U.S. Markets close in 35 mins

Progressive Corp.'s Net Premium Growth Shows Consistency

Zacks Equity Research

On Aug 22, 2014, we issued an updated research report on Progressive Corp. (PGR).

Progressive Corp. delivered second-quarter operating earnings of 45 cents per share, missing the Zacks Consensus estimate but rising from the year-ago quarter figure. The top line improved on higher premiums.

Given the company’s business expansion, along with stability in the interest rate environment, it witnessed consistent solid growth in net premium written over the years with Agency and Direct Personal Lines making the major contribution. Commercial Auto also rebounded from the year-ago loss.

Progressive Corp.’s management continues to focus on customer retention. The policy life expectancy (:PLE), a measure for customer retention, delivered mixed results over the years. However, it improved in the second quarter primarily on the back of Agency Auto Business and Direct Auto Business.

Being a property and casualty insurer, Progressive Corp. is exposed to catastrophic (CAT) occurrences. The company’s combined ratio improved over the years due to the absence of any major CAT impact. Nevertheless, if any severe catastrophes occur in the near term, the combined ratio could deteriorate.

Total expenses of Progressive Corp. increased over the years mainly due to rise in losses and loss adjustment expenses, other underwriting expenses and policy acquisition costs, which limited expansion of the company’s operating margin.

In its effort to increase shareholder value, Progressive Corp. continuously engages in share buybacks, apart from paying an annual dividend. Given the company’s financial strength, we expect more capital deployment going forward.

Additionally, the debt-to-capital ratio of Progressive Corp. has improved over the years. We expect the company to engage in deleveraging activities to further improve this ratio.

The Zacks Consensus Estimate for 2014 is currently pegged at $1.65 while for 2015, it is $1.70. The expected long-term earnings growth rate of the stock is 6.4%.

Progressive Corp. currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked property and casualty insurers worth reckoning include Endurance Specialty Holdings Ltd. (ENH), Global Indemnity plc (GBLI) and Mercury General Corp. (MCY). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PGR
Read the Full Research Report on ENH
Read the Full Research Report on MCY
Read the Full Research Report on GBLI

Zacks Investment Research