10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1O-Q

(Mark One)

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File Number: 1-9518

THE PROGRESSIVE CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-0963169
(State or other jurisdiction of incorporation or organization)	(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)

     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. Yes þ No 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). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     Common Shares, $1.00 par value: 772,229,334 outstanding at July 31, 2006

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements.
	The Progressive Corporation and Subsidiaries Consolidated Statements of Income (unaudited)
	The Progressive Corporation and Subsidiaries Consolidated Balance Sheets (unaudited)
	The Progressive Corporation and Subsidiaries Consolidated Statements of Cash Flows (unaudited)
	The Progressive Corporation and Subsidiaries Notes to Consolidated Financial Statements (unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	OVERVIEW
	FINANCIAL CONDITION
	RESULTS OF OPERATIONS Underwriting Operations Growth
	Investments
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures.
PART II — OTHER INFORMATION
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
EX-10.A
EX-10.B
EX-10.C
EX-12
EX-31.A
EX-31.B
EX-32.A
EX-32.B
EX-99

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

The Progressive Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)

	Three Months									Six Months
Periods Ended June 30,	2006			2005			% Change			2006			2005		% Change
(millions — except per share amounts)
Revenues:
Net premiums earned	$	3,564.4		$	3,453.8			3		$	7,064.9		$	6,803.8		4
Investment income		162.7			129.8			25			314.2			250.2		26
Net realized gains (losses) on securities		(27.1	)		(3.8	)		613			(26.6	)		6.4	NM
Service revenues		7.9			10.3			(23	)		16.3			21.5		(24	)
Total revenues		3,707.9			3,590.1			3			7,368.8			7,081.9		4
Expenses:
Losses and loss adjustment expenses		2,384.2			2,264.6			5			4,667.0			4,433.2		5
Policy acquisition costs		364.9			366.2			—			727.0			722.3		1
Other underwriting expenses		337.8			342.2			(1	)		676.5			665.6		2
Investment expenses		3.4			3.1			10			5.9			5.9		—
Service expenses		6.3			6.6			(5	)		13.1			12.0		9
Interest expense		19.4			20.7			(6	)		39.9			41.5		(4	)
Total expenses		3,116.0			3,003.4			4			6,129.4			5,880.5		4
Income before income taxes		591.9			586.7			1			1,239.4			1,201.4		3
Provision for income taxes		191.5			192.4			—			402.4			394.4		2
Net income	$	400.4		$	394.3			2		$	837.0		$	807.0		4
COMPUTATION OF EARNINGS PER SHARE
Basic:
Average shares outstanding		776.1			788.6			(2	)		783.2			792.2		(1	)
Per share	$	.52		$	.50			3		$	1.07		$	1.02		5
Diluted:
Average shares outstanding		776.1			788.6			(2	)		783.2			792.2		(1	)
Net effect of dilutive stock-based compensation		9.8			11.5			(15	)		10.2			11.7		(13	)
Total equivalent shares		785.9			800.1			(2	)		793.4			803.9		(1	)
Per share	$	.51		$	.49			3		$	1.05		$	1.00		5
Dividends per Share	$	.0075		$	.0075			—		$	.015		$	.015		—

NM = Not Meaningful

All share and per share amounts were adjusted for the May 18, 2006, 4-for-1 stock split.

See notes to consolidated financial statements.

2

The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)

	June 30,					December 31,
(millions)	2006		2005			2005
Assets
Investments — Available-for-sale, at market:
Fixed maturities (amortized cost: $10,574.9, $8,566.6 and $10,260.7)	$	10,386.9	$	8,638.0		$	10,221.9
Equity securities:
Preferred stocks (cost: $1,462.0, $1,146.7 and $1,217.0)		1,450.8		1,153.5			1,220.3
Common equities (cost: $1,441.4, $1,402.2 and $1,423.4)		2,109.8		1,936.5			2,058.9
Short-term investments (amortized cost: $720.1, $2,266.0 and $773.5)		720.3		2,266.7			773.6
Total investments		14,667.8		13,994.7			14,274.7
Cash		17.6		19.8			5.6
Accrued investment income		130.8		105.8			133.1
Premiums receivable, net of allowance for doubtful accounts of $106.5, $85.1 and $116.3		2,662.9		2,522.4			2,500.7
Reinsurance recoverables, including $52.9, $57.3 and $58.5 on paid losses		389.1		395.3			405.7
Prepaid reinsurance premiums		103.8		120.5			103.7
Deferred acquisition costs		478.0		468.7			444.8
Income taxes		71.5		—			138.3
Property and equipment, net of accumulated depreciation of $580.5, $606.1 and $562.0		902.7		704.3			758.7
Other assets		178.4		127.7			133.3
Total assets	$	19,602.6	$	18,459.2		$	18,898.6
Liabilities and Shareholders’ Equity
Unearned premiums	$	4,626.6	$	4,503.8		$	4,335.1
Loss and loss adjustment expense reserves		5,694.6		5,490.5			5,660.3
Accounts payable, accrued expenses and other liabilities		1,673.9		1,495.0			1,510.8
Income taxes		—		94.8			—
Debt1		1,185.2		1,284.6			1,284.9
Total liabilities		13,180.3		12,868.7			12,791.1
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 900.0, 600.0 and 600.0; issued 798.7, 213.1 and 213.1, including treasury shares of 23.5, 15.4 and 15.8)		775.2		197.7			197.3
Paid-in capital		827.8		818.8			848.2
Unamortized restricted stock		—		(75.7	)		(62.7	)
Accumulated other comprehensive income:
Net unrealized gains on securities		305.1		398.6			390.1
Net unrealized gains on forecasted transactions		8.1		9.2			8.6
Retained earnings		4,506.1		4,241.9			4,726.0
Total shareholders’ equity		6,422.3		5,590.5			6,107.5
Total liabilities and shareholders’ equity	$	19,602.6	$	18,459.2		$	18,898.6

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

See notes to consolidated financial statements.

