Slide 1: NEWS RELEASE
The Progressive Corporation 6300 Wilson Mills Road Mayfield Village, Ohio 44143 http://www.progressive.com Company Contact: Patrick Brennan (440) 395-2370
Progressive is scheduled to hold a one-hour conference call to address questions on Friday, August 3, 2007, at 9:00 a.m. eastern time, subsequent to the posting of our Shareholders’ Report online and the filing of our Quarterly Report on Form 10-Q with the SEC. Registration for the teleconference and webcast is scheduled to be available at http://investors.progressive.com/events.asp on or after July 16, 2007.
PROGRESSIVE DISTRIBUTES JUNE RESULTS MAYFIELD VILLAGE, OHIO -- July 12, 2007 -- The Progressive Corporation today reported the following results for June 2007: Month
(millions, except per share amounts and ratios)
Quarter Change (3)% (2)% (43)% (39)% (59)% 2007 $3,558.7 3,509.2 283.7 .39 (6.6) 2006 $3,679.6 3,564.4 400.4 .51 (27.1) Change (3)% (2)% (29)% (24)% (76)%
2007 $1,056.6 1,076.6 65.4 .09 (10.0)
2006 $1,089.6 1,096.9 115.0 .15 (24.4)
Net premiums written Net premiums earned Net income Per share Pretax net realized gains (losses) on securities Combined ratio Average diluted equivalent shares
95.7 726.9
87.4 781.0
8.3 pts. (7)%
92.3 729.5
86.6 785.9
5.7 pts. (7)%
(in thousands)
Policies in Force Total Personal Auto Total Special Lines Total Commercial Auto
June 2007 7,052.4 3,081.7 534.2
June 2006 6,963.4 2,870.7 502.0
Change 1% 7% 6%
Progressive offers insurance to personal and commercial auto drivers throughout the United States. Our Personal Lines Businesses write insurance for private passenger automobiles and recreational vehicles. Our Commercial Auto Business writes primary liability, physical damage and other auto-related insurance for automobiles and trucks owned by small businesses.
See the “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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Slide 2: THE PROGRESSIVE CORPORATION AND SUBSIDIARIES INCOME STATEMENT June 2007 (millions – except per share amounts) (unaudited)
Current Month Comments on Monthly Results1
Net premiums written Revenues: Net premiums earned Investment income Net realized gains (losses) on securities
$1,056.6
$1,076.6 62.2 (10.0)
Includes $10.6 million of write-downs on a security determined to have an other-than-temporary decline in market value.
Service revenues Total revenues Expenses: Losses and loss adjustment expenses Policy acquisition costs Other underwriting expenses Investment expenses Service expenses Interest expense Total expenses Income before income taxes Provision for income taxes Net income COMPUTATION OF EARNINGS PER SHARE Basic: Average shares outstanding Per share Diluted: Average shares outstanding Net effect of dilutive stock-based compensation Total equivalent shares Per share
1.7 1,130.5 796.0 108.9 124.9 2.4 1.1 8.1 1,041.4 89.1 23.7 $65.4 Includes $1.4 million of expenses related to the issuance of the 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067. Reflects additional interest accrued on new debt issuance.
719.1 $.09 719.1 7.8 726.9 $.09
See the Monthly Commentary at the end of this release for additional discussion. For a description of our reporting and accounting policies, see Note 1 to our 2006 audited consolidated financial statements included in our 2006 Shareholders’ Report, which can be found at www.progressive.com/annualreport.
