Progressive Exceeds Expectations - Analyst Blog

Progressive Corp.’s (PGR) fourth quarter earnings of 46 cents per share were ahead of the Zacks Consensus Estimate of 37 cents and almost double the prior-year quarter’s earnings of 24 cents. Investment gains coupled with increased premium writings have contributed to this result. Furthermore, the results included the impact of an additional week’s activity in December 2009.

For the full year 2009, Progressive earned $1.1 billion, or $1.57 per share, compared to a loss of $70.0 million, or 10 cents in 2008.

Progressive’s net premiums written increased 10% year-over-year to $3.4 billion. The company recorded a pre-tax investment gain of $45.8 million, compared to a loss of $59.3 million in the year-ago quarter. Combined ratio, which reflects the percentage of premiums paid out as claims and expenses, improved to 91.5% from 95.2% recorded in the year-ago period.

Policies in force (PIF) were good in Personal Auto and Special Lines, which were up 5% and 3% year-over-year, respectively. In Personal Auto, Direct Auto reported a 13% growth in PIF while Agency Auto was flat year-over-year.

However, Progressive’s Commercial Auto business remains a drag on its earnings. The segment was down 5% year-over-year. This line continues to be negatively impacted by the downturn in the economy, primarily in the housing and construction sectors. Increased competition has added to its woes.

Progressive’s recurring pre-tax investment yield was 3.7% in 2009, versus 4.7% reported in 2008. Reported book value was $8.55 per share as of Dec 31, 2009, compared to $8.13 as of Sep 30, 2009. Return on equity on a trailing 12-month basis was 21.4%. During December, Progressive repurchased 0.8 million shares at an average price of $17.38.

We expect Progressive to benefit from the recent signs of economic improvement and from indications of an increase in auto insurance rates. The company also enjoys a number of positives, including its industry-leading position, strong risk-based capital ratios, underwriting margins and stability and the benefits of its cost-containment measures.

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