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, 2005

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
(State or other jurisdiction incorporation or organization) 34-0963169
(I.R.S. Employer 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    þ Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o Yes þ No

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2005: $17,847,225,237

The number of the registrant’s Common Shares, $1.00 par value, outstanding as of January 31, 2006: 196,712,275

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 21, 2006, to be filed on or about March 3, 2006 and the Annual Report to Shareholders for the year ended December 31, 2005, 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 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	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) SECURITY
EX-4(H) THIRD SUPPLEMENTAL INDENTURE
EX-4(I) SENIOR NOTE SECURITY
EX-10(A) AIRCRAFT MANAGEMENT AGREEMENT
EX-10(P) FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
EX-10(Q) FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
EX-10(R) 1995 INCENTIVE PLAN
EX-10(T) NONQUALIFIED STOCK OPTION-OBJECTIVE BASED
EX-10(AV) DIRECTORS DEFERRAL PLAN
EX-10(BG) SEPARATION AGREEMENT AND GENERAL RELEASE
EX-10(CA) FORM OF EXEC DEFERRED COMP PLAN PERFORMANCE-BASED
EX-10(CB) FORM OF EXEC DEFERRED COMP PLAN TIME-BASED
EX-10(CC) FORM NOTICE OF ELECTION UNDER DEFERRAL PLAN
EX-11 COMPUTATION OF EARNINGS/RATIOS
EX-12 COMPUTATION OF EARNINGS/RATIOS-FIXED CHARGES
EX-13 2005 ANNUAL REPORT TO SHAREHOLDERS
EX-21 SUBSIDIARIES
EX-24 POWERS OF ATTORNEY
EX-31(A) CERTIFICATION 302 - CEO
EX-31(B) CERTIFICATION 302 - CFO
EX-32(A) CERTIFICATION 906 - CEO
EX-32(B) CERTIFICATION 906 - CFO
EX-99(A) LETTER TO SHAREHOLDERS
EX-99(B) PROPOSED PLAN/NEW DIVIDEND POLICY

INTRODUCTION

Portions of the information included in The Progressive Corporation’s Proxy Statement to be filed on or about March 3, 2006, for the Annual Meeting of Shareholders to be held on April 21, 2006 (the “Proxy Statement”) have been incorporated by reference herein and are identified under the appropriate items in this Form 10-K. The 2005 Annual Report to Shareholders (the “Annual Report”) of The Progressive Corporation and subsidiaries, which will be attached as an Appendix to the 2006 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, currently has 70 subsidiaries and 1 mutual insurance company affiliate. Progressive’s insurance subsidiaries and affiliate provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. Our property-casualty insurance products protect our 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. Our non-insurance subsidiaries generally support our insurance and investment operations.

(b) Financial Information About Segments

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

(c) Narrative Description of Business

We offer a number of personal and commercial property-casualty insurance products primarily related to motor vehicles. Net premiums written were $14.0 billion in 2005, compared to $13.4 billion in 2004 and $11.9 billion in 2003. Our combined ratio, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was 88.1 in 2005, 85.1 in 2004 and 87.3 in 2003.

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. Our organization enables us to meet varied local conditions under a cohesive set of policies and procedures designed to provide consistency and control. Our business is organized into four areas: Drive^® Insurance from Progressive (our agency brand which includes both personal and commercial auto), Progressive Direct^SM , Claims, and Sales and Service. Each business area has a Group President and a management team. We entered New Jersey during 2005 and now write auto insurance policies in 49 states (all but Massachusetts) and the District of Columbia. These 50 jurisdictions are organized into regions, depending on business area. The Drive business is organized into Drive Marketing and Drive Sales. In turn, each is organized into three geographical regions with General Managers. The Direct business is organized into three geographical regions, with a General Manager responsible for each region. The Claims business area has six General Managers responsible for one region each. Sales and Service (which includes Drive and Direct customer service, Direct sales and Claims loss reporting, among other services) is performed at locations in the following cities: Austin, Texas; Cleveland, Ohio; Colorado Springs, Colorado; Phoenix, Arizona; Sacramento, California; and Tampa, Florida.

Our 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

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Chief Human Resource Officer, as well as our four Group Presidents (Drive, Direct, Claims, and 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 either Drive or Direct insurance products, buying policies through the distribution channel of their choice.

Personal Lines

Our Personal Lines segment writes insurance for private passenger automobiles and recreation and other vehicles. This business generally offers more than one program in a single state, with each program targeted to a specific distribution channel, market or customer group. Personal Lines accounted for 87% of total net premiums written in 2005, compared to 88% for both 2004 and 2003. Our 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.

We ranked third in industry market share for 2004 based on net premiums written, and we believe that we held this position for 2005. We compete with approximately 290 insurance companies/groups that each writes over $5 million of private passenger auto insurance premiums annually in the United States. The top 15 private passenger auto insurers comprised about 75% of this market. Our estimate of the 2005 industry net premiums written growth is 1.0%, based on actual written premium growth through the first nine months of the year. For 2005, the estimated industry net premiums written for personal auto insurance in the United States were $158.9 billion, and our share of this market was approximately 7.7%, compared to $157.3 billion and 7.5%, respectively, in 2004, and $151.0 billion and 7.0% in 2003. Except as otherwise noted, all industry data and our 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.

Private passenger automobile insurance is comprised of preferred, standard and nonstandard automobile risks and represented 92% of total Personal Lines net premiums written by Progressive in 2005 and 2004, compared to 93% in 2003. We actively participate in the market for each of these risks, with the objective of offering an accurate rate for every risk. Volume potential is driven by our price competitiveness, brand recognition and the actions of our competitors, among other factors. See “Competitive Factors” on page 5 of this report for further discussion.

Our specialty Personal Lines products include insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles and similar items. These specialty products represented the balance of our total Personal Lines net premiums written and are primarily distributed by independent agents and brokers. Due to the nature of these products, we typically experience higher losses during the warmer weather months. Our competitors are specialty companies and large multi-line insurance carriers. Although industry figures are not available, based on our analysis of this market, we believe that we are one of the largest participants in the specialty personal lines market. Based on our review of the markets, we have determined that we have been the market share leader for personal watercraft insurance since 2002 and for the motorcycle product since 1998.

The Personal Lines business is generated either through the Drive channel or written directly by us through the Direct channel. The Drive channel includes business written by our 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 Progressive for specified insurance coverages within prescribed underwriting guidelines, subject to compliance with certain company-mandated procedures. Our 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 Progressive to establish underwriting guidelines, develop rates, settle or adjust claims, or enter into other transactions or commitments. The Drive channel also writes business through strategic alliance business relationships with other insurance companies, financial institutions, employers and national brokerage agencies. In 2005, the total net premiums written through the Drive channel represented 66% of our Personal Lines volume, compared to 68% in 2004 and 69% in 2003.

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The Direct channel includes business written directly by us over the phone at 1-800-PROGRESSIVE and online at progressivedirect.com. Net premiums written in the Direct business were 34%, 32% and 31% of our Personal Lines volume in 2005, 2004 and 2003, respectively.

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 13% of our total net premiums written in 2005, compared to 12% in 2004 and 11% in 2003. The majority of our 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. Our Commercial Auto products are distributed primarily through our Drive brand in the independent agency channel. We compete on a nationwide basis with approximately 200 other companies/groups, each with over $5 million of Commercial Auto premiums written annually. Our Commercial Auto business ranked third in market share on a national basis in 2004 based on direct written premiums, and we estimate that we retained that position for 2005.

Other-Indemnity Businesses

Our other-indemnity businesses, which represented less than 1% of our 2005 and 2004 net premiums written, compared to 1% for 2003, include providing professional liability insurance to community banks, principally directors and officers liability insurance. We reinsure the majority of the risk 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 1,600 banks, representing every state. In addition, our other-indemnity businesses include managing the wind-down of our lender’s collateral protection program, which we ceased writing in 2003, and other run-off businesses.

Service Businesses

Our service businesses include providing insurance-related services, primarily providing policy issuance and claims adjusting services in 25 states for Commercial Auto Insurance Procedures/Plans (CAIP), which are state-supervised plans serving the involuntary markets. We process over 47% of the premiums in the CAIP market and compete with two other providers nationwide. As a service provider, we collect fee revenue that is earned on a pro rata basis over the term of the related policies. We cede 100% of the premiums and losses to the plans. Reimbursements to us 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. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations or cash flows. The service businesses represented less than 1% of our 2005, 2004 and 2003 revenues.

Claims

We manage our claims handling on a companywide basis through more than 460 claims offices located throughout the United States. In addition, we have in operation 26 centers, in 22 metropolitan areas nationwide, that provide concierge-level claims service. These facilities are designed to provide end-to-end resolution for auto physical damage losses. Customers can choose to bring their vehicles to one of these sites and can pick up a rental vehicle. Our representatives will then write the estimate, select a qualified repair shop and inspect the vehicle once the repairs are complete. This service reforms the vehicle repair process, increases consumer satisfaction, increases our productivity and improves the cycle time and quality of repairs.

In 2004, we achieved the performance standards that had been established for the expansion of our concierge claims strategy and, as a result, have announced a significant expansion of this service and are currently researching, acquiring and constructing additional sites around the country. We expect to add about 30 sites in 2006, including 18 currently under construction. We have also expanded this concierge level of service by helping customers find and buy a replacement vehicle when their vehicle is deemed a total loss. This service is being tested in limited locations, but we expect expansion in 2006.

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Competitive Factors

The automobile insurance and other property-casualty markets in which we operate 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. We rely heavily on technology and extensive data gathering and analysis to segment markets and price accurately according to risk potential. We have remained competitive by refining our risk measurement and price segmentation skills, closely managing expenses and achieving operating efficiencies. Superior customer service, fair and accurate claims adjusting and strong brand recognition are also important factors in our competitive strategy.

State Insurance Licenses

Progressive’s insurance subsidiaries operate under licenses issued by various state insurance authorities. These licenses may be of perpetual duration or renewable periodically, provided the holder continues to meet applicable regulatory requirements. Our licenses govern the kinds of insurance coverages that may be written by our subsidiaries 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

Progressive’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 our 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. Progressive’s insurance subsidiaries and affiliate are domiciled in the states of Arizona, Florida, Louisiana, Michigan, New Jersey, New York, Ohio, 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 “file and use,” 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 “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. Progressive is in the process of slowly increasing operating leverage through a higher ratio of net premiums written to surplus in our insurance subsidiaries where permitted. Although the ratio of writings to surplus that the regulators will allow is a function of a number of factors (including applicable law, the type of business being written, the adequacy of the insurer’s reserves and the quality of the insurer’s assets), the annual net

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premiums that an insurer may write are generally limited to a specified multiple of the insurer’s total policyholders’ surplus (e.g., at year-end 2005, our premiums to surplus ratio was 3-to-1). Thus, the amount of an insurer’s surplus, in certain cases, may limit its ability to grow its business. The National Association of Insurance Commissioners (NAIC) 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 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. Certain states also 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, or that subject program withdrawals to prior approval requirements, may restrict an insurer’s ability to exit unprofitable markets or businesses.

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, Progressive’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 our 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 our 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.

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Statutory Accounting Principles

Our results are reported in accordance with 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 under SAP.
2.	Premiums receivables are shown net of an allowance for doubtful accounts. Under SAP, premiums receivable over 90 days past due are non-admitted and charged directly against surplus. Certain other assets are included in the GAAP consolidated balance sheets, but are also non-admitted and charged directly against statutory surplus under SAP. These assets consist primarily of 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 under 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 under SAP. Equity securities are reported at quoted market values under GAAP, which may differ from the NAIC market values as required under SAP.
5.	Both current and deferred taxes are recognized in the income statement for GAAP, while deferred taxes are charged directly to surplus under SAP.

Investments

We employ a conservative approach to investment and capital management intended to ensure that we have sufficient capital to support all of the insurance premium that we can profitably write. Our portfolio is invested primarily in short-term and intermediate-term, investment-grade fixed-income securities. Our investment portfolio had a market value of $14.3 billion at December 31, 2005, compared to $13.1 billion at December 31, 2004. Investment income is affected by the variability of cash flows to or from the portfolio, shifts in the type and quality of investments in the portfolio, changes in yield and other factors. Investment income, including net realized gains (losses) on securities, before expenses and taxes, was $498.8 million in 2005, compared to $563.7 million in 2004 and $478.0 million in 2003. For more detailed discussion, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page App.-A-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, 2005, was 28,336.

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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 Progressive’s insurance subsidiaries. Our 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 our loss reserving practices can be found in our “Report on Loss Reserving Practices,” which was filed with the SEC on Form 8-K on June 28, 2005. 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 2005, 2004 and 2003 on a GAAP basis.

RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

(millions)	2005			2004			2003
Balance at January 1	$	5,285.6		$	4,576.3		$	3,813.0
Less reinsurance recoverables on unpaid losses		337.1			229.9			180.9
Net balance at January 1		4,948.5			4,346.4			3,632.1
Incurred related to:
Current year		9,720.7			8,664.1			7,696.5
Prior years		(355.9	)		(109.1	)		(56.1	)
Total incurred		9,364.8			8,555.0			7,640.4
Paid related to:
Current year		6,644.7			5,719.2			5,065.4
Prior years		2,355.5			2,233.7			1,860.7
Total paid		9,000.2			7,952.9			6,926.1
Net balance at December 31		5,313.1			4,948.5			4,346.4
Plus reinsurance recoverable on unpaid losses		347.2			337.1			229.9
Balance at December 31	$	5,660.3		$	5,285.6		$	4,576.3

During 2005 and 2004, we experienced $355.9 million, $109.1 million and $56.1 million, respectively, of favorable loss reserve development. The favorable development during 2005 and 2004 was driven by actuarial adjustments, resulting from regularly scheduled actuarial reviews, as well as favorable “all other development” (e.g., claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates by claims representatives). The favorable “all other development” also reflected the continued recognition of lower severity for prior accident years than had been previously estimated. In addition to favorable claims development during 2003, we benefited from a change in our estimate of our future operating losses due to business assigned from the New York Automobile Insurance Plan. We conduct extensive reviews each month on portions of our business to help ensure that we are meeting our objective of having reserves that are adequate, with minimal variation.

In establishing loss reserves, we take 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.

We have not entered into any loss reserve transfers or similar transactions having a material effect on earnings or reserves.

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ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT

(millions)
YEAR ENDED	1995		1996		1997		1998		1999			2000		2001		2002		2003		2004		2005
LIABILITY FOR UNPAID LOSSES AND LAE — GROSS	$	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	$	5,660.3
LESS: REINSURANCE RECOVERABLE ON UNPAID LOSSES		296.1		267.7		279.1		242.8		216.0			201.1		168.3		180.9		229.9		337.1		347.2
LIABILITY FOR UNPAID LOSSES AND LAE — NET1	$	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	$	5,313.1
PAID (CUMULATIVE) AS OF:
One year later		593.0		743.6		922.0		1,082.8		1,246.5			1,409.3		1,601.7		1,860.7		2,233.8		2,355.5
Two years later		838.9		1,034.5		1,289.6		1,487.9		1,738.5			2,047.2		2,290.7		2,688.9		3,148.1		—
Three years later		960.1		1,266.1		1,474.9		1,680.6		2,001.4			2,355.0		2,655.8		3,084.6		—		—
Four years later		1,057.1		1,351.1		1,554.1		1,785.7		2,126.4			2,514.6		2,821.0		—		—		—
Five years later		1,092.5		1,384.0		1,596.7		1,836.4		2,191.4			2,586.3		—		—		—		—
Six years later		1,106.3		1,399.9		1,618.2		1,865.3		2,225.5			—		—		—		—		—
Seven years later		1,112.3		1,408.9		1,630.4		1,883.4		—			—		—		—		—		—
Eight years later		1,117.6		1,414.1		1,642.9		—		—			—		—		—		—		—
Nine years later		1,120.9		1,417.9		—		—		—			—		—		—		—		—
Ten years later		1,123.5		—		—		—		—			—		—		—		—		—
LIABILITY RE-ESTIMATED AS OF:
One year later		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		4,592.6
Two years later		1,149.5		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7		4,103.3		—
Three years later		1,118.6		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7		3,459.2		—		—
Four years later		1,137.7		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9		2,982.7		—		—		—
Five years later		1,153.3		1,445.1		1,664.7		1,919.0		2,277.5			2,678.5		—		—		—		—
Six years later		1,150.1		1,442.0		1,674.5		1,917.6		2,284.9			—		—		—		—		—
Seven years later		1,146.2		1,445.6		1,668.4		1,921.9		—			—		—		—		—		—
Eight years later		1,147.4		1,442.5		1,673.9		—		—			—		—		—		—		—
Nine years later		1,146.3		1,443.2		—		—		—			—		—		—		—		—
Ten years later		1,146.9		—		—		—		—			—		—		—		—		—
CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	167.5	$	89.7	$	193.6	$	23.9	$	(84.7	)	$	106.8	$	87.0	$	172.9	$	243.1	$	355.9
PERCENTAGE2		12.7		5.9		10.4		1.2		(3.8	)		3.8		2.8		4.8		5.6		7.2
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE — GROSS	$	1,395.1	$	1,712.9	$	1,933.8	$	2,154.7	$	2,499.5		$	2,875.5	$	3,167.1	$	3,700.2	$	4,411.2	$	4,951.2
LESS: RE-ESTIMATED REINSURANCE RECOVERABLE ON UNPAID LOSSES		248.2		269.7		259.9		232.8		214.6			197.0		184.4		241.0		307.9		358.6
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - NET1	$	1,146.9	$	1,443.2	$	1,673.9	$	1,921.9	$	2,284.9		$	2,678.5	$	2,982.7	$	3,459.2	$	4,103.3	$	4,592.6
GROSS CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	215.4	$	87.7	$	212.8	$	33.9	$	(83.3	)	$	110.9	$	70.9	$	112.8	$	165.1	$	334.4

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 1995 through 2004. 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 were 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 (labeled “Paid (Cumulative) as of:”) 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 (labeled “Liability Re-estimated as of:”) 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, 2005, our insurance subsidiaries had paid $1,417.9 million of the currently estimated $1,443.2 million of losses and LAE that had been incurred through the end of 1996; thus, an estimated $25.3 million of losses incurred through 1996 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 1995 liability has developed favorably by $167.5 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 8 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 1998, but incurred in 1995, will be included in the cumulative development amount for years 1995, 1996 and 1997. 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.

We experienced continually favorable reserve development from 1995 through 1998 primarily due to decreasing bodily injury severity. 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. From 1995 continuously through the third quarter 1998, our bodily injury severity decreased each quarter when compared to the same quarter of the prior year. This period of decreasing severity for us was not only longer than that experienced by the industry, but also longer than at any time in our recent history. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, we started experiencing an increase in bodily injury severity. As a result, the reserve development for 1998 through 2001 has been much closer to our original estimate. Thereafter, we recognized lower severity than what we expected when reserves were originally set.

The Analysis of Loss and Loss Adjustment Expenses Development table on page 9 is constructed from Schedule P, Part-1, from the Consolidated Annual Statements of Progressive’s insurance subsidiaries, as filed with the state insurance departments.

(d) Financial Information About Geographic Areas.

Progressive operates throughout the United States.

(e) Available Information.

Our Web site is located at progressive.com. As soon as reasonably practicable, we make all documents that we file with, or furnish to, the Securities and Exchange Commission (“SEC”), including our reports on Form 10-K, Form 10-Q and Form 8-K, and any amendments to these reports, available free of charge via our Web site at progressive.com/investors. These reports are also available on the SEC’s Web site: sec.gov.

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ITEM 1A. RISK FACTORS

Progressive’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 ability to achieve our business objectives:

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

• Investing Risks are uncertainties relating to the performance and preservation of our investment portfolios. Unlike most other risks, 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 we hold.

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

Although we have organized risks generally according to these categories in the discussion below, 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 our 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 us 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 us with the SEC, as well as news releases and other information publicly disseminated by us from time to time.

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

I. Operating Risks

We compete in the automobile insurance and other property-casualty markets, which are highly competitive.

We face 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 we have. In addition, competitors may offer consumers combinations of auto policies and other insurance products or financial services which we do not offer. We 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.

From time to time, we undertake strategic initiatives to maintain and improve our competitive position in auto insurance markets. Based on a culture that encourages innovation, these strategies at times involve significant departures from our and/or our competitors’ then-current or historical modes of doing business. As such, our innovations may entail a degree of risk and may not ultimately achieve anticipated business goals. In addition, these initiatives may be subject to challenge by regulators or private litigants and may disrupt our relationships with certain of our customers and producers (i.e., agents and brokers). If we are unable successfully to develop,

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plan and implement our strategic initiatives in these competitive, regulatory and legal environments, our business could be materially adversely affected.

Similarly, we undertake 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, our business could be materially adversely affected.

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

Our ability to attract, develop and retain talented employees, managers and executives, and to maintain appropriate staffing levels, is critical to our success.

Our success depends on our ability to attract, develop and retain talented employees, including executives and other key managers. Our 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 our business.

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

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

Progressive and its insurance subsidiaries are subject to a variety of complex federal and state laws and regulations.

Progressive’s insurance businesses operate in a highly regulated environment. Our 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. Our 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 our success.

Certain states impose restrictions on or require prior regulatory approval of various actions by regulated insurers, which may adversely affect our insurance subsidiaries’ ability to operate, innovate and obtain necessary rate adjustments in a timely manner. Our 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, restrict the subsidiaries’ ability to discontinue unprofitable businesses or exit unprofitable markets or prevent insurers from terminating policies under certain circumstances. In addition, compliance with insurance-related laws and regulations often results in increased administrative costs to our insurance subsidiaries. These costs, in turn, may adversely affect our profitability or our ability or desire to grow our business in the applicable jurisdictions.

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The failure to comply with these laws and regulations also could result in actions by regulators or other law enforcement officials, potentially leading to fines and penalties, adverse publicity and damage to our reputation in the marketplace, and in extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions. In addition, Progressive 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 2005, we 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 our 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.

New legislation or regulations may be adopted in the future which could adversely affect our 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. We are unable to predict whether any such laws will be enacted and how and to what extent such laws and regulations would affect our businesses.

State insurance regulation may create risks and uncertainties for the Progressive’s insurance subsidiaries in other ways as well. For further information on these risks and uncertainties, see the “Insurance Regulation” discussion beginning on page 5 of this report.

Lawsuits challenging our business practices, our 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; 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, we also may be involved in litigation or other disputes alleging that our business practices or systems violate the patent, trademark or other intellectual property rights of third parties. Additional litigation may be filed against Progressive 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 our competitors and other businesses, and although we are 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 us 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 our costs of doing business. Such litigation is inherently unpredictable. Except to the extent we have established reserves with respect to particular lawsuits that are currently pending against us, we are unable to predict the effect, if any, that these pending or future lawsuits may have on our business, operations, profitability or financial condition. For further information on pending litigation, see Note 11, Litigation, beginning on page App.-A-21 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Our success depends on our ability to underwrite risks accurately and to charge adequate rates to policyholders.

Our financial condition, cash flows and results of operations depend on our ability to underwrite and set rates accurately for a full spectrum of risks. The role of the pricing function is to ensure that rates are adequate to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to earn a profit.

Our ability to price accurately is subject to a number of risks and uncertainties, including, without limitation:

• the availability of sufficient reliable data,

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• uncertainties inherent in estimates and assumptions, generally,

• our ability to conduct a complete and accurate analysis of available data,

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

• our ability to project changes in certain operating expenses with reasonable certainty,

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

• our ability to innovate with new pricing strategies, and the success of those innovations,

• our ability to predict policyholder retention accurately,

• unanticipated court decisions, legislation or regulatory action,

• ongoing changes in our 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.

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

Our financial performance may also be materially adversely affected by severe weather conditions or other catastrophic losses.

We continue to be exposed to the risk of severe weather conditions and other catastrophes, as shown by the active hurricane seasons in 2004 and 2005. Catastrophes can be caused by natural events, such as hurricanes, tornadoes, windstorms, earthquakes, hailstorms, severe winter weather and fires, or other events, such as explosions, terrorist attacks, riots, hazardous material releases, medical epidemics, utility outages or interruptions of communications facilities. The extent of insured losses from a catastrophe is a function of both our total net insured exposure in the area affected by the event and the nature and severity of the event. In addition, our business could be further impaired if a significant portion of our business or systems were shut down by, or if we were unable to gain access to certain of our facilities as a result of, such an event. Most of our past catastrophe-related claims have resulted from severe storms. The incidence and severity of catastrophes are inherently unpredictable. When they occur with enough severity, our financial performance, cash flows and results of operations could be materially adversely affected.

Our success depends on our ability to establish accurate loss reserves and to adjust claims accurately.

Our financial statements include loss reserves, which represent our 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,

• unexpected changes in medical and auto repair costs,

• unanticipated 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 our claim settlement practices,

• the accuracy of our estimates 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 our 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 our financial statements. Consequently, ultimate losses paid could materially exceed loss reserves and have a materially adverse effect on our results of operations, liquidity or financial position. Further information on our loss reserves can be found in the “Liability for Property-Casualty Losses and Loss Adjustment Expenses” discussion beginning on page 8 of this report, as well as our “Report on Loss Reserving Practices,” which was filed with the SEC on Form 8-K on June 28, 2005.

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

Our business depends on the uninterrupted operation of our facilities, systems and business functions, including our information technology and other business systems.

Our business is highly dependent upon our 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 our facilities, a power outage, or a failure of one or more of our information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis. In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we 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, system failure or service denial could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. This could result in a materially adverse effect on our business results, prospects and liquidity.

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

II. Investing Risks

The performance of our fixed-income and equity investment portfolios is subject to investment risks.

Our 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 may be 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, the principal of such securities may be repaid earlier than anticipated, adversely affecting the value of or income from such securities and the portfolio.

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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 we hold. 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 our 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 we hold and our 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, recessions or depressions, a significant change in inflation expectations, a significant devaluation of governmental or private sector credit, currencies or financial markets, or 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, our liquidity, financial position and financial results could be materially adversely affected. Under these circumstances, our income from these investments could be materially reduced, and declines in the value of certain securities could further reduce our reported earnings and capital levels. A decrease in value of an insurance company’s investment portfolio could also put the subsidiary at risk of failing to satisfy regulatory minimum capital requirements. If we at that time are unable to supplement the subsidiary’s capital from The Progressive Corporation’s other assets or by issuing debt or equity securities on acceptable terms, our business could be materially adversely affected.

III. Financing Risks

Our 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 other subsidiaries or affiliates.

The Progressive Corporation is a holding company with no business operations of its own. Consequently, if its subsidiaries are unable to pay dividends or make other distributions to The Progressive Corporation, or are able to pay only limited amounts, Progressive may be unable to pay dividends to shareholders, make payments on its indebtedness, meet its other obligations, repurchase its Common Shares, 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 our 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 our insurance subsidiaries to pay dividends can be found in Item 5(c), “Dividends,” on page 19 of this report.

Our financial condition may be adversely affected if one or more parties with which we enter into significant contracts becomes insolvent or experiences other financial hardship.

Our 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 our operations) and arrangements for transferring certain of our risks (including reinsurance used by us in connection with certain of our insurance products and our 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 our business, we could suffer significant financial losses and operational problems, which could in turn adversely affect our financial performance, cash flows or results of operations.

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Our access to capital markets, our financing arrangements and our business operations are dependent on favorable evaluations and ratings by credit and other rating agencies.

Our 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 our insurance subsidiaries is rated by A.M. Best. Progressive and its insurance subsidiaries currently enjoy favorable, stable ratings. Downgrades in our credit ratings could adversely affect our ability to access the capital markets and/or lead to increased borrowing costs in the future (although the interest rates we pay on our current indebtedness would not be affected). Perceptions of our company by investors, producers, other businesses and consumers could also be significantly impaired. Downgrades in the ratings of our insurance subsidiaries could likewise negatively impact our operations, potentially resulting in lower or negative premium growth. In either event, our financial performance could be materially adversely affected.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

We currently do not have any unresolved comments from the SEC staff.

ITEM 2. PROPERTIES

Our corporate headquarters are located on a 42-acre parcel in Mayfield Village, Ohio. We also own a 72-acre corporate office complex near the headquarters. Buildings on these two sites contain approximately 1.6 million square feet of office space.

We also own: 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; Ft. Lauderdale, Florida; Plymouth Meeting, Pennsylvania; Tempe, Arizona; and Tigard, Oregon. Two of these buildings are partially leased to non-affiliates. In total, these buildings contain approximately 1.9 million square feet of office, warehouse and training facility space. These facilities are occupied by our business units or other supporting operations and are not segregated by industry segment.

The building in Tempe, Arizona is also partially used as a claims service center. In addition, we own 4 buildings and lease another 21 to provide concierge-level claims service at various locations throughout the United States. In total, these additional buildings contain approximately .4 million square feet. We also have 18 claims service centers currently under construction and are acquiring additional properties in various markets around the country as part of our announced expansion of the program.

We lease approximately 1.2 million square feet of office and warehouse space at various locations throughout the United States for our business units and corporate functions. In addition, we lease approximately 460 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

None. For a discussion of the litigation we currently face, see Note 11, Litigation, beginning on page App.-A-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 2005.

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.

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PART II

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

(a) Market Information

Progressive’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
2005		1	$	92.49	$	81.38	$	91.76	$	.030
		2		100.88		87.50		98.81		.030
		3		107.30		93.70		104.77		.030
		4		124.90		103.02		116.78		.030
			$	124.90	$	81.38	$	116.78	$	.120
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

The closing price of our Common Shares on January 31, 2006 was $105.04.

(b) Holders

There were 3,895 shareholders of record on January 31, 2006.

(c) Dividends

See the table above for the frequency and amount of cash dividends paid on our Common Shares, $1.00 par value, for the last two years.

On February 26, 2006, Progressive’s Board of Directors approved a change in our dividend policy, which is expected to be implemented in 2007. This change is described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page App.-A-26 of the Annual Report, which is included as Exhibit 13 to this Form 10-K, and in the Letter to Shareholders, which is included in our 2005 Summary Annual Report and filed as Exhibit 99(A) in this Form 10-K. In addition, a Question and Answer document on the new dividend policy is filed as Exhibit 99(B) to this Form 10-K.

Consolidated statutory policyholders’ surplus was $4.7 billion at both December 31, 2005 and 2004, respectively. At December 31, 2005, $505.7 million of consolidated statutory policyholders’ surplus represented net admitted assets of Progressive’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 $1.1 billion in 2006 without prior approval from regulatory

- 19 -

authorities, provided the dividend payments are not within 12 months of previous dividends paid by the applicable subsidiary.

(d) Securities authorized for issuance under equity compensation plans

The following information is set forth with respect to our equity compensation plans at December 31, 2005.

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		—		—		1,183,546		3,816,454
1995 Incentive Plan1		4,681,480	$	34.27		347,856		—
1989 Incentive Plan1		223,889		23.11		—		—
Subtotal Employee Plans		4,905,369		33.76		1,531,402		3,816,454
Director Plans:
2003 Directors Equity Incentive Plan		—		—		40,905		309,095
1998 Directors’ Stock Option Plan		170,277		36.12		—		406,956
1990 Directors’ Stock Option Plan1		48,000		21.06		—		—
Subtotal Director Plans		218,277		32.81		40,905		716,051
Equity compensation plans not approved by security holders:
None
Total		5,123,646	$	33.72		1,572,307		4,532,505

¹ This plan expired and no further awards may be made thereunder.

(e) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES

2005					Total Number of Shares Purchased		Maximum Number of Shares That
Calendar	Total Number of		Average Price		as Part of Publicly Announced		May Yet Be Purchased Under the
Month	Shares Purchased		Paid per Share		Plans or Programs1		Plans or Programs1
January		500,000	$	83.46		5,313,729		9,686,271
February		420,205		87.33		5,733,934		9,266,066
March		982,800		89.56		6,716,734		8,283,266
April		907,900		90.55		7,624,634		7,375,366
May		756,800		94.62		8,381,434		6,618,566
June		675,100		98.71		9,056,534		5,943,466
July		552,581		98.72		9,609,115		5,390,885
August		215,000		96.73		9,824,115		5,175,885
September		87,300		99.32		9,911,415		5,088,585
October		—		—		9,911,415		5,088,585
November		—		—		9,911,415		5,088,585
December		100,000		118.92		10,011,415		4,988,585
Total		5,197,686	$	92.89

¹ In April 2003, the Board of Directors authorized the repurchase of up to 15,000,000 Common Shares.

- 20 -

Progressive’s financial policies state that we will repurchase shares to neutralize dilution from equity-based compensation in the year of issuance and to return underleveraged capital to investors. See Note 8, Employee Benefit Plans, “Incentive Compensation Plans,” beginning on page App.-A-17 of the Annual Report, which is included as Exhibit 13 to this Form 10-K, for a summary of our restricted stock activity.

ITEM 6. SELECTED FINANCIAL DATA

(millions — except per share amounts)

	For the years ended December 31,
	2005		2004		2003		2002		2001
Total revenues	$	14,303.4	$	13,782.1	$	11,892.0	$	9,294.4	$	7,488.2
Net income		1,393.9		1,648.7		1,255.4		667.3		411.4
Per share:1
Net income2		6.98		7.63		5.69		2.99		1.83
Dividends		.120		.110		.100		.096		.093
Total assets		18,898.6		17,184.3		16,281.5		13,564.4		11,122.4
Debt outstanding		1,284.9		1,284.3		1,489.8		1,489.0		1,095.7

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.-A-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.-A-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 Progressive, 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.

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

None

- 21 -

ITEM 9A. CONTROLS AND PROCEDURES

Progressive, 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 us in the reports that we file or submit 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 our 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 Progressive’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 Progressive’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.-A-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-A-25 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

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

ITEM 9B. OTHER INFORMATION

None.

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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 2006 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 Progressive 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		50	President and Chief Executive Officer; President, Chairman of the Board and Chief Executive Officer of Progressive Casualty Insurance Company, the principal subsidiary of the Registrant, prior to April 2004
W. Thomas Forrester		57	Vice President since June 2001; Chief Financial Officer; Treasurer prior to June 2001
Charles E. Jarrett		48	Vice President since June 2001; Secretary since February 2001; Chief Legal Officer
Thomas A. King		46	Vice President; Treasurer since April 2003; Investment Strategist from February 2001 to March 2003; Corporate Controller prior to February 2001
Jeffrey W. Basch		47	Vice President; Chief Accounting Officer
Alan R. Bauer		53	Direct Group President since January 2002; Internet Business Leader prior to January 2002
William M. Cody		43	Chief Investment Officer since February 2003; Portfolio Manager prior to February 2003
Susan Patricia Griffith		41	Chief Human Resource Officer since April 2002; Process Manager for Claims Central Services prior to April 2002
Brian J. Passell		49	Claims Group President since January 2002; Claims Business Leader prior to January 2002
Raymond M. Voelker		42	Chief Information Officer
Richard H. Watts		51	Sales and Service Group President since January 2002; Direct Business Leader prior to January 2002
Robert T. Williams		49	Drive (known as “Agency” prior to September 2004) Group President since January 2002; Agency Business Leader prior to January 2002

- 23 -

Audit Committee. Incorporated by reference from the “Audit Committee” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Financial Expert. Incorporated by reference from the “Audit Committee Financial Expert” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Shareholder-Proposed Candidate Procedures. There were no material changes to the Company’s shareholder-proposed candidate procedures during 2005. The description of those procedures is incorporated by reference from the “Shareholder-Proposed Candidate Procedures” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Section 16(a) Beneficial Ownership Reporting Compliance. On July 6, 2005, Mr. Charles A. Davis, a Director of Progressive, received a distribution from us of the cash equivalent of 366.0016 phantom stock units (which are valued on a 1-to-1 basis with Progressive’s Common Shares) pursuant to The Progressive Corporation Directors Deferral Plan. Also on July 6, 2005, Dr. Bernadine P. Healy, a Progressive Director, received a distribution from us of the cash equivalent of 154.8144 such phantom stock units pursuant to the same plan. Each of these transactions was reported late on a Form 4 filed on August 1, 2005, due to an administrative error on the part of the Company.

Code of Ethics. Progressive has a Code of Ethics for the Chief Executive Officer, Chief Financial Officer and other senior financial officers. This Code of Ethics is available, without charge, 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.

We intend 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 our Internet Web site at: progressive.com/governance.

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 “Other Board of Directors Information — 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 included in Progressive’s 2005 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, 2005, 2004 and 2003

• Consolidated Balance Sheets — December 31, 2005 and 2004

• Consolidated Statements of Changes in Shareholders’ Equity — For the Years Ended December 31, 2005, 2004 and 2003

• Consolidated Statements of Cash Flows — For the Years Ended December 31, 2005, 2004 and 2003

• Notes to Consolidated Financial Statements

• Supplemental Information (Unaudited)

(a)(2) Listing of Financial Statement Schedules

The following financial statement schedules, Report of Independent Registered Public Accounting Firm and Consent of Independent Registered Public Accounting Firm are included in Item 15(c):

• 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.

(a)(3) Listing of Exhibits

See exhibit index contained herein beginning at page 38. Management contracts and compensatory plans and arrangements are identified in the Exhibit Index as Exhibit Nos.10(D) through 10(CC).

(b) Exhibits

The exhibits in response to this portion of Item 15 are submitted concurrently with this report.

(c) Financial Statement Schedules

- 25 -

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

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

	December 31, 2005
					Amount At Which
					Shown In The
	Cost		Market Value		Balance Sheet
Type of Investment
Available-for-sale
Fixed maturities:
United States government and government agencies and authorities	$	2,249.0	$	2,245.3	$	2,245.3
States, municipalities and political subdivisions		3,637.7		3,635.9		3,635.9
Asset-backed securities		2,386.6		2,376.0		2,376.0
Public utilities		94.6		93.1		93.1
Foreign government obligations		30.3		30.3		30.3
Corporate and other debt securities		1,743.0		1,719.5		1,719.5
Redeemable preferred stock		119.5		121.8		121.8
Total fixed maturities		10,260.7		10,221.9		10,221.9
Equity securities:
Common stocks:
Public utilities		126.4		193.9		193.9
Banks, trusts and insurance companies		324.8		471.1		471.1
Industrial, miscellaneous and all other		972.2		1,393.9		1,393.9
Nonredeemable preferred stocks		1,217.0		1,220.3		1,220.3
Total equity securities		2,640.4		3,279.2		3,279.2
Short-term investments:
Auction rate municipal obligations		280.2		280.2		280.2
Auction rate preferred stocks		105.0		105.1		105.1
Other short-term investments		388.3		388.3		388.3
Total short-term investments		773.5		773.6		773.6
Total investments	$	13,674.6	$	14,274.7	$	14,274.7

Progressive did not have any securities of any one issuer with an aggregate cost or market value exceeding 10% of total shareholders’ equity at December 31, 2005.

