Newswires
PROGRESSIVE CORP/OH/ – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
I. OVERVIEW
During the first quarter 2023,The Progressive Corporation's insurance subsidiaries recognized strong growth in both premiums written and policies in force, compared to the same period last year, but the underwriting margin fell short of our goal to earn 4% on an aggregate calendar-year basis. Our combined ratio of 99.0 for the first quarter 2023 was 4.5 points higher than the same period last year. The variance from the prior year was due, in large part, to unfavorable prior accident years reserve development of 4.6 points for the first quarter 2023, compared to 1.6 points in the prior year first quarter. The development during the first quarter 2023 was primarily in our personal auto products and reflected higher than anticipated severity, more late reported injury claims than expected, and increased loss costs inFlorida due, in part, to recently passed legislation in the state, as discussed below. During the first quarter 2023, companywide net premiums written grew 22% over the first quarter last year with all operating segments contributing to the growth. We generated$16.1 billion of net premiums written, which was an increase of$2.9 billion , compared to first quarter 2022. We ended the quarter with 28.8 million policies in force, which was an increase of 2.3 million policies, or 9%, overMarch 2022 , and 1.4 million, or 5%, over year-end 2022. We believe that the growth during the quarter, in part, reflected our price competitiveness as many competitors continued to take rate increases. While growth is an important objective, achieving our target profit margin takes precedence over growing premiums. As discussed below, we plan to take actions that we believe are necessary to allow us to achieve our calendar-year underwriting profitability goal of 4%, which could result in less premium and policy growth. On a year-over-year basis, net income increased 43% for the first quarter 2023. This growth reflected increases in both our recurring investment income, which grew 73% over the first quarter last year, as well as recognizing$104.4 million of net holding period gains on our common equity portfolio this quarter, compared to$388.6 million of net holding period losses for the first quarter last year. These strong investment results were offset, in part, by a 78% decrease in our underwriting profit due to the reasons discussed above. For the first quarter 2023, we recognized comprehensive income of$1.1 billion , compared to a comprehensive loss of$1.1 billion in the same period last year. The fair value of our fixed-maturity securities increased by$0.6 billion during the first quarter, compared to a decrease in fair value of$1.4 billion for the first quarter 2022. The change in fair value reflected a modest decline in interest rates
during the first quarter 2023, compared to a significant rise in interest rates
in the first quarter last year.
Total capital (debt plus shareholders' equity) at
billion
comprehensive income earned in the first quarter 2023.
A. Insurance Operations During the first quarter 2023, our Personal Lines and Commercial Lines businesses generated an underwriting profit margin of 1.3% and 1.6%, respectively. Our Property operating segment recognized a 5.5% underwriting loss margin during the quarter, which included 24.3 points due to the significant losses incurred from tornado, wind, and thunderstorm catastrophe losses. The special lines products profitability during the first quarter 2023 contributed about a favorable 2 points to the Personal Lines underwriting margin for the quarter. During the first quarter 2023, we experienced companywide unfavorable prior accident years reserve development of$621.2 million , or 4.6 points, as a result of claims settling for more than reserved and changes in our reserve estimates. Throughout the quarter, we continued to see volatility in our severity trends as the average costs to settle a claim increased over the same period last year. Nearly 70% of the unfavorable development was in our personal auto products and primarily resulted from higher than anticipated severity and increases in incurred losses on previously closed claims. For the first quarter 2023, our personal auto incurred severity was up about 10%, while accident frequency was relatively flat on a year-over-year basis. In addition, to a lesser extent, the unfavorable personal auto development reflected the impact of the recently passed legislation inFlorida that resulted in a significant number of lawsuits being filed prior to itsMarch 2023 effective date. While this tort reform could have a positive impact on the insurance industry inFlorida in the long term, during the first quarter we increased our reserves for the potential exposure on existing claims, which had less than a one-point impact on our companywide combined ratio for the first quarter 2023. Since its passage, legislative efforts have arisen that, if adopted, could undo or dilute the potentially positive long-term benefits of the March legislation. We will continue to monitor the ever-changing regulatory environment and will respond as necessary.
Our Commercial Lines business represented almost 25% of the unfavorable
development and was mainly due to late reported claims from prior accident
periods and changes in reserve estimates (e.g., aging of the reserves, changes
to estimates by adjusters, and inflation factors). The
28 -------------------------------------------------------------------------------- remaining unfavorable development was primarily in our Property business with our special lines products experiencing minor unfavorable development during the quarter. During the first quarter 2023, we increased personal auto rates in 31 states, with an aggregate countrywide increase of about 4% and we continue to earn in the aggregate countrywide net increases of 13% that we took during 2022. Returning to profitability in our Property business continues to remain a priority for us. In addition to our focus on shifting our concentration mix between states, we continued to adjust rates to address profitability concerns. In the first quarter 2023, we increased rates by about 3% across our Property product lines, bringing the trailing four quarters close to an aggregate rate increase of about 20%. As stated above, we strongly believe that achieving our target profit margin takes precedence over growing premiums. With focus on achieving our calendar-year underwriting profitability goal of 4% and the fact that inflation has not abated, we are re-evaluating our rate plans and intend to be aggressive with raising rates over the remainder of the year in both our personal and commercial auto products. Of course, some of these rate increases will be subject to regulatory approval. We will also continue to monitor the factors that could impact our loss costs for both our vehicle and Property businesses, which can include new and used car prices, miles driven, driving patterns, loss severity, weather events, building materials, constructions costs, inflation, and other components, on a state-by-state basis, and these factors could change our current plans for rate increases. In addition, we routinely monitor our advertising spend and have recently begun to reduce these costs based on performance against our underwriting targets in certain markets and in certain types of advertising. As a result of these actions to address profitability, growth in premiums and/or policies in force could be adversely impacted. For the first quarter 2023, net premiums written grew 22% on a companywide basis over the same period last year, primarily driven by new business applications and rate increases that continued through the first quarter 2023. Personal Lines grew 25%, Commercial Lines 15%, and Property 17%. Changes in net premiums written are a function of new business applications (i.e., policies sold), premium per policy, and retention. The Personal Lines increase reflected growth in both our Agency and Direct businesses. On a year-over-year basis, new personal auto applications grew 83% for the first quarter 2023, compared to the first quarter 2022. During the quarter, we believe increased advertising spend and competitor rate increases spurred the new personal auto application growth, compared to the decreases in new auto applications experienced during the first half of 2022 when we took significant rate increases and reduced our advertising spend to focus on profitability. The increase in net premiums written in our Commercial Lines business reflected growth in our transportation network company (TNC) business, due to rate increases on the renewal of certain TNC policies, an increase in projected mileage (which is the basis for determining premiums written for this business), and writing new TNC policies in three additional states. Excluding the growth from the TNC business, our Commercial Lines net premiums written growth was relatively flat for the first quarter 2023, compared to the same period last year. All of our business market targets (BMTs) experienced growth during the quarter, except our for-hire transportation BMT that reflected the continued slowdown in the rate of economic activity and deteriorating freight market conditions. We have concentrated our recent growth in the Property business in markets that are less susceptible to catastrophes and have lower exposure to coastal and hail-prone states. New applications in the states where we are focused on growth were up about 30% over the first quarter last year. In regions where our appetite to write new business is limited, we are prioritizing Progressive auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs. New applications were down about 10% in these more volatile weather states. In addition, the Property business benefited from growth in Robinsons, our bundled auto and home policies. In total, Property new applications were up 12% over the first quarter 2022. During the quarter, the number of quotes and the rate of conversion increased in both the Direct auto and Agency auto channels, which contributed to the 83% increase in total personal auto new business applications on a year-over-year basis. This growth reflects that our competitors continued to raise rates to address their underwriting profitability issues. In addition, during the first quarter 2023, we increased advertising spend, which had a positive impact on our competitive positioning that we believe contributed to our new business application growth. We believe a key element in improving the accuracy of our rating is Snapshot®, our usage-based insurance offering. During the first quarter 2023, the adoption rates for consumers enrolling in the program increased about 40% in Agency auto and nearly 20% in Direct auto, compared to the first quarter 2022. Snapshot is available in all states, other thanCalifornia , and our latest segmentation model was available in states that represented about 45% of our countrywide personal auto premium atMarch 31, 2023 . We continue to invest in our mobile application, with mobile devices being chosen for Snapshot monitoring for the majority of new enrollments. During the first quarter 2023, on a year-over-year basis, average written premiums per policy grew 8% in personal auto, 1% in commercial auto, and 10% in Property. The growth primarily reflected rate increases taken throughout 2022 that continued into the first quarter 2023, in response to rising loss costs. Given that our commercial auto and 29 --------------------------------------------------------------------------------
Property policies are predominately written for 12-month terms, compared to
primarily 6-month policies in our personal auto business, rate actions take
longer to earn in for these products.
