10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
þ	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended  December 31, 2004

or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______________________ to ___________________________

Commission file number            1-9518                

THE PROGRESSIVE CORPORATION

(Exact name of Registrant as specified in its charter)

Ohio	34-0963169
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
6300 Wilson Mills Road, Mayfield Village, Ohio	44143
(Address of principal executive offices)	(Zip Code)

(440) 461-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
	Name of each exchange on
Title of each class	which registered
Common Shares, $1.00 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). þ Yes    o No

The aggregate market value of the voting stock held by non-affiliates of the Registrant at June 30, 2004: $16,909,135,762

The number of the Registrant’s Common Shares, $1.00 par value, outstanding as of January 31, 2005: 200,095,589

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 15, 2005, to be filed on or about March 7, 2005 and the Annual Report to Shareholders for the year ended December 31, 2004, included as Exhibit 13 to this Form 10-K, are incorporated by reference in Parts I, II, III and IV hereof.

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TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
EX-4(E) FORM OF 7% NOTES DUE 2013
EX-10(T) FORM OF 1995 INCENTIVE PLAN RESTRICTED STOCK AWARD
EX-10(AW) DIRECTOR COMPENSATION SCHEDULE
EX-11 COMPUTATION OF EARNINGS
EX-12 COMPUTATION OF EARNINGS TO FIXED CHARGES
EX-13 ANNUAL REPORT
EX-21 SUBSIDIARIES
EX-24 POWER OF ATTORNEY
EX-31(A) CERTIFICATION OF PEO
EX-31(B) CERTIFICATION OF PFO
EX-32(A) CERTIFICATION OF PEO
EX-32(B) CERTIFICATION OF PFO

INTRODUCTION

Portions of the information included in The Progressive Corporation’s Proxy Statement to be filed on or about March 7, 2005, for the Annual Meeting of Shareholders to be held on April 15, 2005 (the “Proxy Statement”) have been incorporated by reference herein and are identified under the appropriate items in this Form 10-K. The 2004 Annual Report to Shareholders (the “Annual Report”) of The Progressive Corporation and subsidiaries (collectively, the “Company”), which will be attached as an Appendix to the 2005 Proxy Statement, is included as Exhibit 13 to this Form 10-K. Cross references to relevant sections of the Annual Report are included under the appropriate items of this Form 10-K.

PART I

ITEM 1. BUSINESS

     (a) General Development of Business

The Progressive insurance organization began business in 1937. The Progressive Corporation, an insurance holding company formed in 1965, has 70 subsidiaries and 1 mutual insurance company affiliate. The Progressive Corporation’s insurance subsidiaries and affiliate provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. The Company’s property-casualty insurance products protect its customers against collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. The Company’s non-insurance subsidiaries generally support the Company’s insurance and investment operations.

     (b) Financial Information About Industry Segments

Incorporated by reference from Note 9, Segment Information, beginning on page App.-B-19 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

     (c) Narrative Description of Business

The Company offers a number of personal and commercial property-casualty insurance products primarily related to motor vehicles. Net premiums written were $13.4 billion in 2004, compared to $11.9 billion in 2003 and $9.5 billion in 2002. The combined GAAP ratio was 85.1 in 2004, 87.3 in 2003 and 92.4 in 2002.

Organization
Auto insurance differs greatly by community because regulations and legal decisions vary by state and because traffic, law enforcement, cultural attitudes, insurance agents, medical services and auto repair services vary by community. The Company’s organization enables it to meet varied local conditions under a cohesive set of policies and procedures designed to provide consistency and control. The Company’s business is organized into four business areas: Agency (which includes both personal and commercial auto), Direct, Claims, and Sales and Service. Each business has a Group President and a management team. The Company conducts business in 48 states and the District of Columbia and has organized these 49 jurisdictions into six geographical regions. The Agency and the Direct Businesses are managed at the local level and have three General Managers, each responsible for two regions. The Claims business area has six General Managers responsible for one region each, with managers at the state level. Sales and Service (which includes Agency and Direct customer service, direct sales and claims loss reporting, among other services) is performed at six regional sites in Austin, Texas; Cleveland, Ohio; Colorado Springs, Colorado; Phoenix, Arizona; Sacramento, California; and Tampa, Florida.

The Company’s executive management team sets policy and makes key strategic decisions and includes the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Investment Officer, Chief Information Officer and Chief Human Resource Officer, as well as the Company’s four Group Presidents (Agency, Direct, Claims, and

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Sales and Service). The Group Presidents are challenged to develop and manage product offerings and customer service processes tailored to the unique requirements of customers who select Progressive as their auto insurance carrier and buy policies through the distribution mode of their choice.

Personal Lines

The Company’s Personal Lines segment writes insurance for private passenger automobiles and recreation and other vehicles. This business frequently offers more than one program in a single state, with each targeted to a specific distribution channel, market or customer group. Personal Lines accounted for 88% of total net premiums written in 2004, 2003 and 2002. The Company’s strategy is to become the low-cost provider of a full line of auto insurance products and related services, distributed through whichever channel the customer prefers.

Of the approximately 300 United States insurance companies/groups with private passenger auto insurance premiums over $5 million annually, the Company ranked third in size for 2003 based on net premiums written, and believes that it held this position for 2004. The top 15 private passenger auto insurers comprised about 72% of this market. For 2004, the estimated industry net premiums written for personal auto insurance in the United States and Canada were $158.1 billion, and the Company’s share of this market was approximately 7.4%, compared to $151.0 billion and 7.0%, respectively, in 2003, and $139.6 billion and 6.0% in 2002. Except as otherwise noted, all industry data and the Company’s market share or ranking in the industry either were derived directly from data reported by A.M. Best Company Inc. (“A.M. Best”) or were estimated using A.M. Best data as the primary source. The Company’s estimate of the 2004 industry net premiums written growth is 3.7%, based on actual written premium growth through the first nine months of the year, which differs from the 4.7% annual net premium written growth estimated by A. M. Best.

Private passenger automobile insurance is comprised of preferred, standard and nonstandard automobile risks and represented 92% of total Personal Lines net premiums written by the Company in 2004. The Company actively participates in the market for each of these risks, with the objective of offering an accurate rate for every risk. Volume potential is driven by the Company’s price competitiveness, brand recognition and the actions of the Company’s competitors, among other factors. See “Competitive Factors” on page 11 of this report for further discussion.

The Company’s specialty Personal Lines products include insurance for motorcycles, recreation vehicles, mobile homes, watercraft, snowmobiles and similar items. These specialty products represented 8% of the Company’s total Personal Lines net premiums written in 2004 and are primarily distributed by independent agencies. Due to the nature of these products, the Company typically experiences higher losses during the warmer weather months. The Company’s competitors are specialty companies and large multi-line insurance carriers. Although industry figures are not available, based on the Company’s analysis of this market, the Company believes that it is one of the largest participants in the specialty personal lines market. The Company has been the market share leader for personal watercraft insurance since 2002, and has been the market share leader for the motorcycle product since 1998.

The Personal Lines business is generated either by an agency or written directly by the Company. The Agency channel includes business written by the Company’s network of more than 30,000 independent insurance agencies located throughout the United States, as well as brokerages in New York and California. These independent insurance agents and brokers have the ability to place business with the Company to specified insurance coverages within prescribed underwriting guidelines, subject to compliance with certain Company-mandated procedures. These guidelines prescribe the kinds and amounts of coverage that may be written and the premium rates that may be charged for specified categories of risk. The agents and brokers do not have authority on behalf of the Company to settle or adjust claims, establish underwriting guidelines, develop rates or enter into other transactions or commitments. The Agency channel also writes business through strategic alliance business relationships (other insurance companies, financial institutions, employers and national brokerage agencies). In 2004, the total net premiums written through the Agency channel represented 68% of the Company’s Personal Lines volume, compared to 69% in 2003 and 70% in 2002.

The Direct channel includes business written through 1-800-PROGRESSIVE and online at progressive.com. Net premiums written in the Direct channel were 32%, 31% and 30% of the Company’s Personal Lines volume in 2004, 2003 and 2002, respectively.

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Commercial Auto Business

The Commercial Auto business unit writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses and represented 12% of the Company’s total net premiums written in 2004, compared to 11% in both 2003 and 2002. The majority of the Commercial Auto customers insure three or fewer vehicles. Although the Commercial Auto business differs from Personal Lines auto in its customer bases and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. The Company’s Commercial Auto products are distributed primarily through the independent agency channel. The Company competes for this business on a nationwide basis with nearly 200 other companies/groups (with net premiums written in excess of $5 million annually). The Company’s Commercial Auto Business ranked third in market share on a national basis in 2003, based on direct written premium data reported by A.M. Best, and the Company estimates that it retained that position for 2004.

Other Businesses – Indemnity

The Company’s other lines of business — indemnity, which represented less than 1% of the Company’s 2004 net premiums written, compared to 1% for both 2003 and 2002, includes professional liability insurance to community banks, the main product of which is directors and officers liability insurance. The Company shares the risk and premium on these coverages with a small mutual reinsurer controlled by its bank customers and various other reinsurance entities. The program, sponsored by the American Bankers Association, insures over 1,700 banks, representing every state. The majority of the risk on these coverages is also reinsured by various entities.

In addition, the Company’s other businesses — indemnity include managing the wind-down of the Company’s lender’s collateral protection program, which the Company ceased writing in 2003, and other run-off businesses.

Other Businesses – Service

The Company’s other businesses — service includes providing insurance-related services, primarily providing policy issuance and claims adjusting services for the Commercial Auto Insurance Procedures/Plans (CAIP), which are state-supervised plans serving the involuntary markets, in 25 states. The Company processes over 49% of the premiums in the CAIP market and competes with two other providers nationwide. As a service provider, the Company collects fee revenue that is earned on a pro rata basis over the term of the related policies. The Company cedes 100% of the premiums and losses to the plans. Reimbursements to the Company from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business . The Company has maintained, and plans to continue to maintain, compliance with these standards. Any changes in the Company’s participation as a CAIP service provider would not materially affect the Company’s financial condition, results of operations or cash flows. The other businesses — service represent less than 1% of the Company’s 2004, 2003 and 2002 revenues.

Claims

The Company manages its claims handling on a companywide basis through more than 450 claims offices located throughout the United States. In addition, the Company has 20 centers, in 18 cities nationwide, that provide a concierge-level of claims service. These facilities are designed to provide end-to-end resolution for auto physical damage losses. The Company achieved the performance standards that had been established for the expansion of its concierge claims strategy and, as a result, is looking for sites to open approximately 50 additional centers over the next several years. The Company does not have a predefined sequencing of when these centers will be opened and will make that determination on a case-by-case basis. The Company is also looking at expanding this concierge level of service by finding and offering customers the choice of a replacement vehicle, rather than just payment, when their vehicle is deemed un-repairable. This service is being tested in limited locations, but the Company expects expansion in 2005.

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Risk Factors

The Company’s business involves various risks and uncertainties, certain of which are discussed in this section. Management divides these risks into three broad categories in assessing how they may affect the Company’s achievement of its business objectives:

•   Operating Risks are those stemming from external or internal events or circumstances that directly or indirectly may affect the Company’s insurance operations.

•   Investing Risks are uncertainties relating to the performance and preservation of the Company’s investment portfolios. Unlike most other risks, investment risks may have an upside as well as a downside, meaning that the actual development of an investment risk factor (such as whether interest rates go down or up) may result in either an increase or decrease in the value of investments held by the Company.

•   Financing Risks generally relate to the Company’s ability to obtain capital when necessary, pay or otherwise perform the Company’s obligations, including obligations under any debt instruments issued, and earn the cost of equity capital.

In addition, a separate “Other Risks” category has been added at the end of this discussion for certain risks to investors that are not included in one of the three categories identified by management.

Although in the discussion below the Company has organized risks generally according to these categories, it should be noted that many of the risks have ramifications in more than one category. For example, although presented as an Operating Risk below, state regulation of insurance companies may also affect the Company’s investing and financing activities. Similarly, while setting insurance rates, setting loss reserves and adjusting claims are properly discussed as Operating Risks, errors in these disciplines may have an impact on the investing and financing areas as well. The categories, therefore, should be viewed as a starting point for understanding the significant risks facing the Company and not as a limitation on the potential impact of the matters being discussed.

This information should be considered carefully together with the other information contained in this report and in the other reports and materials filed by the Company with the Securities and Exchange Commission (“SEC”), as well as news releases and other information publicly disseminated by the Company from time to time.

The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial may also adversely affect the Company’s business. If any of the following risks or uncertainties develop into actual events, this could have a materially adverse effect on the Company’s business, financial condition or results of operations. In that case, the market price of the Company’s Common Shares could decline materially.

I. Operating Risks

The Company competes in the automobile insurance and other property-casualty markets, which are highly competitive.
The Company faces vigorous competition from large, well-capitalized national companies and smaller regional insurers. Other large national and international insurance or financial services companies may also enter these markets in the future. Many of these companies may have greater financial, marketing and management resources than the Company. In addition, competitors may offer consumers combinations of auto policies and other insurance products or financial services which the Company does not offer. The Company could be adversely affected by a loss of business to competitors offering similar insurance products at lower prices or offering bundled products or services and by other competitor initiatives.

The Company from time to time undertakes strategic initiatives to maintain and improve its competitive position in auto insurance markets. Based on a culture that encourages innovation, these strategies at times involve significant departures from the Company’s and/or its competitors’ then-current or historical modes of doing business. As such, the Company’s innovations may entail a degree of risk and may not ultimately achieve anticipated business goals. In

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addition, these initiatives may be subject to challenge by regulators or private litigants and may disrupt the Company’s relationships with certain of its customers and producers (i.e., agents and brokers). If the Company is unable successfully to develop, plan and implement its strategic initiatives in these competitive, regulatory and legal environments, its business could be materially adversely affected.

Similarly, the Company undertakes distinctive advertising campaigns and other efforts to improve brand recognition and generate growth. If these campaigns or efforts are unsuccessful or are less effective than those of competitors, the Company’s business could be materially adversely affected.

The highly competitive nature of the markets in which the Company competes could also result in the failure of one or more major competitors. In the event of a failure of a major competitor, the Company could be adversely affected, as the Company and other insurance companies may be required under state-mandated plans to absorb the losses of the failed insurer, and as the Company would be faced with an unexpected surge in new business from the failed insurer’s former policyholders.

The ability of the Company to attract, develop and retain talented employees, managers and executives, and to maintain appropriate staffing levels, is critical to the Company’s success.
The Company’s success depends on its ability to attract, develop and retain talented employees, including executives and other key managers. The Company’s loss of certain key officers and employees or the failure to attract and develop talented new executives and managers could have a materially adverse effect on the Company’s business.

In addition, the Company must forecast the changing business environments (for multiple business units and in many geographic markets) with reasonable accuracy and adjust its hiring programs and/or employment levels accordingly. The Company’s failure to recognize the need for such adjustments, or its failure or inability to react appropriately on a timely basis, could lead either to over-staffing (which would adversely affect the Company’s cost structure) or under-staffing (impairing the Company’s ability to service its ongoing and new business) in one or more business units or locations. In either such event, the Company’s financial results could be materially adversely affected.

The Company further believes that its success depends, in large part, on its ability to maintain and improve the staffing models and employee culture that it has developed over the years. The Company’s ability to do so may be impaired as a result of litigation against the Company, legislation or regulations at the state or federal level or other factors in the employment marketplace. In such events, the productivity of certain of the Company’s workers could be adversely affected, which could lead to an erosion of the Company’s operating performance and margins.

The Company and its insurance subsidiaries are subject to a variety of complex federal and state laws and regulations.
The Company’s insurance businesses operate in a highly regulated environment. The Company’s insurance subsidiaries are subject to regulation and supervision by state insurance departments in all 50 states and the District of Columbia, each of which has a unique and complex set of laws and regulations. In addition, certain federal laws impose additional requirements on businesses, including insurers. The subsidiaries’ ability to comply with these laws and regulations at reasonable costs, and to obtain necessary regulatory action in a timely manner, is and will continue to be critical to the Company’s success.

Certain states impose restrictions on or require prior regulatory approval of various actions by regulated insurers, which may adversely affect the insurance subsidiaries’ ability to operate, innovate and obtain necessary rate adjustments in a timely manner. The Company’s compliance efforts are further complicated by changes in laws or regulations applicable to insurance companies (such as, in recent years, legislative and regulatory initiatives concerning the use of nonpublic consumer information and related privacy issues, the use of credit scoring in underwriting and efforts to freeze, set or roll back insurance premium rates). Insurance laws and regulations may limit the insurance subsidiaries’ ability to underwrite and price risks accurately, prevent the subsidiaries from obtaining timely rate increases necessary to cover increased costs, and restrict the subsidiaries’ ability to discontinue unprofitable business or exit unprofitable markets. In addition, compliance with insurance-related laws and regulations often results in increased administrative costs to the Company’s insurance subsidiaries. These costs, in turn, may adversely affect the Company’s profitability or its ability or desire to grow its business in the applicable jurisdictions.

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The failure to comply with these laws and regulations could also result in actions by regulators or other law enforcement officials, fines and penalties, adverse publicity and damage to the Company’s reputation in the marketplace, and in extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions. In addition, the Company and its subsidiaries can face individual and class action lawsuits by its insureds and other parties for alleged violations of certain of these laws or regulations.

During 2004, the Company received document and information requests from several state attorneys general and insurance regulators regarding ongoing investigations into the relationships between insurers and brokers and agents, allegations of bid-rigging by certain brokers and other related matters. For a discussion of the Company’s responses to these requests, see the “Financial Condition – Commitments and Contingencies” Section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report, which is attached as Exhibit 13 to this Form 10-K.

Moreover, new legislation or regulations may be adopted in the future which could adversely affect the Company’s operations or ability to write business profitably in one or more states. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. The Company is unable to predict whether any such laws will be enacted and how and to what extent such laws and regulations would affect the Company’s businesses.

State insurance regulation may create risk and uncertainties for the Company’s insurance subsidiaries in other ways as well. For further information on these risks and uncertainties, see the “Insurance Regulation” discussion beginning on page 12 of this report.

Lawsuits challenging business practices of the Company, its competitors and other companies are pending and more may be filed in the future.
The Progressive Corporation and/or its subsidiaries are named as defendants in a number of putative class action and other lawsuits challenging various aspects of the subsidiaries’ business operations. These lawsuits include cases alleging damages as a result of the use of after-market parts; total loss evaluation methodology; the use of credit in underwriting and related requirements under the federal Fair Credit Reporting Act; the methods used for evaluating and paying certain bodily injury, personal injury protection and medical payment claims; and policy implementation and renewal procedures, among other matters. From time to time, the Company also may be involved in litigation or other disputes alleging that its business practices violate the patent, trademark or other intellectual property rights of third parties. Additional litigation may be filed against the Company and/or its subsidiaries or disputes may arise in the future concerning these or other business practices. In addition, lawsuits have been filed, and other lawsuits may be filed in the future, against the Company’s competitors and other businesses, and although the Company is not a party to such litigation, the results of those cases may create additional risks for, and/or impose additional costs and/or limitations on, the subsidiaries’ business operations.

Lawsuits against the Company often seek significant monetary damages. Moreover, as courts resolve individual or class action litigation in insurance or related fields, a new layer of court-imposed regulation could emerge, resulting in material increases in the Company’s costs of doing business. Such litigation is inherently unpredictable. Except to the extent the Company has established reserves with respect to particular lawsuits that are currently pending against it, the Company is unable to predict the effect, if any, that these pending or future lawsuits may have on the business, operations, profitability or financial condition of the Company. For further information on pending litigation, see Note 11, Litigation, beginning on page App.-B-21 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

The Company’s success depends on its ability to underwrite risks accurately and to charge adequate rates to policyholders.
The Company’s financial condition, cash flows and results of operations depend on the Company’s ability to underwrite and set rates accurately for a full spectrum of risks. Rate adequacy is necessary to generate sufficient premium to offset losses, loss adjustment expenses and underwriting expenses and to earn a profit.

The Company’s ability to price accurately is subject to a number of risks and uncertainties, including, without limitation:

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•   the availability of sufficient reliable data,

•   the Company’s ability to conduct a complete and accurate analysis of available data,

•   the Company’s ability to timely recognize changes in trend and to project both the severity and frequency of losses with reasonable accuracy,

•   uncertainties inherent in estimates and assumptions, generally,

•   the Company’s ability to project changes in certain operating expenses with reasonable certainty,

•   the development, selection and application of appropriate rating formulae or other pricing methodologies,

•   the Company’s ability to innovate with new pricing strategies, and the success of those innovations,

•   the Company’s ability to predict policyholder retention accurately,

•   unanticipated court decisions, legislation or regulatory action,

•   ongoing changes in the Company’s claim settlement practices,

•   changing driving patterns,

•   unexpected changes in the medical sector of the economy, and

•   unanticipated changes in auto repair costs, auto parts prices and used car prices.

Such risks may result in the Company’s pricing being based on stale, inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies, and may cause the Company to estimate incorrectly future changes in the frequency or severity of claims. As a result, the Company could underprice risks, which would negatively affect the Company’s margins, or it could overprice risks, which could reduce the Company’s volume and competitiveness. In either event, the Company’s operating results, financial condition and cash flows could be materially adversely affected.

The Company’s financial performance may also be materially adversely affected by severe weather conditions or other catastrophic losses.
The Company continues to be exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by natural events, such as hurricanes, tornadoes, windstorms, earthquakes, hailstorms, severe winter weather and fires, and other events, such as explosions, terrorist attacks, riots, hazardous material releases, utility outages or interruptions of communications facilities. The extent of insured losses from a catastrophe is a function of both the Company’s total insured exposure in the area affected by the event and the nature and severity of the event. In addition, the Company’s business could be further impaired if a significant portion of its business or systems were shut down by, or if the Company were unable to gain access to certain of its facilities as a result of, such an event. Most of the Company’s past catastrophe-related claims have resulted from severe storms. The incidence and severity of catastrophes are inherently unpredictable. When they occur with enough severity, the Company’s financial performance, cash flows or results of operations could be materially adversely affected.

The Company’s success depends on its ability to establish accurate loss reserves and to adjust claims accurately.
The Company’s financial statements include loss reserves, which represent the Company’s best estimate of the amounts that the subsidiaries will ultimately pay on claims that have been incurred, and the related costs of adjusting those claims, as of the date of the financial statements. There is inherent uncertainty in the process of establishing property and casualty loss reserves, which can arise from a number of factors, including:

•   the availability of sufficient reliable data,

•   the difficulty in predicting the rate and direction of changes in frequency and severity trends in multiple markets,

•   changes in medical and auto repair costs,

•   changes in governing statutes and regulations,

•   new or changing interpretations of insurance policy provisions by courts,

•   inconsistent decisions in lawsuits regarding coverage and changing theories of liability,

•   ongoing changes in the Company’s claim settlement practices,

•   the accuracy of estimates by the Company of the number or severity of claims that have been incurred but not reported as of the date of the financial statement,

•   the accuracy and adequacy of actuarial techniques and databases used in estimating loss reserves, and

•   the accuracy of estimates of total loss and loss adjustment expenses as determined by the Company’s employees for different categories of claims.

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As a result of these and other risks and uncertainties, ultimate paid losses and loss adjustment expenses may deviate, perhaps substantially, from point-in-time estimates of such losses and expenses, as reflected in the loss reserves included in the Company’s financial statements. Consequently, ultimate losses paid could materially exceed loss reserves and have a materially adverse effect on the Company’s results of operations, liquidity or financial position. Further information on the Company’s loss reserves can be found in the “Liability for Property-Casualty Losses and Loss Adjustment Expenses” discussion beginning on page 15 of this report, as well as the Company’s “Report on Loss Reserving Practices,” which was filed with the SEC on Form 8-K on June 29, 2004.

Likewise, the Company must accurately evaluate and pay claims that are made under its policies. Many factors can affect the Company’s ability to pay claims accurately, including the training and experience of the Company’s claims representatives, the claims organization’s culture and the effectiveness of its management, the Company’s ability to develop or select and implement appropriate procedures and systems to support its claims functions, and other factors. The Company’s failure to pay claims accurately could result in unanticipated costs to the Company, lead to material litigation, undermine customer goodwill and the Company’s reputation in the marketplace and impair the Company’s brand image and, as a result, materially adversely affect the Company’s financial results and liquidity.

The Company’s business depends on the uninterrupted operation of its facilities, systems and business functions, including its information technology and other business systems.
The Company’s business is highly dependent upon its employees’ ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as Internet support and 24-hour call centers, processing new and renewal business, and processing and paying claims. A shut-down of or inability to access one or more of the Company’s facilities, a power outage, or a failure of one or more of the Company’s information technology, telecommunications or other systems could significantly impair the Company’s ability to perform such functions on a timely basis. In addition, because the Company’s information technology and telecommunications systems interface with and depend on third party systems, the Company could experience service denials if demand for such service exceeds capacity or a third party system fails or experiences an interruption. If sustained or repeated, such a business interruption, systems failure or service denial could result in a deterioration of the Company’s ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary corporate functions. This could result in a materially adverse effect on the Company’s business results and liquidity.

A security breach of the Company’s computer systems could also interrupt or damage its operations or harm its reputation. In addition, the Company could be subject to liability if confidential customer information is misappropriated from its computer systems. Despite the implementation of security measures, including hiring an independent firm to perform intrusion vulnerability testing of the Company’s computer systems, these systems may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any well-publicized compromise of security could deter people from entering into transactions that involve transmitting confidential information to the Company’s systems, which could have a material, adverse effect on the Company’s business.

II. Investing Risks

The performance of the Company’s fixed-income and equity investment portfolios are subject to investment risks.
The Company’s fixed-income portfolio is subject to a number of risks, including:

•   Interest rate risk – the risk of adverse changes in the value of fixed-income securities as a result of increases in the underlying market rates, which is the most significant risk to the fixed-income portfolio.

•   Credit risk – the risk that the value of certain investments may become impaired due to the deterioration in financial condition of one or more issuers of those instruments and, ultimately, the risk of permanent loss in the event of default by an issuer.

•   Concentration risk – the risk that the portfolio is too heavily concentrated in the securities of one or more issuers, sectors or industries, which could result in a significant decrease in the value of the portfolio in the event of a deterioration of the financial condition of those issuers or the market value of their securities.

•   Prepayment or extension risk (applicable to certain securities in the portfolio, such as residential mortgage-backed securities) – the risk that, as interest rates change, prepayment expectations of principal of such securities may change, adversely affecting the value of or income from such securities and the portfolio.

9

The common equity portfolio, which is managed to track the Russell 1000 index, is subject to general movements in the values of equity markets and to the changes in the prices of the securities held by the Company. Equity markets and individual securities may be subject to periods of high volatility. A decline in the aggregate value of the equities that make up the index would be expected to result in a commensurate decline in the value of the Company’s common equity portfolio.

In addition, both the fixed-income and the common equity portfolios are subject to risks inherent in the nation’s and world’s capital markets. The functioning of those markets, the values of the investments held by the Company and the Company’s ability to liquidate investments on favorable terms on short notice may be adversely affected if those markets are disrupted or otherwise affected by local, national or international events, such as power outages, system failures, wars or terrorist attacks, or by recessions or depressions, a significant change in inflation expectations, a significant devaluation of governmental or private sector credit, currencies or financial markets, and other factors or events.

If the fixed-income or equity portfolios, or both, were to be impaired by market, sector or issuer-specific conditions to a substantial degree, the Company’s liquidity, financial position and financial results could be materially adversely affected. Under these circumstances, the Company’s income from these investments could be materially reduced, and declines in the value of certain securities could further reduce the Company’s reported earnings and capital levels. A decrease in value of the Company’s investment portfolio could also put the Company’s insurance subsidiaries at risk of failing to satisfy regulatory minimum capital requirements. If the Company was not at that time able to supplement its subsidiaries’ capital from The Progressive Corporation’s other assets or by issuing debt or equity securities on acceptable terms, the Company’s business could be materially adversely affected.

III. Financing Risks

The Company’s insurance subsidiaries may be limited in the amount of dividends that they can pay to the holding company, which in turn may limit the holding company’s ability to pay dividends to shareholders, repay indebtedness or make capital contributions to its subsidiaries or affiliates.
The Progressive Corporation is a holding company with no business operations of its own. Consequently, if the Company’s subsidiaries are unable to pay dividends or make other distributions to The Progressive Corporation, or are able to pay only limited amounts, the holding company may be unable to pay dividends to shareholders, make payments on its indebtedness, meet its other obligations, or make capital contributions to or otherwise fund its subsidiaries or affiliates. Each insurance subsidiary’s ability to pay dividends to the holding company may be limited by one or more of the following factors:

•   State insurance regulatory authorities require insurance companies to maintain specified minimum levels of statutory capital and surplus.

•   Competitive pressures require the Company’s insurance subsidiaries to maintain financial strength ratings.

•   In certain jurisdictions, prior approval must be obtained from state regulatory authorities for the insurance subsidiaries to pay dividends or make other distributions to affiliated entities, including the holding company.

Further information on state insurance laws and regulations which may limit the ability of the Company’s insurance subsidiaries to pay dividends can be found in Item 5(c), “Subsidiary Dividends,” on page 19 of this report.

The Company’s financial condition may be adversely affected if one or more parties with which it enters into significant contracts becomes insolvent or experiences other financial hardship.
The Company’s business is dependent on the performance by third parties of their responsibilities under various contractual relationships, including without limitation, contracts for the acquisitions of goods and services (such as telecommunications and information technology equipment and support, and other services that are integral to the Company’s operations) and arrangements for transferring certain of the Company’s risks (including reinsurance used by the Company in connection with certain of its insurance products, and the Company’s corporate insurance policies). If one or more of these parties were to default on the performance of their obligations under their respective contracts or determine to abandon or terminate support for a system, product or service that is significant to the Company’s

10

business, the Company could suffer significant financial losses and operational problems, which could in turn adversely affect the Company’s financial performance, cash flows or results of operations.

The Company’s access to capital markets, its financing arrangements and its business operations are dependent on favorable evaluations and ratings by credit and other rating agencies.
The Company’s credit strength is evaluated and rated by various rating agencies, such as Standard & Poor’s and Moody’s Investors Service. In addition, the financial strength of the Company’s insurance subsidiaries is rated by A.M. Best. The Company and its insurance subsidiaries currently enjoy favorable, stable ratings. Downgrades in the Company’s credit ratings could adversely affect the Company’s ability to access the capital markets and/or lead to increased borrowing costs in the future (although the interest rates paid by the Company on current indebtedness would not be affected). Perceptions of the Company by investors, agents and consumers could also be significantly impaired. Downgrades in the ratings of the Company’s insurance subsidiaries could likewise negatively impact the Company’s operations, potentially resulting in lower or negative premium growth. In either event, the Company’s financial performance could be materially adversely affected.

IV. Other Risks

The Company does not manage analysts’ or investors’ earnings expectations, and the Company announces its financial results on a monthly basis, which may result in stock price volatility.
The Company believes that shareholder value will be increased in the long run if the Company meets or exceeds certain financial goals and policies established by the Company. The Company does not manage its business to maximize short-term stock performance. The Company does not provide earnings estimates to the market and does not comment on earnings estimates by analysts. As a result, the Company’s reported results for a particular period may vary, perhaps significantly, from investors’ expectations, which could result in significant volatility in the Company’s stock price.

The Company publicly announces its financial results on a monthly basis, in addition to the quarterly and annual public filings required by law. The Company believes that this level of reporting provides more timely disclosure to shareholders and potential investors, enabling them to enhance their understanding of the Company’s performance. Such reports, however, may disclose variation of results that investors might not see in quarterly reports. Consequently, investor reaction to such variation could result in significant volatility in the Company’s stock price.

Similarly, under applicable accounting rules, the Company may be required to record a significant loss or other adjustment to income in a specific monthly reporting period in the event of a significant reserve adjustment, catastrophic loss, development(s) in litigation against the Company, other-than-temporary impairment write-down of one or more investments, or other extraordinary events. In addition, the change in market value of certain derivative instruments the Company holds may also affect reported income. Such events may make the Company’s reported results appear volatile and could adversely affect the market for the Company’s stock.

Competitive Factors

The automobile insurance and other property-casualty markets in which the Company operates are highly competitive. Property-casualty insurers generally compete on the basis of price, consumer recognition, coverages offered, claims handling, financial stability, customer service and geographic coverage. Vigorous competition is provided by large, well-capitalized national companies, some of which have broad distribution networks of employed or captive agents, and by smaller regional insurers. The Company relies heavily on technology and extensive data gathering and analysis to segment markets and price according to risk potential. The Company has remained competitive by closely managing expenses and achieving operating efficiencies, and by refining its risk measurement and price segmentation skills. Superior customer service, claims adjusting and strong brand recognition are also important factors in the Company’s competitive strategy.

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State Insurance Licenses

The Company’s insurance subsidiaries operate under licenses issued by various insurance authorities. These licenses may be of perpetual duration or renewable periodically, provided the holder continues to meet applicable regulatory requirements. The licenses govern the kinds of insurance coverages that may be written in the issuing state. Such licenses are normally issued only after the filing of an appropriate application and the satisfaction of prescribed criteria. All licenses that are material to the subsidiaries’ businesses are in good standing.

Insurance Regulation

The Company’s insurance subsidiaries are generally subject to regulation and supervision by insurance departments of the jurisdictions in which they are domiciled or licensed to transact business. At least one of the insurance subsidiaries is licensed and subject to regulation in each of the 50 states and the District of Columbia. The nature and extent of such regulation and supervision varies from jurisdiction to jurisdiction. Generally, an insurance company is subject to a higher degree of regulation and supervision in its state of domicile. The Company’s insurance subsidiaries and affiliate are domiciled in the states of Arizona, Colorado, Florida, Louisiana, Michigan, New York, Ohio, Pennsylvania, Texas and Wisconsin. State insurance departments have broad administrative power relating to licensing insurers and agents, regulating premium changes and policy forms, establishing reserve requirements, prescribing statutory accounting methods and the form and content of statutory financial reports, and regulating the type and amount of investments permitted. Rate regulation varies from “use and file” to prior approval to mandated rates.

Insurance departments are charged with the responsibility of ensuring that insurance companies maintain adequate capital and surplus and comply with a variety of operational standards. Insurance companies are generally required to file detailed annual and other reports with the insurance department of each jurisdiction in which they conduct business. Insurance departments are authorized to make periodic and other examinations of regulated insurers’ financial condition and operations to monitor financial stability of the insurers and to ensure adherence to statutory accounting principles and compliance with state insurance laws and regulations.

