Objectives &
Policies
Consistent achievement of superior results requires that our people understand Progressive's objectives and their specific roles, and that their personal objectives dovetail with Progressive’s. Our objectives are ambitious, yet realistic. Progressive monitors its financial policies continuously and strives to meet these targets annually. Experience always clarifies objectives and illuminates better policies. We constantly evolve as we monitor the execution of our policies and progress toward achieving our objectives.
Objectives
Profitability
Progressive's most important goal is for our insurance subsidiaries to produce an aggregate calendar year underwriting profit of at least 4%. Our business is a composite of many product offerings defined in part by product type, distribution channel, geography, customer tenure, and underwriting grouping. Each of these products has targeted operating parameters based on level of maturity, underlying cost structures, customer mix, and policy life expectancy. Our aggregate goal is the balanced blend of these individual performance targets in any calendar year.
Growth
Our goal is to grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service. Progressive is a growth-oriented company and management incentives are tied to profitable growth.
Aggregate expense ratios and growth rates disguise the true nature and performance of each business. As such, we report Personal Lines, Commercial Lines, and Property business results separately. We further break down our Personal Lines’ results by channel (Agency and Direct) to give shareholders a clearer picture of the business dynamics of each distribution method.
Financial
Policies
Progressive balances operating risk with risk of investing and financing activities in order to have sufficient capital to support all the insurance we can profitably underwrite and service. Risks arise in all operational and functional areas, and, therefore, must be assessed holistically, accounting for the offsetting and compounding effects of the separate sources of risk within Progressive.
We use risk management tools to quantify the amount of capital needed, in addition to surplus, to absorb consequences of events such as unfavorable loss reserve development, litigation, weather-related catastrophes, and investment-market corrections. Our financial policies define our allocation of risk and we measure our performance against them. We will invest capital in expanding business operations when, in our view, future opportunities meet our financial objectives and policies. Underleveraged capital will be returned to investors. We expect to earn a return on equity greater than its cost. Presented is an overview of Progressive’s Operating, Investing, and Financing policies.
Operating
Maintain pricing and reserving discipline
- Manage profitability targets and operational performance at our lowest level of product definition
- Sustain premiums-to-surplus ratios at efficient levels, and at or below applicable state regulations, for each insurance subsidiary
- Ensure loss reserves are adequate and develop with minimal variance
Investing
Maintain a liquid, diversified, high-quality investment portfolio
- Manage on a total return basis
- Manage interest rate, credit, prepayment, extension, and concentration risk
- Allocate portfolio between two groups:
- Group I: Target 0% to 25% (common equities; nonredeemable preferred stocks; redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends; and all other non-investment-grade fixed-maturity securities)
- Group II: Target 75% to 100% (short-term securities and all other fixed-maturity securities)
Financing
Maintain sufficient capital to support our business
- Maintain debt below 30% of total capital at book value
- Neutralize dilution from equity-based compensation in the year of issuance through share repurchases
- Use underleveraged capital to repurchase shares and pay dividends
Objectives & Policies Scorecard
| Target | 2020 | 2019 | 2018 | 5 Years1 | 10 Years1 | |
|---|---|---|---|---|---|---|
| Underwriting margin | ||||||
| –Progressive2 | 4% | 12.3% | 9.1% | 9.4% | 8.9% | 8.1% |
| –Industry3 | na | ||||||| | 1.8% | 2.7% | (1.2)% | (1.3)% |
| Net premiums written growth | ||||||
| –Progressive | (a) | 8% | 15% | 20% | 15% | 11% |
| –Industry3 | na | ||||||| | 3% | 8% | 6% | 5% |
| Policies in force growth | ||||||
| –Personal auto | (a) | 11% | 11% | 14% | 11% | 7% |
| –Special lines | (a) | 8% | 4% | 0% | 4% | 3% |
| –Commercial Lines | (a) | 9% | 8% | 8% | 8% | 5% |
| –Property | (a) | 13% | 14% | 32% | 18% | nm |
| Companywide premiums-to-surplus ratio | (b) | 2.7 | 2.7 | 2.8 | na | na |
| Investment allocation | ||||||
| –Group I | ≤25% | 14% | 12% | 14% | na | na |
| –Group II | ≥75% | 86% | 88% | 86% | na | na |
| Debt-to-total capital ratio | <30% | 24.1% | 24.4% | 28.9% | na | na |
| Return on average common shareholders’ equity | ||||||
| –Net income attributable to Progressive | (c) | 35.6% | 31.3% | 24.7% | 26.6% | 23.0% |
| –Comprehensive income attributable to Progressive | (c) | 39.3% | 35.0% | 23.8% | 29.2% | 24.7% |
(a) Grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service.
(b) Determined separately for each insurance subsidiary.
(c) Progressive does not have a predetermined target for return on average common shareholders’ equity.
na = not applicable.
nm = not meaningful; Property business written by Progressive prior to April 2015 was negligible.
1 Represents results over the respective time period; growth represents average annual compounded rate of increase (decrease).
2 Expressed as a percentage of net premiums earned. Underwriting profit is calculated by subtracting losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses expenses (including policyholder credits) from the total of net premiums earned and fees and other revenues.
3 Industry results represent private passenger auto insurance market data as reported by A.M. Best Company, Inc. The industry underwriting margin excludes the effect of policyholder dividends. Final comparable industry data for 2020 will not be available until our third quarter report. The 5- and 10-year growth rates are presented on a one-year lag basis for the industry.
