital | 30.6 | % | 14.8 | % | 17.4 | % | 19.9 | % | 22.8 | % | ||||||||||
Price to earnings | 11.6 | 11.5 | 16.7 | 11.1 | 14.7 | |||||||||||||||
Price to book | 2.6 | 2.6 | 3.8 | 3.3 | 3.6 | |||||||||||||||
Earnings to fixed charges | 13.5x | 24.7x | 21.3x | 27.1x | 18.8x | |||||||||||||||
Net premiums earned | $ | 13,877.4 | $ | 14,117.9 | $ | 13,764.4 | $ | 13,169.9 | $ | 11,341.0 | ||||||||||
Total revenues | 14,686.8 | 14,786.4 | 14,303.4 | 13,782.1 | 11,892.0 | |||||||||||||||
Underwriting margins:1 | ||||||||||||||||||||
Personal Lines | 7.0 | % | 12.3 | % | 11.0 | % | 14.1 | % | 12.1 | % | ||||||||||
Commercial Auto | 10.1 | % | 19.8 | % | 17.9 | % | 21.1 | % | 17.5 | % | ||||||||||
Other indemnity2 | NM | NM | NM | NM | NM | |||||||||||||||
Total underwriting operations | 7.4 | % | 13.3 | % | 11.9 | % | 14.9 | % | 12.7 | % | ||||||||||
Net income | $ | 1,182.5 | $ | 1,647.5 | $ | 1,393.9 | $ | 1,648.7 | $ | 1,255.4 | ||||||||||
Per share (diluted basis) | 1.65 | 2.10 | 1.74 | 1.91 | 1.42 | |||||||||||||||
Dividends declared per share | 2.1450 | .0325 | .0300 | .0275 | .0250 | |||||||||||||||
Number of people employed | 26,851 | 27,778 | 28,336 | 27,085 | 25,834 |
1 | Underwriting margins are calculated as pretax underwriting profit (loss), as defined inNote 9 — Segment Information, as a percentage of net premiums earned. |
2 | In 2003, we ceased writing business for our lender’s collateral protection program. As a result, underwriting margin is not meaningful (NM) for our other indemnity businesses due to the low level of premiums earned by, and the variability of losses in, such businesses after that date. |
App.-A-58
2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||||||
Insurance Companies Selected Financial Information and Operating Statistics — Statutory Basis | ||||||||||||||||||||
Net premiums written | $ | 9,452.0 | $ | 7,260.1 | $ | 6,196.1 | $ | 6,124.7 | $ | 5,299.7 | ||||||||||
Growth | 30 | % | 17 | % | 1 | % | 16 | % | 14 | % | ||||||||||
Policyholders’ surplus | $ | 3,370.2 | $ | 2,647.7 | $ | 2,177.0 | $ | 2,258.9 | $ | 2,029.9 | ||||||||||
Net premiums written to policyholders’ surplus ratio | 2.8 | 2.7 | 2.8 | 2.7 | 2.6 | |||||||||||||||
Loss and loss adjustment expense ratio | 70.9 | 73.6 | 83.2 | 75.0 | 68.5 | |||||||||||||||
Underwriting expense ratio | 20.4 | 21.1 | 21.0 | 22.1 | 22.4 | |||||||||||||||
Statutory combined ratio | 91.3 | 94.7 | 104.2 | 97.1 | 90.9 | |||||||||||||||
Selected Consolidated Financial Information — GAAP Basis | ||||||||||||||||||||
Total assets | $ | 13,564.4 | $ | 11,122.4 | $ | 10,051.6 | $ | 9,704.7 | $ | 8,463.1 | ||||||||||
Total shareholders’ equity | 3,768.0 | 3,250.7 | 2,869.8 | 2,752.8 | 2,557.1 | |||||||||||||||
Common Shares outstanding | 871.8 | 881.2 | 882.2 | 877.1 | 870.5 | |||||||||||||||