3

The Progressive Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)

Six Months Ended June 30,	2006			2005
(millions)
Cash Flows From Operating Activities
Net income	$	837.0		$	807.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		49.2			45.1
Amortization of fixed maturities		104.5			86.0
Amortization of stock-based compensation		11.4			15.6
Net realized (gains) losses on securities		26.6			(6.4	)
Gain on sale of property and equipment		(4.3	)		—
Changes in:
Unearned premiums		291.5			395.8
Loss and loss adjustment expense reserves		34.3			204.9
Accounts payable, accrued expenses and other liabilities		102.9			87.4
Prepaid reinsurance premiums		(.1	)		(.7	)
Reinsurance recoverables		16.6			(13.7	)
Premiums receivable		(162.2	)		(235.2	)
Deferred acquisition costs		(33.2	)		(36.5	)
Income taxes		112.5			88.5
Tax benefit from exercise/vesting of stock-based compensation		—			23.8
Other, net		(40.8	)		(38.8	)
Net cash provided by operating activities		1,345.9			1,422.8
Cash Flows From Investing Activities
Purchases:
Fixed maturities		(3,861.5	)		(3,049.1	)
Equity securities		(470.6	)		(694.8	)
Short-term investments — auction rate securities		(1,003.7	)		(5,990.8	)
Sales:
Fixed maturities		3,000.0			3,191.7
Equity securities		106.9			86.7
Short-term investments — auction rate securities		1,224.5			5,613.2
Maturities, paydowns, calls and other:
Fixed maturities		408.4			258.1
Equity securities		107.5			48.3
Net (purchases) sales of short-term investments — other		(166.4	)		(511.8	)
Net unsettled security transactions		72.7			79.1
Purchases of property and equipment		(193.7	)		(82.9	)
Sale of property and equipment		4.8			—
Net cash used in investing activities		(771.1	)		(1,052.3	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		25.3			28.1
Tax benefit from exercise/vesting of stock-based compensation		22.4			—
Payment of debt		(100.0	)		—
Dividends paid to shareholders		(11.7	)		(11.9	)
Acquisition of treasury shares		(498.8	)		(386.9	)
Net cash used in financing activities		(562.8	)		(370.7	)
Increase (decrease) in cash		12.0			(.2	)
Cash, January 1		5.6			20.0
Cash, June 30	$	17.6		$	19.8

See notes to consolidated financial statements.

4

The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)

Note 1 Basis of Presentation — These financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2005.

The consolidated financial statements reflect all normal recurring adjustments which, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. The results of operations for the periods ended June 30, 2006, are not necessarily indicative of the results expected for the full year.

On April 21, 2006, the Board of Directors approved a 4-for-1 stock split that was paid in the form of a stock dividend on May 18, 2006. All share and per share amounts were adjusted for the stock split.

Note 2 Stock-Based Compensation — As of January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards 123 (revised 2004)(SFAS 123(R)), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors.

We adopted SFAS 123(R) using the modified prospective method as of January 1, 2006. As a result, our consolidated financial statements for the six months ended June 30, 2006, reflect the effect of SFAS 123(R). In accordance with the modified prospective transition method, our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the effect of SFAS 123(R).

Pursuant to the modified prospective application, we are required to expense the fair value at the grant date of our unvested outstanding stock options. No stock options have been granted after December 31, 2002. We 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. Beginning in 2003, we began issuing restricted stock awards as our form of equity compensation to key members of management and non-employee directors in lieu of stock options; our current equity compensation program does not contemplate the issuance of stock options. Compensation expense for restricted stock awards is recognized over the respective vesting periods. The current year expense for restricted stock is not representative of the effect on net income for future years since each subsequent year will reflect expense for additional awards.

For the six months ended June 30, 2006, the pre-tax expense of our stock-based compensation was $11.4 million (tax benefit of $4.0 million), of which $.7 million related to our unvested outstanding stock options. We used the modified Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

5

The following table shows the effect on net income and earnings per share had the fair value method been applied to all outstanding and unvested stock option awards for the six months ended June 30, 2005:

(millions, except per share amounts)
Net income, as reported	$	807.0
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all stock option awards, net of related tax effects		(1.2	)
Net income, pro forma	$	805.8
Earnings per share
Basic — as reported	$	1.02
Basic — pro forma		1.02
Diluted — as reported	$	1.00
Diluted — pro forma		1.00

In addition, in conjunction with the Financial Accounting Standards Board Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” we elected to adopt the alternative transition method for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent effect on the paid-in capital pool and the consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that were outstanding upon the adoption of SFAS 123(R).

As highlighted above, the adoption of SFAS 123(R) had minimal effect on our financial results. In 2006, under SFAS 123(R), we began to record an estimate for expected forfeitures of restricted stock based on our historical forfeiture rates. Prior to adoption, we accounted for forfeitures as they occurred, as permitted under accounting standards then in effect. In addition, we shortened the vesting periods of certain stock-based awards based on the “qualified retirement dates,” as defined in our incentive compensation plans. The cumulative effect of adopting these changes was not material to our financial statements for the six months ended June 30, 2006.

Stock-Based Incentive Compensation Plans Our stock-based incentive compensation plans provide for the granting of restricted stock awards to key members of management and the non-employee directors. Prior to 2003, we granted non-qualified stock options as stock-based incentive compensation (see below).

Our 2003 Incentive Plan, which provides for the granting of stock-based awards, including restricted stock awards, to key employees of Progressive, has 19.5 million shares currently authorized on a post-split basis, net of restricted stock awards cancelled. Our 1995 Incentive Plan and 1989 Incentive Plan have expired; however, awards made under those plans prior to their respective expirations are still in effect.

Beginning in 2003, we 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 specified period of time, typically over three, four and five year periods. The vesting period (i.e., requisite service period) must be a minimum of six months and one day. The performance-based awards vest upon the achievement of predetermined performance criteria. The performance-based awards are granted to approximately 50 executives and senior managers, in addition to their time-based awards, to provide additional compensation for achieving pre-established

6

profitability and growth targets. Generally, 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 (hereinafter referred to as equity awards). However, for restricted stock awards granted in 2003 and 2004 that were deferred pursuant to our deferred compensation plan, we record expense on a pro rata basis based on the current market value of Common Shares at the end of the reporting period (hereinafter referred to as liability awards).

Prior to 2003, we granted nonqualified stock options for terms up to ten years. These options became or will 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. Pursuant to the adoption of SFAS 123(R), on January 1, 2006, we began expensing the remaining unvested stock option awards. All option exercises are settled in Common Shares from either existing treasury shares or newly issued shares of Progressive.

A summary of all employee restricted stock activity during the period indicated follows:

	Six Months Ended
	June 30, 2006
				Weighted
				Average
	Number of			Grant Date
Nonvested restricted stock outstanding	Shares			Fair Value
Beginning of period		5,442,988		$	20.21
Add (deduct):
Granted		1,768,396			26.56
Vested		(564,916	)		16.58
Forfeited		(426,816	)		21.75
End of period		6,219,652		$	22.24

There were 444,700 non-deferred restricted stock awards which vested during the six months ended June 30, 2006. The pre-tax intrinsic value on these non-deferred awards, based on the average of the high and low stock price on the day prior to vesting, was $5.6 million. There was no intrinsic value on the 120,216 deferred restricted stock awards that vested during the period since, as previously discussed, these awards were granted in 2003 or 2004 and, therefore, were expensed based on the current market value at the end of each reporting period.