Insurance holding company laws enacted in many jurisdictions grant to insurance authorities the power to regulate acquisitions of insurers and certain other transactions and to require periodic disclosure of certain information. These laws impose prior approval requirements for certain transactions between regulated insurers and their affiliates and generally regulate dividend and other distributions, including loans and cash advances, between regulated insurers and their affiliates. See the “Subsidiary Dividends” discussion in Item 5(c) for further information on these dividend limitations.

Under state insolvency and guaranty laws, regulated insurers can be assessed or required to contribute to state guaranty funds to cover policyholder losses resulting from the insolvency of other insurers. Insurers are also required by many states, as a condition of doing business in the state, to provide coverage to certain risks which are not insurable in the voluntary market. These “assigned risk” plans generally specify the types of insurance and the level of coverage which must be offered to such involuntary risks, as well as the allowable premium. Many states also have involuntary market plans which hire a limited number of servicing carriers to provide insurance to involuntary risks. These plans, through assessments, pass underwriting and administrative expenses on to insurers that write voluntary coverages in those states.

Insurance companies are generally required by insurance regulators to maintain sufficient surplus to support their writings. Although the ratio of writings to surplus that the regulators will allow is a function of a number of factors, including the type of business being written, the adequacy of the insurer’s reserves, the quality of the insurer’s assets and the identity of the regulator, the annual net premiums that an insurer may write are generally limited in relation to the insurer’s total policyholders’ surplus. Thus, the amount of an insurer’s surplus may, in certain cases, limit its ability to grow its business. The Company is in the process of slowly increasing operating leverage through a higher ratio of net premiums written to surplus in its insurance subsidiaries where permitted. The National Association of Insurance Commissioners also has developed a risk-based capital (RBC) program to enable regulators to take appropriate and timely regulatory actions relating to insurers that show signs of weak or deteriorating financial

12

condition. RBC is a series of dynamic surplus-related formulas which contain a variety of factors that are applied to financial balances based on a degree of certain risks, such as asset, credit and underwriting risks.

Many states have laws and regulations that limit an insurer’s ability to exit a market. For example, certain states limit an automobile insurer’s ability to cancel or non-renew policies. Furthermore, certain states prohibit an insurer from withdrawing one or more lines of business from the state, except pursuant to a plan that is approved by the state insurance department. The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit the cancellation or non-renewal of policies and that subject program withdrawals to prior approval requirements may restrict an insurer’s ability to exit unprofitable markets.

Regulation of insurance constantly changes as real or perceived issues and developments arise. Some changes may be due to economic developments, such as changes in investment laws made to recognize new investment vehicles; other changes result from such general pressures as consumer resistance to price increases and concerns relating to insurer rating and underwriting practices and solvency. In recent years, legislation and voter initiatives have been introduced, and in some cases adopted, which deal with use of non-public consumer information, use of financial responsibility and credit information in underwriting, insurance rate development, rate determination and the ability of insurers to cancel or non-renew insurance policies, reflecting concerns about consumer privacy, coverage, availability, prices and alleged discriminatory pricing. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary.

In a number of states, the Company’s insurance subsidiaries use financial responsibility or credit information (credit) as part of the underwriting or rating process. This practice is expressly authorized by the federal Fair Credit Reporting Act (FCRA), and the Company’s data demonstrates that credit is an effective predictor of insurance risk. The use of credit in underwriting and rating is the subject of significant regulatory and legislative activity. Regulators and legislators have expressed a number of concerns related to the use of credit, including: questions regarding the accuracy of credit reports, perceptions that credit may have a disparate effect on the poor and certain minority groups, the perceived lack of a demonstrated causal relationship between credit and insurance risk, the treatment of persons with limited or no credit, the impact on credit of extraordinary life events (e.g., catastrophic injury or death of a spouse), and the credit attributes applied in the credit scoring models used by insurers. A number of state insurance departments have issued bulletins, directives or regulations to regulate the use of credit by insurers. In addition, a number of states are considering or have passed legislation to regulate insurers’ use of credit. Also, Congress recently mandated that the federal government conduct a disparate impact study of the use of credit. It is possible that Congress may enact further legislation affecting the use of credit in underwriting and rating following completion of that study.

In some states, the automobile insurance industry has been under pressure in past years from regulators, legislators or special interest groups to reduce, freeze or set rates to or at levels that are not necessarily related to underlying costs, including initiatives to roll back automobile and other personal lines rates. This kind of activity has affected adversely, and in the future may affect adversely, the profitability and growth of the subsidiaries’ automobile insurance business in those jurisdictions, and may limit the subsidiaries’ ability to increase rates to compensate for increases in costs. Adverse legislative and regulatory activity limiting the subsidiaries’ ability to price automobile insurance adequately, or affecting the subsidiaries’ insurance operations adversely in other ways, may occur in the future. The impact of these regulatory changes on the subsidiaries’ businesses cannot be predicted.

13

Statutory Accounting Principles

The Company’s results are reported in accordance with accounting principles generally accepted in the United States of America (GAAP), which differ in certain respects from amounts reported under statutory accounting principles (SAP) prescribed by insurance regulatory authorities. Primarily, under GAAP:

1.   Commissions, premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned, rather than expensed as incurred, as required by SAP.

2.   Certain assets are included in the consolidated balance sheets, but are non-admitted and charged directly against statutory surplus under SAP. These assets consist primarily of premium receivables that are outstanding over 90 days, federal deferred tax assets in excess of statutory limitations, furniture, equipment, application computer software, leasehold improvements and prepaid expenses.

3.   Amounts related to ceded reinsurance, such as prepaid reinsurance premiums and reinsurance recoverables, are shown gross, rather than netted against unearned premium reserves and loss and loss adjustment expense reserves, respectively, as required by SAP.

4.   Fixed-maturity securities, which are classified as available-for-sale, are reported at current market values, rather than at amortized cost, or the lower of amortized cost or market, depending on the credit quality of the specific security, as required by SAP. Equity securities are reported at quoted market values, which may differ from the NAIC market values as required by SAP.

5.   Both current and deferred taxes are recognized in the income statement for GAAP, while deferred taxes are posted directly to surplus for SAP.

Investments

The Company employs a conservative approach to investment and capital management intended to ensure that there is sufficient capital to support all of the insurance premium that can be profitably written. The Company’s portfolio is invested primarily in short-term and intermediate-term, investment-grade fixed-income securities. The Company’s investment portfolio, at market value, was $13.1 billion at December 31, 2004, compared to $12.5 billion at December 31, 2003. Investment income is affected by shifts in the type and quality of investments in the portfolio, changes in interest rates and other factors. Investment income, including net realized gains (losses) on securities, before expenses and taxes, was $563.7 million in 2004, compared to $478.0 million in 2003 and $376.6 million in 2002. For more detailed discussion, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page App.-B-26 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Employees

The number of employees, excluding temporary employees, at December 31, 2004, was 27,085.

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Liability for Property-Casualty Losses and Loss Adjustment Expenses

The consolidated financial statements include the estimated liability for unpaid losses and loss adjustment expenses (LAE) of the Company’s insurance subsidiaries. The Company’s objective is to ensure that total reserves (i.e., case reserves and incurred but not recorded reserves-“IBNR”) are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. The liabilities for losses and LAE are determined using actuarial and statistical procedures and represent undiscounted estimates of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of future trends on claims settlement, among other factors. These estimates are continually reviewed and adjusted as experience develops and new information becomes known. Such adjustments, if any, are reflected in the current results of operations. A detailed discussion of the Company’s loss reserving practices can be found in its Report on Loss Reserving Practices, which was filed with the SEC on Form 8-K on June 29, 2004.

The accompanying tables present an analysis of property-casualty losses and LAE. The following table provides a reconciliation of beginning and ending estimated liability balances for 2004, 2003 and 2002 on a GAAP basis.

RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

(millions)	2004			2003			2002
Balance at January 1	$	4,576.3		$	3,813.0		$	3,238.0
Less reinsurance recoverables on unpaid losses		229.9			180.9			168.3
Net balance at January 1		4,346.4			3,632.1			3,069.7
Incurred related to:
Current year		8,664.1			7,696.5			6,295.6
Prior years		(109.1	)		(56.1	)		3.5
Total incurred		8,555.0			7,640.4			6,299.1
Paid related to:
Current year		5,719.2			5,065.4			4,135.0
Prior years		2,233.7			1,860.7			1,601.7
Total paid		7,952.9			6,926.1			5,736.7
Net balance at December 31		4,948.5			4,346.4			3,632.1
Plus reinsurance recoverable on unpaid losses		337.1			229.9			180.9
Balance at December 31	$	5,285.6		$	4,576.3		$	3,813.0

During 2004 and 2003, the Company experienced $109.1 million and $56.1 million, respectively, of favorable loss reserve development, compared to $3.5 million of unfavorable development in 2002. The favorable development during 2004 was driven by actuarial adjustments as well as favorable “all other development” (e.g., claims settling for more or less than reserved, emergence of unreported claims at rates different than reserved and changes in reserve estimates by claims representatives). The favorable “all other development” also reflects the continued recognition of lower severity for prior accident years than had been previously estimated. In addition to the favorable claims development during 2003, the Company benefited from a change in its estimate of the Company’s future operating losses due to business assigned from the New York Automobile Insurance Plan. During 2002, the Company made no significant change to the estimate of total loss reserves recorded in prior years. The Company conducts extensive reviews each month on portions of its business to help ensure that the Company is meeting its objective of having reserves that are adequate, with minimal variation.

The Company takes into account the projected change in average severities of claims, which is caused by the anticipated effect of inflation and a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for anticipated changes in underwriting standards, inflation, policy provisions and general economic trends. These anticipated trends are monitored based on actual development and are modified if necessary.

15

The Company has not entered into any loss reserve transfers or similar transactions having a material effect on earnings or reserves.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(millions)

YEAR ENDED	1994		1995		1996		1997		1998		1999			2000		2001		2002		2003		2004
LIABILITY FOR UNPAID LOSSES AND LAE - GROSS	$	1,432.9	$	1,610.5	$	1,800.6	$	2,146.6	$	2,188.6	$	2,416.2		$	2,986.4	$	3,238.0	$	3,813.0	$	4,576.3	$	5,285.6
LESS: REINSURANCE RECOVERABLE ON UNPAID LOSSES		334.2		296.1		267.7		279.1		242.8		216.0			201.1		168.3		180.9		229.9		337.1
LIABILITY FOR UNPAID LOSSES AND LAE - NET1	$	1,098.7	$	1,314.4	$	1,532.9	$	1,867.5	$	1,945.8	$	2,200.2		$	2,785.3	$	3,069.7	$	3,632.1	$	4,346.4	$	4,948.5
PAID (CUMULATIVE) AS OF:
One year later		525.3		593.0		743.6		922.0		1,082.8		1,246.5			1,409.3		1,601.7		1,860.7		2,233.8
Two years later		706.4		838.9		1,034.5		1,289.6		1,487.9		1,738.5			2,047.2		2,290.7		2,688.9
Three years later		810.6		960.1		1,266.1		1,474.9		1,680.6		2,001.4			2,355.0		2,655.8		—
Four years later		857.1		1,057.1		1,351.1		1,554.1		1,785.7		2,126.4			2,514.6		—		—
Five years later		892.7		1,092.5		1,384.0		1,596.7		1,836.4		2,191.4			—		—		—
Six years later		909.7		1,106.3		1,399.9		1,618.2		1,865.3		—			—		—		—
Seven years later		917.1		1,112.3		1,408.9		1,630.4		—		—			—		—		—
Eight years later		919.7		1,117.6		1,414.1		—		—		—			—		—		—
Nine years later		922.6		1,120.9		—		—		—		—			—		—		—
Ten years later		924.5		—		—		—		—		—			—		—		—
LIABILITY RE-ESTIMATED AS OF:
One year later		1,042.1		1,208.6		1,429.6		1,683.3		1,916.0		2,276.0			2,686.3		3,073.2		3,576.0		4,237.3
Two years later		991.7		1,149.5		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7
Three years later		961.2		1,118.6		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7		—
Four years later		940.6		1,137.7		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9		—		—
Five years later		945.5		1,153.3		1,445.1		1,664.7		1,919.0		2,277.5			—		—		—
Six years later		952.7		1,150.1		1,442.0		1,674.5		1,917.6		—			—		—		—
Seven years later		952.6		1,146.2		1,445.6		1,668.4		—		—			—		—		—
Eight years later		949.7		1,147.4		1,442.5		—		—		—			—		—		—
Nine years later		950.9		1,146.3		—		—		—		—			—		—		—
Ten years later		950.0		—		—		—		—		—			—		—		—
CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	148.7	$	168.1	$	90.4	$	199.1	$	28.2	$	(77.3	)	$	118.4	$	81.0	$	111.4	$	109.1
PERCENTAGE 2		13.5		12.8		5.9		10.7		1.4		(3.5	)		4.3		2.6		3.1		2.5
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - GROSS	$	1,201.7	$	1,395.5	$	1,713.0	$	1,930.7	$	2,151.5	$	2,492.3		$	2,866.0	$	3,172.7	$	3,754.8	$	4,530.2
LESS: RE-ESTIMATED REINSURANCE RECOVERABLE ON UNPAID LOSSES		251.7		249.2		270.5		262.3		233.9		214.8			199.1		184.0		234.1		292.9
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - NET1	$	950.0	$	1,146.3	$	1,442.5	$	1,668.4	$	1,917.6	$	2,277.5		$	2,666.9	$	2,988.7	$	3,520.7	$	4,237.3
GROSS CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	231.2	$	215.0	$	87.6	$	215.9	$	37.1	$	(76.1	)	$	120.4	$	65.3	$	58.2	$	46.1

¹ Represents loss and LAE reserves net of reinsurance recoverables on unpaid losses at the balance sheet date.

² Cumulative development ÷ liability for unpaid losses and LAE-Net.

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The above table presents the development of balance sheet liabilities for losses and LAE from 1994 through 2003. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years for the property-casualty insurance subsidiaries only. This liability represents the estimated amount of losses and LAE for claims that are unpaid at the balance sheet date, including IBNR. The table also presents the re-estimated liability for unpaid losses and LAE on a gross basis, with separate disclosure of the re-estimated reinsurance recoverables on unpaid losses.

The upper section of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. The lower portion of the table shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information about the claims becomes known for individual years. For example, as of December 31, 2004, the insurance subsidiaries had paid $1,120.9 million of the currently estimated $1,146.3 million of losses and LAE that had been incurred through the end of 1995; thus, an estimated $25.4 million of losses incurred through 1995 remain unpaid as of the current financial statement date.

The cumulative development represents the aggregate change in the estimates over all prior years. For example, the 1994 liability has developed favorably by $148.7 million over ten years. That amount has been reflected in income over the ten years and did not have a significant effect on the income of any one year. The effects on income during the past three years due to changes in estimates of the liabilities for losses and LAE are shown in the reconciliation table on page 15 as the “prior years” contribution to incurred losses and LAE.

In evaluating this information, note that each cumulative development amount includes the effects of all changes in amounts during the current year for prior periods. For example, the amount of the development related to losses settled in 1997, but incurred in 1994, will be included in the cumulative development amount for years 1994, 1995 and 1996. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it generally is not appropriate to extrapolate future development based on this table.

The Company experienced continually favorable reserve development from 1994 through 1998 primarily due to decreasing bodily injury severity. From the beginning of 1994 continuously through the third quarter 1998, the Company’s bodily injury severity decreased each quarter when compared to the same quarter of the prior year. This period of decreasing severity for the Company was not only longer than that experienced by the industry, but also longer than at any time in the Company’s recent history. The reserves established as of the end of each year assumed the current accident year’s severity would increase over the prior accident year’s estimate. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, the Company started experiencing an increase in bodily injury severity. As a result, the reserve development has been much closer to the Company’s original estimate.

The Analysis of Loss and Loss Adjustment Expenses Development table on page 16 is constructed from Schedule P, Part-1, from the Consolidated Annual Statements of the Company’s insurance subsidiaries, as filed with the state insurance departments.

     (d) Financial Information about geographic areas.

The Company operates throughout the United States.

     (e) Available information.

The Company’s Web site is progressive.com. As soon as reasonably practicable, the Company makes all documents filed with, or furnished to, the SEC, including its reports on Form 10-K, Form 10-Q and Form 8-K, and any amendments to these reports, available free of charge via its Web site at progressive.com/investors. These reports are also available on the SEC’s Web site: sec.gov.

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ITEM 2. PROPERTIES
The Company’s corporate headquarters are located on a 42-acre parcel in Mayfield Village, Ohio. The Company also owns a 72-acre corporate office complex near the headquarters. Buildings on these two sites, which are owned by a subsidiary of the Company, contain approximately 1.6 million square feet of office space, including a .2 million square foot building added in 2004.

The Company also owns seven other buildings in Cleveland, Ohio suburbs near the corporate office complexes; seven buildings in Tampa, Florida; three buildings in Colorado Springs, Colorado; and a building in each of the following cities: Albany, New York; Austin, Texas; Ft. Lauderdale, Florida; Plymouth Meeting, Pennsylvania; Tempe, Arizona; and Tigard, Oregon. Four of these buildings are partially leased to non-affiliates. In total, these buildings contain approximately 2.2 million square feet of office, warehouse and training facility space and are owned by subsidiaries of the Company. These facilities are occupied by the Company’s business units or other operations and are not segregated by industry segment.

The Company leases approximately 1.2 million square feet of office and warehouse space at various locations throughout the United States for its business units and corporate functions. In addition, the Company leases approximately 450 claims offices, consisting of approximately 3.4 million square feet, at various locations throughout the United States. These leases are generally short-term to medium-term leases of standard commercial office space.

ITEM 3. LEGAL PROCEEDINGS
Incorporated by reference from Note 11, Litigation, beginning on page App.-B-21 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from information with respect to executive officers of The Progressive Corporation and its subsidiaries set forth in Item 10 in Part III of this Form 10-K.

18

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a) Market Information and Dividends

The Company’s Common Shares, $1.00 par value, are traded on the New York Stock Exchange under the symbol PGR. The high and low prices set forth below are as reported on the consolidated transaction reporting system.

								Dividends
Year	Quarter	High		Low		Close		Per Share
2004	1	$	89.06	$	80.68	$	87.60	$	.025
	2		91.97		81.30		85.30		.025
	3		85.60		73.10		84.75		.030
	4		97.29		83.01		84.84		.030
		$	97.29	$	73.10	$	84.84	$	.110
2003	1	$	60.41	$	46.25	$	59.31	$	.025
	2		76.38		59.66		73.10		.025
	3		75.81		64.25		69.11		.025
	4		84.68		69.11		83.59		.025
		$	84.68	$	46.25	$	83.59	$	.100

The closing price of the Company’s Common Shares on January 31, 2005 was $83.65.

     (b) Holders

There were 3,908 shareholders of record on January 31, 2005.

     (c) Subsidiary Dividends

Consolidated statutory policyholders’ surplus was $4.7 billion and $4.5 billion at December 31, 2004 and 2003, respectively. At December 31, 2004, $488.7 million of consolidated statutory policyholders’ surplus represented net admitted assets of the Company’s insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. The companies may be licensed in states other than their states of domicile, which may have higher minimum statutory surplus requirements. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $1,229.9 million in 2005 without prior approval from regulatory authorities, provided the dividend payments are not within 12 months of previous dividends paid by the applicable subsidiary.

19

     (d) Securities authorized for issuance under equity compensation plans.

The following information is set forth with respect to the equity compensation plan information at December 31, 2004.

EQUITY COMPENSATION PLAN INFORMATION
					Cumulative		Number of Securities
	Number of Securities		Weighted-Average		Number of		Remaining Available
	to be Issued upon		Exercise Price of		Securities		for Future Issuance
	Exercise of		Outstanding		Awarded as		Under Equity
Plan Category	Outstanding Options		Options		Restricted Stock		Compensation Plans
Equity compensation plans approved by security holders:
Employee Plans:
2003 Incentive Plan		—		—		697,850		4,302,150
1995 Incentive Plan1		5,763,782	$	33.77		347,856		7,141,717
1989 Incentive Plan		825,719		19.98		—		—
Subtotal Employee Plans		6,589,501		32.04		1,045,706		11,443,867
Director Plans:
2003 Directors Equity Incentive Plan		—		—		28,344		321,656
1998 Directors’ Stock Option Plan		170,277		36.12		—		406,956
1990 Directors’ Stock Option Plan		72,000		19.45		—		—
Subtotal Director Plans		242,277		31.17		28,344		728,612
Equity compensation plans not approved by security holders:
None
Total		6,831,778		32.01		1,074,050		12,172,479

¹ This plan expired on February 10, 2005. As of that date, no securities remain available for further issuance thereunder.

     (e) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES
2004					Total Number of Shares Purchased		Maximum Number of Shares That
Calendar	Total Number of		Average Price Paid per		as Part of Publicly Announced Plans		May Yet Be Purchased Under the
Month	Shares Purchased		Share		or Programs1,2		Plans or Programs1,2
January		50,089	$	82.64		3,168,596		11,831,404
February		51,149		83.78		3,219,745		11,780,255
March		200,000		86.92		3,419,745		11,580,255
April		280,000		88.57		3,699,745		11,300,255
May		200,000		83.84		3,899,745		11,100,255
June		216,417		85.92		4,116,162		10,883,838
July		510,737		76.80		4,626,899		10,373,101
August		185,000		76.61		4,811,899		10,188,101
September		—		—		4,811,899		10,188,101
October2		16,919,674		88.00		16,919,674		—
October		—		—		4,811,899		10,188,101
November		—		—		4,811,899		10,188,101
December		1,830		91.48		4,813,729		10,186,271
Total		18,614,896	$	87.48

20

¹In April 2003, the Board of Directors authorized the repurchase of up to 15,000,000 Common Shares. The Company may purchase its shares from time to time, in the open market or otherwise, when opportunities exist to buy at attractive prices or for purposes which are otherwise in the best interest of the Company.

²On September 13, 2004, the Company announced a modified “Dutch auction” tender offer to purchase up to 17.1 million of its outstanding Common Shares, $1.00 par value. Under the terms of the offer, which expired at 12:00 midnight, New York City time on October 15, 2004, shareholders of the Company could tender some or all of their shares at prices not greater than $88.00 nor less than $78.00 per share. At the close of the tender offer, the Company determined that 16.9 million of its Common Shares were properly tendered at prices at or below $88.00 per share and not withdrawn. Because shareholders tendered less than 17.1 million Common Shares, there was no proration and the Company purchased all 16.9 million Common Shares at $88 per share.

The Company’s Board of Directors also confirmed that the tender offer did not reduce the number of shares available for repurchase pursuant to the resolution approved by the Board in April 2003. The Company, therefore, retains the authority to repurchase the remaining 10,186,271 shares authorized in April 2003.

ITEM 6. SELECTED FINANCIAL DATA

(millions – except per share amounts)

	For the years ended December 31,
	2004		2003		2002		2001		2000
Total revenues	$	13,782.1	$	11,892.0	$	9,294.4	$	7,488.2	$	6,771.0
Net income		1,648.7		1,255.4		667.3		411.4		46.1
Per share:1
Net income2		7.63		5.69		2.99		1.83		.21
Dividends		.110		.100		.096		.093		.090
Total assets		17,184.3		16,281.5		13,564.4		11,122.4		10,051.6
Debt outstanding		1,284.3		1,489.8		1,489.0		1,095.7		748.8

1	All per share amounts were adjusted for the April 22, 2002, 3-for-1 stock split.
2	Presented on a diluted basis.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Incorporated by reference from Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page App.-B-26 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are incorporated by reference from the “Investments” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, as described in Item 7 above. Additional information is incorporated by reference from the “Quantitative Market Risk Disclosures” section beginning on page App.-B-46 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company, along with the related notes, supplementary data and report of the independent registered public accounting firm, are incorporated by reference from the Annual Report, which is included as Exhibit 13 to this Form 10-K.

21

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

The Company, under the direction of the Chief Executive Officer and the Chief Financial Officer, has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

The Chief Executive Officer and the Chief Financial Officer reviewed and evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that review and evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effectively serving the stated purposes as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting is incorporated by reference from page App.-B-24 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

The independent registered public accounting firm’s Attestation Report on Management’s Assessment of Internal Control over Financial Reporting is incorporated by reference from page App.-B-25 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

22

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to all of the directors, and the individuals who have been nominated for election as directors at the 2005 Annual Meeting of Shareholders of the Registrant, is incorporated herein by reference from the section entitled “Item 1:Election of Directors” in the Proxy Statement.

Information relating to executive officers of the Registrant and its subsidiaries follows. Unless otherwise indicated, the executive officer has held the position(s) indicated for at least the last five years.

Name	Age		Offices Held and Last Five Years’ Business Experience
Glenn M. Renwick		49	President and Chief Executive Officer since January 2001; Chief Executive Officer – Insurance Operations during 2000; Chief Technology Officer prior to March 2000; President, Chairman of the Board and Chief Executive Officer of Progressive Casualty Insurance Company, the principal subsidiary of the Registrant, from March 2000 to March 2004
W. Thomas Forrester		56	Vice President since June 2001; Chief Financial Officer; Treasurer prior to June 2001
Charles E. Jarrett		47	Vice President since June 2001; Secretary since February 2001; Chief Legal Officer since November 2000; Partner at Baker & Hostetler LLP, which is the principal outside law firm of the Company, prior to November 2000
Jeffrey W. Basch		46	Vice President; Chief Accounting Officer
Thomas A. King		45	Treasurer since April 2003; Investment Strategist from February 2001 to March 2003; Vice President; Corporate Controller prior to February 2001
Alan R. Bauer		52	Group President of the Direct Business since January 2002; Internet Business Leader prior to January 2002
William M. Cody		42	Chief Investment Officer since February 2003; Portfolio Manager prior to February 2003
Susan Patricia Griffith		40	Chief Human Resource Officer since April 2002; Process Manager for Claims Central Services from January 2001 to April 2002; Regional Claims Consultant prior to January 2001
Brian J. Passell		48	Group President of Claims since January 2002; Claims Business Leader prior to January 2002
Raymond M. Voelker		41	Chief Information Officer since April 2000; Information Technology Executive – Claims and Infrastructure Technologies prior to April 2000
Richard H. Watts		50	Group President of Sales and Service since January 2002; Direct Business Leader prior to January 2002
Robert T. Williams		48	Group President of the Agency Business since January 2002; Agency Business Leader from April 2000 to December 2001; Chief Pricing/Product Officer prior to April 2000

23

Audit Committee. Incorporated by reference from the “Audit Committee” section of the Proxy Statement (which can be found in “Item 1- Election of Directors”).

Financial Expert. Incorporated by reference from the “Audit Committee Financial Expert ” section of the Proxy Statement (which can be found in “Item 1: Election of Directors”).

Shareholder-Proposed Candidate Procedures. In January 2004, the Nominating and Governance Committee of the Board of Directors approved procedures for shareholders to recommend candidates for nomination to the Board. The description of those procedures are incorporated by reference from the “Shareholder-Proposed Candidate Procedures of the Proxy Statement (which can be found in “Item 1: Election of Directors”).

Section 16(a) Beneficial Ownership Reporting Compliance.

     On February 10, 2004, Mr. Charles A. Davis, a director of the Company, received a distribution from the Company of the cash equivalent of 13.6889 phantom stock units (which are valued on a 1-to-1 basis with the Company’s Common Shares) pursuant to The Progressive Corporation Directors Deferral Plan. This transaction was reported late on a Form 4 filed on April 2, 2004, due to an administrative error on the part of the Company.

     On September 16, 2004, Mr. Peter B. Lewis, Chairman of the Board, filed a Form 4 reporting the August 20, 2004 sale of 500 Common Shares to an irrevocable trust, of which the reporting person is neither a trustee or a beneficiary, in connection with the creation and funding of Lewis Children VII, LLC.

Code of Ethics. The Company’s Code of Ethics for the Chief Executive Officer, Chief Financial Officer and other senior financial officers is available at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143. The Company intends to satisfy the disclosure requirements under Item 10 of Form 10-K regarding amendments to, and waivers from, the provisions of the foregoing Code of Ethics by posting such information on the Company’s Internet website at: progressive.com/governance.

Disclosures required by the New York Stock Exchange. The Company’s Corporate Governance Guidelines and Board Committee Charters (including charters for the Audit Committee, Compensation Committee, Investment and Capital Committee, and the Nominating and Governance Committee) are available at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

The Company’s Code of Business Conduct and Ethics for directors, officers and employees is available at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the section of the Proxy Statement entitled “Executive Compensation.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
                  RELATED STOCKHOLDER MATTERS

Incorporated by reference from the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the section of the Proxy Statement entitled “Item 1: Election of Directors – Certain Relationships and Related Transactions.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from the section of the Proxy Statement entitled “Other Independent Registered Public Accounting Firm Information.”

24

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)    Listing of Financial Statements
The following consolidated financial statements of the Registrant and its subsidiaries included in the Registrant’s 2004 Annual Report, which is included as Exhibit 13 to this Form 10-K, are incorporated by reference in Item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income – For the Years Ended December 31, 2004, 2003 and 2002

Consolidated Balance Sheets – December 31, 2004 and 2003

Consolidated Statements of Changes in Shareholders’ Equity – For the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows – For the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

Supplemental Information (Unaudited)

(a)(2)    Listing of Financial Statement Schedules
The following financial statement schedules of the Registrant and its subsidiaries, Report of Independent Registered Public Accounting Firm and Consent of Independent Registered Public Accounting Firm are included in Item 15(c):

Schedules

Schedule I – Summary of Investments – Other than Investments in Related Parties

Schedule II – Condensed Financial Information of Registrant

Schedule III – Supplementary Insurance Information

Schedule IV – Reinsurance

Schedule VI – Supplemental Information Concerning Property-Casualty Insurance Operations

Report of Independent Registered Public Accounting Firm

Consent of Independent Registered Public Accounting Firm

No other schedules are required to be filed herewith pursuant to Article 7 of Regulation S-X.

25

(a)(3)	Listing of Exhibits
	See exhibit index contained herein at pages 40 to 49. Management contracts and compensatory plans and arrangements are identified in the Exhibit Index as Exhibit Nos.10(D) through 10(BR).
(b)	Exhibits
	The exhibits in response to this portion of Item 15 are submitted concurrently with this report.
(c)	Financial Statement Schedules

26

SCHEDULE I – SUMMARY OF INVESTMENTS – OTHER
THAN INVESTMENTS IN RELATED PARTIES

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

	December 31, 2004
					Amount At Which
					Shown In The
Type of Investment	Cost		Market Value		Balance Sheet
Fixed Maturities:
Available-for-sale:
United States Government and government agencies and authorities	$	1,970.1	$	1,962.5	$	1,962.5
States, municipalities and political subdivisions		2,873.2		2,940.4		2,940.4
Asset-backed securities		2,345.7		2,368.7		2,368.7
Foreign government obligations		30.8		31.4		31.4
Corporate and other debt securities		1,752.8		1,781.3		1,781.3
Total fixed maturities		8,972.6		9,084.3		9,084.3
Equity securities:
Common stocks:
Public utilities		112.3		163.2		163.2
Banks, trusts and insurance companies		305.9		430.0		430.0
Industrial, miscellaneous and all other		895.8		1,258.7		1,258.7
Nonredeemable preferred stocks		749.4		768.9		768.9
Total equity securities		2,063.4		2,620.8		2,620.8
Short-term investments		1,376.6		1,376.9		1,376.9
Total investments	$	12,412.6	$	13,082.0	$	13,082.0

The Company did not have any securities of one issuer with an aggregate cost or market value exceeding 10% of total shareholders’ equity at December 31, 2004.

27

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2004			2003			2002
Revenues
Dividends from subsidiaries*	$	2,123.8		$	533.5		$	47.3
Intercompany investment income*		13.2			12.6			21.6
Gain on sale of consolidated subsidiary		—			1.7			—
		2,137.0			547.8			68.9
Expenses
Interest expense		86.1			98.9			76.2
Other operating costs and expenses		5.8			5.2			2.4
		91.9			104.1			78.6
Income (loss) before income taxes and other items below		2,045.1			443.7			(9.7	)
Income tax benefit		(34.4	)		(35.7	)		(21.5	)
Income before equity in undistributed earnings of subsidiaries		2,079.5			479.4			11.8
Equity in undistributed net income (loss) of consolidated subsidiaries*		(430.8	)		776.0			655.5
Net income	$	1,648.7		$	1,255.4		$	667.3

* Eliminated in consolidation.

  See notes to financial statements.

28

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	December 31,
	2004			2003
ASSETS
Investment in non-consolidated affiliates	$	.4		$	.4
Investment in subsidiaries*		5,412.6			5,301.2
Receivable from subsidiary*		962.0			1,162.4
Intercompany receivable*		213.0			168.3
Other assets		49.9			37.0
TOTAL ASSETS	$	6,637.9		$	6,669.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	108.2		$	93.5
Income taxes payable		90.0			61.4
Debt		1,284.3			1,483.8
Total liabilities		1,482.5			1,638.7
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 600.0 shares, issued 213.2, and 230.1, including treasury shares of 12.8 and 13.7)		200.4			216.4
Paid-in capital		743.3			688.3
Unamortized restricted stock		(46.0	)		(28.9	)
Accumulated other comprehensive income (loss):
Net unrealized gains of investment in equity securities of consolidated subsidiaries		435.1			418.2
Net unrealized gains on forecasted transactions		9.7			10.7
Foreign currency translation adjustment		—			(3.9	)
Retained earnings		3,812.9			3,729.8
Total shareholders’ equity		5,155.4			5,030.6
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	6,637.9		$	6,669.3

* Eliminated in consolidation.

  See notes to condensed financial statements.

29

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,648.7		$	1,255.4		$	667.3
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of consolidated subsidiaries		(1,693.0	)		(1,309.5	)		(702.8	)
Restricted stock amortization		1.1			.8			—
Gain on sale of consolidated subsidiary		—			(1.7	)		—
Changes in:
Intercompany receivable or payable		(44.7	)		(52.0	)		(48.3	)
Accounts payable and accrued expenses		2.9			20.2			13.6
Income taxes		28.6			(14.2	)		29.7
Tax benefits from exercise of stock options		44.3			44.0			19.3
Other, net		(12.3	)		(18.6	)		(2.9	)
Net cash used in operating activities		(24.4	)		(75.6	)		(24.1	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investments in equity securities of consolidated subsidiaries		(499.7	)		(110.3	)		(294.4	)
Dividends received from consolidated subsidiaries		2,123.8			516.2			47.3
Proceeds from sale of consolidated subsidiary		—			8.2			—
Net cash provided by (used in) investing activities		1,624.1			414.1			(247.1	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		51.7			50.0			22.6
Proceeds from debt		—			—			393.5
Payment of debt		(200.0	)		—			—
Receivable from subsidiary		200.4			(50.0	)		90.5
Dividends paid to shareholders		(23.3	)		(21.7	)		(21.1	)
Acquisition of treasury shares		(1,628.5	)		(316.8	)		(214.3	)
Net cash provided by (used in) financing activities		(1,599.7	)		(338.5	)		271.2
Change in cash		—			—			—
Cash, beginning of year		—			—			—
Cash, end of year	$	—		$	—		$	—

See notes to condensed financial statements.