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SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2005			2004			2003
Revenues
Dividends from subsidiaries*	$	1,625.9		$	2,123.8		$	533.5
Intercompany investment income*		33.9			13.2			12.6
Gain on sale of consolidated subsidiary		—			—			1.7
		1,659.8			2,137.0			547.8
Expenses
Interest expense		85.6			86.1			98.9
Other operating costs and expenses		8.9			5.8			5.2
		94.5			91.9			104.1
Income before income taxes and other items below		1,565.3			2,045.1			443.7
Income tax benefit		(21.5	)		(34.4	)		(35.7	)
Net income — parent company only		1,586.8			2,079.5			479.4
Net income (loss) of subsidiaries after current year dividend distributions		(192.9	)		(430.8	)		776.0
Net income — consolidated	$	1,393.9		$	1,648.7		$	1,255.4

* Eliminated in consolidation.

See notes to condensed financial statements.

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SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	December 31,
	2005			2004
ASSETS
Investment in non-consolidated affiliates	$	1.0		$	.4
Investment in subsidiaries*		5,365.1			5,412.6
Receivable from subsidiary*		1,986.1			962.0
Intercompany receivable*		87.0			213.0
Income taxes		26.5			—
Other assets		61.1			49.9
TOTAL ASSETS	$	7,526.8		$	6,637.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	134.4		$	108.2
Income taxes		—			90.0
Debt		1,284.9			1,284.3
Total liabilities		1,419.3			1,482.5
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 600.0 shares; issued 213.1, and 213.2, including treasury shares of 15.8 and 12.8)		197.3			200.4
Paid-in capital		848.2			743.3
Unamortized restricted stock		(62.7	)		(46.0	)
Accumulated other comprehensive income:
Net unrealized gains on investment in equity securities of consolidated subsidiaries		390.1			435.1
Net unrealized gains on forecasted transactions		8.6			9.7
Retained earnings		4,726.0			3,812.9
Total shareholders’ equity		6,107.5			5,155.4
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,526.8		$	6,637.9

* Eliminated in consolidation.

See notes to condensed financial statements.

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SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,393.9		$	1,648.7		$	1,255.4
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of consolidated subsidiaries		(1,433.0	)		(1,693.0	)		(1,309.5	)
Restricted stock amortization		1.1			1.1			.8
Gain on sale of consolidated subsidiary		—			—			(1.7	)
Changes in:
Intercompany receivable or payable		126.0			(44.7	)		(52.0	)
Accounts payable and accrued expenses		18.0			2.9			20.2
Income taxes		(116.5	)		28.6			(14.2	)
Tax benefits from exercise of stock options		41.2			44.3			44.0
Other, net		(11.3	)		(12.3	)		(18.6	)
Net cash provided by (used in) operating activities		19.4			(24.4	)		(75.6	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investments in equity securities of consolidated subsidiaries		(158.9	)		(499.7	)		(110.3	)
Dividends received from consolidated subsidiaries		1,625.9			2,123.8			516.2
Proceeds from sale of consolidated subsidiary		—			—			8.2
Net cash provided by investing activities		1,467.0			1,624.1			414.1
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		44.2			51.7			50.0
Payment of debt		—			(200.0	)		—
Received from (paid to) subsidiary		(1,024.1	)		200.4			(50.0	)
Dividends paid to shareholders		(23.7	)		(23.3	)		(21.7	)
Acquisition of treasury shares		(482.8	)		(1,628.5	)		(316.8	)
Net cash used in financing activities		(1,486.4	)		(1,599.7	)		(338.5	)
Change in cash		—			—			—
Cash, beginning of year		—			—			—
Cash, end of year	$	—		$	—		$	—

See notes to condensed financial statements.

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SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements of The Progressive Corporation should be read in conjunction with the consolidated financial statements and notes thereto of The Progressive Corporation and subsidiaries included in Progressive’s 2005 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 Progressive Corporation paid income taxes of $767.0 million in 2005, and $709.0 million and $579.0 million in 2004 and 2003, respectively. Total interest paid was $85.0 million in 2005 and $91.6 million in 2004 and $98.9 million in 2003. Non-cash activity includes the liability for deferred restricted stock compensation and the contribution of restricted stock from The Progressive Corporation to its subsidiaries.

INCOME TAXES — The Progressive Corporation 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 Progressive Corporation 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 Progressive Corporation, 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)	2005			2004			2003
Changes in unrealized gains (losses):
Available-for-sale: fixed maturities	$	(150.7	)	$	(122.4	)	$	(68.7	)
equity securities		81.4			148.4			462.2
Deferred income taxes		24.3			(9.1	)		(137.7	)
	$	(45.0	)	$	16.9		$	255.8

DEBT — The information relating to debt is incorporated by reference from Note 4, Debt, beginning on page App.-A-14 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

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.-A-17 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

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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, 2005:
Personal Lines									$	12,069.3			$	8,310.3	$	1,256.9	$	1,168.8	$	12,182.9
Commercial Auto										1,667.8				1,041.5		190.9		137.4		1,801.2
Other-indemnity										27.3				13.0		.4		6.0		23.5
Total	$	444.8	$	5,660.3	$	4,335.1	$	—	$	13,764.4	$	524.6	$	9,364.8	$	1,448.2	$	1,312.2	$	14,007.6
Year ended December 31, 2004:
Personal Lines									$	11,611.9			$	7,629.3	$	1,241.8	$	1,107.0	$	11,735.8
Commercial Auto										1,524.1				909.9		173.4		119.4		1,616.6
Other-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										1,226.7				768.9		140.7		102.9		1,357.7
Other-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

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

- 31 -

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, 2005
Premiums earned:
Property and liability	$	14,066.2	$	301.8	$	—	$	13,764.4		—
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		—

- 32 -

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, 2005	$	9,720.7	$	(355.9	)		$	9,000.2
December 31, 2004	$	8,664.1	$	(109.1	)		$	7,952.9
December 31, 2003	$	7,696.5	$	(56.1	)		$	6,926.1

Pursuant to Rule 12-18 of Regulation S-X. See Schedule III, page 31, for the additional information required in Schedule VI.

- 33 -

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 of the effectiveness of internal control over financial reporting referred to in our report dated February 28, 2006 appearing in the 2005 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
February 28, 2006

- 34 -

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 February 28, 2006 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 February 28, 2006 relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Cleveland, Ohio
February 28, 2006

- 35 -

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
February 28, 2006	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.

* Peter B. Lewis	Director, Chairman of the Board	February 28, 2006
/s/ Glenn M. Renwick Glenn M. Renwick	Director, President and Chief Executive Officer	February 28, 2006
/s/ W. Thomas Forrester W. Thomas Forrester	Vice President and Chief Financial Officer	February 28, 2006
/s/ Jeffrey W. Basch Jeffrey W. Basch	Vice President and Chief Accounting Officer	February 28, 2006
* Stephen R. Hardis	Director	February 28, 2006
* Bernadine P. Healy, M.D.	Director	February 28, 2006
* Charles A. Davis	Director	February 28, 2006
* Jeffrey D. Kelly	Director	February 28, 2006
* Philip A. Laskawy	Director	February 28, 2006

- 36 -

* Norman S. Matthews	Director	February 28, 2006
* Patrick H. Nettles, Ph.D.	Director	February 28, 2006
* Donald B. Shackelford	Director	February 28, 2006
* Bradley T. Sheares, Ph.D.	Director	February 28, 2006

* 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	February 28, 2006
	Charles E. Jarrett
	Attorney-in-fact

- 37 -

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 15, 2005)	Quarterly Report on Form 10-Q (filed with SEC on May 9, 2005; Exhibit 3(A) therein)
(4)		4	(A)	Commercial Note: Demand Line of Credit with National City Bank dated December 13, 2005	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 4(A) therein)
(4)		4	(B)	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	(C)	Form of 7% Notes due 2013 issued in the aggregate principal amount of $150,000,000 under the 1993 Senior Indenture	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 4(E) therein)
(4)		4	(D)	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)
(4)		4	(E)	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	Filed herewith
(4)		4	(F)	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)

- 38 -

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	(G)	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	(H)	Third Supplemental Indenture dated December 7, 2001 between Progressive and State Street Bank and Trust Company, as Trustee	Filed herewith
(4)		4	(I)	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	Filed herewith
(4)		4	(J)	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	(K)	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	Filed herewith
(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 2004 Gainsharing Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(F) therein)
(10)(iii)		10	(E)	The Progressive Corporation 2005 Gainsharing Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(A) therein)

- 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
(10)(iii)		10	(F)	The Progressive Corporation 2006 Gainsharing Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(A) therein)
(10)(iii)		10	(G)	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	(H)	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	(I)	2006 Progressive Capital Management Bonus Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; 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 2006 Information Technology Incentive Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(B) therein)
(10)(iii)		10	(O)	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)
(10)(iii)		10	(P)	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (single award)	Filed herewith
(10)(iii)		10	(Q)	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (multiple awards)	Filed herewith

- 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
(10)(iii)		10	(R)	The Progressive Corporation 1995 Incentive Plan	Filed herewith
(10)(iii)		10	(S)	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	(T)	Form of Objective-Based (now known as Performance-Based) Non-Qualified Stock Option Agreement under The Progressive Corporation 1995 Incentive Plan	Filed herewith
(10)(iii)		10	(U)	Form of The Progressive Corporation 1995 Incentive Plan Restricted Stock Award Agreement (Time-Based Award)	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 10(T) therein)
(10)(iii)		10	(V)	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	(W)	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	(X)	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	(Y)	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)
(10)(iii)		10	(Z)	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(AA)			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(AB)			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)

- 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)(iii)	10(AC)	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(AD)	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(AE)	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(AF)	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(AG)	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(AH)	Third Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Current Report on Form 8-K (filed with SEC on March 17, 2005; Exhibit 10(A) therein)
(10)(iii)	10(AI)	Fourth Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(B) therein)
(10)(iii)	10(AJ)	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(AK)	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)

- 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(AL)	Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2005 and thereafter)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(a) therein)
(10)(iii)	10(AM)	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(AN)	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(AO)	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(AP)	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(AQ)	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(AR)	Form of The Progressive Corporation Executive Deferred Compensation Plan Revocation Election for Gainsharing Plan Participants (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(D) therein)
(10)(iii)	10(AS)	Form of The Progressive Corporation Executive Deferred Compensation Plan Revocation Election for Executive Bonus Plan Participants (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(E) therein)
(10)(iii)	10(AT)	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)

- 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(AU)	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(AV)	The Progressive Corporation Directors Deferral Plan (Amendment and Restatement), as further amended on October 25, 1996	Filed herewith
(10)(iii)	10(AW)	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)
(10)(iii)	10(AX)	First Amendment to The Progressive Corporation Directors Restricted Stock Deferral Plan	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(A) therein)
(10)(iii)	10(AY)	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AI) therein)
(10)(iii)	10(AZ)	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2005 and thereafter)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(d) therein)
(10)(iii)	10(BA)	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Revocation Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(C) therein)
(10)(iii)	10(BB)	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(BC)	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(BD)	Director Compensation Schedule for 2003, 2004 and 2005	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 10(AW) therein)
(10)(iii)	10(BE)	Director Compensation Schedule for 2006	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(D) 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(BF)	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(BG)	Separation Agreement and General Release dated February 23, 2001 between Progressive Casualty Insurance Company and Charles B. Chokel	Filed herewith
(10)(iii)	10(BH)	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(BI)	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(BJ)	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(BK)	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)
(10)(iii)	10(BL)	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) therein)
(10)(iii)	10(BM)	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(BN)	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(BO)	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(BP)	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)

- 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(BQ)		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(BR)		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(BS)		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(BT)		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(BU)		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(BV)		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)
(10)(iii)	10(BW)		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(BX)		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(BY)		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(BZ)		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)
(10)(iii)	10(CA)		Form of The Progressive Corporation Executive Deferred Compensation Plan Performance – Based Restricted Stock Deferral Agreement (for 2006)	Filed herewith
(10)(iii)	10(CB)		Form of The Progressive Corporation Executive Deferred Compensation Plan Time – Based Restricted Stock Deferral Agreement (for 2006)	Filed herewith
(10)(iii)	10(CC)		Form of The Progressive Corporation’s Directors Deferral Plan Agreement	Filed herewith
(11)		11	Computation of Earnings Per Share	Filed herewith
(12)		12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith

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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
(13)		13		The Progressive Corporation 2005 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 35 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
(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
(99)		99	(A)	Letter to Shareholders from Glenn M. Renwick, President and Chief Executive Officer	Filed herewith
(99)		99	(B)	Questions and Answers about New Dividend Policy to be Implemented in 2007	Filed herewith

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

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EX-4.E

Exhibit No. 4(E)

(FACE OF SECURITY)

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”) to the Issuer or its agent for registration of transfer, exchange or payment, and such certificate is registered in the name of Cede & Co., or in such other name as requested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

REGISTERED	REGISTERED
NO. R-001	$100,000,000

CUSIP No. 743315 AH 6
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PROGRESSIVE CORPORATION
7.30% NOTE DUE 2006

     THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Issuer”), for value received, hereby promises to pay to CEDE & Co., c/o The Depository Trust Company, 55 Water Street, New York, New York 10041 or registered assigns, at the office or agency of the Issuer at the office of the Trustee in Boston, Massachusetts, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) on June 1, 2006, 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 June 1 and December 1 of each year, commencing on December 1, 1996, 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 June 1 or the December 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 May 28, 1996, 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. Notwithstanding the foregoing, if the date hereof is after the fifteenth day of May or November, as the case may be, and before the following June 1 or December 1, this Note shall bear interest from such June 1 or December 1; provided, that if the Issuer shall default in the payment of interest due on such June 1 or December 1, then this Note shall bear interest from the next preceding June 1 or December 1, to which interest has been paid or, if no interest has been paid on this Note, from May 28, 1996. The interest so payable on any June 1 or December 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

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is registered at the close of business on May 15 or November 15, as the case may be, next preceding such June 1 or December 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.

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

THE PROGRESSIVE CORPORATION

[CORPORATE SEAL]

By: /s/ Charles B. Chokel

Charles B. Chokel

Treasurer

Attest: /s/ David M. Schneider

           David M. Schneider

           Secretary

Dated: May 28, 1996

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

STATE STREET BANK AND TRUST COMPANY

	as Trustee
By:
	Authorized Signatory

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(BACK OF SECURITY)

THE PROGRESSIVE CORPORATION

7.30% NOTE DUE 2006

     This Note is one of a duly authorized issue of debentures, 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, as heretofore supplemented and amended (herein called the “Indenture”), between the Issuer and State Street Bank and Trust Company, 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 rates, 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 7.30% Notes Due 2006 of the Issuer, limited in aggregate principal amount to $100,000,000.

     In case an Event of Default, as defined in the Indenture, with respect to the 7.30% Notes Due 2006 shall have occurred and be continuing, the principal hereof may 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

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Securities. Any such consent or waiver 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 Boston, 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.

     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 Boston, 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 of 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.

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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 in common

UNIF GIFT MIN ACT — Uniform Gifts to Minors Act

______________
(State)

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

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.

Dated:

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.

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EX-4.H

Exhibit No. 4(H)

THE PROGRESSIVE CORPORATION

and

STATE STREET BANK AND TRUST COMPANY, as

Successor Trustee

THIRD SUPPLEMENTAL INDENTURE

6.375% Senior Notes due 2012

     THIS THIRD SUPPLEMENTAL INDENTURE, dated as of December 7, 2001, between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “ISSUER”) and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company (“SSB”), in its capacity as Successor Trustee.

W I T N E S S E T H:

     WHEREAS, the Issuer entered into an Indenture, dated as of September 15, 1993 (as supplemented by the First Supplemental Indenture, dated as of March 15, 1996, the “INDENTURE”), with the First National Bank of Boston, in its capacity as Trustee, pursuant to which the Issuer may from time to time issue its unsecured debentures, notes and other evidences of indebtedness in one or more series; and

     WHEREAS, the Issuer entered into a Supplemental Indenture, dated as of March 15, 1996, confirming the succession of SSB as trustee under the Indenture;

and

     WHEREAS, the Issuer entered into a Second Supplemental Indenture, dated as of February 26, 1999;

     WHEREAS, Article Eight of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and

     WHEREAS, Section 8.1(c) of the Indenture provides that the Issuer, when authorized by its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture supplemental to the Indenture to add on to the covenants of the Issuer certain further covenants, restrictions, conditions or provisions.

     NOW THEREFORE:

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     In consideration of the premises and other good and valuable consideration, the parties hereto mutually covenant and agree as follows:

ARTICLE 1

RELATION TO INDENTURE; DEFINITIONS

     SECTION 1.01. Integral Part. This Third Supplemental Indenture constitutes an integral part of the Indenture.

     SECTION 1.02. General Definitions. For all purposes of this Third Supplemental Indenture:

     (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture;

     (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Third Supplemental Indenture; and

     (c) the terms “HEREIN”, “HEREOF”, “HEREUNDER” and other words of similar import refer to this Third Supplemental Indenture.

     SECTION 1.03. Definitions. The following definitions shall apply to this Third Supplemental Indenture:

     “CONSOLIDATED TANGIBLE NET WORTH” means, at any date, the total assets appearing on the consolidated balance sheet of the Issuer and its consolidated subsidiaries as of the end of the then most recent fiscal quarter of the Issuer, prepared in accordance with generally accepted accounting principles, less the sum of (a) the total liabilities appearing on such balance sheet and (b) intangible assets. “INTANGIBLE ASSETS” means, for the purposes of this definition, the value, as shown on or reflected in such balance sheet, of (i) all trade names, trademarks, licenses, patents, copyrights and goodwill, (ii) organizational costs and (iii) unamortized debt discount and expense, less unamortized premium.

     “DESIGNATED SECURITIES” means the series of Securities designated by the Issuer as its “6.375% Senior Notes due 2012”.

     “DESIGNATED SUBSIDIARY” means (i) Progressive Casualty Insurance Company, an Ohio corporation, so long as it remains a subsidiary of the Issuer, (ii) any other consolidated subsidiary of the Issuer the assets of which constitute 10% or more of the Total Assets, and (iii) any subsidiary that is a successor to all or substantially all of the business or properties of any such subsidiary.

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     “TOTAL ASSETS” means, at any date, the total assets appearing on the consolidated balance sheet of the Issuer and its consolidated subsidiaries as of the end of the then most recent fiscal quarter of the Issuer, prepared in accordance with generally accepted accounting principles.

ARTICLE 2

ADDITIONAL COVENANTS

     SECTION 2.01. Limitation on Liens. The Issuer will not, nor will it permit any Designated Subsidiary to, incur, issue, assume or guarantee any indebtedness for money borrowed if (i) that indebtedness is secured by a pledge, mortgage, deed of trust or other lien on any shares of stock or indebtedness of any Designated Subsidiary (a “LIEN”), and (ii) the aggregate amount of the indebtedness so secured exceeds an amount equal to 15% of the Issuer’s Consolidated Tangible Net Worth, unless the Designated Securities are also secured equally and ratably with such other indebtedness. For purposes of this restriction, a “LIEN” will not include the pledge to, or deposit with, any state or provincial insurance regulatory authorities of any investment securities by the Issuer or any of its subsidiaries.

     The foregoing restriction shall not apply to indebtedness secured by:

     (a) Liens on any shares of stock or indebtedness of or acquired from a corporation merged or consolidated with or into, or otherwise acquired by, the Issuer or a Designated Subsidiary;

     (b) Liens to secure indebtedness of a Designated Subsidiary to the Issuer or to another Designated Subsidiary, but only as long as such indebtedness is owned or held by the Issuer or a Designated Subsidiary; and

     (c) Any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any lien referred to in (a) and (b).

     SECTION 2.02. Consolidation, Merger, Sale, Conveyance and Lease. The Issuer will not consolidate or merge with or into any other Person or Persons, or sell, convey or lease all or substantially all of its property to any other Person, unless:

     (a) the Person formed by such consolidation, or into which the Issuer is merged or which acquires or leases all or substantially all of the property of the Issuer, is a corporation or other entity organized under the laws of the United States, any state thereof or the District of Columbia, and such Person expressly assumes the Issuer’s obligations under the Designated Securities and the Indenture; and

     (b) immediately after giving effect to the transaction, no Event of Default exists.

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     This restriction shall not apply if the Issuer is the Person that survives any such transaction.

         In the event of a conflict between any provision in this Section and any provision in Article 9 of the Indenture, Article 9 of the Indenture shall govern.

ARTICLE 3

MISCELLANEOUS PROVISIONS

     SECTION 3.01. Applicability of this Third Supplemental Indenture. The provisions of this Third Supplemental Indenture will be applicable solely to the Designated Securities.

     SECTION 3.02. Adoption, Ratification and Confirmation. The Indenture, as supplemented by this Third Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed.

     SECTION 3.03. Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument.

     SECTION 3.04. GOVERNING LAW. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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     IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed and their respective corporate seals to be hereunto fixed and attested as of the day and year first written above.

THE PROGRESSIVE CORPORATION
By:	/s/ Stephen D. Peterson
	Stephen D. Peterson Treasurer

Attest:
By:	/s/ Charles E. Jarrett
	Charles E. Jarrett Secretary

STATE STREET BANK AND TRUST       COMPANY, as Successor Trustee
By:	/s/ Dori Ann Seakas
	Name: Dori Ann Seakas Title: Officer

Attest:
By:	/s/ Patrick E. Thebado
	Name: Patrick E. Thebado Title: Vice President

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STATE OF OHIO

                     ss:

COUNTY OF CUYAHOGA

     On this ___th day of December, 2001, before me personally came Stephen D. Peterson, to me personally known, who, being by me duly sworn, did depose and say that he is a resident of Cuyahoga County, Ohio; that he is an officer of THE PROGRESSIVE CORPORATION, one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.

Notary Public
My commission expires:

[Notarial Seal]

STATE OF MASSACHUSETTS                       ss.:
COUNTY OF SUFFOLK

     On this ___th day of December, 2001, before me personally came, to me personally known, who, being by me duly sworn, did depose and say that he is a resident of Bristol County, Massachusetts; that he is an authorized officer of STATE STREET BANK AND TRUST COMPANY, one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instruments is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed her name thereto by like authority.

Notary Public

My commission expires:

[Notary Seal]

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EX-4.I

Exhibit No. 4(I)

(Face of Security)

     Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”) to the Issuer or its agent for registration of transfer, exchange or payment, and such certificate is registered in the name of Cede & Co., or in such other name as requested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

REGISTERED NO. R-001                                                                                                                                                       $350,000,000

CUSIP No. 743315 AK 9

THE PROGRESSIVE CORPORATION

6.375% SENIOR NOTE DUE 2012

          THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Issuer”), for value received, hereby promises to pay to CEDE & Co., c/o The Depository Trust Company, 55 Water Street, New York, New York 10041 or registered assigns, at the office or agency of the Issuer at the office of the Trustee in Boston, Massachusetts, the principal sum of THREE HUNDRED AND FIFTY MILLION DOLLARS ($350,000,000) on January 15, 2012, 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 January 15 and July 15 of each year, commencing on July 15, 2002, 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 January 15 or the July 15, 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 December 11, 2001, 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. Notwithstanding the foregoing, if the date hereof is after the fifteenth day of January or July, as the case may be, and before the following January 15 or July 15, this Note shall bear interest from such January 15 or July 15; provided, that if the Issuer shall default in the payment of interest due on such January 15 or July 15, then this Note shall bear interest from the next preceding January 15 or July 15, to which interest has been paid or, if no interest has been paid on this Note, from December 11, 2001. The interest so payable on any January 15 or July 15 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 January 1 or July 1, as the case may be, next preceding such January 15 or July 15.

          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.

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

THE PROGRESSIVE CORPORATION

[CORPORATE SEAL] By:

.....................................................................................................................................................
Treasurer

Attest:
	Charles E. Jarrett     Secretary

Dated:  December 11, 2001

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

STATE STREET BANK AND TRUST COMPANY, as Trustee
By:
	Authorized Signatory

(Back of Security)

THE PROGRESSIVE CORPORATION

6.375% SENIOR NOTE DUE 2012

     This Note is one of a duly authorized issue of debentures, 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, as heretofore supplemented and amended (herein called the “Indenture”), between the Issuer and State Street Bank and Trust Company, 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 rates, 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 6.375% Senior Notes Due 2012 of the Issuer, limited in initial aggregate principal amount to $350,000,000.

     In case an Event of Default, as defined in the Indenture, with respect to the 6.375% Senior Notes Due 2012 shall have occurred and be continuing, the principal hereof may 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 waiver 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 Boston, 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.

     The Notes of the series designated as the 6.375% Senior Notes due 2012 are subject to redemption upon not more than 60 or less than 30 days’ notice by mail, in whole at any time or in part from time to time at the option of the Issuer on any date (a “Redemption Date”), at a redemption price equal to the accrued and unpaid interest on the principal amount being redeemed to the redemption date plus the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present value of the remaining scheduled payments of principal and interest on the Note (not including any portion of such payments of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (defined below), plus 20 basis points.

     “Adjusted Treasury Rate” means, with respect to any date of redemption, the rate per year equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that date of redemption.

     “Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Securities to be redeemed that would be used, at the time of selection and under customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Note.

     “Comparable Treasury Price” means, with respect to any date of redemption, the average of the Reference Treasury Dealer Quotations for the date of redemption, after excluding the highest and lowest Reference Treasury Dealer Quotations, or if the trustee obtains fewer than three Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations.

     “Quotation Agent” means Goldman, Sachs & Co. or another Reference Treasury Dealer appointed by the Issuer.

     “Reference Treasury Dealer” means each of Goldman, Sachs & Co. and Salomon Smith Barney Inc. and their respective successors and, at the option of the Issuer, other nationally recognized investment banking firms that are

primary dealers of U.S. government securities in New York City. If any of the foregoing ceases to be a primary dealer of U.S. government securities in New York City, the Issuer must substitute another primary dealer of U.S. government securities.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any date of redemption, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day before the date of redemption.

     In the event of redemption of this Note in part only, a new Note or Notes of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.

     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 Boston, 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 of 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.

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.

Dated                                                                                                                                   

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.

EX-10.A

Exhibit No. 10(A)

AIRCRAFT
MANAGEMENT AGREEMENT

     This Management Agreement (the “Agreement”) made and entered into as of this 23^rd day of April, 1999, by and between Village Transport Corp., a Delaware corporation having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 (“Manager”), and ACME Operating Corporation, an Ohio corporation having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 (“ACME”).

WITNESSETH:

     WHEREAS, ACME pursuant to an Aircraft Lease Agreement (“Lease”) dated of even date herewith, leases the aircraft (the “Aircraft”) bearing the manufacturer’s Serial Number and Federal Aviation Administration Registration Number set forth on the Schedule hereto, equipped with two General Electric CF 34-1A engines as more particularly described in the Lease Schedule (hereinafter called the “Aircraft”); and

     WHEREAS, ACME is desirous of engaging the services of Manager to provide certain management services with respect to the Aircraft; and

     WHEREAS, Manager is desirous of providing certain management services pertaining to the Aircraft on the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the parties hereto hereby agree as follows:

     1. ACME hereby engages Manager, and Manager hereby agrees, to provide certain management services with respect to the Aircraft for the benefit of the ACME.

     2. Manager hereby agrees for the benefit and at the direction of ACME that it shall provide the services set forth below:

     3. (a) Throughout the term of this Agreement, Manager shall, at ACME’s cost and expense, (1) inspect, maintain, service, repair, overhaul and test the Aircraft by duly competent personnel, in accordance with FAA approved maintenance and preventive repair programs therefor, so as to keep the Aircraft in good operating condition, ordinary wear and tear excepted, and in such condition as may be necessary to enable the airworthiness certification of the Aircraft to be maintained in good standing at all times under 49 U.S.C. § 40101, et seq., as in effect from time to time; (2) maintain all records, logs and other materials required by the FAA to be maintained in respect of the Aircraft and make the same available for ACME’s inspection; and (3) comply with all laws of each and every jurisdiction in which the Aircraft may be operated and with all rules of the FAA and each and every other legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Aircraft, and shall maintain the Aircraft in proper condition for operation under such laws and rules including, without limitation, all manufacturers recommended maintenance. Manager also agrees not to

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operate or locate the Aircraft, or suffer the Aircraft to be operated or located, in any area excluded from coverage by any insurance required by the terms of this Agreement.

     (b)    The cost of compliance with any airworthiness or similar directive, or regulation issued by the FAA or other governmental agency (“Airworthiness Directive”) and the cost of complying with any mandatory or recommended service bulletins or letters, shall be borne by ACME.

     4.    (a) Manager hereby agrees to identify and make available to ACME at the inception of this Agreement, certain pilots, from a group of professionally qualified pilots who shall be familiar with and licensed to operate the Aircraft, from which ACME shall, in its own discretion, designate two (2) of such pilots to operate the Aircraft for ACME, and thereafter such designated pilots shall be ACME’s pilots of the Aircraft. The pilot designation shall be in writing and signed by ACME, which writing shall be binding upon ACME.

          (b)    ACME shall be permitted to remove any of such pilots by providing written notice to Manager and designate new pilots, who shall thereafter be ACME’s pilots of the Aircraft.

          (c)    Notwithstanding the foregoing, the pilots designated by ACME shall be subject to (i) availability, (ii) the rules and regulations promulgated by the FAA, and (iii) strikes and labor disputes.

          (d)    ACME may at any time provide its own pilots upon twenty-four (24) hours prior notice to Manager.

          (e)    ACME hereby directs Manager and Manager hereby agrees to make all necessary take-off, flight and landing arrangements for flights operated by ACME. Manager shall pay, at Manager’s cost and expense, the following operating expenses relating to the Aircraft: crew salary and benefits, telephone and costs associated with providing information services. ACME shall, at all reasonable times, have the right to inspect Manager’s records with respect to the Aircraft.

          (f)    ACME will pay all operating expenses related to the Aircraft except those set forth in paragraph (e) of this Section 4. Such operating expenses shall include, but shall not be limited to: fuel, storage, domestic landing fees, all federal, state and local taxes, charges, imposts, duties and excise taxes and with respect to flights outside the 48 contiguous states of the continental United States (the “Continental United States”), for foreign permit, overflight, navigation, and air space fees, customs, head taxes and similar assessments relating to the ownership, operation, maintenance or the use of the Aircraft by ACME, registration and handling costs, catering, crew travel and lodging, hangar and tie-down costs, flight planning and weather contract services, maintenance supplies, outside pilot services (if any), equipment costs, sales and use taxes and any other taxes and licensing fees associated with the Aircraft.

     5.    ACME shall obtain, at ACME’s expense, all-risk aircraft hull insurance with no deductible with respect to the Aircraft, against any loss, theft or damage to the Aircraft, including

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extended coverage with respect to any engines or parts while removed from the Aircraft, for the fair market value of the Aircraft, naming Manager and ACME, as named insureds and loss payees with losses payable as their respective interests may appear. ACME shall likewise pay for and arrange to procure liability insurance for the Aircraft in the form and substance and with such insurers approved by Manager but in an amount not less than One Hundred Million Dollars ($100,000,000) single limit liability coverage and shall cause ACME and Manager, to be named as additional insureds. Copies of such policies and certificates of Insurance shall be furnished by the ACME to Manager promptly upon the execution of this Agreement. Such Insurance shall be maintained by ACME in full force and effect throughout the term hereof and the insurer shall provide ACME and Manager thirty (30) days advance notice of cancellation or material alteration. All such insurance shall contain a Breach of Warranty Endorsement in favor of ACME and Manager.

     6.    At ACME’s direction, Manager hereby agrees that it will provide assistance to and consult with ACME in all matters regarding the Aircraft including but not limited to:

(a)	FAA and manufacturers correspondence and directives;
(b)	Enforcement of warranty claims;
(c)	Enforcement, litigation and settlement of insurance matters; and
(d)	Parts replacement, services and maintenance arrangements.

     7.    As compensation for the services to be performed by Manager hereunder, ACME hereby agrees to pay to Manager an annual Management Fee in an amount equal to $405,200; provided, that the parties agree to adjust the Management Fee at each anniversary of the date hereof. The Management Fee shall be payable in twelve equal monthly installments each of which shall be due on the first day of each calendar month during the term of this Agreement.

     8.    In addition, ACME agrees that it shall provide Manager with the following information for each proposed flight:

(a)	proposed departure point;
(b)	destination;
(c)	date and time of flight;
(d)	the number of anticipated passengers;
(e)	the nature and extent of luggage to be carried;
(f)	the date and time of a return flight, if any; and

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(g) any other information concerning the proposed flight that may be pertinent or is reasonably required by Manager.

     9.    Manager agrees that, throughout the term of this Agreement, it shall not cause or permit, through any of its own acts or failures to act, any liens, claims or encumbrances to attach to the Aircraft other than mechanics liens to be discharged in the ordinary course of business.

     10.    ACME acknowledges that Manager shall have no liability for delay or failure to furnish the pilots pursuant to this Agreement. Manager shall not otherwise be liable to ACME for any direct, indirect, special, consequential or other damages caused directly or indirectly by any such delay or failure to furnish the pilots. ACME and Manager further agree that when, in the reasonable view of ACME or the pilots of the Aircraft, safety may be compromised, ACME or the pilots may terminate a flight, refuse to commence a flight, or take other action necessitated by such safety considerations without liability for loss, injury, damage or delay. ACME can dictate other limitations of flights. ACME acknowledges that the ACME shall operate the Aircraft at all times in accordance with applicable FAA Regulations.

     11.    Upon the occurrence of an Event of Default (as hereinafter defined) under this Agreement, Manager will cease all activities hereunder. In addition to the foregoing, Manager shall have all right to bring an action or claim against ACME for all sums which may be due and owing hereunder and to pursue all other remedies available to it at law or in equity. For purposes hereof, the term “Event of Default” shall mean the occurrence and continuation of any of the following events of default hereunder:

            (a)    The failure of ACME to pay when due the Management Fee set forth in Section 7 hereof or any taxes or similar assessments levied or imposed against components of such fee, as set forth in said Section 7, with a ten (10) day period of grace after written notice of nonpayment;

            (b)    The material breach by ACME of any other provision of this Agreement, which material breach shall continue for thirty (30) days after written notice to ACME;

            (c)    If ACME shall:

          (1) admit in writing its inability to pay, or fail to pay, its debts generally as they become due;

          (2) file a petition in bankruptcy or a petition to take advantage of any insolvency act or file an answer admitting or failing to deny the material allegations of such petition;

          (3) make an assignment for the benefit of its creditors;

          (4) consent to the appointment of, or possession by, a custodian for itself or for the whole or substantially all of its property; or

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          (5)    file a petition or answer seeking reorganization or arrangement or other aid or relief under any bankruptcy or insolvency laws or any other law for the relief of debtors or file an answer admitting, or fail to deny, the material allegations of a petition filed against it for any such relief.

            (d) If a court of competent jurisdiction shall enter an order, judgment or decree appointing, without the consent of ACME, a custodian for ACME or the whole or substantially all of its property, or approving a petition filed against it seeking liquidation, reorganization or arrangement of ACME under any bankruptcy or insolvency laws or any other law for the relief of debtors, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of entry thereof; or,

            (e) If, under the provision of any law for the relief of debtors, any court of competent jurisdiction or custodian shall assume custody or control of ACME or of the whole or any substantial part of its property without the consent of ACME, and such custody or control shall not be terminated or stayed within sixty (60) days from the date of assumption of such custody or control.

     12.    This Agreement shall commence on the date of execution hereof and shall terminate on the earlier of (i) thirty (30) days after the date Manager elects to terminate this Agreement as a result of ACME’s default, or (ii) after the first anniversary hereof, thirty (30) days after either party elects, by written notice to the other party, to terminate this Agreement.

     13.    Manager represents and warrants to ACME as follows:

            (a) Manager is a corporation duly and validly organized and existing in good standing under the laws of the state of its incorporation. Manager has the power and authority to enter into this Agreement and to execute, deliver or receive all other instruments and documents executed and delivered and received, in connection with the transactions contemplated hereunder;

            (b) There is no action, suit or proceeding pending against Manager before or by any court, administrative agency or other governmental authority, or threatened, which brings into question the validity of, or in any way legally or financially (in the case of performance) impairs or would if adversely determined impair the execution, delivery or performance by Manager of this Agreement;

            (c) The execution and delivery of this Agreement by Manager and the performance by it of its obligations hereunder, have been duly authorized by all necessary corporate action of Manager and do not violate or conflict with (i) any provision of Manager’s Certificate of Incorporation or By-Laws, (ii) any law or any order, writ, injunction, decree, rule or regulation of any court, administrative agency or any other governmental authority or (iii) any Agreement entered into or binding on Manager or its affiliated companies, whether relating to the Aircraft or otherwise;

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            (d) This Agreement constitutes the valid and binding obligations of Manager enforceable in accordance with its terms, subject, however, to (i) laws of general application affecting creditors’ rights and (ii) judicial discretion, to which equitable remedies are subject; and

            (e) Manager is not subject to any restriction (which has not been complied with) or agreement which, with or without the giving of notice, the passage of time, or both, prohibits or would be violated by, or be in conflict with, the execution, delivery and consummation of this Agreement.

     14. ACME represents and warrants to Manager as follows:

            (a) ACME is duly and validly organized and existing in good standing under the laws of the state of its incorporation;

            (b) ACME has the power and the authority to enter into this Agreement, and to carry out the transactions contemplated hereunder;

            (c) The execution and delivery of this Agreement by ACME, and the performance of its obligations hereunder, have been duly authorized by all necessary action of ACME and do not violate or conflict with (i) any provision of ACME’s Certificate of Incorporation or By-Laws or (ii) any law or any order, writ, injunction, decree, rule or regulation of any court, administrative agency or any other governmental authority. There is no action, suit or proceeding pending or threatened against ACME before any court, administrative agency or other governmental authority which brings into question the validity of, or might in any way impair, the execution, delivery or performance by ACME of this Agreement; and

            (d) This Agreement constitutes the valid and binding obligations of the ACME enforceable in accordance with its terms, subject, however, to (i) laws of general application affecting creditors’ rights and (ii) judicial discretion, to which equitable remedies are subject.

     15. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their representatives, successors and permitted assigns. This Agreement shall not be assignable by either party except upon the express written consent of the other party.

     16. This Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof, and any changes or modifications hereto must be in writing and signed by authorized representatives of both parties. The parties hereto further agree that the courts of the United States and State of Ohio shall have jurisdiction over the parties with regard to any disputes arising under this Agreement or arising out of the operation, maintenance, inspection, servicing or occupancy of the Aircraft during the term of the Agreement and that this Agreement shall be interpreted and governed by the laws of the State of Ohio.

     17. Any notice, request or other communication to either party by the other hereunder shall be made in writing and shall be deemed given on the earlier of the date (i) personally delivered with receipt acknowledged, or (ii) telecopied at time of transmission or (iii) three (3)

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days after mailed by certified mail, return receipt requested, postage prepaid and addressed to the party at the address set forth in the first paragraph of this Agreement. The address of a party to which notices or copies of notices are to be given may be changed from time to time by such party by written notice to the other party.

     18. This Agreement may be executed in one or more counterparts each of which shall be deemed an original, all of which together shall constitute one and the same agreement.

     19. In the event that any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable provision, which, being valid, legal and enforceable, comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. The persons signing below warrant their signatures.

ACME Operating Corporation

By: /s/ Peter B. Lewis

      Peter B. Lewis, President

Village Transport Corp.