1
The following table sets forth the investment results for the month: Fully taxable equivalent total return: Fixed-income securities Common stocks Total portfolio Pretax recurring investment book yield .1% (1.8)% (.2)% 5.2%
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Slide 3: THE PROGRESSIVE CORPORATION AND SUBSIDIARIES INCOME STATEMENTS June 2007 Year-to-Date (millions – except per share amounts) (unaudited)
Year-to-Date 2007 Net premiums written Revenues: Net premiums earned Investment income Net realized gains (losses) on securities Service revenues Total revenues Expenses: Losses and loss adjustment expenses Policy acquisition costs Other underwriting expenses Investment expenses Service expenses Interest expense Total expenses Income before income taxes Provision for income taxes Net income COMPUTATION OF EARNINGS PER SHARE Basic: Average shares outstanding Per share Diluted: Average shares outstanding Net effect of dilutive stock-based compensation Total equivalent shares Per share $7,205.4 2006 $7,356.3 % Change (2)
$7,003.0 330.9 16.7 12.1 7,362.7 4,888.9 710.4 767.1 7.4 9.9 39.4 6,423.1 939.6 292.4 $647.2
$7,064.9 314.2 (26.6) 16.3 7,368.8 4,667.0 727.0 676.5 5.9 13.1 39.9 6,129.4 1,239.4 402.4 $837.0
(1) 5 NM (26) 0 5 (2) 13 25 (24) (1) 5 (24) (27) (23)
729.7 $.89 729.7 7.6 737.3 $.88
783.2 $1.07 783.2 10.2 793.4 $1.05
(7) (17) (7) (25) (7) (17)
NM = Not Meaningful
The following table sets forth the investment results for the year-to-date period: 2007 Fully taxable equivalent total return: Fixed-income securities Common stocks Total portfolio Pretax recurring investment book yield 2.1% 7.5% 3.0% 4.7% 2006 1.2% 3.4% 1.5% 4.5%
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Slide 4: THE PROGRESSIVE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION June 2007 ($ in millions) (unaudited) Current Month Personal Lines Agency Direct Total Net Premiums Written % Growth in NPW Net Premiums Earned % Growth in NPE GAAP Ratios Loss/LAE ratio Expense ratio Combined ratio Actuarial Adjustments2 Reserve Decrease/(Increase) Prior accident years Current accident year Calendar year actuarial adjustment Prior Accident Years Development Favorable/(Unfavorable) Actuarial adjustment All other development Total development Calendar year loss/LAE ratio Accident year loss/LAE ratio Statutory Ratios Loss/LAE ratio Expense ratio Combined ratio NM = Not Meaningful $587.4 (4)% $593.3 (3)% $320.4 (1)% $338.2 0% $907.8 (3)% $931.5 (2)% Commercial Auto Business $147.3 (3)% $143.8 (1)% Other Businesses1 $1.5 NM $1.3 NM Companywide Total $1,056.6 (3)% $1,076.6 (2)%
75.5 21.6 97.1
72.4 21.7 94.1
74.3 21.7 96.0
71.9 21.5 93.4
NM NM NM
74.0 21.7 95.7
$.8
$1.1
$1.9
$(.1)
$(.3)
$1.9 (.4) $1.5
$1.9 (25.5) $(23.6) 74.0 71.8
74.0 21.9 95.9
1
Primarily includes professional liability insurance for community banks and Progressive’s run-off businesses. The other businesses generated an underwriting profit of $.2 million for the month. 2 Represents adjustments solely based on our corporate actuarial reviews.
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Slide 5: THE PROGRESSIVE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION June 2007 Year-to-Date ($ in millions) (unaudited) Year-to-Date Commercial Personal Lines Auto Other Agency Direct Total Business Businesses1 Net Premiums Written % Growth in NPW Net Premiums Earned % Growth in NPE GAAP Ratios Loss/LAE ratio Expense ratio Combined ratio Actuarial Adjustments2 Reserve Decrease/(Increase) Prior accident years Current accident year Calendar year actuarial adjustment Prior Accident Years Development Favorable/(Unfavorable) Actuarial adjustment All other development Total development Calendar year loss/LAE ratio Accident year loss/LAE ratio Statutory Ratios Loss/LAE ratio Expense ratio Combined ratio Statutory Surplus NM = Not Meaningful Policies in Force (in thousands) Agency – Auto Direct – Auto Special Lines3 Total Personal Lines Commercial Auto Business
1 2
Companywide Total $7,205.4 (2)% $7,003.0 (1)%
$3,952.4 (3)% $3,871.8 (3)%
$2,244.1 0% $2,193.7 2%
$6,196.5 (2)% $6,065.5 (1)%
$998.0 (2)% $926.7 2%
$10.9 NM $10.8 NM
71.1 21.3 92.4
69.3 20.8 90.1
70.5 21.1 91.6
66.1 20.6 86.7
NM NM NM
69.8 21.1 90.9
$17.2
$10.6
$27.8
$4.0
$(.3)
$33.7 (2.2) $31.5
$33.7 (74.5) $(40.8) 69.8 69.2
69.9 20.8 90.7 $5,752.4
June 2007 4,516.0 2,536.4 3,081.7 10,134.1 534.2
June 2006 4,554.2 2,409.2 2,870.7 9,834.1 502.0
Change (1)% 5% 7% 3% 6%
The other businesses generated an underwriting profit of $1.4 million. Represents adjustments solely based on our corporate actuarial reviews. 3 Includes insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles and similar items, as well as a personal umbrella product.