A summary of all employee stock option activity during the period indicated follows:

	Six Months Ended
	June 30, 2006
				Weighted
				Average
	Number of			Grant Date
Nonvested stock options outstanding	Shares			Fair Value
Beginning of period		4,232,220		$	4.76
Add (deduct):
Vested		(3,053,352	)		4.36
Forfeited		(83,270	)		5.81
End of period		1,095,598		$	5.82

7

	Six Months Ended
	June 30, 2006
				Weighted
	Number of			Average
Options outstanding	Shares			Exercise Price
Beginning of period		19,621,476		$	8.44
Add (deduct):
Exercised		(3,040,041	)		8.19
Forfeited		(99,730	)		12.30
End of period		16,481,705		$	8.46
Exercisable, end of period		15,386,107		$	8.13
Available, end of period1		13,508,316

¹ Represents shares available under the 2003 Incentive Plan, after the granting of restricted stock awards.

The total pre-tax intrinsic value of options exercised during the six months ended June 30, 2006, was $56.5 million, based on the actual stock price at time of exercise.

During the six months ended June 30, 2006, we recognized $11.4 million, or $7.4 million after taxes, of compensation expense related to our outstanding unvested restricted stock and stock option awards. At June 30, 2006, the total compensation cost related to unvested awards not yet recognized was $87.7 million. This compensation expense will be recognized into the income statement over the weighted-average period of 2.49 years.

The following employee stock options were outstanding or exercisable as of June 30, 2006:

			Weighted		Aggregate Intrinsic		Weighted Average
	Number of		Average		Value		Remaining
	Shares		Exercise Price		(in millions)		Contractual Life
Options outstanding		16,481,705		$8.46		$284.3	3.68 years
Options exercisable		15,386,107		$8.13		$270.4	3.56 years

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $25.71 as of June 30, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. All of the exercisable options at June 30, 2006, were “in-the-money.”

See “Item 5-Other Information” in Part II of this Form 10-Q for details regarding the restricted stock awards granted during the second quarter 2006.

Note 3 Supplemental Cash Flow Information — We paid income taxes of $265.0 million and $286.0 million during the six months ended June 30, 2006 and 2005, respectively. Total interest paid was $42.5 million for both the six months ended June 30, 2006 and 2005. Non-cash activity includes the liability for deferred restricted stock compensation and the changes in net unrealized gains (losses) on investment securities.

Progressive implemented a 4-for-1 stock split in the form of a dividend to shareholders on May 18, 2006. We reflected the issuance of the additional Common Shares by transferring $585.9 million from retained earnings to the common stock account. All per share and equivalent share amounts were adjusted to give effect to the split. Treasury shares were not split.

8

Note 4 Debt — Debt at June 30 consisted of:

	2006				2005
	Carrying		Market		Carrying
(millions)	Value		Value		Value		Market Value
7.30% Notes due 2006	$	—	$	—	$	100.0	$	102.9
6.375% Senior Notes due 2012		348.1		357.6		347.8		386.0
7% Notes due 2013		149.0		158.8		148.9		173.4
6 5/8% Senior Notes due 2029		294.3		303.2		294.2		349.8
6.25% Senior Notes due 2032		393.8		381.5		393.7		444.6
	$	1,185.2	$	1,201.1	$	1,284.6	$	1,456.7

Note 5 Comprehensive Income — Total comprehensive income was $337.9 million and $492.1 million for the quarters ended June 30, 2006 and 2005, respectively, and $751.5 million and $770.0 million for the six months ended June 30, 2006 and 2005, respectively.

Note 6 Dividends — On June 30, 2006, we paid a quarterly dividend of $.0075 per Common Share to shareholders of record as of the close of business on June 9, 2006. The dividend of $.03 per share, on a pre-split basis, was declared by the Board of Directors on April 21, 2006.

Note 7 Segment Information — Our Personal Lines business units write insurance for private passenger automobiles and recreational vehicles. Our Commercial Auto business unit writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses. Our other-indemnity businesses primarily include writing professional liability insurance for community banks and managing our run-off businesses. Our service businesses include providing insurance-related services, primarily providing policy issuance and claims adjusting services for Commercial Auto Insurance Procedures/ Plans (CAIP), which are state-supervised plans serving the involuntary market. All revenues are generated from external customers.

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Following are the operating results for the periods ended June 30:

	Three Months										Six Months
	2006					2005					2006					2005
			Pretax					Pretax					Pretax					Pretax
			Profit					Profit					Profit					Profit
(millions)	Revenues		(Loss)			Revenues		(Loss)			Revenues		(Loss)			Revenues		(Loss)
Personal Lines
Drive	$	1,999.9	$	220.5		$	2,015.9	$	271.0		$	3,983.9	$	499.4		$	3,991.3	$	550.8
Direct		1,092.2		143.2			1,019.1		135.6			2,159.2		296.6			1,991.7		267.8
Total Personal Lines1		3,092.1		363.7			3,035.0		406.6			6,143.1		796.0			5,983.0		818.6
Commercial Auto		466.6		110.3			412.0		71.2			909.4		192.4			807.2		155.7
Other-indemnity		5.7		3.5			6.8		3.0			12.4		6.0			13.6		8.4
Total underwriting operations		3,564.4		477.5			3,453.8		480.8			7,064.9		994.4			6,803.8		982.7
Service businesses		7.9		1.6			10.3		3.7			16.3		3.2			21.5		9.5
Investments2		135.6		132.2			126.0		122.9			287.6		281.7			256.6		250.7
Interest expense		—		(19.4	)		—		(20.7	)		—		(39.9	)		—		(41.5	)
	$	3,707.9	$	591.9		$	3,590.1	$	586.7		$	7,368.8	$	1,239.4		$	7,081.9	$	1,201.4

1	Personal automobile insurance accounted for 91% of the total Personal Lines segment net premiums earned in the second quarter 2006, and represented 92% for the first six months of 2006, as well as both the second quarter and first six months of 2005.
2	Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses.

Progressive’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. The underwriting margin is the pretax profit (loss) expressed as a percent of net premiums earned (i.e., revenues). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins/combined ratios for our underwriting operations for the periods ended June 30:

	Three Months										Six Months
	2006					2005					2006					2005
	Under-					Under-					Under-					Under-
	writing			Combined		writing			Combined		writing			Combined		writing			Combined
	Margin			Ratio		Margin			Ratio		Margin			Ratio		Margin			Ratio
Personal Lines
Drive		11.0	%		89.0		13.4	%		86.6		12.5	%		87.5		13.8	%		86.2
Direct		13.1			86.9		13.3			86.7		13.7			86.3		13.4			86.6
Total Personal Lines		11.8			88.2		13.4			86.6		13.0			87.0		13.7			86.3
Commercial Auto		23.6			76.4		17.3			82.7		21.2			78.8		19.3			80.7
Other-indemnity1	NM			NM		NM			NM		NM			NM		NM			NM
Total underwriting operations		13.4			86.6		13.9			86.1		14.1			85.9		14.4			85.6

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

Note 8 Litigation — One or more of The Progressive Corporation’s insurance subsidiaries are named as a defendant in various lawsuits arising out of their insurance operations. All legal actions relating to claims made under insurance policies are considered in establishing our loss and loss adjustment expense reserves.

