Progressive is triumphing, but now operating in a highly speculative valuation territory

Published: 2025-06-19 05:43:32 ET PGR

Published on 06/19/2025 at 05:43

By Kevin Smith

The share price's meteoric rise over the past two years is the crowning achievement of elite management and an exceptional track record throughout the cycles.

Progressive's market capitalization exceeeded $150bn earlier this year. This is despite a difficult environment for other auto insurers in the US, which are facing uncontrollable inflation in repair costs and legal fees.

As the leading vehicle insurer in the US, with a strong focus on this single segment, which accounts for more than eight-tenths of its revenue, Progressive is outperforming all of its peers, including its three major rivals Allstate, State Farm, and Geico.

Its ten-year track record speaks for itself, with premium volume quadrupling over the period and, despite rampant inflation and fierce competition, satisfactory underwriting margins.

Thanks to very good cost control since the rate hike, financial income—less than 4% of the total—has also been boosted, which should bring consolidated operating profit to over $11bn in 2025, five times more than ten years ago.

Progressive is therefore a well-oiled machine, thanks in particular to its skillful use of technology—praised last year, as we recall, by Ajit Jain himself, head of reinsurance at Berkshire Hathaway, owner of Geico. There is no doubt that the deployment of new AI technologies should further improve productivity.

Progressive, notably, has never been fond of share buybacks. Instead, it has preferred to increase its dividend, which, despite occasional hiccups, has increased 5-fold in ten years and 25-fold in twenty years.

This policy makes sense. Over these two cycles combined, Progressive's shares have never traded at less than twice their book value. And since 2023, when its competitors encountered serious difficulties and interest rates began to rise, its valuation has exceeded five times its book value.

This level appears very high, if not highly speculative, even for an insurer that delivers return on equity of around 20% over the cycles, twice as much as the major European insurers, despite using less financial leverage than the latter.

By way of comparison, major European insurers such as Allianz, AXA and Generali, which have themselves regained investor favor after a decade of sluggish performance, are currently trading at valuations between one and a half and twice their equity value.

Kevin Smith