30

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements of The Progressive Corporation (the “Registrant”) should be read in conjunction with the consolidated financial statements and notes thereto of The Progressive Corporation and subsidiaries included in the Registrant’s 2004 Annual Report to Shareholders, which is included as Exhibit 13 to this Form 10-K.

STATEMENTS OF CASH FLOWS — For the purpose of the Statements of Cash Flows, cash includes only bank demand deposits. The Registrant paid income taxes of $709.0 million in 2004, and $579.0 million and $392.0 million in 2003 and 2002, respectively. Total interest paid was $91.6 million for 2004 and $98.9 million for 2003 and $64.2 million in 2002. Non-cash activity includes the liability for deferred restricted stock compensation and the contribution of restricted stock from the Registrant to its subsidiaries.

On April 22, 2002, the Registrant effected a 3-for-1 split of its Common Shares, $1.00 par value, in the form of a dividend to shareholders. In connection with this transaction, the Registrant transferred $147.0 million from returned earnings to the Common Share account. All per share and share amounts and stock prices were adjusted to give effect to the split. Treasury shares were not split.

DEBT – Debt at December 31 consisted of:
(millions)

	2004				2003
			Market				Market
	Cost		Value		Cost		Value
6.60% Notes due 2004 (issued: $200.0, January 1994)	$	—	$	—	$	200.0	$	200.3
7.30% Notes due 2006 (issued: $100.0, May 1996)		99.9		105.2		99.9		110.8
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)		347.7		384.6		347.5		382.6
7% Notes due 2013 (issued: $150.0, October 1993)		148.9		171.1		148.8		171.0
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		294.1		324.2		294.0		312.5
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		393.7		417.0		393.6		408.8
	$	1,284.3	$	1,402.1	$	1,483.8	$	1,586.0

Debt includes amounts the Company has borrowed and contributed to the capital of its insurance subsidiaries or borrowed for other long-term purposes. Market values are obtained from publicly quoted sources. Interest on all debt is payable semiannually and all principal is due at maturity. There are no restrictive financial covenants.

The 6.25% Senior Notes, the 6.375% Senior Notes and the 6 5/8% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at the option of the Company, subject to a “make whole” provision. All other debt is noncallable.

In June 2004, the Company entered into an uncommitted line of credit with National City Bank in the principal amount of $100 million. Interest on amounts borrowed accrues at a rate related to the London interbank offered rate (LIBOR). No commitment fees are required to be paid under this line of credit. The Company had no borrowings under this arrangement at December 31, 2004.

In January 2004, the Company entered into a revolving credit arrangement with National City Bank, replacing a prior credit facility with National City Bank, which had the same material terms with the exception of additional interest rate options under the new arrangement. Under this agreement, the Company had the right to borrow up to $10.0 million. By selecting from available credit options, the Company could elect to pay interest at the prime rate or rates related to LIBOR. A commitment fee was payable on any unused portion of the committed amount at the rate of .125% per annum. The Company had no borrowings under this arrangement at December 31, 2004 or 2003. In January 2005, the Company elected to allow this revolving credit arrangement to expire at its contractual termination date, due to the fact that the Company maintains the $100 million line of credit with National City Bank, as discussed above.

Aggregate principal payments on debt outstanding at December 31, 2004 are $0 for 2005, $100.0 million for 2006, $0 for 2007, 2008, and 2009 and $1.2 billion thereafter.

31

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

INCOME TAXES – The Registrant files a consolidated Federal income tax return with all subsidiaries. The Federal income taxes in the accompanying Condensed Balance Sheets represent amounts payable to the Internal Revenue Service by the Registrant as agent for the consolidated tax group. The Registrant and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated Federal income taxes. Amounts allocated to the subsidiaries under the written agreement are included in Intercompany Receivable in the accompanying Condensed Balance Sheets.

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES – The Registrant, through its investment in consolidated subsidiaries, recognizes the changes in unrealized gains (losses) on available-for-sale securities of the subsidiaries. These amounts were:

(millions)	2004			2003			2002
Changes in unrealized gains (losses):
Available-for-sale: fixed maturities	$	(122.4	)	$	(68.7	)	$	227.1
equity securities		148.4			462.2			(164.0	)
Deferred income taxes		(9.1	)		(137.7	)		(22.2	)
	$	16.9		$	255.8		$	40.9

OTHER MATTERS – The information relating to incentive compensation plans is incorporated by reference from Note 8, Employee Benefit Plans, “Incentive Compensation Plans” beginning on page App.-B-16 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

32

SCHEDULE III – SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

			Future
			policy				Other
			benefits,				policy						Benefits,		Amortization
	Deferred		losses,				claims						claims,		of deferred
	policy		claims and				and				Net		losses and		policy		Other		Net
	acquisition		loss		Unearned		benefits		Premium		Investment		settlement		acquisition		operating		premiums
Segment	costs1		expenses1		premiums1		payable1		revenue		Income1		expenses		costs		expenses		written
Year ended December 31, 2004:
Personal Lines									$	11,611.9			$	7,629.3	$	1,241.8	$	1,107.0	$	11,735.8
Commercial Auto Business										1,524.1				909.9		173.4		119.4		1,616.6
Other businesses- indemnity										33.9				15.8		2.8		12.2		25.7
Total	$	432.2	$	5,285.6	$	4,108.0	$	—		13,169.9	$	470.5	$	8,555.0	$	1,418.0	$	1,238.6	$	13,378.1
Year ended December 31, 2003:
Personal Lines									$	10,051.0			$	6,841.0	$	1,098.3	$	892.7	$	10,502.8
Commercial Auto Business										1,226.7				768.9		140.7		102.9		1,357.7
Other businesses- indemnity										63.3				30.5		10.1		14.5		52.9
Total	$	412.3	$	4,576.3	$	3,894.7	$	—	$	11,341.0	$	453.8	$	7,640.4	$	1,249.1	$	1,010.1	$	11,913.4
Year ended December 31, 2002:
Personal Lines									$	7,907.8			$	5,622.6	$	903.5	$	790.0	$	8,362.5
Commercial Auto Business										880.0				622.2		100.7		77.1		1,002.9
Other businesses- indemnity										95.7				54.3		27.4		7.1		86.6
Total	$	363.5	$	3,813.0	$	3,304.3	$	—	$	8,883.5	$	443.7	$	6,299.1	$	1,031.6	$	874.2	$	9,452.0

¹ The Company does not allocate assets, liabilities or investment income to operating segments.

33

SCHEDULE IV – REINSURANCE

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

					Assumed				Percentage
			Ceded to		From				of Amount
	Gross		Other		Other				Assumed
Year Ended:	Amount		Companies		Companies		Net Amount		to Net
December 31, 2004
Premiums earned:
Property and liability	$	13,480.8	$	310.9	$	—	$	13,169.9		—
December 31, 2003
Premiums earned:
Property and liability	$	11,597.5	$	256.5	$	—	$	11,341.0		—
December 31, 2002
Premiums earned:
Property and liability	$	9,078.1	$	194.7	$	.1	$	8,883.5		—

34

SCHEDULE VI -SUPPLEMENTAL INFORMATION CONCERNING PROPERTY –
CASUALTY INSURANCE OPERATIONS

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

	Losses and Loss Adjustment					Paid Losses and Loss
	Expenses Incurred Related to					Adjustment Expenses
Year Ended	Current Year		Prior Years
December 31, 2004	$	8,664.1	$	(109.1	)	$	7,952.9
December 31, 2003	$	7,696.5	$	(56.1	)	$	6,926.1
December 31, 2002	$	6,295.6	$	3.5		$	5,736.7

Pursuant to Rule 12-18 of Regulation S-X. See Schedule III, page 33, for the additional information required in Schedule VI.

35

Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

To the Board of Directors and Shareholders
of The Progressive Corporation:

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting referred to in our report dated March 1, 2005 appearing in the 2004 Annual Report to Shareholders of The Progressive Corporation (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 1, 2005

36

Consent of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of The Progressive Corporation:

We hereby consent to the incorporation by reference in the Registration Statements on:

Form	Filing No.	Filing Date
S-8	333-104646	April 21, 2003
S-8	333-104653	April 21, 2003
S-3	333-100674	October 22, 2002
S-8	333-41238	July 12, 2000
S-8	333-51613	May 1, 1998
S-8	333-25197	April 15, 1997
S-8	33-57121	December 29, 1994
S-8	33-64210	June 10, 1993
S-8	33-51034	August 20, 1992
S-8	33-38793	February 4, 1991
S-8	33-37707	November 9, 1990
S-8	33-33240	January 31, 1990
S-8	33-16509	August 14, 1987

of The Progressive Corporation of our report dated March 1, 2005 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 1, 2005 relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Cleveland, Ohio
March 1, 2005

37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE PROGRESSIVE CORPORATION
March 1, 2005		By:	/s/ Glenn M. Renwick
			Glenn M. Renwick
			Director, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

*	Director, Chairman of the Board	March 1, 2005
Peter B. Lewis
/s/ Glenn M. Renwick	Director, President and Chief Executive Officer	March 1, 2005
Glenn M. Renwick
*	Vice President and Chief Financial Officer	March 1, 2005
W. Thomas Forrester
/s/ Jeffrey W. Basch	Vice President and Chief Accounting Officer	March 1, 2005
Jeffrey W. Basch
*	Director	March 1, 2005
Milton N. Allen
*	Director	March 1, 2005
Stephen R. Hardis
*	Director	March 1, 2005
Bernadine P. Healy, M.D.

38

*	Director	March 1, 2005
Jeffrey D. Kelly
*	Director	March 1, 2005
Philip A. Laskawy
*	Director	March 1, 2005
Norman S. Matthews
*	Director	March 1, 2005
Patrick H. Nettles, Ph.D.
*	Director	March 1, 2005
Donald B. Shackelford
*	Director	March 1, 2005
Bradley T. Sheares, Ph.D.

*   Charles E. Jarrett, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to a power of attorney duly executed by such persons.

By: /s/ Charles E. Jarrett         March 1, 2005

     Charles E. Jarrett

     Attorney-in-fact

39

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(3)(i)	3(A)	Amended Articles of Incorporation, as amended, of The Progressive Corporation (“Progressive”)	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(d) therein)
(3)(ii)	3(B)	Code of Regulations of The Progressive Corporation (as amended April 16, 2004)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 3(A) therein)
(4)	4(A)	$10,000,000 Unsecured Line of Credit with National City Bank (dated May 23, 1990; renewed May 20, 1992; amended February 1, 1994 and May 1, 1997); expired January, 2004	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 4(A) therein)
(4)	4(B)	$10,000,000 Commercial Note: Revolving Credit with National City Bank (dated January 27, 2004); expired January, 2005	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 4(B) therein)
(4)	4(C)	Commercial Note: Demand Line of Credit with National City Bank dated June 15, 2004	Current Report on Form 8-K (filed with SEC on June 18, 2004; Exhibit 99 therein)
(4)	4(D)	Indenture dated as of September 15, 1993 between Progressive and State Street Bank and Trust Company (successor in interest to The First National Bank of Boston), as Trustee (“1993 Senior Indenture”) (including table of contents and cross-reference sheet)	Registration Statement No. 333-48935 (filed with SEC on March 31, 1998; Exhibit 4.1 therein)
(4)	4(E)	Form of 7% Notes due 2013 issued in the aggregate principal amount of $150,000,000 under the 1993 Senior Indenture	Filed herewith
(4)	4(F)	Form of 6.60% Notes due 2004 issued in the aggregate principal amount of $200,000,000 under the 1993 Senior Indenture	Annual Report on Form 10-K (filed with SEC on March 30, 2000; Exhibit 4(H) therein)
(4)	4(G)	First Supplemental Indenture dated March 15, 1996 between Progressive and State Street Bank and Trust Company, evidencing the designation of State Street Bank and Trust Company as successor Trustee under the 1993 Senior Indenture	Registration Statement No. 333-01745 (filed with SEC on March 15, 1996; Exhibit 4.2 therein)

40

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(4)	4(H)	Form of 7.30% Notes due 2006, issued in the aggregate principal amount of $100,000,000 under the 1993 Senior Indenture, as amended and supplemented	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 4(J) therein)
(4)	4(I)	Second Supplemental Indenture dated February 26, 1999 between Progressive and State Street Bank and Trust Company, as Trustee, supplementing and amending the 1993 Senior Indenture	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 4(H) therein)
(4)	4(J)	Form of 6 5/8% Senior Notes due 2029, issued in the aggregate principal amount of $300,000,000 under the 1993 Senior Indenture, as amended and supplemented	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 4(I) therein)
(4)	4(K)	Third Supplemental Indenture dated December 7, 2001 between Progressive and State Street Bank and Trust Company, as Trustee	Current Report on Form 8-K (filed with SEC on December 10, 2001; Exhibit 4.5 therein)
(4)	4(L)	Form of 6.375% Senior Notes due 2012, issued in the aggregate principal amount of $350,000,000 under the 1993 Senior Indenture, as amended and supplemented	Current Report on Form 8-K (filed with SEC on December 10, 2001; Exhibit 4.6 therein)
(4)	4(M)	Fourth Supplemental Indenture dated November 21, 2002 between Progressive and State Street Bank and Trust Company, as Trustee	Current Report on Form 8-K (filed with SEC on November 21, 2002; Exhibit 4.6 therein)
(4)	4(N)	Form of 6.25% Senior Notes due 2032, issued in the aggregate principal amount of $400,000,000 under the 1993 Senior Indenture, as amended and supplemented	Current Report on Form 8-K (filed with SEC on November 21, 2002; Exhibit 4.7 therein)
(10)(ii)	10(A)	Aircraft Management Agreement dated April 23, 1999, between Village Transport Corp. and ACME Operating Corporation	Annual Report on Form 10-K (filed with SEC on March 30, 2000; Exhibit 10(E) therein)

41

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(ii)	10(B)	Hangar Sharing Agreement dated as of June 1, 2002 between Progressive Casualty Insurance Company and ACME Operating Corporation	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(B) therein)
(10)(ii)	10(C)	Reimbursement Agreement dated December 23, 2002 between Village Transport Corp. and ACME Operating Corporation	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(C) therein)
(10)(iii)	10(D)	The Progressive Corporation 2003 Gainsharing Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(F) therein)
(10)(iii)	10(E)	The Progressive Corporation 2004 Gainsharing Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(F) therein)
(10)(iii)	10(F)	The Progressive Corporation 2005 Gainsharing Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(A) therein)
(10)(iii)	10(G)	2003 Progressive Capital Management Bonus Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(G) therein)
(10)(iii)	10(H)	2004 Progressive Capital Management Bonus Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(H) therein)
(10)(iii)	10(I)	2005 Progressive Capital Management Bonus Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(C) therein)
(10)(iii)	10(J)	The Progressive Corporation 1999 Executive Bonus Plan (as amended on January 31, 2003)	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(H) therein)
(10)(iii)	10(K)	The Progressive Corporation 2004 Executive Bonus Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(J) therein)
(10)(iii)	10(L)	The Progressive Corporation 2004 Information Technology Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(K) therein)
(10)(iii)	10(M)	The Progressive Corporation 2005 Information Technology Incentive Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(B) therein)
(10)(iii)	10(N)	The Progressive Corporation 1989 Incentive Plan (amended and restated as of April 24, 1992, as further amended on July 1, 1992 and February 5, 1993)	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(5) therein)

42

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10	(O)	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (single award)	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 10(R) therein)
(10)(iii)	10	(P)	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (multiple awards)	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 10(S) therein)
(10)(iii)	10	(Q)	The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 30, 2000; Exhibit 10(P) therein)
(10)(iii)	10	(R)	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(M) therein)
(10)(iii)	10	(S)	Form of Objective-Based (now known as Performance-Based) Non-Qualified Stock Option Agreement under The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 10(T) therein)
(10)(iii)	10	(T)	Form of The Progressive Corporation 1995 Incentive Plan Restricted Stock Award Agreement (Time-Based Award)	Filed herewith
(10)(iii)	10	(U)	The Progressive Corporation 2003 Incentive Plan	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(a) therein)
(10)(iii)	10	(V)	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Time-Based Award) (for 2003)	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(b) therein)
(10)(iii)	10	(W)	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Time-Based Award) (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(A) therein)
(10)(iii)	10	(X)	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for 2003)	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(c) therein)

43

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10	(Y)	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(B) therein)
(10)(iii)	10	(Z)	The Progressive Corporation 2003 Directors Equity Incentive Plan	Registration Statement No. 333-104653 (filed with SEC on April 21, 2003; Exhibit 4(a) therein)
(10)(iii)	10(AA)		Amendment No. 1 to The Progressive Corporation 2003 Directors Equity Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(V) therein)
(10)(iii)	10(AB)		Form of The Progressive Corporation 2003 Directors Equity Incentive Plan Restricted Stock Award Agreement (for 2003)	Registration Statement No. 333-104653 (filed with SEC on April 21, 2003; Exhibit 4(b) therein)
(10)(iii)	10(AC)		Form of The Progressive Corporation 2003 Directors Equity Incentive Plan Restricted Stock Award Agreement (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(C) therein)
(10)(iii)	10(AD)		The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(A) therein)
(10)(iii)	10(AE)		First Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(Y) therein)
(10)(iii)	10(AF)		Second Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(Z) therein)
(10)(iii)	10(AG)		Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2003)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit (10(B) therein)
(10)(iii)	10(AH)		Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AA) therein)

44

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10(AI)	Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(a) therein)
(10)(iii)	10(AJ)	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AC) therein)
(10)(iii)	10(AK)	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(c) therein)
(10)(iii)	10(AL)	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2003)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(C) therein)
(10)(iii)	10(AM)	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AE) therein
(10)(iii)	10(AN)	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(b) therein
(10)(iii)	10(AO)	The Progressive Corporation Executive Deferred Compensation Trust (November 8, 2002 Amendment and Restatement)	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(25) therein
(10)(iii)	10(AP)	First Amendment to Trust Agreement between Fidelity Management Trust Company and the Company	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(26) therein)
(10)(iii)	10(AQ)	The Progressive Corporation Directors Deferral Plan (Amendment and Restatement), as further amended on October 25, 1996	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 10(I) therein)
(10)(iii)	10(AR)	The Progressive Corporation Directors Restricted Stock Deferral Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AH) therein)

45

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10(AS)	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2004)	Annual Report on From 10-K (filed with SEC on March 4, 2004; Exhibit 10(AI) therein)
(10)(iii)	10(AT)	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2005)	Current Report on From 8-K (filed with SEC on December 10, 2004; Exhibit 10(d) therein)
(10)(iii)	10(AU)	The Progressive Corporation 1990 Directors’ Stock Option Plan (Amended and Restated as of April 24, 1992 and as further amended on July 1, 1992)	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(T) therein)
(10)(iii)	10(AV)	The Progressive Corporation 1998 Directors’ Stock Option Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(U) therein)
(10)(iii)	10(AW)	Director Compensation Schedule for 2003, 2004 and 2005	Filed herewith
(10)(iii)	10(AX)	The Progressive Corporation Executive Separation Allowance Plan	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(I) therein)
(10)(iii)	10(AY)	Separation Agreement and General Release dated February 23, 2001 between Progressive Casualty Insurance Company and Charles B. Chokel	Annual Report on Form 10-K (filed with SEC on March 29, 2001; Exhibit 10(M) therein)
(10)(iii)	10(AZ)	Agreement dated May 16, 2001 between The Progressive Corporation and Glenn Renwick	Quarterly Report on Form 10-Q (filed with SEC on August 13, 2001; Exhibit 10(A) therein)
(10)(iii)	10(BA)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and W. Thomas Forrester	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(A) therein)
(10)(iii)	10(BB)	Amendment to Employment Agreement between The Progressive Corporation and W. Thomas Forrester	Quarterly Report on Form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(A) therein)
(10)(iii)	10(BC)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Brian J. Passell	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(B) therein)

46

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit		If Incorporated by Reference, Documents with
Item 601	No.	Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10(BD)	Amendment to Employment Agreement between The Progressive Corporation and Brian J. Passell	Quarterly Report on Form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(B)
(10)(iii)	10(BE)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Charles E. Jarrett	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(C) therein)
(10)(iii)	10(BF)	Amendment to Employment Agreement between The Progressive Corporation and Charles E. Jarrett	Quarterly Report on form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(C) therein)
(10)(iii)	10(BG)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Glenn M. Renwick	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(D) therein)
(10)(iii)	10(BH)	Amendment to Employment Agreement between The Progressive Corporation and Glenn M. Renwick	Quarterly Report on form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(D) therein)
(10)(iii)	10(BI)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Richard H. Watts	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(E) therein)
(10)(iii)	10(BJ)	Amendment to Employment Agreement between The Progressive Corporation and Richard H. Watts	Quarterly Report on form 10-Q (filed with SEC on August 14, 2003, Exhibit 10(E) therein)
(10)(iii)	10(BK)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Raymond M. Voelker	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(F) therein)
(10)(iii)	10(BL)	Amendment to Employment Agreement between The Progressive Corporation and Raymond M. Voelker	Quarterly Report on Form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(F) therein)
(10)(iii)	10(BM)	Employment Agreement dated August 24, 2001 between The Progressive Corporation and Robert T. Williams	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(G) therein)
(10)(iii)	10(BN)	Amendment to Employment Agreement between The Progressive Corporation and Robert T. Williams	Quarterly Report on Form 10-Q (filed with SEC on August 14, 2003, Exhibit 10(G) therein)

47

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)	10(BO)		Employment Agreement dated August 24, 2001 between The Progressive Corporation and Alan R. Bauer	Quarterly Report on Form 10-Q (filed with SEC on November 5, 2001; Exhibit 10(H) therein)
(10)(iii)	10(BP)		Amendment to Employment Agreement between The Progressive Corporation and Alan R. Bauer	Quarterly Report on Form 10-Q (filed with SEC on August 14, 2003; Exhibit 10(H) therein)
(10)(iii)	10(BQ)		Employment Agreement dated April 21, 2003 between The Progressive Corporation and S. Patricia Griffith	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(I) therein)
(10)(iii)	10(BR)		Employment Agreement dated April 21, 2003 between The Progressive Corporation and William M. Cody	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(J) therein)
(11)	11		Computation of Earnings Per Share	Filed herewith
(12)	12		Computation of Ratio of Earnings to Fixed Charges	Filed herewith
(13)	13		The Progressive Corporation 2004 Annual Report to Shareholders	Filed herewith
(21)	21		Subsidiaries of The Progressive Corporation	Filed herewith
(23)	23		Consent of Independent Registered Public Accounting Firm	Incorporated herein by reference to page 37 of this Annual Report on Form 10-K
(24)	24		Powers of Attorney	Filed herewith
(31)	31	(A)	Certification of the Principal Executive Officer, Glenn M. Renwick, of The Progressive Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
(31)	31	(B)	Certification of the Principal Financial Officer, W. Thomas Forrester, of The Progressive Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

48

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(32)	32	(A)	Certification of the Principal Executive Officer, Glenn M. Renwick, of The Progressive Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
(32)	32	(B)	Certification of the Principal Financial Officer, W. Thomas Forrester, of The Progressive Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

     No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.

49

EX-4.E

Exhibit No. 4(E)

                               (Face of Security)

REGISTERED
REGISTERED

NO.
    ___________
$
  _____________

                                CUSIP 743315 AF 0

                           THE PROGRESSIVE CORPORATION

                                7% NOTE DUE 2013

      THE PROGRESSIVE CORPORATION, an Ohio corporation (the "Issuer"), for value
received, hereby promises to pay to

or registered assigns, at the office or agency of the Issuer at the office of
the Trustee in Canton, Massachusetts, the principal sum of

dollars on October 1, 2013, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest semiannually on April 1 and
October 1 of each year, commencing on April 1, 1994, on said principal sum at
said office or agency, in like coin or currency, at the rate per annum specified
in the title of this Note, from the April 1 or the October 1, as the case may
be, next preceding the date of this Note to which interest has been paid, unless
the date hereof is a date to which interest has been paid, in which case from
the date of this Note, or unless no interest has been paid on the Notes, in
which case from October 6, 1993, until payment of said principal sum has been
made or duly provided for; provided, that payment of interest may be made at the
option of the Issuer by check mailed to the address of the person entitled
thereto as such address shall appear on the Security Register. Nothwithstanding
the foregoing, if the date hereof is after the fifteenth day of March or
September, as the case may be, and before the following April 1 or October 1,
this Note shall bear interest from such April 1 or October 1; provided, that if
the Issuer default in the payment of interest due on such April 1 or October 1,
then this Note shall bear interest from the next preceding April 1 or October 1
to which interest has been paid or, if no interest has been paid on this Note,
from October 6, 1993. The interest so payable on any April 1 or October 1 will,
subject to certain exceptions provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note is registered at
the close of business on the March 15 or September 15, as the case may be, next
preceding such April 1 or October 1.

      Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.

      This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.

                                      -1-


IN WITNESS WHEREOF, The Progressive Corporation has caused this instrument to be
signed by facsimile by its duly authorized officers and has caused a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.

                                        THE PROGRESSIVE CORPORATION

[CORPORATE SEAL]                   By:
                                       ___________________________________
                                         President and Chief Executive
                                                  Officer

Attest:

  ________________________
  Secretary

Date: ________________

                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

      This is one of the Securities, of the series designated herein, referred
to in the within-mentioned Indenture.

                                   THE FIRST NATIONAL BANK OF BOSTON,
                                             as TRUSTEE

                                   By:
                                       ___________________________________
                                               Authorized Signatory

                                      -2-


                               (Back of Security)

                           THE PROGRESSIVE CORPORATION

                                7% NOTE DUE 2013

      This Note is one of a duly authorized issue of debenture, notes, bonds or
other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of September 15, 1993 (herein called
the "Indenture"), duly executed and delivered by the Issuer to The First
National Bank of Boston, as Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rate, may be subject to
different redemption provisions (if any), may be subject to different sinking,
purchase or analogous funds (if any) and may otherwise vary as in the Indenture
provided. This Note is one of a series designated as the 7% Notes Due 2013 of
the Issuer, limited in aggregate principal amount to $150,000,000.

      In case an Event of Default, as defined in the Indenture, with respect to
the 7% Notes Due 2013 shall have occurred and be continuing, the principal
hereof any be declared, and upon such declaration shall become, due and payable,
in the manner, with the effect and subject to the conditions provided in the
Indenture.

      The Indenture contains provisions permitting the Issuer and the Trustee,
with the consent of the Holders of not less than 66-2/3% in aggregate principal
amount of the Securities at the time Outstanding (as defined in the Indenture)
of all series to be affected (voting as one class), evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
Holders of the Securities of each such series: provided, however, that no such
supplemental indenture shall (i) extend the final maturity of any Security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of any interest thereon, or impair or affect the rights of any Holder to
institute suit for the payment thereof, without the consent of the Holder of
each Security so affected or (ii) reduce the aforesaid percentage of Securities,
the Holders of which are required to consent to any such supplemental indenture,
without the consent of the Holder of each Security so affected. It is also
provided in the Indenture that, with respect to certain defaults or Events of
Default regarding the Securities of any series, prior to any declaration
accelerating the maturity of such Securities, the Holders of a majority in
aggregate principal amount Outstanding of the Securities of such series may on
behalf of the Holders of all the Securities of such series waive any such past
default or Event of Default and its consequences. The preceding sentence shall
not, however, apply to a default in the payment of the principal of or premium,
if any, or interest on any of the Securities. Any such consent or wavier by the
Holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Note and any Note which may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Note or such other Note.

      No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note in
the manner, at the respective times, at the rate and in the coin or currency
herein prescribed.

      The Notes are issuable in registered form without coupons in denominations
of $1,000 and any integral multiple of $1,000 at the office or agency of the
Issuer at the office of the Trustee in Canton, Massachusetts, and in the manner
and subject to the limitations provided in the Indenture, but without the
payment of any service charge. Notes may be exchanged for a like aggregate
principal amount of Notes of other authorized denominations.

                                      -3-


      The Notes are not subject to redemption at the option of the Issuer or
through the operation of a sinking fund.

      Upon due presentment for registration of transfer of this Note at the
office or agency of the Issuer at the office of the Trustee in Canton,
Massachusetts, a new Note or Notes of authorized denominations for an equal
aggregate principal amount will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.

      The Issuer, the Trustee and any authorized agent of the Issuer or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Note (whether or not this Note shall be overdue and notwithstanding any
notation or ownership or other writing hereon), for the purpose of receiving
payment of, or on account of, the principal hereof and, subject to the
provisions on the face hereof, interest hereon, and for all other purposes, and
neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the
Trustee shall be affected by notice to the contrary.

      No recourse under or upon any obligation, covenant or agreement of the
Issuer in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer or director, as such, of the
Issuer or of any successor corporation, either directly or through the Issuer or
any successor corporation, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance hereof and as part of the consideration for the issue hereof.

      Terms used herein which are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture.

                                  ABBREVIATIONS

      The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

   TEN COM                -          as tenants in common
   TEN ENT                -          as tenants by the entireties
   CUST                   -          Custodian
   JT TEN                 -          as joint tenants with right
                                     of survivorship and not as
                                     tenants
   UNIF GIFT MIN ACT      -          Uniform Gifts to Minors Act
                                     in common

                                _____________________________
                                (State)

     Additional abbreviations may also be used though not in the above list.

                                      -4-


  FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
                                      unto

                     PLEASE INSERT SOCIAL SECURITY OR OTHER
                         IDENTIFYING NUMBER OF ASSIGNEE

 ______________________________________________________________________________

 ______________________________________________________________________________
      Please print or typewrite name and address including postal zip code of
assignee

 ______________________________________________________________________________
                         the within Note and all rights
           thereunder, hereby irrevocably constituting and appointing

 ______________________________________________________________________________
                     attorney to transfer said Note on the
     books of the Issuer, with full power of substitution in the premises.

 Date:
      _________________              _________________________________________

                             NOTICE: The signature to this assignment must
                             correspond with the name as written upon the
                             face of the within instrument in every particular,
                             without alteration or enlargement or any change
                             whatever.

                                      -5-

EX-10.T

Exhibit No. 10(T)

                           THE PROGRESSIVE CORPORATION
                               1995 INCENTIVE PLAN
                        RESTRICTED STOCK AWARD AGREEMENT
                       ( TIME-BASED AWARD)

      This Agreement ("Agreement") is made this  by and between
 ("Participant") and The Progressive Corporation (the
"Company").

      1.    Award of Restricted Stock. The Company hereby grants to Participant
an award (the "Award") of restricted stock (the "Restricted Stock") consisting
of <# of Shares> of the Company's Common Shares, $1 Par Value ("Common Shares"),
pursuant and subject to The Progressive Corporation 1995 Incentive Plan (the
"Plan").

      2.    Condition to Participant's Rights under this Agreement. This
Agreement shall not become effective, and Participant shall have no rights with
respect to the Award or the Restricted Stock, unless and until the Participant
has fully executed this Agreement and delivered it to the Company (in the
Company's discretion, such execution and delivery may be accomplished through
electronic means).

      3.    Restrictions; Vesting. The Restricted Stock shall be subject to the
restrictions and other terms and conditions set forth in the Plan, which are
hereby incorporated herein by reference, and in this Agreement. Subject to the
terms and conditions of the Plan and this Agreement, Participant's rights in and
to the shares of Restricted Stock shall vest according to the following
schedule:

      a.    One-third of the shares of Restricted Stock shall vest on .

      b.    One-third of the shares of Restricted Stock shall vest on .

      c.    The final one-third of the shares of Restricted Stock shall vest on
.

      The shares of Restricted Stock awarded under this Agreement shall vest in
accordance with the schedule set forth above unless, prior to the vesting date
set forth above, the Award and the applicable shares of Restricted Stock are
forfeited or have become subject to accelerated vesting under the terms and
conditions of the Plan. Until the shares of Restricted Stock vest, Participant
shall not sell, transfer, pledge, assign or otherwise encumber such shares of
Restricted Stock or any interest therein.

      4.    Manner In Which Shares Will Be Held. Subject to the provisions of
this Paragraph 4, stock certificates evidencing the shares of Restricted Stock
awarded under this Agreement shall be registered in the name of Participant and
shall be delivered to and held in custody by the Company, or its designee, until
the restrictions thereon shall have lapsed or any conditions to the vesting of
such Award, or a portion thereof, have been satisfied. Such certificates shall
bear an appropriate legend referring to the terms, conditions and restrictions
applicable to such Award.

      In the discretion of the Company, any or all shares of Restricted Stock
awarded to Participant hereunder may be issued in, or after issuance may be
transferred to, book-entry form and held by the Company, or its designee, in
such form. In such event, no stock certificates evidencing such shares will be
held, the applicable restrictions will be noted in the records of the Company's
transfer agent and in the book-entry system.

      Participant hereby irrevocably authorizes the Company and the Compensation
Committee of the Board of Directors (the "Committee") to take any and all
appropriate action with respect to the evidence of Participant's Restricted
Stock, including, without limitation, issuing certificates for such Restricted
Stock, issuing such Restricted Stock in book-entry form, transferring any
previously issued certificates

                                      -1-


into book-entry form, transferring any Restricted Stock (whether held in
certificate or book-entry form) into unrestricted form at vesting, or canceling
any Restricted Stock (whether held in certificate or book-entry form) as and
when required by this Agreement or the Plan, or undertaking any other action
which may be done lawfully by the Company or the Committee in the administration
of the Plan and this Agreement. Participant specifically acknowledges and agrees
that such certificates and/or book-entry evidence of Participant's Restricted
Stock may be transferred or cancelled pursuant to this Agreement and the Plan
without requiring that a Stock Power be executed and delivered by the
Participant or requiring any other action on the part of Participant, and
Participant authorizes the Company to undertake each such action without such
Stock Powers.