We realize that to grow policies in force, it is critical that we retain our customers for longer periods. Consequently, increasing retention continues to be one of our most important priorities. Our efforts to increase our share of multi-product households remains a key initiative and we will continue to make investments to improve the customer experience in order to support that goal. Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is our primary measure of customer retention in our Personal Lines, Commercial Lines, and Property businesses. We evaluate total auto retention using a trailing 12-month and a trailing 3-month policy life expectancy. The latter can reflect more volatility and is more sensitive to seasonality. As of the end of the first quarter 2023, our trailing 12-month total personal auto policy life expectancy decreased 16%, compared to last year. The Agency channel trailing 12-month measure was down 19% and the Direct channel was down 14%. We believe that the decreases in our trailing 12-month policy life expectancy primarily reflects the impact of the rate actions we have taken in prior years. Future rate increases could also adversely impact our retention. Although retention is still down from the prior year, we have seen improvement in our trailing 12-month policy life expectancy over the last several months. Our trailing 3-month policy life expectancy for total personal auto was up 10%, compared to the same period last year. At the end of the first quarter 2023, our special lines trailing 12-month policy life expectancy increased 3%, Commercial Lines decreased 14%, and Property was flat, compared to the same period last year. The decrease in Commercial Lines was across all BMTs, but was primarily due to a decrease in for-hire transportation BMT demand. B. Investments The fair value of our investment portfolio was$56.7 billion atMarch 31, 2023 , compared to$53.5 billion atDecember 31, 2022 . The increase from year-end 2022 reflects solid cash flows from operations and valuation increases in nearly all portfolio sectors. Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities (the securities allocated to Group I and II are defined below under Results of Operations - Investments). AtMarch 31, 2023 , 9% of our portfolio was allocated to Group I securities and 91% to Group II securities, compared to 10% and 90%, respectively, atDecember 31, 2022 . Our recurring investment income generated a pretax book yield of 3.0% for the first quarter 2023, compared to 2.0% for the same period in 2022, due to the increase in interest rates on our floating-rate securities and the investment of cash and maturities at relatively higher interest rates. Our investment portfolio produced a fully taxable equivalent (FTE) total return of 2.3% and (3.8)% for the first quarter 2023 and 2022, respectively. Our fixed-income and common stock portfolios had FTE total returns of 2.0% and 7.3%, respectively, for the first quarter 2023, compared to (3.6)% and (4.9)%, respectively, last year. The increase in the fixed-income return reflected portfolio valuation increases as interest rates declined during first quarter 2023. The common stock return increase reflected general market conditions.
At
quality of AA and a duration of 3.0 years, compared to AA- and 3.1 years at
The London Interbank Offered Rate (LIBOR) will cease as an official reference rate onJune 30, 2023 . TheFederal Reserve Board identified the Secured Overnight Financing Rate (SOFR) as the recommended replacement toU.S. LIBOR. As ofMarch 31, 2023 , we owned 164 unique securities with an aggregate par value of$3.3 billion that are still based on LIBOR, with our other asset-backed securities, mainly collateralized loan obligations, making up the majority of these securities. Due to the provisions in the terms of the securities, which allows a change in the underlying rate if a rate is discontinued, we are expecting a relatively smooth transition to an alternate reference rate.
II. FINANCIAL CONDITION
A. Liquidity and Capital Resources Progressive's insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. As primarily an auto insurer, our claims liabilities generally have a short-term duration. Operations generated positive cash flows of$2.4 billion and$2.5 billion for the three months endedMarch 31, 2023 and 2022, respectively. We believe cash flows will remain positive in the reasonably foreseeable future and do not expect we will have a need to raise capital to support our operations in that timeframe, although changes in market or regulatory conditions affecting the insurance industry, or other unforeseen events, may necessitate otherwise. As ofMarch 31, 2023 , we held$29.9 billion in short-term investments andU.S. Treasury securities, which represented 53% of our total portfolio. Based on our portfolio allocation and investment strategies, we believe 30 -------------------------------------------------------------------------------- that we have sufficient readily available marketable securities to cover our claims payments and short-term obligations in the event our cash flow from operations were to be negative. WhileU.S. Treasury securities are viewed as having lower risk than many other investment opportunities, theU.S. Treasury announced it had reached its authorized borrowing limit and defaults under government obligations, including payments related toU.S. Treasury securities, could occur as soon as this summer. Although perhaps unlikely, it is possible that the federal government could fail to raise the federal debt ceiling to avoid default. Any such default would likely have a materially adverse impact on our cash flows and the value of our portfolio and our capital position. See Item 1A, Risk Factors in our Form 10-K filed with theU.S. Securities and Exchange Commission for the year endedDecember 31, 2022 for a discussion of certain matters that may affect our portfolio and capital position. Our total capital (debt plus shareholders' equity) was$23.3 billion , at book value, atMarch 31, 2023 , compared to$23.4 billion atMarch 31, 2022 , and$22.3 billion atDecember 31, 2022 . The increase from December primarily reflected the comprehensive income recognized during the first quarter 2023, primarily driven by the market impact on the valuation of our investment portfolio. Our debt-to-total capital ratio was 27.5% atMarch 31, 2023 , 27.2% atMarch 31, 2022 , and 28.7% atDecember 31, 2022 , and, in each case, consistent with our financial policy of maintaining a ratio of less than 30%. While our financial policies include a goal of maintaining debt below 30% of total capital at book value, we recognize that various factors, including rising interest rates, widening credits spreads, declines in the equity markets, or erosion in operating results, may result in that ratio exceeding 30% at times. In such a situation, as we did during 2022, we may choose to remain above 30% for some time, dependent upon market conditions and the capital needs of our operating businesses. We will continue to monitor this ratio, market conditions, and our capital needs going forward. None of the covenants on our outstanding debt securities include rating or credit triggers that would require an adjustment of interest rates or an acceleration of principal payments in the event that our debt securities are downgraded by a rating agency. InApril 2023 , we amended the unsecured discretionary line of credit (the Line of Credit) withPNC Bank, National Association , and raised the maximum principal amount to$300 million from the previous amount of$250 million , with a new interest rate of 1-month term SOFR plus 1.10%. We did not engage in short-term borrowings, including any borrowings under our Line of Credit, to fund our operations or for liquidity purposes during the reported periods.
During the first three months of 2023, we returned capital to shareholders
primarily through common share dividends and common share repurchases. In
2023
of Directors declared a$0.10 per common share dividend, or$58.5 million in the aggregate, that was paid inApril 2023 . InJanuary 2023 , we also paid common share dividends declared in the fourth quarter 2022, in the aggregate amount of$58.5 million , or$0.10 per share (see Note 9 - Dividends for further discussion). In addition to the common share dividends, inMarch 2023 , we paid Series B Preferred Share dividends in the aggregate amount of$13.4 million . Consistent with our financial policies, we repurchase common shares to neutralize dilution from equity-based compensation granted during the year and opportunistically when we believe our shares are trading below our determination of long-term fair value. During the first quarter 2023, we repurchased 0.2 million common shares, at a total cost of$32.7 million , to satisfy tax withholding obligations in connection with the vesting of equity awards under our equity compensation plans. We will continue to make decisions on returning capital to shareholders based on the strength of our overall capital position, the capital strength of our subsidiaries, and potential capital needs to expand our business operations. We seek to deploy capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic and other insured losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs. Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares and dividends on our Series B Preferred Shares, our contractual obligations, and other expected capital requirements for the foreseeable future. AtMarch 31, 2023 , we had$4.1 billion in a consolidated, non-insurance subsidiary of the holding company that can be used to fund corporate obligations and provide additional capital to the insurance subsidiaries to fund potential future growth. As ofMarch 31, 2023 , our estimated consolidated statutory surplus was$18.5 billion . During the first three months of 2023, our contractual obligations and critical accounting policies have not changed materially from those discussed in our 2022 Annual Report to Shareholders. There have not been any material changes in off-balance-sheet leverage, which includes purchase obligations and catastrophe excess of loss reinsurance contracts, from those disclosed in our 2022 Annual Report to Shareholders. We may decide to raise additional capital to take advantage of attractive terms in the market and provide additional financial flexibility. We have an effective shelf registration with theU.S. Securities and Exchange Commission so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, 31 -------------------------------------------------------------------------------- preferred stock, depository shares, common stock, purchase contracts, warrants, and units. The shelf registration enables us to raise funds from the offering of any securities covered by the shelf registration as well as any combination thereof, subject to market conditions.
III. RESULTS OF OPERATIONS - UNDERWRITING
A. Segment Overview We report our underwriting operations in three segments: Personal Lines, Commercial Lines, and Property. As a component of our Personal Lines segment, we report our Agency and Direct business results to provide further understanding of our products by distribution channel.
