A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa” of the Progressive Agency Pool, Progressive Direct Pool and Progressive Commercial Auto Group (collectively known as Progressive) and their respective members. A.M. Best also has affirmed the FSR of A (Excellent) and ICR of “a+” of National Continental Insurance Company. Additionally, A.M. Best has affirmed the ICR of “a” and all debt ratings of the parent holding company, The Progressive Corporation [NYSE: PGR]. The outlook for all ratings is stable. All companies are headquartered in Mayfield Village, OH. (See below for a detailed listing of the companies and ratings.)
The ratings reflect Progressive’s favorable capitalization, strong operating performance and sustainable competitive advantages. Progressive’s capitalization has benefitted from consistently favorable underwriting results and a rebound in its investment portfolio since the market downturn of 2008-2009. Progressive continues to benefit from an innovative management team, brand name recognition, a multiple channel distribution platform and innovative underwriting and claims handling technology. In addition, Progressive’s direct operations have continued to witness favorable growth, reflective of improved brand recognition.
These positive rating factors are partially offset by Progressive’s high underwriting leverage relative to industry averages. In addition, although financial leverage at the holding company was somewhat elevated in 2011 compared to earlier years, A.M. Best expects the company to improve from year end with the retirement of $350 million of its senior debt, which matured in January. Progressive has historically operated with elevated underwriting leverage; however, its debt-to-adjusted capitalization remains within A.M. Best’s expectations.
While Progressive is well positioned at its current rating level, negative rating actions could occur if its operating performance, and consequently, risk-adjusted capitalization falls below expectations for its current ratings. In addition, negative rating actions could occur if capital erosion occurs due to the company’s investment volatility or increased risk appetite.
Alternatively, positive rating actions could occur if over the next several years Progressive’s operating performance consistently exceeds its peer group by a significant margin and its risk-adjusted capitalization significantly improves.
The FSR of A+ (Superior) and ICRs of “aa” have been affirmed for the Progressive Agency Pool and its following members:
-- Progressive Casualty Insurance Company
-- Progressive Northern Insurance Company
-- Progressive Northwestern Insurance Company
-- Progressive Specialty Insurance Company
-- Progressive Preferred Insurance Company
-- Progressive Classic Insurance Company
-- Progressive American Insurance Company
-- Progressive Gulf Insurance Company
-- Progressive Bayside Insurance Company
-- Progressive Mountain Insurance Company
-- Progressive Southeastern Insurance Company
-- Progressive Hawaii Insurance Corp.
-- Progressive Michigan Insurance Company
-- Progressive Security Insurance Company
-- Progressive West Insurance Company
-- Drive New Jersey Insurance Company
-- Progressive County Mutual Insurance Company
The FSR of A+ (Superior) and ICRs of “aa” have been affirmed for the Progressive Direct Pool and its following members:
-- Progressive Direct Insurance Company
-- Progressive Marathon Insurance Company
-- Progressive Max Insurance Company
-- Progressive Advanced Insurance Company
-- Progressive Universal Insurance Company
-- Progressive Premier Insurance Company of Illinois
-- Progressive Paloverde Insurance Company
-- Mountain Laurel Assurance Company
-- Progressive Choice Insurance Company
-- Progressive Select Insurance Company
-- Progressive Freedom Insurance Company
-- Progressive Garden State Insurance Company
The FSR of A+ (Superior) and ICRs of “aa” have been affirmed for the Progressive Commercial Auto Group and its following members:
-- Artisan & Truckers Casualty Company
-- Progressive Express Insurance Company
-- United Financial Casualty Company
The following debt ratings have been affirmed:
The Progressive Corporation—
-- “a” on $150 million 7.000% senior unsecured notes, due 2013
-- “a” on $300 million 6.625% senior unsecured notes, due 2029
-- “a” on $400 million 6.250% senior unsecured notes, due 2032
-- “a” on $500 million 3.75% senior unsecured notes, due 2021
-- “bbb+” on $1 billion 6.7% junior subordinated debentures, due 2067 (of which $762 million remains outstanding)
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; “Catastrophe Analysis in A.M. Best Ratings”; “Equity Credit for Hybrid Securities”; and “A.M. Best’s Ratings & the Treatment of Debt.” Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.