Progressive Falls Short of Goal in Q1

Despite posting a year-over-year net income increase of 45%, Progressive Corp. shared first quarter financial results on Tuesday that showed the company falling short of its combined ratio goal for 2023.

The firm’s CR for the quarter was 99 – with March alone posting a CR of 106.2 – while the company’s profit objective is to have a calendar year CR of 96.

“Through the first quarter, we’re not on track to achieve our calendar year goal of a 96 combined ratio,” Tricia Griffith, President and CEO of Progressive, said in an earnings call. “Given our extensive history of meeting our stated goal, this has prompted many questions about how we got here and where we’re going.”

Factors in continued elevated loss costs included inflationary pressure, reserving development, additional weather-related losses as well as recent law changes in Florida that impacted loss estimates and prompted increases to Progressive reserves.

Loss severity was up nearly 10% compared to the first quarter of 2022. Prior accident year reserves developed 4.6 points on the companywide CR and catastrophe losses contributed 1.8 points to that number, compared to 1.2 points for the same period last year.

Griffith’s letter to shareholders says that Progressive is re-evaluating rate plans and intends “to be aggressive with raising rates over the remainder of the year.” In addition, course-correcting action is being taken to reduce advertising spending. By tightening verification, underwriting standards and limiting bill plan options, Progressive aims to reduce growth in segments company leadership believe cannot be written at the target margin.

Record Growth

First quarter growth reached “an all-time high for the company,” Griffith said.

Companywide net premiums written totaled $16.1 billion – a growth of 22% compared to Q1 2022 – and policies in force growth was 9%. Progressive’s net income of $450 million was up 45% from the $310,000 million reported in the first quarter of last year.

The company’s personal lines business grew but fell short of the profitability target with a CR of 98.7 for the quarter. NPW grew 25%, with policies in force growth of 10%. Commercial lines grew NPW 15% – with a CR of 98.4.

While policy growth may be slowed by Progressive’s actions, Griffith said “we are focused on growing policies that we believe will meet or exceed our target margins.”

Catch Up Quick

Progressive reported first quarter net income of $450 million, though the insurer booked a nearly $152 million loss for the month of March.

At the end of February, Progressive recorded net income of about $150.3 million for the month, with nearly $600 million of net income for the year as of Feb. 28.

The downturn in March, Progressive explained, was due to unfavorable prior-year reserve development of $146.5 million during the month – about 55% attributable to its personal auto product and a majority from “recently passed legislation in Florida,” said the insurer.

Some of the unfavorable development in March is from higher than anticipated severity on previously closed claims, Progressive said.

In addition, commercial auto products represented about 30% of the unfavorable development for March due mainly to late reported claims and changes in reserve estimates.