By: David M. Schneider

      David M. Schneider, Secretary

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SCHEDULE

Minimum Telephonic Notice:	24 hours
Serial No.:		3007
FAA Registration No.:	N711SX

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EX-10.P

Exhibit No. 10(P)

NON-QUALIFIED STOCK OPTION AGREEMENT

This Agreement (the “Agreement”) is made as of the                    day of                                        , 19                    , between The Progressive Corporation, an Ohio corporation (the “Company”), and <NAME> (the “Optionee”). The Company hereby grants Optionee an option (the “Option”) to purchase <TOTAL_SHARES> Common Shares, $1.00 par value, (the “Common Shares”) of the Company for a per share purchase price of $___(the “Option Price”). The Option has been granted pursuant to The Progressive Corporation 1989 Incentive Plan (as amended and restated) (the “Plan”) and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this Agreement:

1. TERM. The Option shall become exercisable on                                         (the “Vesting Date”) and may be exercised, in whole or in part, at any time thereafter until                                         (the “Expiration Date”), on which date the Option shall expire and no longer be exercisable.

2. METHOD OF EXERCISE. Subject to Section 1 above, the Option shall be exercisable from time to time by written notice (in form approved or furnished by the Company) to the Committee which shall:

(a) state that the Option is thereby being exercised, the number of Common Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Common Shares should be registered and his or her address and social security number;

(b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Optionee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and

(c) be accompanied by such representations, warranties and agreements, in form and substance satisfactory to counsel for the Company, with respect to the investment intent of such person or persons exercising the Option as the Company may request.

3. PAYMENT OF PRICE. Upon exercise of the Option, the Company shall deliver a certificate or certificates for the Common Shares purchased thereunder to the specified person or persons at the specified time upon receipt of the full purchase price for such Common Shares: (a) by certified or bank cashier’s check, or (b) by any other method of payment or combination thereof authorized by the Plan.

4. TRANSFERABILITY. The Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution. Subject to the following sentence, during the lifetime of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee for his or her own account. Upon the death or disability of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee’s estate (acting

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through its fiduciary) or by the Optionee’s duly authorized legal representative, during the period and to the extent authorized in the Plan.

5. TERMINATION OF EMPLOYMENT. If the employment of the Optionee by the Company (or any of its Subsidiaries or Affiliates) terminates:

(a) due to involuntary termination without cause or due to retirement (with the employer’s approval, but subject to Section 5(e) below), the Option may be exercised to the extent exercisable at the date of such termination, during the lesser of (i) two months after such date, or (ii) the balance of the Option’s term;

(b) due to death or disability, the provisions of Section 5(b)(6) or 5(b)(7) of the Plan, as applicable, shall apply;

(c) due to resignation by the Optionee (other than by reason of a Qualified Retirement, as provided at Section 5(e) below), the Optionee may exercise the Option, to the extent of the lesser of (A) the number of Common Shares as to which the Option is exercisable on the date the Optionee ceases to be an employee or (B) the number of Common Shares as to which the Option was exercisable ninety days prior to such date, reduced by any Common Shares acquired by exercise of the Option within such ninety day period, at any time within two (2) months after the date that the Optionee ceases to be an employee (but in no event after expiration of the original term of the Option) and the Option shall not be or become exercisable as to any additional Common Shares after the date that the Optionee ceases to be an employee;

(d) due to termination for cause, the Option and all rights to purchase Common Shares thereunder shall immediately terminate; and

(e) due to a Qualified Retirement (as defined below), the following provisions shall apply (subject in all cases to Section 5(e)(v) hereof):

(i) if the Option has vested and is exercisable as of the Qualified Retirement Date (as defined below), the Option shall not terminate upon the retirement of the Optionee, and, to the extent that it has not been previously exercised, may be exercised by the Optionee, in whole or in part, at any time between the Qualified Retirement Date and the Expiration Date;

(ii) subject to Section 5(e)(iii) hereof, if the Option is not vested and exercisable as of the Qualified Retirement Date, the Option shall not terminate in its entirety upon the retirement of the Optionee; instead, the Option (A) shall remain in effect with respect to fifty percent (50%) of the Common Shares which are subject to the Option as of the Qualified Retirement Date and, as to such Common Shares, shall vest and become exercisable on the Vesting Date and may be exercised by the Optionee, in whole or in part, at any time between the Vesting Date and the Expiration Date, and (B) shall terminate, effective as of the Qualified Retirement Date, with respect to the remaining fifty percent (50%) of the Common Shares that are subject to the Option as of the Qualified Retirement Date;

(iii) notwithstanding Section 5(e)(ii) above, if the Option is not vested and exercisable as of the Qualified Retirement Date, but has a Vesting Date which is no later than four (4) months after the Qualified Retirement Date, then, notwithstanding the Optionee’s retirement, the full Option (or, if the Option is subject to installment vesting, that portion thereof which is scheduled to vest on such Vesting Date) shall remain in effect, shall vest on such Vesting Date and

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may be exercised by the Optionee, in whole or in part, at any time between such Vesting Date and the Expiration Date;

(iv) if the Optionee dies after the date of his or her retirement and has not exercised the Option, in whole or in part, prior to his or her death, the Optionee’s estate shall have the right to exercise the Option as to (A) all Common Shares, if any, as to which the Option has vested and is exercisable as of the date of the Optionee’s death, plus (B) the additional Common Shares, if any, as to which the Option would have become exercisable within one (1) year from the date of the Optionee’s death pursuant to Section 5(e)(ii) and/or (iii) hereof, as applicable, but for the death of the Optionee, at any time during the one (1) year period beginning on the date of the Optionee’s death (or such other period as the Committee may specify), and the balance of the Option shall terminate as of the date of the Optionee’s death;

(v) if the Committee determines that the Optionee is or has engaged in any Disqualifying Activity (as defined below), then (1) to the extent that the Option has vested and is exercisable as of the Disqualification Date (as defined below), the Optionee shall have the right to exercise the Option during the lesser of two months from the Disqualification Date or the balance of the Option’s term and (2) to the extent that the Option is not vested and exercisable as of the Disqualification Date, the Option shall terminate 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 the Optionee is or has engaged in any Disqualifying Activity, and as to the Disqualification Date, shall be final and conclusive.

(vi) As used in this Section 5(e), the following terms are defined as follows:

(A) QUALIFIED RETIREMENT — any termination of the Optionee’s employment with the Company or its Subsidiaries for any reason (other than death, Disability or an involuntary termination for Cause) if, at or immediately prior to the date of such termination, the Optionee satisfies both of the following conditions:

(1) the Optionee shall be 55 years of age or older; and

(2) the sum of the Optionee’s age and completed years of service as an employee of the Company or its Subsidiaries (disregarding fractions, in both cases) shall total 70 or more.

(B) QUALIFIED RETIREMENT DATE — the date as of which the Optionee’s employment with the Company or its Subsidiaries shall terminate pursuant to a Qualified Retirement.

(C) DISQUALIFYING ACTIVITY — means and includes each of the following acts or activities:

(1) 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 in any business or activity then conducted by the Company or its Subsidiaries to an extent deemed material by the Committee; or

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(2) any disclosure by the Optionee, or any use by the Optionee for his or her own benefit or for the benefit of any other person or entity (other than the Company or its Subsidiaries), of any confidential information or trade secret of the Company or its Subsidiaries to an extent deemed material by the Committee; or

(3) any material violation of any of the provisions of the Company’s Code of Conduct or any agreement between the Optionee and the Company; or

(4) 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 its Subsidiaries.

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

(D) DISQUALIFICATION DATE — the date of any determination by the Committee that the Optionee is or has engaged in any Disqualifying Activity.

6. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions set forth in this Agreement or in the Plan. As a condition to any exercise of the Option, the Company may require the Optionee or his successor to make any representation and warranty to comply with any applicable law or regulation or to confirm any factual matters requested by counsel for the Company.

7. TAXES. The Optionee hereby agrees that he or she shall pay to the Company, in cash, any federal, state and local taxes of any kind required by law to be withheld with respect to the Option granted to him or her hereunder or the exercise thereof. If the Optionee does not make such payment to the Company, the Company shall have the right to deduct from any payment of any kind otherwise due to the Optionee from the Company (or from any Subsidiary or Affiliate of the Company), any federal, state and local taxes of any kind required by law to be withheld with respect to the Option, the exercise thereof or the Common Shares to be purchased by the Optionee under this Agreement. The Option shall not be treated as an incentive stock option under Section 422 or any successor Section thereto of the Internal Revenue Code of 1986, as amended.

8. DEFINITIONS. Unless otherwise defined in this Agreement, capitalized terms will have the same meanings given them in the Plan.

THE PROGRESSIVE CORPORATION

DATE OF GRANT:                     , 19                    

BY:

TITLE:

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ACCEPTANCE OF AGREEMENT

The Optionee hereby: (a) acknowledges receiving a copy of the Plan Description dated                                          (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 the Plan Description; (b) accepts this Agreement and the Option granted to him or her under this Agreement subject to all provisions of the Plan and this Agreement; and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee relating to the Plan, this Agreement or the Option granted hereunder.

Optionee:                                                                                                                         

Date:                                         , 19                    

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EX-10.Q

Exhibit No. 10(Q)

NON-QUALIFIED STOCK OPTION AGREEMENT

This Agreement (the “Agreement”) is made as of the                     day of                                         , 19                    , between The Progressive Corporation, an Ohio corporation (the “Company”), and <NAME> (the “Optionee”). The Company hereby grants Optionee an option (the “Option”) to purchase <TOTAL_SHARES> Common Shares, $1.00 par value, (the “Common Shares”) of the Company for a per share purchase price of $                     (the “Option Price”). The Option has been granted pursuant to The Progressive Corporation 1989 Incentive Plan (as amended and restated) (the “Plan”) and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this Agreement:

1. TERM. The Option shall become exercisable as follows:

                    Common Shares may be purchased on or after                                         and until                                         , at which date the right to purchase such Common Shares shall expire.

                     Common Shares may be purchased on or after                                          and until                                         , at which date the right to purchase such Common Shares shall expire.

                     Common Shares may be purchased on or after                                          and until                                         , at which date the right to purchase such Common Shares shall expire.

The dates set forth above on or after which the Option, or any part thereof, may be exercised and specified numbers of Common Shares may be purchased hereunder are referred to herein as “Vesting Dates” and the dates set forth above as of which such stock purchase rights expire are referred to herein as “Expiration Dates.”

2. METHOD OF EXERCISE. Subject to Section 1 above, the Option shall be exercisable from time to time by written notice (in form approved or furnished by the Company) to the Committee which shall:

(a) state that the Option is thereby being exercised, the number of Common Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Common Shares should be registered and his or her address and social security number;

(b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Optionee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and

(c) be accompanied by such representations, warranties and agreements, in form and substance satisfactory to counsel for the Company, with respect to the investment intent of such person or persons exercising the Option as the Company may request.

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3. PAYMENT OF PRICE. Upon exercise of the Option, the Company shall deliver a certificate or certificates for the Common Shares purchased thereunder to the specified person or persons at the specified time upon receipt of the full purchase price for such Common Shares: (a) by certified or bank cashier’s check, or (b) by any other method of payment or combination thereof authorized by the Plan.

4. TRANSFERABILITY. The Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution. Subject to the following sentence, during the lifetime of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee for his or her own account. Upon the death or disability of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee’s estate (acting through its fiduciary) or by the Optionee’s duly authorized legal representative, during the period and to the extent authorized in the Plan.

5. TERMINATION OF EMPLOYMENT. If the employment of the Optionee by the Company (or any of its Subsidiaries or Affiliates) terminates:

(a) due to involuntary termination without cause or due to retirement (with the employer’s approval, but subject to Section 5(e) below), the Option may be exercised to the extent exercisable at the date of such termination, during the lesser of (i) two months after such date, or (ii) the balance of the Option’s term;

(b) due to death or disability, the provisions of Section 5(b)(6) or 5(b)(7) of the Plan, as applicable, shall apply;

(c) due to resignation by the Optionee (other than by reason of a Qualified Retirement, as provided at Section 5(e) below), the Optionee may exercise the Option, to the extent of the lesser of (A) the number of Common Shares as to which the Option is exercisable on the date the Optionee ceases to be an employee or (B) the number of Common Shares as to which the Option was exercisable ninety days prior to such date, reduced by any Common Shares acquired by exercise of the Option within such ninety day period, at any time within two (2) months after the date that the Optionee ceases to be an employee (but in no event after expiration of the original term of the Option) and the Option shall not be or become exercisable as to any additional Common Shares after the date that the Optionee ceases to be an employee;

(d) due to termination for cause, the Option and all rights to purchase Common Shares thereunder shall immediately terminate; and

(e) due to a Qualified Retirement (as defined below), the following provisions shall apply (subject in all cases to Section 5(e)(v) hereof):

(i) if and to the extent that any Option Installment (as defined below) has vested and is exercisable as of the Qualified Retirement Date (as defined below), such Option Installment shall not terminate upon the retirement of the Optionee, but may be exercised by the Optionee, in whole or in part, at any time between the Qualified Retirement Date and the Expiration Date applicable thereto;

(ii) subject to Section 5(e)(iii) hereof, if and to the extent that any Option Installment is not vested and exercisable as of the Qualified Retirement Date, such Option Installment (A) shall remain in effect with respect to fifty percent

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(50%) of the Common Shares covered thereby and, as to such Common Shares, shall vest and become exercisable on the Vesting Date applicable thereto and may be exercised by the Optionee, in whole or in part, at any time between the Vesting Date and Expiration Date applicable thereto, and (B) shall terminate, effective as of the Qualified Retirement Date, with respect to the remaining fifty percent (50%) of the Common Shares covered by such Option Installment;

(iii) notwithstanding Section 5(e)(ii) above, if and to the extent that any Option Installment is not vested and exercisable as of the Qualified Retirement Date, but has a Vesting Date which is no later than four (4) months after the Qualified Retirement Date, then, notwithstanding the Optionee’s retirement, the Option Installment which is scheduled to vest on such Vesting Date shall remain in effect, shall vest on such Vesting Date and may be exercised by the Optionee, in whole or in part, at any time between such Vesting Date and the applicable Expiration Date;

(iv) if the Optionee dies after the date of his or her retirement and has not exercised the Option, in whole or in part, prior to his or her death, the Optionee’s estate shall have the right to exercise the Option as to (A) all Common Shares, if any, as to which the Option has vested and is exercisable as of the date of the Optionee’s death, plus (B) the additional Common Shares, if any, as to which the Option would have become exercisable within one (1) year from the date of the Optionee’s death pursuant to Sections 5 (e)(ii) and/or (iii) hereof, as applicable, but for the death of the Optionee, at any time during the one (1) year period beginning on the date of the Optionee’s death (or such other period as the Committee may specify), and the balance of the Option shall terminate as of the date of the Optionee’s death;

(v) if the Committee determines that the Optionee is or has engaged in any Disqualifying Activity (as defined below), then (1) to the extent that the Option has vested and is exercisable as of the Disqualification Date (as defined below), the Optionee shall have the right to exercise the Option during the lesser of two months from the Disqualification Date or the balance of the Option’s term and (2) to the extent that the Option is not vested and exercisable as of the Disqualification Date, the Option shall terminate 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 the Optionee is or has engaged in any Disqualifying Activity, and as to the Disqualification Date, shall be final and conclusive.

(vi) As used in this Section 5(e), the following terms are defined as follows:

(A) QUALIFIED RETIREMENT — any termination of the Optionee’s employment with the Company or its Subsidiaries for any reason (other than death, Disability or an involuntary termination for Cause) if, at or immediately prior to the date of such termination, the Optionee satisfies both of the following conditions:

(1) the Optionee shall be 55 years of age or older; and

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(2) the sum of the Optionee’s age and completed years of service as an employee of the Company or its Subsidiaries (disregarding fractions, in both cases) shall total 70 or more.

(B) QUALIFIED RETIREMENT DATE — the date as of which the Optionee’s employment with the Company or its Subsidiaries shall terminate pursuant to a Qualified Retirement.

(C) DISQUALIFYING ACTIVITY — means and includes each of the following acts or activities:

(1) 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 in any business or activity then conducted by the Company or its Subsidiaries to an extent deemed material by the Committee; or

(2) any disclosure by the Optionee, or any use by the Optionee for his or her own benefit or for the benefit of any other person or entity (other than the Company or its Subsidiaries), of any confidential information or trade secret of the Company or its Subsidiaries to an extent deemed material by the Committee; or

(3) any material violation of any of the provisions of the Company’s Code of Conduct or any agreement between the Optionee and the Company; or

(4) 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 its Subsidiaries.

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

(D) DISQUALIFICATION DATE — the date of any determination by the Committee that the Optionee is or has engaged in any Disqualifying Activity.

(E) OPTION INSTALLMENT — if the Option consists of multiple awards, each with a separate Vesting Date and Expiration Date, any one of such awards.

6. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions set forth in this Agreement or in the Plan. As a condition to any exercise of the Option, the Company may require the Optionee or his successor to make any representation and warranty to comply with any applicable law or regulation or to confirm any factual matters requested by counsel for the Company.

7. TAXES. The Optionee hereby agrees that he or she shall pay to the Company, in cash, any federal, state and local taxes of any kind required by law to be withheld with respect to the Option granted to him or her hereunder or the exercise thereof. If the Optionee does not make such payment to the Company, the Company shall have the right to deduct from any payment of any kind otherwise due to the Optionee from the Company (or from

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any Subsidiary or Affiliate of the Company), any federal, state and local taxes of any kind required by law to be withheld with respect to the Option, the exercise thereof or the Common Shares to be purchased by the Optionee under this Agreement. The Option shall not be treated as an incentive stock option under Section 422 or any successor Section thereto of the Internal Revenue Code of 1986, as amended.

8. DEFINITIONS. Unless otherwise defined in this Agreement, capitalized terms will have the same meanings given them in the Plan.

THE PROGRESSIVE CORPORATION

DATE OF GRANT:                     , 19                    

BY:

TITLE:

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ACCEPTANCE OF AGREEMENT

The Optionee hereby: (a) acknowledges receiving a copy of the Plan Description dated                                          (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 the Plan Description; (b) accepts this Agreement and the Option granted to him or her under this Agreement subject to all provisions of the Plan and this Agreement; and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee relating to the Plan, this Agreement or the Option granted hereunder.

Optionee:                                                                                 

Date:                                                             , 19                    

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EX-10.R

Exhibit No. 10(R)

THE PROGRESSIVE CORPORATION

1995 INCENTIVE PLAN

SECTION 1. Purpose; Definitions.

            The purpose of The Progressive Corporation 1995 Incentive Plan (the “Plan”) is to enable The Progressive Corporation (the “Company”) to attract, retain and reward key employees of the Company and its Subsidiaries and Affiliates and strengthen the mutuality of interests between such key employees and the Company’s shareholders by offering such key employees equity or equity-based incentives.

            For purposes of the Plan, the following terms shall be defined as set forth below:

     (a) “Affiliate” means any entity (other than the Company and its Subsidiaries) that is designated by the Board as a participating employer under the Plan.

     (b) “Award” means any award of Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase Rights and Other Stock-Based Awards under the Plan.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Book Value” means, as of any given date, on a per share basis (1) the shareholders’ equity in the Company as of the end of the immediately preceding fiscal year as reflected in the Company’s audited consolidated balance sheet as of such year-end date, subject to such adjustments as the Committee shall specify at or after grant, divided by (2) the number of outstanding shares of Stock as of such year-end date, subject to such adjustments as the Committee shall specify for events subsequent to such year-end date.

     (e) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

     (f) “Committee” means the Committee referred to in Section 2 of the Plan.

     (g) “Company” means The Progressive Corporation, an Ohio corporation, or any successor corporation.

     (h) “Deferred Stock” means an award of the right to receive Stock at the end of a specified deferral period granted pursuant to Section 8.

     (i) “Disability” means disability as determined under procedures established by the Committee for purposes of the Plan.

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     (j) “Disinterested Person” shall have the meaning set forth in Rule 16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor definition adopted by the Commission.

     (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (l) “Fair Market Value” means, as of any given date, the mean between the highest and lowest quoted selling price, regular way, of the Stock on such date on the New York Stock Exchange or, if no such sale of the Stock occurs on the New York Stock Exchange on such date, then such mean price on the next preceding day on which the Stock was traded. If the Stock is no longer traded on the New York Stock Exchange, then the Fair Market Value of the Stock shall be determined by the Committee in good faith.

     (m) “Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option”, within the meaning of Section 422 of the Code or any successor section thereto.

     (n) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

     (o) “Other Stock-Based Award” means an award granted pursuant to Section 10 that is valued, in whole or in part, by reference to, or is otherwise based on, Stock.

     (p) “Plan” means The Progressive Corporation 1995 Incentive Plan, as amended from time to time.

     (q) “Restricted Stock” means an award of shares that is granted pursuant to Section 7 and is subject to restrictions.

     (r) “Section 16 participant” means a participant under the Plan who is then subject to Section 16 of the Exchange Act.

     (s) “Stock” means the Common Shares, $1.00 par value per share, of the Company.

     (t) “Stock Appreciation Right” means an award of rights that is granted pursuant to Section 6.

     (u) “Stock Option” or “Option” means any option to purchase shares of Stock (including Restricted Stock and Deferred Stock, if the Committee so determines) that is granted pursuant to Section 5.

     (v) “Stock Purchase Right” means an award of the right to purchase Stock that is granted pursuant to Section 9.

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     (w) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

            In addition, the terms “Change in Control,” “Potential Change in Control” and “Change in Control Price” shall have the meanings set forth, respectively, in Sections 11(b), (c) and (d) and the term “Cause” shall have the meaning set forth in Section 5(b)(8) below.

SECTION 2. Administration.

            The Plan shall be administered by the Executive Compensation Committee of the Board (the “Committee”). The Committee shall consist of not less than three directors of the Company, all of whom shall be Disinterested Persons and “outside directors”, as defined in Section 162(m) of the Code and the regulations promulgated thereunder. Such directors shall be appointed by the Board and shall serve as the Committee at the pleasure of the Board. The functions of the Committee specified in the Plan shall be exercised by the Board if and to the extent that no Committee exists which has the authority to so administer the Plan.

            The Committee shall have full power to interpret and administer the Plan and full authority to select the individuals to whom Awards will be granted and to determine the type and amount of Award(s) to be granted to each participant, the consideration, if any, to be paid for such Award(s), the timing of such Award(s), the terms and conditions of Awards granted under the Plan and the terms and conditions of the related agreements which will be entered into with participants. As to the selection of and grant of Awards to participants who are not Section 16 participants, the Committee may delegate its responsibilities to members of the Company’s management consistent with applicable law.

            The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); to direct employees of the Company or other advisors to prepare such materials or perform such analyses as the Committee deems necessary or appropriate; and otherwise to supervise the administration of the Plan.

            Any interpretation and administration of the Plan by the Committee, and all actions and determinations of the Committee, shall be final, binding and conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all participants in the Plan, their respective legal representatives, successors and assigns, and upon all persons claiming under or through any of them. No member of the Board or of the Committee shall incur any liability for any action taken or omitted, or any determination made, in good faith in connection with the Plan.

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SECTION 3. Stock Subject to the Plan.

     (a) Aggregate Stock Subject to the Plan. Subject to adjustment as provided below in Section 3(c), the total number of shares of Stock reserved and available for Awards under the Plan is 5,000,000. Any Stock issued hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares.

     (b) Forfeiture or Termination of Awards of Stock. If any Stock subject to any Award granted hereunder is forfeited or an Award otherwise terminates or expires without the issuance of Stock, the Stock subject to such Award shall again be available for distribution in connection with future Awards under the Plan as set forth in Section 3(a), unless the participant who had been awarded such forfeited Stock or the expired or terminated Award has theretofore received dividends or other benefits of ownership with respect to such Stock. For purposes hereof, a participant shall not be deemed to have received a benefit of ownership with respect to such Stock by the exercise of voting rights or the accumulation of dividends which are not realized due to the forfeiture of such Stock or the expiration or termination of the related Award without issuance of such Stock.

     (c) Adjustment. In the event of any merger, reorganization, consolidation, recapitalization, share dividend, share split, combination of shares or other change in corporate structure of the Company affecting the Stock, such substitution or adjustment shall be made in the aggregate number of shares of Stock reserved for issuance under the Plan, in the number and option price of shares subject to outstanding Options granted under the Plan, in the number and purchase price of shares subject to outstanding Stock Purchase Rights granted under the Plan, and in the number of shares subject to Restricted Stock Awards, Deferred Stock Awards and any other outstanding Awards granted under the Plan as may be approved by the Committee, in its sole discretion; provided that the number of shares subject to any Award shall always be a whole number. Any fractional shares shall be eliminated.

     (d) Annual Award Limit. No participant may be granted Stock Options or other Awards under the Plan with respect to an aggregate of more than 300,000 shares of Stock (subject to adjustment as provided in Section 3(c) hereof) during any calendar year.

SECTION 4. Eligibility.

            Officers and other key employees of the Company and its Subsidiaries and Affiliates (but excluding members of the Committee and any person who serves only as a director) who are responsible for or contribute to the management, growth or profitability of the business of

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the Company or its Subsidiaries or Affiliates are eligible to be granted Awards under the Plan.

SECTION 5. Stock Options.

     (a) Grant. Stock Options may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside of the Plan. However, no Incentive Stock Option shall be issued in tandem with any other Award other than a Stock Appreciation Right as provided for in Section 6. The Committee shall determine the individuals to whom, and the time or times at which, grants of Stock Options will be made, the number of shares purchasable under each Stock Option and the other terms and conditions of the Stock Options in addition to those set forth in Sections 5(b) and 5(c). Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.

     Stock Options granted under the Plan may be of two types which shall be indicated on their face: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Subject to Section 5(c) hereof, the Committee shall have the authority to grant to any participant Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options.

     (b) Terms and Conditions. Options granted under the Plan shall be evidenced by Option Agreements, shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

     (1) Option Price. The option price per share of Stock purchasable under a Non-Qualified Stock Option shall be determined by the Committee at the time of grant and shall not be less than fifty percent of the Fair Market Value of the Stock at the date of grant.
The option price per share of Stock purchasable under an Incentive Stock Option shall be determined by the Committee at the time of grant and shall be not less than 100% of the Fair Market Value of the Stock at the date of grant (or 110% of the Fair Market Value of the Stock at the date of grant in the case of a participant who at the date of grant owns shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations (as determined under Section 424(d), (e) and (f) of the Code)).

     (2) Option Term. The term of each Stock Option shall be determined by the Committee and may not exceed ten years from the date the Option is granted (or, with respect to Incentive Stock Options, five years in the case of a participant who at the date of grant owns shares possessing more than ten percent of the total combined voting power of

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all classes of stock of the Company or its parent or subsidiary corporations (as determined under Section 424(d), (e) and (f) of the Code)).

     (3) Exercise. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant; provided, however, that, except as provided in Section 5(b)(6) and Section 11, unless otherwise determined by the Committee at or after grant, no Stock Option shall be exercisable prior to six months and one day following the date of grant. If any Stock Option is exercisable only in installments or only after a specified vesting date, the Committee may accelerate or waive, in whole or in part, such installment exercise provisions or vesting date, at any time at or after grant based on such factors as the Committee shall determine, in its sole discretion.

     (4) Method of Exercise. Subject to whatever installment exercise provisions apply with respect to such Stock Option, and the six month and one day holding period set forth in Section 5(b)(3), Stock Options may be exercised in whole or in part, at any time during the option period, by giving to the Company written notice of exercise specifying the number of shares of Stock to be purchased.

          Such notice shall be accompanied by payment in full of the option price of the shares of Stock for which the Option is exercised, in cash or by check or such other instrument as the Committee may accept. Subject to the following sentence, unless otherwise determined by the Committee, in its sole discretion, at or after grant, payment, in full or in part, of the option price of (i) Incentive Stock Options may be made in the form of unrestricted Stock then owned by the participant and (ii) Non-Qualified Stock Options may be made in the form of unrestricted Stock then owned by the participant or Stock that is part of the Non-Qualified Stock Option being exercised. Notwithstanding the foregoing, any election by a Section 16 participant to satisfy such payment obligation, in whole or in part, with Stock that is part of the Non-Qualified Stock Option being exercised shall be subject to approval by the Committee, in its sole discretion. The value of each such share surrendered or withheld shall be 100% of the Fair Market Value of the Stock on the date the Option is exercised.

          No Stock shall be issued pursuant to an exercise of an Option until full payment has been made. A participant shall not have rights to dividends or any other rights of a shareholder with respect to any Stock subject to an Option unless and until the participant has given written notice of exercise, has paid in full for such shares, has given, if

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requested, the representation described in Section 14(a) and such shares have been issued to him.

     (5) Non-Transferability of Options. No Stock Option shall be transferable by the participant other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the participant’s lifetime, only by the participant or, subject to Sections 5(b)(3) and 5(c), by the participant’s authorized legal representative if the participant is unable to exercise an Option as a result of the participant’s Disability.

     (6) Termination by Death. Subject to Section 5(c), if any participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Stock Option held by such participant may thereafter be exercised, to the extent such Option was exercisable at the time of death or would have become exercisable within one year from the time of death had the participant continued to fulfill all conditions of the Option during such period (or on such accelerated basis as the Committee may determine at or after grant), by the estate of the participant (acting through its fiduciary), for a period of one year (or such other period as the Committee may specify at or after grant) from the date of such death. The balance of the Stock Option shall be forfeited.

     (7) Termination by Reason of Disability. Subject to Sections 5(b)(3) and 5(c), if a participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Stock Option held by such participant may thereafter be exercised, to the extent such Option was exercisable at the time of termination or would have become exercisable within one year from the time of termination had the participant continued to fulfill all conditions of the Option during such period (or on such accelerated basis as the Committee may determine at or after grant), by the participant or by the participant’s duly authorized legal representative if the participant is unable to exercise the Option as a result of the participant’s Disability, for a period of one year (or such other period as the Committee may specify at or after grant) from the date of such termination of employment; provided, however, that in no event may any such Option be exercised prior to six months and one day from the date of grant; and provided, further, that if the participant dies within such one-year period (or such other period as the Committee shall specify at or after grant), any unexercised Stock Option held by such participant shall thereafter be exercisable by the estate of the participant (acting through its fiduciary) to the same extent to which it was exercisable at the time of death for a period of one year from the date of such termination of employment. The balance of the Stock Option shall be forfeited.

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     (8) Other Termination. Unless otherwise determined by the Committee at or after the time of granting any Stock Option, if a participant’s employment by the Company or any Subsidiary or Affiliate terminates for any reason other than death or Disability, all Stock Options held by such participant shall thereupon immediately terminate, except that if the participant is involuntarily terminated by the Company or any Subsidiary or Affiliate without Cause, any such Stock Option may be exercised, to the extent otherwise exercisable at the time of such termination, at any time during the lesser of two months from the date of such termination or the balance of such Stock Option’s term. For purposes of this Plan, “Cause” means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, or a 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.

     (c) Incentive Stock Options. Notwithstanding Section 4, only key employees of the Company or any Subsidiary shall be eligible to receive Incentive Stock Options. Notwithstanding Sections 5(b)(6) and (7), an Incentive Stock Option shall be exercisable by (i) a participant’s authorized legal representative (if the participant is unable to exercise the Incentive Stock Option as a result of the participant’s Disability) only if, and to the extent, permitted by Section 422 of the Code and Section 16 of the Exchange Act and the rules and regulations promulgated thereunder and (ii) by the participant’s estate, in the case of death, or authorized legal representative, in the case of Disability, no later than 10 years from the date the Incentive Stock Option was granted (in addition to any other restrictions or limitations which may apply). Anything in the Plan to the contrary notwithstanding, no term or provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the participant(s) affected, to disqualify any Incentive Stock Option under such Section 422 or any successor Section thereto.

     (d) Buyout Provisions. The Committee may at any time buy out for a payment in cash, Stock, Deferred Stock or Restricted Stock an Option previously granted, based on such terms and conditions as the Committee shall establish and agree upon with the participant, provided that no such transaction involving a Section 16 participant shall be structured or effected in a manner that would violate, or result in any liability on the part of the participant under, Section 16 of the Exchange Act or the rules and regulations promulgated thereunder.

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SECTION 6. Stock Appreciation Rights.

     (a) Grant. Stock Appreciation Rights may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside of the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Stock Appreciation Rights will be made and the other terms and conditions of the Stock Appreciation Rights in addition to those set forth in Section 6(b). Any Stock Appreciation Right granted under the Plan shall be in such form as the Committee may from time to time approve. In the case of Non-Qualified Stock Options, such rights may be granted either at or after the time of the grant of the related Non-Qualified Stock Options. In the case of Incentive Stock Options, such rights may be granted in tandem with Incentive Stock Options only at the time of the grant of such Incentive Stock Options and exercised only when the Fair Market Value of the Stock subject to the Option exceeds the option price of the Option.

          Stock Appreciation Rights issued in tandem with Stock Options (“Tandem SARs”) shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, subject to such provisions as the Committee may specify at grant if a Stock Appreciation Right is granted with respect to less than the full number of shares of Stock subject to the related Stock Option.

          All Stock Appreciation Rights granted hereunder shall be exercised, subject to Section 6(b), in accordance with the procedures established by the Committee for such purpose. Upon such exercise, the participant shall be entitled to receive an amount determined in the manner prescribed in Section 6(b).

     (b) Terms and Conditions. Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:

     (1) Tandem SARs shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6, and Stock Appreciation Rights granted separately (“Freestanding SARs”) shall be exercisable as the Committee shall determine; provided, however, that any Stock Appreciation Right granted to a Section 16 participant shall not be exercisable at any time prior to six months and one day from the date of the grant of such Stock Appreciation Right, except that this limitation shall not apply in the event of the death of the participant prior to the expiration of the six-month and one-day period.

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     (2) Upon the exercise of a Stock Appreciation Right, a participant shall be entitled to receive an amount in cash or shares of Stock, as determined by the Committee, equal in value to the excess of the Fair Market Value of one share of Stock on the date of exercise of the Stock Appreciation Right over (i) the option price per share specified in the related Stock Option in the case of Tandem SARs, which price shall be fixed no later than the date of grant of the Tandem SARs, or (ii) the price per share specified in the related Stock Appreciation Rights Agreement in the case of Freestanding SARs, which price shall be fixed at the date of grant and shall be not less than fifty percent of the Fair Market Value of the Stock on the date of grant, multiplied by the number of shares of Stock in respect of which the Stock Appreciation Right shall have been exercised. The Committee, in its sole discretion, shall have the right to determine the form of payment (i.e. cash, Stock or any combination thereof) and to approve any election by the participant to receive cash, in whole or in part, upon exercise of the Stock Appreciation Right . When payment is to be made in Stock, the number of shares of Stock to be paid shall be calculated on the basis of the Fair Market Value of the Stock on the date of exercise. Notwithstanding the foregoing, the Committee may unilaterally limit the appreciation in value of any Stock Appreciation Right at any time prior to exercise.

     (3) Upon the exercise of a Tandem SAR, the Stock Option or part thereof to which such Tandem SAR is related shall be deemed to have been exercised.

     (4) In its sole discretion, the Committee may grant “Limited” Stock Appreciation Rights under this Section 6; that is, Freestanding SARs that become exercisable only in the event of a Change in Control or a Potential Change in Control, subject to such terms and conditions as the Committee may specify at grant. Such Limited Stock Appreciation Rights shall be settled solely in cash.

     (5) Stock Appreciation Rights shall not be transferable by the participant other than by will or by the laws of descent and distribution, and all Stock Appreciation Rights shall be exercisable, during the participant’s lifetime, only by the participant or, subject to Section 6(b)(6), by the participant’s authorized legal representative if the participant is unable to exercise a Stock Appreciation Right as a result of the participant’s Disability.

     (6) Unless varied by the Committee, Stock Appreciation Rights shall be subject to the terms and conditions specified for Stock Options in Sections 5(b)(6), (7) and (8) and 5(d), except that the terms and conditions applicable to any Stock Appreciation Right held by a Section 16 participant shall not be varied in a manner that would cause the exercise or cancellation of such Stock Appreciation Right to fail to

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qualify for any applicable exemption from Section 16(b) of the Exchange Act provided by Rule 16b-3 thereunder.

SECTION 7. Restricted Stock.

     (a) Grant. Shares of Restricted Stock may be issued alone, in addition to or in tandem with other Awards under the Plan or cash awards made outside of the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares of Restricted Stock to be awarded to each participant, the price (if any) to be paid by the participant (subject to Section 7(b)), the date or dates upon which Restricted Stock Awards will vest and the period or periods within which such Restricted Stock Awards may be subject to forfeiture, and the other terms and conditions of such Awards in addition to those set forth in Section 7(b).

          The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals or such other factors as the Committee may determine in its sole discretion.

     (b) Terms and Conditions. Restricted Stock awarded under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable. A participant who receives a Restricted Stock Award shall not have any rights with respect to such Award, unless and until such participant has executed an agreement evidencing the Award in the form approved from time to time by the Committee and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award.

     (1) The purchase price for shares of Restricted Stock shall be determined by the Committee at the time of grant and may be equal to their par value or zero.

     (2) Awards of Restricted Stock must be accepted by executing a Restricted Stock Award agreement and paying whatever price (if any) is required under Section 7(b)(1).

     (3) Each participant receiving a Restricted Stock Award shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award.

     (4) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock Award, the

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participant shall have delivered to the Company a stock power, endorsed in blank, relating to the Stock covered by such Award.

     (5) Subject to the provisions of this Plan and the Restricted Stock Award agreement, during a period set by the Committee commencing with the date of such Award (the “Restriction Period”), the participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber the shares of Restricted Stock awarded under the Plan. The Restriction Period shall not be less than six months and one day in duration (“Minimum Restriction Period”). Subject to these limitations and the Minimum Restriction Period requirement, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors and criteria as the Committee may determine, in its sole discretion.

     (6) Except as provided in this Section 7(b)(6), Section 7(b)(5) and Section 7(b)(7), the participant shall have, with respect to the shares of Restricted Stock awarded, all of the rights of a shareholder of the Company, including the right to vote the Stock, and the right to receive any dividends. The Committee, in its sole discretion, as determined at the time of award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested, subject to Section 14(f), in additional Restricted Stock to the extent shares are available under Section 3, or otherwise reinvested. Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued.

     (7) No Restricted Stock shall be transferable by a participant otherwise than by will or by the laws of descent and distribution.

     (8) If a participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Restricted Stock held by such participant shall thereafter vest or any restriction lapse, to the extent such Restricted Stock would have become vested or no longer subject to restriction within one year from the time of death had the participant continued to fulfill all of the conditions of the Restricted Stock Award during such period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Restricted Stock shall be forfeited.

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     (9) If a participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Restricted Stock held by such participant shall thereafter vest or any restriction lapse, to the extent such Restricted Stock would have become vested or no longer subject to restriction within one year from the time of termination had the participant continued to fulfill all of the conditions of the Restricted Stock Award during such period (or on such accelerated basis as the Committee may determine at or after grant), subject in all cases to the Minimum Restriction Period requirement. The balance of the Restricted Stock shall be forfeited.