      Participant hereby further irrevocably appoints the Secretary of the
Company and any employee of the Company who may be designated by the Secretary,
and each of them, my true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for me and in my name, place and stead, in
any and all capacities, to execute and deliver each and every document
(including, without limitation, any such Stock Powers) which may be necessary or
appropriate in connection with the issuance, transfer, cancellation or other
action taken in connection with the Restricted Stock awarded hereunder pursuant
to this Agreement or the Plan. The rights granted by Participant under this
paragraph shall automatically expire as to shares of Restricted Stock awarded
hereunder upon the transfer of such shares into unrestricted form at vesting or
upon the cancellation of such shares at any time, as applicable, pursuant to
this Agreement and the Plan.

      5.    Rights of Shareholder. Except as otherwise provided in this
Agreement or the Plan, Participant shall have, with respect to the shares of
Restricted Stock awarded hereunder, all of the rights of a shareholder of the
Company, including the right to vote the shares and the right to receive any
dividends as declared by the Company's Board of Directors.

      6.    Shares Non-Transferable. No shares of Restricted Stock shall be
transferable by Participant other than by will or by the laws of descent and
distribution. In the event any Award is transferred or assigned pursuant to a
court order, such transfer or assignment shall be without liability to the
Company, and the Company shall have the right to offset against such Award any
expenses (including attorneys' fees) incurred by the Company in connection with
such transfer or assignment.

      7.    Termination of Employment. Except as otherwise provided in the Plan
or as determined by the Committee, if Participant's employment with the Company
is terminated for any reason other than death, Disability or Qualified
Retirement (see Section 8 below), all Restricted Stock held by Participant which
is unvested or subject to restriction at the time of such termination shall be
automatically forfeited.

      8.    Qualified Retirement. If Participant's employment with the Company
(or any of its Subsidiaries or Affiliates) terminates due to a Qualified
Retirement (as defined below), the following provisions shall apply (subject in
all cases to Section 8(c) hereof):

      a.    If and to the extent that any Award Installment (as defined below)
            is vested as of the Qualified Retirement Date (as defined below),
            all shares of Restricted Stock held by Participant in connection
            with such Award Installment shall be free of applicable restrictions
            and delivered to Participant (subject to the provisions of the Plan
            and this Agreement).

      b.    If and to the extent that any Award Installment is not vested as of
            such Qualified Retirement Date, such Award Installment (i) shall
            remain in effect with respect to fifty percent (50%) of the Common
            Shares covered thereby and, as to such shares, shall immediately
            vest on Participant's Qualified Retirement Date, and shall
            thereafter be free of applicable restrictions and delivered to the
            Participant (subject to the provisions of the Plan and this
            Agreement), and (ii) shall terminate, effective as of the Qualified

                                      -2-


            Retirement Date, with respect to the remaining fifty percent (50%)
            of the Common Shares covered by such Award Installment.

      c.    If the Committee determines that Participant is or has engaged in
            any Disqualifying Activity (as defined below), then (i) to the
            extent that the Restricted Stock awarded hereunder has vested as of
            the Disqualification Date (as defined below), Participant shall have
            the right to receive all shares of Restricted Stock which are vested
            as of such date (subject to the provisions of the Plan and this
            Agreement) and (ii) to the extent that the Restricted Stock awarded
            hereunder has not vested as of the Disqualification Date, the Award
            shall terminate, and all related shares of Restricted Stock shall be
            forfeited, as of such date. Any determination by the Committee,
            which may act upon the recommendation of the Chief Executive Officer
            or other senior officer of the Company, that Participant is or has
            engaged in any Disqualifying Activity, and as to the
            Disqualification Date, shall be final and conclusive.

      d.    For purposes of Section 8, the following terms are defined as
            follows:

            i.    Qualified Retirement - any termination of Participant's
                  employment with the Company or its Subsidiaries or Affiliates
                  for any reason (other than death, Disability or an involuntary
                  termination for Cause) if, at or immediately prior to the date
                  of such termination, Participant satisfies both of the
                  following conditions:

                  A.    Participant is 55 years of age or older; and

                  B.    the sum of Participant's age and completed years of
                        service as an employee of the Company or its
                        Subsidiaries or Affiliates (disregarding fractions in
                        both cases) shall total 70 or more.

            ii.   Qualified Retirement Date - the date as of which Participant's
                  employment with the Company or its Subsidiaries or Affiliates
                  shall terminate pursuant to a Qualified Retirement.

            iii.  Disqualifying Activity - means any of the following acts or
                  activities:

                  A.    directly or indirectly serving as a principal,
                        shareholder, partner, director, officer, employee or
                        agent of, or as a consultant, advisor or in any other
                        capacity to, any business or entity which competes with
                        the Company or its Subsidiaries or Affiliates in any
                        business or activity then conducted by the Company or
                        any of its Subsidiaries or Affiliates to an extent
                        deemed material by the Committee; or

                  B.    any disclosure by Participant, or any use by Participant
                        for his or her own benefit or for the benefit of any
                        other person or entity (other than the Company or its
                        Subsidiaries or Affiliates), of any confidential
                        information or trade secret of the Company or any of its
                        Subsidiaries or Affiliates without the consent of the
                        Company; or

                  C.    any material violation of any of the provisions of the
                        Company's Code of Business Conduct and Ethics ("Code of
                        Conduct") or any agreement between Participant and the
                        Company; or

                                      -3-


                  D.    making any other disclosure or taking any other action
                        which is determined by the Committee to be materially
                        detrimental to the business, prospects or reputation of
                        the Company or any of its Subsidiaries or Affiliates; or

                  E.    Participant fails, in any material respect, to perform
                        his or her assigned responsibilities as an employee of
                        the Company or any of its Subsidiaries or Affiliates, as
                        determined by the Committee, in its sole judgment, after
                        consulting with the Chief Executive Officer.

                  The ownership of less than 2% of the outstanding voting
                  securities of a publicly traded corporation which competes
                  with the Company or any of its Subsidiaries or Affiliates
                  shall not constitute a Disqualifying Activity.

            iv.   Cause - means a felony conviction of Participant or the
                  failure of Participant to contest prosecution for a felony, or
                  Participant's willful misconduct or dishonesty, any of which,
                  in the judgment of the Committee, is harmful to the business
                  or reputation of the Company or any Subsidiary or Affiliate;
                  or any material violation of the Code of Conduct or any
                  agreement between Participant and the Company.

            v.    Disqualification Date - the earliest date as of which
                  Participant engaged in any Disqualifying Activity, as
                  determined by the Committee.

            vi.   Award Installment - means each installment of the Award with a
                  separate vesting date as set forth in Section 3 hereof.

      9. Taxes. No later than the date as of which an amount first becomes
includable in the gross income of Participant for federal income tax purposes
with respect to shares of Restricted Stock awarded under this Agreement,
Participant shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, all federal, state or local taxes or other
items of any kind required by law to be withheld with respect to such amount.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements and the Company and its Subsidiaries and Affiliates, to
the extent permitted by law, shall have the right to deduct any such taxes from
any payment of any kind otherwise due to Participant. At vesting, shares of
Restricted Stock awarded hereunder will be valued at Fair Market Value, as
defined in the Plan.

      Participant must satisfy the minimum statutory tax withholding obligations
resulting from the vesting of shares of Restricted Stock ("Minimum Withholding
Obligations") either (a) by surrendering to Company shares of Restricted Stock
which are then vesting in an amount sufficient to satisfy the Minimum
Withholding Obligations, (b) by surrendering to the Company other unrestricted
Common Shares of the Company owned by Participant in an amount sufficient to
satisfy the Minimum Withholding Obligations, or (c) by paying the appropriate
amount in cash or, if acceptable to the Company, by check or other instrument.
Unless Participant advises the Company of his or her election to use an
alternative payment method, Participant shall be deemed to have elected to
surrender to the Company shares of Restricted Stock which are then vesting in an
amount sufficient to satisfy the Minimum Withholding Obligations. If Participant
requests that the Company withhold taxes in addition to the Minimum Withholding
Obligations, such additional withholding must be satisfied by Participant either
(x) by paying the appropriate amount in cash or, if acceptable to the Company,
by check or other instrument, or (y) provided that Participant has obtained the
approval of either the Company or the Committee (as required under rules adopted
by the Committee) prior to the date of vesting, by surrendering unrestricted
Common Shares which are not part of the Restricted Stock then vesting and which
have then been owned by the Participant in unrestricted form for more than six
(6) months.

                                      -4-


      Under no circumstances will Participant be entitled to satisfy any such
additional withholding by surrendering shares of Restricted Stock which are then
vesting or other Common Shares which have then been owned by Participant in
unrestricted form for six months or less. In addition, under no circumstances
will Participant be entitled to satisfy any Minimum Withholding Obligations or
additional withholding hereunder by surrendering shares of Restricted Stock
which are not then vesting. All payments, surrenders of shares, elections or
requests for approval hereunder must be made by Participant in accordance with
such procedures as may be adopted by the Company in connection therewith, and
subject to such rules as have been or may hereafter be adopted by the Committee
with respect thereto.

      10.   Dividends. Participant acknowledges and agrees that the Company will
pay, or cause to be paid, any cash dividends payable in respect of Restricted
Stock through such method(s) of payment as the Company deems advisable, on or
promptly after the date established by the Board of Directors for the payment of
such cash dividend to holders of the Company's Common Shares (the "Dividend
Payment Date"), including, but not limited to: (i) payment by the Company's
transfer agent through the procedures established generally for shareholders of
record; or (ii) payment by the Company to Participants directly either through
the Company's payroll system in the first payroll check which is issued to the
Participant after the Dividend Payment Date or by appropriate check, draft or
automatic deposit.

      11.   Entire Agreement: This Agreement constitutes the entire agreement
between the parties and supersedes and cancels any other agreement,
representation or communication, whether oral or in writing, between the parties
hereto relating to subject matter hereof, provided that the Agreement shall be
at all times subject to the Plan as provided above.

      12.   Amendment. The Committee, in its sole discretion, may hereafter
amend the terms of this Award, but no such amendment shall be made which would
impair the rights of Participant, without Participant's consent.

      13.   Definitions: Unless otherwise defined in this Agreement, each
capitalized term in this Agreement shall have the meaning given to it in the
Plan.

      Participant hereby: (i) acknowledges receiving a copy of the Plan
Description relating to the Plan, and represents that he or she is familiar with
all of the material provisions of the Plan, as set forth in such Plan
Description; (ii) accepts this Agreement and the Restricted Stock awarded
pursuant hereto subject to all provisions of the Plan and this Agreement; and
(iii) agrees to accept as binding, conclusive and final all decisions and
interpretations of the Committee relating to the Plan, this Agreement or the
Restricted Stock awarded hereunder.

      Participant evidences his or her agreement with the terms and conditions
of this Agreement, and his or her intention to be bound hereby, by
electronically accepting the Award granted hereunder pursuant to the procedures
adopted by the Company. UPON SUCH ACCEPTANCE BY PARTICIPANT, THIS AGREEMENT WILL
BE IMMEDIATELY BINDING AND ENFORCEABLE AGAINST PARTICIPANT AND THE COMPANY.

                                            THE PROGRESSIVE CORPORATION

                                            By: /s/ Charles E. Jarrett
                                                -------------------------------
                                                    Vice President & Secretary

                                      -5-

EX-10.AW

                                                                               .
                                                                               .
                                                                               .

Exhibit No. 10(AW)

             DIRECTORS COMPENSATION SCHEDULE FOR 2003, 2004 AND 2005



                                                                                    2003     2004         2005
                                                                                    ----     ----         ----
                                                                                                
NON-EMPLOYEE DIRECTORS (EXCLUDING CHAIRMAN - SEE BELOW)
Retainer (per year)                                                               $  8,000   $  10,000  $  10,000

Board Meetings                                                                       3,000       3,000      3,200
Board Telephone Meeting                                                              1,500       1,500      1,500
Management Interaction Day                                                           2,000       2,000      2,000
Special Meetings(1)                                                                  1,000       1,000      1,000

COMMITTEE MEETINGS
AUDIT COMMITTEE
Meetings - Committee Member                                                          1,000       2,000      2,100
Meetings - Committee Chair                                                           1,500       4,000      4,200
Regularly Scheduled Audit Telephone Meetings - Committee Member                      1,000       1,000      1,000
Regularly Scheduled Audit Telephone Meetings - Committee Chair                       1,500       1,500      1,500

ALL OTHER COMMITTEES
Meetings - Committee Member                                                          1,000       2,000      2,100
Meetings - Committee Chair                                                           1,500       2,500      2,600
Telephone Meetings (as needed)                                                         500         500        500

RESTRICTED STOCK AWARDS
Value of Annual Restricted Stock Awards (excluding Chairman)                        95,000     100,000    100,000
Chairman of the Board
     Value of Annual Restricted Stock Award in lieu of Retainer and Meeting Fees   200,000     200,000    200,000


(1) In 2003 and 2004, the fee was $500 for attendance by telephone.

EX-11

                                                                               .
                                                                               .
                                                                               .

Exhibit No. 11

                           THE PROGRESSIVE CORPORATION
                        COMPUTATION OF EARNINGS PER SHARE
                      (MILLIONS - EXCEPT PER SHARE AMOUNTS)



Years Ended December 31,                       2004                   2003                   2002
                                      -------------------    --------------------    ------------------
                                                     Per                     Per                   Per
                                         Amount     Share       Amount      Share      Amount     Share
                                      ---------    ------    ---------    -------    --------    ------
                                                                               
BASIC:
Net income                            $ 1,648.7    $ 7.74    $ 1,255.4    $  5.79    $  667.3    $ 3.05
                                      =========    ======    =========    =======    ========    ======
Average shares outstanding                212.9                  216.8                  219.0
                                      =========              =========               ========
DILUTED:
Net income                            $ 1,648.7    $ 7.63    $ 1,255.4    $  5.69    $  667.3    $ 2.99
                                      =========    ======    =========    =======    ========    ======

Average shares outstanding                212.9                  216.8                  219.0
Net effect of dilutive stock-based
compensation                                3.3                    3.7                    4.2
                                      ---------              ---------               --------
Total                                     216.2                  220.5                  223.2
                                      =========              =========               ========

EX-12

                                                                               .
                                                                               .
                                                                               .

Exhibit No. 12

                           THE PROGRESSIVE CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                   (millions)
                                   (unaudited)



                                                                     Years Ended December 31,
                                                 --------------------------------------------------------------
                                                    2004          2003          2002         2001        2000
                                                 ---------     ---------     ---------     --------     -------
                                                                                         
Income before income taxes                       $ 2,450.8     $ 1,859.7     $   981.4     $  587.6     $  31.8
                                                 ---------     ---------     ---------     --------     -------
Fixed Charges:
    Interest and amortization on indebtedness         84.7          97.0          75.1         53.4        81.1
    Portion of rents representative
        of the interest factor                         8.9           7.5           5.6          7.4         8.0
                                                 ---------     ---------     ---------     --------     -------
Total fixed charges                                   93.6         104.5          80.7         60.8        89.1
                                                 ---------     ---------     ---------     --------     -------
Interest capitalized, net of amortized
        interest                                      (3.6)         (1.2)          (.1)         (.7)       (2.9)
                                                 ---------     ---------     ---------     --------     -------
Total income available for fixed charges         $ 2,540.8     $ 1,963.0     $ 1,062.0     $  647.7     $ 118.0
                                                 =========     =========     =========     ========     =======
Ratio of earnings to fixed charges                    27.1          18.8          13.2         10.7         1.3
                                                 =========     =========     =========     ========     =======

EX-13

Appendix B

2004 Annual Report to Shareholders

-APP.-B-1-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

			(millions - except per share amounts)
For the years ended December 31,	2004		2003		2002
Revenues
Net premiums earned	$	13,169.9	$	11,341.0	$	8,883.5
Investment income		484.4		465.3		455.2
Net realized gains (losses) on securities		79.3		12.7		(78.6	)
Service revenues		48.5		41.8		34.3
Other income1		—		31.2		—
Total revenues		13,782.1		11,892.0		9,294.4
Expenses
Losses and loss adjustment expenses		8,555.0		7,640.4		6,299.1
Policy acquisition costs		1,418.0		1,249.1		1,031.6
Other underwriting expenses		1,238.6		1,010.1		874.2
Investment expenses		13.9		11.5		11.5
Service expenses		25.0		25.7		22.0
Interest expense		80.8		95.5		74.6
Total expenses		11,331.3		10,032.3		8,313.0
Net Income
Income before income taxes		2,450.8		1,859.7		981.4
Provision for income taxes		802.1		604.3		314.1
Net income	$	1,648.7	$	1,255.4	$	667.3
Computation of Earnings Per Share
Basic:
Average shares outstanding		212.9		216.8		219.0
Per share	$	7.74	$	5.79	$	3.05
Diluted:
Average shares outstanding		212.9		216.8		219.0
Net effect of dilutive stock-based compensation		3.3		3.7		4.2
Total equivalent shares		216.2		220.5		223.2
Per share	$	7.63	$	5.69	$	2.99

¹See Note 3 — Income Taxes for discussion.

See notes to consolidated financial statements.

APP.-B-2-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				(millions)
December 31,	2004			2003
Assets
Investments:
Available-for-sale:
Fixed maturities, at market (amortized cost: $8,972.6 and $8,899.0)	$	9,084.3		$	9,133.4
Equity securities, at market:
Preferred stocks (cost: $749.4 and $751.3)		768.9			778.8
Common equities (cost: $1,314.0 and $1,590.6)		1,851.9			1,972.1
Short-term investments, at market (amortized cost: $1,376.6 and $648.0)		1,376.9			648.0
Total investments		13,082.0			12,532.3
Cash		20.0			12.1
Accrued investment income		103.5			97.4
Premiums receivable, net of allowance for doubtful accounts of $83.8 and $66.8		2,287.2			2,079.6
Reinsurance recoverables, including $44.5 and $41.4 on paid losses		381.6			271.3
Prepaid reinsurance premiums		119.8			114.7
Deferred acquisition costs		432.2			412.3
Income taxes		—			81.6
Property and equipment, net of accumulated depreciation of $562.1 and $476.4		666.5			584.7
Other assets		91.5			95.5
Total assets	$	17,184.3		$	16,281.5
Liabilities and Shareholders’ Equity
Unearned premiums	$	4,108.0		$	3,894.7
Loss and loss adjustment expense reserves		5,285.6			4,576.3
Accounts payable, accrued expenses and other liabilities		1,325.0			1,290.1
Income taxes		26.0			—
Debt		1,284.3			1,489.8
Total liabilities		12,028.9			11,250.9
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 600.0, issued 213.2 and 230.1, including treasury shares of 12.8 and 13.7)		200.4			216.4
Paid-in capital		743.3			688.3
Unamortized restricted stock		(46.0	)		(28.9	)
Accumulated other comprehensive income (loss):
Net unrealized gains on investment securities		435.1			418.2
Net unrealized gains on forecasted transactions		9.7			10.7
Foreign currency translation adjustment		—			(3.9	)
Retained earnings		3,812.9			3,729.8
Total shareholders’ equity		5,155.4			5,030.6
Total liabilities and shareholders’ equity	$	17,184.3		$	16,281.5

See notes to consolidated financial statements.

APP.-B-3-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

							(millions - except per share amounts)
For the years ended December 31,	2004						2003						2002
Retained Earnings
Balance, Beginning of year	$	3,729.8					$	2,796.0					$	2,497.4
Net income		1,648.7			$1,648.7			1,255.4		$	1,255.4			667.3		$	667.3
Cash dividends on Common Shares ($.110, $.100 and $.096 per share)		(23.3	)					(21.7	)					(21.1	)
Treasury shares purchased1		(1,542.4	)					(297.5	)					(200.7	)
Capitalization of stock split		—						—						(147.0	)
Other, net		.1						(2.4	)					.1
Balance, End of year	$	3,812.9					$	3,729.8					$	2,796.0
Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance, Beginning of year	$	425.0					$	169.3					$	125.9
Changes in:
Net unrealized gains on investment securities					16.9						255.8						40.9
Net unrealized gains on forecasted transactions					(1.0	)					(1.0	)					2.5
Foreign currency translation adjustment					3.9						.9						—
Other comprehensive income		19.8			19.8			255.7			255.7			43.4			43.4
Balance, End of year	$	444.8					$	425.0					$	169.3
Comprehensive Income				$	1,668.5					$	1,511.1					$	710.7
Common Shares, $1.00 Par Value
Balance, Beginning of year	$	216.4					$	218.0					$	73.4
Stock options exercised		2.1						2.8						1.2
Treasury shares purchased1, 2		(18.6	)					(5.0	)					(3.6	)
Restricted stock issued, net of forfeitures		.5						.6						—
Capitalization of stock split		—						—						147.0
Balance, End of year	$	200.4					$	216.4					$	218.0
Paid-In Capital
Balance, Beginning of year	$	688.3					$	584.7					$	554.0
Stock options exercised		49.6						47.2						21.4
Tax benefits from exercise/vesting of stock-based compensation		44.3						44.0						19.3
Treasury shares purchased1		(67.5	)					(14.3	)					(10.0	)
Restricted stock issued, net of forfeitures		27.3						26.7						—
Other		1.3						—						—
Balance, End of year	$	743.3					$	688.3					$	584.7
Unamortized Restricted Stock
Balance, Beginning of year	$	(28.9	)				$	—					$	—
Restricted stock issued, net of forfeitures		(40.6	)					(37.3	)					—
Restricted stock market value adjustment		(.3	)					(2.6	)					—
Amortization of restricted stock		23.8						11.0						—
Balance, End of year	$	(46.0	)				$	(28.9	)				$	—
Total Shareholders’ Equity	$	5,155.4					$	5,030.6					$	3,768.0

¹Includes 16.9 million Common Shares purchased pursuant to a “Dutch auction” tender offer in 2004; these shares were purchased at a price of $88 per share, for a total cost of $1.5 billion.

²The Company did not split treasury shares. In 2002, the Company repurchased 136,182 Common Shares prior to the stock split and 3,471,916 Common Shares subsequent to the stock split.

There are 20.0 million Serial Preferred Shares authorized; no such shares are issued or outstanding.

There are 5.0 million Voting Preference Shares authorized; no such shares have been issued.

See notes to consolidated financial statements.

APP.-B-4-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

							(millions)
For the years ended December 31,	2004			2003			2002
Cash Flows From Operating Activities
Net income	$	1,648.7		$	1,255.4		$	667.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		99.4			89.3			83.9
Amortization of fixed maturities		168.9			103.2			42.6
Amortization of restricted stock		23.8			11.0			—
Net realized (gains) losses on securities		(79.3	)		(12.7	)		78.6
Changes in:
Unearned premiums		213.3			590.4			587.6
Loss and loss adjustment expense reserves		709.3			763.3			575.0
Accounts payable, accrued expenses and other liabilities		70.2			124.5			256.6
Prepaid reinsurance premiums		(5.1	)		(18.0	)		(19.1	)
Reinsurance recoverables		(110.3	)		(55.6	)		(14.2	)
Premiums receivable		(207.6	)		(336.8	)		(245.7	)
Deferred acquisition costs		(19.9	)		(48.8	)		(46.9	)
Income taxes		98.5			(.1	)		(65.1	)
Tax benefits from exercise/vesting of stock-based compensation		44.3			44.0			19.3
Other, net		8.3			(72.2	)		(7.9	)
Net cash provided by operating activities		2,662.5			2,436.9			1,912.0
Cash Flows From Investing Activities
Purchases:
Available-for-sale: fixed maturities		(6,686.3	)		(9,491.6	)		(7,924.9	)
equity securities		(678.3	)		(771.2	)		(680.7	)
Sales:
Available-for-sale: fixed maturities		5,885.7			7,189.3			5,823.3
equity securities		876.3			337.8			412.0
Maturities, paydowns, calls and other:
Available-for-sale: fixed maturities		639.7			779.2			594.0
equity securities		78.2			91.7			—
Net purchases of short-term investments		(728.6	)		(80.2	)		(340.4	)
Net unsettled security transactions		(43.2	)		(37.1	)		115.3
Purchases of property and equipment		(192.0	)		(171.1	)		(89.9	)
Net cash used in investing activities		(848.5	)		(2,153.2	)		(2,091.3	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		51.7			50.0			22.6
Proceeds from debt		—			—			398.6
Payments of debt		(206.0	)		—			(.8	)
Dividends paid to shareholders		(23.3	)		(21.7	)		(21.1	)
Acquisition of treasury shares		(1,628.5	)		(316.8	)		(214.3	)
Net cash provided by (used in) financing activities		(1,806.1	)		(288.5	)		185.0
Increase (decrease) in cash		7.9			(4.8	)		5.7
Cash, Beginning of year		12.1			16.9			11.2
Cash, End of year	$	20.0		$	12.1		$	16.9

See notes to consolidated financial statements.

APP.-B-5-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2003 and 2002

1) Reporting and Accounting Policies

Nature of Operations The Progressive Corporation, an insurance holding company formed in 1965, owns 70 subsidiaries and has 1 mutual insurance company affiliate (collectively, the “Company”) as of December 31, 2004. The insurance subsidiaries and affiliate provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. The Company’s Personal Lines segment writes insurance for private passenger automobiles and recreation vehicles through both an independent agency channel and a direct channel. The Company’s Commercial Auto segment writes insurance for automobiles and trucks owned by small businesses primarily through the independent agency channel.

Basis of Consolidation and Reporting The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries and affiliate. All of the subsidiaries and the affiliate are wholly owned or controlled. All intercompany accounts and transactions are eliminated in consolidation.

Estimates The Company is required to make estimates and assumptions when preparing its financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP). Actual results could differ from those estimates.

Investments Available-for-sale: fixed-maturity securities are debt securities, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of the Company’s asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs or similar economic factors. These securities are carried at market value with the corresponding unrealized gains (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Market values are obtained from a recognized pricing service or other quoted sources. The asset-backed portfolio is accounted for under the retrospective method; prepayment assumptions are based on market expectations. The prospective method is used for interest only and non-investment-grade asset-backed securities.

     Available-for-sale: equity securities include common equities and nonredeemable preferred stocks and are reported at quoted market values. Changes in the market values of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income. Changes in value of foreign equities due to foreign currency exchange rates are limited by foreign currency hedges and would be recognized in income in the current period. The Company held no foreign equities or foreign currency hedges during 2004 or 2003.

     Trading securities are securities bought principally for the purpose of sale in the near term and, when not material to the Company’s financial position, cash flows or results of operations, are reported at market value within the available-for-sale portfolio. The Company had no trading securities; derivatives used for trading are discussed below. In prior years, the net activity in trading securities was not material to the Company’s financial position or cash flows; the effect on results of operations is separately disclosed in Note 2 — Investments. To the extent the Company has trading securities, changes in market value would be recognized in income in the current period.

     Derivative instruments may include futures, options, forward positions, foreign currency forwards and interest rate swap agreements and may be used in the portfolio for risk management or trading purposes or to hedge the exposure to: changes in fair value of an asset or liability (fair value hedge); foreign currency of an investment in a foreign operation (foreign currency hedge); or variable cash flows of a forecasted transaction (cash flow hedge). These derivative instruments would be recognized as either assets or liabilities and measured at fair value with changes in fair value recognized in income in the period of change. Changes in the fair value of the hedged items would be recognized in income while the hedge was in effect.

     At December 31, 2004, the Company held no derivatives classified as trading securities. At December 31, 2003, the Company held credit default swaps. The Company matched the notional value of these positions with Treasury notes with an equivalent principal value and maturity to replicate a cash bond position. Changes in the fair value of the credit default swaps and the Treasury notes were recognized in income in the current period.

     The Company held no derivatives classified as cash flow hedges. Changes in fair value of these hedges would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction. Gains and losses on hedges on forecasted transactions are amortized over the life of the hedged item (see Note 4 — Debt). Hedges on forecasted transactions that no longer qualify for hedge accounting due to lack of correlation would be considered derivatives used for risk management purposes.

APP.-B-6-

     The Company had no fair value or foreign currency hedges or derivative instruments held or issued for risk management purposes. To the extent the Company held fair value hedges, changes in the hedge, along with the hedged items would be recognized in income in the period of change while the hedge was in effect. Gains and losses on foreign currency hedges would offset the foreign exchange gains and losses on the foreign investments. Derivatives held or issued for risk management purposes would be recognized in income during the period of change.

     Derivatives designated as hedges would also be evaluated on established criteria to determine the effectiveness of their correlation to, and ability to reduce risk of, specific securities or transactions; effectiveness would be reassessed regularly. If the effectiveness of a fair value hedge becomes non-compliant, the adjustment in the change in value of the hedged item would no longer be recognized in income during the current period.

     For all derivative positions, net cash requirements are limited to changes in market values, which may vary based upon changes in interest rates, currency exchange rates and other factors. Exposure to credit risk is limited to the carrying value; collateral may be required to limit credit risk.

     Short-term investments include eurodollar deposits, commercial paper and other securities maturing within one year and are reported at market. Changes in the market values of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

     Investment securities are exposed to various risks such as interest rate, market and credit risk. Market values of securities fluctuate based on the magnitude of changing market conditions; significant changes in market conditions could materially affect portfolio value in the near term. The Company continually monitors its portfolio for pricing changes, which might indicate potential impairments and performs detailed reviews of securities with unrealized losses based on predetermined criteria. In such cases, changes in market value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines. When a security in the Company’s investment portfolio has an unrealized loss in market value that is deemed to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. Any future increases in the market value of securities written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within shareholders’ equity.

     Realized gains (losses) on securities are computed based on the first-in first-out method and include write-downs on available-for-sale securities considered to have other-than-temporary declines in market value.

Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using accelerated methods for computer equipment and the straight-line method for all other fixed assets. The useful lives range from 3 to 4 years for computer equipment, 10 to 40 years for buildings and improvements, and 5 to 6 years for all other property and equipment. Property and equipment includes software capitalized for internal use. Land and buildings comprised 75% of total property and equipment at both December 31, 2004 and 2003.

     Total interest capitalized was $3.9 million, $1.5 million and $.5 million in 2004, 2003 and 2002, respectively, relating to both the Company’s construction projects and capitalized computer software costs.

Insurance Premiums and Receivables Insurance premiums written in 2004 and forward are being earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Prior to 2004, insurance premiums were earned using a mid-month convention. Since the change to a daily earnings convention was prospective, it had no effect on amounts reported in prior periods and was implemented to improve the precision of the Company’s premium recognition on a monthly basis. The Company provides insurance and related services to individuals and small commercial accounts throughout the United States, and offers a variety of payment plans. Generally, premiums are collected prior to providing risk coverage, minimizing the Company’s exposure to credit risk. The Company performs a policy level evaluation to determine the extent the premiums receivable balance exceeds its unearned premiums balance. The Company then ages this exposure to establish an allowance for doubtful accounts based on prior experience.

Income Taxes The income tax provision is calculated under the balance sheet approach. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are net unrealized gains (losses) on securities, loss reserves, unearned premiums reserves, deferred acquisition costs and non-deductible accruals. The Company reviews its deferred tax assets for recoverability. At December 31, 2004, the Company is able to demonstrate that the benefit of its deferred tax assets is fully realizable and, therefore, no valuation allowance is recorded.

APP.-B-7-

Loss and Loss Adjustment Expense Reserves Loss reserves represent the estimated liability on claims reported to the Company, plus reserves for losses incurred but not recorded (IBNR). These estimates are reported net of amounts recoverable from salvage and subrogation. Loss adjustment expense reserves represent the estimated expenses required to settle these claims and losses. The methods of making estimates and establishing these reserves are reviewed regularly, and resulting adjustments are reflected in income currently. Such loss and loss adjustment expense reserves could be susceptible to significant change in the near term.

Reinsurance The Company’s reinsurance transactions include premiums written under state-mandated involuntary plans for commercial vehicles (Commercial Auto Insurance Procedures/Plans- “CAIP”), for which the Company retains no loss indemnity risk (see Note 6 — Reinsurance for further discussion). In addition, the Company cedes auto premiums to state-provided reinsurance facilities. The Company also cedes premiums in its non-auto programs to limit its exposure in those particular markets. Beginning in 2004, prepaid reinsurance premiums are being earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written. Prior to 2004, prepaid reinsurance premiums were recognized primarily using a mid-month convention, which was consistent with premiums written. Because the Company’s primary line of business, auto insurance, is written at relatively low limits of liability, the Company does not believe that it needs to mitigate its risk through voluntary reinsurance.

Earnings Per Share Basic earnings per share are computed using the weighted average number of Common Shares outstanding. Diluted earnings per share include common stock equivalents assumed outstanding during the period. The Company’s common stock equivalents include stock options and qualified restricted stock awards.

Deferred Acquisition Costs Deferred acquisition costs include commissions, premium taxes and other variable underwriting and direct sales costs incurred in connection with writing business. These costs are deferred and amortized over the policy period in which the related premiums are earned. The Company considers anticipated investment income in determining the recoverability of these costs. Management believes that these costs will be fully recoverable in the near term. The Company does not defer advertising costs.

Guaranty Fund Assessments The Company is subject to state guaranty fund assessments which provide for the payment of covered claims or other insurance obligations of insurance companies deemed insolvent. These assessments are accrued after a formal determination of insolvency has occurred and the Company has written the premiums on which the assessments will be based.

Service Revenues and Expenses Service revenues consist primarily of fees generated from processing business for involuntary plans and are earned on a pro rata basis over the term of the related policies. Acquisition expenses are deferred and amortized over the period in which the related revenues are earned.

Stock Compensation The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” to account for its stock compensation activity in the financial statements. Prior to January 1, 2003, the Company followed the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for its stock option activity.

     The change to the fair value method of accounting under SFAS 123 was applied prospectively to all non-qualified stock option awards granted, modified, or settled after January 1, 2003. No stock options were granted after December 31, 2002. As a result, there is no compensation cost for stock options included in net income for 2003 or 2004; however, compensation expense would have been recognized if the fair value method had been used for all awards since the original effective date of SFAS 123 (January 1, 1995). Prior to 2003, the Company granted all options currently outstanding at an exercise price equal to the market price of the Company’s Common Shares at the date of grant and, therefore, under APB 25, no compensation expense was recorded.

     In 2003, the Company began issuing restricted stock awards. Compensation expense for restricted stock awards is recognized over the respective vesting periods. The current year expense is not representative of the effect on net income for future years since each subsequent year will reflect expense for additional awards.

     The following table shows the effects on net income and earnings per share had the fair value method been applied to all outstanding and unvested stock option awards for the periods presented. The Company used the modified Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

APP.-B-8-

(millions, except per share amounts)	2004			2003			2002
Net income, as reported	$	1,648.7		$	1,255.4		$	667.3
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(6.3	)		(12.8	)		(16.9	)
Net income, pro forma	$	1,642.4		$	1,242.6		$	650.4
Earnings per share
Basic — as reported	$	7.74		$	5.79		$	3.05
Basic — pro forma		7.71			5.73			2.97
Diluted — as reported	$	7.63		$	5.69		$	2.99
Diluted — pro forma		7.62			5.65			2.92

The current year pro forma expense is not representative of the effect on net income for future years since the Company stopped issuing non-qualified stock option awards as of December 31, 2002.