In addition, various Progressive entities are named as a defendant in a number of class action or individual lawsuits, the outcomes of which are uncertain at this time. These cases include those alleging damages as a result of our total loss evaluation methodology or handling, use of after-market parts, use of consumer reports (such as credit reports) in underwriting and related notice requirements under the federal Fair Credit Reporting Act, charging betterment in first party physical damage claims, the adjusting of personal injury protection and medical payment claims, the use of preferred provider rates for payment of personal injury protection claims, the use of automated database vendors or products to assist in evaluating certain bodily injury claims, policy implementation and renewal procedures and cases challenging other aspects of our claims and marketing practices and business operations.

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We plan to contest the outstanding suits vigorously, but may pursue settlement negotiations where appropriate. In accordance with accounting principles generally accepted in the United States (GAAP), we have established accruals for lawsuits as to which we have determined that it is probable that a loss has been incurred and we can reasonably estimate its potential exposure. Pursuant to GAAP, we have not established reserves for those lawsuits where the loss is not probable and/or we are currently unable to estimate the potential exposure. If any one or more of these lawsuits results in a judgment against or settlement by us in an amount that is significantly in excess of the reserve established for such lawsuit (if any), the resulting liability could have a material effect on our financial condition, cash flows and results of operations.

For a further discussion on our pending litigation, see “Item 3-Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2005.

Note 9 Reclassifications — Upon adoption of SFAS 123(R), companies were required to eliminate any unearned compensation accounts (i.e., unamortized restricted stock) against the appropriate equity (i.e., paid-in capital) or liability account. As a result, as of June 30, 2006, we were required to reclassify $87.0 million of “Unamortized restricted stock,” of which $80.4 million related to equity awards and $6.6 million related to liability awards.

In addition, certain amounts in the Consolidated Statements of Cash Flows (i.e., short-term investments), were reclassified for 2005 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.”

Note 10 New Accounting Standards — The Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” which provides guidance for recognizing and measuring the financial statement impact of tax positions taken or expected to be taken in a tax return. This interpretation is effective beginning January 1, 2007. Progressive is currently determining the effect this interpretation will have on its financial condition, cash flows and results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

For the second quarter 2006, The Progressive Corporation’s insurance subsidiaries continued to generate strong profitability and experience slower growth. On a companywide basis, our combined ratio was 86.6 for the quarter, and net premiums written increased 2% over the same period last year. For the second quarter 2006, net income increased 2% to $400.4 million, or $.51 per share on a post-split basis.

Current “soft” market conditions, where rates are stable or decreasing and customers are shopping less, continue to influence our growth rates. Personal Lines premium growth of 1% for the quarter can be explained by some combination of new business applications (i.e., completed sales), premium per policy and retention. During the second quarter 2006, new business applications were down 8% in our Personal Lines businesses and up 1% in Commercial Auto. The decrease in new personal auto applications was the most significant contributor to the slowing growth. The increase in renewal applications remained relatively strong during the second quarter 2006, as compared to the same period last year. In addition, premium per policy was relatively flat on new auto business and down slightly on renewal business, compared to prior year levels. Our estimate of policy life expectancy, which is one measure of retention, lengthened since the end of 2005, but is down as compared to the second quarter last year in most of our personal auto and Commercial Auto tiers. Companywide policies in force grew 5%.

Profitability remains very strong for each reporting segment. On a companywide basis, the combined ratio is fairly comparable to the second quarter 2005, although we had expected our loss cost trends to begin pushing our underwriting margins closer to our long-term goal of a calendar year 96 combined ratio. We are continuing to experience reduced accident frequency trends that have characterized the auto insurance industry for some time. Severity increased modestly during the quarter. Our strong underwriting margins in the second quarter also benefited from 1.9 points of favorable prior year reserve development. This favorable development reflects both actuarial adjustments, as well as other favorable development (e.g., claims settling for less than reserved).

We are looking to achieve a better balance between profitability and growth given our performance over the last several quarters. We had expected increases in severity, and potentially frequency, to begin to absorb the margin in excess of our target of a 96 calendar-year combined ratio over time. This has not happened. Going forward, we will look more aggressively for market segments where we think we may be able to convert more business by moderating some of our future pricing. In addition, we may begin to be more aggressive in our efforts to retain renewals as well as in our advertising and media spend. The soft market continues, but we do not plan to give away margin during this period without a potential growth pay back. We will be diligent in our efforts to not allow competitors to take growth at a margin that we would be comfortable with.

We made no substantial changes in the allocation of our investment portfolio during the quarter. Our investment portfolio produced a fully taxable equivalent total return of .5% for the second quarter, with a positive total return in fixed-income securities offset by a negative return in common stocks. We continued to keep our credit quality high and exposure to interest rate risk low. During the second quarter 2006, we lengthened the duration of the fixed-income portfolio to 3.3 years at June 30, 2006; the weighted average credit quality remained AA.

On April 21, 2006, the Board of Directors approved a 4-for-1 stock split that was paid in the form of a stock dividend on May 18, 2006.

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FINANCIAL CONDITION

Capital Resources and Liquidity

Progressive has substantial capital resources, and we believe we have sufficient borrowing capacity and other capital resources to support current and anticipated growth and satisfy scheduled debt and interest payments. During the second quarter 2006, our 7.30% Notes in the aggregate principal amount of $100 million matured; we used operating cash flows to retire this obligation. 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. For the six months ended June 30, 2006, operations generated a positive cash flow of $1,345.9 million.

On April 21, 2006, the Board of Directors approved a 4-for-1 stock split that was paid in the form of a stock dividend on May 18, 2006; we did not split our treasury shares in conjunction with the stock split. In addition, the Board approved an increase to the number of Common Shares available for repurchase under the April 2003 Board authorization to adjust for the 4-for-1 stock split. The Board also set a new authorization to repurchase 60 million Common Shares (on a post-split basis) to be used in addition to, and after completion of, the remaining repurchases available under the April 2003, split-adjusted authorization. See “Item 2” in Part II of this Form 10-Q for further details.