     (10) Unless otherwise determined by the Committee at or after the time of granting any Restricted Stock, if a participant’s employment by the Company or any Subsidiary or Affiliate terminates for any reason other than death or Disability, the Restricted Stock held by such participant which is unvested or subject to restriction at the time of termination shall thereupon be forfeited.

     (c) Minimum Value Provisions. In order to better ensure that award payments actually reflect the performance of the Company and service of the participant, the Committee may provide, in its sole discretion, for a tandem performance-based or other award designed to guarantee a minimum value, payable in cash or Stock to the recipient of a Restricted Stock Award, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee.

SECTION 8. Deferred Stock.

     (a) Grant. Deferred Stock may be awarded alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside of the Plan. The Committee shall determine the individuals to whom, and the time or times at which, Deferred Stock shall be awarded, the number of shares of Deferred Stock to be awarded to any participant, the duration of the period (the “Deferral Period”) during which, and the conditions under which, receipt of the Stock will be deferred, and the other terms and conditions of the Award in addition to those set forth in Section 8(b).

          The Committee may condition the grant of Deferred Stock upon the attainment of specified performance goals or such other factors as the Committee shall determine, in its sole discretion.

     (b) Terms and Conditions. Deferred Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

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     (1) The purchase price for shares of Deferred Stock shall be determined at the time of grant and may be equal to their par value or zero, as determined by the Committee. Subject to the provisions of the Plan and the Award agreement referred to in Section 8(b)(9), Deferred Stock Awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or the Elective Deferral Period referred to in Section 8(b)(8), where applicable), share certificates shall be delivered to the participant, or his legal representative, for the shares covered by the Deferred Stock Award. The Deferral Period applicable to any Deferred Stock Award shall not be less than six months and one day (“Minimum Deferral Period”).

     (2) Unless otherwise determined by the Committee at grant, amounts equal to any dividends declared during the Deferral Period with respect to the number of shares covered by a Deferred Stock Award will be paid to the participant currently, or deferred and deemed to be reinvested in additional Deferred Stock, or otherwise reinvested, all as determined at or after the time of the Award by the Committee, in its sole discretion.

     (3) No Deferred Stock shall be transferable by a participant otherwise than by will or by the laws of descent and distribution.

     (4) If a participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Deferred Stock held by such participant shall thereafter vest or any restriction lapse, to the extent such Deferred Stock would have become vested or no longer subject to restriction within one year from the time of death had the participant continued to fulfill all of the conditions of the Deferred Stock Award during such period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Deferred Stock shall be forfeited.

     (5) If a participant’s employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Deferred Stock held by such participant shall thereafter vest or any restriction lapse, to the extent such Deferred Stock would have become vested or no longer subject to restriction within one year from the time of termination had the participant continued to fulfill all of the conditions of the Deferred Stock Award during such period (or on such accelerated basis as the Committee may determine at or after grant), subject in all cases to the Minimum Deferral Period requirement. The balance of the Deferred Stock shall be forfeited.

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     (6) Unless otherwise determined by the Committee at or after the time of granting any Deferred Stock Award, if a participant’s employment by the Company or any Subsidiary or Affiliate terminates for any reason other than death or Disability, all Deferred Stock held by such participant which is unvested or subject to restriction shall thereupon be forfeited.

     (7) Based on service, performance or such other factors or criteria as the Committee may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any Deferred Stock Award or waive a portion of the Deferral Period for all or any part of such Award, subject in all cases to the Minimum Deferral Period requirement.

     (8) A participant may elect to further defer receipt of a Deferred Stock Award (or an installment of an Award) for a specified period or until a specified event (the “Elective Deferral Period”), subject in each case to the Committee’s approval and the terms of this Section 8 and such other terms as are determined by the Committee, all in its sole discretion. Subject to any exceptions approved by the Committee, such election must be made at least 12 months prior to completion of the Deferral Period for such Deferred Stock Award (or such installment).

     (9) Each such Award shall be confirmed by, and subject to the terms of, a Deferred Stock Award agreement evidencing the Award in the form approved from time to time by the Committee.

     (c) Minimum Value Provisions. In order to better ensure that award payments actually reflect the performance of the Company and service of the participant, the Committee may provide, in its sole discretion, for a tandem performance-based or other Award designed to guarantee a minimum value, payable in cash or Stock to the recipient of a Deferred Stock Award, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee.

SECTION 9. Stock Purchase Rights.

     (a) Grant. Stock Purchase Rights may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Stock Purchase Rights will be made, the number of shares of Stock which may be purchased pursuant to the Stock Purchase Rights, and the other terms and conditions of the Stock Purchase Rights in addition to those set forth in Section 9(b). The Stock subject to the Stock Purchase Rights may be purchased, as determined by the Committee at the time of grant:

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     (1) at the Fair Market Value of such Stock on the date of grant;

     (2) at 50% of the Fair Market Value of such Stock on the date of grant;

     (3) at an amount equal to the Book Value of such Stock on the date of grant; or

     (4) at an amount equal to the par value of such Stock on the date of grant.

            Subject to Section 9(b) hereof, the Committee may also impose such deferral, forfeiture or other terms and conditions as it shall determine, in its sole discretion, on such Stock Purchase Rights or the exercise thereof.

            Each Stock Purchase Right Award shall be confirmed by, and be subject to the terms of, a Stock Purchase Rights Agreement which shall be in form approved by the Committee.

     (b) Terms and Conditions. Stock Purchase Rights may contain such additional terms and conditions not inconsistent with the terms of the Plan as the Committee shall deem desirable, and shall generally be exercisable for such period as shall be determined by the Committee. However, Stock Purchase Rights granted to Section 16 participants shall not become exercisable earlier than six months and one day after the grant date. Stock Purchase Rights shall not be transferable by a participant other than by will or by the laws of descent and distribution.

SECTION 10. Other Stock-Based Awards.

     (a) Grant. Other Awards of Stock and other Awards that are valued, in whole or in part, by reference to, or are otherwise based on, Stock, including, without limitation, performance shares, convertible preferred stock, convertible debentures, exchangeable securities and Stock Awards or options valued by reference to Book Value or subsidiary performance, may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside of the Plan.

            At the time the Stock or Other Stock-Based Award is granted, the Committee shall determine the individuals to whom and the time or times at which such Stock or Other Stock-Based Awards shall be awarded, the number of shares of Stock to be used in computing an Award or which are to be awarded pursuant to such Awards, the consideration, if any, to be paid for such Stock or Other Stock-Based Awards, and all other terms and conditions of the Awards in addition to those set forth in Section 10(b).

            The provisions of Other Stock-Based Awards need not be the same with respect to each participant.

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     (b) Terms and Conditions. Other Stock-Based Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

     (1) Subject to the provisions of this Plan and the Award agreement referred to in Section 10(b)(5) below, Stock awarded or subject to Awards made under this Section 10 may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the Stock is issued, or, if later, the date on which any applicable restriction, performance, holding or deferral period or requirement is satisfied or lapses. All Stock or Other Stock Based Awards granted under this Section 10 shall be subject to a minimum holding period (including any applicable restriction, performance and/or deferral periods) of six months and one day (“Minimum Holding Period”).

     (2) Subject to the provisions of this Plan and the Award agreement and unless otherwise determined by the Committee at the time of grant, the recipient of an Other Stock-Based Award shall be entitled to receive, currently or on a deferred basis, interest or dividends or interest or dividend equivalents with respect to the number of shares of Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Stock or otherwise reinvested.

     (3) Subject to the Minimum Holding Period, any Other Stock-Based Award and any Stock covered by any such Award shall vest or be forfeited to the extent, at the times and subject to the conditions, if any, provided in the Award agreement, as determined by the Committee, in its sole discretion.

     (4) In the event of the participant’s Disability or death, or in cases of special circumstances, the Committee may, in its sole discretion, waive, in whole or in part, any or all of the remaining limitations imposed hereunder or under any related Award agreement (if any) with respect to any part or all of any Award under this Section 10, provided that the Minimum Holding Period requirement may not be waived, except in case of a participant’s death.

     (5) Each Award shall be confirmed by, and subject to the terms of, an agreement or other instrument evidencing the Award in the form approved from time to time by the Committee, the Company and the participant.

     (6) Stock (including securities convertible into Stock) issued on a bonus basis under this Section 10 shall be

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issued for no cash consideration. Stock (including securities convertible into Stock) purchased pursuant to a purchase right awarded under this Section 10 shall bear a price of at least 50% of the Fair Market Value of the Stock on the date of grant. The purchase price of such Stock, and of any Other Stock Based Award granted hereunder, or the formula by which such price is to be determined, shall be fixed by the Committee at the time of grant.

     (7) In the event that any “derivative security”, as defined in Rule 16a-1(c) (or any successor thereto) promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, is awarded pursuant to this Section 10 to any Section 16 participant, such derivative security shall not be transferrable other than by will or by the laws of descent and distribution.

SECTION 11. Change In Control Provision.

     (a) Impact of Event. In the event of: (1) a “Change in Control” as defined in Section 11(b) or (2) a “Potential Change in Control” as defined in Section 11(c), the following acceleration and valuation provisions shall apply:

     (1) Any Stock Appreciation Rights and any Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested;

     (2) The restrictions and deferral limitations applicable to any Restricted Stock, Deferred Stock, Stock Purchase Rights and Other Stock-Based Awards shall lapse and such shares and awards shall be deemed fully vested; and

     (3) The value of all outstanding Awards, in each case to the extent vested, shall, unless otherwise determined by the Committee in its sole discretion at or after grant but prior to any Change in Control or Potential Change in Control, be cashed out on the basis of the “Change in Control Price” as defined in Section 11(d) as of the date such Change in Control or such Potential Change in Control is determined to have occurred;

provided, however, that the provisions of Sections 11(a)(1)-(3) shall not apply with respect to Awards granted to any Section 16 participant which have been held by such participant for less than six months and one day as of the date that such Change in Control or Potential Change in Control is determined to have occurred.

     (b) Definition of Change in Control. For purposes of Section 11(a), a “Change in Control” means the happening of any of the following:

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     (1) When any “person” as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act, but excluding the Company and any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities; provided, however, that the terms “person” and “group” shall not include any “Excluded Director”, and the term “Excluded Director” means any director who, on the effective date of the Plan, is the beneficial owner of or has the right to acquire an amount of Stock equal to or greater than five percent of the number of shares of Stock outstanding on such effective date; and further provided that, unless otherwise determined by the Board or any committee thereof, the terms “person” and “group” shall not include any entity or group of entities which has acquired Stock of the Company in the ordinary course of business for investment purposes only and not with the purpose or effect of changing or influencing the control of the Company, or in connection with or as a participant in any transaction having such purpose or effect, (“Investment Intent”), as demonstrated by the filing by such entity or group of a statement on Schedule 13G (including amendments thereto) pursuant to Regulation 13D under the Exchange Act, as long as such entity or group continues to hold such Stock with an Investment Intent;

     (2) When, during any period of 24 consecutive months during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof; provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Section 11(b)(2); or

     (3) The occurrence of a transaction requiring shareholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, by merger or otherwise; provided, however, a change in control shall not be deemed to be a Change in Control for purposes of the Plan if the Board approves such change prior to either (i) the commencement of

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any of the events described in Section (b)(l), (2), or (3) or (c)(l) or (ii) the commencement by any person other than the Company of a tender offer for Stock.

     (c) Definition of Potential Change in Control. For purposes of Section 11(a), a “Potential Change in Control” means the happening of any one of the following:

     (1) The approval by shareholders of an agreement by the Company, the consummation of which would result in a Change in Control of the Company as defined in Section 11(b); or

     (2) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of such plan acting as such trustee)) of securities of the Company representing 5% or more of the combined voting power of the Company’s outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan.

     (d) Change in Control Price. For purposes of this Section 11, “Change in Control Price” means the highest price per share paid in any transaction reported on the New York Stock Exchange Composite Index, or paid or offered in any bona fide transaction related to a Change in Control or Potential Change in Control of the Company, at any time during the 60-day period immediately preceding the occurrence of the Change in Control (or, where applicable, the occurrence of the Potential Change in Control event), in each case as determined by the Committee, except that, in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be based only on transactions reported for the date on which the participant exercises such Stock Appreciation Rights or, where applicable, the date on which a cashout occurs under Section 11(a)(3).

SECTION 12. Amendments and Termination.

            The Board may at any time, in its sole discretion, amend, alter or discontinue the Plan, but no such amendment, alteration or discontinuation shall be made which would impair the rights of a participant under an Award theretofore granted, without the participant’s consent. The Company shall submit to the shareholders of the Company for their approval any amendments to the Plan which are required by Section 16 of the Exchange Act, or the rules and regulations thereunder, to be approved by the shareholders.

            The Committee may at any time, in its sole discretion, amend the terms of any Award, but no such amendment shall be made which would impair the rights of a participant under an Award theretofore granted,

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without the participant’s consent; nor shall any such amendment be made which would make the applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any Section 16 participant holding the Award without the participant’s consent. The Committee may also substitute new Stock Options for previously granted Stock Options (on a one-for-one or other basis), including previously granted Stock Options having a higher option price.

            Subject to the above provisions, the Board shall have all necessary authority to amend the Plan to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments.

SECTION 13. Unfunded Status of Plan.

            The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a participant by the Company, nothing contained herein shall give any such participant any rights that are greater than those of a general creditor of the Company.

SECTION 14. General Provisions.

     (a) The Committee may require each participant acquiring Stock pursuant to an Award under the Plan to represent to and agree with the Company in writing that the participant is acquiring the Stock without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

            All shares of Stock or other securities delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any certificates for such shares to make appropriate reference to such restrictions.

     (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

     (c) Neither the adoption of the Plan, nor its operation, nor any document describing, implementing or referring to the Plan, or any part thereof, shall confer upon any participant under the Plan any right to continue in the employ, or as a director, of the Company or any Subsidiary or Affiliate, or shall in any way

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affect the right and power of the Company or any Subsidiary or Affiliate to terminate the employment, or service as a director, of any participant under the Plan at any time with or without assigning a reason therefor, to the same extent as the Company or any Subsidiary or Affiliate might have done if the Plan had not been adopted.

     (d) For purposes of this Plan, a transfer of a participant between the Company and its Subsidiaries and Affiliates shall not be deemed a termination of employment.

     (e) No later than the date as of which an amount first becomes includable in the gross income of the participant for federal income tax purposes with respect to any Award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state or local taxes or other items of any kind required by law to be withheld with respect to such amount. Subject to the following sentence, unless otherwise determined by the Committee, withholding obligations may be settled with Stock, including unrestricted Stock previously owned by the participant or Stock that is part of the Award that gives rise to the withholding requirement. Notwithstanding the foregoing, any election by a Section 16 participant to settle such tax withholding obligation with Stock that is part of such Award shall be subject to approval by the Committee, in its sole discretion. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company and its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant.

     (f) The actual or deemed reinvestment of dividends or dividend equivalents in additional Restricted Stock (or in Deferred Stock or other types of Awards) at the time of any dividend payment shall only be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options, Stock Purchase Rights and other Plan Awards).

     (g) The Plan, all Awards made and actions taken thereunder and any agreements relating thereto shall be governed by and construed in accordance with the laws of the State of Ohio.

     (h) All agreements entered into with participants pursuant to the Plan shall be subject to the Plan.

     (i) The provisions of Awards need not be the same with respect to each participant.

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     SECTION 15. Shareholder Approval; Effective Date of Plan.

            The Plan was adopted by the Board on February 10, 1995 and is subject to approval by the holders of the Company’s outstanding Stock, in accordance with applicable law. The Plan will become effective on the date of such approval.

     SECTION 16. Term of Plan.

            No Award shall be granted pursuant to the Plan on or after February 10, 2005, but Awards granted prior to such date may extend beyond that date.

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EX-10.T

Exhibit No. 10(T)

OBJECTIVE-BASED
NON-QUALIFIED STOCK OPTION AGREEMENT

     This Agreement (the “Agreement”) is made as of the                      day of                                         , 20                    between The Progressive Corporation, an Ohio corporation (the “Company”), and <NAME> (the “Optionee”). The Company hereby grants Optionee an option (the “Option”) to purchase <TOTAL SHARES> Common Shares, $1.00 par value (the “Common Shares”), of the Company for a per share purchase price of $                     (the “Option Price”). The Option has been granted pursuant to The Progressive Corporation 1995 Incentive Plan (the “Plan”) and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this Agreement:

1. Term. The Option shall become exercisable as follows:

                     Common Shares may be purchased on or after the Vesting Date (as defined below) and until                                                              (the “Expiration Date”), on which date the right to purchase such Common Shares shall expire.

The Option will vest and become exercisable upon the date (the “Vesting Date”) which is the earlier of (a)                                          or (b) the date of the public dissemination by the Company of a release reporting earnings for the Company and its subsidiaries for the first calendar year or quarter as of the end of which the Company and its subsidiaries have generated net earned premiums of $                     or more over a period consisting of four consecutive calendar quarters (“Realization Period”) at a combined ratio of less than                      for the Realization Period.

2. Method of Exercise. Subject to Section 1 above, the Option shall be exercisable from time to time after the Vesting Date by written notice (in form approved or furnished by the Company) to the Company which shall:

(a)	state that the Option is thereby being exercised, the number of Common Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Common Shares should be registered and his or her address and social security number;
(b)	be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Optionee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and
(c)	be accompanied by such representations, warranties and agreements, in form and substance satisfactory to counsel for the Company, with respect to the investment intent of such person or persons exercising the Option as the Company may request.

3. Payment of Price. Upon exercise of the Option, the Company shall deliver a certificate or certificates for the Common Shares purchased thereunder to the specified person or persons at the specified time upon receipt of the full purchase

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price for such Common Shares: (i) by certified or bank cashier’s check, or (ii) by any other method of payment or combination thereof authorized by the Plan.

4.

Transferability. The Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution. Subject to the following sentence, during the lifetime of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee for his or her own account. Upon the death or disability of the Optionee, the Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Optionee’s estate (acting through its fiduciary) or by the Optionee’s duly authorized legal representative, during the period and to the extent authorized in the Plan.

5.

Termination of Employment. If the employment of the Optionee by the Company (or any of its Subsidiaries or Affiliates) terminates:

(a)	due to involuntary termination without Cause or, subject to Section 5(e) hereof, due to retirement (with the employer’s approval), the Option may be exercised to the extent exercisable at the date of such termination, during the lesser of (i) two months after such date, or (ii) the balance of the Option’s term;
(b)	due to death or Disability, the provisions of Section 5(b)(6) or 5(b)(7) of the Plan, as applicable, shall apply;
(c)	due to resignation by the Optionee, the Optionee may exercise the Option, to the extent of the lesser of (A) the number of Common Shares as to which the Option is exercisable on the date the Optionee ceases to be an employee or (B) the number of Common Shares as to which the Option was exercisable ninety days prior to such date, reduced by any Common Shares acquired by exercise of the Option within such ninety day period, at any time within two (2) months after the date on which the Optionee ceases to be an employee (but in no event after expiration of the original term of the Option) and the Option shall not be or become exercisable as to any additional Common Shares after the date that the Optionee ceases to be an employee;
(d)	due to termination for Cause, the Option and all rights to purchase Common Shares thereunder shall immediately terminate; and
(e)	due to a Qualified Retirement (as defined below), the following provisions shall apply (subject in all cases to Section 5(e)(iv) hereof):

(i)	if and to the extent that the Option has vested and is exercisable as of the Qualified Retirement Date (as defined below), the Option shall not terminate upon the retirement of the Optionee, but may be exercised by the Optionee, in whole or in part, at any time between the Qualified Retirement Date and the Expiration Date applicable thereto;
(ii)	if the Option is not vested and exercisable as of the Qualified Retirement Date, the Option (A) shall remain in effect with respect to fifty percent (50%) of the Common Shares covered thereby and, as to such Common Shares, shall vest and become exercisable on

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the Vesting Date, and may be exercised by the Optionee, in whole or in part, at any time between the Vesting Date and Expiration Date, and (B) shall terminate, effective as of the Qualified Retirement Date, with respect to the remaining fifty percent (50%) of the Common Shares covered by Option;

(iii)	if the Optionee dies after the date of his or her retirement and has not exercised the Option, in whole or in part, prior to his or her death, the Optionee’s estate shall have the right to exercise the Option within one (1) year of the date of the Optionee’s death as to (A) all Common Shares as to which the Option has not been exercised prior to the date of the Optionee’s death, if the Option has vested and is exercisable as of the date of the Optionee’s death, or (B) if the Option has not vested prior to the date of the Optionee’s death, the Common Shares, if any, as to which the Option would have become exercisable pursuant to Section 5(e)(ii) hereof at any time during the one (1) year period beginning on the date of the Optionee’s death (or such other period as the Committee may specify);
(iv)	if the Committee determines that the Optionee is or has engaged in any Disqualifying Activity (as defined below), then (1) if the Option has vested and is exercisable as of the Disqualification Date (as defined below), the Optionee shall have the right to exercise the Option during the lesser of two months from the Disqualification Date or the balance of the Option’s term and (2) if the Option is not vested and exercisable as of the Disqualification Date, the Option shall terminate 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 the Optionee is or has engaged in any Disqualifying Activity, and as to the Disqualification Date, shall be final and conclusive.
(v)	As used in this Section 5(e), the following terms are defined as follows:

(A) Qualified Retirement — any termination of the Optionee’s employment with the Company or its Subsidiaries for any reason (other than death, Disability or an involuntary termination for Cause) if, at or immediately prior to the date of such termination, the Optionee satisfies both of the following conditions:

(1)	the Optionee shall be 55 years of age or older; and
(2)	the sum of the Optionee’s age and completed years of service as an employee of the Company or its Subsidiaries (disregarding fractions, in both cases) shall total 70 or more.

(B) Qualified Retirement Date — the date as of which the Optionee’s employment with the Company or its Subsidiaries shall terminate pursuant to a Qualified Retirement.

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(C) Disqualifying Activity — means and includes each of the following acts or activities:

(1)	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 in any business or activity then conducted by the Company or its Subsidiaries to an extent deemed material by the Committee; or
(2)	any disclosure by the Optionee, or any use by the Optionee for his or her own benefit or for the benefit of any other person or entity (other than the Company or its Subsidiaries), of any confidential information or trade secret of the Company or its Subsidiaries to an extent deemed material by the Committee; or
(3)	any material violation of any of the provisions of the Company’s Code of Conduct or any agreement between the Optionee and the Company; or
(4)	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 its Subsidiaries.

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

(D) Disqualification Date — the date of any determination by the Committee that the Optionee is or has engaged in any Disqualifying Activity.

6.	Restrictions on Exercise. The Option is subject to all restrictions set forth in this Agreement or in the Plan. As a condition to any exercise of the Option, the Company may require the Optionee or his or her successor to make any representation or warranty to comply with any applicable law or regulation or to confirm any factual matters requested by counsel for the Company.
7.	Taxes. The Optionee hereby agrees that he or she shall pay to the Company, in cash, any federal, state and local taxes or other items of any kind required by law to be withheld with respect to the Option granted to him or her hereunder. If the Optionee does not make such payment to the Company, the Company shall have the right to deduct from any payment of any kind otherwise due to the Optionee from the Company (or from any Subsidiary or Affiliate of the Company), any federal, state and local taxes or other items of any kind required by law to be withheld with respect to the Option, the exercise thereof or the Common Shares to be purchased by the Optionee under this Agreement. The Option shall not be treated as an incentive stock option under Section 422 or any successor Section thereto of the Internal Revenue Code of 1986, as amended.
8.	Definitions. Unless otherwise defined in this Agreement, capitalized terms will have the same meanings given them in the Plan.

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THE PROGRESSIVE CORPORATION

DATE OF GRANT:	BY:
		Charles E. Jarrett, Secretary

ACCEPTANCE OF AGREEMENT

     The Optionee hereby: (a) acknowledges receiving a copy of the Plan Description dated                                          (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 the Plan Description; (b) accepts this Agreement and the Option granted to him or her under this Agreement subject to all provisions of the Plan and this Agreement; and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee relating to the Plan, this Agreement or the Option granted hereunder.

Optionee:                                                             

           Date:                                                                                

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EX-10.AV

Exhibit No. 10(AV)

THE PROGRESSIVE CORPORATION
DIRECTORS DEFERRAL PLAN
(Amendment and Restatement)

1. PURPOSES OF THE PLAN.

The purposes of this Plan are to attract and retain qualified Directors and to provide incentives to these Directors through the ability to defer their receipt of Director Fees and by providing Directors with the opportunity to participate in the Company’s growth.

2. DEFINITIONS.

(a) “Board” means the Board of Directors of the Company.

(b) “Common Shares” means units equivalent in value and dividend rights to Common Shares, $1.00 par value, of the Company.

(c) “Company” means The Progressive Corporation.

(d) “Deferred Account” means the account established by the Company for each Director who elects to defer the Fees payable to him as a Director.

(e) “Director” means any director of the Company who is not an employee of the Company.

(f) “Election Agreement” means the written election to defer Director Fees signed by the Director and in the form provided by the Chief Financial Officer of the Company.

(g) “Fees” means the fees payable to a Director by reason of his serving on the Board either (i) as a retainer (without regard to attendance at meetings) or (ii) on a per meeting basis. “Retainer Fees” means those Fees which are payable to a Director by reason of his serving on the Board as a retainer (without regard to attendance at meetings), and “Meeting Fees” means those Fees which are payable to a Director by reason of his attendance at meetings of the Board or any committee thereof.

(h) “Market Price” means the average of the high and low price at which a share of the Company’s Common Stock, $1.00 par value, is traded on the NYSE on a given date.

(i) “Member” means any Director who has at any time deferred the receipt of Director Fees in accordance with this Plan.

(j) “Plan” means The Progressive Corporation Directors Deferral Plan.

(k) “Term” means the duration of the term for which a Director is elected.

(l) “Year” means the calendar year.

(m) Whenever appropriate, words used herein in the singular may be read as the plural and the plural may be read as the singular.

(n) Masculine pronouns used herein shall be deemed to refer to both women and men.

3. ELECTION TO DEFER DIRECTOR FEES.

(a) ELIGIBILITY.

A Director may elect to defer receipt of all or a portion of his Fees for any Year in accordance with Paragraph 3(b) hereof.

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(b) TIME OF ELECTION.

A Director desiring to defer all or a portion of his Fees for the upcoming Year must submit an Election Agreement to the Chief Financial Officer of the Company no later than the last day of the Year prior to the Year for which the election is to be effective.

Any Director who was not a Director during the previous Year may make an election to defer all or a portion of the Fees for the Year in which the Director is elected to the Board by delivering an Election Agreement to the Chief Financial Officer of the Company within thirty (30) days of such election to the Board. A Director fulfilling the above requirements shall be considered a “Member” for purposes of this Plan.

(c) DURATION AND NATURE OF ELECTION.

Subject to the following sentence, a Member’s election to defer Fees shall continue in effect from Year to Year unless modified or revoked by the Member through written notice to the Chief Financial Officer of the Company prior to the beginning of the Year for which the revocation or modification is to apply. Modifications or revocations shall not apply retroactively, and once a Member has made, or is deemed to have made, an election to defer all or a portion of his Fees for a given Year, such election may not be modified or revoked.

4. THE AMOUNT AND DATE OF DEFERRAL.

The Election Agreement of the Member shall indicate the amount of Fees to be deferred and the date to which the Fees are to be deferred. The deferral of Retainer Fees shall be subject to Paragraph 7 hereof; the deferral of Meeting Fees shall be to the earlier of (1) the date selected by the Member in an Election Agreement, which date shall not be earlier than six months and one day after the date on which such Fees are credited to the Member’s Deferred Account or (2) the date of the death of the Member. Subject to the preceding sentence, a Member may (i) select a lump-sum distribution or a series of distributions or installments and (ii) choose the date on which the lump sum shall be paid or the installments shall commence. The installments may not be more frequent than quarterly and may not consist of more than forty (40) quarterly or ten (10) annual installments. All payments will be made on the first business day of a calendar quarter. In the case of the death of the Member, distribution of the deferred Fees shall be made in accordance with Paragraph 8.

5. DEFERRAL ACCOUNTS.

(a) ACCOUNTS.

The Company shall establish and preserve one or more accounts for each Member. A Member shall designate on the Election Agreement whether to have the account valued on the basis of the Common Shares of the Company in accordance with Paragraph 5(b) hereof or on the basis of cash in accordance with Paragraph 5(c) hereof. A Member may defer a portion of his Fees into each type of account. The Company may establish separate accounts for a Member to properly account for amounts deferred under the two alternatives or during different years. An account valued on the basis of the Company’s Common Shares shall be known as a “Stock Account” and an account valued on the basis of cash shall be known as a “Cash Account.” Amounts held in a Stock Account may not be transferred to a Cash Account and vice versa.

(b) STOCK ACCOUNT.

There shall be credited to a Member’s Stock Account, on the last day of each quarter, the number of Common Shares (whole or fractional, rounded to the nearest thousandth of a share) equal to the quotient obtained by dividing (i) the sum of the Fees he elects to defer to his Stock Account which otherwise would have been paid to him during the quarter and the dividends payable

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during such quarter on the Common Shares held in his Stock Account on the first day of such quarter, by (ii) the Market Price of the Common Shares on the last business day of such quarter.

(c) CASH ACCOUNT.

If a Member elects to have a portion of his Fees deferred into a Cash Account, there will be credited to his Cash Account, on the last day of each quarter, an amount equal to the sum of (i) the Fees he elects to defer to his Cash Account which otherwise would have been paid to him during the quarter and (ii) interest on the balance in the Cash Account on the first day of such quarter at a rate based on the rate of interest offered by National City Bank, Cleveland, Ohio, on the last business day of such quarter on new three-month certificates of deposit.

(d) CLAIMS OF GENERAL CREDITORS.

All compensation deferred and amounts credited to the Cash and Stock Accounts under this Plan shall remain a part of the general assets of the Company. Accordingly, the compensation deferred under this Plan is subject to the claims of the Company’s general creditors.

6. PAYMENT OF ACCOUNTS.

The accounts established and maintained for each Member shall be distributed in a lump sum or installments. The selection of the distribution date(s) and the method of distribution are to be indicated on the Election Agreement to be submitted by the Member. The election as to the method of and time for payment of the amount of an account relating to Fees deferred for a particular Year may not be altered with respect to that particular Year once the election has been made. Changes in the method of and time for payment of the amount of an account may be effected for future Years by notifying the Chief Financial Officer in writing prior to the beginning of the Year for which the modification is to apply in accordance with Paragraph 3 above.

With respect to all distributions to be made under the Plan, the following rules shall apply:

(i) All distributions, whether from a Stock Account or a Cash Account, shall be paid in cash subject to withholding or deduction by the Company of any taxes, contributions, payments and assessments which the Company is now or may hereafter be required or authorized by law to withhold or deduct from distributions;

(ii) The amount of the distribution from the Stock Account shall be valued based on the Market Price of the Company’s Common Shares, $1.00 par value, on the last business day of the calendar quarter immediately preceding the distribution date; and

(iii) The amount of the distribution from the Cash Account shall be valued based on the value of the Cash Account on the last business day of the calendar quarter immediately preceding the distribution date.

In the event a Member elects to receive installment payments, the following rules shall apply:

(i) The balance of the Stock Account shall be credited, pursuant to Paragraph 5(b) above, with additional Common Shares upon the payment of dividends until the Stock Account is completely distributed;

(ii) The balance of the Cash Account shall be credited, pursuant to Paragraph 5(c) above, with interest quarterly until the Cash Account is completely distributed; and

(iii) The amount of each installment shall be determined by dividing the value of the Stock Account, the Cash Account, or both, by the number of installments remaining to be paid to the Member.

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7. MINIMUM DEFERRAL.

Retainer Fees shall be deferred as provided in this Paragraph 7. Absent the filing by a Director of an Election Agreement deferring into a Stock Account all Retainer Fees which are payable to such Director until a date which is on or after the Retainer Fee Minimum Deferral Date (as herein defined), the Director shall be deemed to have filed an election deferring such Fees until the Retainer Fee Minimum Deferral Date, electing to have such Fees deposited to a Stock Account and indicating that such Fees shall be distributed in a lump sum on the first day of the calendar quarter immediately following the Retainer Fee Minimum Deferral Date. For purposes hereof, the Retainer Fee Minimum Deferral Date shall be the later of (a) the date which is six (6) months and one day after the date upon which the Retainer Fees are credited to a Stock Account or (b) the date of the expiration of the Director’s then current Term.

8. DEATH OF MEMBER.

A Member may, in the Election Agreement described in Paragraph 3 above, provide that, in the event of his death prior to the date or dates on which his account balance is distributable, the account balance shall be distributed to his estate or designated beneficiary in a single distribution or in the installments contemplated by Paragraph 6 above. This election shall be made at the time of the election contemplated by Paragraph 3 above. If no such election is made, the account balance shall be distributed to the estate of the deceased Member in a single distribution six months after the Member’s death.

9. VALUATION OF ACCOUNTS.

Each account shall be valued as of the last day of each calendar quarter until payment of the account in full to the Member in accordance with Paragraph 6. Each Member shall receive a statement of his accounts not less than annually.

10. CAPITAL CHANGES.

In the event of any change in the number of outstanding Common Shares, $1.00 par value, of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or a similar corporate change, the Board shall determine, in its sole discretion, the extent to which such change equitably requires an adjustment in the number of Common Shares held in the Stock Accounts and such adjustment shall be made by the Company and shall be conclusive and binding on all Members of the Plan.

11. DEFERRED VESTING OF COMMON SHARES.

Retainer Fees credited to a Member’s Stock Account (whether as a result of filing an election under Paragraph 3(b) or a deemed election under Paragraph 7) shall not vest upon their being credited to the Member’s Stock Account, but shall become vested only upon the expiration of the Term of such Director to which the Fees relate or upon such Director’s earlier death, resignation due to disability or removal without cause. If a Director ceases to be a Director for any reason other than death, resignation due to disability or removal without cause, the Director shall forfeit all Retainer Fees credited to his Stock Account during his unexpired Term, along with any dividends attributable thereto, and the Member’s Stock Account shall be reduced accordingly.

12. ADMINISTRATION.

This Plan shall be administered by the Board or by an appropriate Committee of Directors selected by the Board. The Board or the appropriate Committee shall have the sole right and authority to interpret and construe the provisions of this Plan, and its decisions on any matter or dispute arising under the Plan shall be binding and conclusive upon the Members. If a Member is part of the Board

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or Committee that administers this Plan, he shall not participate in any deliberations or actions of the Board or such Committee relating exclusively to his membership or participation in this Plan.

13. TERMINATION OR MODIFICATION OF PLAN.

This Plan may be terminated, modified, or amended at the sole discretion of the Board. If this Plan is terminated, the remaining Deferred Account balances will be distributed pursuant to the terms of this Plan and no additional deferrals will be permitted.

14. NON-ALIENATION.

The amounts credited to any accounts maintained under the Plan may not be pledged, assigned, or transferred by the Director for whom such account is maintained or by any other individual, and any purported pledge, assignment, or transfer shall be void and unenforceable.

15. CLAIMS OF OTHER PERSONS.

The provisions of the Plan shall in no event be construed as giving any person, firm or corporation any legal or equitable right as against the Company or any subsidiary, or the officers, employees, or directors of the Company or any subsidiary, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan.

16. SEVERABILITY.

The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provisions were omitted herefrom.

17. GOVERNING LAW.

The provisions of the Plan shall be governed by and construed in accordance with the laws of the State of Ohio.

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AMENDMENT NO. 1

TO

THE PROGRESSIVE CORPORATION

DIRECTORS DEFERRAL PLAN

(AMENDMENT AND RESTATEMENT)

The Progressive Corporation Directors Deferral Plan (Amendment and Restatement) (the “Plan”) is hereby amended as follows:

1. Section 2(g) of the Plan is hereby amended to read as follows:

(g) “Fees” means the fees payable to a Director by reason of his or her serving on the Board and includes both “Retainer Fees” and “Meeting and Service Fees.” “Retainer Fees” means those Fees which are payable to a Director by reason of his or her serving on the Board (without regard to attendance at meetings). “Meeting and Service Fees” means those Fees which are payable to a Director (i) by reason of his or her attendance at meetings of the Board or any committee thereof, or (ii) for participation in meetings of the Company’s management, or other Board-related activities, for which such Director is entitled to receive compensation, as determined in the sole discretion of the Chairman of the Board.

2. All references to “Meeting Fees” contained in the Plan are hereby amended to read “Meeting and Service Fees.”

The foregoing amendments will be effective as of October 25, 1996, and will be applicable to all Plan years beginning on or after January 1, 1997.

/s/ David M. Schneider

David M. Schneider

Secretary

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EX-10.BG

Exhibit No. 10(BG)

SEPARATION AGREEMENT AND GENERAL RELEASE

1. This Agreement specifies the terms of the separation of CHARLES BERGEN CHOKEL (“Employee”) from PROGRESSIVE CASUALTY INSURANCE COMPANY (“Progressive”).

In consideration of the payments noted in Paragraphs 3 and 4 below, Employee hereby releases Progressive, its officers, directors, employees, parent, subsidiaries, affiliates, agents and assigns (the “Progressive Entities”) from all actions, suits, claims, and demands in law or equity, that Employee ever had or now has against any of the Progressive Entities, by reason of any matter, cause, or thing, and particularly any claims relating in any way to Employee’s employment relationship or the termination of Employee’s employment relationship with Progressive, including, without limitation, any claim under the Age Discrimination in Employment Act, any claim arising under any federal, state, or local law and any common law claim, but excepting those matters described in Paragraphs 3 and 4 below.

2. Effective January 31, 2001 (the “Resignation Date”), Employee hereby resigns as an officer and/or director of The Progressive Corporation, Progressive and of any Progressive subsidiary or affiliate(s) as is confirmed by Employee’s signature on the resignation letter attached hereto as Exhibit A and hereby agrees to execute all other documents and undertake any other action(s) necessary to effect such resignations or any other matters necessary to complete his obligations as an officer or director of Progressive or any of its affiliates. Employee agrees to resign his directorships with Plymouth Rock Assurance Company, G & L Holding Group, Inc., Netrex Holdings L.L.C. and any of Netrex’s subsidiaries or affiliates, and in any other company in which Progressive has made an equity investment effective the Resignation Date, and to execute all other documents and undertake any other action(s) necessary to effect such resignations. Although Employee will remain employed by Progressive until the Separation Date (as defined below), he will have no authority to make any commitments or representations or take any action on behalf of any of the Progressive Entities or to bind any of the Progressive Entities in any way. Progressive, accordingly, shall have no obligation to defend or indemnify Employee for any act or omission by Employee after the Resignation Date.

3. In full consideration of Employee signing this Agreement and for the covenants contained herein, Progressive hereby agrees to the following:

A. Employee shall remain an employee of Progressive through the Separation Date (as defined below) and shall receive-for the period of time between the execution of this Agreement and the Separation Date — salary in the amount of Two Thousand Dollars ($2,000), payable within ten (10) days of the Separation Date. The Separation Date shall be the earlier of: (a) January 31, 2002; (b) the date on which Employee begins employment as an employee on the payroll of another entity; or c) the date of a “Disqualifying Activity” as defined in Section 4B. below.