Common Share price: | ||||||||||||||||||||
High | $ | 15.12 | $ | 12.65 | $ | 9.25 | $ | 14.52 | $ | 14.33 | ||||||||||
Low | 11.19 | 6.84 | 3.75 | 5.71 | 7.83 | |||||||||||||||
Close (at December 31) | 12.41 | 12.44 | 8.64 | 6.09 | 14.11 | |||||||||||||||
Market capitalization | $ | 10,819.3 | $ | 10,958.6 | $ | 7,616.8 | $ | 5,345.4 | $ | 12,279.7 | ||||||||||
Book value per Common Share | 4.32 | 3.69 | 3.25 | 3.14 | 2.94 | |||||||||||||||
Return on average common shareholders’ equity | 19.3 | % | 13.5 | % | 1.7 | % | 10.9 | % | 19.3 | % | ||||||||||
Debt outstanding | $ | 1,489.0 | $ | 1,095.7 | $ | 748.8 | $ | 1,048.6 | $ | 776.6 | ||||||||||
Ratios: | ||||||||||||||||||||
Debt to total capital | 28.3 | % | 25.2 | % | 20.7 | % | 27.6 | % | 23.3 | % | ||||||||||
Price to earnings | 16.6 | 27.2 | 164.5 | 18.5 | 27.7 | |||||||||||||||
Price to book | 2.9 | 3.4 | 2.7 | 1.9 | 4.8 | |||||||||||||||
Earnings to fixed charges | 13.2x | 10.7x | 1.3x | 5.7x | 10.2x | |||||||||||||||
Net premiums earned | $ | 8,883.5 | $ | 7,161.8 | $ | 6,348.4 | $ | 5,683.6 | $ | 4,948.0 | ||||||||||
Total revenues | 9,294.4 | 7,488.2 | 6,771.0 | 6,124.2 | 5,292.4 | |||||||||||||||
Underwriting margins:1 | ||||||||||||||||||||
Personal Lines | 7.5 | % | 4.5 | % | (5.2 | )% | 1.2 | % | 7.9 | % | ||||||||||
Commercial Auto | 9.1 | % | 8.3 | % | 3.3 | % | 8.4 | % | 17.6 | % | ||||||||||
Other indemnity2 | 7.2 | % | 7.0 | % | 13.6 | % | 10.8 | % | 8.6 | % | ||||||||||
Total underwriting operations | 7.6 | % | 4.8 | % | (4.4 | )% | 1.7 | % | 8.4 | % | ||||||||||
Net income | $ | 667.3 | $ | 411.4 | $ | 46.1 | $ | 295.2 | $ | 456.7 | ||||||||||
Per share (diluted basis) | .75 | .46 | .05 | .33 | .51 | |||||||||||||||
Dividends declared per share | .0240 | .0233 | .0225 | .0218 | .0208 | |||||||||||||||
Number of people employed | 22,974 | 20,442 | 19,490 | 18,753 | 15,735 |
App.-A-59
Fair Value | ||||||||||||||||||||
-200 bps | -100 bps | +100 bps | +200 bps | |||||||||||||||||
(millions) | Change | Change | Actual | Change | Change | |||||||||||||||
U.S. government obligations | $ | 1,519.5 | $ | 1,358.0 | $ | 1,207.1 | $ | 1,066.9 | $ | 937.4 | ||||||||||
State and local government obligations | 3,974.0 | 3,856.0 | 3,745.1 | 3,641.8 | 3,545.5 | |||||||||||||||
Asset-backed securities | 2,612.4 | 2,562.4 | 2,511.6 | 2,461.6 | 2,413.8 | |||||||||||||||
Corporate securities | 1,179.9 | 1,127.5 | 1,078.4 | 1,032.5 | 989.4 | |||||||||||||||
Preferred stocks | 2,375.6 | 2,323.8 | 2,270.3 | 2,228.3 | 2,184.0 | |||||||||||||||
Other debt securities1 | 706.1 | 673.2 | 642.7 | 614.5 | 588.6 | |||||||||||||||
Short-term investments | 382.4 | 382.4 | 382.4 | 382.4 | 382.4 | |||||||||||||||
Balance as of December 31, 2007 | $ | 12,749.9 | $ | 12,283.3 | $ | 11,837.6 | $ | 11,428.0 | $ | 11,041.1 | ||||||||||
