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Managing Policy Acquisition Costs: A Key Driver of PGR's Profits?
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Key Takeaways
Progressive's policy acquisition costs are central to its profitability and growth strategy.
PGR leverages analytics, pricing and AI to manage costs and target profitable customer segments.
Higher acquisition spending puts pressure on margins but PGR aims to keep its expense ratio below 20%.
For Progressive Corporation (PGR - Free Report) , policy acquisition costs play a crucial role in determining its profitability. Policy acquisition costs (“PAC”) include costs incurred to acquire and underwrite new insurance policies, including agent commissions, marketing and advertising expenses, underwriting and policy issuance costs.
Progressive’s policy acquisition costs act as both a growth driver and a profitability tool. The leading auto insurer deploys data analytics, prudent pricing and telematics programs like Snapshot to target profitable customer segments and optimize acquisition spending. Costs incurred for policy acquisitions directly fuel top-line growth by expanding the total number of active insurance policies across its various business segments. Policies in force have been exhibiting steady growth over the years.
PAC also influences margins and combined ratios. Higher acquisition spending can pressure underwriting margins. Underwriting expense ratio, which includes the impact of PAC, has increased in 2024, up 240 basis points. Nonetheless, PGR tries to maintain an underwriting expense ratio below 20%.
Digitization has become an important tool in managing these expenses efficiently. Progressive continues to invest in generative AI tools with a vision to improve policy pricing, find new business opportunities, and create data-driven, personalized content variations to optimize messaging and enhance audience engagement.
Over the past years, policy acquisition costs have increased in line with higher business volumes, and their share of revenues has also risen, highlighting their growing importance in driving Progressive’s growth and sustaining underwriting profitability.
What About Other Players?
Policy acquisition costs are vital for both HCI Group (HCI - Free Report) and Universal Insurance Holdings (UVE - Free Report) , aiding both these insurers in expanding into new geographies while maintaining competitive pricing.
Managing these costs efficiently aids HCI Group and Universal Insurance in improving their expense ratio and thus underwriting profitability. Also, these efforts well poise both HCI Group and Universal Insurance to maintain solid margins across its personal and commercial insurance operations.
PGR’s Price Performance
Shares of PGR have lost 8.7% year to date, underperforming the industry.
Image Source: Zacks Investment Research
PGR’s Expensive Valuation
PGR trades at a price-to-book value ratio of 3.6, above the industry average of 1.43. But it carries a Value Score of B.
Image Source: Zacks Investment Research
Estimates Movement for PGR
The Zacks Consensus Estimate for PGR’s fourth-quarter 2025 EPS has moved 6.5% north, while that for first-quarter 2026 has moved down 1.1% over the past 30 days. The same for full-year 2025 and 2026 has moved 4.2% and 0.1% down, respectively, in the same time frame.
Image Source: Zacks Investment Research
The consensus estimates for PGR’s 2025 revenues and EPS indicate year-over-year increases. The consensus estimate for 2026 revenues indicates a year-over-year increase but the same for EPS indicates a year-over-year decline.
Image: Shutterstock
Managing Policy Acquisition Costs: A Key Driver of PGR's Profits?
Key Takeaways
For Progressive Corporation (PGR - Free Report) , policy acquisition costs play a crucial role in determining its profitability. Policy acquisition costs (“PAC”) include costs incurred to acquire and underwrite new insurance policies, including agent commissions, marketing and advertising expenses, underwriting and policy issuance costs.
Progressive’s policy acquisition costs act as both a growth driver and a profitability tool. The leading auto insurer deploys data analytics, prudent pricing and telematics programs like Snapshot to target profitable customer segments and optimize acquisition spending. Costs incurred for policy acquisitions directly fuel top-line growth by expanding the total number of active insurance policies across its various business segments. Policies in force have been exhibiting steady growth over the years.
PAC also influences margins and combined ratios. Higher acquisition spending can pressure underwriting margins. Underwriting expense ratio, which includes the impact of PAC, has increased in 2024, up 240 basis points. Nonetheless, PGR tries to maintain an underwriting expense ratio below 20%.
Digitization has become an important tool in managing these expenses efficiently. Progressive continues to invest in generative AI tools with a vision to improve policy pricing, find new business opportunities, and create data-driven, personalized content variations to optimize messaging and enhance audience engagement.
Over the past years, policy acquisition costs have increased in line with higher business volumes, and their share of revenues has also risen, highlighting their growing importance in driving Progressive’s growth and sustaining underwriting profitability.
What About Other Players?
Policy acquisition costs are vital for both HCI Group (HCI - Free Report) and Universal Insurance Holdings (UVE - Free Report) , aiding both these insurers in expanding into new geographies while maintaining competitive pricing.
Managing these costs efficiently aids HCI Group and Universal Insurance in improving their expense ratio and thus underwriting profitability. Also, these efforts well poise both HCI Group and Universal Insurance to maintain solid margins across its personal and commercial insurance operations.
PGR’s Price Performance
Shares of PGR have lost 8.7% year to date, underperforming the industry.
Image Source: Zacks Investment Research
PGR’s Expensive Valuation
PGR trades at a price-to-book value ratio of 3.6, above the industry average of 1.43. But it carries a Value Score of B.
Image Source: Zacks Investment Research
Estimates Movement for PGR
The Zacks Consensus Estimate for PGR’s fourth-quarter 2025 EPS has moved 6.5% north, while that for first-quarter 2026 has moved down
1.1% over the past 30 days. The same for full-year 2025 and 2026 has moved 4.2% and 0.1% down, respectively, in the same time frame.
Image Source: Zacks Investment Research
The consensus estimates for PGR’s 2025 revenues and EPS indicate year-over-year increases. The consensus estimate for 2026 revenues indicates a year-over-year increase but the same for EPS indicates a year-over-year decline.
PGR stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.