B. Within ten (10) days of Employee’s execution of this Agreement or upon the dissolution of all applicable restraining orders, whichever is later, Employee shall be paid a lump-sum payment of One Million Two Hundred Forty-four Thousand Dollars ($1,244,000) (the “Severance Amount”), less all applicable withholding taxes.

C. Employee shall be paid for credited but unused Earned Time Benefit (“ETB”) hours determined as of the Resignation Date. Such payment to be made within ten (10) days of the

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Resignation Date or upon the dissolution of all applicable restraining orders, whichever is later. Employee agrees that Employee will not be entitled to accrue any ETB hours subsequent to the Resignation Date.

4.

A. Notwithstanding anything to the contrary provided in any Non-Qualified Stock Option Agreement (“NQSO Agreement”) heretofore entered into between Employee and Progressive, the parties hereto agree that, subject to the conditions set forth in Paragraph 4B. below concerning a “Disqualifying Activity,” if and to the extent that any Option Installment (as defined below) of any non-qualified stock option (“NQSO”) heretofore granted to Employee by Progressive under The Progressive Corporation 1989 Incentive Plan (the “1989 Plan”) or The Progressive Corporation 1995 Incentive Plan (the “1995 Plan”) (collectively, the “Plans”) is not vested and exercisable as of the Resignation Date, such Option Installment (i) shall remain in effect with respect to fifty percent (50%) of the Common Shares of The Progressive Corporation (“Common Shares”) covered thereby and, as to such Common Shares, shall vest and become exercisable on the vesting date applicable thereto, as provided in the applicable NQSO Agreement, and may be exercised by Employee in whole or in part at any time between such vesting date and the expiration date applicable thereto (i.e., the tenth anniversary of the date of grant), as provided in the related NQSO Agreement, and (ii) shall terminate, effective as of the Resignation Date, with respect to the remaining fifty percent (50%) of the Common Shares covered by such Option Installment. In the event that Employee shall engage in any Disqualifying Activity, Employee shall forfeit all of his rights under this Paragraph and all NQSOSs then held by Employee which were not vested as of the Resignation Date (regardless of whether vested at the time of the Disqualifying Activity), shall immediately terminate and may not thereafter be exercised in whole or in part. For purposes hereof, an Option Installment shall mean any NQSO award included within a single grant which includes multiple NQSO awards, each with a separate vesting date. Except as herein expressly provided, all NQSOS’s awarded to Employee under the Plans will continue to be governed by all of the terms and conditions of the Plans and applicable NQSO Agreement.

B. Employee shall forfeit his rights under Paragraph 4A. if Employee participates in any “Disqualifying Activity” as defined below:

Disqualifying Activity — means any of the following acts or activities committed during the period beginning on the Resignation Date and ending January 31, 2004 (the “Restriction Period”):

• directly or indirectly serving as a principal, shareholder, partner, of officer, employee or agent of, or as a consultant, advisor or in any other capacity (other than as a Director) to, any insurance carrier other than Progressive with more than 1.5% market share of the U.S. market for private passenger automobile insurance as of December 31, 1999 as reported by A.M. Best and specifically listed on the attached Exhibit B. This clause shall not apply if Employee becomes an employee of one of the entities listed on Exhibit B solely as a result of actions beyond Employee’s control—such as an acquisition not initiated by Employee of an entity with a smaller market share then employing Employee by one of the listed companies; or

• any disclosure by the Employee, or any use by the Employee for his own benefit or for the benefit of any other person or entity (other than Progressive, its parent or its

- 2 -

subsidiaries), of any confidential information or trade secret of Progressive or its subsidiaries (as defined herein) to an extent deemed material by Progressive; or

• any violation of Paragraphs 2, 5, 8 or 10 of this Agreement; or

• making any other disclosure or taking any other action which is materially detrimental to the business, prospects or reputation of Progressive, its parent or its subsidiaries. The direct ownership of less than 10% of the outstanding voting shares of a publicly traded corporation which competes with Progressive or its subsidiaries shall not constitute a Disqualifying Activity.

5.    Employee shall not, during the Restriction Period, hire or solicit to hire any of Progressive’s then current employees (other than Employee’s spouse), either directly or indirectly, to work for Employee or any other entity. This prohibition is not intended, nor shall it be construed, to prohibit any future employer of Employee from hiring anyone in the normal course of its business without assistance from Employee; but, rather, is intended to cover and shall only be construed to prohibit actions of Employee.

6.    With the exception of the rights and benefits contained in this Agreement, Employee: (a) waives any and all rights Employee now has or might hereafter have acquired to, and acknowledges the forfeiture of, any and all “NQSOs” under the Plans which are not vested as of the Resignation Date; and (b) waives any rights Employee may now have or would have had under Progressive’s 2001 Gainsharing Program, The Progressive Corporation 2001 Executive Bonus Plan, The Progressive Corporation 1999 Executive Bonus Plan, The Progressive Corporation Separation Allowance Plan and to any other compensation or bonus Employee may have received had Employee remained employed by Progressive. Other than is provided for in paragraph 3, Employee shall not be entitled to any compensation as a Progressive employee after the Resignation Date, including, but not limited to, NQSOs granted under the Plans and any other bonus or incentive payment(s).

7.    Employee’s rights relating to vested, but unexercised NQSOs shall be determined in accordance with the provisions of the Plans and applicable NQSO Agreement(s) between Progressive and Employee, and as is specified in those agreements, the last available date for exercise by Employee of any vested NQSOs shall be sixty (60) days after the Separation Date. Employee’s rights (if any) under the Executive Deferred Compensation Program (the “Program”) shall be determined in accordance with the governing provisions of the Program.

8.    Employee hereby agrees that neither Employee nor any person, organization, or other entity acting on Employee’s behalf will communicate or permit to be communicated, either directly or indirectly, any information regarding the financial terms of this Agreement except to Employee’s counsel, Employee’s spouse, Employee’s accountant, a prospective employer, financial institutions when needed to demonstrate Employee’s personal financial condition, or to any court involved in any action brought by either party to enforce the terms of this Agreement.

9.    Employee agrees and acknowledges that this Agreement is not and shall not be construed to be an admission of any violation of any federal, state, or local law, regulation or of any duty Progressive owed Employee and that the execution of this Agreement is a voluntary act to provide conclusion to Employee’s employment relationship with Progressive.

10.    Employee agrees that Employee will maintain the confidentiality of confidential information which Employee has received by virtue of Employee’s employment with Progressive and will

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refrain from using such information or disclosing it to anyone other than Progressive or its employees. For purposes of this Agreement, confidential information is information which Progressive endeavors to keep confidential, including, without limitation, customer lists, employee lists, rate schedules, underwriting information, the terms of contracts and policies, marketing plans, program designs, trade secrets, Progressive’s internal electronic mail distribution lists and addresses, proprietary information, and any such information provided by a third party to Progressive in confidence. Employee represents that upon Employee’s separation, Employee will return to Progressive any documents in Employee’s possession containing confidential information of Progressive or documents or other items which are the property of Progressive.

11.    Any notices or matters regarding this Agreement shall be made to Progressive’s Chief Legal Officer, Charles E. Jarrett by mail to 300 North Commons Boulevard, Mayfield Village, Ohio 44143, by facsimile transmission to (440) 395-0280 or by electronic mail to GOTOBUTTON BM_1_ Chuck_Jarrett@Progressive.com or to Employee at his home address.

12.    Employee has read and understands all of the terms of this Agreement. Employee signs this Agreement in exchange for the consideration to be given to Employee. Neither Progressive nor its agents, representatives, or employees have made any representations to Employee concerning the terms or effects of this Agreement other than those contained in the Agreement. This Agreement contains the entire agreement between Employee and Progressive and supercedes all prior or contemporaneous discussions or agreements.

13.    The terms of this Separation Agreement and General Release are separate and independent and should any of them be declared invalid or unenforceable by any court, the remaining provisions and terms of this Agreement shall remain in full force and effect.

14.    This Agreement shall be governed and interpreted in accordance with the laws of the State of Ohio. Any dispute arising under the terms of this Agreement shall be resolved by binding arbitration in Cuyahoga County, Ohio in accordance with the rules of commercial arbitration of the American Arbitration Association. In any such arbitration proceeding, the tribunal may award only compensatory damages and is not empowered to award punitive or exemplary damages, but shall award reasonable attorneys’ fees to the prevailing party.

- 4 -

EMPLOYEE HAS READ AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT AND EMPLOYEE HAS BEEN ENCOURAGED TO CONSULT WITH AN ATTORNEY. EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS BEEN GIVEN A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW THIS AGREEMENT WITH AN ATTORNEY AND CONSIDER ITS EFFECT, INCLUDING EMPLOYEE’S RELEASE OF RIGHTS AND SEPARATION. EMPLOYEE ALSO ACKNOWLEDGES THAT EMPLOYEE HAS SEVEN (7) DAYS FOLLOWING EXECUTION OF THIS AGREEMENT TO REVOKE THIS AGREEMENT FOR ANY REASON AND IS HEREBY ADVISED THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF THE SEVEN (7) DAY REVOCATION PERIOD.

IN WITNESS WHEREOF, the parties have executed this Agreement this 23 day of February, 2001

CHARLES BERGEN CHOKEL
Witness
	PROGRESSIVE CASUALTY INSURANCE COMPANY
	By:
	Title:
	Witness:

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EX-10.CA

Exhibit No. 10(CA)

The Progressive Corporation
Executive Deferred Compensation Plan
Performance-Based Restricted Stock Deferral Agreement

THIS DEFERRAL AGREEMENT is entered into pursuant to the provisions of The Progressive Corporation Executive Deferred Compensation Plan (“Plan”). All capitalized terms in this Agreement shall have the meanings ascribed to them in the Plan.

1. Deferral Election. I hereby elect to defer receipt of all Performance-Based Restricted Stock Awards granted to me in 2006 under The Progressive Corporation 2003 Incentive Plan. This election shall become effective as of the date the restrictions applicable to such Awards (or portion thereof) expire and shall not apply to any Award (or portion thereof) that fails to vest free of all restrictions.

2. Method of Distribution. I hereby elect that any distribution of the balance of the Deferral Account established pursuant to this Agreement made on account of Termination of Employment be paid as follows: (Select one)

• Single Lump Sum Payment

• Three Annual Installments

• Five Annual Installments

• Ten Annual Installments

I understand that Plan distributions made for reasons other than Termination of Employment will be made in a single lump sum payment, unless the Plan provides otherwise. I understand that I may change the method of distribution elected above only if and to the extent permitted by the Plan.

3. Investment of Deferral Account. I understand that each amount credited to the Deferral Account established pursuant to this Agreement shall be deemed to be invested in The Company Stock Fund until the day it is distributed. I also understand that this deemed investment is merely a device used to determine the amount payable to me under the Plan and does not provide me with any actual rights or interests in any particular funds, securities or property of the Company, any Affiliated Company or the Trust or in any stock of The Progressive Corporation. I also understand that my right to receive distributions under the Plan makes me a general creditor of the Company with no greater right or priority than any other general creditor of the Company.

4. Miscellaneous. I understand that this Agreement is subject to the terms, conditions and limitations of the Plan, as in effect from time to time, in all respects and that, except as expressly permitted by the Plan, all elections made in this Agreement are irrevocable. I acknowledge that I have received, read and understand the Plan Description dated December, 2005 relating to the Plan. I agree to accept as final and binding all decisions and interpretations of the Committee relating to the Plan, the Trust and this Agreement.

ALSO, I UNDERSTAND THAT THE PLAN IS LIKELY TO BE AMMENDED IN SIGNIFICANT RESPECTS FOLLOWING MY EXECUTION OF THIS AGREEMENT. I AGREE TO BE BOUND BY ALL SUCH AMENDMENTS AND BY ANY CHANGES SUCH AMENDMENTS MAY REQUIRE IN THE TERMS AND CONDITIONS OF THIS AGREEMENT.

NAME OF ELIGIBLE EXECUTIVE:
EMPLOYEE ID:
DATE:

Your electronic submission of this Election Form will create a date/time stamp and serve as your signature.

EX-10.CB

Exhibit No. 10(CB)

The Progressive Corporation
Executive Deferred Compensation Plan
Time-Based Restricted Stock Deferral Agreement

THIS DEFERRAL AGREEMENT is entered into pursuant to the provisions of The Progressive Corporation Executive Deferred Compensation Plan (“Plan”). All capitalized terms in this Agreement shall have the meanings ascribed to them in the Plan.

1. Deferral Elections. I hereby elect to defer receipt of all Time-Based Restricted Stock Awards granted to me in 2006 under The Progressive Corporation 2003 Incentive Plan. This election shall become effective as of the date the restrictions applicable to such Awards (or portion thereof) expire and shall not apply to any Award (or portion thereof) that fails to vest free of all restrictions.

2. Fixed Deferral Period. (The Plan gives you the option of electing a Fixed Deferral Period. If you elect a Fixed Deferral Period, the balance of your Deferral Account established pursuant to this Agreement will be distributed to you within 30 days after the end of the Fixed Deferral Period, or, if earlier, the date you die or incur a Termination of Employment or the date a Change in Control occurs. If you do not elect a Fixed Deferral Period, your Account will be distributed within 30 days after the earlier of the date you die or incur a Termination of Employment or the date a Change in Control occurs.) However, for certain executives, distributions due to Termination of Employment will not be made until six months after the employment termination date.

Please select one of the following:

• I wish to elect a Fixed Deferral Period.

• I do not wish to elect a Fixed Deferral Period.

I elect a fixed Deferral Period ending on [    ]

(*Must be a date at least 3 years after the end of the calendar year in which the Restricted Stock Award becomes fully vested. For example, if a Time-Based Restricted Stock Award vests in three equal installments in 2009, 2010 and 2011, you must select a date at least 3 years after the end of the calendar year in which the last installment vests (in this case, no earlier then – 01/01/2015).

3. Method of Distribution. I hereby elect that any distribution of the balance of the Deferral Account established pursuant to this Agreement made on account of Termination of Employment or expiration of a Fixed Deferral Period be paid as follows: (Select one)

• Single Lump Sum payment

• Three Annual Installments

• Five Annual Installments

• Ten Annual Installments

I understand that Plan distributions made for reasons other than Termination of Employment or expiration of a Fixed Deferral Period will be made in a single lump sum payment, unless the Plan provides otherwise. I understand that I may change the method of distribution elected above only if and to the extent permitted by the Plan.

4. Investment of Deferral Account. I understand that each amount credited to the Deferral Account established pursuant to this Agreement shall be deemed to be invested in The Company Stock Fund until the day it is distributed. I also understand that this deemed investment is merely a device used to

determine the amount payable to me under the Plan and does not provide me with any actual rights or interests in any particular funds, securities or property of the Company, any Affiliated Company or the Trust or in any stock of The Progressive Corporation. I also understand that my right to receive distributions under the Plan makes me a general creditor of the Company with no greater right or priority than any other general creditor of the Company.

5. Miscellaneous. I understand that this Agreement is subject to the terms, conditions and limitations of the Plan, as in effect from time to time, in all respects and that, except as expressly permitted by the Plan, all elections made in this Agreement are irrevocable. I acknowledge that I have received, read and understand the Plan Description dated December, 2005 relating to the Plan. I agree to accept as final and binding all decisions and interpretations of the Committee relating to the Plan, the Trust and this Agreement.

ALSO, I UNDERSTAND THAT THE PLAN IS LIKELY TO BE AMENDED IN SIGNIFICANT RESPECTS FOLLOWING MY EXECUTION OF THIS AGREEMENT. I AGREE TO BE BOUND BY ALL SUCH AMENDMENTS AND BY ANY CHANGES SUCH AMENDMENTS MAY REQUIRE IN THE TERMS AND CONDITIONS OF THIS AGREEMENT.

NAME OF ELIGIBLE EXECUTIVE:
EMPLOYEE ID:
DATE:

Your electronic submission of this Election Form will create a date/time stamp and serve as your signature.

EX-10.CC

Exhibit No. 10(CC)

THE PROGRESSIVE CORPORATION

NOTICE OF ELECTION
UNDER
DIRECTORS DEFERRAL PLAN

NAME:                                                                                            DATE:                                           , 2005

I hereby make the following election with respect to Director Fees otherwise payable to me during 2006 and thereafter until I advise you otherwise:

MEETING AND SERVICE FEES:

The following portion of my Meeting and Service Fees¹ are to be deferred under the Plan: (check/complete one)

[ ]	All of such amounts
[ ]	The following portion of such amounts:                                         %
[ ]	The first $                                        of such amounts each year
[ ]	Amounts in excess of $                                        each year

Such Fees shall be deferred into a stock or cash account (as indicated below) and paid to me as follows: (check and complete one)

[ ] In a lump sum on the following date:                             .²

or

[ ]	In equal installments payable
	[ ] Quarterly
	[ ] Semiannually
	[ ] Annually

1	Meeting and Service Fees include all fees which are to be paid to me for attendance at meetings of the Board or its Committees, or for attendance at meetings of the Company’s senior management or other Board-related services for which compensation is to be awarded, as determined in the sole discretion of the CEO.
2	Date indicated may not be earlier than six months and one day after such fees are credited to your account.

- 1 -

     Beginning                                         ² and ending                                                             (Not over ten (10) years later) and until distributed are to be invested: (check and complete one)

                      [ ] in the stock account
                      [ ] in the cash account
                      [ ]                     % in the stock account and                      % in the cash account.

RETAINER FEES:

     All amounts hereafter payable to me without regard to my attendance at meetings are to be deferred, invested in the stock account and paid to me (complete one):

                [ ] in a lump sum on the following date:                                                              .³

or

                [ ] in equal installments payable:

                     [ ] Quarterly
                     [ ] Semiannually
                     [ ] Annually

     Beginning                                          ³ and ending                                          (not over ten (10) years later). In the event of my death prior to distribution of all deferred amounts, my account balance(s) should be paid (check one)

                [ ] in a lump sum payment six months after my death

or

                [ ] in a single distribution or in installments, as provided above to the following person, personal representative or entity:

     I understand that all payments of deferred Meeting, Service and Retainer Fees will be made as soon as administratively practicable following the dates I have specified above.

³ May not be earlier than the later of (a) the date which is six months and one day after the date such fees are credited to a stock account or (b) the date of expiration of the term with respect to which the fees are payable.

- 2 -

     I hereby acknowledge that my interests in the Directors Deferral Plan represented by Meeting, Service and Retainer Fees held in accounts for my benefit (the “Interests”) may be deemed securities under the federal securities laws. I hereby represent and warrant as follows:

1.	I am aware that the Interests hereby acquired have not been registered under the Securities Act of 1933, as amended (“1933 Act”), nor have they been registered under any state securities law.
2.	I am acquiring the Interests solely for my own account, for investment, and not with a view to or for any distribution, resale, subdivision, or fractionalization thereof in connection with any distribution of securities within the meaning of the 1933 Act. I am not acquiring the Interests for the benefit of any other person.
3.	I understand and agree that the Interests may not be offered for sale, sold, transferred, pledged, assigned or otherwise disposed of by me under the terms of the Plan.

(signature)

- 3 -

EX-11

Exhibit No. 11

THE PROGRESSIVE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(millions — except per share amounts)

Years Ended December 31,	2005				2004				2003
			Per				Per				Per
	Amount		Share		Amount		Share		Amount		Share
Basic:
Net income	$	1,393.9	$	7.08	$	1,648.7	$	7.74	$	1,255.4	$	5.79
Average shares outstanding		196.9				212.9				216.8
Diluted:
Net income	$	1,393.9	$	6.98	$	1,648.7	$	7.63	$	1,255.4	$	5.69
Average shares outstanding		196.9				212.9				216.8
Net effect of dilutive stock-based compensation		2.9				3.3				3.7
Total		199.8				216.2				220.5

EX-12

Exhibit No. 12

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

	Years Ended December 31,
	2005			2004			2003			2002			2001
Income before income taxes	$	2,058.9		$	2,450.8		$	1,859.7		$	981.4		$	587.6
Fixed Charges:
Interest and amortization on indebtedness		83.9			84.7			97.0			75.1			53.4
Portion of rents representative of the interest factor		17.5			8.9			7.5			5.6			7.4
Total fixed charges		101.4			93.6			104.5			80.7			60.8
Interest capitalized, net of amortized interest		(.7	)		(3.6	)		(1.2	)		(.1	)		(.7	)
Total income available for fixed charges	$	2,159.6		$	2,540.8		$	1,963.0		$	1,062.0		$	647.7
Ratio of earnings to fixed charges		21.3			27.1			18.8			13.2			10.7

EX-13

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Appendix A

{2005 Annual Report to Shareholders}

APP.-A-1

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Consolidated Statements of Income}

(millions-except per share amounts)
For the years ended December 31,	2005			2004		2003
REVENUES
Net premiums earned	$	13,764.4		$	13,169.9	$	11,341.0
Investment income		536.7			484.4		465.3
Net realized gains (losses) on securities		(37.9	)		79.3		12.7
Service revenues		40.2			48.5		41.8
Other income1		—			—		31.2
Total revenues		14,303.4			13,782.1		11,892.0
EXPENSES
Losses and loss adjustment expenses		9,364.8			8,555.0		7,640.4
Policy acquisition costs		1,448.2			1,418.0		1,249.1
Other underwriting expenses		1,312.2			1,238.6		1,010.1
Investment expenses		12.1			13.9		11.5
Service expenses		24.6			25.0		25.7
Interest expense		82.6			80.8		95.5
Total expenses		12,244.5			11,331.3		10,032.3
NET INCOME
Income before income taxes		2,058.9			2,450.8		1,859.7
Provision for income taxes		665.0			802.1		604.3
Net income	$	1,393.9		$	1,648.7	$	1,255.4
COMPUTATION OF EARNINGS PER SHARE
Basic:
Average shares outstanding		196.9			212.9		216.8
Per share	$	7.08		$	7.74	$	5.79
Diluted:
Average shares outstanding		196.9			212.9		216.8
Net effect of dilutive stock-based compensation		2.9			3.3		3.7
Total equivalent shares		199.8			216.2		220.5
Per share	$	6.98		$	7.63	$	5.69

¹ See Note 3—Income Taxes for discussion.

See notes to consolidated financial statements.

APP.-A-2

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Consolidated Balance Sheets}

(millions)
December 31,	2005			2004
ASSETS
Investments—Available-for-sale, at market:
Fixed maturities (amortized cost: $10,260.7 and $8,972.6)	$	10,221.9		$	9,084.3
Equity securities:
Preferred stocks (cost: $1,217.0 and $749.4)		1,220.3			768.9
Common equities (cost: $1,423.4 and $1,314.0)		2,058.9			1,851.9
Short-term investments (amortized cost: $773.5 and $1,376.6)		773.6			1,376.9
Total investments		14,274.7			13,082.0
Cash		5.6			20.0
Accrued investment income		133.1			103.5
Premiums receivable, net of allowance for doubtful accounts of $116.3 and $83.8		2,500.7			2,287.2
Reinsurance recoverables, including $58.5 and $44.5 on paid losses		405.7			381.6
Prepaid reinsurance premiums		103.7			119.8
Deferred acquisition costs		444.8			432.2
Income taxes		138.3			—
Property and equipment, net of accumulated depreciation of $562.0 and $562.1		758.7			666.5
Other assets		133.3			91.5
Total assets	$	18,898.6		$	17,184.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unearned premiums	$	4,335.1		$	4,108.0
Loss and loss adjustment expense reserves		5,660.3			5,285.6
Accounts payable, accrued expenses and other liabilities		1,510.8			1,325.0
Income taxes		—			26.0
Debt1		1,284.9			1,284.3
Total liabilities		12,791.1			12,028.9
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 600.0; issued 213.1 and 213.2, including treasury shares of 15.8 and 12.8)		197.3			200.4
Paid-in capital		848.2			743.3
Unamortized restricted stock		(62.7	)		(46.0	)
Accumulated other comprehensive income:
Net unrealized gains on securities		390.1			435.1
Net unrealized gains on forecasted transactions		8.6			9.7
Retained earnings		4,726.0			3,812.9
Total shareholders’ equity		6,107.5			5,155.4
Total liabilities and shareholders’ equity	$	18,898.6		$	17,184.3

¹ Includes current and non-current debt. See Note 4—Debt for discussion.

See notes to consolidated financial statements.

APP.-A-3

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Consolidated Statements of Changes in Shareholders’ Equity}

(millions—except per share amounts)
For the years ended December 31,	2005						2004						2003
RETAINED EARNINGS
Balance, Beginning of year	$	3,812.9					$	3,729.8					$	2,796.0
Net income		1,393.9		$	1,393.9			1,648.7		$	1,648.7			1,255.4		$	1,255.4
Cash dividends on Common Shares ($.12, $.11 and $.10 per share)		(23.7	)					(23.3	)					(21.7	)
Treasury shares purchased1		(457.0	)					(1,542.4	)					(297.5	)
Other, net		(.1	)					.1						(2.4	)
Balance, End of year	$	4,726.0					$	3,812.9					$	3,729.8
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Balance, Beginning of year	$	444.8					$	425.0					$	169.3
Changes in:
Net unrealized gains on securities					(45.0	)					16.9						255.8
Net unrealized gains on forecasted transactions					(1.1	)					(1.0	)					(1.0	)
Foreign currency translation adjustment					—						3.9						.9
Other comprehensive income		(46.1	)		(46.1	)		19.8			19.8			255.7			255.7
Balance, End of year	$	398.7					$	444.8					$	425.0
Comprehensive Income				$	1,347.8					$	1,668.5					$	1,511.1
COMMON SHARES, $1.00 PAR VALUE
Balance, Beginning of year	$	200.4					$	216.4					$	218.0
Stock options exercised		1.6						2.1						2.8
Treasury shares purchased1		(5.2	)					(18.6	)					(5.0	)
Restricted stock issued, net of forfeitures		.5						.5						.6
Balance, End of year	$	197.3					$	200.4					$	216.4
PAID-IN CAPITAL
Balance, Beginning of year	$	743.3					$	688.3					$	584.7
Stock options exercised		42.6						49.6						47.2
Tax benefits from exercise/vesting of stock-based compensation		41.2						44.3						44.0
Treasury shares purchased1		(20.6	)					(67.5	)					(14.3	)
Restricted stock issued, net of forfeitures		41.7						27.3						26.7
Other		—						1.3						—
Balance, End of year	$	848.2					$	743.3					$	688.3
UNAMORTIZED RESTRICTED STOCK
Balance, Beginning of year	$	(46.0	)				$	(28.9	)				$	—
Restricted stock issued, net of forfeitures		(42.2	)					(40.6	)					(37.3	)
Restricted stock market value adjustment		(8.2	)					(.3	)					(2.6	)
Amortization of restricted stock		33.7						23.8						11.0
Balance, End of year	$	(62.7	)				$	(46.0	)				$	(28.9	)
Total Shareholders’ Equity	$	6,107.5					$	5,155.4					$	5,030.6

1	Includes 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.
	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.-A-4

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Consolidated Statements of Cash Flows}

(millions)
For the years ended December 31,	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,393.9		$	1,648.7		$	1,255.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		92.4			99.4			89.3
Amortization of fixed maturities		189.6			168.9			103.2
Amortization of restricted stock		33.7			23.8			11.0
Net realized (gains) losses on securities		37.9			(79.3	)		(12.7	)
Changes in:
Unearned premiums		227.1			213.3			590.4
Loss and loss adjustment expense reserves		374.7			709.3			763.3
Accounts payable, accrued expenses and other liabilities		49.5			70.2			124.5
Prepaid reinsurance premiums		16.1			(5.1	)		(18.0	)
Reinsurance recoverables		(24.1	)		(110.3	)		(55.6	)
Premiums receivable		(213.5	)		(207.6	)		(336.8	)
Deferred acquisition costs		(12.6	)		(19.9	)		(48.8	)
Income taxes		(140.0	)		98.5			(.1	)
Tax benefits from exercise/vesting of stock-based compensation		41.2			44.3			44.0
Other, net		(71.9	)		8.3			(72.2	)
Net cash provided by operating activities		1,994.0			2,662.5			2,436.9
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases:
Fixed maturities		(9,154.4	)		(6,686.3	)		(9,491.6	)
Equity securities		(852.9	)		(678.3	)		(771.2	)
Short-term investments — auction rate securities		(7,935.3	)		(6,890.1	)		(4,044.4	)
Sales:
Fixed maturities		7,068.6			5,885.7			7,189.3
Equity securities		152.3			876.3			337.8
Short-term investments — auction rate securities		8,053.4			6,552.4			3,907.6
Maturities, paydowns, calls and other:
Fixed maturities		572.6			639.7			779.2
Equity securities		114.4			78.2			91.7
Net sales (purchases) of short-term investments — other		491.8			(390.9	)		56.6
Net unsettled security transactions		126.6			(43.2	)		(37.1	)
Purchases of property and equipment		(219.3	)		(192.0	)		(171.1	)
Sale of property and equipment		36.1			—			—
Net cash used in investing activities		(1,546.1	)		(848.5	)		(2,153.2	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options		44.2			51.7			50.0
Payments of debt		—			(206.0	)		—
Dividends paid to shareholders		(23.7	)		(23.3	)		(21.7	)
Acquisition of treasury shares		(482.8	)		(1,628.5	)		(316.8	)
Net cash used in financing activities		(462.3	)		(1,806.1	)		(288.5	)
Increase (decrease) in cash		(14.4	)		7.9			(4.8	)
Cash, Beginning of year		20.0			12.1			16.9
Cash, End of year	$	5.6		$	20.0		$	12.1

See notes to consolidated financial statements.

APP.-A-5

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Notes to Consolidated Financial Statements}

December 31, 2005, 2004 and 2003

1) REPORTING AND ACCOUNTING POLICIES

Nature of Operations The Progressive Corporation, an insurance holding company formed in 1965, owned 71 subsidiaries and had 1 mutual insurance company affiliate (collectively, the “Company”) as of December 31, 2005. The insurance companies 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 recreational vehicles through both an independent insurance agency channel and a direct channel. The Company’s Commercial Auto segment writes primary liability and physical damage 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). As estimates develop into fact (e.g., losses are paid), results may, and will likely, differ from those estimates.

Investments The Company’s fixed-maturity, equity securities and short-term investments are accounted for on an available-for-sale basis.

     Fixed-maturity securities are debt securities and mandatory redeemable preferred stocks, 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 as required by the current accounting regulations.

     Equity securities include common stocks, nonredeemable preferred stocks and other risk investments 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 2005 or 2004.

     Short-term investments include auction rate securities (i.e., municipal bonds and preferred stocks). Due to the nature of auction rate securities, these securities are classified as short-term based upon their expected auction date (generally 7-49 days) rather than on their contractual obligation (which are greater than one year at original issuance). In addition to auction rate securities, short-term investments include Eurodollar deposits, commercial paper and other securities expected to mature within one year. Changes in market values of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

     The Company did not hold any trading securities at December 31, 2005 or 2004. Trading securities are securities bought principally for the purpose of sale in the near term. To the extent the Company has trading securities, changes in market value would be recognized in income in the current period. Derivative instruments which may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction are discussed below.

     Derivative instruments may include futures, options, forward positions, foreign currency forwards, interest rate swap agreements and credit default swaps 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).

The Company had no fair value or foreign currency hedges or derivative instruments held or issued for risk management purposes at December 31, 2005 or 2004. To the extent the Company holds 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. These derivative instruments would be recognized as either assets or liabilities and

APP.-A-6

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.

     The Company held no derivatives classified as cash flow hedges at December 31, 2005 or 2004. 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 by the Company as derivatives used for risk management purposes.

     At December 31, 2005, the Company held three Credit Default Swaps (CDS) classified as trading derivatives. The Company matched the notional value of these positions with Treasury securities with an equivalent principal and maturity to replicate a long cash bond position. Changes in the fair value of the CDS and the Treasury notes were recognized in income in the current period. The Company held other CDS during 2004, which were all closed prior to December 31, 2004.

     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 a fair value hedge becomes ineffective, the derivative instrument would continue to be adjusted through income while the adjustment in the change in value of the hedged item would no longer be recognized in income during the current period, but rather would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income within shareholders’ equity.

     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.

     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 decreases not determined to be other-than-temporarily impaired, as well as increases in the market value of securities written down, are reflected as changes in unrealized gains (losses) 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 3 to 10 years for all other property and equipment. Property and equipment include capitalized software developed or acquired for internal use. Land and buildings comprised 77% and 75% of total property and equipment at December 31, 2005 and 2004, respectively.

     Total interest capitalized was $1.3 million, $3.9 million and $1.5 million in 2005, 2004 and 2003, respectively, relating to both the Company’s construction projects and capitalized computer software costs.

Insurance Premiums and Receivables Insurance premiums written are earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Accordingly, unearned premiums represent the portion of premiums written that is applicable to the unexpired risk. 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, 2005, 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.-A-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 are susceptible to change in the near term.

Reinsurance The Company’s reinsurance transactions primarily 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 a portion of the premiums in its non-auto programs to limit its exposure in those particular markets. Prepaid reinsurance premiums are earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written. The Company’s primary line of business, auto insurance, is written at relatively low limits of liability; as such, the Company does not believe that it needs to mitigate this risk through voluntary reinsurance.

Earnings Per Share Basic earnings per share are computed using the weighted average number of Common Shares outstanding, excluding both time-based and performance-based unvested restricted stock awards. Diluted earnings per share include common stock equivalents assumed outstanding during the period. The Company’s common stock equivalents include stock options and time-based restricted stock awards accounted for as equity 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 any direct-response 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 based 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, 2004 and 2005; however, compensation expense would have been recognized if the fair value based 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.

     The following table shows the effects on net income and earnings per share had the fair value based 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.-A-8

(millions, except per share amounts)	2005			2004			2003
Net income, as reported	$	1,393.9		$	1,648.7		$	1,255.4
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all stock option awards, net of related tax effects		(2.6	)		(6.3	)		(12.8	)
Net income, pro forma	$	1,391.3		$	1,642.4		$	1,242.6
Earnings per share
Basic — as reported	$	7.08		$	7.74		$	5.79
Basic — pro forma		7.07			7.71			5.73
Diluted — as reported	$	6.98		$	7.63		$	5.69
Diluted — pro forma		6.97			7.62			5.65

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.

     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.

Supplemental Cash Flow Information Cash includes only bank demand deposits. The Company paid income taxes of $767.0 million, $709.0 million and $579.0 million in 2005, 2004 and 2003, respectively. Total interest paid was $85.0 million during 2005, $91.7 million during 2004 and $99.0 million during 2003. Non-cash activity includes the liability for deferred restricted stock compensation and the changes in net unrealized gains (losses) on investment securities.

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 adopted this statement using the modified prospective application on January 1, 2006. The Company estimates that the effect of adopting this standard on net income will be a reduction of approximately $.9 million in 2006. The Company will not incur any additional expense relating to currently outstanding stock options in years subsequent to 2006, since the final vesting date of stock options previously granted will be January 1, 2007. The Company does not currently intend to issue additional stock options.

     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 Consolidated Statements of Cash Flows were reclassified for 2004 and 2003 to comply with the presentation requirements under SFAS 95, “Statement of Cash Flows,” and SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.”

APP.-A-9

2) INVESTMENTS

The composition of the investment portfolio at December 31 was:

(millions)			Gross		Gross					% of
			Unrealized		Unrealized			Market		Total
	Cost		Gains		Losses			Value		Portfolio
2005
Fixed maturities:
U.S. government obligations	$	2,249.0	$	7.3	$	(11.0	)	$	2,245.3		15.7	%
State and local government obligations		3,637.7		29.6		(31.4	)		3,635.9		25.5
Foreign government obligations		30.3		.2		(.2	)		30.3		.2
Corporate and U.S. agency debt securities		1,837.6		6.7		(31.7	)		1,812.6		12.7
Asset-backed securities		2,386.6		17.9		(28.5	)		2,376.0		16.6
Redeemable preferred stock		119.5		3.1		(.8	)		121.8		.9
Total fixed maturities		10,260.7		64.8		(103.6	)		10,221.9		71.6
Short-term investments:
Auction rate municipal obligations		280.2		—		—			280.2		2.0
Auction rate preferred stocks		105.0		.2		(.1	)		105.1		.7
Other short-term investments		388.3		—		—			388.3		2.7
Total short-term investments		773.5		.2		(.1	)		773.6		5.4
Preferred stocks		1,217.0		17.0		(13.7	)		1,220.3		8.6
Common equities		1,423.4		650.3		(14.8	)		2,058.9		14.4
	$	13,674.6	$	732.3	$	(132.2	)	$	14,274.7		100.0	%
2004
Fixed maturities:
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
Total fixed maturities		8,972.6		152.6		(40.9	)		9,084.3		69.4
Short-term investments:
Auction rate municipal obligations		262.4		—		—			262.4		2.0
Auction rate preferred stocks		240.9		.3		—			241.2		1.8
Other short-term investments		873.3		—		—			873.3		6.7
Total short-term investments		1,376.6		.3		—			1,376.9		10.5
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
	$	12,412.6	$	719.2	$	(49.8	)	$	13,082.0		100.0	%

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

At December 31, 2005, bonds in the principal amount of $122.1 million were on deposit to meet state insurance regulatory and/or rating agency requirements. The Company did not have any securities of any one issuer with an aggregate cost or market value exceeding ten percent of total shareholders’ equity at December 31, 2005 or 2004.

APP.-A-10

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

(millions)	2005			2004			2003
Fixed maturities	$	399.0		$	374.6		$	369.5
Preferred stocks		61.5			49.3			53.0
Common equities		37.2			41.2			31.1
Short-term investments:
Auction rate municipal obligations		5.4			1.8			.2
Auction rate preferred stocks		6.8			4.2			—
Other short-term investments		26.8			13.3			11.5
Investment income		536.7			484.4			465.3
Investment expenses		(12.1	)		(13.9	)		(11.5	)
Net investment income	$	524.6		$	470.5		$	453.8

At December 31, 2005, the Company had $5.6 million of fixed maturities that were non-income producing during the preceding 12 months.

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

(millions)	2005			2004			2003
Gross realized gains:
Fixed maturities	$	47.4		$	105.5		$	108.4
Preferred stocks		—			7.9			7.4
Common equities		15.6			56.1			19.0
Short-term investments:
Auction rate municipal obligations		.1			.1			.1
Auction rate preferred stocks		—			—			—
Other short-term investments		—			—			—
		63.1			169.6			134.9
Gross realized losses:
Fixed maturities		(76.2	)		(23.8	)		(40.5	)
Preferred stocks		(2.3	)		(9.7	)		(4.1	)
Common equities		(22.5	)		(56.6	)		(77.6	)
Short-term investments:
Auction rate municipal obligations		—			—			—
Auction rate preferred stocks		—			(.2	)		—
Other short-term investments		—			—			—
		(101.0	)		(90.3	)		(122.2	)
Net realized gains (losses) on securities:
Fixed maturities		(28.8	)		81.7			67.9
Preferred stocks		(2.3	)		(1.8	)		3.3
Common equities		(6.9	)		(.5	)		(58.6	)
Short-term investments:
Auction rate municipal obligations		.1			.1			.1
Auction rate preferred stocks		—			(.2	)		—
Other short-term investments		—			—			—
	$	(37.9	)	$	79.3		$	12.7
Per share	$	(.12	)	$	.24		$	.04

For 2005, 2004 and 2003, net realized gains (losses) on securities include $16.4 million, $7.8 million and $50.3 million, respectively, of write-downs in securities determined to have an other-than-temporary decline in market value for securities held at December 31.

