Progressive Beats Est, Lags Y/Y

Progressive Corp.’s ( PGR - Analyst Report ) earnings per share (EPS) for the fourth quarter of 2012 were 41 cents, declining 2% from 42 cents in the year-ago quarter. Results outpaced the Zacks Consensus Estimate of 34 cents. Net income declined 3% from the fourth quarter of 2011 to $249.1 million in the quarter under review.

The company recorded net premiums of $3.84 billion in the quarter under review, up 9% from $3.54 billion in the year-ago quarter. Net premiums earned were $4.11 billion, up 9% from $3.78 billion in the year-ago quarter.

Net realized gains on securities in the quarter were $62.1 million, improving 111% from $29.5 million in the year-ago quarter. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated 160 basis points (bps) from the prior-year quarter to 94.6% in the reported quarter.

Full Year Results

Progressive’s earnings for 2012 came in at $1.48 per share, down 7% from $1.59 in 2011. Results outpaced the Zacks Consensus Estimate of $1.16 per share. Net income declined 11% from 2011 to $902.3 million in 2012.

The company recorded net premiums of $16.37 billion in 2012, up 8% from $15.15 billion in 2011. Net premiums earned were $16.02 billion, up 7% from $14.90 billion in 2011.

Net realized gains on securities in the year were $314.8 million, improving 191% from $108.1 million in the prior year. The combined ratio amounted to 95.2% in 2012.

Numbers in December

Progressive publishes monthly financial reports. During December, policies in force remained healthy, with the Personal Auto segment increasing 4% year over year but down 0.2% sequentially. Special Lines also increased 4% year over year, though it declined 0.3% from the preceding month.

In Personal Auto, Direct Auto reported a profit of 4% year over year but inched down 0.03% from the preceding month. Agency Auto was up 3% year over year but down 0.4% from the last month. Progressive’s Commercial Auto segment reported an increase of 2% year over year and a sequential decline of 0.5%.

Total expenses for the reported month increased 11.1% to $1.20 billion from $1.08 billion in Dec 2011. The major components contributing to the increase in total expenses were a 14% increase in losses and loss adjustment expenses, a 5% increase in other underwriting expenses and a 0.4% increase in policy acquisition costs.

Progressive reported book value per share of $9.94, up from $9.47 as of Dec 31, 2011 but declining from $10.08 as of Nov 30, 2012.

Return on equity on a trailing 12-month basis was 17.4%, up from 15.0% in Dec 2011 but declining from 17.9% in Nov 2012. The debt-to-total-capital ratio was 25.6% as of Dec 31, 2012, down from 29.6% as of Dec 31, 2011 but increasing marginally from 25.3% as of Nov 30, 2012.

Progressive carries a Zacks Rank #3 (Hold). We maintain a long-term Neutral recommendation on the stock. Allstate Corporation ( ALL - Analyst Report ) , which closely competes with Progressive, carries Zacks Rank #1 (Strong Buy), along with a long-term Outperform recommendation.