Balance as of December 31, 2006 | $ | 13,110.5 | $ | 12,707.5 | $ | 12,321.1 | $ | 11,954.2 | $ | 11,608.4 | ||||||||||
1 | Includes $612.5 million in redeemable preferred stocks. |
Hypothetical | ||||||||||||
Fair | Market Changes | |||||||||||
(millions) | Value | +10% | -10% | |||||||||
Common equities as of December 31, 2007 | $ | 2,327.5 | $ | 2,560.3 | $ | 2,094.8 | ||||||
Common equities as of December 31, 2006 | $ | 2,368.1 | $ | 2,604.9 | $ | 2,131.3 |
App.-A-60
December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||
($ in millions) | 2007 | 2007 | 2007 | 2007 | 2006 | |||||||||||||||
66-day VaR | ||||||||||||||||||||
Fixed-income portfolio | $ | (358.5 | ) | $ | (324.5 | ) | $ | (279.7 | ) | $ | (210.5 | ) | $ | (234.1 | ) | |||||
% of portfolio | (3.0 | )% | (2.6 | )% | (2.0 | )% | (1.7 | )% | (1.9 | )% | ||||||||||
% of shareholders’ equity | (7.3 | )% | (6.1 | )% | (5.1 | )% | (3.0 | )% | (3.4 | )% | ||||||||||
Common equity portfolio | $ | (449.5 | ) | $ | (440.9 | ) | $ | (319.1 | ) | $ | (316.5 | ) | $ | (196.5 | ) | |||||
% of portfolio | (19.3 | )% | (18.0 | )% | (12.6 | )% | (13.2 | )% | (8.3 | )% | ||||||||||
% of shareholders’ equity | (9.1 | )% | (8.3 | )% | (5.8 | )% | (4.6 | )% | (2.9 | )% | ||||||||||
Total portfolio | $ | (387.8 | ) | $ | (470.0 | ) | $ | (465.5 | ) | $ | (337.1 | ) | $ | (300.9 | ) | |||||
% of portfolio | (2.7 | )% | (3.2 | )% | (2.9 | )% | (2.2 | )% | (2.0 | )% | ||||||||||
% of shareholders’ equity | (7.9 | )% | (8.8 | )% | (8.5 | )% | (4.9 | )% | (4.4 | )% |
App.-A-61
App.-A-62
App.-A-63
Net Income | Stock Price1 | Dividends | ||||||||||||||||||||||||||||||
Total | Per | Rate of | Declared | |||||||||||||||||||||||||||||
Quarter | Revenues | Total | Share2 | High | Low | Close | Return3 | Per Share4 | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||||||||||
1 | $ | 3,686.8 | $ | 363.5 | $ | .49 | $ | 24.75 | $ | 20.91 | $ | 21.82 | $ | — | ||||||||||||||||||
2 | 3,675.9 | 283.7 | .39 | 25.16 | 21.55 | 23.93 | 2.0000 | |||||||||||||||||||||||||
3 | 3,709.6 | 299.2 | .42 | 24.10 | 18.88 | 19.41 | — | |||||||||||||||||||||||||
4 | 3,614.5 | 236.1 | .34 | 20.50 | 17.26 | 19.16 | .1450 | |||||||||||||||||||||||||
$ | 14,686.8 | $ | 1,182.5 | $ | 1.65 | $ | 25.16 | $ | 17.26 | $ | 19.16 | (12.6 | )% | $ | 2.1450 | |||||||||||||||||
2006 | ||||||||||||||||||||||||||||||||
1 | $ | 3,660.9 | $ | 436.6 | $ | .55 | $ | 30.09 | $ | 25.25 | $ | 26.07 | $ | .00750 | ||||||||||||||||||
2 | 3,707.9 | 400.4 | .51 | 27.86 | 25.25 | 25.71 | .00750 | |||||||||||||||||||||||||
3 | 3,723.8 | 409.6 | .53 | 25.84 | 22.18 | 24.54 | .00875 | |||||||||||||||||||||||||
4 | 3,693.8 | 400.9 | .53 | 25.54 | 22.19 | 24.22 | .00875 | |||||||||||||||||||||||||