During the second quarter 2006, we repurchased 7.1 million Common Shares, at a total cost of $267.5 million. Of the 7.1 million Common Shares repurchased, 1.0 million were purchased prior to the stock split at an average cost of $107.42 per share, and 6.1 million were repurchased after the stock split at an average cost of $26.38 per share. For the first six months of 2006, we repurchased a total of 9.3 million shares (average cost, on a split-adjusted basis, of $26.53 per share).

In February 2006, the Board of Directors approved a plan to replace our current dividend policy in 2007 with an annual variable dividend, based on a target percentage of after-tax underwriting income, multiplied by a companywide performance factor, referred to as the “Gainshare factor.” The Gainshare factor, which will be based on premium growth and profitability, can range from zero to two. For example, through the second quarter 2006, based on year-to-date results, the Gainshare factor was 1.33, compared to 1.54 as of the end of the first quarter 2006. Since the final factor will be determined based on our results for the full year (beginning in 2007), the factor for any interim period may not be representative of what the final factor will be. The new variable dividend policy will not go into effect until 2007 with the first payout expected in early 2008. Throughout 2006, we will continue with our current quarterly dividend policy.

Commitments and Contingencies

We substantially completed construction of a data center, printing center and related facilities in Colorado Springs, Colorado, at an estimated total cost of $65.9 million, during the second quarter 2006, although the buildings are not scheduled to become operational until 2007. During 2006, we acquired additional land for future development to support our corporate operations in Colorado Springs, Colorado and Mayfield Village, Ohio near our current corporate facilities, at a total cost of $16.2 million. In 2007, we expect to begin a multi-year project to construct two buildings, two parking garages and associated facilities in Mayfield Village at a currently estimated construction cost of $150 million. All such projects, including the additional claims service centers discussed below, are, or will be, funded through operating cash flows.

As of June 30, 2006 we have a total of 42 service centers that are available to provide concierge-level claims service. We added 16 centers during the first six months of 2006, including 13 centers completed in the second quarter 2006. We previously announced a significant expansion of this service and are currently acquiring and constructing additional

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sites around the country. We expect to open 13 new service centers, of which 2 will replace existing centers, during the remainder of 2006.

Off-Balance-Sheet Arrangements

Except for the open investment funding commitments and operating leases and service agreements discussed in the notes to the financial statements in Progressive’s Annual Report on Form 10-K for the year ended December 31, 2005, we do not have any off-balance-sheet leverage.

Contractual Obligations

During the second quarter 2006, our contractual obligations did not change materially from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2005.

RESULTS OF OPERATIONS
Underwriting Operations
Growth

	Growth over prior year
	Quarter			Year-to-date
Direct premiums written		2	%		2	%
Net premiums written		2	%		2	%
Net premiums earned		3	%		4	%
Policies in force (at June 30)	NA				5	%

NA = Not Applicable

Net premiums written represent the premiums generated from policies written during the period less any premiums ceded to reinsurers. Net premiums earned, which are a function of the premiums written in the current and prior periods, are earned as revenue using a daily earnings convention.

To analyze growth, we review new policies, rate levels, and the retention characteristics of our books of business. The decrease in new business applications is the most significant contributor to the flattening growth rates we experienced in the second quarter and first six months of 2006. For both the second quarter and first six months of 2006, new business applications decreased 8% in our Personal Lines businesses, compared to increases of 3% and 5%, respectively, for the same periods last year. Both the Drive and Direct channels wrote less new business in the second quarter and first six months of 2006 in both the auto and special lines products. The decline in new business reflects the continuation of the “soft” market conditions. The strong profitability in the personal auto market over the last several years has resulted in increased competition, as evidenced by rate cutting by competitors and other non-price actions, such as increased advertising, relaxed underwriting standards and higher commission payments to agents and brokers. Solid increases in our renewal business helped contribute to the 5% increase in Personal Lines policies in force on a year-over-year basis at June 30, 2006. In our Commercial Auto business, for the second quarter and first six months of 2006, new applications increased 1% and 5%, respectively, while renewal business increased about 6% and 5%, respectively, and policies in force increased 10% over last year.

We filed 83 auto rate revisions in various states in the second quarter 2006, bringing the total to 146 for the year. The overall effect of these revisions was that our rates remained relatively flat. These rate changes, coupled with shifts in the mix of our personal auto business, contributed to a 4% and 3% decrease in average earned premium per policy for the second quarter 2006 and first six months of 2006, respectively, as compared to the same prior year periods. We will continue to assess market conditions on a state-by-state basis and aggressively look for market segments where we think we may be able to convert more business by moderating some of our future pricing activity while still maintaining service quality.

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Another important element affecting growth is customer retention. We have seen a lengthening in retention since the end of the first quarter 2006 and year end 2005 in both our personal auto and Commercial Auto businesses. However, most personal auto tiers ended the second quarter at retention levels lower than at the end of the same period last year, while retention increased slightly in most Commercial Auto tiers. With a greater percentage of our premium coming from renewal business, increasing retention remains an area of continuing focus.

Profitability

Profitability for our underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned less losses 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 and six month periods ended June 30, our underwriting profitability measures were as follows:

	Three Months										Six Months
	2006					2005					2006					2005
	Underwriting					Underwriting					Underwriting					Underwriting
	Profit (Loss)					Profit (Loss)					Profit (Loss)					Profit (Loss)
(millions)	$		Margin			$		Margin			$		Margin			$		Margin
Personal Lines
Drive	$	220.5		11.0	%	$	271.0		13.4	%	$	499.4		12.5	%	$	550.8		13.8	%
Direct		143.2		13.1			135.6		13.3			296.6		13.7			267.8		13.4
Total Personal Lines		363.7		11.8			406.6		13.4			796.0		13.0			818.6		13.7
Commercial Auto		110.3		23.6			71.2		17.3			192.4		21.2			155.7		19.3
Other-indemnity1		3.5	NM				3.0	NM				6.0	NM				8.4		NM
Total underwriting operations	$	477.5		13.4	%	$	480.8		13.9	%	$	994.4		14.1	%	$	982.7		14.4	%

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

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Further underwriting results for our Personal Lines businesses, including its channel components, the Commercial Auto business and other-indemnity businesses, were as follows (details discussed below):

