Progressive's October Earnings Rise: Here's How to Play the Stock

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The Progressive Corporation PGR reported solid October 2024 results, wherein both the top line and the bottom lines increased year over year. Net premiums written improved 19%, driven by the strong performance of operating businesses. Combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 240 basis points (bps) from the prior-year quarter’s level to 94.1.

PGR is one of the country’s largest auto insurance groups, the largest seller of motorcycle and boat policies, the market leader in commercial auto insurance and one of the top 15 homeowners carriers based on premiums written. A solid market presence, a convincing portfolio of products and services, and underwriting and operational expertise should help this insurer deliver steady profitability.

A Sneak Peek Into Monthly Results

October earnings per share of 69 cents increased 1% year over year. Operating revenues of $6.8 billion improved 19.6% year over year. Net premiums earned increased 19%.

Policies in force were solid in the Personal Auto segment, up 19% year over year to 23.2 million. Special Lines improved 9% to 6.5 million. In the Personal Auto segment, Direct Auto increased 23% year over year to 13.7 million, while Agency Auto increased 15% to 9.6 million. Progressive’s Commercial Auto segment rose 3% year over year to 1.1 million. The Property business had 3.5 million policies in force, up 14%.

Total expenses increased 21.7% year over year to $6.2 billion, attributable to a 15.8% higher loss and loss adjustment expenses, a 16.8% increase in policy acquisition costs and a 71.4% jump in other underwriting expenses.

Investment Thesis

Progressive’s premiums, the main driver of the top line, are poised to grow on the strength of its compelling product portfolio, leadership position, healthy policies in force, better pricing and a solid retention ratio. The leading auto insurer intends to fuel growth by prioritizing auto bundles, lowering exposure to risky properties and increasing segmentation through the rollout of new products.

Policy life expectancy (PLE), a measure of customer retention, has improved in the last few years across all business lines. Offering consumers a distinctive new auto insurance option along with competitive pricing should help Progressive deliver solid PLE. 

Over a decade, PGR’s combined ratio has averaged less than 93%, which compares favorably with the industry average combined ratio of more than 100%. Prudent underwriting coupled with favorable reserve development should help the company maintain the momentum. Also, its reinsurance program shields the balance sheet from the impact of catastrophe events and active weather years. 
PGR strategically maintains an investment portfolio skewed toward U.S. Treasuries. Its solid capital position helps it navigate a volatile market and invest in growth opportunities. 

Progressive has also been investing in the ramp-up of digitalization. This, in turn, helps margin expansion.

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