$ | 14,786.4 | $ | 1,647.5 | $ | 2.10 | $ | 30.09 | $ | 22.18 | $ | 24.22 | (17.0 | )% | $ | .03250 | |||||||||||||||||
2005 | ||||||||||||||||||||||||||||||||
1 | $ | 3,491.8 | $ | 412.7 | $ | .51 | $ | 23.12 | $ | 20.35 | $ | 22.94 | $ | .00750 | ||||||||||||||||||
2 | 3,590.1 | 394.3 | .49 | 25.22 | 21.88 | 24.70 | .00750 | |||||||||||||||||||||||||
3 | 3,622.5 | 305.3 | .38 | 26.83 | 23.43 | 26.19 | .00750 | |||||||||||||||||||||||||
4 | 3,599.0 | 281.6 | .35 | 31.23 | 25.76 | 29.20 | .00750 | |||||||||||||||||||||||||
$ | 14,303.4 | $ | 1,393.9 | $ | 1.74 | $ | 31.23 | $ | 20.35 | $ | 29.20 | 37.9 | % | $ | .03000 | |||||||||||||||||
1 | Prices as reported on the consolidated transaction reporting system. Progressive’s Common Shares are listed on the New York Stock Exchange under the symbol PGR. |
2 | Presented on a diluted basis. The sum may not equal the total because the average equivalent shares differ in the periods. |
3 | Represents annual rate of return, assuming dividend reinvestment, including the $2.00 per share extraordinary cash dividend paid in September 2007. |
4 | Progressive transitioned to an annual variable dividend policy beginning in 2007; the annual dividend of $.1450 per common share was declared by the Board of Directors in December 2007 and paid on January 31, 2008. In addition, in June 2007, Progressive’s Board declared an extraordinary cash dividend payable September 14, 2007 to shareholders of record at the close of business on August 31, 2007. |
App.-A-64
PGR, S&P Index, P/C Group (Performance Results through12/31/07)
(assumes $100 was invested at the close of trading on December 31, 2002)
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
PGR | $ | 168.75 | $ | 171.52 | $ | 236.38 | $ | 196.35 | $ | 171.54 | ||||||||||
S&P Index | 128.69 | 142.69 | 149.70 | 173.34 | 182.86 | |||||||||||||||
P/C Group | 126.49 | 141.36 | 156.80 | 179.48 | 218.55 |
* | Assumes reinvestment of dividends. |
App.-A-65
($ in millions) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||
Florida | $ | 1,656.9 | 12.0 | % | $ | 1,811.5 | 12.8 | % | $ | 1,774.2 | 12.7 | % | $ | 1,522.6 | 11.4 | % | $ | 1,338.2 | 11.2 | % | ||||||||||||||||||||||||
California | 1,106.4 | 8.0 | 1,085.1 | 7.7 | 982.8 | 7.0 | 892.7 | 6.7 | 736.2 | 6.2 | ||||||||||||||||||||||||||||||||||
Texas | 1,072.0 | 7.8 | 1,096.0 | 7.8 | 1,126.8 | 8.0 | 1,181.1 | 8.8 | 1,126.4 | 9.4 | ||||||||||||||||||||||||||||||||||
New York | 847.9 | 6.2 | 930.6 | 6.6 | 968.8 | 6.9 | 935.7 | 7.0 | 808.3 | 6.8 | ||||||||||||||||||||||||||||||||||
Georgia | 748.9 | 5.4 | 751.0 | 5.3 | 749.5 | 5.4 | 733.2 | 5.5 | 614.4 | 5.2 | ||||||||||||||||||||||||||||||||||
Ohio | 655.9 | 4.8 | 693.7 | 4.9 | 736.0 | 5.3 | 754.2 | 5.6 | 712.1 | 6.0 | ||||||||||||||||||||||||||||||||||
