Progressive's Net Income Falls

Progressive Corp.’s ( PGR - Analyst Report ) earnings per share for April 2012 were 10 cents, down 45% from 18 cents in the comparable month, last year. Net income dropped 48% from April 2011 to $61.2 million in the reported month.

Lower net investment income and higher expenses resulted in lower figures during the month.

The company recorded net premiums of $1.67 billion in the month, up 9% from $1.54 billion in the year-ago month. Net premiums earned were $1.53 billion, up 7% from $1.43 billion in the year-ago period.

Net realized losses on securities in the month were $7.9 million, compared with a gain of $24.6 million in April 2011. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated 370 basis points over the prior-year period to 95.1% in the reported quarter.

Numbers in April

Progressive publishes monthly financial reports. During April, policies in force remained healthy, with the Personal Auto segment increasing 6% year over year and 0.8% sequentially. Special Lines also increased 5% year over year and 1.2% from the preceding month.

In Personal Auto, Direct Auto reported a growth of 7% year over year and 0.8% from the preceding month. Agency Auto was up 8% year over year and 0.8% from the last month. Progressive’s Commercial Auto segment reported an increase of 2.2% year over year.

Total expenses for the reported month increased 10.9% to $1.47 billion from $1.32 billion in April 2011. The major components contributing to the increase in total expenses were a 12.4% increase in losses and loss adjustment expenses, 7% increase in other underwriting expenses and a 5% increase in policy acquisition costs.

Progressive reported book value per share of $10.33, up from $10.23 as of March 31, 2012 and $9.91 as of April 30, 2011.

Return on equity on a trailing 12-month basis was 13.9%, down from 18.1% in April 2011 and 14.8% in March 2012. The debt-to-total-capital ratio was 24.7% as of April 2012, up from 23.2% as of April 2011 but slightly down from 25.4% as of March 2012.

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, 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 ) .