	THREE MONTHS ENDED							SIX MONTHS ENDED
	JUNE 30,							JUNE 30,
(dollars in millions)	2006		2005		Change			2006		2005		Change
NET PREMIUMS WRITTEN
Personal Lines
Drive	$	2,053.3	$	2,066.3		(1	)%	$	4,085.6	$	4,148.1		(2	)%
Direct		1,093.0		1,038.0		5	%		2,234.4		2,119.0		5	%
Total Personal Lines		3,146.3		3,104.3		1	%		6,320.0		6,267.1		1	%
Commercial Auto		526.3		484.0		9	%		1,022.6		920.3		11	%
Other — indemnity		7.0		5.8		21	%		13.7		11.5		19	%
Total underwriting operations	$	3,679.6	$	3,594.1		2	%	$	7,356.3	$	7,198.9		2	%
NET PREMIUMS EARNED
Personal Lines
Drive	$	1,999.9	$	2,015.9		(1	)%	$	3,983.9	$	3,991.3		—	%
Direct		1,092.2		1,019.1		7	%		2,159.2		1,991.7		8	%
Total Personal Lines		3,092.1		3,035.0		2	%		6,143.1		5,983.0		3	%
Commercial Auto		466.6		412.0		13	%		909.4		807.2		13	%
Other — indemnity		5.7		6.8		(16	)%		12.4		13.6		(9	)%
Total underwriting operations	$	3,564.4	$	3,453.8		3	%	$	7,064.9	$	6,803.8		4	%
UNDERWRITING PERFORMANCE
Personal Lines — Drive
Loss and loss adjustment expense ratio		69.2		65.9	3.3 pts.				67.5		65.5	2.0 pts.
Underwriting expense ratio		19.8		20.7	(.9) pts.				20.0		20.7	(.7) pts.
Combined ratio		89.0		86.6	2.4 pts.				87.5		86.2	1.3 pts.
Personal Lines — Direct
Loss and loss adjustment expense ratio		67.1		66.4	.7 pts.				66.4		66.6	(.2) pts.
Underwriting expense ratio		19.8		20.3	(.5) pts.				19.9		20.0	(.1) pts.
Combined ratio		86.9		86.7	.2 pts.				86.3		86.6	(.3) pts.
Total Personal Lines
Loss and loss adjustment expense ratio		68.4		66.1	2.3 pts.				67.0		65.8	1.2 pts.
Underwriting expense ratio		19.8		20.5	(.7) pts.				20.0		20.5	(.5) pts.
Combined ratio		88.2		86.6	1.6 pts.				87.0		86.3	.7 pts.
Commercial Auto
Loss and loss adjustment expense ratio		57.3		62.3	(5.0) pts.				59.8		60.5	(.7) pts.
Underwriting expense ratio		19.1		20.4	(1.3) pts.				19.0		20.2	(1.2) pts.
Combined ratio		76.4		82.7	(6.3) pts.				78.8		80.7	(1.9) pts.
Total Underwriting Operations1
Loss and loss adjustment expense ratio		66.9		65.6	1.3 pts.				66.0		65.2	.8 pts.
Underwriting expense ratio		19.7		20.5	(.8) pts.				19.9		20.4	(.5) pts.
Combined ratio		86.6		86.1	.5 pts.				85.9		85.6	.3 pts.
Accident year — Loss and loss adjustment expense ratio		68.8		68.1	.7 pts.				68.4		68.2	.2 pts.

POLICIES IN FORCE	June		June
(at June 30) (in thousands)	2006		2005		Change
Personal Lines
Drive — Auto		4,554		4,492		1	%
Direct — Auto		2,409		2,271		6	%
Special Lines2		2,871		2,612		10	%
Total Personal Lines		9,834		9,375		5	%
Commercial Auto		502		455		10	%

1	Combined ratios for the other-indemnity businesses are not presented separately due to the insignificant amount of premiums earned by such businesses. These businesses generated an underwriting profit of $3.5 million and $3.0 million for the three months ended June 30, 2006 and 2005, respectively, and $6.0 million and $8.4 million for the six months ended June 30, 2006 and 2005, respectively.
2	Includes insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles and similar items.

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Losses and Loss Adjustment Expenses (LAE)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(millions)	2006		2005		2006		2005
Change in loss and LAE reserves	$	71.4	$	142.2	$	45.3	$	204.0
Paid losses and LAE		2,312.8		2,122.4		4,621.7		4,229.2
Total incurred losses and LAE	$	2,384.2	$	2,264.6	$	4,667.0	$	4,433.2

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.

During the second quarter and first six months of 2006, we continued to report favorable loss ratios, reflecting frequency and bodily injury severity below historical levels. Auto accident frequency was down about 2% in the three month and trailing twelve month periods ended June 30, 2006, compared to the same periods in 2005. For the same periods, bodily injury severity was up about 2% and severity in the property coverages was up about 5%. For the second quarter 2006, severity for personal injury protection increased about 9%, which is approximately 2-1/2 times greater than the rate of increase during the previous three quarters. We continue to analyze trends to distinguish changes in our experience from external factors versus those resulting from shifts in the mix of our business.

We monitor physical damage trend in evaluating our claims handling performance and capacity. Claims handling is our single largest cost and one of our most visible consumer experiences. During the second quarter 2006, claims quality remained consistent with the level achieved in 2005 and the first quarter of 2006, based on internal evaluations.

The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the following periods:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(millions)	2006		2005		2006		2005
ACTUARIAL ADJUSTMENTS
Favorable/(Unfavorable)
Prior accident years	$	46.3	$	32.6	$	94.7	$	69.0
Current accident year		14.3		13.9		21.6		11.0
Calendar year actuarial adjustment	$	60.6	$	46.5	$	116.3	$	80.0
PRIOR ACCIDENT YEARS DEVELOPMENT
Favorable/(Unfavorable)
Actuarial adjustment	$	46.3	$	32.6	$	94.7	$	69.0
All other development		22.4		55.0		77.7		133.5
Total development	$	68.7	$	87.6	$	172.4	$	202.5
Combined ratio effect	1.9 pts.		2.5 pts.		2.4 pts.		3.0 pts.

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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. “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 on specific claims. Although we believe that the favorable development from both the actuarial adjustments and “all other development” generally results from the same factors, as discussed below, we are unable to quantify the portion of the reserve adjustments that might be applicable to any one or more of those underlying factors.

As can be seen in the table above, the total development through the first six months of 2006 is 15% less than that experienced in the same period last year, and total development also has declined from the first quarter 2006. Nonetheless, this development contributed 2.4 points to our year-to-date combined ratio. The total prior year loss reserve development experienced in both the three and six month periods ended June 30, 2006 and 2005, was generally consistent across our business (e.g., product, distribution channel and state). Approximately 60% of the year-to-date development related to the immediately preceding accident year for both 2006 and 2005, with the remainder affecting the preceding accident years at a declining rate. These changes in estimates were made based on our actual loss experience involving the payment of claims, along with our evaluation of the needed reserves during these periods, as compared with the prior reserve levels for those claims.

While the modest changes in claim severity are very observable in the data as they develop, it is much more difficult to determine accurately the reasons for these changes. We believe that the changes in severity estimates are related to factors as diverse as improved vehicle safety, more favorable jury awards, better fraud control, tenure of our claims personnel and other process improvements in our claims organization. However, in our claims review process, we are unable to quantify the contribution of each such factor to the overall reserve adjustment for the year.

