Progressive 10-Q 2024-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2024

or

For the transition period from to

Commission File Number: 001-09518

THE PROGRESSIVE CORPORATION

(Exact name of registrant as specified in its charter)

(440) 461-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Shares, $1.00 par value: 585,698,387 outstanding at March 31, 2024

PART I—FINANCIAL INFORMATION

The Progressive Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)

1 All of our outstanding Serial Preferred Shares, Series B, were redeemed in February 2024. See Note 9 – Dividends for further discussion.

See notes to consolidated financial statements.

The Progressive Corporation and Subsidiaries

Consolidated Balance Sheets

(unaudited)

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I. OVERVIEW

During the first quarter 2024, The Progressive Corporation’s insurance subsidiaries recognized strong growth in both premiums and policies in force, compared to the same period last year, and generated an underwriting profit significantly better than our 4% companywide calendar-year underwriting profit goal.

Net premiums written and earned increased 18% and 19%, respectively, compared to the same period last year, with all operating segments contributing to the growth. For the quarter, we generated $19.0 billion of net premiums written, which was an increase of $2.9 billion, compared to the first quarter 2023.

On a companywide basis, we ended the quarter with 30.8 million policies in force, which was 7% greater than the same period last year. Policies in force increased 1.1 million since year-end 2023 and 2.0 million from the end of March 2023. Although personal auto new business applications were down from the prior year, reflecting the rate and non-rate actions we took throughout 2023 to manage profitability, policy in force growth benefited from improved retention in both our Personal Lines and Property businesses.

Profitability for the quarter was strong with our companywide combined ratio for the first quarter 2024 of 86.1, which was 12.9 points better than the first quarter last year and 9.9 points better than our calendar-year underwriting profitability goal. Several factors contributed to the significant year-over-year improvement in our underwriting profit. The average earned premiums per policy were higher than the prior year first quarter in all of our operating segments, primarily due to the rate increases we took during 2023 to meet our companywide profitability target. Also, on a year-over-year basis for the first quarter, our incurred personal auto accident frequency decreased 9% and, while severity was up 3%, we are starting to see indications that severity trends are stabilizing. In addition, in the first quarter 2024, we had favorable prior accident years reserve development of 0.1 points, compared to unfavorable development in the first quarter last year of 4.6 points. Lastly, our companywide expense ratio was 2.3 points lower in the first quarter 2024, compared to the same period last year, in large part due to a 7% decrease in advertising spend. We are increasing our media spend to maximize growth and will continue to do so as long as we remain on track to achieve our target profitability and generate sales at a cost below the maximum amount we are willing to spend to acquire a new customer.

On a year-over-year basis, for the first quarter 2024, net income increased $1.9 billion and comprehensive income increased $1.1 billion, compared to the same period last

year. The increase in net income primarily reflected the increase in underwriting profitability. During the quarter, net income also benefited from a 47% increase in recurring investment income, primarily due to investing new cash from operations and proceeds from maturing bonds in higher coupon rate securities.

The quarter-over-prior-year quarter increase in comprehensive income reflected the increase in net income partially offset by the change in net unrealized losses on our fixed-maturity securities during the periods. During the first quarter 2024, net unrealized losses increased, compared to a decrease in net unrealized losses in the first quarter last year, with both periods primarily driven by the then-current interest rate environment, with a moderate decline in interest rates during the first quarter last year.

Total capital (debt plus shareholders’ equity) at March 31, 2024, was $28.7 billion, which was up $1.5 billion from year-end 2023. During the first quarter 2024, we earned $2.1 billion of comprehensive income, which was offset by the $0.5 billion redemption of all of our outstanding Serial Preferred Shares, Series B, during the quarter, as discussed in further detail in Financial Condition below.

A. Insurance Operations

During the first quarter 2024, all of our operating segments were profitable with Personal Lines, Commercial Lines, and Property reporting combined ratios of 84.5, 91.8, and 93.4, respectively. Personal Lines is comprised of both our personal auto and special lines products, with the latter typically having lower losses during the first quarter due to the seasonal nature of these products (e.g., motorcycles, boats, and RVs). The special lines profitability during the first quarter contributed just over a 1 point favorable impact to our total Personal Lines combined ratio. During the quarter, all of our operating segments benefited from higher average earned premiums per policy, lower incurred loss frequency and severity trends, and lower expense ratios, with Personal Lines also benefiting from favorable prior accident year reserve development.