APP.-A-11

The components of gross unrealized losses at December 31, 2005 and 2004 were:

			Unrealized Losses
	Total
	Market					Less than			12 months
(millions)	Value		Total			12 Months			or greater 1
2005
Fixed maturities	$	6,395.1	$	(103.6	)	$	(44.2	)	$	(59.4	)
Preferred stocks		579.8		(13.7	)		(6.1	)		(7.6	)
Common equities		198.3		(14.8	)		(14.6	)		(.2	)
Short-term investments		50.0		(.1	)		(.1	)		—
	$	7,223.2	$	(132.2	)	$	(65.0	)	$	(67.2	)
2004
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	)

¹ The market value for securities in an unrealized loss position for 12 months or greater was $2,610.0 million at December 31, 2005 and $547.3 million at December 31, 2004.

None of the securities presented 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 was to change and these securities were determined to be other-than-temporarily impaired, the Company would recognize a write-down in accordance with its stated policy.

     At December 31, 2005 and 2004, the Company did not hold any trading securities. Net realized gains (losses) on trading securities for the years ended December 31, 2005, 2004 and 2003 were $0, $0 and $.1 million, 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.

     Derivative instruments may be used for trading purposes or classified as trading derivatives due to characteristics of the transaction. During 2005, the Company held three CDS, which were sold on three separate issuers and matched with Treasury securities with an equivalent principal and maturity to replicate cash bond positions. These positions had a notional amount of $90.0 million at December 31, 2005. The Company held similar investments in 2004, all of which were closed during the third quarter 2004. For 2005, the combined positions generated a net gain (loss) of $(7.6) million, compared to $(1.4) million and $4.9 million for 2004 and 2003, respectively. The amount and results of the derivative and Treasury positions are immaterial to the Company’s financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gains (losses) reported as a component of net realized gains (losses) on securities.

APP.-A-12

The composition of fixed maturities by maturity at December 31, 2005, was:

			Market
(millions)	Cost		Value
Less than one year	$	1,218.2	$	1,211.5
One to five years		5,629.3		5,586.8
Five to ten years		3,385.1		3,392.5
Ten years or greater		28.1		31.1
		10,260.7		10,221.9
Auction rate municipal obligations		280.2		280.2
	$	10,540.9	$	10,502.1

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

     Auction rate municipal obligations generally have contractual maturities of 10 years or more at original issuance. The securities have interest reset periods of up to 7 days, which allow for early liquidation.

3) INCOME TAXES

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

(millions)	2005			2004		2003
Current tax provision	$	696.7		$	794.0	$	543.6
Deferred tax expense (benefit)		(31.7	)		8.1		60.7
Total income tax provision	$	665.0		$	802.1	$	604.3

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

(millions)	2005					2004					2003
Income before income taxes	$	2,058.9				$	2,450.8				$	1,859.7
Tax at statutory rate	$	720.6		35	%	$	857.8		35	%	$	650.9		35	%
Tax effect of:
Exempt interest income		(34.8	)	(2	)		(29.8	)	(1	)		(26.9	)	(1	)
Dividends received deduction		(22.2	)	(1	)		(19.1	)	(1	)		(16.6	)	(1	)
Other items, net		1.4		—			(6.8	)	—			(3.1	)	—
Total income tax provision	$	665.0		32	%	$	802.1		33	%	$	604.3		33	%

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 in 2004.

APP.-A-13

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, 2005 and 2004, the components of the net deferred tax assets were as follows:

(millions)	2005			2004
Deferred tax assets:
Unearned premiums reserve	$	299.5		$	282.4
Non-deductible accruals		129.0			100.7
Loss reserves		128.8			123.4
Write-downs on securities		16.4			12.7
Other		4.6			2.2
Deferred tax liabilities:
Deferred acquisition costs		(155.7	)		(151.3	)
Net unrealized gains on securities		(210.0	)		(234.3	)
Hedges on forecasted transactions		(4.6	)		(5.3	)
Depreciable assets		(52.0	)		(35.4	)
Other		(19.1	)		(14.9	)
Net deferred tax assets		136.9			80.2
Net income taxes (payable) recoverable		1.4			(106.2	)
Income taxes	$	138.3		$	(26.0	)

4) DEBT

Debt at December 31 consisted of:

	2005				2004
			Market				Market
(millions)	Cost		Value		Cost		Value
7.30% Notes due 2006 (issued: $100.0, May 1996)	$	100.0	$	101.0	$	99.9	$	105.2
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)		348.0		372.7		347.7		384.6
7% Notes due 2013 (issued: $150.0, October 1993)		149.0		166.6		148.9		171.1
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		294.2		331.5		294.1		324.2
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		393.7		424.1		393.7		417.0
	$	1,284.9	$	1,395.9	$	1,284.3	$	1,402.1

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 or credit rating triggers.

     The 6.375% Senior Notes, the 6 5/8% Senior Notes and the 6.25% 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, unrealized gains (losses) of $18.4 million, $(4.2) million and $5.1 million associated with the 6.375% Senior Notes, the 6 5/8% Senior Notes and the 6.25% Senior Notes, respectively. The gains (losses) on these hedges are recognized as adjustments to interest expense and are amortized over the life of the related debt issuances.

     In December 2005, the Company entered into an uncommitted line of credit with National City Bank in the principal amount of $125 million, replacing a prior credit facility with National City Bank for $100 million, which had the same material terms. 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 these arrangements at December 31, 2005 or 2004.

     In January 2004, the Company entered into a revolving credit arrangement with National City Bank. 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. In January 2005,

APP.-A-14

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 uncommitted line of credit with National City Bank, as discussed above.

     Aggregate principal payments on debt outstanding at December 31, 2005, are $100.0 million for 2006, $0 for 2007, 2008, 2009 and 2010 and $1.2 billion thereafter.

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)	2005			2004			2003
Balance at January 1	$	5,285.6		$	4,576.3		$	3,813.0
Less reinsurance recoverables on unpaid losses		337.1			229.9			180.9
Net balance at January 1		4,948.5			4,346.4			3,632.1
Incurred related to:
Current year		9,720.7			8,664.1			7,696.5
Prior years		(355.9	)		(109.1	)		(56.1	)
Total incurred		9,364.8			8,555.0			7,640.4
Paid related to:
Current year		6,644.7			5,719.2			5,065.4
Prior years		2,355.5			2,233.7			1,860.7
Total paid		9,000.2			7,952.9			6,926.1
Net balance at December 31		5,313.1			4,948.5			4,346.4
Plus reinsurance recoverables on unpaid losses		347.2			337.1			229.9
Balance at December 31	$	5,660.3		$	5,285.6		$	4,576.3

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 2005, 2004 and 2003. Total development consists of net changes made by the Company’s actuarial department to both current and prior accident year reserves, based on regularly scheduled reviews, claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates by claim representatives. The continued recognition of more modest increases in loss severity for prior accident years, than had been previously estimated, contributed to the Company’s favorable prior year reserve development in both 2005 and 2004. 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 such exposures, in amounts which it believes to be adequate based on information currently known. These claims will not 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 hurricanes or other 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, based on historical performance, such an event would not be so material as to disrupt the overall normal operations of the Company. The Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

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 Company’s ceded premiums are primarily attributable to premiums written under state-mandated involuntary Commercial Auto Insurance Procedures/Plans (CAIP) and premiums ceded to state-provided reinsurance facilities, for which the Company retains no loss indemnity risk.

APP.-A-15

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

	2005						2004						2003
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	14,293.4		$	14,066.2		$	13,694.1		$	13,480.8		$	12,187.9		$	11,597.5
Ceded		(285.8	)		(301.8	)		(316.0	)		(310.9	)		(274.5	)		(256.5	)
Net premiums	$	14,007.6		$	13,764.4		$	13,378.1		$	13,169.9		$	11,913.4		$	11,341.0

At December 31, 2005, 53% of the “prepaid reinsurance premiums” were comprised of CAIP, compared to 58% at December 31, 2004. As of December 31, 2005 and 2004, approximately 45% of the “reinsurance recoverables” were comprised of CAIP. Reinsurance related to state-mandated and non-auto programs comprised the remainder of the “prepaid reinsurance premiums” and “reinsurance recoverables.”

      Losses and loss adjustment expenses are net of reinsurance ceded of $197.9 million in 2005, $271.9 million in 2004 and $185.8 million in 2003.

7) STATUTORY FINANCIAL INFORMATION

At December 31, 2005, $505.7 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 2005, the insurance subsidiaries paid aggregate cash dividends of $1,614.7 million to the parent company. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $1,092.1 million in 2006 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 $4,663.3 million and $4,671.8 million at December 31, 2005 and 2004, respectively. Statutory net income was $1,386.6 million, $1,659.4 million and $1,260.5 million for the years ended December 31, 2005, 2004 and 2003, 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 $19.5 million in 2005, $17.2 million in 2004 and $15.4 million in 2003.

     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 $26.8 million in 2005, $23.4 million in 2004 and $19.9 million in 2003.

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 $21.0 million at December 31, 2005, compared to $15.5 million in 2004.

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.-A-16

Incentive Compensation Plans The Company’s incentive compensation includes both cash and stock-based plans. The cash incentive compensation includes a cash bonus program for a limited number of senior executives and gainsharing programs for other employees; the bases of these programs are similar in nature. The other stock-based incentive compensation includes time-based and performance-based restricted stock awards granted to key members of management and the non-employee directors. Prior to 2003, the Company granted non-qualified stock options as stock-based incentive compensation (see below). The amounts charged to income for the incentive compensation plans for the years ended December 31 were:

(millions)	2005		2004		2003
Cash	$	235.9	$	260.7	$	233.5
Stock-based (restricted stock awards)		33.7		23.8		11.0

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

     Beginning in 2003, the Company began issuing restricted stock awards in lieu of stock options. The restricted stock awards are 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 vesting 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 their respective vesting periods based on the market value of the awards at the time of grant. For restricted stock awards granted in 2003 and 2004, which were deferred pursuant to the Company’s deferred compensation plan (see below), the Company records expense on a pro rata basis based on the current market value of Common Shares 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 and, under the then applicable accounting guidance, no compensation expense was recorded. Beginning in January 2006, the Company will expense the remaining unvested stock option awards under the current accounting guidance (see Note 1—Reporting and Accounting Policies for further discussion). All option exercises are settled in Common Shares.

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

	2005					2004					2003
				Weighted					Weighted					Weighted
	Number of			Average		Number of			Average		Number of			Average
Restricted Shares	Shares			Grant Price		Shares			Grant Price		Shares			Grant Price
Beginning of year		915,841		$	75.57		549,648		$	65.81		—			—
Add (deduct):
Granted		485,696			90.48		492,416			84.16		553,290		$	65.81
Vested		(682	)		73.79		(99,868	)		65.55		(655	)		65.55
Cancelled		(40,108	)		77.48		(26,355	)		70.60		(2,987	)		65.55
End of year		1,360,747		$	80.83		915,841		$	75.57		549,648		$	65.81

APP.-A-17

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

	2005					2004					2003
				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		6,589,501		$	32.04		8,725,037		$	30.43		11,947,271		$	27.44
Add (deduct):
Exercised		(1,645,316	)		26.67		(2,025,156	)		24.94		(2,826,420	)		17.47
Cancelled		(38,816	)		43.29		(110,380	)		35.42		(395,814	)		32.66
End of year		4,905,369		$	33.76		6,589,501		$	32.04		8,725,037		$	30.43
Exercisable, end of year		3,847,314		$	31.28		3,926,214		$	30.02		3,749,453		$	25.49
Available, end of year1		3,816,454					11,443,867					11,825,903

     ¹Represents shares available under the 2003 Incentive Plan, after the granting of restricted stock awards; the 1995 Incentive Plan expired in February 2005, and the remaining 7,141,717 shares thereunder are no longer available for future issuance.

The following employee stock options were outstanding or exercisable as of December 31, 2005:

			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 < 30		1,747,272	3.24 years	$	20.34		1,746,144	$	20.33
30 < 40		1,306,542	4.95 years		30.74		845,854		30.77
40 < 50		890,340	2.61 years		44.60		876,830		44.58
50 < 60		961,215	5.99 years		52.21		378,486		52.16
$15 < 60		4,905,369					3,847,314

In addition to the employee incentive plans disclosed above, the Company registered 350,000 Common Shares for issuance under 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 2005, 2004 and 2003, the Company granted 12,561, 12,242 and 16,102, respectively, shares of time-based restricted stock awards under the 2003 Directors Equity Incentive Plan; these awards vest within one year from the date of grant. As of December 31, 2005, 2004 and 2003, the directors stock options outstanding and exercisable were 218,277 shares, 242,277 shares and 311,061 shares, respectively. These awards have the same exercise and contract terms as the employee stock option awards.

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

Deferred Compensation The Company maintains The Progressive Corporation Executive Deferred Compensation Plan (Deferral Plan), that permits eligible executives to defer receipt of some or all of their annual bonuses or all of their annual restricted stock awards. Deferred cash compensation is 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 pursuant to deferred cash compensation will be paid in cash. Prior to February 2004, distributions representing cash amounts deemed invested in Common Shares were made in-kind.

     For all restricted stock awards granted on or after March 17, 2005, and deferred pursuant to the Deferral Plan, the deferred amounts will be deemed invested in Common Shares and ineligible for transfer to other investment funds in the Deferral Plan; all distributions will be made in-kind. For all awards granted prior to March 17, 2005, the deferred amounts are eligible to be transferred to all funds in the Deferral Plan; distributions of these deferred awards will be made in cash.

     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, 2005 and 2004, the trust held assets of $75.4 million and $59.3 million, respectively, of which $17.2 million and $12.4 million were held in the Company’s Common Shares, to cover its liabilities.

APP.-A-18

9) SEGMENT INFORMATION

The Company writes personal automobile and other specialty property-casualty insurance and provides related services throughout the United States. The Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles. The Personal Lines segment includes both the Drive and Direct channels. The Drive 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 Direct channel includes business written through 1-800-PROGRESSIVE and online at progressivedirect.com.

     The Company’s Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses and is primarily distributed through the independent agency channel.

     The Company’s other-indemnity businesses primarily include writing professional liability insurance for community banks and managing the Company’s run-off businesses.

     The Company’s service businesses include 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 profit (loss) for the Personal Lines, Commercial Auto and other-indemnity businesses and pretax profit (loss) for the service businesses. Underwriting profit (loss) is calculated as net premiums earned less loss and loss adjustment expenses, policy acquisition costs and other underwriting expenses. Service business profit (loss) is the difference between service business revenues and service business expenses. Expense allocations are based on certain assumptions and estimates related to revenue; 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 $92.4 million in 2005, $99.4 million in 2004 and $89.3 million in 2003. 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:

	2005					2004					2003
			Pretax					Pretax					Pretax
(millions)	Revenues		Profit (Loss)			Revenues		Profit (Loss)			Revenues		Profit (Loss)
Personal Lines
Drive	$	7,993.1	$	857.6		$	7,893.7	$	1,108.2		$	6,948.0	$	836.0
Direct		4,076.2		475.7			3,718.2		525.6			3,103.0		383.0
Total Personal Lines1		12,069.3		1,333.3			11,611.9		1,633.8			10,051.0		1,219.0
Commercial Auto		1,667.8		298.0			1,524.1		321.4			1,226.7		214.2
Other—indemnity		27.3		7.9			33.9		3.1			63.3		8.2
Total underwriting operations		13,764.4		1,639.2			13,169.9		1,958.3			11,341.0		1,441.4
Service businesses		40.2		15.6			48.5		23.5			41.8		16.1
Investments2		498.8		486.7			563.7		549.8			478.0		466.5
Interest expense		—		(82.6	)		—		(80.8	)		—		(95.5	)
Other income3		—		—			—		—			31.2		31.2
	$	14,303.4	$	2,058.9		$	13,782.1	$	2,450.8		$	11,892.0	$	1,859.7

1	Personal automobile insurance accounted for 92% of the total Personal Lines segment net premiums earned in 2005 and 93% in both 2004 and 2003; recreational vehicles accounted for the balance of the Personal Lines net premiums earned.
2	Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses.
3	Represents interest income related to an income tax refund the Company received in 2004. See Note 3—Income Taxes for further discussion.

APP.-A-19

The Company’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. The underwriting margin is the pretax underwriting 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 for the years ended December 31:

	2005					2004					2003
	Underwriting			Combined		Underwriting			Combined		Underwriting			Combined
	Margin			Ratio		Margin			Ratio		Margin			Ratio
Personal Lines
Drive		10.7	%		89.3		14.0	%		86.0		12.0	%		88.0
Direct		11.7			88.3		14.1			85.9		12.3			87.7
Total Personal Lines		11.0			89.0		14.1			85.9		12.1			87.9
Commercial Auto		17.9			82.1		21.1			78.9		17.5			82.5
Other—indemnity1	NM			NM		NM			NM		NM			NM
Total underwriting operations		11.9			88.1		14.9			85.1		12.7			87.3

¹Underwriting margins/combined ratios are not meaningful (NM) for the Company’s other-indemnity businesses due to the insignificant amount of premiums earned by such businesses.

10) OTHER COMPREHENSIVE INCOME

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

				2005									2004									2003
				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:
Fixed maturities	$	(138.7	)	$	48.6		$	(90.1	)	$	(48.0	)	$	16.8		$	(31.2	)	$	2.8		$	(.9	)	$	1.9
Equity securities		135.8			(47.5	)		88.3			241.4			(84.5	)		156.9			431.6			(151.1	)		280.5
Reclassification adjustment:1
Fixed maturities		(12.0	)		4.2			(7.8	)		(74.4	)		26.0			(48.4	)		(71.5	)		25.0			(46.5	)
Equity securities		(54.4	)		19.0			(35.4	)		(93.0	)		32.6			(60.4	)		30.6			(10.7	)		19.9
Change in unrealized gains		(69.3	)		24.3			(45.0	)		26.0			(9.1	)		16.9			393.5			(137.7	)		255.8
Net unrealized gains on forecasted transactions2		(1.7	)		.6			(1.1	)		(1.5	)		.5			(1.0	)		(1.5	)		.5			(1.0	)
Foreign currency translation adjustment3		—			—			—			3.9			—			3.9			.9			—			.9
Other comprehensive income	$	(71.0	)	$	24.9		$	(46.1	)	$	28.4		$	(8.6	)	$	19.8		$	392.9		$	(137.2	)	$	255.7

1	Represents adjustments for gains/losses realized in net income for securities held in the portfolio at December 31 of the preceding year.
2	Entered into for the purpose of managing interest rate risk associated with the Company’s debt issuances. See Note 4—Debt. The Company expects to reclassify $1.8 million into income within the next 12 months.
3	Foreign currency translation adjustments have no tax effect.

APP.-A-20

11) LITIGATION

The Company is named as a 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 if appropriate in some 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, 2005.

     There are five putative class action lawsuits challenging the Company’s use of certain automated database vendors or software to assist in the adjustment of bodily injury claims. Plaintiffs allege that these databases or software 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 is one putative class action lawsuit challenging the Company’s installment fee program. The Company has successfully defended similar cases in the past, including one case that was dismissed in 2005. The Company does not consider a loss from the currently pending case to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.

     There is one putative class action lawsuit 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 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 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.

     There is one certified class action lawsuit and eight putative class action lawsuits pending against the Company, alleging that the Company failed to adjust MRI bills to a Consumer Price Index in violation of a statute. 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 is one putative class action lawsuit pending against the Company, alleging that the Company fails to notify its policyholders of the availability of uninsured/underinsured coverage at every renewal, modification, etc., as required by law. 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 a party to an individual unfair competition claim in which the plaintiff claims that the Company violates the “make-whole” and “common-fund” doctrines. Specifically, it is alleged that the Company may obtain reimbursement of medical payments made on behalf of an insured only when the insured has been made whole by a third-party tortfeasor and that the Company further must deduct from the reimbursement amount a proportionate share of the insured’s legal fees for pursuing the third-party tortfeasor. The Company understands that there are a number of similar class actions against others in the insurance industry and that this case may be amended to be brought as a class action against the Company. 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.

     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 has been engaged in extensive settlement negotiations to resolve the claims raised in these cases and has established a loss reserve for these cases. Also, 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.

APP.-A-21

There are two putative class action lawsuits and one individual action 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 engaged in extensive settlement negotiations and reached a settlement on a nationwide basis. The settlement has received trial court approval. Accordingly, the Company has established a loss reserve for this resolution.

     In July 2005, the Company settled a state class action lawsuit alleging that the Company used non-conforming uninsured/underinsured motorist rejection forms. The settlement received trial court approval in October 2005, and a loss reserve has been established.

     There are eight class action lawsuits challenging certain aspects of the Company’s use of credit information and compliance with 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. In February 2005, the Company was advised that the court denied final approval of the proposed settlement, and the Company is in the process of negotiating a revised settlement. There also are six individual actions and an additional class action lawsuit against the Company that challenge the Company’s use of credit. The six individual actions are stayed pending the outcome of the class actions. 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. During 2004, the Company settled a state-specific case concerning these issues within the reserve amount established for that case 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 defined 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.

     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.

     During 2004, the Company settled two groups of individual cases related to the Company’s alternative commission programs, one in Alabama and one in Mississippi, within the reserve amount established in prior years for these groups of cases. These cases were filed by individuals who opted out of the nationwide class action settlement, which was completed in 2003, within the reserve amount that was established in the year prior to settlement.

     There was 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 class allegations were dismissed in January 2006, leaving only the named plaintiff’s individual claim pending. This individual claim has been settled for an immaterial amount.

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, 2005, are as follows:

(millions)
	Operating		Service
Year	Lease		Contracts		Total
2006	$	99.7	$	54.6	$	154.3
2007		83.4		38.6		122.0
2008		54.7		6.3		61.0
2009		34.4		1.3		35.7
2010		20.7		1.1		21.8
Thereafter		47.9		.1		48.0

APP.-A-22

     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
2005	$	126.4	$	98.3	$	224.7
2004		116.0		89.4		205.4
2003		101.6		80.1		181.7

During 2005, the Company incurred $7.0 million of guaranty fund assessments, compared to $11.4 million in 2004 and $12.2 million in 2003. At December 31, 2005 and 2004, the Company had $10.8 million and $10.7 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, 2005, the Company had open investment funding commitments of $4.1 million; the Company had no uncollateralized lines or letters of credit as of December 31, 2005 or 2004.

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:

	2005						2004
				Market						Market
(millions)	Cost			Value			Cost			Value
Investments—Available-for-sale:
Fixed maturities	$	10,260.7		$	10,221.9		$	8,972.6		$	9,084.3
Preferred stocks		1,217.0			1,220.3			749.4			768.9
Common equities		1,423.4			2,058.9			1,314.0			1,851.9
Short-term investments		773.5			773.6			1,376.6			1,376.9
Debt		(1,284.9	)		(1,395.9	)		(1,284.3	)		(1,402.1	)

     The value of the Company’s investment portfolio is obtained through market level sources for 99.6% of the securities; the remaining securities are valued using private market valuation sources.

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, 2005. The Company did not make any repurchases from Mr. Lewis in 2005. 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 2003 purchases were made at 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.

	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

APP.-A-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, 2005. There were no material weaknesses identified during the internal control review process.

     During the fourth quarter of 2005, there were no changes in the Company’s internal control over financial reporting identified in the internal control review process that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

     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 the transactions and dispositions of assets of the Company; 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 of the Company 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, 2005, 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 2005 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 13, 2005, 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.-A-24

{Report of Independent Registered Public Accounting Firm}

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

We have completed integrated audits of The Progressive Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 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, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 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, 2005 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, 2005, based on criteria established in Internal Control—Integrated Framework issued by the 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
February 28, 2006

APP.A-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 is a holding company that has insurance and non-insurance subsidiaries and one mutual insurance company affiliate, and does not have any revenue producing operations of its own. Our insurance companies provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles through both the independent agency channel and the direct channel. Our 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 our insurance subsidiaries in order to support premium growth, pay interest on or retire outstanding indebtedness, pay dividends and repurchase our Common Shares and for other business purposes. In 2005, the holding company received $1.5 billion of dividends from its subsidiaries, net of capital contributions. During 2005, we repurchased 5,197,686 of our Common Shares at an average purchase price of $92.89 per share for a total cost of $.5 billion and paid $23.7 million in shareholder dividends. We did not issue any debt or equity securities during 2005 and did not repay any debt securities. We paid $85.0 million in interest on our current outstanding debt in 2005. At year-end 2005, we had $2.2 billion of marketable securities in a non-insurance subsidiary that can be used to satisfy the holding company’s obligations.

     On a consolidated basis, net income was $1.4 billion in 2005. We generated positive operating cash flows of $2.0 billion, portions of which were used during the year to repurchase Common Shares and to construct a call center and a data center, as well as lease additional space to support our growing operations. We also opened six additional concierge-level claims service centers during the year, bringing the total number of such centers to 26. We are planning to open about 30 additional centers in 2006 with 18 currently under construction. 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.

     Our insurance subsidiaries compete with approximately 290 insurance companies/groups with annual premiums greater than $5 million competing in the estimated $158.9 billion U.S. personal auto market. Progressive ranks third in this market with an estimated 7.7% market share in 2005. We are the number one writer of private passenger auto insurance through independent agencies and the number three writer in the direct channel. The top 15 insurance groups account for approximately 75% of the premiums written in the personal auto market. We estimate year-over-year net premiums written in the private passenger auto market increased about 1% for 2005. Despite the significant storm losses incurred during the year, the industry is still expected to show an underwriting profit of about 5%. (note: all industry information is based on actual 2004 results and estimates for 2005).

     For 2005, our Personal Lines business’s net premiums written grew 4%, policies in force grew 9% and underwriting profit was 11%. We incurred $327.6 million, or 2.4 combined ratio points, in storm-related losses, primarily from Hurricanes Katrina and Wilma.

     The private passenger auto market historically has been cyclical in nature. Underwriting margins have risen and fallen over a consistent pattern. If this pattern continues, the market may now be at the point in the current cycle where underwriting margins are likely to decline.

     In reviewing our results, as well as estimated industry results, through 2005, there are a few important observations that we would make. We believe that modestly increasing severity, notably in physical damage coverages, combined with anticipated price reductions, may likely reduce current operating margins. Prior period bodily injury severities, which have the highest sensitivity to carried reserves, have generally been overestimated resulting in favorable loss reserve development, which has the effect of reducing the reported calendar-year combined ratios for the year. In Progressive’s case, the overall favorable effect from the prior accident years’ loss development was 2.6 points for 2005. Showing the effect of prior year reserve development in current-period results can disguise the underlying accident year results and perhaps delay appropriate reactions. We have anticipated for some time that Progressive would slowly return to more normal operating margins by allowing expected increases in severity, and potentially frequency, to absorb the margin in excess of our target, rather than immediately price the margin away. We continue to believe this is the right way for us to address these market conditions.

APP.-A-26

History has been an influential teacher and, as we work through this phase of the cycle, many things are different. Compared to the past, our policy periods for personal auto are now shorter, providing greater flexibility to price correctly and our controls and analytic review of profitability by the various components of our book are more rigorous. We believe we have a clearer understanding of targeted outcomes for all our product offerings and their related underwriting segments. Loss costs and expense management are both considerably tighter and our technology and operational performance are considerably improved.

     We see 2006 as a year when accident-year results both for Progressive and the industry may begin producing smaller margins and trending toward more historical levels. Our expected results during 2006 will continue to be influenced by the market conditions and the actions of our competitors. As with any outlook there are unknowns. The level of price activity and the degree of severity and frequency change will be critical as we execute during this phase of the cycle.

     Our Commercial Auto business is the third largest carrier in the U.S. commercial auto insurance market, based on direct premiums written, with about 6% market share. Overall, this market grew an estimated 1% in 2005 with an underwriting profit of 5.6%. Net premiums written and policies in force in our Commercial Auto business both grew 11%. Our Commercial Auto business generated an underwriting profit of 17.9% for the year.

     During the year, we re-entered the New Jersey insurance market, the 7th largest private passenger auto market in the nation, after about a 20-year absence. We now offer both our private passenger and commercial auto products in the state.

     Progressive’s investment portfolio produced a fully taxable equivalent (FTE) total return of 4.0% for 2005. Short-term interest rates increased as the Federal Open Market Committee of the Federal Reserve Board raised the overnight Federal Funds Rate from 2.25% to 4.25% during 2005, while yields on ten-year maturity U.S. Treasury bonds changed slightly. The economy continued to expand at a solid pace, supporting growth in corporate profits and positive stock market returns. Yield differentials for non-U.S. Treasury securities compared to similar maturity U.S. Treasuries increased modestly from historically narrow levels early in the year. We maintained our asset allocation strategy of investing approximately 85% of our total portfolio in fixed-income securities and 15% in common equities. Both asset classes contributed to the overall result, with FTE total returns of 7.1% and 3.4% in the common stock and fixed-income portfolios, respectively, for 2005. During the year, the duration of the fixed-income portfolio shortened and then lengthened in response to interest rate volatility and we ended the year at 3.2 years, compared to 2.9 years at the end of 2004. The weighted average credit quality rating of the fixed-income portfolio ranged from AA to AA+ during the year. Cash flows from operations and positive investment returns provided modest portfolio growth. We continued to maintain our fixed-income portfolio strategy of investing in high-quality, shorter-duration securities in the current investment environment. Our 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, 2005, The Progressive Corporation received $3.5 billion of dividends from its subsidiaries, net of cash capital contributions made to subsidiaries. The regulatory restrictions on subsidiary dividends are described in Note 7—Statutory Financial Information, to the financial statements.

     During the three-year period ended December 31, 2005, we repurchased 28,762,944 of our Common Shares at a total cost of $2.4 billion (average cost of $84.42 per share). During 2004, after evaluating our financial condition, business prospects and capital needs, the Board of Directors determined that we had a significant amount of capital on hand in excess of what was needed to support insurance operations, satisfy corporate obligations and prepare for various contingencies. In view of this situation and our policy to return capital to shareholders when appropriate, the Board determined that a tender offer for up to 17.1 million of our Common Shares would be a prudent use of 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).

     Over the last three years, we have paid modest cash dividends to our shareholders in the aggregate amount of $68.7 million. In light of our capital position, we have challenged ourselves to align our capital policy with our business model, which is designed to produce profitable growth over reasonable periods and to support that growth from underwriting results. As a result, our Board of Directors has approved a plan to replace our current dividend policy in 2007 with an annual variable dividend, payable at or shortly after the close of each year. This annual dividend will be based on a target percentage of after-tax underwriting income, multiplied by a companywide performance factor. The target percentage will be determined by our Board of Directors on an annual basis and announced to shareholders and the public early in the year. The companywide performance factor can range from zero to two and will be determined by comparing our operating performance for the year to certain predetermined profitability and growth objectives approved by the Board. This dividend program will be consistent with the variable cash bonus program currently in place for our employees (referred to as our “Gainsharing Program”). By way of example, had the new dividend policy been in effect for 2005, using our 2005 after-tax underwriting income, a hypothetical 20% target and our actual 2005 Gainshare factor of 1.54, we would have paid a dividend of $1.66 per share, or $327.5 million, in the aggregate, for the year, compared to the $.12 per share, or $23.7 million in total, that we actually paid.

APP.-A-27

During the last three years, The Progressive Corporation repaid $206 million principal amount of debt securities and did not issue any new debt. During the second quarter 2006, $100 million of our 7.30% Notes will mature; we will use operating cash flows to fund this obligation. See Note 4—Debt for further discussion on our current outstanding debt. Progressive’s debt to total capital (debt plus equity) ratios at December 31, 2005 and 2004, were 17.4% and 19.9%, respectively.

Capital Resources and Liquidity    Progressive has substantial capital resources and we are unaware of any trends, events or circumstances not disclosed herein that are reasonably likely to affect our capital resources in a material way. We have 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. In addition, during 2005, Progressive entered into an uncommitted line of credit with National City Bank in the principal amount of $125 million, replacing a prior credit facility for $100 million. We entered into the line of credit as part of a contingency plan to help maintain liquidity in the unlikely event that we experience conditions or circumstances that affect our ability to transfer or receive funds. We have not borrowed under these arrangements to date. Progressive’s financial policy is to maintain a debt to total capital ratio below 30%. At December 31, 2005, the debt to total capital ratio was 17.4%, which provides us with substantial borrowing capacity. Our existing debt covenants do not include any rating or credit triggers.

     Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. As an auto insurer, our claim liabilities, by their very nature, are short in duration. Approximately 50% of our outstanding reserves are paid within one year and less than 15% 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 claims payments. For the three years ended December 31, 2005, operations generated positive cash flows of $7.1 billion, and cash flows are expected to remain positive in both the short-term and reasonably foreseeable future. In addition, our investment portfolio is highly liquid and consists substantially of readily marketable, investment-grade securities. As of December 31, 2005, 85% of our portfolio was invested in fixed-income securities with a weighted average credit quality of AA and duration of 3.2 years. We believe that we have sufficient readily marketable securities to cover our claims payments without having a negative effect on our cash flows from operations.

     Progressive’s net premiums written-to-surplus ratio was 3.0 to 1 at December 31, 2005, compared to 2.9 at December 31, 2004 and 2.6 at December 31, 2003. We intend, over time, to increase operating leverage slowly through a higher rate of net premiums to surplus in our insurance subsidiaries where permitted by law. We believe that substituting operating leverage (higher premiums-to-surplus ratio) for financial leverage (lower debt to total capital ratio) reduces our risk profile. In the event of profitability problems, we could raise rates to slow growth, which would reduce the operating leverage, but would have little or no effect on our debt service obligations.

     Progressive 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 below, to estimate our potential capital need. Based on this analysis, as well as the information reported above, we believe that we have sufficient capital resources, cash flows from operations and borrowing capacity to support our current and anticipated growth, scheduled debt payments, expected dividends and other capital requirements.

     Commitments and Contingencies    During 2005, we began construction of a data center in Colorado Springs, Colorado, at an estimated total cost of $65.9 million. Construction of this data center is expected to be completed in 2006 and the facility is scheduled to become operational in 2007. In addition, in June 2005, we completed the conversion of a building in Austin, Texas, into a call center at a total acquisition and development cost of $40.6 million. We are also pursuing the acquisition of additional land for future development to support corporate operations near our current corporate headquarters in Mayfield Village, Ohio, and in Colorado Springs, Colorado. All such projects are, or will be, funded through operating cash flows.

     We currently have in operation a total of 26 centers that provide concierge-level claims service, compared to 20 in 2004 and 19 in 2003. During 2004, we achieved the performance standards necessary to satisfy the expansion criteria established for our concierge claims strategy. As a result, we announced a significant expansion of this service and are currently researching, acquiring and constructing additional sites around the country. We expect to add about 30 sites in 2006 and currently have 18 under construction. The cost of these facilities, including the cost of land and building development, is estimated to average $5 to $7 million per center, depending on a number of variables, including the size and location of the center. The costs of these centers are, or will be, funded through operating cash flows.

     Between October 2004 and April 2005, Progressive and its various subsidiaries received formal inquiries from nine states relating to the states’ respective investigations into possible bid-rigging and other unlawful conduct by certain insurers, brokers or other industry participants. These nine formal inquiries include: a subpoena from the Connecticut Attorney General requesting interrogatory responses and documents relating to contingent commissions on all Connecticut business; a 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, Ohio, and Hawaii, each of which requested information relating to agent and broker compensation arrangements that particular insurance subsidiaries have in each of the states in which those subsidiaries conduct business. In December 2005, we were

APP.-A-28

asked by the Connecticut Attorney General to update our response to include the 2005-time frame. Many companies in the insurance industry received such formal inquiries, and more inquiries may be received from other states in the future. We have been cooperating, and intend to continue to cooperate, fully with these investigations and have not been notified by any governmental or regulatory authority that we are the target of any such investigation.

     We understand 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 our behalf. This base commission is paid in full on a monthly basis. Prior to January 2005, Progressive’s insurance subsidiaries had contingent commission contracts with certain producers. While we believe that our previous contingent commission contracts complied with applicable laws, we made a business decision to offer contingent commission contracts only to independent agents, and not brokers, after January 1, 2005. Contingent commission contracts provide independent agents 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 independent agent with us, the profitability of such business, or other criteria. Any such payments to independent agents generally are made once per year.

     Our Personal Lines and Commercial Auto businesses market their products through approximately 34,000 independent agencies throughout the United States, including approximately 2,000 brokerage firms in California and New York. All commissions paid by our insurance subsidiaries are reported in the financial data filed with the insurance departments of the various states in which they operate.

     For 2005, we paid approximately $971 million in commissions to producers. Approximately $20 million, or 2% of the total commissions paid, was in the form of contingent commission payments to independent agents.

     We maintain insurance on our 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 us 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 us for all losses resulting from covered events. To help maintain functionality and reduce the risk of significant interruptions of our operations, we maintain back-up systems or facilities for certain of our principal systems and services. We 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, we have 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 our plans to maintain business continuity upon the occurrence of such an event, and other factors beyond our control.

OFF-BALANCE-SHEET ARRANGEMENTS Other than the items disclosed in Note 12—Commitments and Contingencies regarding open investment funding commitments of $4.1 million at December 31, 2005, and operating leases and service contracts (also disclosed in the table below), Progressive does not have any off-balance-sheet arrangements.

CONTRACTUAL OBLIGATIONS A summary of Progressive’s noncancelable contractual obligations as of December 31, 2005, 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		1,374.7			81.3		155.4		155.4		982.6
Operating leases		340.8			99.7		138.1		55.1		47.9
Service contracts		102.0			54.6		44.9		2.4		.1
Loss and loss adjustment expense reserves		5,660.3			3,027.1		1,905.9		419.3		308.0
Total	$	8,777.8		$	3,362.7	$	2,244.3	$	632.2	$	2,538.6

     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 based on our recent payment patterns. To further understand our claims payments, see Claims Payment Patterns, a supplemental disclosure provided in this Annual Report. In addition, we annually publish a comprehensive Report on Loss Reserving Practices, which was filed with the SEC on a Form 8-K on June 28, 2005, that further discusses our claims payment development patterns.

     As discussed in the Capital Resources and Liquidity section above, we believe that we have sufficient borrowing capacity and other capital resources to satisfy these contractual obligations.

APP.-A-29

Results Of Operations
Underwriting Operations
GROWTH

	Growth over prior year
		2005		2004		2003
Direct premiums written		4	%	12	%	26	%
Net premiums written		5	%	12	%	26	%
Net premiums earned		5	%	16	%	28	%
Policies in force		9	%	11	%	19	%

     Progressive experienced slower growth in premiums written during 2005 as compared to the rates achieved in 2004 and 2003, reflecting “soft market conditions.” This personal auto market has generated underwriting profitability in the last three years. We continue to see increased competition as evidenced by rate cutting by competitors and other non-price actions, such as increased advertising, higher commission payments to producers and a relaxation of underwriting standards. We believe that we have positioned ourselves to respond to changing market conditions.