Over the last few years, including the first six months of 2006, we have experienced favorable reserve development. We believe the favorable development in 2005 and 2006 occurred as a result of a combination of industry-wide factors and internal claims handling improvements, resulting in more consistency in evaluating and settling personal injury claims. Our analysis of the current situation and historical trends, however, indicates that such improvements are not likely to result in a continuing reduction in the rate of growth in our cost structure indefinitely. We therefore consider it likely that the benefits from these improvements will level off and cost increases (e.g., medical costs) will affect our estimates of severity in the future, returning our severity trend to historically more normal levels in the 4% to 6% range for personal auto liability, primarily bodily injury, which is experiencing only a 2% increase over prior year.

We continue to focus on our loss reserve analysis, attempting to enhance accuracy and to further our understanding of our loss costs. A detailed discussion of our loss reserving practices can be found in our Report on Loss Reserving Practices, which was filed in a Form 8-K on June 28, 2006.

Underwriting Expenses

Other underwriting expenses and policy acquisition costs expressed as a percent of premiums earned decreased .8 points and .5 points for the second quarter 2006 and the first six months 2006, respectively, as compared to the same periods last year, primarily reflecting lower employee gainsharing expense and a higher percentage of renewal business in the current year, which incurs lower expenses.

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Personal Lines

	Growth over prior year
	Quarter			Year-to-date
Net premiums written		1	%		1	%
Net premiums earned		2	%		3	%
Auto policies in force (at June 30)	NA				5	%

NA=Not Applicable

Progressive’s Personal Lines business units write insurance for private passenger automobiles and recreational vehicles, and represents 86% of our second quarter and year-to-date 2006 net premiums written, which is fairly consistent with the same periods in 2005. Personal auto represented 86% and 90% of our total Personal Lines net premiums written for the second quarter and first six months of 2006, respectively, comparable to the same periods in 2005. In the second quarter and first six months of 2006, we experienced no growth in our personal auto business, while the special lines products (e.g., motorcycles, watercraft and RV’s) grew 7% and 6%, respectively; growth for our special lines products tends to peak in the second quarter of the year.

Total Personal Lines generated an 88.2 and 87.0 combined ratio for the second quarter and first six months of 2006, respectively, compared to an 86.6 and 86.3 for the same periods last year. Since the special lines products are typically used more in the warmer weather months, we typically experience higher loss costs during those periods. Nevertheless, the special lines results had little effect on the total Personal Lines combined ratio for both the second quarters 2006 and 2005 and had a favorable effect of about 1 point for both the first six months of 2006 and 2005. The Personal Lines business is comprised of the Drive and Direct business.

The Drive Business

	Growth over prior year
	Quarter			Year-to-date
Net premiums written		(1	)%		(2	)%
Net premiums earned		(1	)%		—	%
Auto policies in force (at June 30)	NA				1	%

NA=Not Applicable

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. The Drive business saw a decrease in new applications in both the second quarter and first six months of 2006, as compared to the same periods last year. Premium per application on new Drive auto business remained flat for both the second quarter and first six months of 2006, as compared to the same periods last year, while premium per application on renewal business was down modestly in both periods compared to last year. For both the second quarter and year-to-date 2006, the overall rate of conversion (i.e., converting a quote to a sale) was down on an increase in the number of auto quotes. However, within the Drive business, we are seeing a shift from traditional agent quoting, where the conversion rate is remaining stable, to quotes generated through third-party comparative rating systems or those initiated by consumers on the Internet, where the conversion rate is declining. We continue to analyze these areas separately to determine the best way to spur growth in the Drive channel. Retention in each of the Drive auto tiers ended the second quarter 2006 at levels higher than at both the end of the first quarter 2006 and year end 2005; however, results are mixed when compared to the same period last year.

The Drive expense ratio decreased .9 points and .7 points for the second quarter and first six months of 2006, respectively, as compared to the same periods last year, primarily reflecting a reduction in advertising costs, due to the significant advertising expenditures made in the first half of 2005 related to

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the launch of our Drive^® Insurance from Progressive brand, along with the lower employee gainsharing expense.

The Direct Business

	Growth over prior year
	Quarter			Year-to-date
Net premiums written		5	%		5	%
Net premiums earned		7	%		8	%
Auto policies in force (at June 30)	NA				6	%

NA=Not Applicable

The Direct business includes business written directly by Progressive through 1-800-PROGRESSIVE or online at progressivedirect.com. The Direct business experienced a decrease in new applications in both the second quarter and first six months of 2006, as compared to the same periods last year, while the increase in renewal applications remained strong for both periods. The use of the Internet, either for complete or partial quoting, remained flat for the second quarter 2006, compared to the second quarter 2005, and was up modestly for the first six months of 2006, compared to the same period last year. Internet sales are the most significant source of the new business activity in the Direct channel. Quotes generated via the phone decreased significantly for the second quarter and first six months of 2006, as compared to the same periods last year. Conversion rates for phone- and Internet-initiated business both increased during the second quarter and first six months of 2006, with phone conversion rates being greater than those on the Internet. The increasing mix of Internet business, which has a lower conversion rate than phone, resulted in the overall conversion rate for the Direct business being down slightly for the second quarter and year-to-date 2006. Premium per application remained flat in both the second quarter and first six months of 2006 for both new and renewal Direct auto business. Direct auto has seen a lengthening in retention in almost every tier since the end of the first quarter 2006 and year end 2005; however, most tiers are still at retention levels lower than the same period last year.

The Direct expense ratio was down .5 points and .1 points for the second quarter and first six months of 2006, as compared to the same periods last year. The decrease is primarily due to a shift in the mix of business to more renewals and Internet-initiated business, which have lower acquisition costs, as well as lower employee gainsharing expenses, partially offset by increased advertising expenditures during the periods as compared to the same periods last year. The Progressive Direct^® marketing efforts currently are aimed at breaking through the competitive noise of other insurance company advertisements and 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 market areas.

Commercial Auto

	Growth over prior year
	Quarter			Year-to-date
Net premiums written		9	%		11	%
Net premiums earned		13	%		13	%
Policies in force (at June 30)	NA				10	%

NA=Not Applicable

Progressive’s Commercial Auto business unit 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. The Commercial Auto business, which is primarily distributed through the independent agency channel, represented about 14% of our total second quarter and year-to-date net premiums written in both 2006 and 2005.

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Commercial Auto net premiums written were generated either in the specialty commercial auto market or the light and local commercial auto market, with the specialty market accounting for slightly more than half of the total Commercial Auto premiums and just under 40% of the vehicles we insure. 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.

