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Progressive's (PGR) August Income Down, Cat Loss to Blame

Zacks Equity Research

The Progressive Corporation PGR reported operating earnings per share of 2 cents for August, plunged 82% year over year.

Including net realized loss, net loss came in at 3 cents, comparing unfavorably with 8 cents earned in the year-ago period.

Year to date, Progressive’s shares have surged 34.4%, outperforming the industry’s rally of 10.7%. This share price rise was courtesy the company’s sustained strong results.

Numbers in August

Progressive recorded net premiums written of $2.2 billion in August, up 16% from $1.9 billion in the year-ago month. Net premiums earned were about $2.0 billion, up 14% from $1.8 billion in the year-ago month.

Net realized loss on securities in the quarter was $11.7 million, wider than $29.3 million in August 2016.

Combined ratio — percentage of premiums paid out as claims and expenses — deteriorated 590 basis points (bps) from the prior-year quarter to 103.8%. Progressive incurred $254 million in catastrophe losses in August. Of this, $228 million were attributable to vehicle businesses and $26 million to Property business. The company incurred more than 90% of catastrophe losses, having erupted from Hurricane Harvey.

Total operating revenue came in at $2.1 billion. The top line rallied 14% year over year owing to a 14% increase in premiums as well as investment income, 9% higher fees and other revenues, plus 36% improvement in service revenues.

Total expense shot up 20.8% to $2.1 billion. This rise in expenses can be primarily attributed to 22.3% higher losses and loss adjustment expenses, 13.9% climb in policy acquisition costs and 17.0% higher other underwriting expenses.

In August, policies in force were impressive with the Personal Auto segment, having improved 10% year over year to nearly 11.3 million. Special Lines inched up 2% from the prior-year month to 4.4 million.

In Progressive’s Personal Auto segment, Direct Auto increased 9% to 5.8 million while Agency Auto grew 10% to 5.5 million.

Progressive’s Commercial Auto segment grew 4% year over year to 0.6 million. The Property business had about 1.3 million policies in force in the reported month, up 14% year over year.

Progressive’s book value per share was $15.90 as of Aug 31, 2017, up 15% from $13.86 as of Aug 31, 2016.

Return-on-equity on a trailing 12-month basis was 19.1%, up 300 bps from 16.1% in August 2016. Debt-to-total-capital ratio improved 150 bps year over year to 26.7% as of Aug 31, 2017.

Zacks Rank and Other Insurers

Progressive carries a Zacks Rank #3 (Hold). Some better-ranked property and casualty (P&C) insurers are Atlas Financial Holdings, Inc. AFH, Markel Corporation MKL and American Financial Group, Inc. AFG,

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company’s average four-quarter surprise is 57.94%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Markel markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%. The company flaunts a Zacks Rank #1.

American Financial Group primarily engages in P&C insurance with focus on specialized commercial products for businesses. The company delivered positive surprises in three of the last four quarters with an average beat of 17.03%. The company carries a Zacks Rank #2 (Buy).

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