Progressive 10-Q 2024-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 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: 585,666,665 outstanding at June 30, 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 second 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 4.1 points better than our 4% companywide calendar-year underwriting profit goal.

Net premiums written and earned increased 22% and 19%, respectively, during the second quarter 2024 compared to the same period last year, with all operating segments contributing to the growth. For the quarter, we generated $17.9 billion of net premiums written, which was an increase of $3.2 billion, compared to the second quarter 2023.

On a companywide basis, we ended the quarter with 32.3 million policies in force, which was 9% greater than the same period last year. During the first six months of 2024, we added 2.6 million policies in force companywide, with our personal auto products representing 2.0 million of the increase. Personal auto new business applications were up significantly from the second quarter last year, reflecting our continued efforts to focus on driving growth. During the quarter we increased our advertising spend, continued to unwind non-rate restrictions we put in place throughout 2023 to manage profitability, and worked closely with our independent agents to get back into their quote flows. We also focused on delivering competitive rates to consumers and had eight personal auto states with small rate decreases during the second quarter.

Profitability for the quarter was strong with our companywide combined ratio for the second quarter 2024 of 91.9, which was 8.5 points better than the second quarter last year. Our Personal and Commercial Lines businesses both generated an 88.6 combined ratio for the quarter, while the Property business generated an underwriting loss with a combined ratio of 166.3 that included catastrophe losses of 75.6 points.

Several factors contributed to the significant year-over-year improvement in our underwriting profit. The average earned premium per policy on our vehicle businesses were higher than the prior year second quarter, primarily due to the rate increases we took, during 2023, to meet our companywide profitability target.

In addition to rate increases, on a year-over-year basis for the second quarter, our incurred personal auto accident frequency decreased 8% and severity was relatively flat, which is an indication that severity trends are stabilizing. Also contributing to the profitability improvement was favorable prior accident years reserve development of 0.3 points in the second quarter 2024, compared to unfavorable development in the second quarter last year of 3.4 points.

Partially offsetting the favorable impact to profitability from the improved loss ratios, was an increase in our expense ratio of 2.5 points over the second quarter 2023. On a quarter-over-prior-year quarter basis, during the second quarter 2024, our advertising spend increased nearly 150%, which brought our year-to-date advertising costs to $1.6 billion, as we focused on maximizing growth. We will continue this focus 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.

The year-over-year increase in underwriting profitability was the primary contributor to the $1.1 billion increase in net income and the $1.7 billion increase in comprehensive income for the second quarter 2024. During the quarter, recurring investment income increased 51%, primarily due to investing new cash from operations and proceeds from maturing bonds in higher coupon rate securities. However, in the second quarter 2024, the portfolio recognized net realized losses on securities, compared to net realized gains in the same period last year, which more than offset the increase in the recurring investment income generated during the quarter.

In addition to the increases in net income, the increase in comprehensive income also reflected the decrease in the net unrealized losses on our fixed-maturity securities during the second quarter 2024, compared to the increase in unrealized losses during the second quarter last year. The change in the unrealized losses during both periods were primarily driven by the then-current economic environment.

Total capital (debt plus shareholders’ equity) at June 30, 2024, was $30.2 billion, which was up $3.0 billion from year-end 2023. During the first half of 2024, we earned $3.7 billion of comprehensive income, which was in part offset by the $0.5 billion redemption of all of our outstanding Serial Preferred Shares, Series B, during the first quarter, as discussed in further detail in Financial Condition below.

A. Insurance Operations

During the second quarter 2024, our Personal Lines and Commercial Lines businesses each generated an underwriting profit margin of 11.4%. Our Property operating segment recognized a 66.3% underwriting loss margin during the quarter, which included 75.6 points due to the significant losses incurred from catastrophic weather events.

Personal Lines is comprised of both our personal auto and special lines products, with the latter typically having higher losses during the warmer weather months, due to

the seasonal nature of these products (e.g., motorcycles, boats, and RVs). The special lines profitability had minimal impact to our total Personal Lines combined ratio during the second quarter 2024.

During the quarter, our vehicle businesses benefited from higher average earned premium per policy and lower incurred loss frequency trends, with Personal Lines also benefiting from lower incurred severity trends and favorable prior accident years 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 have taken, and when necessary will continue to take, rate increases in our TNC business to address profitability issues. In our Property business, during the second quarter 2024, we increased rates about 4% countrywide, in the aggregate, which follows an increase of about 6% in the first quarter 2024 and an aggregate increase of about 17% on a trailing 12-month basis.

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. We currently anticipate that aggregate vehicle 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 second quarter 2024, we continued to lift the non-rate actions implemented last year in our vehicle businesses, in all but a few states, as our focus shifted from achieving our target profit margin to driving growth, delivering competitive rates to consumers, and providing an exceptional customer experience to our policyholders.

For the second quarter 2024, net premiums written grew 22%, compared to the second quarter last year, with all segments showing strong growth. Personal Lines net premiums written grew 26%, with the Agency and Direct distribution channels growing 22% and 29%, respectively. Commercial Lines net premiums written grew 6% and Property grew 11%. 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 second quarter 2024, we e

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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 June 30, 2024, 2.9 years at June 30, 2023, and 3.0 years at December 31, 2023. The weighted average beta of the equity portfolio was 1.06 at June 30, 2024, 1.04 at June 30, 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

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.

In May 2024, the Board of Directors approved an authorization for the company to repurchase up to 25 million of its common shares. This authorization, which does not have an expiration date, terminated the 24,032,028 shares that remained under the Board’s May 2023 authorization to repurchase 25 million shares.

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 second quarter 2024, all repurchases were accomplished in conjunction with our equity incentive awards or through the open market at the then-current market prices.

(c) Insider Trading Arrangements

During the second quarter 2024, John Murphy, Claims President, entered into a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c). The plan provides for: i) the sale of all of the shares upon vesting pursuant to certain outstanding equity awards previously granted to Mr. Murphy, 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) the gifting of 500 shares held by Mr. Murphy, some of which may have been the result of a prior vesting event. The arrangement will expire February 28, 2025, subject to the arrangement’s earlier expiration or completion in accordance with its terms. This plan was entered into on May 16, 2024.

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 58, 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.