Progressive Corp. turned a $70 million loss in 2008 into a $1.06 billion net gain in 2009, driven in large part by growth in the company's direct automobile insurance segment, as well as positive investment income.
Using direct and agency means to sell its policies, Progressive reported direct agency business grew 13%, or 377,000 policies, in 2009 while growth in agency business was relatively flat. Overall insurance operations grew 3% in written and earned premiums and produced an 8.4% underwriting profit margin -- shooting past a target of 4%, the company said in its shareholders report.
President and Chief Executive Officer Glenn M. Renwick in a letter to shareholders, stressed the company's 2009 aggregate combined ratio of 91.6, outperforming Progressive's stated goal of 96, which remains unchanged.
During a conference call, Renwick said Progressive is looking more toward new business as opposed to renewal business and is investing more in marketing "as long as it's working" to increase market share.
"We think about spending to the degree that we can support and get the yield that we're looking for and if market conditions are such that we feel we can get more, we'll spend more," Renwick said.
Renwick said results could produce a higher than 96 combined ratio but Renwick said he'd be "delighted" with the result if it meant Progressive had taken a significant amount of new business. A similar result would not make him happy if it meant increased loss costs, he said.
Progressive has enjoyed success from its television commercials featuring the character, "Flo." In his letter, Renwick said Progressive has "plans to keep the campaign fresh and relevant."
Recently, Progressive made some big changes to its marketing leadership, namely letting go of Chief Marketing Officer Larry Bloomenkranz. Renwick said the decision did not indicate a change in marketing strategy. He said the decision to part with Bloomenkranz "was not a results issue" and the current campaign was in place prior to Bloomenkranz, he said.
"It was simply my assessment that it didn't work out quite as well as I had hoped."
In pricing, Renwick said Progressive's trends did not suggest the kind of rate increases other companies sought, especially in the agency business. "We've been able to capitalize on having our product priced at a level that we feel comfortable with," he said. Competitiveness is not as much of a factor in direct business. "It's more of our ability to create interest in Progressive through our advertising and through our online work, and we've done a substantial amount of that," Renwick said.
The company's investment portfolio turnaround fueled positive results for the year. Investment income was $507 million with a net realized gain of $27.1 million, compared with $1.4 billion in net realized losses in 2008.
Shares of Progressive Corp. (NYSE: PGR) were trading in late morning on March 4 at $16.96, down 0.41% from the previous close.
(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)