Supplemental Cash Flow Information Cash includes only bank demand deposits. The Company paid income taxes of $709.0 million, $579.0 million and $392.0 million in 2004, 2003 and 2002, respectively. Total interest paid was $91.7 million during 2004, $99.0 million during 2003 and $64.4 million during 2002. Non-cash activity includes the liability for deferred restricted stock compensation and the changes in net unrealized gains (losses) on investment securities.

     The Company effected a 3-for-1 stock split in the form of a dividend to shareholders on April 22, 2002. The Company issued its Common Shares by transferring $147.0 million from retained earnings to the Common Share account. All share and per share amounts and stock prices were adjusted to give effect to the split. Treasury shares were not split.

New Accounting Standards The Financial Accounting Standards Board (FASB) issued SFAS 123 (revised 2004), “Share-Based Payment,” which requires the Company to expense the fair value at the grant date of unvested outstanding stock options. The Company intends to adopt this statement using the modified prospective application. This new standard is effective for periods beginning after June 15, 2005, and is estimated to reduce net income by approximately $1.5 million in 2005 and $1.0 million in 2006. The Company will not incur any additional expense relating to stock options in years subsequent to 2006, since the latest vesting date of stock options previously granted is January 1, 2007.

     Excluding the new standard discussed above, the other accounting standards recently issued by the FASB, Statements of Position and Practice Bulletins issued by the American Institute of Certified Public Accountants and consensus positions of the Emerging Issues Task Force are currently not applicable to the Company and, therefore, would have no effect on the Company’s financial condition, cash flows or results of operations.

Reclassifications Certain amounts in the financial statements for prior periods were reclassified to conform to the 2004 presentation.

APP.-B-9-

2) Investments

The composition of the investment portfolio at December 31 was:

			Gross		Gross					% of
			Unrealized		Unrealized			Market		Total
(millions)	Cost		Gains		Losses			Value		Portfolio
2004
Available-for-sale:
U.S. government obligations	$	1,970.1	$	5.7	$	(13.3	)	$	1,962.5		15.0	%
State and local government obligations		2,873.2		71.2		(4.0	)		2,940.4		22.5
Foreign government obligations		30.8		.6		—			31.4		.2
Corporate and U.S. agency debt securities		1,752.8		35.6		(7.1	)		1,781.3		13.6
Asset-backed securities		2,345.7		39.5		(16.5	)		2,368.7		18.1
		8,972.6		152.6		(40.9	)		9,084.3		69.4
Preferred stocks		749.4		24.5		(5.0	)		768.9		5.9
Common equities		1,314.0		541.8		(3.9	)		1,851.9		14.2
Short-term investments		1,376.6		.3		—			1,376.9		10.5
	$	12,412.6	$	719.2	$	(49.8	)	$	13,082.0		100.0	%
2003
Available-for-sale:
U.S. government obligations	$	1,307.9	$	7.3	$	(3.0	)	$	1,312.2		10.5	%
State and local government obligations		2,841.7		94.6		(6.1	)		2,930.2		23.4
Foreign government obligations		13.9		.7		—			14.6		.1
Corporate and U.S. agency debt securities		1,763.1		73.9		(3.2	)		1,833.8		14.6
Asset-backed securities		2,972.4		83.4		(13.2	)		3,042.6		24.3
		8,899.0		259.9		(25.5	)		9,133.4		72.9
Preferred stocks		751.3		34.9		(7.4	)		778.8		6.2
Common equities		1,590.6		390.3		(8.8	)		1,972.1		15.7
Short-term investments		648.0		—		—			648.0		5.2
	$	11,888.9	$	685.1	$	(41.7	)	$	12,532.3		100.0	%

See Note 10 — Other Comprehensive Income for changes in the net unrealized gains (losses) during the period.

At December 31, 2004, bonds in the principal amount of $84.3 million were on deposit with various regulatory agencies to meet statutory requirements. The Company did not have any securities of one issuer with an aggregate cost or market value exceeding ten percent of total shareholders’ equity at December 31, 2004 or 2003.

The components of net investment income for the years ended December 31 were:

(millions)	2004			2003			2002
Available-for-sale: fixed maturities	$	374.6		$	369.5		$	379.4
preferred stocks		49.3			53.0			45.1
common equities		41.2			31.1			22.8
Short-term investments		19.3			11.7			7.9
Investment income		484.4			465.3			455.2
Investment expenses		(13.9	)		(11.5	)		(11.5	)
Net investment income	$	470.5		$	453.8		$	443.7

APP.-B-10-

The components of net realized gains (losses) for the years ended December 31 were:

(millions)	2004			2003			2002
Gross realized gains:
Available-for-sale: fixed maturities	$	105.5		$	108.4		$	159.4
preferred stocks		7.9			7.4			12.0
common equities		56.1			19.0			35.3
Short-term investments		.1			.1			—
		169.6			134.9			206.7
Gross realized losses:
Available-for-sale: fixed maturities		(23.8	)		(40.5	)		(85.6	)
preferred stocks		(9.7	)		(4.1	)		(.1	)
common equities		(56.6	)		(77.6	)		(199.6	)
Short-term investments		(.2	)		—			—
		(90.3	)		(122.2	)		(285.3	)
Net realized gains (losses) on securities:
Available-for-sale: fixed maturities		81.7			67.9			73.8
preferred stocks		(1.8	)		3.3			11.9
common equities		(.5	)		(58.6	)		(164.3	)
Short-term investments		(.1	)		.1			—
	$	79.3		$	12.7		$	(78.6	)
Per share	$	.24		$	.04		$	(.23	)

For 2004, 2003 and 2002, net realized gains (losses) on securities include $7.8 million, $50.3 million and $136.5 million, respectively, of write-downs in securities determined to have an other-than-temporary decline in market value for securities held at December 31.

The components of gross unrealized losses at December 31, 2004 and 2003 were:

	Total		Unrealized Losses
	Market					Less than			12 months
(millions)	Value		Total			12 Months			or greater 1
2004
Available-for-sale: fixed maturities	$	3,909.8	$	(40.9	)	$	(30.6	)	$	(10.3	)
preferred stocks		216.9		(5.0	)		(2.4	)		(2.6	)
common equities		86.0		(3.9	)		(3.7	)		(.2	)
	$	4,212.7	$	(49.8	)	$	(36.7	)	$	(13.1	)
2003
Available-for-sale: fixed maturities	$	2,004.9	$	(25.5	)	$	(22.9	)	$	(2.6	)
preferred stocks		132.3		(7.4	)		(2.2	)		(5.2	)
common equities		179.2		(8.8	)		(2.2	)		(6.6	)
	$	2,316.4	$	(41.7	)	$	(27.3	)	$	(14.4	)

¹ The market value for securities in an unrealized loss position for 12 months or greater was $547.3 million at December 31, 2004 and $165.1 million at December 31, 2003.

None of the securities represented in the table above were deemed to have any fundamental issues that would lead the Company to believe that they were other-than-temporarily impaired. The Company has the intent and ability to hold the fixed-maturity securities and preferred stocks to maturity/redemption, and will do so, as long as the securities continue to remain consistent with its investment strategy. The Company may retain the common stocks to maintain correlation to the Russell 1000 index as long as the portfolio and index correlation remain similar. If the Company’s strategy were to change and these securities were impaired, the Company would recognize a write-down in accordance with its stated policy.

APP.-B-11-

     At December 31, 2004 and 2003, the Company did not hold any trading securities. Derivatives used for trading purposes are discussed below. Net realized gains (losses) on trading securities for the years ended December 31, 2004, 2003 and 2002 were $0, $.1 million and $0, respectively. Results from trading securities are not material to the Company’s financial condition, cash flows or results of operations and are reported within the available-for-sale portfolio, rather than separately disclosed.

     During 2002, the Company recognized a $1.5 million loss on a discontinued hedge in relation to its 2002 debt issuance as described further in Note 4 – Debt, compared to $0 in both 2003 and 2004.

     Derivative instruments may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction. During 2004, the Company closed all of its credit default protection derivatives, along with the underlying Treasury notes of the same maturity and principal value. As of December 31, 2003, the Company had two open derivative positions classified as trading, with a market value of $5.7 million. The Company matched the notional value of the positions with Treasury notes of an equivalent principal and maturity to replicate a cash bond position. The net market value of the derivatives and Treasury notes was $103.2 million as of December 31, 2003. The combined Treasury and derivative positions generated $(1.4) million, $4.9 million and $(.1) million of net gains (losses) in 2004, 2003 and 2002, respectively. The results of the derivative and Treasury positions were immaterial to the financial condition, cash flows and results of operations of the Company and were reported as part of the available-for-sale portfolio, with gains (losses) reported as a component of realized gains (losses) on securities.

The composition of fixed maturities by maturity at December 31, 2004 was:

			Market
(millions)	Cost		Value
Less than one year	$	729.1	$	731.3
One to five years		4,815.6		4,838.1
Five to ten years		3,319.1		3,405.5
Ten years or greater		108.8		109.4
	$	8,972.6	$	9,084.3

Asset-backed securities are reported based upon their projected cash flows. All other securities which do not have a single maturity date are reported at average maturity. Actual maturities may differ from expected maturities because the issuers of the securities may have the right to call or prepay obligations.

3) Income Taxes

The components of the Company’s income tax provision were as follows:

(millions)	2004		2003		2002
Current tax provision	$	794.0	$	543.6	$	404.9
Deferred tax expense (benefit)		8.1		60.7		(90.8	)
Total income tax provision	$	802.1	$	604.3	$	314.1

APP.-B-12-

The provision for income taxes in the accompanying consolidated statements of income differed from the statutory rate as follows:

(millions)	2004					2003					2002
Income before income taxes	$	2,450.8				$	1,859.7				$	981.4
Tax at statutory rate	$	857.8		35	%	$	650.9		35	%	$	343.5		35	%
Tax effect of:
Exempt interest income		(29.8	)	(1	)		(26.9	)	(1	)		(15.6	)	(2	)
Dividends received deduction		(19.1	)	(1	)		(16.6	)	(1	)		(12.9	)	(1	)
Other items, net		(6.8	)	—			(3.1	)	—			(.9	)	—
	$	802.1		33	%	$	604.3		33	%	$	314.1		32	%

In July 2003, the Company received notice from the Internal Revenue Service that the Joint Committee of Taxation of Congress had completed its review of a Federal income tax settlement agreed to by the Internal Revenue Service, primarily attributable to the amount of loss reserves deductible for tax purposes. As a result, the Company received an income tax refund of approximately $58 million during 2004, which was reflected as a tax recoverable as a component of the Company’s “Income Taxes” item on the balance sheet in 2003. In addition, the Company received $31.2 million, or $.09 per share, of interest.

Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2004 and 2003, the components of the net deferred tax assets were as follows:

(millions)	2004			2003
Deferred tax assets:
Unearned premiums reserve	$	282.4		$	268.4
Non-deductible accruals		100.7			84.5
Loss reserves		123.4			113.1
Write-downs on securities		12.7			34.7
Other		2.2			—
Deferred tax liabilities:
Deferred acquisition costs		(151.3	)		(144.3	)
Net unrealized gains on investment securities		(234.3	)		(225.2	)
Hedges on forecasted transactions		(5.3	)		(5.8	)
Depreciable assets		(35.4	)		(18.3	)
Other		(14.9	)		(10.2	)
Net deferred tax assets		80.2			96.9
Net income taxes payable		(106.2	)		(15.3	)
Income taxes	$	(26.0	)	$	81.6

APP.-B-13-

4) Debt

Debt at December 31 consisted of:

	2004				2003
			Market				Market
(millions)	Cost		Value		Cost		Value
6.60% Notes due 2004 (issued: $200.0, January 1994)	$	—	$	—	$	200.0	$	200.3
7.30% Notes due 2006 (issued: $100.0, May 1996)		99.9		105.2		99.9		110.8
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)		347.7		384.6		347.5		382.6
7% Notes due 2013 (issued: $150.0, October 1993)		148.9		171.1		148.8		171.0
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		294.1		324.2		294.0		312.5
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		393.7		417.0		393.6		408.8
Other debt		—		—		6.0		6.0
	$	1,284.3	$	1,402.1	$	1,489.8	$	1,592.0

Debt includes amounts the Company has borrowed and contributed to the capital of its insurance subsidiaries or borrowed for other long-term purposes. Market values are obtained from publicly quoted sources. Interest on all debt is payable semiannually and all principal is due at maturity. There are no restrictive financial covenants.

     The 6.25% Senior Notes, the 6.375% Senior Notes and the 6 5/8% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at the option of the Company, subject to a “make whole” provision. All other debt is noncallable.

     Prior to issuance of the Senior Notes, the Company entered into forecasted debt issuance hedges against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed. The Company recognized, as part of accumulated other comprehensive income, a $5.1 million unrealized gain associated with the 6.25% Senior Notes, an $18.4 million unrealized gain associated with the 6.375% Senior Notes and a $4.2 million unrealized loss associated with the
6 5/8% Senior Notes. The gains (losses) on these hedges are recognized as adjustments to interest expense over the life of the related debt issuances.

     In June 2004, the Company entered into an uncommitted line of credit with National City Bank in the principal amount of $100 million. Interest on amounts borrowed accrues at a rate related to the London interbank offered rate (LIBOR). No commitment fees are required to be paid. There are no rating triggers under this line of credit. The Company had no borrowings under this arrangement at December 31, 2004.

     In January 2004, the Company entered into a revolving credit arrangement with National City Bank, replacing a prior credit facility with National City Bank, which had the same material terms with the exception of additional interest rate options under the new arrangement. Under this agreement, the Company had the right to borrow up to $10.0 million. By selecting from available credit options, the Company could elect to pay interest at the prime rate or rates related to LIBOR. A commitment fee was payable on any unused portion of the committed amount at the rate of ..125% per annum. The Company had no borrowings under this arrangement at December 31, 2004 or 2003. In January 2005, the Company elected to allow this revolving credit arrangement to expire at its contractual termination date, due to the fact that the Company maintains the $100 million line of credit with National City Bank, as discussed above.

     Aggregate principal payments on debt outstanding at December 31, 2004, are $0 for 2005, $100.0 million for 2006, $0 for 2007, 2008 and 2009 and $1.2 billion thereafter.

APP.-B-14-

5) Loss and Loss Adjustment Expense Reserves

Activity in the loss and loss adjustment expense reserves, prepared in accordance with GAAP, is summarized as follows:

(millions)	2004			2003			2002
Balance at January 1	$	4,576.3		$	3,813.0		$	3,238.0
Less reinsurance recoverables on unpaid losses		229.9			180.9			168.3
Net balance at January 1		4,346.4			3,632.1			3,069.7
Incurred related to:
Current year		8,664.1			7,696.5			6,295.6
Prior years		(109.1	)		(56.1	)		3.5
Total incurred		8,555.0			7,640.4			6,299.1
Paid related to:
Current year		5,719.2			5,065.4			4,135.0
Prior years		2,233.7			1,860.7			1,601.7
Total paid		7,952.9			6,926.1			5,736.7
Net balance at December 31		4,948.5			4,346.4			3,632.1
Plus reinsurance recoverables on unpaid losses		337.1			229.9			180.9
Balance at December 31	$	5,285.6		$	4,576.3		$	3,813.0

The Company’s objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while sustaining minimal variation from the date that the reserves are initially established until losses are fully developed. The Company’s reserves developed favorably in 2004 and 2003. In addition to favorable claims settlement during 2003, the Company benefited from a change in its estimate of the Company’s future operating losses due to business assigned from the New York Automobile Insurance Plan.

     Because the Company is primarily an insurer of motor vehicles, it has limited exposure to environmental, asbestos and general liability claims. The Company has established reserves for these exposures, in amounts which it believes to be adequate based on information currently known. The Company does not believe that these claims will have a material effect on the Company’s liquidity, financial condition, cash flows or results of operations.

     The Company writes personal and commercial auto insurance in the coastal states, which could be exposed to natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on the Company’s monthly or quarterly results, the Company believes such an event would not be so material as to disrupt the overall normal operations of the Company. The Company is unable to predict if any such events will occur in the near term.

6) Reinsurance

Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies.

     The primary difference between direct and net premiums written is attributable to premiums written under state-mandated involuntary Commercial Auto Insurance Procedures/Plans (CAIP), for which the Company retains no loss indemnity risk, and premiums ceded to state-provided reinsurance facilities.

APP.-B-15-

The effect of reinsurance on premiums written and earned for the years ended December 31 was as follows:

	2004						2003						2002
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	13,694.1		$	13,480.8		$	12,187.9		$	11,597.5		$	9,665.7		$	9,078.1
Ceded		(316.0	)		(310.9	)		(274.5	)		(256.5	)		(213.8	)		(194.7	)
Assumed		—			—			—			—			.1			.1
Net premiums	$	13,378.1		$	13,169.9		$	11,913.4		$	11,341.0		$	9,452.0		$	8,883.5

As of December 31, 2004 and 2003, almost 60% of the “prepaid reinsurance premiums” are comprised of CAIP. As of December 31, 2004, approximately 45% of the “reinsurance recoverables” are comprised of CAIP, compared to almost 55% in 2003. The remainder of the “reinsurance recoverables” are primarily comprised of reinsurance recoverables from state-mandated programs.

     Losses and loss adjustment expenses are net of reinsurance ceded of $271.9 million in 2004, $185.8 million in 2003 and $131.8 million in 2002.

7) Statutory Financial Information

At December 31, 2004, $488.7 million of consolidated statutory policyholders’ surplus represents net admitted assets of the Company’s insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. The companies may be licensed in states other than their states of domicile, which may have higher minimum statutory surplus requirements. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed.

     During 2004, the insurance subsidiaries paid aggregate cash dividends of $2,123.8 million to the parent company. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $1,229.9 million in 2005 without prior approval from regulatory authorities, provided the dividend payments are not within 12 months of previous dividends paid by the applicable subsidiary.

     Consolidated statutory policyholders’ surplus was $4,671.8 million and $4,538.3 million at December 31, 2004 and 2003, respectively. Statutory net income was $1,659.4 million, $1,260.5 million and $557.4 million for the years ended December 31, 2004, 2003 and 2002, respectively.

8) Employee Benefit Plans

Retirement Plans The Company has a two-tiered Retirement Security Program. The first tier is a defined contribution pension plan covering all employees who meet requirements as to age and length of service. Contributions vary from 1% to 5% of annual eligible compensation up to the Social Security wage base, based on years of eligible service. Company contributions were $17.2 million in 2004, $15.4 million in 2003 and $13.0 million in 2002.

     The second tier is a long-term savings plan under which the Company matches, up to a maximum of 3% of the employee’s eligible compensation, amounts contributed to the plan by an employee. Company matching contributions are not restricted and may be invested by a participant in any of the investment funds available under the plan. Company matching contributions were $23.4 million in 2004, $19.9 million in 2003 and $16.9 million in 2002.

Postemployment Benefits The Company provides various postemployment benefits to former or inactive employees who meet eligibility requirements, their beneficiaries and covered dependents. Postemployment benefits include salary continuation and disability-related benefits, including workers’ compensation, and, if elected, continuation of health-care benefits. The Company’s liability was $15.5 million at December 31, 2004, compared to $12.3 million in 2003.

Postretirement Benefits The Company provides postretirement health and life insurance benefits to all employees who met requirements as to age and length of service at December 31, 1988. This group of employees represents less than one-half of one percent of the Company’s current workforce. The Company’s funding policy is to contribute annually the maximum amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future.

APP.-B-16-

Deferred Compensation The Company maintains The Progressive Corporation Executive Deferred Compensation Plan (Deferral Plan), which permits eligible executives to defer receipt of some or all of their annual bonuses or all of their restricted stock awards. These deferred amounts are deemed invested in one or more investment funds, including Common Shares of the Company, offered under the Deferral Plan. All distributions from the Deferral Plan will be made in cash. Prior to February 2004, distributions representing amounts deemed invested in Common Shares were made in Common Shares. The Company reserved 900,000 Common Shares for issuance under the Deferral Plan. Included in the Company’s balance sheets is an irrevocable grantor trust established to provide a source of funds to assist the Company in meeting its liabilities under the Deferral Plan. At December 31, 2004 and 2003, the trust held assets of $59.3 million and $41.3 million, respectively, of which $12.4 million and $7.1 million were held in Common Shares, to cover its liabilities.

Incentive Compensation Plans The Company’s incentive compensation plans include executive cash bonus programs for key members of management, a cash gainsharing program for all other employees and other stock-based compensation plans for key members of management and the non-employee directors. The amounts charged to income for cash incentive compensation plans were $260.7 million in 2004, $233.5 million in 2003 and $169.4 million in 2002. The amount charged to income for time-based and performance-based restricted stock awards was $23.8 million and $11.0 million in 2004 and 2003, respectively.

     The Company’s 2003 Incentive Plan and the Company’s 1995 Incentive Plan, which provide for the granting of stock-based awards, including stock options and restricted stock awards, to key employees of the Company, has 5.0 million and 15.0 million shares authorized, respectively. The 1989 Incentive Plan has expired; however, awards made under the plan prior to expiration are still in effect.

     Beginning in 2003, the Company began issuing restricted stock awards in lieu of stock options. The restricted stock awards were issued as either time-based or performance-based awards. The time-based awards vest in equal installments upon the lapse of a period of time, typically over three, four and five year periods. The restriction period must be a minimum of six months and one day. The performance-based awards vest upon the achievement of predetermined performance criteria. The restricted stock awards are expensed pro rata over the vesting period based on the market value of the non-deferred awards at the time of grant, while the deferred awards are based on the current market value at the end of the reporting period.

     Prior to 2003, the Company issued nonqualified stock options, which were granted for periods up to ten years, become exercisable at various dates not earlier than six months after the date of grant, and remain exercisable for specified periods thereafter. All options granted had an exercise price equal to the market value of the Common Shares on the date of grant. All option exercises are settled in Common Shares.

A summary of all employee restricted stock activity during the years ended December 31 follows:

	2004					2003
				Weighted					Weighted
	Number of			Average		Number of			Average
Restricted Shares	Shares			Grant Price		Shares			Grant Price
Beginning of year		549,648		$	65.81		—			—
Add (deduct):
Granted		492,416			84.16		553,290		$	65.81
Vested		(99,868	)		65.55		(655	)		65.55
Cancelled		(26,355	)		70.60		(2,987	)		65.55
End of year		915,841		$	75.57		549,648		$	65.81

APP.-B-17-

A summary of all employee stock option activity during the years ended December 31 follows:

	2004					2003					2002
				Weighted					Weighted					Weighted
	Number of			Average		Number of			Average		Number of			Average
Options Outstanding	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Beginning of year		8,725,037		$	30.43		11,947,271		$	27.44		12,682,380		$	23.81
Add (deduct):
Granted		—			—		—			—		1,194,192			52.17
Exercised		(2,025,156	)		24.94		(2,826,420	)		17.47		(1,464,862	)		15.11
Cancelled		(110,380	)		35.42		(395,814	)		32.66		(464,439	)		30.81
End of year		6,589,501		$	32.04		8,725,037		$	30.43		11,947,271		$	27.44
Exercisable, end of year		3,926,214		$	30.02		3,749,453		$	25.49		4,542,722		$	17.19
Available, end of year 1		11,443,867					11,825,903					6,988,479

¹Represents 7,141,717 shares and 4,302,150 shares available under the 1995 and 2003 Incentive Plans, respectively, after the granting of stock options and restricted stock awards. The 1995 Incentive Plan expired on February 10, 2005, and the remaining shares thereunder are no longer available for future issuance.

The following employee stock options were outstanding or exercisable as of December 31, 2004:

	Options Outstanding					Options Exercisable
			Weighted Average	Weighted				Weighted
Range of	Number of		Remaining	Average		Number of		Average
Exercise Prices	Shares		Contractual Life	Exercise Price		Shares		Exercise Price
$  15 < 20		2,002,814	4.32 years	$	18.64		1,296,332	$	18.32
20 < 30		810,068	2.39 years		23.05		760,794		22.98
30 < 40		1,548,969	5.95 years		30.76		574,340		30.80
40 < 50		1,145,809	3.60 years		44.52		1,120,432		44.49
50 < 60		1,081,841	6.99 years		52.22		174,316		52.11
$  15 < 60		6,589,501					3,926,214

In addition to the employee incentive plans disclosed above, the Company registered 350,000 Common Shares for the 2003 Directors Equity Incentive Plan, which provides for the granting of equity-based incentive awards to non-employee directors of the Company, and 600,000 Common Shares under the 1998 Directors’ Stock Option Plan. During 2004 and 2003, the Company granted 12,242 and 16,102, respectively, time-based restricted stock awards, which vest within one year from the date of grant. During 2002, the Company granted options for 23,571 shares to the non-employee directors. These awards have the same vesting, exercise and contract terms as the employee stock option awards. As of December 31, 2004, 2003 and 2002, the directors stock options outstanding and exercisable were 242,277 shares, 311,061 shares and 343,044 shares, respectively.

Under SFAS 123, the Company used the modified Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant, including 23,571 options awarded to the non-employee directors during 2002. The Company used the following assumptions in relation to the option awards granted in 2002:

	2002
Option Term	6 years
Annualized Volatility Rate		39.5	%
Risk-Free Rate of Return		4.66	%
Dividend Yield		.25	%
Black-Scholes Value		44.6	%

The Company elected to account for terminations when they occur rather than include an attrition factor into its model.

APP.-B-18-

9) Segment Information

The Company writes personal automobile and other specialty property-casualty insurance and provides related services throughout the United States. The Company’s Personal Lines segment writes insurance for private passenger automobiles and recreation vehicles, which is generated either by an agency or written directly by the Company. The Personal Lines-Agency channel includes business written by the Company’s network of more than 30,000 independent insurance agencies and strategic alliance business relationships (other insurance companies, financial institutions, employers and national brokerage agencies). The Personal Lines-Direct channel includes business written through 1-800-PROGRESSIVE and online at progressive.com. The Personal Lines segment includes both the Agency and Direct channels.

     The Personal Lines-Agency channel and the Personal Lines-Direct channel are each organized into six geographical regions. Currently, both the Agency channel and the Direct channel have three General Managers responsible for two regions each. Each channel has a Group President and a process team, with local managers at the state level. Each of the six regions has a Claims business General Manager responsible for claims handling in the region.

     The Company’s Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses.

     The Company’s other businesses-indemnity primarily includes writing professional liability insurance for community banks and managing the Company’s run-off businesses, including the wind-down of the Company’s lender’s collateral protection program. The Company’s other businesses-service includes providing insurance-related services, primarily processing CAIP business.

     All revenues are generated from external customers and the Company does not have a reliance on any major customer.

     The Company evaluates segment profitability based on pretax underwriting and service profit (loss). Pretax profit (loss) is defined as underwriting profit (loss) for the Personal Lines, Commercial Auto and other businesses-indemnity as well as service profit (loss) for the other businesses-service. Underwriting profit (loss) is calculated as net premiums earned less loss and loss adjustment expenses, policy acquisition costs and other underwriting expenses. Service profit (loss) is the difference between service revenues and service expenses. Expense allocations are based on certain assumptions and estimates; stated segment operating results would change if different methods were applied. The Company does not allocate assets or income taxes to operating segments. In addition, the Company does not separately identify depreciation and amortization expense by segment and such disclosure would be impractical. Companywide depreciation expense was $99.4 million in 2004, $89.3 million in 2003 and $83.9 million in 2002. The accounting policies of the operating segments are the same as those described in Note 1 — Reporting and Accounting Policies.

Following are the operating results for the years ended December 31:

	2004					2003					2002
			Pretax					Pretax					Pretax
(millions)	Revenues		Profit (Loss)			Revenues		Profit (Loss)			Revenues		Profit (Loss)
Personal Lines – Agency	$	7,893.7	$	1,108.2		$	6,948.0	$	836.0		$	5,542.7	$	388.0
Personal Lines – Direct		3,718.2		525.6			3,103.0		383.0			2,365.1		203.8
Total Personal Lines 1		11,611.9		1,633.8			10,051.0		1,219.0			7,907.8		591.8
Commercial Auto Business		1,524.1		321.4			1,226.7		214.2			880.0		80.0
Other businesses – indemnity		33.9		3.1			63.3		8.2			95.7		6.8
Total underwriting operations		13,169.9		1,958.3			11,341.0		1,441.4			8,883.5		678.6
Other businesses – service		48.5		23.5			41.8		16.1			34.3		12.3
Investments 2		563.7		549.8			478.0		466.5			376.6		365.1
Interest expense		—		(80.8	)		—		(95.5	)		—		(74.6	)
Other income 3		—		—			31.2		31.2			—		—
	$	13,782.1	$	2,450.8		$	11,892.0	$	1,859.7		$	9,294.4	$	981.4

¹Personal automobile insurance accounted for 93% of the total Personal Lines segment net premiums earned in 2004, 2003 and 2002.

²Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses.

³Represents interest income related to an income tax refund the Company received in 2004. See Note 3 — Income Taxes for further discussion.

APP.-B-19-

The Company’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. The underwriting margin is the pretax profit (loss) expressed as a percent of net premiums earned (i.e., revenues). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins/combined ratios for the Company’s underwriting operations as of December 31:

	2004					2003					2002
	Underwriting			Combined		Underwriting			Combined		Underwriting			Combined
(millions)	Margin			Ratio		Margin			Ratio		Margin			Ratio
Personal Lines – Agency		14.0	%		86.0		12.0	%		88.0		7.0	%		93.0
Personal Lines – Direct		14.1			85.9		12.3			87.7		8.6			91.4
Total Personal Lines		14.1			85.9		12.1			87.9		7.5			92.5
Commercial Auto Business		21.1			78.9		17.5			82.5		9.1			90.9
Other businesses – indemnity		9.2			90.8		13.0			87.0		7.2			92.8
Total underwriting operations		14.9			85.1		12.7			87.3		7.6			92.4

10) Other Comprehensive Income

The components of other comprehensive income for the years ended December 31 were as follows:

	2004									2003									2002
				Tax									Tax									Tax
				(Provision)			After						(Provision)			After						(Provision)			After
(millions)	Pretax			Benefit			Tax			Pretax			Benefit			Tax			Pretax			Benefit			Tax
Unrealized gains (losses)
arising during period:
Available-for-sale:
fixed maturities	$	(48.0	)	$	16.8		$	(31.2	)	$	2.8		$	(.9	)	$	1.9		$	240.9		$	(84.3	)	$	156.6
equity securities		241.4			(84.5	)		156.9			431.6			(151.1	)		280.5			(137.8	)		48.2			(89.6	)
Reclassification adjustment: 1
Available-for-sale:
fixed maturities		(74.4	)		26.0			(48.4	)		(71.5	)		25.0			(46.5	)		(13.8	)		4.7			(9.1	)
equity securities		(93.0	)		32.6			(60.4	)		30.6			(10.7	)		19.9			(26.2	)		9.2			(17.0	)
Net unrealized gains (losses)		26.0			(9.1	)		16.9			393.5			(137.7	)		255.8			63.1			(22.2	)		40.9
Net unrealized gains on forecasted transactions 2		(1.5	)		.5			(1.0	)		(1.5	)		.5			(1.0	)		3.8			(1.3	)		2.5
Foreign currency translation adjustment 3		3.9			—			3.9			.9			—			.9			—			—			—
Other comprehensive income	$	28.4		$	(8.6	)	$	19.8		$	392.9		$	(137.2	)	$	255.7		$	66.9		$	(23.5	)	$	43.4

¹Represents adjustments for gains (losses) realized in net income for securities held in the portfolio at December 31 of the preceding year.

²Entered into for the purpose of managing interest rate risk associated with debt issuances. See Note 4 — Debt. The Company expects to reclassify $1.5 million into income within the next 12 months.

³Foreign currency translation adjustments have no tax effect.

APP.-B-20-

11) Litigation

The Company is named as defendant in various lawsuits arising out of its insurance operations. All legal actions relating to claims made under insurance policies are considered by the Company in establishing its loss and loss adjustment expense reserves.

     In addition, the Company is named as defendant in a number of class action or individual lawsuits. Other insurance companies face many of these same issues. The lawsuits discussed below are in various stages of development. The Company plans to contest these suits vigorously, but may pursue settlement negotiations in appropriate cases. The outcomes of these cases are uncertain at this time. In accordance with GAAP, the Company is only permitted to establish loss reserves for lawsuits when it is probable that a loss has been incurred and the Company can reasonably estimate its potential exposure (referred to as a loss that is both “probable and estimable” in the discussion below). As to lawsuits that do not satisfy both parts of this GAAP standard, the Company has not established reserves at this time. However, in the event that any one or more of these cases results in a judgment against or settlement by the Company, the resulting liability could have a material effect on the Company’s financial condition, cash flows and results of operations.

     As required by the GAAP standard, the Company has established loss reserves for lawsuits as to which the Company has determined that a loss is both probable and estimable. Certain of these cases are mentioned in the discussion below. Based on currently available information, the Company believes that its reserves for these lawsuits are reasonable and that the amounts reserved did not have a material effect on the Company’s financial condition or results of operations. However, if any one or more of these cases results in a judgment against or settlement by the Company for an amount that is significantly greater than the amount so reserved, the resulting liability could have a material effect on the Company’s financial condition, cash flows and results of operations.

     Following is a discussion of the Company’s potentially significant pending cases at December 31, 2004.

     There are two putative class action lawsuits challenging the Company’s use of certain automated database vendors to assist in the adjustment of bodily injury claims. Plaintiffs allege that these databases systematically undervalue the claims. The Company does not consider a loss from these cases to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

     There are three putative class action lawsuits challenging the Company’s installment fee programs. The Company has successfully defended similar cases in the past and does not consider a loss to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

     There are three putative class action lawsuits challenging the Company’s practice of specifying aftermarket (non-original equipment manufacturer) replacement parts in the repair of insured or claimant vehicles. Plaintiffs in these cases generally allege that aftermarket parts are inferior to replacement parts manufactured by the vehicle’s original manufacturer and that the use of such parts fails to restore the damaged vehicle to its “pre-loss” condition, as required by their insurance policies. The Company does not consider a loss from these cases to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

     There are three putative class action lawsuits pending against the Company in Florida challenging the legality of the Company’s payment of preferred provider rates on personal injury protection (PIP) claims. The primary issue is whether the Company violated Florida law by paying PIP medical expense claims at preferred provider rates. The Company does not consider a loss to be probable and estimable, and is unable to estimate a range of loss, if any, at this time. During 2004, the Company settled an individual bad faith lawsuit in Florida, which alleged similar issues; the settlement did not have a material effect on the Company’s financial condition, cash flows or results of operations.