As a result of the rate actions we took during 2023 to help achieve our target profit margin, we currently believe that, in most states, we are adequately priced in our personal auto and core commercial auto (which exclude our transportation network company (TNC) business, business owners’ policy (BOP), and Progressive Fleet & Specialty (previously referred to as Protective Insurance)) products. We will continue to monitor the factors that could impact our loss costs for both our vehicle and Property businesses, which may include new and used car prices, miles driven, driving patterns, loss severity, weather events, building materials, construction costs, inflation, and other components, on a state-by-state basis, and adjust rates as

we deem appropriate. We currently anticipate that aggregate rate changes throughout 2024 will be of lesser magnitude than those taken in each of the prior two years, but we will continue to evaluate our rate need and adjust rates as we deem necessary.

Throughout the first quarter 2024, we continued to lift the non-rate actions implemented last year, on a state-by-state basis, as our focus shifted from achieving our target profit margin to maximizing profitable growth.

For the first quarter 2024, net premiums written grew 18% compared to the first quarter last year, with all segments showing strong growth. Personal Lines net premiums written grew 20%, with the Agency and Direct distribution channels growing 18% and 21%, respectively. Commercial Lines net premiums written grew 11% and Property grew 17%. Changes in net premiums written are a function of new business applications (i.e., policies sold), business mix, premium per policy, and retention.

In the first quarter 2024, we experienced a decrease in Personal Lines new business applications, primarily reflecting the significant volume of new applications written in the prior year first quarter. On a quarter-over-prior-year quarter basis, new personal auto applications decreased 9% for the first quarter 2024, compared to an increase of 83% in the same period in 2023. As certain new business restrictions began to be lifted during the quarter, we saw personal auto new business application growth stabilize towards the end of the quarter.

New applications in our core commercial auto business increased 2% during the first quarter 2024, compared to the same period last year. Excluding the impact of the for-hire transportation business market target (BMT), which had a year-over-year decrease in new applications, our core commercial auto new application growth would have been 9% during the first quarter 2024. The for-hire transportation BMT continues to be adversely impacted by challenging freight market conditions that have caused a decline in the active number of motor carriers in this BMT.

New applications in the Property business were up 31% over the first quarter last year as we continued to focus on growing new business in less volatile weather states and home and auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs, in regions where our ap

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The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 3.2 years at March 31, 2024 and 3.0 years at both March 31, 2023 and December 31, 2023. The weighted average beta of the equity portfolio was 1.05 at March 31, 2024, 1.02 at March 31, 2023, and 1.00 at December 31, 2023. We have not experienced a material impact when compared to the tabular presentations of our interest rate and market risk sensitive instruments in our Annual Report on Form 10-K for the year ended December 31, 2023.

We, under the direction of our Chief Executive Officer and our Chief Financial Officer, have established disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our Chief Executive Officer and our Chief Financial Officer reviewed and evaluated our disclosure controls and procedures as of the end of the period covered by this report. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effectively serving the stated purposes as of the end of the period covered by this report.

There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

For discussion of legal proceedings, see Note 11 – Litigation to the consolidated financial statements, which is incorporated herein by reference.

There have been no material changes in the risk factors from those discussed in Item 1A, Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Share Repurchases

In May 2023, the Board of Directors approved an authorization for the company to repurchase up to 25 million of its common shares. This authorization does not have an expiration date. Share repurchases under this authorization may be accomplished through open market purchases, including trading plans entered into with one or more brokerage firms in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, through privately negotiated transactions, pursuant to our equity incentive awards, or otherwise. During the first quarter 2024, all repurchases were accomplished in conjunction with our equity incentive awards at the then-current market prices; there were no open market purchases during the quarter.

Progressive’s financial policies state that we will repurchase shares to neutralize dilution from equity-based compensation in the year of issuance and as an option to effectively use under-leveraged capital.

(c) Insider Trading Arrangements

During the first quarter 2024, certain executive officers, as listed below, entered into Rule 10b5-1 trading arrangements that are intended to satisfy the affirmative defense of Rule 10b5-1(c). The plans provide for: i) the sale of a portion of the shares upon vesting pursuant to certain outstanding equity awards previously granted to the applicable executive officer, excluding any shares withheld by the company to satisfy tax withholding obligations (see the 2024 Proxy Statement for a description of the company’s equity compensation plans) and, ii) for certain executives, the sale and/or gift of additional shares held by the applicable executive, some of which may have been the result of a prior vesting event. Below are the details of each executive's Rule 10b5-1 trading arrangement:

• subject to the plan’s earlier expiration or completion in accordance with its terms.

Additional Information

President and CEO Susan Patricia Griffith’s quarterly letter to shareholders is included as Exhibit 99 to this Quarterly Report on Form 10-Q and in our online shareholders’ report located on our investor relations website at: investors.progressive.com/financials.

See exhibit index contained herein beginning on page 56, which is incorporated by reference from information with respect to this item.

SIGNATURES

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