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Progressive (PGR) Banks on Premium Growth Amid Cost Concerns

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Progressive Corporation (PGR - Free Report) is well-poised for growth, driven by new business volume, higher average assets, improved underwriting profit and sufficient solvency level.

Progressive continues to witness solid premium and policy in-force growth across its Personal Lines, Commercial Lines and Property operating segments.

Riding on higher net premiums earned, improved investment income, increased fees and other revenues and service revenues, its revenues witnessed a CAGR of 16.2% in the last five years (2016-2020). Its strong performance across Personal Lines, Commercial Lines and Property is likely to drive revenues going forward.

The Personal Lines segment is likely to improve, riding on solid growth in special lines business and renewal activity in the personal auto business, whereas increasing average written premium per policy should benefit the Commercial Lines business.

By virtue of high new business volume levels, and higher premiums in the Transportation Network Company (TNC) business, premiums will likely grow.

The combination of an increase in average assets and increase in portfolio yields is likely to drive net investment income, an important driver of the top line, despite the current low interest rate environment.

Management remains focused on customer retention through its increased rate stability and making investments to improve customer experience. It is expected that competitive pricing and new product offerings will enhance PLE in the long run.

In the last decade (2010-2020), the insurer’s combined ratio has averaged less than 93% on the back of underwriting profitability.

Progressive has a reinsurance program in the Property business, intended to limit the risk to the extent of coverage purchased. During the second quarter of 2021, it entered into new reinsurance contracts, which carry retention thresholds for losses and allocated loss adjustment expenses (ALAE) from a single catastrophic event of $200 million.

Progressive boasts an impressive solvency level as well. Its insurance operations create liquidity by collecting and investing premiums from new and renewal businesses in advance of paying claims. The leverage ratio remained below 30% during all reported periods, consistent with the financial policy.

The company’s expenses escalated over the last several years due to higher losses and loss adjustment expenses, policy acquisition costs, service expense and interest expense. A persistent elevation of expenses might weigh on its margins.

Other Insurers

Some other property and casualty insurance sector players include RLI Corp. (RLI - Free Report) , First American Financial Corporation (FAF - Free Report) and NMI Holdings Inc. (NMIH - Free Report) .

The bottom line of RLI Corp. surpassed estimates in each of the last four quarters, the average being 155.21%.

First American Financial surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 21.07%.

NMI Holdings’ earnings surpassed estimates in each of the last four quarters, the average being 14.72%.