The following table shows the composition of our companywide net premiums
written, by segment, for the respective periods:
Three Months Ended March 31,
2023 2022
Personal Lines
Agency 34 % 34 %
Direct 41 40
Total Personal Lines1 75 74
Commercial Lines 21 22
Property 4 4
Total underwriting operations
100 % 100 %
1 Personal auto products accounted for 95% of the total Personal Lines segment net premiums written during the three months endedMarch 31, 2023 and 2022, and our special lines products accounted for the balance. Our Personal Lines business writes insurance for personal autos and special lines products (e.g., motorcycles, RVs, watercraft, and snowmobiles). Within Personal Lines, we often refer to our four consumer segments, which we refer to as: •Sam - inconsistently insured; •Diane - consistently insured and maybe a renter; •Wrights - homeowners who do not bundle auto and home; and •Robinsons - homeowners who bundle auto and home. While our personal auto policies are primarily written for 6-month terms, we write 12-month auto policies in our Platinum agencies to promote bundled auto and home growth. AtMarch 31, 2023 and 2022, 14% of our Agency auto policies in force were 12-month policies. To the extent our Agency application mix of annual policies grows, the shift in policy term could increase our written premium mix by channel as 12-month policies have about twice the amount of net premiums written compared to 6-month policies. Our special lines products are written for 12-month terms. Our Commercial Lines business writes auto-related liability and physical damage insurance, business-related general liability and property insurance predominately for small businesses, and workers' compensation insurance primarily for the transportation industry. The majority of our Commercial Lines business is written through the independent agency channel although we continue to focus on growing our direct business. To serve our direct channel customers, we continue to expand our product offerings, including adding states where we offer our business owners policy (BOP) product, as well as adding these product offerings to our digital platform that serves direct small business consumers (BusinessQuote Explorer®). The direct commercial auto business, excluding our TNC business andProtective Insurance Corporation and subsidiaries (Protective Insurance ), represented 11% of our commercial auto premiums written for the first quarter 2023, compared to 10% for the first quarter 2022. We write about 90% of Commercial Lines policies for 12-month terms. Our Property business writes residential property insurance for homeowners, other property owners, renters, and umbrella products. We write the majority of our Property business through the independent agency channel. We continue to expand the direct distribution of our Property product offerings and, for the first quarter 2023, about a quarter of our Property business premiums were written in the direct channel. All of our Property policies are written for 12-month terms. 32 -------------------------------------------------------------------------------- B. Profitability Profitability for our underwriting operations is defined by pretax underwriting profit or loss, which is calculated as net premiums earned plus fees and other revenues less losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses. We also use underwriting margin, which is underwriting profit or loss expressed as a percentage of net premiums earned, to analyze our results. For the respective periods, our underwriting profitability results were as follows: Three Months Ended March 31, 2023 2022 Underwriting Underwriting Profit (Loss) Profit (Loss) ($ in millions) $ Margin $ Margin Personal Lines Agency$ 162.6 3.3 %$ 288.6 6.7 % Direct (22.1) (0.4) 150.4 3.1 Total Personal Lines 140.5 1.3 439.0 4.8 Commercial Lines 37.2 1.6 202.4 9.5 Property1 (32.7) (5.5) 8.3 1.5 Other indemnity2 (3.4) NM... (0.9) NM... Total underwriting operations$ 141.6 1.0 %$ 648.8
5.5 %
1 For the three months endedMarch 31, 2023 and 2022, pretax profit (loss) includes$5.0 million and$14.1 million , respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment. The year-over-year decrease in amortization expense reflects intangible assets that were fully amortized during the first quarter 2022. 2 Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such businesses. For the three months endedMarch 31, 2023 , the lower pretax underwriting profit, compared to the same period last year, primarily reflects the impact from unfavorable prior accident years reserve development and catastrophe losses incurred. During the first quarter 2023, we experienced unfavorable prior accident years reserve development of 4.6 points, compared to 1.6 points for the first quarter last year. We have continued to see volatility in our severity trends as inflation continued to influence higher vehicle prices and costs to repair vehicles. Our
catastrophe losses reduced our underwriting profitability 1.8 points for the
quarter, compared to 1.2 points in the first quarter 2022.
See the Losses and Loss Adjustment Expenses (LAE) section below for further
discussion of our frequency and severity trends, reserve development and
catastrophe losses incurred during the periods.
33
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Further underwriting results for our Personal Lines business, including results
by distribution channel, the Commercial Lines business, the Property business,
and our underwriting operations in total, were as follows:
Three Months Ended March 31,
Underwriting Performance1 2023 2022
Change
Personal Lines - Agency Loss & loss adjustment expense ratio 78.0 75.1 2.9 Underwriting expense ratio 18.7 18.2 0.5 Combined ratio 96.7 93.3 3.4 Personal Lines - Direct Loss & loss adjustment expense ratio 79.7 77.2 2.5 Underwriting expense ratio 20.7 19.7 1.0 Combined ratio 100.4 96.9 3.5 Total Personal Lines Loss & loss adjustment expense ratio 79.0 76.2 2.8 Underwriting expense ratio 19.7 19.0 0.7 Combined ratio 98.7 95.2 3.5 Commercial Lines Loss & loss adjustment expense ratio 76.3 71.0 5.3 Underwriting expense ratio 22.1 19.5 2.6 Combined ratio 98.4 90.5 7.9 Property Loss & loss adjustment expense ratio 75.4 70.6 4.8 Underwriting expense ratio2 30.1 27.9 2.2 Combined ratio2 105.5 98.5 7.0 Total Underwriting Operations Loss & loss adjustment expense ratio 78.4 75.0 3.4 Underwriting expense ratio 20.6 19.5 1.1 Combined ratio 99.0 94.5 4.5 Accident year - Loss & loss adjustment expense ratio3 73.8 73.4 0.4 1 Ratios are expressed as a percentage of net premiums earned. The portion of fees and other revenues related to our loss adjustment activities are netted against loss adjustment expenses and the portion of fees and other revenues related to our underwriting operations are netted against underwriting expenses in the ratio calculations. 2 Included in the three months endedMarch 31, 2023 and 2022, are 0.8 points and 2.5 points, respectively, of amortization expense on acquisition-related intangible assets attributable to our Property segment. 3 The accident year ratios include only the losses that occurred during the period noted. As a result, accident period results will change over time, either favorably or unfavorably, as we revise our estimates of loss costs when payments are made or reserves for that accident period are reviewed. 34 --------------------------------------------------------------------------------
Losses and Loss Adjustment Expenses (LAE)
Three Months Ended March
31,
(millions) 2023 2022 Change in net loss and LAE reserves$ 925.2 $ 565.3 Paid losses and LAE 9,698.8 8,293.1 Total incurred losses and LAE$ 10,624.0 $ 8,858.4 Claims costs, our most significant expense, represent payments made and estimated future payments to be made, to or on behalf of our policyholders, including expenses needed to adjust or settle claims. Claims costs are a function of loss severity and frequency and, for our vehicle businesses, are influenced by inflation and driving patterns, among other factors, some of which are discussed below. In our Property business, severity is primarily a function of construction costs and the age of the structure. Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves. Loss reserves are estimates of future costs and our reserves are adjusted as underlying assumptions change and information develops. Our total loss and LAE ratio increased 3.4 points for the first quarter 2023, compared to the same period last year, primarily due to increased severity, unfavorable prior accident years reserve development, and higher catastrophe losses, in all of our operating segments, partially offset by the higher premium per policy due to rate increases. On an accident year basis, our first quarter loss and LAE ratio was 0.4 points higher than the first quarter 2022. The following table shows our consolidated catastrophe losses and related combined ratio point impact, excluding loss adjustment expenses, incurred during the periods: Three Months Ended March 31, 2023 2022 ($ in millions) $ Point1 $ Point1 Personal Lines$ 92.1 0.9$ 44.5 0.5 Commercial Lines 3.5 0.1 2.8 0.1 Property 145.3 24.3 99.3 17.8 Total net catastrophe losses incurred$ 240.9 1.8$ 146.6 1.2
1 Represents catastrophe losses incurred during the period, including the impact
of reinsurance, as a percent of net premiums earned for each segment.
In the first quarter 2023, we were affected by 24 catastrophic weather events, compared to 11 events in the first quarter 2022. During the three months endedMarch 31, 2023 , the majority of our catastrophe losses were due to tornadoes, thunderstorms, and hail throughoutthe United States . Netted against our catastrophe losses for the quarter was about a$40 million , or 0.3 points on a companywide basis, reduction to the loss estimate for Hurricane Ian in our vehicle businesses. There was no change to our estimate of the ultimate loss and allocated loss adjustment expenses (ALAE) from Hurricane Ian for our Property business during the first quarter 2023. We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide exemplary claims service to our customers. Changes in our estimate of our ultimate losses on current catastrophes along with potential future catastrophes could have a material impact on our financial condition, cash flows, or results of operations. We reinsure various risks including, but not limited to, catastrophic losses. We do not have catastrophe-specific reinsurance for our Personal Lines or commercial auto businesses, but we reinsure portions of our Property business. The Property business reinsurance programs include catastrophe occurrence excess of loss contracts and aggregate excess of loss contracts. We also purchase non-weather-related catastrophe reinsurance on ourProtective Insurance workers' compensation insurance. We evaluate our reinsurance programs during the renewal process, if not more frequently, to ensure our programs continue to effectively address the company's risk tolerance. During the first quarter 2023, we entered into a new aggregate excess of loss reinsurance contract that has multiple layers of coverage, with the first retention layer threshold ranging from$500 million to$575 million , excluding named tropical storms and hurricanes, and the second retention layer threshold of$600 million , including named tropical storms and hurricanes. The first and second layers provide coverage up to$100 million and$85 million , respectively. While the total coverage limit and per-event retention will evolve to fit the growth of our business, we expect to remain a consistent purchaser of reinsurance coverage. See Item 1 - Description of Business-Reinsurance in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , for a discussion of our various reinsurance programs. During the first quarter 2023, we did not exceed the annual retention thresholds under our 2023 catastrophe aggregate excess of loss program. The following discussion of our severity and frequency trends in our personal auto business excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. For our commercial auto products, the reported frequency and severity trends include comprehensive coverage. Comprehensive coverage 35 --------------------------------------------------------------------------------
insures against damage to a customer's vehicle due to various causes other than
collision, such as windstorm, hail, theft, falling objects, and glass breakage.