     There are two putative class action lawsuits challenging the Company’s use of certain automated database vendors to assist in the evaluation of total loss claims. Plaintiffs allege that these databases systematically undervalue total loss claims to the detriment of insureds. The Company has been engaged in extensive settlement negotiations to resolve the claims raised in these cases and has established a loss reserve for this resolution.

     There are five class action lawsuits challenging certain aspects of the Company’s use of credit information and notice requirements under the federal Fair Credit Reporting Act. The Company had entered into a settlement agreement to resolve these cases, had received preliminary court approval of the settlement and had established a reserve accordingly. On February 24, 2005, the Company was advised that the court denied final approval of the proposed settlement, and the Company is now assessing the impact of this decision and reviewing available options, which may include further negotiations with counsel for the plaintiffs or a resumption of the litigation. During 2004, the Company settled a state-specific case within the reserve amount established in prior years.

     The Company has prevailed in four putative class action lawsuits, in various Texas state courts, alleging that the Company is obligated to reimburse insureds, under their auto policies, for the inherent diminished value of their vehicles after they have been involved in an accident. Plaintiffs define inherent diminished value as the difference between the market value of the insured automobile before an accident and the market value after proper repair. The Supreme Court of Texas has ruled that diminished value recovery is not available under the Texas automobile policy. In February 2002, the Company reached an agreement to settle its Georgia diminution of value case for $19.8 million, plus administrative costs. The claims process was completed in early 2003. The Company believes that Georgia law on diminution of value is an anomaly and has successfully defended several of these cases in other jurisdictions.

     In November 2002, the Company reached an agreement to settle for $10 million its lawsuit relating to the classification of the Company’s California claims employees as “exempt” workers for purposes of state wage and hour laws. The claims process for the settlement of the California case was completed in early 2003. That class action lawsuit was based on California-specific law.

APP.-B-21-

     During 2004, the Company settled a federal collective action lawsuit involving worker classification issues under the federal Fair Labor Standards Act (FLSA) and five state class actions, which were consolidated with the federal case. All of such lawsuits challenged the Company’s classification of its claims representatives as “exempt” under the FLSA and/or various state laws. In October 2004, the Company reached an agreement under which it funded an account for all potential claims of class member claims representatives and eligible claims representative trainees. This settlement did not have a material effect on the Company’s financial condition, cash flows or results of operations.

     In July 2002, the Company settled a nationwide class action lawsuit challenging one of the Company’s claim adjustment practices, known as the charging of “betterment.” Specifically, it was alleged that the Company made improper adjustments for depreciation and physical condition in the adjustment of first party physical damage claims. This settlement has received trial court approval and the claims process was completed in early 2003.

     In July 2002, the Company reached a nationwide settlement of a class action lawsuit challenging the Company’s alternative commission programs. Under these programs, independent insurance agents were able to offer the Company’s insurance products at different commission levels. The settlement resulted in the payment of approximately $60 million, including the costs of settlement and attorneys’ fees. The claims process for that settlement was completed in early 2003. During 2004, the Company settled two groups of individual cases, one in Alabama and one in Mississippi, which were filed by individuals who opted out of the nationwide class action settlement, within the reserve amount established in prior years for these groups of cases.

     The Company is defending one putative class action lawsuit alleging that the Company’s rating practices at renewal are improper. The Company prevailed in a similar putative class action in December 2004. The Company does not consider a loss from this case to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

     The Company is defending one national putative class action lawsuit brought on behalf of medical providers disputing the legality of the Company’s practice of paying first party medical benefits pursuant to a preferred provider agreement. The Company does not consider a loss to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

12) Commitments and Contingencies

     The Company has certain noncancelable operating lease commitments and service contracts with terms greater than one year. The minimum commitments under these agreements at December 31, 2004, are as follows:

(millions)

	Operating		Service
Year	Leases		Contracts		Total
2005	$	87.5	$	58.1	$	145.6
2006		74.2		20.3		94.5
2007		57.9		4.1		62.0
2008		36.4		1.6		38.0
2009		20.4		1.3		21.7
Thereafter		31.7		1.2		32.9

Some of the agreements have options to renew at the end of the contract periods. The expense incurred by the Company for the agreements disclosed above, as well as other operating leases that may be cancelable or have terms less than one year, was:

(millions)

	Operating		Service
Year	Leases		Contracts		Total
2004	$	116.0	$	89.4	$	205.4
2003		101.6		80.1		181.7
2002		71.0		77.5		148.5

During 2004, the Company incurred $11.4 million of guaranty fund assessments, compared to $12.2 million in 2003 and $21.2 million in 2002. At December 31, 2004 and 2003, the Company had $10.7 million and $10.1 million, respectively, reserved for future assessments on current insolvencies. Management believes that any assessment in excess of its current reserves will not materially affect the Company’s financial condition, cash flows or results of operations.

     As of December 31, 2004, the Company had open investment funding commitments of $7.3 million; the Company had no uncollateralized lines or letters of credit as of December 31, 2004 or 2003.

APP.-B-22-

13) Fair Value of Financial Instruments

Information about specific valuation techniques and related fair value detail is provided in Note 1 — Reporting and Accounting Policies, Note 2 — Investments and Note 4 — Debt. The cost and market value of the financial instruments as of December 31 are summarized as follows:

	2004						2003
				Market						Market
(millions)	Cost			Value			Cost			Value
Investments:
Available-for-sale: fixed maturities	$	8,972.6		$	9,084.3		$	8,899.0		$	9,133.4
preferred stocks		749.4			768.9			751.3			778.8
common equities		1,314.0			1,851.9			1,590.6			1,972.1
Short-term investments		1,376.6			1,376.9			648.0			648.0
Debt		(1,284.3	)		(1,402.1	)		(1,489.8	)		(1,592.0	)

14) Related Party Transactions

The following table summarizes the Company’s repurchase of its Common Shares, $1.00 par value, from Peter B. Lewis, the Company’s Chairman of the Board, or through an entity owned and controlled, directly or indirectly, by Mr. Lewis, during the three year period ended December 31, 2004. The 2004 transaction was part of the Company’s “Dutch auction” tender offer and the price per share was the same price given to all shareholders who elected to participate in the tender offer. The prices per share for 2003 and 2002 equaled the then current market price of the Company’s stock as quoted on the New York Stock Exchange and were part of the Company’s ongoing repurchase program to eliminate the effect of dilution created by equity compensation awards.

	Number of		Price per
Date of Purchase	Shares		Share
October 2004		1,100,000	$	88.00
September 2003		200,000		71.00
January 2003		400,000		52.23
March 20021		6,182		53.92

¹Per share amount was adjusted for the April 22, 2002, 3-for-1 stock split.

APP.-B-23-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control structure was designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

     Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s evaluation under the framework in Internal Control — Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2004. There were no material weaknesses identified during the internal control review process.

     Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

     PricewaterhouseCoopers LLP, an independent registered public accounting firm that audited the financial statements in this Annual Report, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting as of December 31, 2004, which is included herein.

CEO AND CFO CERTIFICATIONS

Glenn M. Renwick, President and Chief Executive Officer of The Progressive Corporation, and W. Thomas Forrester, Vice President and Chief Financial Officer of The Progressive Corporation, have issued the certifications required by Sections 302 and 906 of The Sarbanes-Oxley Act of 2002 and applicable SEC regulations with respect to the Company’s Annual Report on Form 10-K, including the financial statements provided in this Report. Among other matters required to be included in those certifications, Mr. Renwick and Mr. Forrester have each certified that, to the best of his knowledge, the financial statements, and other financial information included in the Annual Report on Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented. See Exhibits 31 and 32 to the Company’s Annual Report on Form 10-K for the complete Section 302 and 906 Certifications, respectively.

     In addition, Mr. Renwick submitted his annual certification to the New York Stock Exchange (NYSE) on May 12, 2004, stating that he was not aware of any violation by the Company of the NYSE corporate governance listing standards, as required by Section 303A.12(a) of the NYSE Listed Company Manual.

APP.-B-24-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of The Progressive Corporation:

We have completed an integrated audit of The Progressive Corporation’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of The Progressive Corporation and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Cleveland, Ohio
March 1, 2005

APP.-B-25-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The consolidated financial statements and the related notes, together with the supplemental information, should be read in conjunction with the following discussion of the consolidated financial condition and results of operations.

Overview The Progressive Corporation, a holding company that has insurance and non-insurance subsidiaries and one mutual insurance company affiliate (collectively, the “Company”), does not have any revenue producing operations of its own. Its insurance subsidiaries and affiliate provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. The Company’s Personal Lines segment writes insurance for private passenger automobiles and recreation vehicles through both the independent agency channel and the direct channel. The Company ranks third in the U.S. personal auto insurance market, based on 2003 and estimated 2004 net premiums written, with an estimated 7.4% market share in 2004.

     Although there are approximately 300 insurance companies/groups with annual premiums greater than $5 million competing in the estimated $158 billion U.S. personal auto market, the top 15 insurance groups account for approximately 72% of the premiums written. In the aggregate, these top 15 groups outperformed the industry in both growth and profitability, supporting the Company’s belief that the market will continue to consolidate. The Company is the number one writer of private passenger auto insurance through independent agencies and the number three writer in the direct channel, based on net premiums written in the U.S. The Company also competes in the U.S. commercial auto insurance market where it is the third largest carrier, based on direct premiums written, with about 6% market share. The Company’s Commercial Auto segment writes insurance for automobiles and trucks (e.g., pick-up or panel trucks) owned by small businesses primarily through the independent agency channel.

     The holding company receives cash through borrowings, equity sales, subsidiary dividends and other transactions, and may use the proceeds to contribute to the capital of its insurance subsidiaries in order to support premium growth, pay interest on or retire its outstanding indebtedness, pay dividends and repurchase its Common Shares and for other business purposes. In 2004, the Company received $1.6 billion of dividends from its subsidiaries, net of capital contributions, and used a portion of these dividends to fund the tender offer discussed below. At year-end 2004, the Company had $1.2 billion of readily marketable securities in a non-insurance subsidiary that can be used to satisfy the holding company’s obligations.

     During 2004, the Company repurchased 16,919,674 of its Common Shares at a purchase price of $88 per share for a total cost of $1.5 billion pursuant to a “Dutch auction” tender offer. Outside of the tender offer, the Company repurchased 1,695,222 additional Common Shares during the year at a total cost of $139.5 million, with an average cost of $82.31 per share. The Company did not issue any debt or equity securities during 2004, but repaid $200 million of notes at maturity in January 2004 and $6 million of “other debt” in December 2004.

     On a consolidated basis, the Company generated positive operating cash flows of $2.7 billion in 2004, portions of which were used during the year to repurchase Common Shares and to construct two new call centers and an office building, as well as lease additional space to support the Company’s growing operations. The Company opened one additional claims service center during the year, bringing the total number of such centers to 20. These centers, which are designed to provide end-to-end resolution for auto physical damage losses, are expected to improve efficiency and customer convenience, increase accuracy, reduce rework, improve repair cycle time and provide greater brand distinction.

     The Company’s goal is to grow as fast as possible, constrained only by its objective to produce an aggregate calendar year 4% underwriting profit and its ability to provide high-quality customer service. During the year, in light of market conditions and its own favorable underwriting profitability, the Company favored maintaining relatively robust margins without significantly impairing growth. Nevertheless, the Company remains committed to its stated profit and growth objectives over rolling five-year periods.

     The U.S. private passenger auto insurance market produced its second consecutive year of underwriting profitability as auto accident frequency rates continued to decline. Consequently, there was little rate pressure on consumers, leading to a natural reduction in consumer shopping. While these market conditions and profitability levels are unusual and perhaps transitional, they offered opportunities for the Company to improve its understanding and calibration of market responses to varying rate stimuli.

     The Company had a 12% increase in net premiums written, an 85.1 combined ratio and net income of $1.65 billion in 2004. Policies in force grew 11%. The Company continued to reap the benefits of the profitable growth phase of this insurance cycle and further benefited from the lowest level of automobile accident frequency experienced by the industry in recent history. Rate stability, along with the Company’s advancements in product design, brand and technology initiatives, also contributed to 2004 results. The Company performed 124 auto rate and program revisions, which were designed to maintain rate adequacy and reflect the Company’s most accurate estimate of prospective loss costs based on available information.

APP.-B-26-

     In 2004, the Company achieved underwriting profitability in all of the 49 Personal Lines markets in which it writes business, with only Florida not meeting or exceeding its 4% underwriting profit objective due to hurricane-related losses. In Commercial Auto, two states, out of the 45 markets in which it conducts business, were unprofitable (these states represented less than 1% of the Commercial Auto premiums written).

     During 2004, the Company experienced $109.1 million of favorable prior period loss and loss adjustment expense reserve development, or 2.5% of prior year’s reserves. This level of reserving accuracy allows the Company to have solid pricing data, which helps ensure rate adequacy. The low loss frequency, coupled with no notable escalating trends in claim costs and continuous improvement in claims settlement quality, helped contribute to the Company’s favorable results for the year (discussed further in the Loss and Loss Adjustment Expense Reserves subsection).

     The Company’s investment portfolio produced a fully taxable equivalent (FTE) total return of 5.2% for 2004. Short-term interest rates increased as the Federal Open Market Committee raised the overnight Federal Funds Rate by 1.25% to 2.25% during 2004, while yields on long maturity U.S. Treasury bonds declined. The economy continued to expand at a solid pace, supporting growth in corporate profits, positive stock market returns and lower yield differential for non-U.S. Treasury securities compared to similar maturity U.S. Treasuries. The Company maintained its asset allocation strategy of investing approximately 85% of its total portfolio in fixed-income securities and 15% in common equities. Both asset classes contributed to the overall result, with FTE total returns of 11.6% and 4.2% in the common stock and fixed-income portfolios, respectively, for 2004. Late in the first quarter, the Company shortened the duration of the fixed-income portfolio and ended the year at 2.9 years, compared to 3.3 years at the end of 2003. The weighted average credit rating of the fixed-income portfolio ranged from AA to AA+ during the year. Substantial cash flows from operations and positive investment returns provided modest portfolio growth, even after completion of the Company’s $1.5 billion “Dutch auction” tender offer for its Common Shares in 2004. The Company continues to maintain its fixed-income portfolio strategy of investing in high quality, shorter duration securities in the current investment environment. The Company’s common equity investment strategy remains an index replication approach using the Russell 1000 Index as the benchmark.

Financial Condition HOLDING COMPANY For the three-year period ended December 31, 2004, The Progressive Corporation received $1.8 billion of dividends from its subsidiaries, net of cash capital contributions made to subsidiaries, including $1.6 billion received in 2004. The regulatory restrictions on subsidiary dividends are described in Note 7 — Statutory Information, to the financial statements.

     During 2004, after evaluating the Company’s financial condition, business prospects and capital needs, the Board of Directors determined that the Company had a significant amount of capital on hand in excess of what was needed to support its insurance operations, satisfy its corporate obligations and to prepare for various contingencies. In view of this situation and the Company’s policy to return capital to shareholders when appropriate, the Board determined that a tender offer for up to 17.1 million of its Common Shares would be a prudent use of the Company’s excess capital. In connection with the tender offer, 16,919,674 Common Shares were repurchased at a total cost of $1.5 billion ($88 per share). During the three-year period ended December 31, 2004, the Company repurchased 27,173,356 of its Common Shares at a total cost of $2.2 billion (average cost of $78.69, on a split-adjusted basis). See Incentive Compensation Plans, a supplemental disclosure provided in this Annual Report, for further discussion on the Company’s policy regarding share repurchases.

     During the last three years, the Company issued $400 million, and repaid $206.8 million, principal amount of debt securities. See Note 4 — Debt for further discussion on the Company’s current outstanding debt. The Company’s debt to total capital (debt plus equity) ratio at December 31, 2004 and 2003, was 20% and 23%, respectively.

CAPITAL RESOURCES AND LIQUIDITY The Company has substantial capital resources and is unaware of any trends, events or circumstances not disclosed herein that are reasonably likely to affect its capital resources in a material way. The Company has the ability to issue $250 million of additional debt securities under a shelf registration statement filed with the Securities and Exchange Commission (SEC) in October 2002 (see discussion below). In addition, during 2004, the Company entered into an uncommitted line of credit with National City Bank in the principal amount of $100 million. The Company entered into the line of credit as part of a contingency plan to help the Company maintain liquidity in the unlikely event that it experiences conditions or circumstances that affect the Company’s ability to transfer or receive funds. The Company has not borrowed under this arrangement to date. The Company’s financial policy is to maintain a debt to total capital ratio below 30%. The Company’s debt to total capital ratio was 20% at December 31, 2004, which provides the Company with substantial borrowing capacity.

     In October 2002, the Company filed a shelf registration statement with the SEC for the issuance of up to $650 million of debt securities, which included $150 million of unissued debt securities from a shelf registration filed in November 2001. The registration statement was declared effective in October 2002, and, in November 2002, the Company issued $400.0 million of 6.25% Senior Notes due 2032 under the shelf. The net proceeds of $398.6 million, which included $5.1 million received under a hedge on forecasted transactions that the Company entered into in anticipation of the debt issuance, were used, in part, to retire, at their January 2004 maturity, the Company’s outstanding 6.60% Notes in the principal amount of $200 million. The remaining proceeds were used for general corporate purposes. The Company’s existing debt covenants do not include any rating or credit triggers.

APP.-B-27-

     The Company’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. As an auto insurer, the Company’s claim liabilities, by their very nature, are short in duration. Approximately 50% of the Company’s outstanding reserves are paid within one year and less than 20% are still outstanding after three years. See Claims Payment Patterns, a supplemental disclosure provided in this Annual Report, for further discussion on the timing of the Company’s claims payments. For the three years ended December 31, 2004, operations generated positive cash flows of $7.0 billion, and cash flows are expected to remain positive in both the short-term and reasonably foreseeable future. In addition, the Company’s investment portfolio is highly liquid and consists substantially of readily marketable, investment-grade securities. As of December 31, 2004, 86% of the Company’s portfolio was invested in fixed-income securities with a weighted average credit quality of AA and duration of 2.9 years. Management believes that the Company has sufficient readily marketable securities to cover its claims payments without having a negative effect on the Company’s cash flows from operations.

     The Company’s companywide net premiums written-to-surplus ratio was 2.9 to 1 at December 31, 2004. The Company intends over time to increase operating leverage slowly through a higher rate of net premiums to surplus in its insurance subsidiaries where permitted. The Company believes that substituting operating leverage (higher premiums-to-surplus ratio) for financial leverage (lower debt to total capital ratio) reduces the Company’s risk profile. In the event of profitability problems, the Company could raise rates to slow growth, which would reduce the operating leverage, but would have little or no effect on the Company’s debt service obligations.

     The Company maintains insurance on its real property and other physical assets, including coverage for losses due to business interruptions caused by covered property damage. However, the insurance will not compensate the Company for losses that may occur due to disruptions in service as a result of a computer, data processing or telecommunications systems failure that is unrelated to covered property damage, nor will the insurance necessarily compensate the Company for all losses resulting from covered events. To help maintain functionality and reduce the risk of significant interruptions of its operations, the Company maintains back-up systems or facilities for certain of its principal systems and services. The Company may still be exposed, however, should these measures prove to be unsuccessful or inadequate against severe, multiple or prolonged service interruptions or against interruptions of systems where no back-up currently exists. In addition, the Company has established emergency management teams, which are responsible for responding to business disruptions and other risk events. The teams’ ability to respond successfully may be limited depending on the nature of the event, the completeness and effectiveness of the Company’s plans to maintain business continuity upon the occurrence of such an event, and other factors beyond the Company’s control.

     The Company seeks to deploy capital in a prudent manner and uses multiple data sources and modeling tools to estimate the frequency, severity and correlation of identified exposures, including, but not limited to, catastrophic losses and the business interruptions discussed above, to estimate its potential capital need. Based on this analysis, as well as the information reported above, management believes that the Company has sufficient capital resources, cash flows from operations and borrowing capacity to support current and anticipated growth, scheduled debt payments and other capital requirements.

COMMITMENTS AND CONTINGENCIES During 2004, the Company completed construction of call centers in Colorado Springs, Colorado and Tampa, Florida, and an office building in Mayfield Village, Ohio, at a total cost of $125 million. During 2004, the Company also announced plans to construct a data center in Colorado Springs, Colorado, at an estimated cost of $57 million. Construction on this data center is expected to begin in the second quarter 2005, with completion estimated for 2006. In addition, the Company has purchased a building in Austin, Texas, which it plans to convert to a call center. The project is scheduled to be completed in June 2005, at an estimated total cost of $38 million. The Company is also currently pursuing the acquisition of additional land for future development to support corporate operations. All such projects are funded through operating cash flows.

     The Company currently has in operation a total of 20 centers that provide concierge-level claims service, compared to 19 in 2003 and 7 in 2002. During 2004, the Company achieved the performance standards necessary to satisfy the expansion criteria established for its concierge claims strategy. As a result, the Company is looking for sites to open approximately 50 additional facilities over the next several years. The cost of these facilities, including the cost of land and building development, is estimated to average $3 to $4 million per center, depending on a number of variables, including the size and location of the center. The Company does not have a predefined sequencing of when each center will be opened, but will make that determination on a case-by-case basis. The cost of these centers will be funded through operating cash flows.

     Since October 22, 2004, the Company and various subsidiaries have received formal inquiries from eight states relating to the states’ respective investigations into possible bid-rigging and other unlawful conduct by certain insurers, brokers or other industry participants. These eight formal inquiries include: a subpoena from the Connecticut Attorney General requesting interrogatory responses and documents relating to contingent commissions on all Connecticut business; a certification request from the North Carolina Department of Insurance seeking certification from entities licensed to sell insurance in North Carolina that those entities were not involved in bid rigging; and formal letter inquiries from the departments of insurance of Pennsylvania, Washington, Arizona, Michigan, Colorado and Ohio, each of which requests information relating to agent and broker compensation arrangements that particular insurance subsidiaries have in each of the states in which those subsidiaries conduct business. Many companies in the insurance industry have received such formal inquiries, and more inquiries may be received from other states in the future. The Company has been cooperating, and intends to continue to cooperate,

APP.-B-28-

fully with these investigations and has not been notified by any governmental or regulatory authority that it is the target of any such investigation.

     The Company understands that these investigations are focused, in part, on contingent commission arrangements between certain insurers and brokers. Producers (agents and brokers) are due a base commission of approximately 10% on business written on the Company’s behalf. This base commission is paid in full on a monthly basis. The Company’s insurance subsidiaries have contingent commission contracts with certain producers, which provide those producers with the opportunity to earn additional commission based on annual production, if specified goals are met. These goals may include the volume of business placed by the producer with the insurer, the profitability of such business or other criteria. Any such payments generally are made once per year.

     The Company’s Personal and Commercial Auto Businesses market their products through approximately 34,000 independent agencies throughout the United States. The Company also markets products through approximately 2,000 brokerage firms in California and New York. All commissions paid by the Company’s insurance subsidiaries are reported in the financial data filed with the insurance departments of the various states in which they operate.

     For 2004, the Company paid approximately $960 million in commissions to producers. Approximately $40 million, or 4% of the total commissions paid, was in the form of contingent commission payments. While the Company believes that its contingent commission agreements comply with applicable laws, the Company has made a business decision to offer contingent commission contracts only to independent agents, and not brokers, after January 1, 2005.

Off-Balance-Sheet Arrangements Other than the items disclosed in Note 12 — Commitments and Contingencies regarding open investment funding commitments and operating leases and service contracts the Company does not have any off-balance-sheet arrangements.

Contractual Obligations A summary of the Company’s noncancelable contractual obligations as of December 31, 2004, follows:

	Payments due by period
			Less than						More than
(millions)	Total		1 year		1-3 years		3-5 years		5 years
Debt	$	1,300.0	$	—	$	100.0	$	—	$	1,200.0
Interest payments on debt		1,459.7		85.0		159.0		155.4		1,060.3
Operating leases		308.1		87.5		132.1		56.8		31.7
Service contracts		86.6		58.1		24.4		2.9		1.2
Loss and loss adjustment expense reserves		5,285.6		2,837.0		1,643.3		624.8		180.5
Total	$	8,440.0	$	3,067.6	$	2,058.8	$	839.9	$	2,473.7

Unlike many other forms of contractual obligations, loss and loss adjustment expense (LAE) reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and LAE reserve payments to be made by period, as shown above, are estimates. To further understand the Company’s claims payments, see Claims Payment Patterns, a supplemental disclosure provided in this Annual Report. In addition, the Company annually publishes a comprehensive Report on Loss Reserving Practices, which was filed with the SEC on a Form 8-K on June 29, 2004, that further discusses the Company’s paid development patterns.

As discussed in the Capital Resources and Liquidity section above, management believes that the Company has sufficient borrowing capacity and other capital resources to satisfy these contractual obligations.

Results Of Operations
UNDERWRITING OPERATIONS
Growth

	Growth over prior year
	2004			2003			2002
Direct premiums written		12	%		26	%		31	%
Net premiums written		12	%		26	%		30	%
Net premiums earned		16	%		28	%		24	%
Policies in force		11	%		19	%		23	%

APP.-B-29-

The increase in written premium growth reflects strong renewal business growth supported by rate adequacy. In 2003 and 2002, the Company also experienced a rapid increase in new applications. During 2004, the Company filed 124 auto rate revisions in various states, resulting in an approximate aggregate net decrease of 1% in rates. Despite the continued strong underwriting profitability the Company experienced in 2004 (discussed below), the Company does not plan to reduce rates as a primary strategy in 2005, although selective rate reductions may occur in some markets.

     Another important element affecting growth is customer retention. The Company did not achieve the degree or speed of retention improvement during 2004 that it had originally expected. One measure of improvement in customer retention is policy life expectancy, which is the Company’s estimate of the average length of time that a policy will remain in force before cancellation or non-renewal. The Company experienced a modest decrease in policy life expectancy in its Personal Lines segment, in both the Agency channel and the Direct channel, during 2004.

     Estimates of customer relationship life expectancy (i.e., focusing on the customer rather than the policy in force) are another way to analyze retention. The Company is beginning to develop customer relationship life expectancy estimates for both new and renewal business at a detailed segment level under varying market conditions. These retention measures, like loss reserves, are estimates of future outcomes based on past behaviors. The Company will continue to focus on this issue into 2005, recognizing that good customer service, efficient operations and fair pricing are necessary conditions for continued success.

     Net premiums earned, which are a function of the premiums written in the current and prior periods, are recognized into income using a daily earnings convention. Prior to 2004, premiums were earned using a mid-month convention. There was no effect from this change on amounts reported in prior periods. The change to a daily earnings method improved the precision of the Company’s premium recognition on a monthly basis.

Profitability Profitability for the Company’s underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned less loss and loss adjustment expenses, policy acquisition costs and other underwriting expenses. The Company also uses underwriting profit margin, which is underwriting profit expressed as a percent of net premiums earned, to analyze the Company’s results. For the three years ended December 31, the Company’s underwriting profitability measures were as follows:

	2004					2003					2002
	Underwriting Profit					Underwriting Profit					Underwriting Profit
(millions)	$		Margin			$		Margin			$		Margin
Personal Lines – Agency	$	1,108.2		14.0	%	$	836.0		12.0	%	$	388.0		7.0	%
Personal Lines – Direct		525.6		14.1			383.0		12.3			203.8		8.6
Total Personal Lines		1,633.8		14.1			1,219.0		12.1			591.8		7.5
Commercial Auto Business		321.4		21.1			214.2		17.5			80.0		9.1
Other businesses – indemnity		3.1		9.2			8.2		13.0			6.8		7.2
Total underwriting operations	$	1,958.3		14.9	%	$	1,441.4		12.7	%	$	678.6		7.6	%

APP.-B-30-

Further underwriting results for the Company’s Personal Lines Businesses, including its channel components, the Commercial Auto Business and other businesses-indemnity, as defined in Note 9 — Segment Information, were as follows (detailed discussions below):

(millions)	2004		2003		2002
Net Premiums Written
Personal Lines–Agency	$	7,933.6	$	7,239.6	$	5,832.7
Personal Lines–Direct		3,802.2		3,263.2		2,529.8
Total Personal Lines		11,735.8		10,502.8		8,362.5
Commercial Auto Business		1,616.6		1,357.7		1,002.9
Other businesses — indemnity		25.7		52.9		86.6
Total underwriting operations	$	13,378.1	$	11,913.4	$	9,452.0
Net Premiums Earned
Personal Lines–Agency	$	7,893.7	$	6,948.0	$	5,542.7
Personal Lines–Direct		3,718.2		3,103.0		2,365.1
Total Personal Lines		11,611.9		10,051.0		7,907.8
Commercial Auto Business		1,524.1		1,226.7		880.0
Other businesses — indemnity		33.9		63.3		95.7
Total underwriting operations	$	13,169.9	$	11,341.0	$	8,883.5
Personal Lines–Agency
Loss & loss adjustment expense ratio		65.8		68.4		72.0
Underwriting expense ratio		20.2		19.6		21.0
Combined ratio		86.0		88.0		93.0
Personal Lines–Direct
Loss & loss adjustment expense ratio		65.5		67.4		69.1
Underwriting expense ratio		20.4		20.3		22.3
Combined ratio		85.9		87.7		91.4
Personal Lines–Total
Loss & loss adjustment expense ratio		65.7		68.1		71.1
Underwriting expense ratio		20.2		19.8		21.4
Combined ratio		85.9		87.9		92.5
Commercial Auto Business
Loss & loss adjustment expense ratio		59.7		62.7		70.7
Underwriting expense ratio		19.2		19.8		20.2
Combined ratio		78.9		82.5		90.9
Other Businesses — Indemnity
Loss & loss adjustment expense ratio		46.7		48.2		56.7
Underwriting expense ratio		44.1		38.8		36.1
Combined ratio		90.8		87.0		92.8
Total Underwriting Operations
Loss & loss adjustment expense ratio		64.9		67.4		70.9
Underwriting expense ratio		20.2		19.9		21.5
Combined ratio		85.1		87.3		92.4
Accident year-Loss & loss adjustment expense ratio		65.7		67.9		70.9
Policies in Force
(at December 31) (thousands)
Agency – Auto		4,245		3,966		3,386
Direct – Auto		2,084		1,852		1,541
Other Personal Lines1		2,351		1,990		1,642
Total Personal Lines		8,680		7,808		6,569
Commercial Auto Business		420		365		289

¹Includes insurance for motorcycles, recreation vehicles, mobile homes, watercraft, snowmobiles and similar items.

APP.-B-31-

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES Claims costs, the Company’s most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of its policyholders, including expenses needed to adjust or settle claims. These costs include an estimate for costs related to assignments, based on current business, under state-mandated automobile insurance programs. Claims costs are influenced by loss severity and frequency and inflation, among other factors. Accordingly, anticipated changes in these factors are taken into account when the Company establishes premium rates and loss reserves.

     The Company continued to report favorable loss ratios in 2004, as compared to those of prior years, despite the four major hurricanes during the year. The Company saw a decline in frequency rates throughout 2004, similar to what the rest of the industry experienced. The Company analyzes trends to distinguish changes in its experience from external factors versus those resulting from shifts in the mix of its business.

     The Company saw severity rise slightly during 2004, as expected. Comparing trailing 12-month information on a quarterly basis over the prior year, the Company’s increase in severity was lower than that reported for the industry as a whole by the Property Casualty Insurers Association of America. For each quarter in 2004, the Company experienced a quarter over prior-year quarter increase in bodily injury severity, following a year in which the severity declined each quarter. Personal injury protection severity continued to increase as it had for most of 2003. The severity of property coverages was up slightly as compared with the prior year. The Company plans to continue to be diligent about recognizing trend when setting rates and establishing loss reserves.

     The Company monitors physical damage trend in evaluating its claims handling performance and capacity. The Company’s claims organization continued to show steady and consistent improvement in claims handling quality throughout 2004, as indicated by the Company’s internal audit of claims files. The Company believes that the overall results reflect claim file quality, a high degree of customer satisfaction and accurate payments.

     During 2004, the Company experienced $109.1 million of favorable prior period loss reserve development, which equaled 2.5% of total prior year’s loss and LAE reserves. The Company experienced $56.1 million, or 1.5%, of favorable development in 2003 and $3.5 million, or .1%, of unfavorable development in 2002. The favorable prior year development recognized in 2004 was attributable to both favorable actuarial adjustments and favorable “all other development” (e.g., claims settling for more or less than reserved, emergence of unreported claims at rates different than reserved and changes in reserve estimates by claims representatives). The favorable “all other development” reflects the continued recognition of lower severity for prior accident years than had been previously estimated.

     The favorable development in 2003 was primarily due to favorable assigned risk development reflecting a change in the Company’s estimate of its future operating losses for assignments from the New York Automobile Insurance Plan for 2003. Starting in the second half of 2002, the Company began participating in the expanded take-out program as designed by the governing committee of the plan and has managed its writings to maximize their assigned risk credits. The realization of these changes, combined with a lower than expected overall plan size, has resulted in a much lower than expected number of assignments to the Company from the plan. The remaining development for 2003 and 2002 was primarily attributable to the settlement of claims at amounts that differed from the established reserves.

     The Company continues to increase the intensity of its loss reserves analysis to improve accuracy and further enhance the Company’s understanding of its loss costs. The Company conducts extensive reviews on a monthly basis on different portions of its business to help ensure that the Company is meeting its objective of always having reserves that are adequate, with minimal variation. Results would differ if different assumptions were made. See Critical Accounting Policies for a discussion of the effect of changing estimates. A detailed discussion of the Company’s loss reserving practices can be found in its Report on Loss Reserving Practices, which was released via Form 8-K filed on June 29, 2004.

     Because the Company is primarily an insurer of motor vehicles, its exposure as an insurer of environmental, asbestos and general liability claims is limited. The Company has established reserves for these exposures in amounts that it believes to be adequate based on information currently known. These exposures are not expected to have a material effect on the Company’s liquidity, financial condition, cash flows or results of operations.

