Progressive Disappoints - Analyst Blog

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) net income for April 2010 came in at $111.1 million, down 4% from $116.2 million recorded in the comparable year-ago period. Income for the reported month was also down by 12% from $126.3 million reported in March 2010.

However, earnings per share remained flat compared with the year-ago month at 17 cents. This compares unfavorably with earnings of 19 cents per share reported in March 2010. Higher expenses primary resulted in lower earnings for the reported month.

The company, which reports results on a monthly basis, recorded a net premium written of $1,473.7 million, up 4% from $1,414.5 million in April 2009 and 23.6% from $1,192.6 million in March 2010. Net premiums earned were $1,374.5 million, up 4% from $1,322.2 million in the year-ago period and 21.1% from $1,092.1 million in the prior month.

Net realized gains on securities were $8.0 million, up from $2.6 million in the prior-year period and down from $27 million in March 2010. However, the combined ratio, which reflects the percentage of premiums paid out as claims and expenses, deteriorated slightly to 90.7% from 89.2% recorded in the year-ago period and 88.2% in the preceding month.

During April, policies-in-force (PIF) remained healthy, with Personal Auto increasing 7% year over year and 0.8% from the last month and Special Lines increasing 3% year over year and 1.5% in the preceding month. In Personal Auto, Direct Auto continued to report a double-digit growth of 15% year over year but showed a slight improvement of 1.2% in PIF from the last month. Agency Auto was up 2% year over year and 0.5% from last month.

However, Progressive’s Commercial Auto business continued to be a drag on results, reporting a 3% decline as a result of the economic downturn.

Total expense for the reported month increased to $1,261.3 million, up 5.7% from $1,193.5 million in April 2009. Major components contributing to the increase in total expense were losses and loss adjustment expenses increasing 3.8% year over year to $947.7 million, policy acquisition costs increasing 1.0% year over year to $129.8 million and other underwriting expenses increasing a substantial 22.9% year over year to $169.0 million.

Progressive continues to actively manage its capital position and return back wealth to its shareholders in the form of share repurchases. Reported book value per share was $9.52, up from $9.26 as of March 31, 2010, and $6.70 as of April 30, 2009. Return on equity, on a trailing 12-month (ttm) basis, was 20.1%, down from 20.8% ttm in March 2010 but substantially up from a negative 1.6% ttm in April 2009. The debt-to-total-capital ratio was 25.4% as of April 2010, down from 26.0% as of March 2010 and 32.3% as of April 2009.

Though Progressive’s industry-leading position, strong risk-based capital ratios, and steady operating performances position it favorably to benefit from the economic recovery, increased competition and pressure on underwriting margin will remain a headwind in the upcoming quarters.