Total personal auto incurred severity (i.e., average cost per claim, including
both paid losses and the change in case reserves) on a calendar-year basis, over
the prior-year period was as follows:
Growth Over Prior Year Quarter
Coverage Type 2023
Bodily injury 10 %
Collision 5
Personal injury protection 3
Property damage 15
Total 10
The year-over-year increase in severity, in part, reflects the impact of
inflation, which continues to increase the valuation of used vehicles and total
loss, repair, and medical costs.
To address inherent seasonality trends and lessen the effects of month-to-month variability in the commercial auto products, we use a trailing 12-month period in assessing severity. In the first quarter 2023, our commercial auto products' incurred severity, excludingProtective Insurance and our TNC business, increased 5%, compared to the same period last year. Since the loss patterns in theTNC and Protective Insurance businesses are not indicative of our other commercial auto products, disclosing severity and frequency trends excluding those businesses is more representative of our overall experience for the majority of our commercial auto products.
It is a challenge to estimate future severity, but we continue to monitor
changes in the underlying costs, such as general
inflation, used car prices, vehicle repair costs, medical costs, health care reform, court decisions, and jury verdicts, along with regulatory changes and other factors that may affect severity.
Our personal auto incurred frequency, on a calendar-year basis, over the
prior-year period, was as follows:
Growth Over Prior Year Quarter Coverage Type 2023 Bodily injury 7 % Collision (6) Personal injury protection 5 Property damage 2 Total 0 On a trailing 12-month basis, our commercial auto products' incurred frequency, excludingProtective Insurance and our TNC business, increased 2% during the first quarter 2023, compared to the same period last year. We closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not something that we are able to predict with any certainty. We will continue to analyze trends to distinguish changes in our experience from other external factors, such as changes in the number of vehicles per household, miles driven, vehicle usage, gasoline prices, advances in vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business or changes in driving patterns, to allow us to react quickly to price for these trends and to reserve more accurately for our loss exposures. The table below presents the actuarial adjustments implemented and the loss reserve development experienced on a companywide basis in the following periods: Three Months Ended March 31, ($ in millions) 2023 2022 ACTUARIAL ADJUSTMENTS Reserve decrease (increase) Prior accident years$ 0.3 $ 15.1 Current accident year (140.8) (38.8) Calendar year actuarial adjustments$ (140.5) $ (23.7) PRIOR ACCIDENT YEARS DEVELOPMENT Favorable (unfavorable) Actuarial adjustments$ 0.3 $ 15.1 All other development (621.5) (205.9) Total development$ (621.2) $ (190.8) (Increase) decrease to calendar year combined ratio (4.6) pts. (1.6) pts. 36
-------------------------------------------------------------------------------- Total development consists of both actuarial adjustments and "all other development" on prior accident years. The actuarial adjustments represent the net changes made by our actuarial staff to both current and prior accident year reserves based on regularly scheduled reviews. Through these reviews, our actuaries identify and measure variances in the projected frequency and severity trends, which allow them to adjust the reserves to reflect the current cost trends. For our Property business, 100% of catastrophe losses are reviewed monthly, and any development on catastrophe reserves are included as part of the actuarial adjustments. For the Personal Lines and Commercial Lines businesses, development for catastrophe losses in the vehicle businesses would be reflected in "all other development," discussed below, to the extent they relate to prior year reserves. We report these actuarial adjustments separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years development. "All other development" represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than anticipated in our incurred but not recorded (IBNR) reserves, and changes in reserve estimates on specific claims. Although we believe the development from both the actuarial adjustments and "all other development" generally results from the same factors, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors. About 70% of the total unfavorable development was in our personal auto products and primarily reflects higher than anticipated severity in auto property and physical damage coverages, higher than anticipated late reported injury claims, and increased loss costs inFlorida injury and medical coverages. Part of the changes inFlorida losses are due to the impact of recently passed legislation inFlorida , which had less than a 1.0 point impact on the combined ratio for the first quarter 2023.
Our Commercial Lines business represented almost 25% of the unfavorable
development for the quarter and was mainly due to higher than anticipated
severity of injury case reserves and higher than anticipated severity and
frequency of late reported injury claims.
The remaining unfavorable development for the first quarter 2023, was primarily
in our Property business, and mostly due to higher than anticipated claims
expenses and higher than anticipated severity in our homeowner liability peril
and umbrella products.
Our objective is to establish case and IBNR reserves that are adequate to cover
all loss costs, while incurring minimal variation from the date the reserves are
initially established until losses are fully developed. Our ability to meet this
objective is impacted by many factors. Changes in case law, particularly in case
law related to personal injury protection, can make it difficult to estimate
reserves timely and with minimal variation. See Note 6 - Loss and Loss
Adjustment Expense Reserves, for a more detailed discussion of our prior
accident years development and Critical Accounting Policies in our 2022 Annual
Report to Shareholders for discussion of the application of estimates and
assumptions in the establishment of our loss reserves.
Underwriting Expenses
Underwriting expenses include policy acquisition costs and other underwriting
expenses. The underwriting expense ratio is our underwriting expenses, net of
certain fees and other revenues, expressed as a percentage of net premiums
earned. For the first quarter 2023, our underwriting expense ratio was up 1.1
points, compared to the same period last year, primarily reflecting increases in
our employee-related costs and advertising spend. In total, our companywide
advertising spend increased 23%, or 0.4 points, compared to the first quarter
2022. As we continue to focus on profitability, we monitor advertising spend and
will reduce these costs based on performance against our underwriting targets in
certain markets and in certain types of advertising.
To analyze underwriting expenses, we also review our non-acquisition expense
ratio (NAER), which excludes costs related to policy acquisition, including
advertising and agency commissions, from our underwriting expense ratio. During
the first quarter 2023, our NAER increased 0.6 points, 2.0 points, and 1.2
points in our Personal Lines, Commercial Lines, and Property businesses,
respectively, compared to the same period last year.
37
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C. Growth
For our underwriting operations, we analyze growth in terms of both premiums and
policies. Net premiums written represent the premiums from policies written
during the period, less any premiums ceded to reinsurers. Net premiums earned,
which are a function of the premiums written in the current and prior periods,
are earned as revenue over the life of the policy using a daily earnings
convention. Policies in force, our preferred measure of growth since it removes
the variability due to rate changes or mix shifts, represents all policies under
which coverage was in effect as of the end of the period specified.
Three Months Ended March
31,
($ in millions) 2023 2022 % Growth
NET PREMIUMS WRITTEN
Personal Lines
Agency $ 5,414.4 $ 4,516.4 20 %
Direct 6,698.8 5,202.5 29
Total Personal Lines 12,113.2 9,718.9 25
Commercial Lines 3,366.9 2,925.7 15
Property 629.4 536.1 17
Other indemnity1 0.2 0.3 (33)
Total underwriting operations $ 16,109.7 $ 13,181.0 22 %
NET PREMIUMS EARNED
Personal Lines
Agency $ 4,860.2 $ 4,323.3 12 %
Direct 5,717.4 4,793.6 19
Total Personal Lines 10,577.6 9,116.9 16
Commercial Lines 2,356.1 2,127.2 11
Property 598.7 558.1 7
Other indemnity1 0.7 0.7 0
Total underwriting operations $ 13,533.1 $ 11,802.9 15 %
1 Includes other underwriting business and run-off
operations.
March 31,
(thousands) 2023 2022 % Growth
POLICIES IN FORCE
Personal Lines
Agency auto 8,172.9 7,758.4 5 %
Direct auto 10,995.5 9,541.3 15
Total auto 19,168.4 17,299.7 11
Special lines1 5,637.3 5,345.9 5
Personal Lines - total 24,805.7 22,645.6 10
Commercial Lines 1,071.2 999.8 7
Property 2,912.6 2,802.2 4
Companywide total 28,789.5 26,447.6 9 %
1 Includes insurance for motorcycles, watercraft, RVs, and
similar items.
38
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To analyze growth, we review new policies, rate levels, and the retention
characteristics of our segments. Although new policies are necessary to maintain
a growing book of business, we recognize the importance of retaining our current
customers as a critical component of our continued growth.
As shown in the tables below, we measure retention by policy life expectancy. We
review our customer retention for our personal auto products using both a
trailing 3-month and a trailing 12-month period. We believe changes in policy
life expectancy using a trailing 12-month period measure is indicative of recent
experience, mitigates the effects of month-to-month variability, and addresses
seasonality. Although using a trailing 3-month measure is sensitive to
seasonality and can reflect more volatility, this measure is more responsive to
current experience and generally can be an indicator of how our retention rates
are moving.
D. Personal Lines
The following table shows our year-over-year changes for our Personal Lines
business:
Growth Over Prior Year Quarter
2023 2022
Applications
New 70 % (24) %
Renewal 1 5
Written premium per policy - Auto 8 6
Policy life expectancy - Auto
Trailing 3 months 10 (15)
Trailing 12 months (16) (5)
In our Personal Lines business, we experienced significant quote volume and new
application growth in the first quarter 2023, which we believe was, in part,
driven by competitor rate increases and increased media spend. The increase in
new applications during the first quarter 2023 were primarily attributable to
our personal auto products although we also had new application growth in our
special lines products.
Personal auto policies in force grew between 7% and 12% across all four consumer
segments during the first quarter 2023, compared to the same period last year.
New business auto application growth was also up significantly across all
segments during the quarter.