UNDERWRITING EXPENSES Other underwriting expenses and policy acquisition costs as a percentage of premiums earned were 20.2% in 2004, 19.9% in 2003 and 21.5% in 2002. The increase in “other underwriting expenses,” as shown in the income statement, primarily reflects increases in salaries, incentive compensation and other infrastructure costs resulting from the growth in the business, as well as an increase in the Company’s advertising expenditures. Both 2004 and 2002 results included the cost of settling certain class action lawsuits (see Note 11 — Litigation). Policy acquisition costs are amortized over the policy period in which the related premiums are earned (see Note 1 —Reporting and Accounting Policies). The Company benefited from the shift in its mix of business from new to renewal, which has lower acquisition costs.

     During 2004, the Company incurred $11.4 million of guaranty fund assessments, compared to $12.2 million in 2003 and $21.2 million in 2002. The 2004 and 2003 expense was spread across numerous states and was not attributable to any particular insolvency, while the 2002 expense was primarily related to the Reliance Insurance Company and Aries Insurance Company insolvencies. The Company believes that any assessment for known insolvencies in excess of its current reserves will not materially affect the Company’s financial condition, cash flows or results of operations.

APP.-B-32-

Personal Lines The Company’s Personal Lines business units write insurance for private passenger automobiles and recreation vehicles, and represented 88% of the Company’s total 2004 net premiums written. Personal Lines net premiums written grew 12% in 2004, 26% in 2003 and 29% in 2002; net premiums earned grew 16% in 2004, 27% in 2003 and 22% in 2002. The Personal Lines business is comprised of the Agency Business and the Direct Business. The Agency Business includes business written by the more than 30,000 independent insurance agencies that represent the Company, as well as brokerages in New York and California. The Direct Business includes business written directly by the Company through 1-800-PROGRESSIVE and online at progressive.com.

THE AGENCY BUSINESS

	Growth over prior year
	2004			2003			2002
Net premiums written		10	%		24	%		26	%
Net premiums earned		14	%		25	%		18	%
Auto policies in force		7	%		17	%		22	%

New business applications for the Agency auto business were relatively flat for 2004, as compared to the prior year, partially due to fewer customers being in the marketplace shopping for insurance, which may have resulted from competitors achieving more rate adequacy and not seeking to impose additional rate increases on their customers. The rate of conversions (i.e., converting a quote to a sale) remained fairly consistent with prior years.

     During the second half of 2004, the Company announced a new brand, Drive Insurance from Progressive^SM, designed expressly for its independent agencies. With the introduction of a new brand, the Company believes that it will enhance its positioning with agencies and will be able to provide them with a more effective marketing voice by promoting their service proposition through advertising. The new advertising campaign was launched near the end of 2004 to include television, directory listings and billboards, as well as other advertising.

THE DIRECT BUSINESS

	Growth over prior year
	2004			2003			2002
Net premiums written1		17	%		29	%		39	%
Net premiums earned		20	%		31	%		32	%
Auto policies in force		13	%		20	%		27	%

¹Growth rates for 2002 were adjusted to exclude the effect of $37.7 million of previously ceded written premiums that were assumed by the Company upon the commutation of a reinsurance agreement that was part of a strategic alliance relationship that was terminated in the first quarter 2001. This relationship was terminated by mutual agreement of the parties because their business interests were no longer aligned. In addition, the Company did not envision that this relationship would help the Company in meeting its long-term profitability objectives. The commutation of the reinsurance agreement was the necessary result of terminating the relationship.

The Company believes that continued growth in the Direct Business is dependent on (among other factors) price and customer retention, as well as the success of the Company’s advertising and other marketing efforts. Although retention did not improve during 2004, the Direct Business expense ratio remained relatively flat. During 2004, the Company increased the amount spent on advertising; however, its relative share of total voice fell as competitors made substantially greater investments in their consumer marketing. Nevertheless, new auto applications continued to increase in 2004 (about 6%), as the Company experienced an increase in overall quotes as well as in the conversion rate. In addition, the Company has seen a greater proportion of its business generated via the Internet. The Company is advertising on a national basis and supplements its coverage by local market media campaigns in over 100 designated marketing areas. The Company’s Direct Business expense ratio benefited from business mix changes (i.e., a higher percentage of its business came from renewals).

APP.-B-33-

Commercial Auto Business

	Growth over prior year
	2004			2003			2002
Net premiums written		19	%		35	%		51	%
Net premiums earned		24	%		39	%		59	%
Auto policies in force		15	%		26	%		38	%

The Company’s Commercial Auto Business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses, with the majority of its customers insuring three or fewer vehicles. In 2004, the Commercial Auto Business represented 12% of the Company’s total net premiums written. Although Commercial Auto differs from Personal Lines auto in its customer base and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. The Company’s Commercial Auto Business is primarily distributed through the independent agency channel. The Company’s Commercial Auto Business ranked third in market share on a national basis based on 2003 direct premiums written data reported by A.M. Best Company Inc., and the Company estimates that it will retain that position for 2004.

     Despite the softening market, the Commercial Auto Business produced a strong underwriting profit and solid growth in 2004. During the year, competitors began accepting risks that they previously avoided. In addition, rate levels remained stable. Nevertheless, new business applications in 2004 were slightly ahead of last year (about 5%) and the business experienced strong renewals. The Commercial Auto Business expanded into three new states during the year, bringing the total number of markets to 45, and plans on entering one or two more states in 2005. The significant growth in 2003 and 2002 primarily reflected the benefit the Commercial Auto Business derived from actions taken by competitors in 2002 to raise rates and restrict the business they wrote.

     Approximately 50% of the Company’s 2004 Commercial Auto net premiums written were generated in the light and local commercial auto markets, which includes autos, vans and pick-up trucks used by contractors, such as artisans, landscapers and plumbers, and a variety of other small businesses. The remainder of the business was written in the specialty commercial auto market, which includes dump trucks, logging trucks and other short-haul commercial vehicles. There are many similarities between the Company’s commercial and personal auto businesses; however, since the commercial auto policies have higher limits (up to $1 million) than personal auto, the Company analyzes the limit differences in this product more closely.

Other Businesses — Indemnity The Company’s other businesses – indemnity, which represented less than 1% of the 2004 net premiums earned, primarily include writing professional liability insurance for community banks and managing the wind-down of the Company’s lender’s collateral protection program, which the Company ceased writing in 2003, and other run-off businesses. During 2002, the Company lost some key accounts for the lender’s collateral protection products and determined that this business was unable to meet its profitability target. Management believes that exiting this line of business does not materially affect the Company’s financial condition, results of operations or cash flows. The ongoing indemnity products in the Company’s other businesses are continuing to grow profitably.

Other Businesses — Service The other businesses – service primarily provide policy issuance and claims adjusting services for the state Commercial Auto Insurance Procedures/Plans (CAIP) businesses, which are state-supervised plans serving the involuntary market, in 25 states. The Company processes over 49% of the premiums in the CAIP market and competes with two other providers nationwide. As a service provider, the Company collects fee revenue that is earned on a pro rata basis over the term of the related policies. The Company cedes 100% of premium and losses to the plans. Reimbursements to the Company from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business. The Company has maintained, and plans to continue to maintain, compliance with these standards. Any changes in the Company’s participation as a CAIP service provider would not materially affect the Company’s financial condition, results of operations or cash flows.

Litigation The Company is named as a defendant in a number of putative class action lawsuits, such as those alleging damages as a result of the Company’s use of after-market parts, total loss evaluation methodology, use of credit in underwriting and related requirements under the federal Fair Credit Reporting Act, installment fee programs, using preferred provider rates for payment of personal injury protection claims or for paying first party medical benefits, use of third-party vendors to analyze the propriety of payment of medical bills, rating practices at renewal and cases challenging other aspects of the Company’s claims and marketing practices and business operations. Other insurance companies face many of these same issues. During 2002, the Company settled several long-standing class action lawsuits relating to diminution of value, handling of betterment in claim settlements, use of alternative agent commissions programs and a California wage and

APP.-B-34-

hour employee classification case. During 2003, the Company settled a nationwide class action challenging the practice of taking betterment on first party personal automobile claims. In 2004, the Company settled a number of individual actions concerning alternative agent commission programs, a national and several state wage and hour class action cases and a claim brought by Florida medical providers challenging preferred provider payment reductions. See Note 11 — Litigation for a more detailed discussion.

Income Taxes In 2004, the Company received a tax refund of $58 million and related interest income earned of $31.2 million. The Company recognized the $31.2 million of interest income earned in 2003 (reflected as “other income” on the income statement), after the Joint Committee of Taxation of Congress completed its review of a Federal income tax settlement agreed to by the Internal Revenue Service (IRS) and the Company, which was primarily attributable to the amount of loss reserves deductible for tax purposes. Overall, the Company’s income taxes shifted to a net liability as of year-end 2004, as compared to 2003, primarily driven by the receipt of the above-mentioned tax refund and an increase in the net provision for income taxes.

INVESTMENTS Portfolio Allocation The Company’s investment strategy has a target proportion of 85% fixed income and 15% common equity portfolio allocation. The Company recognizes its need to maintain capital adequate to support its insurance operations. The Company evaluates the risk/reward tradeoffs of investment opportunities, measuring their effects on stability, diversity, overall quality and liquidity, and the potential return of the investment portfolio. Investments in the Company’s portfolio have varying degrees of risk. The composition of the investment portfolio at year-end was:

			Gross		Gross					% of
			Unrealized		Unrealized			Market		Total			Duration
(millions)	Cost		Gains		Losses			Value		Portfolio			(years)		Rating1
2004
Fixed maturities	$	8,972.6	$	152.6	$	(40.9	)	$	9,084.3		69.4	%		3.4	AA
Preferred stocks		749.4		24.5		(5.0	)		768.9		5.9			2.8		A	-
Short-term investments 2		1,376.6		.3		—			1,376.9		10.5			<1	AA
Total fixed income		11,098.6		177.4		(45.9	)		11,230.1		85.8			2.9	AA
Common equities		1,314.0		541.8		(3.9	)		1,851.9		14.2		NM		NM
Total portfolio3	$	12,412.6	$	719.2	$	(49.8	)	$	13,082.0		100.0	%		2.9	AA
2003
Fixed maturities	$	8,899.0	$	259.9	$	(25.5	)	$	9,133.4		72.9	%		3.5	AA
Preferred stocks		751.3		34.9		(7.4	)		778.8		6.2			2.8		A	-
Short-term investments2		648.0		—		—			648.0		5.2			<1	AA		+
Total fixed income		10,298.3		294.8		(32.9	)		10,560.2		84.3			3.3	AA
Common equities		1,590.6		390.3		(8.8	)		1,972.1		15.7		NM		NM
Total portfolio3	$	11,888.9	$	685.1	$	(41.7	)	$	12,532.3		100.0	%		3.3	AA

NM = not meaningful

¹Weighted average quality ratings as assigned by nationally recognized securities rating organizations.

²Short-term investments include Eurodollar deposits, commercial paper and other securities maturing within one year.

³The Company had net unsettled security acquisitions of $31.9 million and $75.1 million at December 31, 2004 and 2003, respectively. December 31, 2004 and 2003 totals include $1.2 billion and $1.4 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company.

As of December 31, 2004, the Company’s portfolio had $669.4 million in net unrealized gains, compared to $643.4 million at year-end 2003. The increase was the result of a positive return on the common stock portfolio during 2004.

APP.-B-35-

FIXED-INCOME SECURITIES The fixed-income portfolio includes fixed-maturity securities, preferred stocks and short-term investments. The fixed-maturity securities and short-term securities, as reported on the balance sheets, were comprised of the following:

(millions)	December 31, 2004				December 31, 2003
Investment-grade fixed maturities:1
Short/intermediate term	$	10,285.0	98.3	%	$	9,446.0	96.6	%
Long term		109.4	1.0			70.3	.7
Non-investment-grade fixed maturities2		66.8	.7			265.1	2.7
Total	$	10,461.2	100.0	%	$	9,781.4	100.0	%

¹Long term includes securities with maturities of 10 years or greater. Asset-backed securities are reported at their weighted average maturity based upon their projected cash flows. All other securities that do not have a single expected maturity date are reported at average maturity. See Note 2 — Investments.

²Non-investment-grade fixed-maturity securities are non-rated or have a quality rating of an equivalent BB or lower, classified by the lowest rating from a nationally recognized rating agency.

Also included in fixed-maturity securities at December 31, 2004, are $2,368.7 million of asset-backed securities. These asset-backed securities are comprised of residential mortgage-backed ($637.6 million), commercial mortgage-backed ($959.6 million) and other asset-backed ($771.5 million) securities, with a duration of 2.3 years and a weighted average credit quality of AA+. The largest components of the other asset-backed securities are automobile receivable loans ($378.2 million) and home equity loans ($256.7 million). Substantially all of the asset-backed securities are liquid with available market quotes and contain no residual interest (i.e., the most subordinated class in a pool of securitized assets).

     A primary exposure for the fixed-income portfolio is interest rate risk, which is managed by restricting the portfolio’s duration between 1.8 to 5 years. Interest rate risk includes the change in value resulting from movements in the underlying market rates of debt securities held. The fixed-income portfolio had a duration of 2.9 years at December 31, 2004, compared to 3.3 years at December 31, 2003. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security will change market value based on a rise or fall in interest rates) are monitored on a regular basis. Excluding the unsettled securities transactions, the allocation to fixed-income securities at December 31, 2004, was 85.8% of the portfolio, within the Company’s normal range of variation; at December 31, 2003, the allocation was 84.2%.

     Another exposure related to the fixed-income portfolio is credit risk, which is managed by maintaining a minimum average portfolio credit quality rating of A+, as defined by nationally recognized rating agencies, and limiting non-investment-grade securities to a maximum of 5% of the fixed-income portfolio. Concentration in a single issuer’s bonds and preferred stocks is limited to no more than 6% of the Company’s shareholders’ equity, except for U.S. Treasury and agency bonds; any state’s general obligation bonds are limited to 12% of shareholders’ equity.

The quality distribution of the fixed-income portfolio was as follows:

Rating	December 31, 2004			December 31, 2003
AAA		61.0	%		63.9	%
AA		14.6			10.7
A		14.2			13.1
BBB		9.5			9.5
Non Rated/Other		.7			2.8
		100.0	%		100.0	%

APP.-B-36-

COMMON EQUITIES Common equities, as reported in the balance sheets, were comprised of the following:

(millions)	December 31, 2004				December 31, 2003
Common Stocks	$	1,815.9	98.1	%	$	1,929.7	97.9	%
Other Risk Investments		36.0	1.9			42.4	2.1
Total Common Equities	$	1,851.9	100.0	%	$	1,972.1	100.0	%

Common equities, which generally have greater risk and volatility of market value than fixed-income securities, have a target allocation of 15% and may range from 0 to 25% of the investment portfolio. At December 31, 2004 and 2003, excluding the net unsettled security transactions, these securities comprised 14.2% and 15.8%, respectively, of the total portfolio. Common stocks are managed externally to track the Russell 1000 index with an anticipated annual tracking error of +/- 50 basis points. The results achieved by the common stock portfolio relative to the benchmark index were as follows:

	Total Return1
	2004			2003
Common Stocks		11.6	%		28.6	%
Russell 1000 Index		11.4	%		29.9	%

¹Includes gross dividends reinvested and price appreciation/depreciation.

The Company’s common equity allocation is intended to enhance the return of and provide diversification for the total portfolio. To maintain high correlation with the Russell 1000, the Company held 656 of the 990 common stocks comprising the index at December 31, 2004. The Company’s individual holdings are selected based on their contribution to the correlation with the index. For 2003, the equity-indexed portfolio returns were outside the anticipated annual tracking error, partially due to rebalancing the portfolio in response to tax initiated strategies during the year.

     Other risk investments include private equity investments and limited partnership interests in private equity and mezzanine investment funds which have no off-balance-sheet exposure or contingent obligations, except for the $7.3 million of open funding commitments discussed in Note 12 — Commitments and Contingencies. The Company is no longer initiating investments of these types and expects to continue reducing its current holdings over time.

     The Company monitors the value at risk of the fixed-income and equity portfolios, as well as the total portfolio, to evaluate the potential maximum expected loss. For further information, see Quantitative Market Risk Disclosures, a supplemental schedule provided in this Annual Report.

TRADING SECURITIES Trading securities are entered into for the purpose of near-term profit generation. At December 31, 2004 and 2003, the Company did not hold any trading securities. Net realized gains on trading securities for the year ended December 31, 2004 were $0, compared to $.1 million in 2003 and $0 in 2002. Results from trading securities are immaterial to the Company’s financial condition, cash flows and results of operations and are reported within the available-for-sale portfolio with gains (losses) reported as a component of realized gains (losses) on securities.

DERIVATIVE INSTRUMENTS During 2003 and 2002, the Company entered into hedges on forecasted transactions in anticipation of its debt issuances. See Note 2 — Investments and Note 4 — Debt for further discussion of these hedges. The Company had no open positions at December 31, 2004.

     Derivative instruments may also be used for trading purposes or classified as trading due to the nature and characteristics of the transaction. During 2004, the Company closed all of its credit default protection derivatives, along with the underlying Treasury notes, which had a notional amount of $128.5 million. At December 31, 2003, these positions had a notional amount of $103.2 million. The net gain (loss) recognized in 2004 was $(1.4) million, compared to $4.9 million and $(.1) million in 2003 and 2002, respectively.

APP.-B-37-

Net Investment Income Recurring investment income (interest and dividends, before investment and interest expenses) increased 4% in 2004, 2% in 2003 and 10% in 2002. The increase in income was the result of an increase in invested assets, partially offset by a decline in the book yield of the portfolio, due to the reinvestment of portfolio maturities and redemptions along with the investment of new cash at yields lower than that of the portfolio’s average yield. During the fourth quarter 2004, the Company’s invested assets decreased by $1.5 billion as securities were sold to fund the Company’s “Dutch auction” tender offer.

     Investment expenses increased slightly during 2004 primarily due to the costs associated with the Company’s tender offer. Interest expense decreased in 2004 due to the retirement of all $200 million of the Company’s 6.60% Notes, which matured in January 2004.

     The Company reports total return to reflect more accurately the management philosophy of the portfolio and evaluation of the investment results. The fully taxable equivalent (FTE) total return includes recurring investment income, net realized gains (losses) on securities and changes in unrealized gains (losses) on investment securities. The Company reported the following investment results:

	2004			2003			2002
Pretax recurring investment book yield		3.8	%		4.2	%		5.1	%
Weighted average FTE book yield		4.4	%		4.9	%		5.6	%
FTE total return:
Fixed-income securities		4.2	%		5.5	%		10.1	%
Common stocks		11.6	%		28.6	%		(21.5	)%
Total portfolio		5.2	%		8.7	%		5.5	%

REALIZED GAINS/LOSSES Gross realized gains and losses were primarily the result of market driven interest rate movements, sector allocation changes and the rebalancing of the common stock portfolio to the Russell 1000 Index. Gross realized losses also include write-downs of both fixed-income and equity securities determined to be other-than-temporarily impaired.

OTHER-THAN-TEMPORARY IMPAIRMENT Included in the net realized gains (losses) on securities for the years ended 2004, 2003 and 2002, are write-downs on securities determined to have had an other-than-temporary decline in market value. The Company routinely monitors its portfolio for pricing changes, which might indicate potential impairments and performs detailed reviews of securities with unrealized losses based on predetermined criteria. In such cases, changes in market value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines.

     Fixed-income and equity securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence, circumstances and influences to estimate the potential for, and timing of, recovery of the investment’s impairment. An other-than-temporary impairment loss is deemed to have occurred when the potential for, and timing of, recovery does not satisfy the guidance set forth in the current accounting guidance (see Critical Accounting Policies, Other-than-Temporary Impairment for further discussion).

     For fixed-income investments with unrealized losses due to market or industry-related declines where the Company has the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s impairment and collect the interest obligation, declines are not deemed to qualify as other than temporary. The Company’s policy for common stocks with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in a loss position for three consecutive quarters.

APP.-B-38-

     When a security in the Company’s investment portfolio has an unrealized loss in market value that is deemed to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. All other unrealized gains or losses are reflected in shareholders’ equity. The write-down activity for the years ended December 31 was as follows:

			Write-downs		Write-downs
	Total		On Securities		On Securities
(millions)	Write-downs		Subsequently Sold		Held at Period End
2004
Fixed income	$	.3	$	—	$	.3
Common equities		11.3		3.8		7.5
Total portfolio	$	11.6	$	3.8	$	7.8
2003
Fixed income	$	17.5	$	2.3	$	15.2
Common equities		47.7		12.6		35.1
Total portfolio	$	65.2	$	14.9	$	50.3
2002
Fixed income	$	45.6	$	19.7	$	25.9
Common equities		156.5		45.9		110.6
Total portfolio	$	202.1	$	65.6	$	136.5

The following is a summary of the 2004 equity security market write-downs by sector (both market-related and issuer specific):

												Remaining
(millions)												Gross
			Equity Portfolio			Russell 1000						Unrealized
			Allocation at			Allocation at						Loss at
	Amount of		December 31,			December 31,			Russell 1000			December 31,
Sector	Write-down		2004			2004			Sector Return			2004
Auto and Transportation	$	—		2.5	%		2.4	%		15.2	%	$	—
Consumer Discretionary		—		14.2			15.7			13.3			.9
Consumer Staples		—		7.2			7.0			8.7			.9
Financial Services		.5		23.1			22.9			13.1			.1
Health Care		9.0		12.8			12.7			2.4			.7
Integrated Oil		—		4.9			4.4			28.7			—
Materials and Processing		—		3.8			3.7			16.5			—
Other Energy		—		1.9			2.0			39.7			—
Producer Durables		—		4.7			4.2			11.0			—
Technology		—		13.6			13.8			1.8			.6
Utilities		—		7.1			6.7			18.3			—
Other Equities		—		4.2			4.5			15.5			—
Total Common Stocks		9.5		100.0	%		100.0	%		11.4	%		3.2
Other Risk Assets		1.8											.7
Total Common Equities	$	11.3										$	3.9

See Critical Accounting Policies, Other-than-Temporary Impairment section for a further discussion.

APP.-B-39-

Repurchase Transactions During 2004, the Company entered into repurchase commitment transactions, whereby the Company loaned U.S. Treasury or U.S. Government agency securities to accredited brokerage firms in exchange for cash equal to the fair market value of the securities. These internally managed transactions were typically overnight arrangements. The cash proceeds were invested in AA or higher financial institution paper with yields that exceeded the Company’s interest obligation on the borrowed cash. The Company is able to borrow the cash at low rates since the securities loaned are in short supply. The Company’s interest rate exposure does not increase or decrease since the borrowing and investing periods match. During the year ended December 31, 2004, the Company’s largest single outstanding balance of repurchase commitments was $989.2 million, which was open for seven business days, with an average daily balance of $452.5 million for the year. During 2003, the largest single outstanding balance of repurchase commitments was $1.2 billion, which was open for one business day, with an average daily balance of $524.3 million for the year. The Company had no open repurchase commitments at December 31, 2004 and 2003. The Company earned income of $1.8 million, $2.1 million and $2.8 million on repurchase commitments during 2004, 2003 and 2002, respectively.

Critical Accounting Policies The Company is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates in a variety of areas. The two areas that the Company views as most critical with respect to the application of estimates and assumptions are the establishment of its loss reserves and its method of determining impairments in its investment portfolio.

LOSS AND LAE RESERVES Loss and loss adjustment expense (LAE) reserves represent the Company’s best estimate of its ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2004, the Company had $4.9 billion of net loss and LAE reserves, which included $3.8 billion of case reserves and $1.1 billion of incurred but not recorded (IBNR) reserves.

     The Company’s actuarial staff reviews many subsets of the business, which are at a combined state, product and line coverage level (the “products”), to calculate the needed loss and LAE reserves. The Company begins its review of a set of data by producing six different estimates of needed reserves, three using paid data and three using incurred data, to determine if a reserve change is required. In the event of a wide variation between results generated by the different projections, the actuarial group will further analyze the data using additional techniques. Each review develops a point estimate for a relatively small subset of the business, which allows the Company to establish meaningful reserve levels.

     The Company reviews a large majority of its reserves by product/state combination on a quarterly time frame, with almost all the remaining reserves reviewed on a semiannual basis. A change in the Company’s scheduled reviews of a particular subset of the business depends on the size of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, the Company has the ability to identify and measure variances in trend by state, product and line coverage that would not otherwise be seen on a consolidated basis. The Company’s intricate process of reviewing over 300 products makes compiling a companywide roll up to generate a range of needed loss reserves not meaningful. The Company does not review loss reserves on a macro level and, therefore, does not derive a companywide range of reserves to compare to a standard deviation.

     In analyzing the ultimate accident year loss experience, the Company’s actuarial staff reviews in detail, at the subset level, frequency (number of losses per earned car year), severity (dollars of loss per each claim) and average premium (dollars of premium per earned car year). The loss ratio, a primary measure of loss experience, is equal to the product of frequency times severity divided by the average premium. The average premium for personal and commercial auto businesses are known and, therefore, are not estimated. The projection of frequency for these lines of business is usually very stable because injured parties generally report their claims within a reasonably short time period after the accident. The actual frequency experienced will vary depending on the change in mix of class of drivers written by the Company, but the accuracy of the projected level is considered to be reliable. The severity experienced by the Company, which is much more difficult to estimate, is affected by changes in underlying costs, such as medical costs, jury verdicts, etc. In addition, severity will vary relative to the change in the Company’s mix of business by limit.

     Assumptions regarding needed reserve levels made by the actuarial staff consider influences on the historical data that reduce the predictiveness of the Company’s projected future loss development. Internal considerations that are process-related, which may result from changes in the claims organization’s activities, include claim closure rates, the number of claims that are closed without payment and the level of estimated needed case reserves by claim that are set by claims representatives. The Company studies these changes and their effect on the historical data at the state level versus on a larger, less indicative, countrywide basis.

     External items considered include the litigation atmosphere, state-by-state changes in medical costs, the availability of services to resolve claims, etc. These again are better understood at the state level versus at a more macro countrywide level.

     The manner in which the Company considers and analyzes the multitude of influences on the historical data, as well as how loss reserves affect the Company’s financial results, is discussed in more detail in the Company’s Report on Loss Reserving Practices, which was filed on June 29, 2004 via Form 8-K.

     The Company’s carried reserve balance of $4.9 billion implicitly assumes the loss and LAE severity will increase for accident year 2004 over accident year 2003 by 2.7% and 9.0% for personal auto liability and commercial auto liability, respectively. Personal auto liability and

APP.-B-40-

commercial auto liability reserves represent over 97% of the Company’s total carried reserves. As discussed above, the severity estimates are influenced by many variables that are difficult to quantify and which influence the final amount for claim settlement. That, coupled with changes to internal claims practices and changes in the legal environment and in state regulatory requirements, requires significant judgment in the reserve setting process.

     The following table shows the Company’s original estimated changes in severity included when establishing its loss reserves, compared to the Company’s estimated changes in severity one year later.

	Personal Auto Liability						Commercial Auto Liability
				One Year						One Year
Accident Year	Original			Later			Original			Later
2003		2.1	%		1.7	%		9.1	%		5.6	%
2004		2.7	%		2.2	%*		9.0	%		5.5	%*

*The estimated change for accident year 2004 assumes the same change in severity estimate as was realized for accident year 2003.

Assuming the change in the Company’s estimate of the severity for accident year 2004 is consistent with the change experienced for 2003, the effect to reserve levels could be a favorable $65 million in 2005. Applying this same rationale to the change in severity estimates for the trailing three accident years experienced by the Company in 2003 and 2004, the Company’s reserve estimates could result in a range of development from $14 million to $135 million in 2005. Over the last several years, the Company has experienced favorable changes in its estimates of severity. The Company cannot predict if this trend will continue in the future.

     The Company’s goal is to ensure that total reserves are adequate to cover all loss costs while sustaining minimal variation from the time reserves are initially established until losses are fully developed. During 2004, the Company’s estimate of the needed reserves at the end of 2003 decreased by only 2.5%. The following table shows how the Company has performed against this goal over the last ten years.

APP.-B-41-

(millions)
For the years ended
December 31,	1994		1995		1996		1997		1998		1999			2000		2001		2002		2003		2004
Loss and LAE reserves1	$	1,098.7	$	1,314.4	$	1,532.9	$	1,867.5	$	1,945.8	$	2,200.2		$	2,785.3	$	3,069.7	$	3,632.1	$	4,346.4	$	4,948.5
Re-estimated reserves as of:
One year later		1,042.1		1,208.6		1,429.6		1,683.3		1,916.0		2,276.0			2,686.3		3,073.2		3,576.0		4,237.3
Two years later		991.7		1,149.5		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7
Three years later		961.2		1,118.6		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7
Four years later		940.6		1,137.7		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9
Five years later		945.5		1,153.3		1,445.1		1,664.7		1,919.0		2,277.5
Six years later		952.7		1,150.1		1,442.0		1,674.5		1,917.6
Seven years later		952.6		1,146.2		1,445.6		1,668.4
Eight years later		949.7		1,147.4		1,442.5
Nine years later		950.9		1,146.3
Ten years later		950.0
Cumulative development:
favorable/(unfavorable)	$	148.7	$	168.1	$	90.4	$	199.1	$	28.2	$	(77.3	)	$	118.4	$	81.0	$	111.4	$	109.1
Percentage2		13.5		12.8		5.9		10.7		1.4		(3.5	)		4.3		2.6		3.1		2.5

The chart represents the development of the property-casualty loss and LAE reserves for 1994 through 2003. The reserves are re-estimated based on experience as of the end of each succeeding year and are increased or decreased as more information becomes known about the frequency and severity of claims for individual years. The cumulative development represents the aggregate change in the estimates over all prior years. Since the characteristics of the loss reserves for both personal auto and commercial auto are similar, the Company reports development in the aggregate rather than by segment.

¹Represents loss and LAE reserves net of reinsurance recoverables on unpaid losses at the balance sheet date.

²Cumulative development ÷ loss and LAE reserves.

The Company experienced consistently favorable reserve development from 1994 through 1998, primarily due to the decreasing bodily injury severity. During this period, the Company’s bodily injury severity decreased each quarter when compared to the same quarter the prior year. This period of decreasing severity for the Company was not only longer than that generally experienced by the industry, but also longer than any time in the Company’s history. The reserves established as of the end of each year assumed the current accident year’s severity to increase over the prior accident year’s estimate. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, the Company started experiencing an increase in bodily injury severity. As a result, the reserve development has been much closer to the Company’s original estimate.

     Because the Company is primarily an insurer of motor vehicles, it has minimal exposure as an insurer of environmental, asbestos and general liability claims.

     To allow interested parties to understand the Company’s loss reserving process and the effect it has on the Company’s financial results, in addition to the discussion above, the Company annually publishes a comprehensive Report on Loss Reserving Practices, which is filed via Form 8-K, and is available on the Company’s Web site at investors.progressive.com.

OTHER-THAN-TEMPORARY IMPAIRMENT SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” and Staff Accounting Bulletin 59, “Noncurrent Marketable Equity Securities,” require companies to perform periodic reviews of individual securities in their investment portfolios to determine whether a decline in the value of a security is other than temporary. A review for other-than-temporary impairment (OTI) requires companies to make certain forward-looking judgments regarding the materiality of the decline, its effect on the financial statements, and the probability, extent and timing of a valuation recovery, and the Company’s ability and intent to hold the security. The scope of this review is broad and requires a forward-looking assessment of the fundamental characteristics of a security, as well as market-related prospects of the issuer and its industry.

     Pursuant to these requirements, the Company assesses valuation declines to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines. This evaluation reflects the Company’s assessments of current conditions, as well as predictions of uncertain future events, that may have a material effect on the financial statements related to security valuation.

APP.-B-42-

     For fixed-income investments with unrealized losses due to market- or industry-related declines, the declines are not deemed to qualify as other than temporary where the Company has the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s original principal and interest obligation. The Company’s policy for equity securities with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in a loss position for three consecutive quarters.

     When persuasive evidence exists that causes the Company to evaluate a decline in market value to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. All other unrealized gains (losses) are reflected in shareholders’ equity.

     As of December 31, 2004, the Company’s total portfolio had $49.8 million in gross unrealized losses, compared to $41.7 million in gross unrealized losses at year-end 2003. The increase in the gross unrealized loss position from 2003 relates primarily to the fixed-maturity portfolio, the result of the rise in interest rates during 2004.

     The following table stratifies the gross unrealized losses in the Company’s portfolio at December 31, 2004, by duration in a loss position and magnitude of the loss as a percentage of the cost of the security. The individual amounts represent the additional OTI the Company would have recognized in the income statement if its policy for market-related declines was different than that stated above.

			Decline of Investment Value
(millions)	Total Gross
	Unrealized
Total Portfolio	Losses		>15%		>25%		>35%		>45%
Unrealized Loss for 1 Quarter	$	9.2	$	1.5	$	1.0	$	1.0	$	1.0
Unrealized Loss for 2 Quarters		6.2		—		—		—		—
Unrealized Loss for 3 Quarters		21.3		—		—		—		—
Unrealized Loss for 1 Year or Longer		13.1		.1		—		—		—
Total	$	49.8	$	1.6	$	1.0	$	1.0	$	1.0

For example, if the Company decided to write down all securities in an unrealized loss position for one year or longer where the securities decline in value exceeded 15%, the Company would recognize an additional $.1 million of OTI losses in the income statement. These OTI losses would be $0 if the threshold for market decline was greater than 25%.

     The $13.1 million of gross unrealized losses that have been impaired for one year or longer are primarily within the fixed-income portfolio. None of these securities were deemed to have any fundamental issues that would lead the Company to believe that they were other-than-temporarily impaired. The Company has the intent and ability to hold the fixed-income securities to maturity, and will do so, as long as the securities continue to meet duration, economic sector and interest rate exposure, as well as portfolio composition, that is consistent with the current investment strategy. The Company will retain the common stocks to maintain correlation to the Russell 1000 index as long as the portfolio and index correlation remain similar. If the Company’s strategy were to change and these securities were impaired, the Company would recognize a write-down in accordance with its stated policy.

     Since total unrealized losses are already a component of the Company’s shareholders’ equity, any recognition of additional OTI losses would have no effect on the Company’s comprehensive income or book value.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this Annual Report that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections generally; inflation and changes in economic conditions (including changes in interest rates and financial markets); the accuracy and adequacy of the Company’s pricing and loss reserving methodologies; pricing competition and other initiatives by competitors; the Company’s ability to obtain regulatory approval for requested rate changes and the timing thereof; the effectiveness of the Company’s advertising campaigns; legislative and regulatory developments; disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against the Company; weather conditions (including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions); changes in driving patterns and loss trends; acts of war and terrorist activities; the Company’s ability to maintain the uninterrupted operation of its facilities, systems (including information technology systems) and business functions; court decisions and trends in litigation and health care and auto repair costs; and other matters described from time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and Exchange Commission. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for one or more contingencies. Reported results, therefore, may appear to be volatile in certain accounting periods.

