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Strong May Results for Progressive

Zacks Equity Research

Progressive Corp.’s (PGR) earnings per share (EPS) for May 2013 surged 171% year over year to 19 cents from 7 cents reported in May 2012. Net income shot up 166% year over year to $116.7 million in the reported month.

Progressive recorded net premiums of $1.28 billion in the reported month, up 5% from $1.22 billion in the year-ago period. Net premiums earned were $1.32 billion, up 7% from $1.23 billion in the year-ago period.

Net realized gains on securities in May 2013 were $63.2 million, reflecting a huge improvement from $2.7 million in the year-ago month. Combined ratio − the percentage of premiums paid out as claims and expenses − improved 430 basis points (bps) from the prior-year month to 93.2% in the reported month.

Numbers in May

During May, policies in force remained healthy, with the Personal Auto segment increasing 1% year over year and 0.1% sequentially. Special Lines also increased 2% year over year and 0.7% over the preceding month.

In Personal Auto, Direct Auto reported growth of 3% year over year and 0.2% from the preceding month. Agency Auto inched down 0.3% year over year but improved 0.1% sequentially. Progressive’s Commercial Auto segment reported an increase of 7% year over year and 0.5% sequentially.

Progressive’s total expenses for the reported month decreased 14% to $1.26 billion from $1.47 billion in May 2012. The decrease in expenses was driven by a 15.4% decline in lost and loss adjustment expenses, a 20.1% dip in policy acquisition costs and a 1% fall in underwriting expenses.

Progressive reported book value per share of $10.87 as of May 30, 2013, up from $10.22 as of May 30, 2012 and from $10.85 as of Apr 30, 2013.

Return on equity in May 2013 was 19.9%, up from 11.4% in May 2012 and 17.7% in Apr 2013. The debt-to-total-capital ratio was 23.9% as of May 30, 2013, improving from 24.9% as of May 30, 2012 and from 24% as of Apr 30, 2013.

Progressive carries a Zacks Rank #3 (Hold). Other property and casualty insurers, HCI Group Inc. (HCI), Montpelier Re Holdings Ltd. (MRH) and Platinum Underwriters Holdings Ltd. (PTP), carry a Zacks Rank #1 (Strong Buy) and appear impressive.

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