During the first quarter 2023, on a countrywide basis, we implemented personal
auto rate increases in 31 states that, in the aggregate, increased rates about
4%, following rate increases of 13% during 2022. We believe that our prior year
rate increases had a negative impact on our renewal business applications and
trailing 12-month policy life expectancy. As competitors raised rates, our
retention started to lengthen as evidenced by the growth in our trailing 3-month
policy life expectancy.
Our written premium per policy increased during the first quarter 2023,
primarily due to the rate increases taken in 2022, as previously discussed. Our
focus on achieving our target underwriting profitability takes precedence over
growth. We will continue to manage growth and profitability in accordance with
our long-standing goal of growing as fast as we can, as long as we can provide
great customer service, at or below a companywide 96 combined ratio on a
calendar-year basis.
We report our Agency and Direct business results separately as components of our
Personal Lines segment to provide further understanding of our products by
distribution channel. The channel discussions below are focused on personal auto
insurance since this product accounted for 95% of the Personal Lines segment net
premiums written during the first quarter 2023.
The Agency Business
Growth Over Prior Year Quarter
2023 2022
Applications - Auto
New 68 % (28) %
Renewal (3) 1
Written premium per policy - Auto 10 8
Policy life expectancy - Auto
Trailing 3 months 10 (17)
Trailing 12 months (19) (6)
The Agency business includes business written by more than 40,000 independent
insurance agencies that represent Progressive, as well as brokerages in New York
and California . During the first quarter 2023, 49 states and the District of
Columbia generated new Agency auto application growth, including all of our top
10 largest Agency states. During the first quarter 2023, total auto applications
increased 8%, due to growth in new applications. During the first quarter, each
of our consumer segments experienced a significant increase in new applications
year over year. Policies in force grew by single digit percentages in each
consumer segment, except Sams who were flat, compared to the same period last
year.
During the first quarter 2023, we experienced an increase in Agency auto quote
volume of 14% and a 49% increase in the rate of conversion (i.e., converting a
quote to a sale), with both increasing in each consumer segment. Written premium
per policy for new and renewal Agency auto business increased 13% and 10%,
respectively, compared to the first quarter 2022. The decrease in the trailing
12-month policy life expectancy was expected given the rate actions taken over
the last year, while the increase in the trailing 3-month policy life expectancy
shows what we believe to be our increased competitiveness in the marketplace.
39
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The Direct Business
Growth Over Prior Year Quarter
2023 2022
Applications - Auto
New 92 % (25) %
Renewal 4 7
Written premium per policy - Auto 7 5
Policy life expectancy - Auto
Trailing 3 months 10 (12)
Trailing 12 months (14) (4)
The Direct business includes business written directly by Progressive online,
through our Progressive mobile app, and over the phone. During the first quarter
2023, 48 states and the District of Columbia generated new auto application
growth, including nine of our top 10 largest Direct states. During the first
quarter 2023, total auto applications increased 19%, primarily due to growth in
new applications. During the first quarter, each of our consumer segments
experienced a significant increase in new applications year over year. Policies
in force grew between 10% and 20% in each consumer segment, compared to the same
period last year.
During the first quarter 2023, Direct auto quote volume increased 73% and
conversion increased 13%, compared to the same period last year, with both
increasing in each consumer segment. Despite taking rate increases, the increase
we experienced in our quote volume primarily reflected competitors raising rates
and our increased advertising spend compared to the first quarter 2022.
During the first quarter 2023, written premium per policy for new and renewal
Direct auto business increased 7% and 9%, respectively, compared to the same
period last year, primarily driven by rate increases. Consistent with our Agency
business, the Direct business decrease in policy life expectancy for the
trailing 12-months reflects the rate actions taken over the last year and the
increase in the trailing 3-month measure shows what we believe to be our
increased competitiveness in the marketplace.
E. Commercial Lines
Our Commercial Lines business operates in five traditional business markets,
which include business auto, for-hire transportation, contractor, for-hire
specialty, and tow markets, primarily written through the agency channel. We
also write TNC business, BOP insurance, and, through Protective Insurance ,
larger fleet and workers' compensation insurance for trucking, along with
trucking industry independent contractors, and affinity programs.
The following table and discussion shows our commercial auto product, excluding
our TNC, BOP, and Protective Insurance products. Year-over-year changes in our
commercial auto product were as follows:
Growth Over Prior Year Quarter
2023 2022
Applications
New 2 % 8 %
Renewal 7 13
Written premium per policy 1 19
Policy life expectancy
Trailing 12 months (14) 7
During the first quarter 2023, commercial auto new application growth was
positive in each of our business market targets, except for the for-hire
transportation market, which reflects the continued slowdown in the rate of
economic activity and deteriorating freight market conditions. During the first
quarter 2023, we experienced a 3% increase in quote volume and a decrease of 1%
in the rate of conversion, compared to the same period last year.
During the first quarter 2023, written premium per policy for new commercial
auto business decreased 7%, while renewal business increased 6%, compared to the
same period last year. The increase in written premiums were primarily due to
rate increases and were partially offset by shifts in the mix of business. Our
policy life expectancy decreased in all business market targets, primarily
driven by our for-hire transportation business market. Given the rise in costs
to operate a trucking business, many independent owner/operators, who were our
core customers in the for-hire transportation business market, have begun to
migrate back to leasing with larger motor carriers.
40
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F. Property
The following table shows our year-over-year changes for our Property business:
Growth Over Prior Year Quarter
2023 2022
Applications
New 12 % (6) %
Renewal 6 12
Written premium per policy 10 5
Policy life expectancy
Trailing 12 months 0 (7)
Our Property business writes residential property insurance for homeowners,
other property owners, and renters, and umbrella insurance in the agency and
direct channels. During the first quarter 2023, the increase in new applications
experienced in our Property business was primarily due to underwriting changes
made in an effort to promote growth in less volatile weather states and
increased advertising spending.
Improving profitability and reducing concentration exposure continued to be the
top priority for our Property business during the first quarter 2023. We have
concentrated our growth in the Property business in markets that are less
susceptible to catastrophes and have lower exposure to coastal and hail-prone
states. New applications in these growth-oriented states were up about 30% over
the first quarter last year. In regions where our appetite to write new business
is limited, we are prioritizing Progressive auto bundles, as well as lower risk
properties, such as new construction or homes with newer roofs. New applications
were down just over 10% in these more volatile weather states. In addition, we
increased rates an average of about 3% in our Property segment during the first
quarter 2023.
The increase in our written premium per policy, compared to the first quarter
last year, was primarily due to rate increases taken over the last 12 months and
providing higher premium coverages to account for inflation. The written premium
per policy increase was partially offset by a shift in the mix of business to a
larger share of renters policies, which have lower written premiums per policy,
and less homeowners growth in volatile states that have higher average premiums.
We intend to continue to make targeted rate increases in states where we believe
it is necessary to achieve our profitability targets.
G. Income Taxes
At March 31, 2023 and 2022, and December 31, 2022 , we had net current income
taxes payable of $203.3 million , $201.1 million , and $10.9 million ,
respectively, which were reported in accounts payable, accrued expenses, and
other liabilities in our consolidated balance sheets. The increase in the
payable balance at March 31, 2023 and 2022, compared to December 31, 2022 , in
part reflects that first quarter estimated payments are not due until the second
quarter of the year.
A deferred tax asset or liability is a tax benefit or expense, respectively,
that is expected to be realized in a future tax return. At March 31, 2023 and
2022, and December 31, 2022 , we reported net federal deferred tax assets of $1.1
billion , $0.4 billion , and $1.1 billion , respectively.
We are required to assess our deferred tax assets for recoverability and, based
on our analysis, determined that we did not need a valuation allowance on our
gross deferred tax assets in each period. Although realization of the gross
deferred tax assets is not assured, management believes it is more likely than
not that the gross deferred tax assets will be realized based on our expectation
we will be able to fully utilize the deductions that are ultimately recognized
for tax purposes. We believe our deferred tax assets related to net unrealized
losses on fixed-maturity securities will be realized based on the existence of
prior year capital gains, current temporary differences related to unrealized
gains in our equity portfolio, and other tax planning strategies.
Our effective tax rate for the three months ended
compared to 19.6% for the same period last year.
Consistent with prior years, we had no uncertain tax positions. See Note 5 -
Income Taxes for further information.
41 --------------------------------------------------------------------------------
IV. RESULTS OF OPERATIONS - INVESTMENTS
A. Investment Results Our management philosophy governing the portfolio is to evaluate investment results on a total return basis. The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully taxable amount for certain securities that receive preferential tax treatment (e.g., municipal securities), and total net realized, and changes in total net unrealized, gains (losses) on securities. The following table summarizes investment results for the periods endedMarch 31 : Three Months 2023 2022 Pretax recurring investment book yield (annualized) 3.0 % 2.0 % FTE total return: Fixed-income securities 2.0 (3.6) Common stocks 7.3 (4.9) Total portfolio 2.3 (3.8) The increase in the book yield, compared to last year, primarily reflected investing new cash from operations and proceeds from maturing bonds at higher interest rates and an increase in interest rates on our floating-rate securities. The increase in the fixed-income total return, compared to last year, reflected the impact of declining interest rates, while the increase in common stocks reflected general market conditions.