Pennsylvania | 610.5 | 4.4 | 642.1 | 4.5 | 659.1 | 4.7 | 634.4 | 4.7 | 589.3 | 4.9 | ||||||||||||||||||||||||||||||||||
All other | 7,074.0 | 51.4 | 7,122.0 | 50.4 | 7,010.4 | 50.0 | 6,724.2 | 50.3 | 5,988.5 | 50.3 | ||||||||||||||||||||||||||||||||||
Total | $ | 13,772.5 | 100.0 | % | $ | 14,132.0 | 100.0 | % | $ | 14,007.6 | 100.0 | % | $ | 13,378.1 | 100.0 | % | $ | 11,913.4 | 100.0 | % | ||||||||||||||||||||||||
App.-A-66
Charles A. Davis3,5,6 Chief Executive Officer, Stone Point Capital LLC (private equity investing) Stephen R. Hardis1,2,5,6 Lead Director, Axcelis Technologies, Inc. (manufacturing) Bernadine P. Healy, M.D.1,6 Health Editor and Medical Columnist, U.S. News & World Report (publishing) Jeffrey D. Kelly2,4,6 Vice Chairman and Chief Financial Officer, National City Corporation (commercial banking) Abby F. Kohnstamm6 President and Chief Executive Officer, Abby F. Kohnstamm & Associates, Inc. (marketing consulting) | Peter B. Lewis2,4,6,7 Chairman of the Board Norman S. Matthews3,5,6 Consultant, formerly President, Federated Department Stores, Inc. (retailing) Patrick H. Nettles, Ph.D.1,6 Executive Chairman, Ciena Corporation (telecommunications) Glenn M. Renwick2 President and Chief Executive Officer Donald B. Shackelford4,6 Chairman, Fifth Third Bank, Central Ohio (commercial banking) Bradley T. Sheares, Ph.D.3,6 formerly Chief Executive Officer, Reliant Pharmaceuticals, Inc. (pharmaceuticals) | 1Audit Committee member 2Executive Committee member 3Compensation Committee member 4Investment and Capital Committee member 5Nominating and Governance Committee member 6Independent director 7Non-executive chairman |
Corporate Officers | Other Executive Officers | |
Glenn M. Renwick President and Chief Executive Officer Brian C. Domeck Vice President and Chief Financial Officer Charles E. Jarrett Vice President, Secretary and Chief Legal Officer Thomas A. King Vice President and Treasurer Jeffrey W. Basch Vice President and Chief Accounting Officer Peter B. Lewis Chairman of the Board (non-executive) | John A. Barbagallo Commercial Lines Group President William M. Cody Chief Investment Officer Susan Patricia Griffith Chief Human Resource Officer John P. Sauerland Personal Lines Group President Raymond M. Voelker Chief Information Officer |
App.-A-67
Private passenger autos, motorcycles and | ||||
recreational vehicles | Commercial autos/trucks | |||
To report a claim | 1-800-274-4499 | 1-800-274-4499 | ||
For customer service | ||||
If you bought your policy through an independent agent or broker | 1-800-925-2886 (1-800-300-3693 in California) progressiveagent.com | 1-800-444-4487 progressivecommercial.com | ||
If you bought your policy directly through Progressive online or by phone | 1-800-PROGRESSIVE (1-800-776-4737) progressive.com | 1-800-895-2886 progressivecommercial.com |
App.-A-68
App.-A-69