Progressive Lags Estimates

Progressive Corp.’s (PGR - Analyst Report) earnings per share for third quarter of 2011 were 24 cents, plummeting 40% from 40 cents in the year-ago period. Results were also below the Zacks Consensus Estimate of 27 cents. Net income plunged 62% from the year-ago period to $150.7 million.

The company recorded net premiums of $3.87 billion in the quarter under review, up 4% from $3.72 billion in the year-ago quarter. Net premiums earned were $3.74 billion, up 4% from $3.60 billion in the year-ago period.

Net realized losses on securities were $52.6 million, compared with a gain of $26.9 million in the third quarter of 2010. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated 230 basis points over the prior-year period to 95.2% in the reported quarter.

Progressive reports every month. During September, policies in force remained healthy, with the Personal Auto segment increasing 5% year over year but declining 0.04% sequentially. Special Lines also increased 5% year over year but declined 0.2% from the preceding month.

In Personal Auto, Direct Auto reported a growth of 7% year over year and 0.04% from the preceding month. Agency Auto was up 3% year over year but declined 0.11% from the last month. However, Progressive’s Commercial Auto segment continued to drag results, reporting declines of 0.9% year over year.

Total expenses for the reported month increased 2% to $1.08 billion from $1.06 billion in September 2010. The major components contributing to the increase in total expenses were a 3% increase in losses and loss adjustment expenses and a 2% increase in policy acquisition costs.

Progressive reported a book value per share of $9.37, down from $10.12 as of September 30, 2010 and $9.65 as of August 31, 2011.

Return on equity on a trailing 12-month basis was 16.9%, down from 17.6% in September 2010 but up from 16.8% in August 2011. The debt-to-total-capital ratio was 29.6% as of September 2011, up from 22.6% as of September 2010 but down from 28.7% as of August 2011.

We maintain our Neutral recommendation on Progressive. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Mayfield Village, Ohio, The Progressive Corporation is one of the largest auto insurers in the country. It is a leading independent agency writer of private passenger auto coverage, market leader for the motorcycle product and is one of the leading companies in the commercial auto insurance market. It competes with Allstate Corporation (ALL - Analyst Report).

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