A further break-down of our FTE total returns for our fixed-income portfolio for
the periods ended
Three Months
2023 2022
Fixed-income securities:
U.S. Treasury Notes 2.4 % (4.1) %
Municipal bonds 2.7 (4.9)
Corporate bonds 2.6 (3.6)
Residential mortgage-backed securities 2.0
(0.9)
Commercial mortgage-backed securities 1.0 (4.3)
Other asset-backed securities 1.9 (1.5)
Preferred stocks (4.1) (3.1)
Short-term investments 1.1 <0.1
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B. Portfolio Allocation
The composition of the investment portfolio was:
Fair % of Total Duration
($ in millions) Value Portfolio (years) Average Rating1
March 31, 2023
U.S. government obligations $ 27,350.1 48.3 % 3.7 AAA
State and local government obligations 2,061.6 3.6 3.4 AA+
Foreign government obligations 15.8 0.1 3.3 AAA
Corporate debt securities 10,681.3 18.8 3.0 BBB
Residential mortgage-backed securities 630.0 1.1 0.4 A
Commercial mortgage-backed securities 4,503.0 7.9 2.5 A
Other asset-backed securities 4,865.8 8.6 1.1 AA
Preferred stocks 1,260.4 2.2 2.5 BBB-
Short-term investments 2,524.1 4.5 <0.1 AA+
Total fixed-income securities 53,892.1 95.1 3.0 AA
Common equities 2,794.3 4.9 na na
Total portfolio2 $ 56,686.4 100.0 % 3.0 AA
March 31, 2022
U.S. government obligations $ 19,528.8 36.7 % 3.9 AAA
State and local government obligations 2,144.2 4.0 3.4 AA+
Foreign government obligations 17.4 0.1 4.3 AAA
Corporate debt securities 11,280.0 21.2 3.1 BBB
Residential mortgage-backed securities 951.1 1.8 0.3 A-
Commercial mortgage-backed securities 6,918.5 13.0 2.7 A+
Other asset-backed securities 5,255.9 9.9 1.2 AA
Preferred stocks 1,748.0 3.3 3.5 BBB-
Short-term investments 529.9 1.0 0.2 A-
Total fixed-income securities 48,373.8 91.0 3.1 AA-
Common equities 4,812.6 9.0 na na
Total portfolio2 $ 53,186.4 100.0 % 3.1 AA-
December 31, 2022
U.S. government obligations $ 25,167.4 47.0 % 3.7 AAA
State and local government obligations 1,977.1 3.7 3.5 AA+
Foreign government obligations 15.5 0.1 3.5 AAA
Corporate debt securities 9,412.7 17.6 2.8 BBB
Residential mortgage-backed securities 666.8 1.2 0.4 A
Commercial mortgage-backed securities 4,663.5 8.7 2.7 A+
Other asset-backed securities 4,564.6 8.5 1.1 AA+
Preferred stocks 1,397.5 2.6 2.8 BBB-
Short-term investments 2,861.7 5.4 0.1 AAA-
Total fixed-income securities 50,726.8 94.8 2.9 AA
Common equities 2,821.5 5.2 na na
Total portfolio2 $ 53,548.3 100.0 % 2.9 AA
na = not applicable
1 Represents ratings at period end. Credit quality ratings are assigned by
nationally recognized statistical rating organizations. To calculate the
weighted average credit quality ratings, we weight individual securities based
on fair value and assign a numeric score of 0-5, with non-investment-grade and
non-rated securities assigned a score of 0-1. To the extent the weighted average
of the ratings falls between AAA and AA+, we assign an internal rating of AAA -.
2 At March 31, 2023 and 2022, we had $22.8 million , and $356.0 million ,
respectively, of net unsettled security purchase transactions included in other
liabilities, compared to $34.4 million included in other assets at December 31,
2022 .
The total fair value of the portfolio at March 31, 2023 and 2022, and
December 31, 2022 , included $4.1 billion , $5.1 billion , and $4.4 billion ,
respectively, of securities held in a consolidated, non-insurance subsidiary of
the holding company, net of unsettled security transactions.
43
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Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I
securities, with the balance (75%-100%) of our portfolio in Group II securities.
We define Group I securities to include:
•common equities,
•nonredeemable preferred stocks,
•redeemable preferred stocks, except for 50% of investment-grade redeemable
preferred stocks with cumulative dividends, which are included in Group II, and
•all other non-investment-grade fixed-maturity securities.
Group II securities include:
•short-term securities, and
•all other fixed-maturity securities, including 50% of the investment-grade
redeemable preferred stocks with cumulative dividends.
We believe this asset allocation strategy allows us to appropriately assess the
risks associated with these securities for capital purposes and is in line with
the treatment by our regulators.
The following table shows the composition of our Group I and Group II
securities:
March 31, 2023 March 31, 2022 December 31, 2022
Fair % of Total Fair % of Total Fair % of Total
($ in millions) Value Portfolio Value Portfolio Value Portfolio
Group I securities:
Non-investment-grade fixed maturities $ 1,019.5 1.8 % $ 2,265.0 4.3 % $ 1,249.2 2.3 %
Redeemable preferred stocks1 90.8 0.2 110.2 0.2 92.1 0.2
Nonredeemable preferred stocks 1,078.8 1.9 1,527.5 2.9 1,213.2 2.3
Common equities 2,794.3 4.9 4,812.6 9.0 2,821.5 5.2
Total Group I securities 4,983.4 8.8 8,715.3 16.4 5,376.0 10.0
Group II securities:
Other fixed maturities 49,178.9 86.7 43,941.2 82.6 45,310.6 84.6
Short-term investments 2,524.1 4.5 529.9 1.0 2,861.7 5.4
Total Group II securities 51,703.0 91.2 44,471.1 83.6 48,172.3 90.0
Total portfolio $ 56,686.4 100.0 % $ 53,186.4 100.0 % $ 53,548.3 100.0 %
1 We did not hold any non-investment-grade redeemable preferred stocks at
To determine the allocation between Group I and Group II, we use the credit ratings from models provided by theNational Association of Insurance Commissioners (NAIC) to classify our residential and commercial mortgage-backed securities, excluding interest-only (IO) securities, and the credit ratings from nationally recognized statistical rating organizations (NRSRO) to classify all other debt securities. NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and Group II securities. Unrealized Gains and Losses During the first quarter 2023, our total net unrealized losses on fixed-maturity securities decreased$0.6 billion , resulting from declining interest rates during the period, compared to an increase in net unrealized losses of$1.4 billion in the first quarter of last year when interest rates were rising. The valuation changes for both periods were primarily in ourU.S. government and corporate debt portfolios, with our commercial mortgage-backed securities also declining in value during the first quarter last year. As ofMarch 31, 2023 , our fixed-maturity portfolio had total after-tax net unrealized losses, which are recorded as part of accumulated other comprehensive income (loss) on the consolidated balance sheets, of$2.2 billion , compared to$1.4 billion and$2.8 billion atMarch 31, 2022 andDecember 31, 2022 , respectively.
See Note 2 - Investments for a further break-out of our gross unrealized gains
(losses).
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Holding Period Gains and Losses
The following table provides the balance and activity for both the gross and net
holding period gains (losses) for the three months ended
Net Holding
Gross Holding Gross Holding Period Gains
(millions) Period Gains Period Losses (Losses)
Balance at December 31, 2022
Hybrid fixed-maturity securities $ 1.3 $ (75.8) $ (74.5)
Equity securities1 2,026.6 (182.2) 1,844.4
Total holding period securities 2,027.9 (258.0) 1,769.9
Current year change in holding period securities
Hybrid fixed-maturity securities 0.6 13.3 13.9
Equity securities1 45.2 45.3 90.5
Total changes in holding period securities 45.8 58.6 104.4
Balance at March 31, 2023
Hybrid fixed-maturity securities 1.9 (62.5) (60.6)
Equity securities1 2,071.8 (136.9) 1,934.9
Total holding period securities $ 2,073.7 $
(199.4)
1Equity securities include common equities and nonredeemable preferred stocks.
Changes in holding period gains (losses), similar to unrealized gains (losses)
in our fixed-maturity portfolio, are the result of changes in market performance
as well as sales of securities based on various portfolio management decisions.
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Fixed-Income Securities
The fixed-income portfolio is managed internally and includes fixed-maturity
securities, short-term investments, and nonredeemable preferred stocks.
Following are the primary exposures for our fixed-income portfolio.
Interest Rate Risk Our duration of 3.0 years at March 31, 2023 , 3.1 years at
March 31, 2022 , and 2.9 years at December 31, 2022 fell within our acceptable
range of 1.5 to 5 years. The duration distribution of our fixed-income
portfolio, excluding short-term investments, represented by the interest rate
sensitivity of the comparable benchmark U.S. Treasury Notes, was:
Duration Distribution
(excluding short-term
securities) March 31, 2023 March 31, 2022 December 31, 2022
1 year 19.2 % 16.2 % 17.5 %
2 years 14.0 18.5 16.9
3 years 22.5 24.9 21.3
5 years 26.9 20.0 25.1
7 years 12.8 14.8 14.0
10 years 4.6 5.6 5.2
Total fixed-income portfolio 100.0 % 100.0 % 100.0 %
Credit Risk This exposure is managed by maintaining an A+ minimum average
portfolio credit quality rating, as defined by NRSROs. At both March 31, 2023
and December 31, 2022 , our credit quality rating was AA and at March 31, 2022 it
was AA-. The credit quality distribution of the fixed-income portfolio was:
Average Rating1 March 31, 2023 March 31, 2022 December 31, 2022
AAA 65.2 % 54.2 % 65.5 %
AA 6.1 8.8 6.4
A 7.5 8.8 7.6
BBB 18.7 22.2 17.2
Non-investment grade/non-rated
BB 2.0 4.7 2.5 B 0.3 1.0 0.5 CCC and lower 0.1 0.1 0.1 Non-rated 0.1 0.2 0.2 Total fixed-income portfolio 100.0 % 100.0 %
100.0 %
1 The ratings in the table above are assigned by NRSROs.
Concentration Risk We did not have any investments in a single issuer, either overall or in the context of individual asset classes and sectors, that exceeded our thresholds during the first quarter 2023.
