Fitch Affirms Progressive's Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has affirmed The Progressive Corporation's PGR ratings as follows:

--Issuer Default Rating (IDR) at 'A+';

--Senior debt ratings at 'A';

--Junior debt ratings at 'BBB+'.

Fitch has also affirmed Progressive's operating subsidiaries' Insurer Financial Strength (IFS) rating at 'AA'. A complete list of ratings follows the end of the release. The Rating Outlook is Stable.

KEY RATING DRIVERS

Fitch's ratings are based on Progressive's excellent operating performance, pricing and underwriting expertise, personal auto insurance franchise, conservative investment allocation, and strong risk-based capital position.

The affirmation follows PGR's recent acquisition of a controlling interest in ARX Holding Corporation (ARX), the parent company of homeowners' insurance specialist American Strategic Insurance (ASI), for total consideration of $875 million in cash, a price that represented approximately 2.6 times book value. The transaction brought PGR's ownership interest in ARX to 67% from its former 5% stake in the company acquired in 2012.

The transaction closed on April 1, 2015 and ARX's management team has remained in place and the company will continue to be run as a separate entity. PGR also has the option to purchase the remaining 33% of ARX over the next six years.

Progressive's overall GAAP combined ratio was 92.3% for full year 2014 an improvement over full year 2013's result of 93.5%. Embedded in PGR's culture is obtaining a GAAP calendar year combined ratio of 96% or better. In fact, the company's annual dividend to shareholders and employee bonuses are based on obtaining this goal.

Fitch continues to view Progressive as one of the strongest underwriters among major property/casualty companies, and recognizes the company's history of favorable underwriting margins and stability.

Progressive's financial leverage, as measured by total debt to total capital, is anticipated to remain near current levels in the near term. The company's financial leverage at March 31, 2015 was 26.6%, following Progressive's $400 million 1st quarter 2015 senior debt issuance and was not expected to be materially impacted by the ARX acquisition.

Progressive's profitability promotes strong interest coverage. GAAP fixed charge coverage at three months 2015 was 13.6 times(x), down from year-end 2014 of 15.4x. Fitch believes that GAAP fixed charge coverage will range from high single digits to low double digits over the near term.

RATING SENSITIVITIES

Factors that could lead to a ratings downgrade include the following:

--Reporting a GAAP calendar year combined ratio of 99% or higher;

--Failure to maintain a Prism score of 'Very Strong' or better. Based on year-end 2013 data PGR's Prism score was 'Very Strong';

--An increase in statutory net leverage, defined as net written premiums plus total liabilities relative to policyholders surplus plus Progressive Investment Company, Inc's assets, above 5.0x.;

--Failure to maintain statutory maximum dividend coverage ratio of 7.0x or higher on a sustained basis;

--A meaningful change to the auto insurance market that unfavorably alters operating environment;

-- Homeowners' growth that substantially increases probable maximum loss (PML) levels.

Fitch believes that a ratings upgrade for Progressive would require a broadened product focus with a material decline in net leverage.

Fitch has affirmed the following ratings:

The Progressive Corporation

--IDR at 'A+';

--$500 million 3.75% due Aug. 23, 2021 at 'A';

--$300 million 6.625% due March 31, 2029 at 'A';

--$400 million 6.25% due Dec. 1, 2032 at 'A';

--$350 million 4.35% due Apr. 25, 2044 at 'A';

--$400 million 3.70% due Jan. 26, 2045 at 'A';

--Junior subordinated debentures at 'BBB+'.

--$732 million 6.7% due June 18, 2067 at 'BBB+'.

The Rating Outlook is Stable.

Fitch has affirmed the following companies' 'AA' IFS ratings:

The following are members of Progressive Direct Holdings:

Mountain Laurel Assurance. Co.

Progressive Advanced Insurance Company

Progressive Choice Ins Co.

Progressive Direct Insurance Co.

Progressive Freedom Ins Co.

Progressive Garden State Ins Co.

Progressive Marathon Ins Co.

Progressive MAX Ins Co.

Progressive Paloverde Ins. Co.

Progressive Premier Ins. Co. of IL

Progressive Select Insurance Co.

Progressive Universal Ins. Co.

The following are members of Progressive Agency Holdings:

Drive New Jersey Ins Co.

Progressive American Ins. Co.

Progressive Bayside Ins. Co.

Progressive Casualty Ins. Co.

Progressive Classic Insurance Co.

Progressive County Mutual Insurance Co.

Progressive Gulf Ins. Co.

Progressive Hawaii Ins. Co.

Progressive Michigan Ins. Co.

Progressive Mountain Insurance Co.

Progressive Northern Ins. Co.

Progressive Northwestern Ins.

Progressive Preferred Ins. Co.

Progressive Security Ins. Co.

Progressive Southeastern Ins. Co.

Progressive Specialty Ins. Co.

Progressive West Ins. Co.

The following are members of Progressive Commercial Holdings:

Artisan & Truckers Casualty Co.

Progressive Commercial Casualty Company

Progressive Express Ins. Co.

United Financial Casualty Co.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984758

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