APP.-B-43-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

TEN YEAR SUMMARY — FINANCIAL HIGHLIGHTS

(unaudited)

(millions–except ratios, per share amounts
and number of people employed)	2004			2003			2002			2001			2000
Insurance Companies Selected Financial Information and Operating Statistics — Statutory Basis
Net premiums written	$	13,378.1		$	11,913.4		$	9,452.0		$	7,260.1		$	6,196.1
Growth		12	%		26	%		30	%		17	%		1	%
Policyholders’ surplus		4,671.8			4,538.3			3,370.2			2,647.7			2,177.0
Net premiums written to policyholders’ surplus ratio		2.9			2.6			2.8			2.7			2.8
Loss and loss adjustment expense ratio		65.0			67.4			70.9			73.6			83.2
Underwriting expense ratio		19.6			18.8			20.4			21.1			21.0
Statutory combined ratio		84.6			86.2			91.3			94.7			104.2
Selected Consolidated Financial Information — GAAP Basis
Total assets	$	17,184.3		$	16,281.5		$	13,564.4		$	11,122.4		$	10,051.6
Total shareholders’ equity		5,155.4			5,030.6			3,768.0			3,250.7			2,869.8
Common Shares outstanding		200.4			216.4			218.0			220.3			220.6
Common Share price:
High	$	97.29		$	84.68		$	60.49		$	50.60		$	37.00
Low		73.10			46.25			44.75			27.38			15.00
Close1		84.84			83.59			49.63			49.77			34.54
Market capitalization	$	17,001.9		$	18,088.9		$	10,819.3		$	10,958.6		$	7,616.8
Book value per Common Share		25.73			23.25			17.28			14.76			13.01
Return on average common shareholders’ equity2		30.0	%		29.1	%		19.3	%		13.5	%		1.7	%
Debt outstanding	$	1,284.3		$	1,489.8		$	1,489.0		$	1,095.7		$	748.8
Ratios:
Debt to total capital		20	%		23	%		28	%		25	%		21	%
Earnings to fixed charges3		27.1	x		18.8	x		13.2	x		10.7	x		1.3	x
Price to earnings4		11			15			17			27			164
Price to book		3.3			3.6			2.9			3.4			2.7
Net premiums earned	$	13,169.9		$	11,341.0		$	8,883.5		$	7,161.8		$	6,348.4
Total revenues		13,782.1			11,892.0			9,294.4			7,488.2			6,771.0
Underwriting margins5
Personal Lines		14.1	%		12.1	%		7.5	%		4.5	%		(5.2	)%
Commercial Auto		21.1	%		17.5	%		9.1	%		8.3	%		3.3	%
Other businesses — indemnity		9.2	%		13.0	%		7.2	%		7.0	%		13.6	%
Total underwriting operations		14.9	%		12.7	%		7.6	%		4.8	%		(4.4	)%
Net income	$	1,648.7		$	1,255.4		$	667.3		$	411.4		$	46.1
Per share6		7.63			5.69			2.99			1.83			.21
Dividends per share		.110			.100			.096			.093			.090
Number of people employed		27,085			25,834			22,974			20,442			19,490

All share and per share amounts were adjusted for the April 22, 2002, 3-for-1 stock split.

¹Represents the closing price at December 31.

²For 1995, represents net income minus preferred share dividends ÷ average common shareholders’ equity.

³For 1995, represents the ratio of earnings to combined fixed charges and preferred share dividends.

APP.-B-44-

(millions–except ratios, per share amounts
and number of people employed)	1999			1998			1997			1996			1995
Insurance Companies Selected Financial Information and Operating Statistics — Statutory Basis
Net premiums written	$	6,124.7		$	5,299.7		$	4,665.1		$	3,441.7		$	2,912.8
Growth		16	%		14	%		36	%		18	%		19	%
Policyholders’ surplus	$	2,258.9		$	2,029.9		$	1,722.9		$	1,292.4		$	1,055.1
Net premiums written to policyholders’ surplus ratio		2.7			2.6			2.7			2.7			2.8
Loss and loss adjustment expense ratio		75.0			68.5			71.1			70.2			71.6
Underwriting expense ratio		22.1			22.4			20.7			19.8			21.4
Statutory combined ratio		97.1			90.9			91.8			90.0			93.0
Selected Consolidated Financial Information — GAAP Basis
Total assets	$	9,704.7		$	8,463.1		$	7,559.6		$	6,183.9		$	5,352.5
Total shareholders’ equity		2,752.8			2,557.1			2,135.9			1,676.9			1,475.8
Common Shares outstanding		219.3			217.6			216.9			214.5			216.3
Common Share price:
High	$	58.08		$	57.33		$	40.29		$	24.08		$	16.50
Low		22.83			31.33			20.50			13.46			11.58
Close1		24.38			56.46			39.96			22.46			16.29
Market capitalization	$	5,345.4		$	12,279.7		$	8,667.0		$	4,817.3		$	3,523.9
Book value per Common Share		12.55			11.75			9.85			7.82			6.44
Return on average common shareholders’ equity2		10.9	%		19.3	%		20.9	%		20.5	%		19.6	%
Debt outstanding	$	1,048.6		$	776.6		$	775.9		$	775.7		$	675.9
Ratios:
Debt to total capital		28	%		23	%		27	%		32	%		31	%
Earnings to fixed charges3		5.7	x		10.2	x		9.2	x		7.7	x		5.6	x
Price to earnings4		18			28			23			16			15
Price to book		1.9			4.8			4.1			2.9			2.5
Net premiums earned	$	5,683.6		$	4,948.0		$	4,189.5		$	3,199.3		$	2,727.2
Total revenues		6,124.2			5,292.4			4,608.2			3,478.4			3,011.9
Underwriting margins5
Personal Lines		1.2	%		7.9	%		6.3	%		7.9	%	NA
Commercial Auto		8.4	%		17.6	%		10.9	%		10.1	%	NA
Other businesses — indemnity		10.8	%		8.6	%		7.9	%		27.9	%	NA
Total underwriting operations		1.7	%		8.4	%		6.6	%		8.5	%		5.7	%
Net income	$	295.2		$	456.7		$	400.0		$	313.7		$	250.5
Per share6		1.32			2.04			1.77			1.38			1.09
Dividends per share		.087			.083			.080			.077			.073
Number of people employed		18,753			15,735			14,126			9,557			8,025

⁴Represents the closing stock price ÷ earnings per share.

⁵Underwriting margins are calculated as underwriting profit (loss), as defined in Note 9 — Segment Information, as a percent of net premiums earned.

⁶Presented on a diluted basis. In 1997, the Company adopted SFAS 128, “Earnings Per Share,” and, as a result, restated prior periods per share amounts, if applicable.

NA = Not available. The revised segment disclosure requirements became effective for the three years ended December 31, 1998; comparative information is not available for prior periods.

APP.-B-45-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

QUANTITATIVE MARKET RISK DISCLOSURES

(unaudited)

Quantitative market risk disclosures are only presented for market risk categories when risk is considered material. Materiality is determined based on the fair value of the financial instruments at December 31, 2004, and the potential for near-term losses from reasonably possible near-term changes in market rates or prices.

Other Than Trading Financial Instruments

Financial instruments subject to interest rate risk were:

	Market Value
	-200 bps		-100 bps				+ 100 bps		+ 200 bps
(millions)	Change		Change		Actual		Change		Change
U.S. government obligations	$	2,083.6	$	2,021.6	$	1,962.5	$	1,906.4	$	1,852.9
State and local government obligations		3,252.7		3,091.6		2,940.4		2,798.3		2,664.8
Asset-backed securities		2,464.3		2,423.6		2,368.7		2,305.7		2,242.9
Corporate securities		1,923.0		1,849.3		1,779.9		1,714.5		1,652.8
Preferred stocks		806.3		787.1		768.9		751.9		735.7
Other debt securities		34.2		33.5		32.8		32.0		31.2
Short-term investments		1,376.9		1,376.9		1,376.9		1,376.9		1,376.9
Balance as of December 31, 2004	$	11,941.0	$	11,583.6	$	11,230.1	$	10,885.7	$	10,557.2
Balance as of December 31, 2003	$	11,270.0	$	10,912.7	$	10,560.2	$	10,223.2	$	9,899.9

Exposure to risk is represented in terms of changes in fair value due to selected hypothetical movements in market rates. Bonds and preferred stocks are individually priced to yield to the worst case scenario. State and local government obligations, including lease deals and super sinkers, are assumed to hold their prepayment patterns. Asset-backed securities are priced assuming deal specific prepayment scenarios, considering the deal structure, prepayment penalties, yield maintenance agreements and the underlying collateral. Over 95% of the preferred stocks have mechanisms that are expected to provide an opportunity to liquidate at par.

Financial instruments subject to equity market risk were:

			Hypothetical Market Changes
	Market
(millions)	Value		+ 10 %		- 10 %
Common equities as of December 31, 2004	$	1,851.9	$	2,037.1	$	1,666.7
Common equities as of December 31, 2003	$	1,972.1	$	2,169.3	$	1,774.9

The model represents the estimated value of the Company’s common equity portfolio given a +/- 10% change in the market, based on the common stock portfolio’s weighted average beta of 1.0. The beta is derived from recent historical experience, using the S&P 500 as the market surrogate. The historical relationship of the common stock portfolio’s beta to the S&P 500 is not necessarily indicative of future correlation, as individual company or industry factors may affect price movement. Betas are not available for all securities. In such cases, the change in market value reflects a direct +/- 10% change; the number of securities without betas is less than 1%, and the remaining 99% of the equity portfolio is indexed to the Russell 1000.

APP.-B-46-

As an additional supplement to the sensitivity analysis, the Company presents summarized estimates of the Value-at-Risk (VaR) of the fixed-income and equity portfolios for the following quarterly periods:

	December 31,			September 30,			June 30,			March 31,			December 31,
(millions)	2004			2004			2004			2004			2003
Fixed-income portfolio	$	(98.7	)	$	(130.5	)	$	(150.0	)	$	(138.9	)	$	(147.5	)
% of portfolio		(.9	)%		(1.0	)%		(1.3	)%		(1.2	)%		(1.4	)%
Equity portfolio	$	(68.4	)	$	(74.3	)	$	(87.3	)	$	(124.7	)	$	(102.0	)
% of portfolio		(3.7	)%		(4.4	)%		(4.3	)%		(6.2	)%		(5.2	)%
Total portfolio	$	(130.4	)	$	(127.3	)	$	(195.4	)	$	(176.0	)	$	(158.5	)
% of portfolio		(1.0	)%		(.9	)%		(1.4	)%		(1.3	)%		(1.3	)%

The model results represent the 95th percentile loss in a one month period or the 9,500th worst case scenario out of 10,000 Monte Carlo generated simulations. Fixed-income securities are priced off simulated term structures and risk is calculated based on the volatilities and correlations of the points on those curves. Equities are priced off of each security’s individual pricing history. The variance/covariance matrix is estimated using the last two years (rolling) of market data and is exponentially-weighted, making the model more sensitive to recent volatility and correlations. The VaR of the total investment portfolios is less than the sum of the two components (fixed income and equity) due to the benefit of diversification.

     The VaR exposure of the total investment portfolio decreased 30 basis points from December 31, 2003 to December 31, 2004, primarily reflecting reduced risk of the fixed-income and equity portfolios.

Trading Financial Instruments

At December 31, 2004 and December 31, 2003, the Company did not have any trading securities. During 2004 and 2003, net activity of trading securities was not material to the Company’s financial position, cash flows or results of operations. The Company realized net gains on trading securities of $0, $.1 million and $0 in 2004, 2003 and 2002, respectively.

APP.-B-47-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

INCENTIVE COMPENSATION PLANS

(unaudited)

The Company believes that equity compensation awards align management interests with those of shareholders. Between 1989 and 2002, the Company awarded non-qualified stock options (NQSO) annually to key employees and to directors of the Company as the equity component of total compensation. In 2003, the Company discontinued NQSO awards in favor of annual restricted stock (RS) grants. The Company believes that RS, which provides voting rights, dividend payments, an indefinite life and unleveraged returns, represents a superior tool in aligning interests.

     The Company recognizes investor concerns about the dilutive effects of equity-based compensation. Beginning January 1, 2001, the Company initiated a policy of share repurchases to neutralize the effect of dilution.

The following table shows the Common Share activity since this policy was established (all amounts are presented on a post-split basis):

(millions)							Common
	Beginning		RS		NQSOs		Shares			Ending
Year	Balance		Granted		Exercised		Repurchased			Balance
2001		220.6		—		2.5		(2.8	)		220.3
2002		220.3		—		1.3		(3.6	)		218.0
2003		218.0		.6		2.8		(5.0	)		216.4
2004		216.4		.5		2.1		(18.6	)		200.4
Cumulative activity		220.6		1.1		8.7		(30.0	)		200.4

As of January 1, 2005, there were 6.8 million options outstanding with 5.7 million options currently eligible for exercise, including .2 million options for directors. On January 1, 2005, 1.6 million options became exercisable. The final expiration date for these outstanding options is December 31, 2011, with the exception of the directors’ options, which expire April 2012.

     The Company anticipates that approximately 6.5 million of the currently outstanding options will have been exercised by the expiration date. The difference between options currently outstanding and total projected exercises represents an estimate of the Company’s historical experience of option cancellations. Actual exercises can and will vary based on a number of factors, including variation in the market price of Progressive stock.

     In October 2004, the Company repurchased 16.9 million Common Shares pursuant to a “Dutch auction” tender offer. As a result of the tender offer, the Company believes that any dilution from stock option exercises has been fully neutralized. On a going forward basis, the Company expects to repurchase shares to offset the dilution from the RS grants.

APP.-B-48-

     During the year, the Company had the following RS awards outstanding, including awards granted to directors:

	2004					2003
				Weighted					Weighted
				Average					Average
	Shares			Grant Value		Shares			Grant Value
Previously issued awards		565,750		$	65.80		—			—
Employees:1
Time-based		391,056			84.17		452,730		$	65.86
Performance-based		101,360			84.15		100,560			65.55
Directors time-based2		12,242			89.89		16,102			65.55
Total granted		504,658			84.30		569,392			65.80
Cancelled		(26,355	)		70.60		(2,987	)		65.55
Vested		(115,970	)		65.55		(655	)		65.55
Net unvested awards		928,083		$	75.76		565,750		$	65.80

¹Includes 243,845 of unvested awards deferred pursuant to The Progressive Corporation Executive Deferred Compensation Plan.

²Includes 6,678 shares deferred pursuant to The Progressive Corporation Directors Restricted Stock Deferral Plan.

The employee time-based awards typically vest in equal installments over approximately three, four and five year periods. The performance-based awards vest upon the attainment of preestablished profitability and growth objectives. The directors’ awards vest within a one-year period. As of December 31, 2004, the remaining weighted average vesting period for the Company’s total unvested awards is 2.3 years.

     The Company recognizes compensation expense on a pro rata basis over the vesting period for all non-deferred awards based on the market value at the date of grant. The compensation expense on the deferred awards is based on the current market value at the end of each period. During 2004 and 2003, the Company recognized $23.8 million and $11.0 million, respectively, of compensation expense associated with RS awards.

APP.-B-49-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CLAIMS PAYMENT PATTERNS

(unaudited)

The Company is primarily an insurer of automobiles, recreation vehicles and trucks owned by small businesses. As such, the Company’s claim liabilities, by their very nature, are short in duration. Since the Company’s incurred losses consist of both payments and changes in the reserve estimates, it is important to understand the Company’s paid development patterns. The charts below show the Company’s auto claims payment patterns, reflecting both dollars and claims counts paid, for auto physical damage and bodily injury claims, as well as on a total auto basis. Since physical damage claims pay out so quickly, the chart is calibrated on a monthly basis, as compared to a quarterly basis for the bodily injury and total auto payments.

Physical Damage

Bodily Injury

APP.-B-50-

Total Auto

Note: The above graphs are presented on an accident period basis.

APP.-B-51-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

QUARTERLY FINANCIAL AND COMMON SHARE DATA

(unaudited)

(millions — except per share amounts)

			Net Income				Stock Price1
	Operating				Per								Rate of			Dividends
Quarter	Revenues2		Total		Share3		High		Low		Close		Return4			Per Share
2004
1	$	3,106.1	$	460.0	$	2.09	$	89.06	$	80.68	$	87.60				$	.025
2		3,245.9		386.3		1.76		91.97		81.30		85.30					.025
3		3,289.8		388.9		1.77		85.60		73.10		84.75					.030
4		3,576.6		413.5		2.01		97.29		83.01		84.84					.030
	$	13,218.4	$	1,648.7	$	7.63	$	97.29	$	73.10	$	84.84		1.6	%	$	.110
2003
1	$	2,607.1	$	291.5	$	1.32	$	60.41	$	46.25	$	59.31				$	.025
2		2,785.4		286.3		1.29		76.38		59.66		73.10					.025
3		2,938.6		319.8		1.45		75.81		64.25		69.11					.025
4		3,051.7		357.8		1.63		84.68		69.11		83.59					.025
	$	11,382.8	$	1,255.4	$	5.69	$	84.68	$	46.25	$	83.59		68.7	%	$	.100
2002
1	$	1,975.3	$	176.2	$	.78	$	55.80	$	46.75	$	55.54				$	.023
2		2,144.8		160.4		.71		60.49		54.64		57.85					.023
3		2,325.7		178.5		.80		57.77		44.75		50.63					.025
4		2,472.0		152.2		.69		58.30		48.79		49.63					.025
	$	8,917.8	$	667.3	$	2.99	$	60.49	$	44.75	$	49.63		(.1	)%	$	.096

All per share amounts and stock prices were adjusted for the April 22, 2002, 3-for-1 stock split.

¹Prices as reported on the consolidated transaction reporting system. The Company’s Common Shares are listed on the New York Stock Exchange.

²Represents premiums earned plus service revenues.

³Presented on a diluted basis. The sum may not equal the total because the average equivalent shares differ in the periods.

⁴Represents annual rate of return, including quarterly dividend reinvestment.

APP.-B-52-

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

NET PREMIUMS WRITTEN BY STATE

(unaudited)

(millions)	2004				2003				2002				2001				2000
Florida	$	1,522.6	11.4	%	$	1,338.2	11.2	%	$	1,040.7	11.0	%	$	798.9	11.0	%	$	750.0	12.1	%
Texas		1,181.1	8.8			1,126.4	9.4			858.6	9.1			571.5	7.9			526.3	8.5
New York		935.7	7.0			808.3	6.8			662.0	7.0			554.1	7.6			417.9	6.7
California		892.7	6.7			736.2	6.2			550.7	5.8			404.6	5.6			364.9	5.9
Ohio		754.2	5.6			712.1	6.0			619.7	6.6			570.9	7.9			552.0	8.9
Georgia		733.2	5.5			614.4	5.2			485.3	5.1			407.0	5.6			362.4	5.9
Pennsylvania		634.4	4.7			589.3	4.9			491.0	5.2			367.5	5.0			308.7	5.0
All other		6,724.2	50.3			5,988.5	50.3			4,744.0	50.2			3,585.6	49.4			2,913.9	47.0
Total	$	13,378.1	100.0	%	$	11,913.4	100.0	%	$	9,452.0	100.0	%	$	7,260.1	100.0	%	$	6,196.1	100.0	%

APP.-B-53-

Directors

*Milton N. Allen ^1,2,6
Consultant, Director and Trustee,
Profit and Not-for-profit Organizations

Charles A. Davis^3,5,6
Chairman and
Chief Executive Officer,
MMC Capital, Inc.
(private equity investing)

Stephen R. Hardis^2,4,5,6
Chairman of the Board,
Axcelis Technologies, Inc.
(manufacturing)

Bernadine P. Healy, M.D.^3,6
Medical & Science Columnist,
U.S. News & World Report
(publishing)

Jeffrey D. Kelly^4,6
Vice Chairman
and Chief Financial Officer,
National City Corporation
(commercial banking)

Philip A. Laskawy^1,6
formerly Chairman and
Chief Executive Officer,
Ernst & Young LLP
(professional services)

Peter B. Lewis²
Chairman of the Board

Norman S. Matthews^3,5,6
Consultant,
formerly President,
Federated Department Stores, Inc.
(retailing)

Patrick H. Nettles, Ph.D. ⁶
Executive Chairman,
Ciena Corporation
(telecommunications)

Glenn M. Renwick ²
President and Chief Executive Officer

Donald B. Shackelford ^4,6
Chairman,
Fifth Third Bank, Central Ohio
(commercial banking)

Bradley T. Sheares, Ph.D. ^1,6
President,
U. S. Human Health Division
of Merck & Co., Inc.
(health care)

*In April 2005, Milton N. Allen will retire after 27 years of service on Progressive’s Board. B. Charles Ames, after 21 years of service, retired in April 2004. Progressive would like to thank both Mr. Allen and Mr. Ames for their dedicated service and the many contributions they made during their tenure on the Board.

¹ Audit Committee member

² Executive Committee member

³ Compensation Committee member

⁴ Investment and Capital Committee member

⁵ Nominating and Governance Committee member

⁶ Independent Director

Corporate Officers

Peter B. Lewis
Chairman

Glenn M. Renwick
President and Chief Executive Officer

W. Thomas Forrester
Vice President and Chief Financial Officer

Charles E. Jarrett
Vice President, Secretary
and Chief Legal Officer

Thomas A. King
Vice President and Treasurer

Jeffrey W. Basch
Vice President and Chief Accounting Officer

Contact Non-Management Directors Interested parties have the ability to contact non-management directors as a group by sending a written communication clearly addressed to the non-management directors and sent to any of the following:

     Peter B. Lewis, Chairman of the Board, The Progressive Corporation, 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 or e-mail: peter_lewis@progressive.com.

     Philip A. Laskawy, Chairman of the Audit Committee, The Progressive Corporation, c/o Ernst & Young, 5 Times Square, New York, New York 10036 or e-mail: philip_laskawy@progressive.com.

     Charles E. Jarrett, Corporate Secretary, The Progressive Corporation, 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 or e-mail: chuck_jarrett@progressive.com.

     The recipient will forward communications so received to the non-management directors.

APP.-B-54-

Accounting Complaint Procedure Any employee or other interested party with a complaint or concern regarding accounting, internal accounting controls or auditing matters relating to the Company may report such complaint or concern directly to the Chairman of the Audit Committee, as follows: Philip A. Laskawy, Audit Committee Chairman, c/o Ernst & Young, 5 Times Square, New York, New York 10036, Phone: 212-773-1300, e-mail: philip_laskawy@progressive.com.

Any such complaint or concern also may be reported anonymously over the following toll-free Alert Line: 1-800-683-3604. The Company will not retaliate against any individual by reason of his or her having made such a complaint or reported such a concern in good faith. View the complete procedures at progressive.com/governance.

Whistleblower Protections The Company will not retaliate against any officer or employee of the Company because of any lawful act done by the employee to provide information or otherwise assist in investigations regarding conduct that the employee reasonably believes to be a violation of Federal Securities Laws or of any rule or regulation of the Securities and Exchange Commission or Federal Securities Laws relating to fraud against shareholders. View the complete Whistleblower Protections at progressive.com/governance.

Annual Meeting The Annual Meeting of Shareholders will be held at the offices of The Progressive Corporation, 6671 Beta Drive, Mayfield Village, Ohio 44143 on April 15, 2005 at 10 a.m. eastern time. There were 3,913 shareholders of record on December 31, 2004.

Principal Office The principal office of The Progressive Corporation is at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143.
Phone: 440-461-5000
Web site: progressive.com

Customer Service and Claims Contacts
For 24-hour customer service or to report a claim, contact:

Progressive Direct^SM
Phone: 1-800-PROGRESSIVE (1-800-776-4737)
Web site: progressivedirect.com

Drive Insurance from Progressive^SM
Phone: 1-800-925-2886
Web site: driveinsurance.com

Common Shares The Progressive Corporation’s Common Shares (symbol PGR) are traded on the New York Stock Exchange. Dividends are customarily paid on the last day of each quarter. The 2005 quarterly dividend record dates, subject to Board approval, are as follows: March 11, June 10, September 9 and December 9.

Corporate Governance The Company’s Corporate Governance Guidelines and Board Committee Charters are available at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

Charitable Contributions Progressive supports qualified not-for-profit organizations working to reduce the human trauma and economic cost of auto accidents. In addition, The Progressive Insurance Foundation, a private charitable foundation that receives contributions from the Company, contributes to qualified tax-exempt organizations that are financially supported by Progressive employees.

Counsel Baker & Hostetler LLP, Cleveland, Ohio

Transfer Agent and Registrar If you have questions about a specific stock ownership account, write or call: National City Bank, Corporate Trust Operations, Dept. 5352, 4100 W. 150th St., Cleveland, Ohio 44135. Phone: 1-800-622-6757 or e-mail: shareholder.inquiries@nationalcity.com.

Shareholder/Investor Relations The Progressive Corporation does not maintain a mailing list for distribution of shareholders’ reports. To view Progressive’s publicly filed documents, shareholders can access the Company’s Web site: progressive.com/sec. To view its earnings and other releases, access progressive.com/investors.

To request copies of public financial information on the Company, write to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143, e-mail: investor_relations@progressive.com or call: 1-440-395-2258.

For financial-related information, call: 1-440-395-2222 or e-mail: investor_relations@progressive.com.

For stock ownership account information, call: National City Bank at 1-800-622-6757 or e-mail: shareholder.inquiries@nationalcity.com.

For all other Company information, call: 1-440-461-5000 or e-mail: webmaster@progressive.com.

Interactive Annual Report The Progressive Corporation’s 2004 Annual Report, in an interactive format, can be found at: progressive.com/annualreport.

©2005 The Progressive Corporation

APP.-B-55-

EX-21

                                                                               .
                                                                               .
                                                                               .

Exhibit No. 21

                   SUBSIDIARIES OF THE PROGRESSIVE CORPORATION



                                                                                     Jurisdiction
Name of Subsidiary                                                                   of Incorporation
- ------------------                                                                   ----------------
                                                                                  
1890 Insurance Agency, Inc.                                                             Wyoming
Airy Insurance Center, Inc.                                                             Pennsylvania
Express Quote Services, Inc.                                                            Florida
Garden Sun Insurance Services, Inc.                                                     Hawaii
Greenberg Financial Insurance Services, Inc.                                            California
Insurance Confirmation Services, Inc.                                                   Delaware
Lakeside Insurance Agency, Inc.                                                         Ohio
Mountainside Insurance Agency, Inc.                                                     Colorado
Pacific Motor Club                                                                      California
PCIC Canada Holdings, Ltd.                                                              Canada
     3841189 Canada Inc.                                                                Canada
Progny Agency, Inc.                                                                     New York
Progressive Adjusting Company, Inc.                                                     Ohio
Progressive Agency Holdings, Inc.                                                       Delaware
     Bayside Underwriters Insurance Agency, Inc.                                        Florida
     Drive Resource Services Company                                                    Ohio
     Progressive American Insurance Company                                             Florida
     Progressive Bayside Insurance Company                                              Florida
     Progressive Casualty Insurance Company                                             Ohio
         PC Investment Company                                                          Delaware
         Progressive Gulf Insurance Company                                             Ohio
         Progressive Specialty Insurance Company                                        Ohio
     Progressive Classic Insurance Company                                              Wisconsin
     Progressive Hawaii Insurance Corp.                                                 Ohio
     Progressive Michigan Insurance Company                                             Michigan
     Progressive Mountain Insurance Company                                             Colorado
     Progressive Northeastern Insurance Company                                         New York
     Progressive Northern Insurance Company                                             Wisconsin
     Progressive Northwestern Insurance Company                                         Ohio
     Progressive Preferred Insurance Company                                            Ohio
     Progressive Security Insurance Company                                             Louisiana
     Progressive Southeastern Insurance Company                                         Florida
     Progressive West Insurance Company                                                 Ohio
Progressive BSA Holdings, Inc.                                                          Ohio
Progressive Capital Management Corp.                                                    New York




                                                                                     
Progressive Commercial Holdings, Inc.                                                   Delaware
     Commercial Resource Services Company                                               Ohio
     National Continental Insurance Company                                             New York
     Progressive Consumers Insurance Company                                            Florida
     Progressive Express Insurance Company                                              Florida
     United Financial Casualty Company                                                  Ohio
Progressive Corporate Support, Inc.                                                     Ohio
Progressive Direct Holdings Inc.                                                        Delaware
     Midland Financial Group, Inc.                                                      Ohio
         Agents Financial Services, Inc. (40% owned)                                    Florida
         Progressive Choice Insurance Company                                           Ohio
         Progressive Home Insurance Company                                             Ohio
         Midland Risk Services, Inc.                                                    Tennessee
     Mountain Laurel Assurance Company                                                  Pennsylvania
     Progressive Auto Pro Insurance Agency, Inc.                                        Florida
     Progressive Auto Pro Insurance Company                                             Florida
     Progressive Direct Resource Services Company                                       Ohio
     Progressive Halcyon Insurance Company                                              Ohio
     Progressive Marathon Insurance Company                                             Michigan
     Progressive Max Insurance Company                                                  Ohio
     Progressive Paloverde Insurance Company                                            Arizona
     Progressive Premier Insurance Company of Illinois                                  Ohio
     Progressive Universal Insurance Company                                            Wisconsin
Progressive DirecTrac Service Corp.                                                     Texas
Progressive Insurance Agency, Inc.                                                      Ohio
Progressive Investment Company, Inc.                                                    Delaware
     RRM Holdings, Inc.                                                                 Delaware
Progressive Premium Budget, Inc.                                                        Ohio
Progressive Resource Services Company                                                   Ohio
Progressive Specialty Insurance Agency, Inc.                                            Ohio
Silver Key Insurance Agency, Inc.                                                       Nevada
The Progressive Agency, Inc.                                                            Virginia
United Financial Insurance Agency, Inc.                                                 Washington
Village Transport Corp.                                                                 Delaware
Wilson Mills Land Co.                                                                   Ohio



Except as indicated, each subsidiary is wholly owned by its parent.

EX-24

Exhibit no. 24

                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 31 day of January, 2005.

      Position(s) with
Signature                                   The Progressive Corporation

/s/ Peter B. Lewis                          Director and Chairman of the Board
- ---------------------------
Peter B. Lewis



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                                     Position(s) with
Signature                                            The Progressive Corporation

/s/ Glenn M. Renwick                                 Director, President and
- ---------------------------                          Chief Executive Officer
Glenn M. Renwick



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                                     Position(s) with
Signature                                            The Progressive Corporation

/s/ W. T. Forrester
- -------------------------------------
W.Thomas Forrester                                   Vice President and
                                                     Chief Financial Officer



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                                     Position(s) with
Signature                                            The Progressive Corporation

/s/ Jeffrey W. Basch
- -----------------------------
Jeffrey W. Basch                                     Vice President and
                                                     Chief Accounting Officer



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 3 day of February, 2005.

                                                     Position(s) with
Signature                                            The Progressive Corporation

/s/ Milton N. Allen
- --------------------------
Milton N. Allen                                      Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 5th day of February, 2005.

                                                     Position(s) with
Signature                                            The Progressive Corporation

/s/ Charles A. Davis
- ---------------------------
Charles A. Davis                                     Director


                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 7 day of February, 2005.

                                              Position(s) with
Signature                                     The Progressive Corporation

/s/ Stephen R. Hardis
- ---------------------
Stephen R. Hardis                             Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 12 day of February, 2005.

                                              Position(s) with
Signature                                     The Progressive Corporation

/s/ Bernadine P. Healy
- ----------------------
Bernadine P. Healy, M.D.                      Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                               Position(s) with
Signature                                      The Progressive Corporation

/s/ Jeffrey D. Kelly
- --------------------
Jeffrey D. Kelly                               Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 1 day of February, 2004.

                                               Position(s) with
Signature                                      The Progressive Corporation

/s/ Philip A. Laskawy
- ---------------------
Philip A. Laskawy                              Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 1 day of February, 2004.

                                               Position(s) with
Signature                                      The Progressive Corporation

/s/ Norman S. Matthews
- ----------------------
Norman S. Matthews                             Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                                Position(s) with
Signature                                       The Progressive Corporation

/s/ Patrick H. Nettles, Ph.D.
- -----------------------------
Patrick H. Nettles, Ph.D.                       Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 1 day of February, 2005.

                                               Position(s) with
Signature                                      The Progressive Corporation

/s/ Donald B. Shackelford
- -------------------------
Donald B. Shackelford                          Director



                                POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 2004, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 14th day of February, 2005.

                                                Position(s) with
Signature                                       The Progressive Corporation

/s/ Bradley T. Sheares
- ----------------------
Bradley T. Sheares                              Director

EX-31.A

Exhibit No. 31(A)

                                  CERTIFICATION

I, Glenn M. Renwick, certify that:

1.    I have reviewed this annual report on Form 10-K of The Progressive
      Corporation;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      c)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent function):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: March 1, 2005              /s/ Glenn M. Renwick
                                 ----------------------------------
                                 Glenn M. Renwick
                                 President and Chief Executive Officer

EX-31.B

Exhibit No. 31(B)

                                  CERTIFICATION

I, W. Thomas Forrester, certify that:

1.    I have reviewed this annual report on Form 10-K of The Progressive
      Corporation;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    Designed such internal control over financial reporting. Or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      c)    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent function):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date:  March 1, 2005

                                 /s/ W. Thomas Forrester
                                 --------------------------------------
                                 W. Thomas Forrester
                                 Vice President and Chief Financial Officer

EX-32.A

Exhibit No. 32(A)

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, Glenn M. Renwick, President and Chief Executive Officer, of The
Progressive Corporation (the "Company"), certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December
31, 2004 (the "Report"), which this certification accompanies, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (U.S.C. 78m or 78o(d)); and

(2) information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

/s/ Glenn M. Renwick
- ------------------------------------
Glenn M. Renwick
President and Chief Executive Officer
March 1, 2005

EX-32.B

Exhibit No. 32(B)

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, W. Thomas Forrester, Vice President and Chief Financial Officer, of The
Progressive Corporation (the "Company"), certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December
31, 2004 (the "Report"), which this certification accompanies, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (U.S.C. 78m or 78o(d)); and

(2) information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

/s/ W. Thomas Forrester
- ------------------------------------------
W. Thomas Forrester
Vice President and Chief Financial Officer
March 1, 2005