A.M. Best Affirms Ratings of The Progressive Corp. and Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa" of the members of Progressive Agency Pool, Progressive Direct Pool and Progressive Commercial Auto Group (collectively known as Progressive). 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 Corp. (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 strong operating performance, adequate capitalization and sustainable competitive advantages. Progressive's capitalization has benefited from consistently favorable underwriting results, consistent investment income and significant unrealized capital gains in its investment portfolio given the favorable performance of the equity markets in recent years. 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. However, Progressive has historically operated with elevated underwriting leverage while producing consistently favorable underwriting results.

In addition, despite the recent announcement of a special shareholder dividend in December, Progressive's debt-to-adjusted capitalization remains within expectations consistent with the holding company's current rating level. As of September 30, the most recently available quarterly data, The Progressive Corp. along with its subsidiaries had over $24.5 billion in total assets and approximately $6.8 billion in total shareholder equity.

While Progressive is well positioned at its current rating level, negative rating actions could occur if its operating performance and consequently risk-adjusted capitalization fall 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 following members of Progressive Agency Pool:

-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 following members of Progressive Direct Pool:

-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 Select Insurance Company

-Progressive Freedom Insurance Company

-Progressive Garden State Insurance Company

Additionally, the "A+" FSR and "aa" ICR ratings of the Progressive Choice Insurance Company have been withdrawn; the company stopped writing business September 2012 and transferred 100 percent of its liabilities to an affiliate in 2013. The company has no future plans to write new business.

The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Commercial Auto Group:

-Artisan & Truckers Casualty Company

-Progressive Express Insurance Company

-United Financial Casualty Company

The ICR of "a" and the following debt ratings of The Progressive Corp. have been affirmed:

The Progressive Corp.-

-- "a" on $300 million 6.625 percent senior unsecured notes, due 2029-- "a" on $400 million 6.250 percent senior unsecured notes, due 2032

-- "a" on $500 million 3.75 percent senior unsecured notes, due 2021

-- "bbb+" on $1 billion 6.7 percent junior subordinated debentures, due 2067 (of which $677 million remains outstanding)

The 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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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