     To analyze growth, we review rate levels, new policies, and the retention characteristics of our books of business. During 2005 and 2004, we filed 187 and 124 auto rate revisions, respectively, in various states, resulting in an aggregate net decrease of approximately 1% in filed rates in both years. In 2003, filed rates increased about 4% on 87 auto rate revisions. These rate changes, coupled with shifts in the mix of business, contributed to a 4.3% decline in average earned premium per policy in 2005, compared to 1.7% in 2004 and an increase of 4.0% in 2003. We will continue to assess market conditions on a state-by-state basis, consider rate reductions in states where we will be able to maintain an attractive combination of profit and growth while still maintaining service quality, and seek selective rate increases where necessary to maintain rate adequacy.

     During 2005 and 2004, year-over-prior year new business applications in our Personal Lines business remained relatively flat while they increased in 2003. Solid increases in renewal business helped contribute to the increase in policies in force. In our Commercial Auto business, new applications increased modestly in 2005 and 2004; in 2003, Commercial Auto benefited from prior year competitor rate actions, which significantly increased new applications for the business.

     Another important element affecting growth is customer retention. We did not achieve the degree or speed of retention improvement over the last couple of years that we had originally expected, based on our internal analysis of several retention criteria. With a greater percentage of our premium coming from renewal business, increasing retention remains an area where we are continuing to focus our efforts.

     PROFITABILITY Profitability for our 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. We also use underwriting profit margin, which is underwriting profit expressed as a percent of net premiums earned, to analyze our results. For the three years ended December 31, Progressive’s underwriting profitability measures were as follows:

	2005					2004					2003
	Underwriting Profit					Underwriting Profit					Underwriting Profit
(millions)	$		Margin			$		Margin			$		Margin
Personal Lines
Drive	$	857.6		10.7	%	$	1,108.2		14.0	%	$	836.0		12.0	%
Direct		475.7		11.7			525.6		14.1			383.0		12.3
Total Personal Lines		1,333.3		11.0			1,633.8		14.1			1,219.0		12.1
Commercial Auto		298.0		17.9			321.4		21.1			214.2		17.5
Other — indemnity1		7.9	NM				3.1	NM				8.2	NM
Total underwriting operations	$	1,639.2		11.9	%	$	1,958.3		14.9	%	$	1,441.4		12.7	%

¹ Underwriting margins are not meaningful (NM) for our other-indemnity businesses due to the insignificant amount of premiums earned by such businesses.

APP.-A-30

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

(millions)	2005		2004		2003
NET PREMIUMS WRITTEN
Personal Lines
Drive	$	8,005.6	$	7,933.6	$	7,239.6
Direct		4,177.3		3,802.2		3,263.2
Total Personal Lines		12,182.9		11,735.8		10,502.8
Commercial Auto		1,801.2		1,616.6		1,357.7
Other—indemnity		23.5		25.7		52.9
Total underwriting operations	$	14,007.6	$	13,378.1	$	11,913.4
NET PREMIUMS EARNED
Personal Lines
Drive	$	7,993.1	$	7,893.7	$	6,948.0
Direct		4,076.2		3,718.2		3,103.0
Total Personal Lines		12,069.3		11,611.9		10,051.0
Commercial Auto		1,667.8		1,524.1		1,226.7
Other—indemnity		27.3		33.9		63.3
Total underwriting operations	$	13,764.4	$	13,169.9	$	11,341.0
UNDERWRITING PERFORMANCE
Personal Lines—Drive
Loss & loss adjustment expense ratio		69.1		65.8		68.4
Underwriting expense ratio		20.2		20.2		19.6
Combined ratio		89.3		86.0		88.0
Personal Lines—Direct
Loss & loss adjustment expense ratio		68.4		65.5		67.4
Underwriting expense ratio		19.9		20.4		20.3
Combined ratio		88.3		85.9		87.7
Total Personal Lines
Loss & loss adjustment expense ratio		68.9		65.7		68.1
Underwriting expense ratio		20.1		20.2		19.8
Combined ratio		89.0		85.9		87.9
Commercial Auto
Loss & loss adjustment expense ratio		62.4		59.7		62.7
Underwriting expense ratio		19.7		19.2		19.8
Combined ratio		82.1		78.9		82.5
Total Underwriting Operations1
Loss & loss adjustment expense ratio		68.0		64.9		67.4
Underwriting expense ratio		20.1		20.2		19.9
Combined ratio		88.1		85.1		87.3
Accident year-Loss & loss adjustment expense ratio		70.6		65.7		67.9
POLICIES IN FORCE
(at December 31) (thousands)
Personal Lines
Drive—Auto		4,491		4,245		3,966
Direct—Auto		2,328		2,084		1,852
Special Lines2		2,675		2,351		1,990
Total Personal Lines		9,494		8,680		7,808
Commercial Auto		468		420		365

1	Combined ratios for the other-indemnity businesses are not presented separately due to the insignificant amount of premiums earned by such businesses. For the years ended December 31, 2005, 2004 and 2003, these businesses generated an underwriting profit of $7.9 million, $3.1 million and $8.2 million, respectively.
2	Includes insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles and similar items.

APP. -A-31

LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE)

(millions)	2005		2004		2003
Change in loss and LAE reserves	$	364.6	$	602.1	$	714.3
Paid losses and LAE		9,000.2		7,952.9		6,926.1
Total incurred losses and LAE	$	9,364.8	$	8,555.0	$	7,640.4

Claims costs, our most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of our 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 we establish premium rates and loss reserves. Results would differ if different assumptions were made. See the Critical Accounting Policies for a discussion of the effect of changing estimates. A detailed discussion of Progressive’s loss reserving practices can be found in our Report on Loss Reserving Practices, which was released via Form 8-K filed on June 28, 2005.

     We saw frequency rates decline in 2005, but not to the extent we experienced in 2004. Our frequency patterns appear to be similar to what the rest of the industry experienced. We cannot predict the degree or direction of frequency change that we will experience in the future. We continue to analyze trends to distinguish changes in our experience from external factors versus those resulting from shifts in the mix of business.

     Severity estimates increased during 2005, at a rate less than previously used in setting reserves. Progressive’s increase in severity was slightly higher than that reported for the industry as a whole according to the Property Casualty Insurers Association of America. Bodily injury severity increased on a year-over-year basis, although we saw a slight decrease in the fourth quarter 2005. Compared to prior years, personal injury protection severity continued to increase throughout 2005, but at a slower rate than most of 2004 and 2003. The severity of property coverages was up modestly as compared with the prior year, even after adjusting for the numerous catastrophes in 2005. We plan to continue to be diligent about recognizing trend when setting rates and establishing loss reserves.

     The 2005 storm season contributed 2.4 points to our loss ratio, compared to .8 points and .5 points from catastrophes in 2004 and 2003, respectively.

     We monitor physical damage trend in evaluating our claims handling performance and capacity. Claims handling is our single largest cost. It is also one of our most visible consumer experiences and one that has continued to demonstrate steady and consistent improvement based on internal evaluations. We believe this is likely the single most important and sustained operational improvement of the last several years. We have noted that our claims quality improved in growth periods suggesting, we believe, claims quality is a function of system-wide process design and effective implementation.

     We reported the following loss reserve development for the years ended December 31:

(millions)	2005		2004		2003
ACTUARIAL ADJUSTMENTS
Favorable/(Unfavorable)
Prior accident years	$	127.2	$	40.5	$	10.5
Current accident year		78.4		47.8		(17.8	)
Calendar year actuarial adjustment	$	205.6	$	88.3	$	(7.3	)
PRIOR ACCIDENT YEARS DEVELOPMENT
Favorable/(Unfavorable)
Actuarial adjustment	$	127.2	$	40.5	$	10.5
All other development		228.7		68.6		45.6
Total development	$	355.9	$	109.1	$	56.1
Combined ratio effect	2.6 pts.		.8 pts.		.5 pts.

Total development consists both of actuarial adjustments and “all other development.” The actuarial adjustments represent the net changes made by our actuarial department to both current and prior accident year reserves based on regularly scheduled reviews. The “all other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates by claim representatives. The continued recognition of more modest increases in loss severity for prior accident years, than had been previously estimated, contributed to the favorable prior year reserve development in both 2005 and 2004.

APP.-A-32

The favorable development in 2003 was primarily due to favorable assigned risk development reflecting a change in our estimate of our future operating losses for assignments from the New York Automobile Insurance Plan for 2003. Starting in the second half of 2002, we began participating in the expanded take-out program as designed by the governing committee of the plan and have managed our writings to maximize our assigned risk credits. The realization of these changes, combined with a lower than expected overall plan size, has resulted in us receiving no assignments from the plan in 2005. The remaining development for 2003 was primarily attributable to the settlement of claims at amounts that differed from the established reserves.

     We continue to increase the intensity of our loss reserves analysis to improve accuracy and further enhance our understanding of our loss costs. We conduct extensive reviews on a monthly basis of different portions of our business to help ensure that we are meeting our objective of always having reserves that are adequate, with minimal variation.

     Because we are primarily an insurer of motor vehicles, our exposure as an insurer of environmental, asbestos and general liability claims is limited. We have established reserves for these exposures in amounts that we believe to be adequate based on information currently known. These exposures are not expected to have a material effect on our 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 fairly stable for the last three years. The increase in “other underwriting expenses,” as shown in the income statement, primarily reflects increases in salaries and other infrastructure costs consistent with premium growth, as well as an increase in our advertising expenditures. In 2004, our results include the cost of settling certain class action lawsuits (see Note 11 -Litigation). In accordance with GAAP, policy acquisition costs are amortized over the policy period in which the related premiums are earned (see Note 1 -Reporting and Accounting Policies).

     During 2005, we incurred $7.0 million of guaranty fund assessments, compared to $11.4 million in 2004 and $12.2 million in 2003. These expenses were spread across numerous states and were not attributable to any particular insolvency. We believe that any assessment for known insolvencies in excess of our current reserves will not materially affect our financial condition, cash flows or results of operations.

PERSONAL LINES

	Growth over prior year
	2005			2004			2003
Net premiums written		4	%		12	%		26	%
Net premiums earned		4	%		16	%		27	%
Policies in force		9	%		11	%		19	%

Progressive’s Personal Lines business units write insurance for private passenger automobiles and recreational vehicles, and represented 87% of our total 2005 net premiums written and 88% for 2004 and 2003. The Personal Lines business is comprised of the Drive business and the Direct business.

THE DRIVE BUSINESS

	Growth over prior year
	2005			2004			2003
Net premiums written		1	%		10	%		24	%
Net premiums earned		1	%		14	%		25	%
Auto policies in force		6	%		7	%		17	%

The Drive business includes business written by the more than 30,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. Compared to the prior year, new business applications for Drive auto decreased about 5% in 2005, reflecting soft market conditions. Premiums per application were lower on both new and renewal business. The rate of conversions (i.e., converting a quote to a sale) was relatively flat in 2005, on a slight increase in the number of quotes. In each of the Drive auto risk tiers, retention lengthened as compared to 2004. For 2004, new applications and conversions were relatively flat; both premiums per application and retention were down slightly during the year. The increase in 2003’s premiums reflected increases in new applications and rates, as well as strong renewals; quoting activity was up during the year, but the conversion rate was relatively flat. During 2003, we saw retention decrease slightly.

APP.-A-33

During 2005, we continued to build on the introduction of our new brand, “Drive^® Insurance from Progressive.” In 2005, nearly two million unique visitors came to our new Web site, driveinsurance.com. We continued to enhance functionality of our agency-dedicated Web site, ForAgentsOnly.com, and improved our interface with agency management and comparative rating systems, making it even easier for independent agents to quote and sell our products. We also concluded extensive testing of localized marketing tactics that will allow us to offer a broad array of co-branded marketing tools to agents in 2006. Agent acceptance of the new brand is strong. Despite the continuation of our brand development efforts, our Drive expense ratio remained flat in 2005, as compared to the prior year.

THE DIRECT BUSINESS

	Growth over prior year
	2005			2004			2003
Net premiums written		10	%		17	%		29	%
Net premiums earned		10	%		20	%		31	%
Auto policies in force		12	%		13	%		20	%

The Direct business includes business written directly by Progressive through 1-800-PROGRESSIVE or online at progressivedirect.com. We believe that continued growth in the Direct business is dependent on (among other factors) price and customer retention, the success of our advertising and other marketing efforts, and ease of doing business with us. Although retention decreased in most of the Direct auto tiers during 2005, as it did in 2004, the Direct business experienced an increase in new applications of about 8% in 2005, 6% in 2004 and 9% in 2003. Premiums per application were down slightly for both new and renewal business in 2005 and 2004, but up slightly in 2003, as compared to prior years. In addition, the number of overall quotes rose significantly in 2005; 2004 saw modest increases, while 2003 was relatively flat. We believe the effectiveness of the Progressive Direct advertising campaign contributed to the greater quoting activity. During 2003, competitors increased their advertising spending at a greater pace. The conversion rate was down slightly in 2005, but conversions were up slightly in 2004 and 2003. The use of the Internet, for complete or partial quoting, continues to grow and is the most significant source of new business activity in the Direct channel.

     The Direct business expense ratio was favorably affected by a higher percentage of renewal business, which incurs lower expenses. Advertising spend has increased each of the last three years. The Progressive Direct marketing efforts continue to emphasize the ease of doing business with Progressive and credible price comparisons provided to consumers. We are advertising on a national basis and supplement that coverage by local market media campaigns in over 100 designated marketing areas.

COMMERCIAL AUTO

	Growth over prior year
	2005			2004			2003
Net premiums written		11	%		19	%		35	%
Net premiums earned		9	%		24	%		39	%
Policies in force		11	%		15	%		26	%

Progressive’s Commercial Auto business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses, with the majority of our customers insuring three or fewer vehicles. In 2005, the Commercial Auto business represented 13% of our total net premiums written, compared to 12% in 2004 and 11% in 2003. 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. Our Commercial Auto business is primarily distributed through the independent agency channel and ranked third in market share on a national basis based on 2004 direct premiums written data reported by A.M. Best Company Inc. We estimate that it retained that position for 2005.

     We experienced solid growth in Commercial Auto business in 2005 and 2004 and exceptional growth in 2003, when we were still benefiting from competitors actions taken in 2002 to raise rates and restrict the business they wrote. We currently write Commercial Auto insurance in 47 states, compared to 45 states in 2004 and 42 states in 2003. We plan on entering one, possibly two, new states in 2006. Commercial Auto net premiums written were generated either in the specialty commercial auto market or the light and local commercial auto market, each accounting for approximately half of the total Commercial Auto business. The specialty commercial auto market includes dump trucks, logging trucks and other short-haul commercial vehicles. The light and local commercial auto market includes autos, vans and pick-up trucks used by artisans, such as contractors, landscapers and plumbers, and a variety of other small businesses. There are many similarities between Progressive’s Commercial Auto and Personal Lines auto businesses; however, since the Commercial Auto policies have higher limits (up to $1 million) than Personal Lines auto, we analyze the limit differences in this product more closely.

APP.-A-34

New business applications increased approximately 3% in 2005 and 5% in 2004 and were very strong in 2003. Premiums per application increased in 2005, as compared to 2004, partially reflecting Commercial Auto’s shift from 6-month to 12-month policies, which has a favorable effect on premiums per application; this shift started at the end of the first quarter 2004 and was substantially completed in the second quarter 2005. During the three-year period, Commercial Auto experienced a slight lengthening in retention each year, as compared to the prior year.

     Commercial Auto is marketed under the Drive Insurance from Progressive brand for the business written through the independent insurance agency channel and under Progressive Commercial for its direct business. As a result, Commercial Auto is allocated a portion of the expenses associated with our branding efforts.

OTHER-INDEMNITY Progressive’s other-indemnity businesses, which represent less than 1% of our net premiums earned, primarily include writing professional liability insurance for community banks and our run-off businesses. The underwriting profit (loss) in these businesses may fluctuate due to the uncertain nature of these products, which may include actuarial adjustments, other reserve development and other costs associated with the run-off businesses.

SERVICE BUSINESSES Our service businesses include providing insurance-related services. Our principal service business is 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. We currently process over 47% of the premiums in the CAIP market, compared to 49% in 2004 and 2003, reflecting the re-entry of a servicing carrier into the New Jersey CAIP market late in 2004. We compete with two other providers nationwide for this CAIP business. As a service provider, we collect fee revenue that is earned on a pro rata basis over the term of the related policies. We cede 100% of the premiums and losses to the plans. Reimbursements to us 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. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations or cash flows. The service businesses represent less than 1% of our 2005, 2004 and 2003 revenues.

LITIGATION Progressive is named as a defendant in a number of putative class action or other lawsuits, such as those alleging damages as a result of our 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 or software to analyze the propriety of payment of medical bills; rating practices at renewal; the utilization, content, or appearance of uninsured/underinsured motorist rejection forms; and cases challenging other aspects of our claims, marketing practices or business operations. Other insurance companies face many of these same issues. During 2005, we settled nationwide claims challenging our use of certain automated database vendors to assist in the evaluation of total loss claims and a state class action challenging our uninsured/underinsured motorist rejection form. In 2004, we 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. During 2003, we settled a nationwide class action challenging the practice of taking betterment on first party personal automobile claims. See Note 11—Litigation for a more detailed discussion.

INCOME TAXES Income taxes include both a current liability and a net deferred tax asset. A deferred tax asset is a tax benefit which will be realized in a future tax return. Our income taxes shifted to a net asset position at December 31, 2005, primarily reflecting estimated payments in excess of our actual current liability due to lower fourth quarter 2005 income and an increase in our net deferred tax asset.

     In 2004, Progressive received a tax refund of $58 million and related interest income earned of $31.2 million. We 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 Progressive, which was primarily attributable to the amount of loss reserves deductible for tax purposes.

Investments PORTFOLIO ALLOCATION Progressive’s investment strategy targets an 85%:15% allocation between fixed-income securities and common equities. This strategy is based on our need to maintain capital adequate to support our insurance operations, which includes the short-tail nature of our reserves. Investments in our portfolio have varying degrees of risk. We evaluate 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. The composition of the investment portfolio at year-end was:

APP.-A-35

			Gross		Gross					%of
			Unrealized		Unrealized			Market		Total			Duration
(millions)	Cost		Gains		Losses			Value		Portfolio			(years)			Rating1
2005
Fixed maturities	$	10,260.7	$	64.8	$	(103.6	)	$	10,221.9		71.6	%		3.5		AA+
Preferred stocks		1,217.0		17.0		(13.7	)		1,220.3		8.6			2.0			A-
Short-term investments:
Auction rate municipal obligations		280.2		—		—			280.2		2.0			<1		AAA-
Auction rate preferred stocks		105.0		.2		(.1	)		105.1		.7			<1			A-
Other short-term investments2		388.3		—		—			388.3		2.7			<1		AA+
Total short-term investments		773.5		.2		(.1	)		773.6		5.4			<1		AA+
Total fixed income		12,251.2		82.0		(117.4	)		12,215.8		85.6			3.2	AA
Common equities		1,423.4		650.3		(14.8	)		2,058.9		14.4		na		na
Total portfolio3, 4	$	13,674.6	$	732.3	$	(132.2	)	$	14,274.7		100.0	%		3.2	AA
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:
Auction rate municipal obligations		262.4		—		—			262.4		2.0			<1		AA+
Auction rate preferred stocks		240.9		.3		—			241.2		1.8			<1			A+
Other short-term investments2		873.3		—		—			873.3		6.7			<1		AA+
Total short-term investments		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		na		na
Total portfolio3, 4	$	12,412.6	$	719.2	$	(49.8	)	$	13,082.0		100.0	%		2.9	AA

na = not applicable
1	Credit quality ratings are assigned by nationally recognized securities rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on market value and assign a numeric score to each credit rating based on a scale from 0-5.
2	Other short-term investments include Eurodollar deposits, commercial paper and other investments, which are expected to mature within one year.
3	Includes net unsettled security acquisitions of $158.5 million and $31.9 million at December 31, 2005 and 2004, respectively.
4	December 31, 2005 and 2004 totals include $2.2 billion and $1.2 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company; the increase primarily reflects dividends paid by our insurance subsidiaries, net of capital contributed to such subsidiaries.

As of December 31, 2005, Progressive’s portfolio had $600.1 million in net unrealized gains, compared to $669.4 million at year-end 2004. The decrease in net unrealized gains was primarily the result of rising interest rates during 2005, which negatively affected our fixed-income portfolio. Solid returns in the equity-indexed common stock portfolio partially offset the decrease in the fixed-income portfolio.

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

(millions)	December 31, 2005				December 31, 2004
Investment-grade fixed maturities:1
Short/intermediate term	$	10,709.7	97.4	%	$	10,297.7	98.4	%
Long term		17.6	.2			96.7	.9
Non-investment-grade fixed maturities2		268.2	2.4			66.8	.7
Total	$	10,995.5	100.0	%	$	10,461.2	100.0	%

1	Long term includes securities with expected liquidation dates 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.
2	Non-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. The increase primarily reflects securities downgraded during 2005.

APP.-A-36

Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at December 31:

(millions)	Market		% of Asset-			Duration
	Value		Backed Securities			(years)		Rating
2005
Collateralized mortgage obligations	$	392.5		16.5	%		2.1	AAA
Commercial mortgage-backed obligations		462.4		19.5			3.1	AA+
Commercial mortgage-backed obligations: interest-only		698.2		29.4			2.3	AAA
		1,160.6		48.9			2.6	AAA-
Other asset-backed securities:
Automobile		511.6		21.5			.6	AAA
Home equity		182.7		7.7			.5	AAA
Other		128.6		5.4			1.3	AA
		822.9		34.6			.7	AAA-
Total asset-backed securities	$	2,376.0		100.0	%		1.9	AAA-
2004
Collateralized mortgage obligations	$	637.6		26.9	%		3.1	AAA
Commercial mortgage-backed obligations		387.8		16.4			3.2	AA-
Commercial mortgage-backed obligations: interest-only		571.8		24.1			2.5	AAA
		959.6		40.5			2.8	AA+
Other asset-backed securities:
Automobile		378.2		16.0			1.1	AAA-
Home equity		256.7		10.8			1.3	AAA
Other		136.6		5.8			1.3	AA
		771.5		32.6			1.2	AAA-
Total asset-backed securities	$	2,368.7		100.0	%		2.3	AA+

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 3.2 years at December 31, 2005, compared to 2.9 years at December 31, 2004. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security will change 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, 2005, was 85.4% of the portfolio, within our normal range of variation; at December 31, 2004, the allocation was 85.8%.

     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. Pursuant to guidelines established by our Board of Directors, concentration in a single issuer’s bonds and preferred stocks is limited to no more than 6% of our 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, 2005			December 31, 2004
AAA		61.8	%		61.0	%
AA		13.2			14.6
A		12.9			14.2
BBB		9.9			9.5
Non Rated/Other		2.2			.7
		100.0	%		100.0	%

APP.-A-37

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

(millions)	December 31, 2005				December 31, 2004
Common Stocks	$	2,034.8	98.8	%	$	1,815.9	98.1	%
Other Risk Investments		24.1	1.2			36.0	1.9
Total Common Equities	$	2,058.9	100.0	%	$	1,851.9	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, 2005 and 2004, excluding the net unsettled security transactions, these securities comprised 14.6% and 14.2%, 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. During 2005, the GAAP basis total return was 6.2%, within the tracking error.

     Our 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, we held approximately 710 of the 990 common stocks comprising the index at December 31, 2005. Our individual holdings are selected based on their contribution to the correlation with the index.

     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 $4.1 million of open funding commitments discussed in Note 12—Commitments and Contingencies. During February 2006, we completed a planned sale of one of the other risk assets, which reduced the outstanding balance of this portfolio to $16.3 million and the open funding commitments to $1.8 million.

     We monitor the value at risk of the fixed-income and equity portfolios, as well as the total portfolio, to evaluate the maximum potential 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, 2005 and 2004, we did not hold any trading securities. Net realized gains on trading securities were $0 for the years ended December 31, 2005 and 2004 and $.1 million in 2003. Results from trading securities are immaterial to our 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 Derivative instruments may be used for trading purposes or classified as trading derivatives due to characteristics of the transaction. During 2005, we held three credit default protection derivatives, which were sold on three separate issuers and matched with Treasury securities with an equivalent principal and maturity to replicate cash bond positions. These positions had a notional amount of $90.0 million at December 31, 2005. We held similar investments in 2004, all of which were closed during the third quarter 2004. For 2005, the combined positions generated a net gain (loss) of $(7.6) million, compared to $(1.4) million and $4.9 million for 2004 and 2003, respectively. Early in 2006, we opened $40 million notional value credit default swaps, backed by U.S. Treasuries, on a fourth issuer. The amount and results of the derivative and Treasury positions are immaterial to our financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gains (losses) reported as a component of net realized gains (losses) on securities.

     During 2003, we entered into a hedge on forecasted transactions in anticipation of debt issuance. See Note 2—Investments and Note 4—Debt for further discussion of the hedge. We had no open positions at December 31, 2005.

INVESTMENT RESULTS Recurring investment income (interest and dividends, before investment and interest expenses) increased 11% in 2005, 4% in 2004 and 2% in 2003. The increase for 2005 was due to a combination of increased assets and rising yields in the portfolio, while in 2004 and 2003, the slight increase to investment income was the result of increasing portfolio assets, somewhat offset by falling interest rates during those periods.

     Investment expenses decreased during 2005 primarily due to the non-recurring costs associated with our “Dutch auction” tender offer that was completed during the Fall of 2004.

     The decrease in interest expense for 2004 reflects that in January 2004, we retired our $200 million 6.60% Notes at maturity.

     We report 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. By reporting on an FTE basis, we are adjusting our tax preferential securities to an equivalent measure when comparing results to taxable securities. We reported the following investment results:

APP.-A-38

	2005			2004			2003
Pretax recurring investment book yield		4.1	%		3.8	%		4.2	%
Weighted average FTE book yield		4.7	%		4.4	%		4.9	%
FTE total return:
Fixed-income securities		3.4	%		4.2	%		5.5	%
Common stocks		7.1	%		11.6	%		28.6	%
Total portfolio		4.0	%		5.2	%		8.7	%

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 better reflect 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 2005, 2004 and 2003, are write-downs on securities determined to have had an other-than-temporary decline in market value. We routinely monitor our portfolio for pricing changes, which might indicate potential impairments, and perform 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 we have 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. Our 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.

     When a security in our investment portfolio has an unrealized loss in market value that is deemed to be other than temporary, we reduce 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
2005
Fixed income	$	14.6	$	5.3	$	9.3
Common equities		7.1		—		7.1
Total portfolio	$	21.7	$	5.3	$	16.4
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

APP.-A-39

The following is a summary of the 2005 equity security write-downs by sector (both market-related and issuer specific):

(millions)			Equity Portfolio			Russell 1000						Remaining Gross
	Amount of		Allocation at			Allocation at			Russell 1000			Unrealized Loss at
Sector	Write-down		December 31, 2005			December 31, 2005			Sector Return			December 31, 2005
Auto and Transportation	$	1.3		2.4	%		2.2	%		(5.8	)%	$	.8
Consumer Discretionary		1.3		13.2			14.5			(1.7	)		1.6
Consumer Staples		—		7.5			7.2			7.2			1.3
Financial Services		2.1		22.7			22.9			6.8			.4
Health Care		1.8		13.2			13.2			8.3			4.9
Integrated Oil		—		5.4			4.8			18.2			—
Materials and Processing		—		3.8			3.8			4.9			.5
Other Energy		—		2.8			3.4			61.0			.1
Producer Durables		—		4.8			4.4			10.1			.2
Technology		—		12.8			12.9			2.7			.8
Utilities		—		6.7			6.6			8.6			4.2
Other Equities		—		4.7			4.1			(.1	)		—
Total Common Stocks		6.5		100.0	%		100.0	%		6.3	%		14.8
Other Risk Assets		.6											—
Total Common Equities	$	7.1										$	14.8

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

REPURCHASE TRANSACTIONS During each of the last three years, Progressive entered into repurchase commitment transactions, whereby we 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 obligations with yields that exceeded our interest obligation on the borrowed cash. We are able to borrow the cash at low rates since the securities loaned are in short supply. Our interest rate exposure does not increase or decrease since the borrowing and investing periods match. During the year ended December 31, 2005, Progressive’s largest single outstanding balance of repurchase commitments was $2,028.9 million, which was open for two business days, with an average daily balance of $920.5 million for the year. During 2004, the 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. We had no open repurchase commitments at December 31, 2005 and 2004. We earned income of $4.5 million, $1.8 million and $2.1 million on repurchase commitments during 2005, 2004 and 2003, respectively.

Critical Accounting Policies Progressive 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 we view as most critical with respect to the application of estimates and assumptions are the establishment of our loss reserves and the method of determining impairments in our investment portfolio.

Loss and LAE Reserves    Loss and loss adjustment expense (LAE) reserves represent our best estimate of our 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, 2005, we had $5.3 billion of net loss and LAE reserves, which included $4.2 billion of case reserves and $1.1 billion of incurred but not recorded (IBNR) reserves.

     Progressive’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. We begin our 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 among results generated by the different projections, our 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 us to establish meaningful reserve levels.

     We review a large majority of our reserves by product/state combination on a quarterly time frame, with almost all the remaining reserves reviewed on a semiannual basis. A change in our scheduled reviews of a particular subset of the business depends on the size

APP.-A-40

of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, we have 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. Our intricate process of reviewing over 350 subsets makes compiling a companywide roll up to generate a range of needed loss reserves not meaningful. We do not review loss reserves on a macro level and, therefore, do not derive a companywide range of reserves to compare to a standard deviation.

     In analyzing the ultimate accident year loss experience, our 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 is known and, therefore, is 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 Progressive, but the accuracy of the projected level is considered to be reliable. The severity experienced by Progressive, which is much more difficult to estimate, is affected by changes in underlying costs, such as medical costs, jury verdicts and regulatory changes. In addition, severity will vary relative to the change in our 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 our 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. We study 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 and the availability of services to resolve claims. These again are better understood at the state level versus at a more macro countrywide level.

     The manner in which we consider and analyze the multitude of influences on the historical data, as well as how loss reserves affect our financial results, is discussed in more detail in our Report on Loss Reserving Practices, which was filed on June 28, 2005 via Form 8-K.

     Progressive’s carried net reserve balance of $5.3 billion implicitly assumes that the loss and LAE severity will increase for accident year 2005 over accident year 2004 by 4.4% and 7.0% for personal auto liability and commercial auto liability, respectively. Personal auto liability and commercial auto liability reserves represent over 98% of our 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 our original estimated changes in severity included when establishing loss reserves, compared to our estimated changes in severity one year later:

	Personal Auto Liability						Commercial Auto Liability
				One Year						One Year
Accident Year	Original			Later			Original			Later
2004		2.7	%		1.3	%		9.0	%		4.9	%
2005		4.4	%		1.3	%*		7.0	%		1.5	%*

^* The estimated change for accident year 2005 assumes the same change in severity estimate as was realized for accident year 2004 with estimated severity for other accident years remaining unchanged.

If, for example, the change in our estimate of the severity for accident year 2005 is consistent with the change experienced for 2004, the effect to reserve levels could be a favorable $194 million in 2006. If we were to apply this same rationale to the change in severity estimates for the trailing three accident years we experienced in 2004 and 2005, our reserve estimates could result in a range of development from $152 million to $356 million in 2006. Over the last few years, we have experienced favorable changes in our estimates of severity. We cannot predict if this trend will continue in the future.

     Our 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 2005, our estimate of the needed reserves at the end of 2004 decreased 7.2%. The following table shows how we have performed against this goal over the last ten years.

APP.-A-41

(millions)
For the years ended
December 31,	1995		1996		1997		1998		1999			2000		2001		2002		2003		2004		2005
Loss and LAE reserves1	$	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	$	5,313.1
Re-estimated reserves as of:
One year later		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		4,592.6
Two years later		1,149.5		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7		4,103.3		—
Three years later		1,118.6		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7		3,459.2		—		—
Four years later		1,137.7		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9		2,982.7		—		—		—
Five years later		1,153.3		1,445.1		1,664.7		1,919.0		2,277.5			2,678.5		—		—		—		—
Six years later		1,150.1		1,442.0		1,674.5		1,917.6		2,284.9			—		—		—		—		—
Seven years later		1,146.2		1,445.6		1,668.4		1,921.9		—			—		—		—		—		—
Eight years later		1,147.4		1,442.5		1,673.9		—		—			—		—		—		—		—
Nine years later		1,146.3		1,443.2		—		—		—			—		—		—		—		—
Ten years later		1,146.9		—		—		—		—			—		—		—		—		—
Cumulative development:
Favorable/ (unfavorable)	$	167.5	$	89.7	$	193.6	$	23.9	$	(84.7	)	$	106.8	$	87.0	$	172.9	$	243.1	$	355.9
Percentage2		12.7		5.9		10.4		1.2		(3.8	)		3.8		2.8		4.8		5.6		7.2

The chart represents the development of the property-casualty loss and LAE reserves for 1995 through 2004. 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, we report development in the aggregate rather than by segment.

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

We experienced consistently favorable reserve development from 1995 through 1998, primarily due to the decreasing bodily injury severity. 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. During this period, our bodily injury severity decreased each quarter when compared to the same quarter the prior year. This period of decreasing severity that we experienced was not only longer than that generally experienced by the industry, but also longer than any time in our history. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, we started experiencing an increase in bodily injury severity. As a result, the reserve development for 1998 through 2001 has been much closer to our original estimate. The recent development reflects more modest increases in severity than originally estimated.

     Because Progressive is primarily an insurer of motor vehicles, we have minimal exposure as an insurer of environmental, asbestos and general liability claims.

     To allow interested parties to understand our loss reserving process and the effect it has on our financial results, in addition to the discussion above, we annually publish a comprehensive Report on Loss Reserving Practices, which is filed via Form 8-K, and is available on our 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 judgments regarding the materiality of the decline; its effect on the financial statements; 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, we assess 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 our assessment 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.-A-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 we have 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. Our 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 us to evaluate a decline in market value to be other than temporary, we reduce 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, 2005, Progressive’s total portfolio had $132.2 million in gross unrealized losses, compared to $49.8 million in gross unrealized losses at year-end 2004. The increase in the gross unrealized loss position from 2004 relates primarily to the fixed-maturity portfolio, resulting primarily from the rise in interest rates during 2005.

     The following table stratifies the gross unrealized losses in our portfolio at December 31, 2005, 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 we would have recognized in the income statement if our policy for market-related declines was different than that stated above.

(millions)	Total Gross				Decline of Investment Value
	Unrealized
Total Portfolio	Losses		> 15%		> 25%		> 35%		> 45%
Unrealized Loss for 1 Quarter	$	6.9	$	1.2	$	.2	$	—	$	—
Unrealized Loss for 2 Quarters		42.8		.1		—		—		—
Unrealized Loss for 3 Quarters		15.3		2.6		.3		—		—
Unrealized Loss for 1 Year or Longer		67.2		.1		—		—		—
Total	$	132.2	$	4.0	$	.5	$	—	$	—

For example, if we decided to write down all securities in an unrealized loss position for one year or longer where the securities decline in value exceeded 15%, we would recognize an additional $.1 million of OTI losses in the income statement.

     The $67.2 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 was deemed to have any fundamental issues that would lead us to believe that they were other-than-temporarily impaired. We have the intent and ability to hold the fixed-income securities to maturity, and will do so, as long as the securities continue to be consistent with our investment strategy. We will retain the common stocks to maintain correlation to the Russell 1000 Index as long as the portfolio and index correlation remain similar. If our strategy was to change and these securities were impaired, we would recognize a write-down in accordance with our stated policy.

     Since total unrealized losses are already a component of our shareholders’ equity, any recognition of additional OTI losses would have no effect on our 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.-A-43

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Ten Year Summary—Financial Highlights}

(unaudited)

(millions-except ratios, per share
amounts and number of people employed)	2005			2004			2003			2002			2001
INSURANCE COMPANIES SELECTED FINANCIAL INFORMATION AND OPERATING STATISTICS—STATUTORY BASIS
Net premiums written	$	14,007.6		$	13,378.1		$	11,913.4		$	9,452.0		$	7,260.1
Growth		5	%		12	%		26	%		30	%		17	%
Policyholders’ surplus	$	4,663.3		$	4,671.8		$	4,538.3		$	3,370.2		$	2,647.7
Net premiums written to policyholders’ surplus ratio		3.0			2.9			2.6			2.8			2.7
Loss and loss adjustment expense ratio		68.1			65.0			67.4			70.9			73.6
Underwriting expense ratio		19.3			19.6			18.8			20.4			21.1
Statutory combined ratio		87.4			84.6			86.2			91.3			94.7
SELECTED CONSOLIDATED FINANCIAL INFORMATION—GAAP BASIS
Total assets	$	18,898.6		$	17,184.3		$	16,281.5		$	13,564.4		$	11,122.4
Total shareholders’ equity		6,107.5			5,155.4			5,030.6			3,768.0			3,250.7
Common Shares outstanding		197.3			200.4			216.4			218.0			220.3
Common Share price:
High	$	124.90		$	97.29		$	84.68		$	60.49		$	50.60
Low		81.38			73.10			46.25			44.75			27.38
Close (at December 31)		116.78			84.84			83.59			49.63			49.77
Market capitalization	$	23,040.7		$	17,001.9		$	18,088.9		$	10,819.3		$	10,958.6
Book value per Common Share		30.96			25.73			23.25			17.28			14.76
Return on average common shareholders’ equity		25.0	%		30.0	%		29.1	%		19.3	%		13.5	%
Debt outstanding	$	1,284.9		$	1,284.3		$	1,489.8		$	1,489.0		$	1,095.7
Ratios:
Debt to total capital		17.4	%		19.9	%		22.8	%		28.3	%		25.2	%
Price to earnings		16.7			11.1			14.7			16.6			27.2
Price to book		3.8			3.3			3.6			2.9			3.4
Earnings to fixed charges		21.3x			27.1x			18.8x			13.2x			10.7x
Net premiums earned	$	13,764.4		$	13,169.9		$	11,341.0		$	8,883.5		$	7,161.8
Total revenues		14,303.4			13,782.1			11,892.0			9,294.4			7,488.2
Underwriting margins:1
Personal Lines		11.0	%		14.1	%		12.1	%		7.5	%		4.5	%
Commercial Auto		17.9	%		21.1	%		17.5	%		9.1	%		8.3	%
Other-indemnity2	NM			NM			NM				7.2	%		7.0	%
Total underwriting operations		11.9	%		14.9	%		12.7	%		7.6	%		4.8	%
Net income	$	1,393.9		$	1,648.7		$	1,255.4		$	667.3		$	411.4
Per share3		6.98			7.63			5.69			2.99			1.83
Dividends per share		.120			.110			.100			.096			.093
Number of people employed		28,336			27,085			25,834			22,974			20,442

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

¹ Underwriting margins are calculated as underwriting profit (loss), as defined in Note 9-Segment Information, as a percent of net premiums earned.

