Progressive's July Results in line - Analyst Blog

Progressive Corp.’s (PGR) earnings per share for July 2010 of 17 cents were in line with July 2009 results. The results of the reported month also compare favorably with earnings of 7 cents per share in June 2010.  Net income for the month declined 1% to $113.2 million from $114.9 million in the year-ago period. However, on a sequential basis, net income increased a whopping 156% from $44.2 million reported in the previous month.

Progressive reports its results every month. The company recorded net premiums of $1,421.1 million, up 4% from $1,365.8 million in July 2009, but down 62% from $3,707.9 million in June 2010. Net premiums earned were $1,375.6 million, up 4% from $1,325.0 million in the year-ago period, but down 62% from $3,590.2 million in the prior month.

Net realized gains on securities were $20.8 million, a decline from $25.8 million in the prior-year period, but a significant improvement from a loss of $39.5 million in June 2010. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated slightly to 91.9% from 91.0% recorded in the year-ago period, but improved from 92.7% in the preceding month.

During July, policies in force remained healthy, with the Personal Auto segment increasing 8% year over year and 0.2% from the prior month. Special Lines increased 4% year over year and 1% over the preceding month. In Personal Auto, Direct Auto reported a double-digit growth of 15% year over year, but showed a slight improvement of 1% in policies in force from the last month. Agency Auto was up 3% year over year, but down 0.1% from the last month. However, Progressive’s Commercial Auto segment continued to drag results, reporting declines of 2% year over year and 0.1% quarter over quarter as a result of the economic downturn.

Total expenses for the reported month increased 5% to $1.3 billion from $1.2 billion in June 2009. The major components contributing to the increase in total expenses were a 4% year over year spike in losses and loss adjustment expenses reaching $691.9 million, a 2% year over year increase in policy acquisition costs climbing to $130.5 million and other underwriting expenses surging 15% year over year to $172.1 million.

Progressive continues to actively manage its capital position. Reported book value per share was $9.78, up from $9.44 as of June 30, 2010, and $7.62 as of July 31, 2009.

Return on equity on a trailing 12-month basis was 18.3%, substantially up from -0.2% in July 2009, but down from +18.7% in June 2010. The debt-to-total-capital ratio was 23.1% as of July 2010, down from 29.6% as of July 2009 and 25.7% as of June 2010.

Though Progressive’s industry-leading position, strong risk-based capital ratios, steady operating performances and focus on customer retention position it favorably to benefit from the economic recovery, increased competition and pressure on underwriting margin will remain headwinds in the upcoming quarters.