Prepayment and Extension Risk We did not experience significant adverse
prepayment or extension of principal relative to our cash flow expectations in
the portfolio during the first quarter 2023.
Liquidity Risk Our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements. The short-to-intermediate duration of our portfolio provides a source of liquidity, as we expect approximately$4.3 billion , or 19%, of principal repayment from our fixed-income portfolio, excludingU.S. Treasury Notes and short-term investments, during the remainder of 2023. Cash from interest and dividend payments and our short-term portfolio provide additional sources of recurring liquidity.
The duration of our
fixed-income portfolio, was comprised of the following at
Fair Duration
($ in millions) Value (years)
U.S. Treasury Notes
Less than one year $ 1,961.0 0.7
One to two years 4,469.4 1.5
Two to three years 4,065.4 2.5
Three to five years 10,295.7 4.1
Five to seven years 4,495.2 5.6
Seven to ten years 2,063.4 7.8
Total U.S. Treasury Notes $ 27,350.1 3.7
46
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ASSET-BACKED SECURITIES
Included in the fixed-income portfolio are asset-backed securities, which were
comprised of the following at the balance sheet dates listed:
% of Asset-
Fair Net Unrealized Backed Duration Average Rating
($ in millions) Value Gains (Losses) Securities (years) (at period end)1
March 31, 2023
Residential mortgage-backed securities $ 630.0 $ (16.1) 6.3 % 0.4
A
Commercial mortgage-backed securities 4,503.0 (749.6) 45.0 2.5
A
Other asset-backed securities 4,865.8 (220.7) 48.7 1.1
AA
Total asset-backed securities$ 9,998.8 $ (986.4) 100.0 % 1.7
AA-
Residential mortgage-backed securities
7.3 % 0.3
A-
Commercial mortgage-backed securities 6,918.5 (377.9) 52.7 2.7
A+
Other asset-backed securities 5,255.9 (102.5) 40.0 1.2
AA
Total asset-backed securities$ 13,125.5 $ (484.4) 100.0 % 1.9
AA-
Residential mortgage-backed securities
6.7 % 0.4
A
Commercial mortgage-backed securities 4,663.5 (782.5) 47.1 2.7
A+
Other asset-backed securities 4,564.6 (259.6) 46.2 1.1
AA+
Total asset-backed securities$ 9,894.9 $ (1,059.3) 100.0 % 1.8
AA-
1 The credit quality ratings in the table above are assigned by NRSROs.
Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value atMarch 31, 2023 , to our original investment value (adjusted for returns of principal, amortization, and write-downs): Residential Mortgage-Backed Securities (at March 31, 2023) ($ in millions) Average Rating1 Non-Agency Government/GSE2 Total % of Total AAA$ 115.8 $ 1.1$ 116.9 18.5 % AA 25.2 0.4 25.6 4.0 A 370.9 0 370.9 58.9 BBB 108.9 0 108.9 17.3 Non-investment grade/non-rated: BB 0.3 0 0.3 0.1 B 0.1 0 0.1 0.1 CCC and lower 1.8 0 1.8 0.2 Non-rated 5.5 0 5.5 0.9 Total fair value$ 628.5 $ 1.5$ 630.0 100.0 % Increase (decrease) in value (3.8) % (3.6) % (3.8) % 1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our RMBS, 100% of our non-investment-grade securities were rated investment grade and reported as Group II securities. 2 The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by theFederal Housing Administration (FHA) or the U.S.Department of Veteran Affairs (VA). . In the residential mortgage-backed sector, our portfolio consists of deals that are backed by high-credit quality borrowers or have strong structural protections through underlying loan collateralization. During the first quarter 2023, the portfolio decreased as a result of maturities on securities and we did not have any purchase or sales activity. 47 --------------------------------------------------------------------------------Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value atMarch 31, 2023 , to our original investment value (adjusted for returns of principal, amortization, and write-downs): Commercial Mortgage-Backed Securities (at March 31, 2023) ($ in millions) Average Rating1 Multi-Borrower Single-Borrower Total % of Total AAA$ 209.9 $ 1,126.3 $ 1,336.2 29.7 % AA 0 986.9 986.9 21.9 A 0 920.5 920.5 20.4 BBB 0 882.9 882.9 19.6 Non-investment grade/non-rated: BB 0 376.4 376.4 8.3 CCC and lower 0.1 0 0.1 0.1 Total fair value$ 210.0 $ 4,293.0 $ 4,503.0 100.0 % Increase (decrease) in value (5.2) % (14.7) % (14.3) %
1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC
ratings for our CMBS, 30% of our non-investment-grade securities were rated
investment grade and reported as Group II securities, with the remainder
classified as Group I.
The CMBS portfolio experienced heightened volatility in the first quarter 2023, as commercial real estate has been a focal point of investor concern. In addition to concerns around employees returning to the office, stress in the regional banking sector could translate into less availability of financing for this asset class. New issuance has remained slow in the single-asset single-borrower (SASB) market and liquidity has continued to be challenged. Given continued uncertainty about the future trajectory of the economy and its impact on real estate, we reduced certain positions, during the quarter, that we believed would be sensitive to potential future economic weakness. As of the end of the first quarter 2023, we had no delinquencies in our CMBS portfolio.
With renewed focus on the commercial real estate sector, the following table
shows the composition of our CMBS portfolio by maturity year and sector:
Commercial Mortgage-Backed Securities Sector Details (at March 31, 2023)
($ in millions) Average Original
Maturity1 Office Lab Office Multi-family Multi-family IO Retail Industrial Self- Storage Casino
Defeased Total LTV Average Current DSCR 2023$ 103.4 $ 0 $ 0 $ 33.5$ 0 $ 0 $ 0$ 0 $ 22.8 $ 159.7 53.7 % 3.7 2024 169.4 24.1 21.7 40.4 36.7 176.0 155.8 0 0 624.1 57.3 2.2 2025 7.7 41.3 0 36.8 63.2 42.6 0 0 0 191.6 67.0 1.8 2026 556.4 79.8 328.4 32.8 0 116.2 76.1 106.4 0 1,296.1 62.0 1.8 2027 432.3 0 51.8 29.6 0 115.4 256.4 0 0 885.5 59.3 1.8 2028 256.6 0 0 22.5 0 0 0 0 0 279.1 51.9 3.2 2029 482.6 0 0 10.7 0 0 0 62.3 0 555.6 57.6 3.0 2030 72.5 54.6 0 3.7 0 0 0 83.3 0 214.1 55.5 3.1 2031 213.1 84.1 0 0 0 0 0 0 0 297.2 66.5 1.9 Total fair value$ 2,294.0 $ 283.9 $ 401.9 $ 210.0$ 99.9 $ 450.2 $ 488.3 $ 252.0 $ 22.8 $ 4,503.0 LTV= loan to value DSCR= debt service coverage ratio
1The floating-rate securities were extended to their full maturity and
fixed-rate securities are shown to their anticipated repayment date (if
applicable) or otherwise, their maturity date.
We show the average loan to value (LTV) of each maturity year when the loans
were originated. The LTV ratio that management uses, which is commonly expressed
as a percentage, compares the size of the entire mortgage loan to the appraised
value of the underlying property collateralizing the loan at issuance. A LTV
ratio less than 100% indicates excess collateral value over the loan amount. LTV
ratios greater than 100% indicate that the loan amount exceeds the collateral
value. We believe this ratio provides a conservative view of our actual risk of
loss, as this number displays the entire mortgage LTV, while our ownership is
only a portion of the structure of the mortgage loan-backed security. For many
of the mortgage loans in our portfolio, our exposure is in a more senior part of
the structure, which means that the LTV on our actual exposure is even lower
than the ratios presented.
48
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In addition to the LTV ratio, we also examine the credit of our CMBS portfolio
by reviewing the debt service coverage ratio (DSCR) of the securities. The DSCR
ratio compares the underlying property's annual net operating income to its
annual debt service payments. DSCR ratios less than 1.0 times indicate that
property operations do not generate enough income over the debt service
payments, while a DSCR ratio greater than 1.0 times indicates that there is an
excess of operating income over the debt service payments. A number above 1.0
generally indicates that there would not be an incentive for the borrower to
default in light of the borrower's excess income. The DSCR calculation reported
in the table is calculated based on the most currently available net operating
income and mortgage payments for the borrower, which, for most securities, is
full year 2022 data.