APP.-A-44

(millions-except ratios, per share amounts
and number of people employed)	2000			1999			1998			1997			1996
INSURANCE COMPANIES SELECTED FINANCIAL INFORMATION AND OPERATING STATISTICS—STATUTORY BASIS
Net premiums written	$	6,196.1		$	6,124.7		$	5,299.7		$	4,665.1		$	3,441.7
Growth		1	%		16	%		14	%		36	%		18	%
Policyholders’ surplus	$	2,177.0		$	2,258.9		$	2,029.9		$	1,722.9		$	1,292.4
Net premiums written to policyholders’ surplus ratio		2.8			2.7			2.6			2.7			2.7
Loss and loss adjustment expense ratio		83.2			75.0			68.5			71.1			70.2
Underwriting expense ratio		21.0			22.1			22.4			20.7			19.8
Statutory combined ratio		104.2			97.1			90.9			91.8			90.0
SELECTED CONSOLIDATED FINANCIAL INFORMATION—GAAP BASIS
Total assets	$	10,051.6		$	9,704.7		$	8,463.1		$	7,559.6		$	6,183.9
Total shareholders’ equity		2,869.8			2,752.8			2,557.1			2,135.9			1,676.9
Common Shares outstanding		220.6			219.3			217.6			216.9			214.5
Common Share price:
High	$	37.00		$	58.08		$	57.33		$	40.29		$	24.08
Low		15.00			22.83			31.33			20.50			13.46
Close (at December 31)		34.54			24.38			56.46			39.96			22.46
Market capitalization	$	7,616.8		$	5,345.4		$	12,279.7		$	8,667.0		$	4,817.3
Book value per Common Share		13.01			12.55			11.75			9.85			7.82
Return on average common shareholders’ equity		1.7	%		10.9	%		19.3	%		20.9	%		20.5	%
Debt outstanding	$	748.8		$	1,048.6		$	776.6		$	775.9		$	775.7
Ratios:
Debt to total capital		20.7	%		27.6	%		23.3	%		26.6	%		31.6	%
Price to earnings		164.5			18.5			27.7			22.6			16.3
Price to book		2.7			1.9			4.8			4.1			2.9
Earnings to fixed charges		1.3x			5.7x			10.2x			9.2x			7.7x
Net premiums earned	$	6,348.4		$	5,683.6		$	4,948.0		$	4,189.5		$	3,199.3
Total revenues		6,771.0			6,124.2			5,292.4			4,608.2			3,478.4
Underwriting margins:1
Personal Lines		(5.2	)%		1.2	%		7.9	%		6.3	%		7.9	%
Commercial Auto		3.3	%		8.4	%		17.6	%		10.9	%		10.1	%
Other-indemnity2		13.6	%		10.8	%		8.6	%		7.9	%		27.9	%
Total underwriting operations		(4.4	)%		1.7	%		8.4	%		6.6	%		8.5	%
Net income	$	46.1		$	295.2		$	456.7		$	400.0		$	313.7
Per share3		.21			1.32			2.04			1.77			1.38
Dividends per share		.090			.087			.083			.080			.077
Number of people employed		19,490			18,753			15,735			14,126			9,557

2	In 2003, the Company ceased writing business for its lender’s collateral protection program. As a result, underwriting margin is not meaningful (NM) for the Company’s other-indemnity businesses due to the insignificant amount of premiums earned by such businesses after that date.
3	Presented 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.

APP.-A-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, 2005, 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		Market Value		+ 100 bps		+200 bps
(millions)	Change		Change		Actual		Change		Change
U.S. government obligations	$	2,473.2	$	2,356.9	$	2,245.3	$	2,140.5	$	2,043.7
State and local government obligations		3,936.6		3,781.3		3,635.9		3,499.1		3,370.5
Asset-backed securities		2,471.5		2,423.9		2,376.0		2,327.0		2,277.7
Corporate securities		1,918.1		1,862.3		1,809.5		1,759.4		1,711.6
Preferred stocks		1,272.6		1,247.1		1,220.3		1,199.1		1,180.7
Other debt securities1		162.7		158.9		155.2		151.6		148.2
Short-term investments		773.6		773.6		773.6		773.6		773.6
Balance as of December 31, 2005	$	13,008.3	$	12,604.0	$	12,215.8	$	11,850.3	$	11,506.0
Balance as of December 31, 2004	$	11,941.0	$	11,583.6	$	11,230.1	$	10,885.7	$	10,557.2

¹ Includes $121.8 million in mandatory redeemable preferred stocks.

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
(millions)	Market Value			+ 10%		-10%
Common equities as of December 31, 2005	$	2,058.9		$	2,264.8	$	1,853.0
Common equities as of December 31, 2004	$	1,851.9		$	2,037.1	$	1,666.7

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 approximately 1%, and the remaining 99% of the equity portfolio is indexed to the Russell 1000.

APP.-A-46

As an additional supplement to the sensitivity analysis, the Company presents results from a value-at-risk (VaR) analysis used to estimate and quantify its market risks. VaR is the expected loss, for a given confidence level, of the Company’s portfolio due to adverse market movements in an ordinary market environment. The VaR estimates below are used as a risk measurement and reflect an estimate of potential reductions in fair value of the Company’s portfolio for the following 22 and 66 trading days (one- and three-month intervals) at the 95th percentile loss. The Company uses the 22-day VaR to measure exposure to short-term volatility and the 66-day VaR for longer-term contingency capital planning.

	December 31,			September 30,			June 30,			March 31,			December 31,
(millions)	2005			2005			2005			2005			2004
22-DAY VaR
Fixed-income portfolio	$	(106.0	)	$	(105.4	)	$	(95.1	)	$	(114.9	)	$	(103.1	)
% of portfolio		(.9	)%		(.8	)%		(.8	)%		(1.0	)%		(.9	)%
Common equity portfolio	$	(84.6	)	$	(81.5	)	$	(86.5	)	$	(85.8	)	$	(75.6	)
% of portfolio		(4.1	)%		(4.0	)%		(4.5	)%		(4.5	)%		(4.1	)%
Total portfolio	$	(137.4	)	$	(123.3	)	$	(123.4	)	$	(163.3	)	$	(128.6	)
% of portfolio		(1.0	)%		(.8	)%		(.9	)%		(1.2	)%		(1.0	)%
66-DAY VaR
Fixed-income portfolio	$	(181.9	)	$	(180.5	)	$	(164.9	)	$	(198.0	)	$	(180.1	)
% of portfolio		(1.5	)%		(1.5	)%		(1.4	)%		(1.7	)%		(1.6	)%
Common equity portfolio	$	(140.7	)	$	(135.5	)	$	(143.7	)	$	(142.0	)	$	(130.2	)
% of portfolio		(6.8	)%		(6.7	)%		(7.4	)%		(7.5	)%		(7.0	)%
Total portfolio	$	(230.9	)	$	(206.8	)	$	(208.8	)	$	(276.1	)	$	(276.1	)
% of portfolio		(1.6	)%		(1.4	)%		(1.5	)%		(2.1	)%		(1.7	)%

The Company’s VaR results are based on a stochastic simulation where all securities are marked to market under 10,000 scenarios. 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 each security’s individual pricing history. The model uses an exponentially weighted moving average methodology to forecast variances and covariance over a two-year time horizon for each security. In estimating the parameters of the forecast model, the sample mean is set to zero and the weight applied in the exponential moving average forecasts are set at .97, making the model more sensitive to recent volatility and correlations. In March 2005, the Company changed the model’s exponential moving average from .94 to .97, which has the effect of reducing the rate of decay. Results for December 31, 2004 are based on a decay of .97. The VaR of the total investment portfolio is less than the sum of the two components (fixed income and common equity) due to the benefit of diversification.

     The slight decrease in the 22-day and 66-day VaR from December 31, 2004 to December 31, 2005, primarily results from lower volatility in both the fixed-income and equity markets in 2005.

Trading Financial Instruments At December 31, 2005 and December 31, 2004, the Company did not have any trading securities. During 2005, 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, $0 and $.1 million in 2005, 2004 and 2003, respectively.

APP.-A-47

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Claims Payment Patterns}

(unaudited)

The Company is primarily an insurer of automobiles, recreational vehicles and trucks owned by small businesses. As such, the Company’s claims 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.-A-48

Total Auto

Note: The above graphs are presented on an accident period basis and are based on three years of actual experience for physical damage and nine years for bodily injury and total auto.

APP.-A-49

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
2005
1	$	3,361.2	$	412.7	$	2.04	$	92.49	$	81.38	$	91.76				$	.030
2		3,464.1		394.3		1.97		100.88		87.50		98.81					.030
3		3,488.6		305.3		1.54		107.30		93.70		104.77					.030
4		3,490.7		281.6		1.42		124.90		103.02		116.78					.030
	$	13,804.6	$	1,393.9	$	6.98	$	124.90	$	81.38	$	116.78		37.9	%	$	.120
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

1	Prices as reported on the consolidated transaction reporting system. The Company’s Common Shares are listed on the New York Stock Exchange.
2	Represents premiums earned plus service revenues.
3	Presented on a diluted basis. The sum may not equal the total because the average equivalent shares differ in the periods.
4	Represents annual rate of return, including quarterly dividend reinvestment.

APP.-A-50

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

{Net Premiums Written by State}

(unaudited)

(millions)	2005				2004				2003				2002				2001
Florida	$	1,774.2	12.7	%	$	1,522.6	11.4	%	$	1,338.2	11.2	%	$	1,040.7	11.0	%	$	798.9	11.0	%
Texas		1,126.8	8.0			1,181.1	8.8			1,126.4	9.4			858.6	9.1			571.5	7.9
California		982.8	7.0			892.7	6.7			736.2	6.2			550.7	5.8			404.6	5.6
New York		968.8	6.9			935.7	7.0			808.3	6.8			662.0	7.0			554.1	7.6
Georgia		749.5	5.4			733.2	5.5			614.4	5.2			485.3	5.1			407.0	5.6
Ohio		736.0	5.3			754.2	5.6			712.1	6.0			619.7	6.6			570.9	7.9
Pennsylvania		659.1	4.7			634.4	4.7			589.3	4.9			491.0	5.2			367.5	5.0
All other		7,010.4	50.0			6,724.2	50.3			5,988.5	50.3			4,744.0	50.2			3,585.6	49.4
Total	$	14,007.6	100.0	%	$	13,378.1	100.0	%	$	11,913.4	100.0	%	$	9,452.0	100.0	%	$	7,260.1	100.0	%

APP.-A-51

DIRECTORS

Charles A. Davis^{3, 5, 6}
Chief Executive Officer,
Stone Point Capital LLC
(private equity investing)

Stephen R. Hardis^{2, 4, 5, 6}
Lead Director,
Axcelis Technologies, Inc.
(manufacturing)

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

Jeffrey D. Kelly^{2, 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. Lewis^{2, 7}
Chairman of the Board

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

Patrick H. Nettles, Ph.D.^{1, 6}
Executive Chairman,
Ciena Corporation
(telecommunications)

Glenn M. Renwick²
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)

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

⁷ Non-executive chairman

CORPORATE OFFICERS

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

Peter B. Lewis
Chairman of the Board
(non-executive)

OTHER EXECUTIVE OFFICERS

Alan R. Bauer
Direct Group President

William M. Cody
Chief Investment Officer

Susan Patricia Griffith
Chief Human Resource Officer

Brian J. Passell
Claims Group President

Raymond M. Voelker
Chief Information Officer

Richard H. Watts
Sales and Service Group President

Robert T. Williams
Drive Group President

Contact Non-Management Directors Interested parties have the ability to contact the 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.

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.

APP.-A-52

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 21, 2006, at 10 a.m. eastern time. There were 3,895 shareholders of record on December 31, 2005.

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 Reporting

For 24-Hour Customer Service or to report a claim, contact:

Personal Lines
Progressive Direct^SM
1-800-PROGRESSIVE (1-800-776-4737)
progressivedirect.com

Drive^® Insurance from Progressive
1-800-925-2886
driveinsurance.com

Commercial Auto
Progressive Commercial
1-800-895-2886
progressivecommercial.com

Drive^® Insurance from Progressive
1-800-444-4487
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 2006 quarterly dividend record dates, subject to Board approval, are as follows: March 10, June 9, September 8 and December 8.

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 does not contribute or provide financial support to any outside organizations. However, Progressive contributes annually to The Progressive Insurance Foundation, which provides: (i) financial support to the Insurance Institute for Highway Safety to further its work in reducing the human trauma and economic costs of auto accidents, and (ii) matching funds to eligible 501(c)(3) charitable organizations to which Progressive employees contribute.

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, Dept. 5352, Corporate Trust Operations, P.O. Box 92301, Cleveland, Ohio 44193-0900. 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: 440-395-2258.

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

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

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

Interactive Annual Report The Progressive Corporation’s 2005 Annual Report, in an interactive format, can be found at: progressive.com/annualreport.

^©2006 The Progressive Corporation

APP.-A-53

EX-21

Exhibit No. 21

SUBSIDIARIES OF THE PROGRESSIVE CORPORATION

	Jurisdiction
Name of Subsidiary	of Incorporation
Garden Sun Insurance Services, Inc.	Hawaii
Greenberg Financial Insurance Services, Inc.	California
Insurance Confirmation Services, Inc.	Delaware
Lakeside Insurance Agency, Inc.	Ohio
Pacific Motor Club	California
PCIC Canada Holdings, Ltd.	Canada
3841189 Canada, Inc.	Canada
Progny Agency, Inc.	New York
Progressive Adjusting Company, Inc.	Ohio
Drive Insurance Holdings, Inc.	Delaware
Bayside Underwriters Insurance Agency, Inc.	Florida
Drive New Jersey Insurance Company	New Jersey
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 DLP Corp.	Ohio
Progressive Hawaii Insurance Corp.	Ohio
Progressive Michigan Insurance Company	Michigan
Progressive Mountain Insurance Company	Ohio
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
United Financial Insurance Agency, Inc.	Washington
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

	Jurisdiction
Name of Subsidiary	of Incorporation
Progressive Direct Holdings Inc.	Delaware
Midland Financial Group, Inc.	Ohio
Progressive Home Insurance Company	Ohio
Midland Risk Services, Inc.	Tennessee
Mountain Laurel Assurance Company	Ohio
Progressive Auto Pro Insurance Agency, Inc.	Florida
Progressive Auto Pro Insurance Company	Florida
Progressive Choice Insurance Company	Ohio
Progressive Direct Resource Services Company	Ohio
Progressive Freedom Insurance Company	New Jersey
Progressive Garden State Insurance Company	New Jersey
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 Specialty Insurance Agency, Inc.	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 RSC, Inc.	Ohio
Progressive Vehicle Service Company	Ohio
Silver Key Insurance Agency, Inc.	Nevada
The Progressive Agency, Inc.	Virginia
Village Transport Corp.	Delaware
Wilson Mills Land Co.	Ohio

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 2005, 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 21st day of February, 2006.

	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 2005, 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 22nd day of February, 2006.

	Position(s) with
Signature	The Progressive Corporation
/s/ Glenn M. Renwick	Director, President and
Glenn M. Renwick	Chief Executive 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 2005, 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 22nd day of February, 2006.

	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 2005, 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 22nd day of February, 2006.

	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 2005, 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 22nd day of February, 2006.

	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 2005, 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 22nd day of February, 2006.

	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 2005, 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 9 day of February, 2006.

	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 2005, 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 22nd day of February, 2006.

	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 2005, 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 12th day of February, 2005.

	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 2005, 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/ 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 2005, 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 22nd day of February, 2006.

	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 2005, 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 7th day of February, 2006.

	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 2005, 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 8 day of February, 2006.

	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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 functions):

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: February 28, 2006	/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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 functions):

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: February 28, 2006	/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, 2005 (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 (15 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

February 28, 2006

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, 2005 (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 (15 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

February 28, 2006

EX-99.A

Exhibit No. 99(A)

LETTER TO SHAREHOLDERS

MEASUREMENT IS CENTRAL TO PROGRESSIVE’S BUSINESS DISCIPLINE. We find ways to measure just about everything. Crafting an accurate measure to summarize overall company performance is perhaps hardest of all, but we have such a measure.

“Gainshare” is our way to calibrate the business gain made in any calendar year. Expressed as a score between 0 and 2 with calculation details that belie the simplistic scale, Gainshare has for over 12 years provided an internal barometer of performance, as well as variable compensation for all Progressive people. In the bleak year of 2000, the score was 0 and no Gainsharing compensation was paid. In 2003, when things could not have gone much better, the score was the first ever 2. While neither of these results was anticipated as likely in the distribution of outcomes, both served to validate the possibilities. Over the last 12 years, the average score has been 1.4, exceeding the expected outcome of achieving our stated objectives which by design would produce a 1.0.

Although 2005 was not a year of record setting growth rates or earnings per share, by our Gainshare score of 1.54, or by any other measure, it was a very solid all-around performance. We ended the year with just over $14 billion in net premiums written, an increase of about $630 million, or 5% over 2004. This is the smallest gain of the last five years in both absolute and percentage terms, but not out of sync with our expectations or our forecast of industry-wide auto premiums for 2005. Our calendar-year underwriting profit margin remained exceptionally strong at 11.9%, considerably above our target of 4%, but down from prior-year levels by about 3 points. Combined with investment returns for the year, net income for 2005 was $1.39 billion, yielding a return on average shareholders’ equity of 25%.

[Private Passenger Auto Combined Ratios 1976-2005 graphic intentionally omitted]

Market Conditions

With some good reason, the cyclical nature of insurance is often cited when describing market conditions and industry performance. The inset graph provides a visual reference to the surprisingly consistent nature of the private passenger auto cycle. Over the past 30 years, we have seen enormous political and economic changes, along with dramatic swings in interest rates and equity-market returns. Despite these changes, the cycle shows a consistent pattern. It would appear that over the past few years, we have been observing the ascent, peak and now the potential decline in underwriting margins of the current cycle.

Last year I reported that consistently falling claims frequency made 2003 and 2004 two of only three profitable years in the last 25 for the auto insurance industry and that 2004 produced what was at that time perhaps the lowest industry-wide combined ratio in history. As most would have assumed, 2005 was to be another year of underwriting profitability and, while significant, even the losses from the storm season are unlikely to dramatically change the macro cycle.

For Progressive, understanding this cycle translates into playing the right hand at the right time.

About one full cycle ago, the industry was reporting peak underwriting profitability. In 1998, Progressive reported a healthy underwriting profit of 8.4%, but our growth was slowing. Our culture thrives on profitable growth, and slowing growth does not sit well at any level in the organization — now or then. We responded with price reductions in the hope of additional profitable growth. These reductions, combined with an unanticipated increase in claim frequency and severity and a host of other contributing factors, decreased our underwriting profit to 1.7% in 1999 and led to an underwriting loss of 4.4% in 2000.

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In our own small way we contributed to the cycle. As we review today’s market conditions there are reasons to respect the parallels to that time. We are more experienced, but imperfect, in valuing the benefit of rate reductions during market conditions in which consumers experience rate stability or decreases. As such, we have chosen to be more deliberate in using rate reductions in search of profitable growth. Drive Insurance, which operates in an environment where rates are continuously compared to competitive options, reduced rates modestly during the year and found it very hard to get growth in new applications. Progressive Direct kept rates relatively stable for the year and was able to grow new applications, albeit at a pace far less than we could have handled and would have preferred.

Change in market pricing is reflected in year-over-year growth in net premiums written for the auto insurance industry. In 2004, the year-over-year growth in net premiums written fell to 4.2% from the prior three-year average of 8%. For 2005, we estimate the year-over-year increase in net premiums written for the auto insurance industry will be about 1%. Our knowledge of the calculus combining price, growth and profit, while increasing, remains a challenge and something we want to be smart about.

Reviewing Progressive’s and the industry’s results through 2005 and noting the possible analogue to past cycles, we would make a few important observations. Operating margins, while historically strong, are starting to deteriorate. Modestly increasing severity, notably in physical damage coverages, combined with price reductions, will likely reduce current margins. Prior period bodily injury severities, which have the highest sensitivity to carried reserves, have generally been overestimated resulting in favorable calendar-period adjustments. In Progressive’s case, the overall favorable calendar-year adjustment was 2.6 points for 2005. Calendar-period reporting has a way of disguising the run rate and perhaps delaying appropriate reactions. We have for some time forecast that Progressive would slowly return to more normal operating margins by allowing expected increases in severity, and potentially frequency, to absorb the margin in excess of our target rather than immediately price it away. We continue to believe this is the right way for us to address these market conditions.

We see 2006 as a year when accident-year results both for Progressive and the industry may begin producing smaller margins and trending toward more historical norms. As with any outlook there are unknowns. The level of price activity and the degree of severity and frequency change will be critical as we play our hand during this phase of the cycle.

History has been an influential teacher and as we work through this phase of the cycle many things are different and, we think, better for us. Our personal auto policy periods are shorter, providing greater flexibility to price correctly and our controls and analytic review of profitability by subsegments of our book are more rigorous. We are clearer about our expected outcomes. Loss cost and expense management are all considerably tighter and our technology and operational performance are considerably improved.

While accepting that current market conditions will likely continue to influence our growth during 2006, and that growth will be less than we believe we are ready to handle, we have embraced this time and opportunity as one of “maximum preparedness” for the future we anticipate.

Maximum Preparedness

Underwriting cycle aside, our future will largely be determined by how we craft it, and we have many important initiatives that continue to excite me. A slightly less glamorous way to describe ourselves and our ability to compete would be to suggest we do three things well that really matter. We allocate costs between consumers in ways that best match their expected costs, we manage the claims and administrative costs that must ultimately be allocated, and we provide superior consumer experiences. Our maximum preparedness agenda is designed to encompass the many things we know matter in our

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business and to optimize our performance on a few very strategic initiatives that create meaningful and, in some cases, distinctive competitive advantages.

Claims Our single largest cost and one of our most visible consumer experiences has continued to demonstrate steady and consistent improvement. Our emphasis on claims handling quality and critical review has again established a new high-water mark. While the rate of improvement, by definition, will slow, this is likely the single most important and sustained operational improvement of the last several years. Even more important perhaps is that our claims quality improved in growth periods suggesting, as we believe, claims quality is largely a function of system-wide process design and effective implementation. We expect when margins thin the competitive benefits will be more apparent.

Last year, I reported that we used the year to fully evaluate every aspect of our concierge-level claims service and concluded by year end that our evaluation discipline and planning had positioned us well for expansion throughout 2005 and 2006. We opened six new facilities in 2005 and ended the year with 18 under construction. 2006 will be a big year with about 30 planned openings. As passionate and involved as I have been with this initiative, I continue to be surprised and impressed by the level of detail and science our people have built around the concept, and just how critical that detail is to ensure success. My confidence in more than doubling the number of sites in just one year reflects that we are now observing that each opening builds on the success of those before it and has a much abbreviated learning curve. Several years ago I suggested that this initiative would change our business in profound ways, improving the customer and employee experience, reducing the friction costs associated with claims handling, improving the interaction with body shops and leveraging scale advantages in meaningful ways. I am now more confident than ever and we have started to think more in terms of how not to deprive our customers of this level of service where we can offer it economically.

A theme highlighted by this report is the significance and value of time in a service economy. More than anything else the concierge level of service respects our customers’ and claimants’ time and works effectively to minimize the cycle time of repairs, resulting in cost-management opportunities at every step of the process.

Speaking of time, our claims responsiveness was once again put to the test in what appeared to be the never-ending storm season of 2005. We have reported at length on the storms and their economic toll, but the real story is that, when tested, our claims organization’s ability to produce excellent closure rates and great customer service was, we believe, second to none. A by-product of a storm season of this year’s magnitude is that it is likely that more people than ever, in a concentrated period of time, have experienced an insurance claim of one type or another. We intend to confirm our understanding of our performance by conducting an independent survey of Gulf States claims handling. Determining where we have room for improvement will be the only assessment of long-term value. Timely response in this case is not just great customer service, it’s good business. Responding to customers quickly adds certainty to our external financial disclosures as well as to the internal data we use for pricing.

[Storm Tracking — 2005 Season graphic intentionally omitted]

Marketing 2005 was the first full year operating with two distinct brand offerings. Providing consumers the choice of both an agent-distributed product, now sold as Drive^® Insurance from Progressive, and a direct-to-consumer product, Progressive Direct^SM, is both exciting and important positioning for us. Each brand presents distinct challenges in product design, pricing and competitive focus. The power of this choice and positioning was highlighted for me when we entered New Jersey in September and were able to announce the availability of two top-ten national brands, providing consumers with different and valid choices in how to buy their auto insurance. Significant

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opportunities exist for both brands to develop and improve but, with a year behind us, the opportunities are starting to be realized and we are encouraged by the potential.

A notable and welcomed development for Progressive Direct during the year was the continued strong growth from customers initiating and buying policies on the Internet. Our Web-based activities celebrated their ten-year anniversary in 2005 with some remarkable accomplishments, and as we look toward the next decade, we expect the changes to be equally profound.

We are pleased with, and very committed to, our positioning of Progressive relative to Internet consumers and see tremendous potential in everything we do to leverage our leadership further. The continuous enhancement of Internet features and capabilities in Agent and Direct quoting, customer service and claims management are all central to our preparedness plans.

Retention and Customer Service Last year in this letter, I wrote that we are at our best when challenged and that improving retention is a challenge we have accepted. During a period in which price pressure appears to be a less significant reason for consumers to switch, our overall retention measures have not extended at a rate we might have expected. This has forced us to examine the customer experiences we provide at ever-increasing levels of granularity. We have not always liked what we’ve seen. Self diagnosis seems easy upon first blush, but to understand effectively the countless combinations of customer experiences makes the effort a significant commitment. In more cases than we would like, the cause of a less than perfect customer experience is what we have called “friendly fire.”

While we are proud of our overall service and experience delivery, we can do better. Friendly fire, as we have seen, can result from process breakdowns, poor quality control, actions that are generally applied that should be more targeted, failure to communicate as effectively as the situation deserves, and the like. We are using more finely tuned statistical process control tools, numerous cause analysis methods and a heightened attention to customer feedback in our efforts to take our customer care focus to a level consistent with our expectations. To increase the speed, completeness and intensity of our self analysis of customer experiences we have created a participation benefit for our employees to be both customers and critics. Eating our own cooking, combined with the Progressive culture to be “Virtually Perfect” in all we do, will unquestionably create some healthy tension, but I have little doubt having more Progressive people as Progressive customers will be an effective catalyst as we continue to improve our product offerings and consumer experiences.

Technology Advancing our technology interface with agents and consumers and increasing internal functionality is a routine part of our individual business operations and is funded and managed as such. Our plans in each area are directed at long-term cost management and providing superior customer experiences. 2006 promises to be another productive year. To add to our ongoing preparedness, we have two companywide initiatives under way for which the next 18 months will be crucial. The first is replacing the customer and policy management system that has served us well but is not consistent with our views of future needs. The second is adding a data center that will ensure that not only is capacity not constrained but that a very high level of system availability and disaster preparedness is assured.

Investments and Capital Management

Solid growth in the economy and improving profits supported the equity markets in 2005 while “measured” interest rate increases from the Federal Reserve pushed short-term rates higher to essentially flat with steady longer maturity yields. We took advantage of interest rate volatility during the year to shorten our portfolio’s average maturity when rates were low and extend it when rates increased. We decreased our exposure to corporate and other non-government issued bonds early in the year, believing the incremental yield premium relative to U.S. treasury bonds was insufficient for the risk taken. Our portfolio produced a 4% total return in 2005 with equities tracking their benchmark and fixed-income securities performing better than the general bond market.

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Our long-standing and continuing position on capital management is to repurchase shares when our capital position, view of the future, and the stock’s price make it attractive to do so. Growth rates and profitability levels during 2005 happily led to an assessment that we were accumulating capital in excess of that which we believed was needed and prudent to run the business. Committed to executing against our capital management strategy, we entered 2005 with regular monthly share repurchases. The average repurchase price per share in January was $83.46, below the $88 of the “Dutch auction” we had completed just three months earlier. By September our repurchase price was just under $100. October and November saw rapid escalation in the stock price peaking near $125; while delighted for shareholders, this level of volatility suggested we should pause for a while, which we did before repurchasing again in December at $118.92.

Use of Gainshare to Align Shareholder and Employee Interests

Gainshare (GS)		Employee GS		Employee paid		Employee GS
factor	x	targets	x	eligible earnings	=	payout
Gainshare (GS)		Shareholder GS		Annual after-tax		Shareholder GS
factor	x	target	x	underwriting income	=	payout

Progressive’s business model is designed to produce profitable growth over any reasonable period and support that growth from underwriting results. Based on our current market share and competitive positioning, we see no significant constraints to this outlook. Internally, our Gainsharing measure, focused exclusively on underwriting performance, provides a significant degree of self regulation to this objective. With this as a backdrop, we have challenged ourselves to develop a more comprehensive view of capital husbandry that is more aligned with our business model. The most significant change we plan to implement is to our dividend policy. In 2007, we will replace modest quarterly dividends with an annual variable dividend payable after the close of the year. The special dividend will, absent extraordinary circumstances, be declared by the Board based on a Board-selected target percentage of after-tax underwriting profit, multiplied by the companywide Gainshare factor. The target percentage will be declared prior to the start of the year and the Gainshare score, between 0 and 2, will be reported each month as it develops. This adds a significant dimension to our ability to return capital to shareholders in balance with performance and our expected future capital needs. In addition, it provides for an ownership proposition well aligned with companywide performance management incentives. We have stress tested this concept using a 20% target and actual Gainshare scores for the last decade and are convinced it produces the desired outcomes of returning capital to owners in periods in which we do not require additional capital and retaining capital when we can effectively deploy it in the business. Using 2005 performance as an example, the dividend payable in early 2006 would have been $1.66 per share versus $0.12 under the current dividend policy. While this change provides a means for a more consistent capital distribution when appropriate to do so, we are still committed to our repurchase activity as an important part of our immediate and long-term capital management. At a minimum, we will continue to neutralize dilution from equity-based compensation, in the year of issuance, through share repurchases. With this addition to our capital management tool set, we believe we will be much better suited to deal with the range of outcomes from our business model and create suitable flexibility for owners under varying tax environments.

We have for some time included in our Financial Policies that we will split the stock when the share price exceeds $100 for a reasonable period of time. We last split the stock 3:1 in April 2002. As I write this letter, we are approaching a time when both conditions have been met, and I expect our Board of Directors will vote on such an action during their meeting immediately following the

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Annual Meeting of Shareholders in April. We currently do not have enough authorized shares to provide significant flexibility in considering a range of split scenarios and have placed a request for increased authorization before the shareholders. We have attempted to study many factors to determine whether splitting the stock and having it trade in a price range more consistent with the market as a whole is an appropriate thing to do. Our work in this area is not definitive, but we are now less sure that forecasting parameters of any future split is important to our capital management philosophy. Therefore, we will remove that commitment from our Financial Policies going forward.

Constancy of Purpose

Just as measurement is central to Progressive’s business discipline, our Core Values, aspirations and people are central to our business culture.

We are continuously motivated by our aspiration of becoming Consumers’ #1 Choice for Auto Insurance and in 2005 moved another step closer, ending the year with close to 10 million policies and enormous potential. Nothing we have achieved has been without the efforts of so many and our single most important initiative continues to be making Progressive a Great Place to Work. Creating an environment where our people enjoy working hard, are motivated to do their best, can grow constantly and one that others want to join is a never-ending focus and has a special permanency. Our measures of the culture and work environment provide us both confidence and challenge in our efforts to ensure the Progressive culture continuously matches our aspirations.

We greatly appreciate the customers we are privileged to serve, the more than 28,000 Progressive people who make it all possible, the agents and brokers who choose to represent us and shareholders who believe in what we are doing.

Glenn M. Renwick
President and Chief Executive Officer

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EX-99.B

Exhibit 99(B)

NEW DIVIDEND POLICY Q&A
(February 2006)

What is the Company’s current dividend policy?
Our current policy is to pay a modest, increasing cash dividend. Under this policy, we have paid a quarterly dividend of $.03 per share since the 3^rd quarter of 2004 (representing an annual dividend yield of approximately .11% as of the close of trading on 2/23/06). We anticipate that our current policy will remain in effect throughout 2006.

When will the new dividend policy go into effect?
As announced, the new policy will go into effect in 2007. This means that our current quarterly dividend will be discontinued after the 4^th quarter of 2006. The initial dividend under the new policy for calendar year 2007 will be paid at or shortly after the end of 2007.

How does this new dividend policy differ from the current policy?
As with many companies, our current policy is to pay a consistent quarterly dividend, although the quarterly rate may be changed from time to time. Our variable “Gainshare” dividend, on the other hand, will be different in two ways:

• First, the dividend will be paid in a lump sum on an annual basis, not quarterly; and

• Second, it will change in amount from year to year, perhaps significantly, depending upon the Company’s underwriting performance (i.e., from insurance operations) during each year and potentially upon changes in the target percentage of underwriting profit that is selected annually by our Board of Directors. Each of these factors is discussed in more detail below.

How will the dividend be determined under the new policy?
The amount of the dividend will be determined by using a calculation that is very similar to our Gainsharing program for determining annual cash bonuses for employees, as summarized by the following formula and further explained by the subsequent questions:

Gainshare (GS)		Shareholder GS		Annual after-tax		Shareholder GS
Factor	X	Target	X	underwriting income	=	Payout

The aggregate shareholder payout will then be divided by the number of Common Shares outstanding to determine a per share dividend amount. Investors should note, however, that although this formula will produce a dividend calculation, the Board of Directors has final discretion regarding whether or not to declare the dividend and the amount of the dividend.

What is the “Shareholder GS Target” and how will it be determined?
The Shareholder GS Target will be expressed as a percentage of after-tax underwriting income and will be selected by the Board of Directors at the beginning of each year. The selected target will be communicated to shareholders and to the public in an appropriate manner. This target percentage multiplied by our annual after-tax underwriting income for the year will produce a target dollar amount that will constitute the dividend payout if the Gainshare Factor is a 1.0 (see below for more information on the Gainshare Factor). Only underwriting income (i.e., income from our insurance operations) will be included in the calculations; investment and other service

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income will be excluded. The Shareholder GS Target may vary from year to year. Shareholders should note that, since this calculation is based on our underwriting income, the amount of the ultimate dividend may change materially from year to year and, if we experience a year without underwriting income, no dividend will be paid. The Board currently anticipates setting a Shareholder GS Target of 20% for 2007; however, the final decision will be made by the Board towards the end of 2006.

What is the “Gainshare Factor” and how will it be determined?
Consistent with the Company’s Gainsharing program for annual cash bonuses for employees, the Gainshare Factor is a performance score for the Company’s “Core Business,” which is currently defined to include the Drive Insurance, Progressive Direct and Commercial Auto businesses. This performance score can vary between 0 and 2 in any given year depending upon the growth and profitability performance of the Core Business for that year. This means that the amount of the dividend can vary from 0 to 2 times the target amount. A score of 1.0, by our definition, means that the Company has satisfied core profitability and growth targets for the year.

To calculate the Gainshare Factor for the Core Business, the performance of each business unit will be evaluated separately in comparison to specified measures of profitability and growth that are established by the Board, or one of its Committees, early each year. This analysis will produce a score for each business unit, which will then be weighted according to their respective contributions to premiums earned, resulting in an overall Gainshare Factor for the Core Business. The profitability and growth measures considered in determining the performance scores for the business units will involve sensitive judgments about the Company’s individual businesses and, because of this, we anticipate that we will not publish the details of these performance standards. Instead, starting in 2007, we will publish the then current Gainshare Factor with our monthly financial releases, to allow shareholders and the public to have up-to-date information on the development of the potential dividend payment.

Although it is difficult to generalize how the Gainshare Factor will operate in the future, we have experience with our employee Gainshare plans that may provide some guidance for shareholders:

• Shareholders should realize that the performance score can be “0” in a given year, resulting in no dividends paid, just as most employees did not receive a cash bonus in 2000 when the Gainshare Factor was 0.

• The identity of the components of the Company’s Core Business and the method of calculating the Gainshare Factor may be changed by the Board from year to year as our business develops. Accordingly, a Gainshare Factor and dividend paid for one year may not be directly comparable to the Gainshare Factor and dividend for another year.

• Our employee Gainshare plans have been in place for 12 years. Since that time, the Gainshare Factor has been as high as 2.0 (the maximum) and, as indicated above, as low as 0. The average score over the 12-year period has been about 1.4. Similar results, however, cannot be guaranteed in the future.

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Why is the Company changing its dividend policy?
President & CEO Glenn Renwick’s Letter to Shareholders, which is now available on our Web site at progressive.com/annualreport, speaks more fully to this question. As he states, we believe that this new dividend policy will be an effective additional tool in regulating our accumulation of capital beyond what we need to support our business objective of profitable growth and for returning capital to shareholders when it is most appropriate to do so.

Our Gainshare Factors are designed to reward employees and (starting in 2007) shareholders in years when we enjoy profitable growth, while preserving capital when we need it most and during periods in which we do not achieve our financial objectives. In periods when we fail to meet our growth and/or profitability targets, we will not make large cash payments to either group. As a result, our new dividend policy will be more aligned with our business model and our internal compensation plans and performance management incentives, thus further aligning employee and shareholder interests.

Will the Board of Directors retain the discretion to modify or suspend the dividend to be paid under the new policy in any given year?
Yes, consistent with current practice, the Board of Directors must make the final decision. Each year the Board will decide, based on all of the facts and circumstances then presented, whether or not to declare a dividend and, if the Board determines that a dividend is appropriate, the amount of the dividend. Although we expect that the calculation described above, except in extraordinary cases, will be the basis of our annual dividend payments for 2007 and beyond, the Board must retain this discretion to act in the best interests of the Company and its shareholders.

What effect will the variable dividend program have on your monthly financial statements?
The variable dividend program will have no direct effect on net income or earnings per share. In the period the dividend is declared by the Board, the Company will recognize a reduction in shareholders’ equity consistent with the treatment of dividends under the current policy.

What will be the federal income tax consequences of the variable dividend for individual shareholders?
Generally (under Federal laws and regulations in effect in February 2006), we expect that an individual shareholder receiving our variable dividend would pay Federal income taxes at the same rate as the individual currently pays on our regular quarterly dividend. Corporate and foreign taxpayers may be subject to different rules. Federal tax laws, regulations and interpretations are subject to change, however, so shareholders should consult with personal tax advisors for additional information.

Could changes in the taxation of dividends under Federal law change the Company’s view of its dividend policy?
Yes. The Company views its new dividend policy as an attractive additional way to manage the accumulation of capital and provide a return to shareholders based, in part, on current Federal dividend tax policy. If the Federal tax rules relating to dividends were to change, the Company could reconsider the new dividend policy and would have the discretion to change or terminate the policy at any time.

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Will the Company continue to repurchase its shares?
The new dividend policy is just one method that the Company has to return capital to shareholders when the circumstances are appropriate. Subject to the Boards’ approval, the Company will continue to have the discretion under our capital management policies to repurchase our shares when warranted in view of the Board’s and management’s assessment of our capital needs, business prospects and share price. At a minimum, we will continue to repurchase sufficient shares to prevent dilution from restricted stock grants in the year in which those grants are awarded. It is also the current intention of the Board that the Company will continue repurchasing shares as a primary tool for returning capital that is not needed in the business to shareholders.

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