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Slide 6: THE PROGRESSIVE CORPORATION AND SUBSIDIARIES BALANCE SHEET AND OTHER INFORMATION
(millions - except per share amounts) (unaudited)
June 2007 CONDENSED GAAP BALANCE SHEET:1 Investments – Available-for-sale, at fair value: Fixed maturities (amortized cost: $11,406.5) Equity securities: Preferred stocks2 (cost: $2,050.0) Common equities (cost: $1,495.6) Short-term investments (amortized cost: $278.0) Total investments3 Net premiums receivable Deferred acquisition costs Other assets Total assets Unearned premiums Loss and loss adjustment expense reserves Other liabilities3 Debt4 Shareholders’ equity Total liabilities and shareholders’ equity
$11,317.8 2,052.4 2,532.1 278.0 16,180.3 2,617.3 461.3 1,814.7 $21,073.6 $4,532.7 5,841.8 1,574.9 2,173.1 6,951.1 $21,073.6
Common Shares outstanding Shares repurchased – June Average cost per share Book value per share Trailing 12-month return on average shareholders’ equity Net unrealized pretax gains on investments Increase (decrease) from May 2007 Increase (decrease) from December 2006 Debt-to-total capital ratio4 Fixed-income portfolio duration Weighted average credit quality Year-to-date Gainshare factor
724.1 4.3 $23.54 $9.60 21.3% $951.0 $(96.4) $32.8 23.8% 3.4 years AA .75
1
Loss and loss adjustment expense reserves are stated gross of reinsurance recoverables on unpaid losses of $323.3 million. As of June 30, 2007, we held certain hybrid securities and recognized a change in fair value of $.8 million as realized losses during the period we held these securities. Amounts include net unsettled security acquisitions of $69.3 million.
2
3 4
Reflects the issuance of $1 billion of 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067. See the monthly commentary for further discussion.
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Slide 7: Monthly Commentary
• On June 14, 2007, we announced a recapitalization plan that includes paying a $2.00 per Common Share extraordinary cash dividend in September 2007, the expected issuance of approximately $1 billion of hybrid debt securities and a new authorization to repurchase up to 100 million shares over the course of the next two years. On June 18, 2007, we issued $1 billion of 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “Debentures”). The proceeds were $987.3 million, before $1.4 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 gain as part of shareholders’ equity; the gain will be recognized as an adjustment to interest expense and amortized over the expected life of the Debentures. • In June, the unfavorable prior accident year "All other development" primarily related to our reserve reviews of larger bodily injury and uninsured motorist exposures in both personal and commercial auto. About Progressive The Progressive Group of Insurance Companies, in business since 1937, is the country’s third largest auto insurance group and largest seller of motorcycle and personal watercraft policies based on premiums written, and is a market leader in commercial auto insurance. Progressive is committed to becoming consumers’ #1 choice for auto insurance by providing competitive products and rates that meet drivers’ needs throughout their lifetimes, superior online and in-person customer service, and best-in-class, 24-hour claims service, including our concierge level of claims service available at service centers located in major metropolitan areas throughout the United States. Progressive companies offer consumers choices in how to shop for, buy and manage their auto insurance policies. The Agency Business sells Progressive Drive Insurance private passenger auto insurance through more than 30,000 independent agencies. To find an agent, go to www.progressive.com. The Direct Business sells Progressive Direct® private passenger auto insurance online at www.progressive.com and by phone at 1-800-PROGRESSIVE. Both businesses also offer Progressive’s other insurance products, including Progressive Commercial, Progressive Motorcycle and Progressive Boat. Each business makes independent decisions about private passenger auto insurance product design and pricing. Drive is a registered service mark of Drive Trademark Holdings LP. The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, are publicly traded at NYSE:PGR. For more information, including a guide to interpreting the monthly reporting package, please visit www.progressive.com. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this release that are not historical fact are forward-looking statements that are subject to certain risks 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 economic conditions (including changes in interest rates and financial markets); the accuracy and adequacy of our pricing and loss reserving methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to retain more customers; initiatives by competitors and the effectiveness of our response; our ability to obtain regulatory approval for requested rate changes and the timing thereof; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments; disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against us; weather conditions (including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions); changes in driving patterns and loss trends; acts of war and terrorist activities; our ability to maintain the uninterrupted operation of our facilities, systems (including information technology systems) and business functions; court decisions and trends in litigation and health care and auto 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. Reported results, therefore, may appear to be volatile in certain accounting periods. -7-