Other Asset-Backed Securities (OABS) The following table details the credit
quality rating and fair value of our OABS, along with a comparison of the fair
value at March 31, 2023 , to our original investment value (adjusted for returns
of principal, amortization, and write-downs):
Other Asset-Backed Securities (at March 31, 2023)
($ in millions) Collateralized Loan Whole Business % of
Average Rating Automobile Obligations Student Loan Securitizations Equipment Other Total Total
AAA $ 1,154.0 $ 1,072.8 $ 39.1 $ 0 $ 533.7 $ 228.9 $ 3,028.5 62.3 %
AA 86.7 576.6 5.1 0 98.2 12.8 779.4 16.0
A 12.0 0 6.6 0 131.6 138.7 288.9 5.9
BBB 6.7 0 0 696.6 0 35.2 738.5 15.2
Non-investment grade/non-rated:
BB 0 0 0 0 0 30.5 30.5 0.6
Total fair value $ 1,259.4 $ 1,649.4 $ 50.8 $ 696.6 $ 763.5 $ 446.1 $ 4,865.8 100.0 %
Increase (decrease) in value (0.9) % (4.8) % (10.3) % (9.6) % (1.3) % (7.7) % (4.4) %
During the first quarter 2023, we selectively added to our automobile,
equipment, and whole business securitization as we viewed spreads, and potential
returns, across this sector to be attractive. Our automobile and equipment
additions were mainly through new issue purchases, primarily focusing on higher
credit tranche securities in the capital structure.
MUNICIPAL SECURITIES
The following table details the credit quality rating of our municipal
securities at
Municipal Securities (at March 31, 2023 )
(millions) General Revenue
Average Rating Obligations Bonds Total
AAA $ 567.7 $ 308.1 $ 875.8
AA 441.3 705.3 1,146.6
A 0 37.2 37.2
BBB 0 1.8 1.8
Non-rated 0 0.2 0.2
Total $ 1,009.0 $ 1,052.6 $ 2,061.6
Included in revenue bonds were $502.3 million of single-family housing revenue
bonds issued by state housing finance agencies, of which $311.0 million were
supported by individual mortgages held by the state housing finance agencies and
$191.3 million were supported by mortgage-backed securities.
Of the programs supported by mortgage-backed securities, 84% were collateralized
by Ginnie Mae mortgages, which are fully guaranteed by the U.S. government; the
remaining 16% were collateralized by Fannie Mae and Freddie Mac mortgages. Of
the programs supported by individual mortgages held by the state housing finance
agencies, the overall credit quality rating was AA+. Most of these mortgages
were supported by the Federal Housing Administration , the U.S. Department of
Veterans Affairs , or private mortgage insurance providers.
Credit spreads of both tax-exempt and taxable municipal bonds tightened during
the first quarter 2023. Our allocation to this sector declined modestly during
the quarter.
49
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CORPORATE DEBT SECURITIES
The following table details the credit quality rating of our corporate debt
securities at
Corporate Securities (at March 31, 2023)
(millions) Financial
Average Rating Consumer Industrial Communication Services Technology Basic Materials Energy Total
AAA $ 0 $ 0 $ 0 $ 50.8 $ 0 $ 0 $ 0 $ 50.8
AA 64.1 0 0 443.0 0 0 62.0 569.1
A 392.5 232.4 121.3 1,114.3 68.5 115.1 348.7 2,392.8
BBB 2,615.0 1,337.1 310.8 1,027.9 559.7 12.7 1,079.4 6,942.6
Non-investment grade/non-rated:
BB 175.0 124.1 105.7 82.2 24.1 0 37.4 548.5
B 147.5 0 0 0 0 25.1 0 172.6
CCC and lower 4.9 0 0 0 0 0 0 4.9
Total fair value $ 3,399.0 $ 1,693.6 $ 537.8 $ 2,718.2 $ 652.3 $ 152.9 $ 1,527.5 $ 10,681.3
The size of our corporate debt portfolio increased to $10.7 billion at March 31,
2023 from $9.4 billion at December 31, 2022 as we increased our allocation to
the investment-grade corporate sector. At the same time, we continued to reduce
our exposure to high-yield securities given a less certain macro environment and
less attractive risk/reward profile of these securities. At March 31, 2023 , our
corporate debt securities made up approximately 20% of the fixed-income
portfolio, compared to approximately 19% at December 31, 2022 .
We slightly lengthened the maturity profile of the corporate debt portfolio
during the first quarter 2023. The duration of the corporate portfolio was 3.0
years at March 31, 2023 , compared to 2.8 years at December 31, 2022 , as our
purchases focused on securities with somewhat longer maturities which provided
attractive risk reward profiles.
PREFERRED STOCKS - REDEEMABLE AND NONREDEEMABLE
The table below shows the exposure break-down by sector and rating atMarch 31, 2023 : Preferred Stocks (at March 31, 2023) Financial Services (millions) U.S. Foreign Average Rating Banks Banks Insurance Other Financial Industrials Utilities Total BBB$ 734.1 $ 30.4 $ 87.5 $ 27.6$ 132.8 $ 41.9 $ 1,054.3 Non-investment grade/non-rated: BB 64.9 20.0 0 0 0 37.4 122.3 Non-rated 0 0 43.8 23.6 16.4 0 83.8 Total fair value$ 799.0 $ 50.4 $ 131.3 $ 51.2$ 149.2 $ 79.3 $ 1,260.4 The majority of our preferred securities have fixed-rate dividends until a call date and then, if not called, generally convert to floating-rate dividends. The interest rate duration of our preferred securities is calculated to reflect the call, floor, and floating-rate features. Although a preferred security will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. Our non-investment-grade preferred stocks were all with issuers that maintain investment-grade senior debt ratings. We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely. During the quarter, we had exposure to one institution that was put into receivership by theFederal Deposit Insurance Corporation inMarch 2023 . The effect of this action, along with broader weakness in securities issued by financial institutions, drove the majority of the decline in the portfolio's value from$1.4 billion atDecember 31, 2022 to$1.3 billion atMarch 31, 2023 . Additionally, we had an industrial position that was called during the quarter. Approximately 82% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable. 50 --------------------------------------------------------------------------------
Common equities, as reported on the balance sheets, were comprised of the following: ($ in millions) March 31, 2023 March 31, 2022 December 31, 2022 Common stocks$ 2,774.0 99.3 %$ 4,792.5 99.6 %$ 2,801.7 99.3 % Other risk investments1 20.3 0.7 20.1 0.4 19.8 0.7 Total common equities$ 2,794.3 100.0 %$ 4,812.6 100.0 %$ 2,821.5 100.0 %
1The other risk investments consist of limited partnership interests.
The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index. We held 787 out of 1,007, or 78%, of the common stocks comprising the index atMarch 31, 2023 , which made up 95% of the total market capitalization of the index. AtMarch 31, 2023 and 2022, andDecember 31, 2022 , the year-to-date total return, based on GAAP income, was within our targeted tracking error, which is +/- 50 basis points. During 2022, we sold common equity securities, which were in a realized gain position, as part of our plan to incrementally reduce risk in the portfolio in response to the potential of a more difficult economic environment over the near term. 51 -------------------------------------------------------------------------------- Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as "estimate," "expect," "intend," "plan," "believe," "goal," "target," "anticipate," "will," "could," "likely," "may," "should," and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are not guarantees of future performance, are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to: •our ability to underwrite and price risks accurately and to charge adequate rates to policyholders; •our ability to establish accurate loss reserves; •the impact of severe weather, other catastrophe events and climate change; •the effectiveness of our reinsurance programs and the continued availability of reinsurance and performance by reinsurers; •the secure and uninterrupted operation of the systems, facilities and business functions and the operation of various third-party systems that are critical to our business; •the impacts of a security breach or other attack involving our technology systems or the systems of one or more of our vendors; •our ability to maintain a recognized and trusted brand and reputation; •whether we innovate effectively and respond to our competitors' initiatives; •whether we effectively manage complexity as we develop and deliver products and customer experiences; •our ability to attract, develop and retain talent and maintain appropriate staffing levels; •the impact of misconduct or fraudulent acts by employees, agents, and third parties to our business and/or exposure to regulatory assessments; •the highly competitive nature of property-casualty insurance markets; •whether we adjust claims accurately; •compliance with complex and changing laws and regulations; •litigation challenging our business practices, and those of our competitors and other companies; •the success of our business strategy and efforts to acquire or develop new products or enter into new areas of business and navigate related risks; •how intellectual property rights affect our competitiveness and our business operations; •the performance of our fixed-income and equity investment portfolios; •the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, governance and other public policy matters; •the elimination of the London Interbank Offered Rate; •our continued ability to access our cash accounts and/or convert investments into cash on favorable terms; •the impact if one or more parties with which we enter into significant contracts or transact business fail to perform; •legal restrictions on our insurance subsidiaries' ability to pay dividends toThe Progressive Corporation ; •limitations on our ability to pay dividends on our common shares under the terms of our outstanding preferred shares; •our ability to obtain capital when necessary to support our business and potential growth; •evaluations by credit rating and other rating agencies; •the variable nature of our common share dividend policy; •whether our investments in certain tax-advantaged projects generate the anticipated returns; •the impact from not managing to short-term earnings expectations in light of our goal to maximize the long-term value of the enterprise; •the impacts of epidemics, pandemics or other widespread health risks; and •other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with theUnited States Securities and Exchange Commission , including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year endingDecember 31, 2022 .
Any forward-looking statements are made only as of the date presented. Except as
required by applicable law, we undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or developments or otherwise.
In addition, investors should be aware that accounting principles generally accepted inthe United States prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when we establish reserves for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods. 52
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