Growth in Commercial Auto for the second quarter was lower than that experienced in the first quarter 2006 and the same period last year, reflecting the softening of the commercial auto market. New applications in the Commercial Auto business increased about 1% and 5% for the second quarter and first six months of 2006, as compared to the same periods last year; policies in force had a strong increase of 10%. In February 2006, we entered West Virginia with our Commercial Auto product, bringing the total number of states in which we write commercial auto business to 48. We do not currently write Commercial Auto in Massachusetts and Hawaii, but are in discussion with the Massachusetts Department of Insurance for possible entry for Commercial Auto in late 2006 or early 2007. Retention lengthened slightly in all Commercial Auto tiers since the end of the first quarter 2006 and the year ended 2005, and is up slightly in most tiers from the end of the second quarter last year. We will continue to seek opportunities to market our products and identify ways to differentiate our offerings from those of our competitors, including, but not limited to, coverages, distribution channel and claims handling.

Since the Commercial Auto policies have higher limits (up to $1 million) than Personal Lines auto, we analyze the large loss trends and reserving in more detail to allow us to react quickly to changes in this exposure. Commercial Auto’s expense ratio decreased 1.3 points and 1.2 points, as compared to the second quarter and first six months last year, respectively, primarily due to lower advertising costs in 2006, reflecting the significant expenditures associated with the branding of Commercial Auto under Drive Insurance from Progressive during 2005 and lower employee gainsharing expenses, as well as increased involuntary market assessments incurred in 2005.

Other-Indemnity

Progressive’s other-indemnity businesses, which represent less than 1% of our year-to-date 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 widely due to the insignificant premium volume and the run-off nature of some of these products.

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 market. These service businesses represent less than 1% of our year-to-date revenues. The significant decrease in revenues reflects the cyclical downturn in the involuntary commercial auto market. Expenses are increasing, despite the reduction in revenues, primarily due to the costs associated with our Total Loss Concierge program, through which we find and offer policyholders and claimants the choice of a replacement vehicle, rather than just payment, upon the total loss of their automobile.

Income Taxes

Progressive’s income tax position, which includes both deferred taxes and income taxes payable, was a net asset at June 30, 2006 and December 31, 2005 compared to a net liability at June 30, 2005. The net asset balance at June 30, 2006 and December 31, 2005, reflected an increase in our net deferred tax asset from June 30, 2005. In addition, the net asset balance at December 31, 2005, reflects estimated payments in excess of our actual current liability for 2005 due to lower fourth quarter 2005 income.

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Investments

Portfolio Allocation

The composition of the investment portfolio at June 30 was:

					Gross					% of
			Gross		Unrealized			Market		Total			Duration
(millions)	Cost		Unrealized Gains		Losses			Value		Portfolio			(Years)		Rating1
2006
Fixed maturities	$	10,574.9	$	26.2	$	(214.2	)	$	10,386.9		70.8	%		3.7	AA+
Preferred stocks		1,462.0		13.6		(24.8	)		1,450.8		9.9			1.7		A-
Short-term investments:
Auction rate municipal obligations		—		—		—			—		—			—		—
Auction rate preferred stocks		164.0		.2		—			164.2		1.1			<1	AA-
Other short-term investments2		556.1		—		—			556.1		3.8			<1		A+
Total short-term investments		720.1		.2		—			720.3		4.9			<1		A+
Total fixed income		12,757.0		40.0		(239.0	)		12,558.0		85.6			3.3	AA
Common equities		1,441.4		683.6		(15.2	)		2,109.8		14.4		na		na
Total portfolio3, 4	$	14,198.4	$	723.6	$	(254.2	)	$	14,667.8		100.0	%		3.3	AA
2005
Fixed maturities	$	8,566.6	$	120.5	$	(49.1	)	$	8,638.0		61.7	%		3.0	AA+
Preferred stocks		1,146.7		19.1		(12.3	)		1,153.5		8.3			2.2		A-
Short-term investments:
Auction rate municipal obligations		540.6		—		—			540.6		3.9			<1	AAA-
Auction rate preferred stocks		340.2		.7		—			340.9		2.4			<1		A+
Other short-term investments2		1,385.2		—		—			1,385.2		9.9			<1	AA+
Total short-term investments		2,266.0		.7		—			2,266.7		16.2			<1	AA+
Total fixed income		11,979.3		140.3		(61.4	)		12,058.2		86.2			2.4	AA
Common equities		1,402.2		542.8		(8.5	)		1,936.5		13.8		na		na
Total portfolio3, 4	$	13,381.5	$	683.1	$	(69.9	)	$	13,994.7		100.0	%		2.4	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 $231.2 million and $111.0 million at June 30, 2006 and 2005, respectively.
4	June 30, 2006 and 2005 totals include $1.8 billion and $1.0 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company.

As of June 30, 2006, our portfolio had $469.4 million of net unrealized gains, compared to $613.2 million at June 30, 2005 and $600.1 million at December 31, 2005. During the second quarter 2006, the fixed-income portfolio’s valuation decreased $53.1 million, primarily reflecting the increase in interest rates during the period. The common stock portfolio had a decrease of $42.7 million, reflecting the general decline in the equity market.

Fixed-Income Securities

The fixed-income portfolio, which includes fixed-maturity securities, short-term investments and preferred stocks, had a duration of 3.3 years at June 30, 2006, compared to 3.2 years at December 31, 2005, and 2.4 years at June 30, 2005. After adjustments to exclude unsettled security transactions, the allocation of fixed-income securities at June 30, 2006, was 85.4% of the total portfolio, compared to 86.1% at June 30, 2005.

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The fixed-maturity securities and short-term investments, as reported in the balance sheets, were comprised of the following:

(millions)	June 30, 2006				June 30, 2005
Investment-grade fixed maturities:
Short/intermediate term	$	10,881.1	98.0	%	$	10,661.4	97.8	%
Long term1		22.5	.2			58.9	.5
Non-investment-grade fixed maturities2		203.6	1.8			184.4	1.7
Total	$	11,107.2	100.0	%	$	10,904.7	100.0	%

1	Long term includes securities with expected liquidation dates of 10 years or greater.
2	These securities are non-rated or have a quality rating of BB+ or lower.

Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at June 30:

			% of Asset-Backed			Duration
(millions)	Market Value		Securities			(years)		Rating
2006
Collateralized mortgage obligations	$	433.2		21.3	%		2.2	AAA
Commercial mortgage-backed obligations		646.8		31.9			3.3	AAA-
Commercial mortgage-backed obligations: interest-only		697.7		34.4			2.1	AAA-
		1,344.5		66.3			2.7	AAA-
Other asset-backed securities:
Automobile		2.5		.1			.1	AAA
Home equity		123.8		6.1			.6	AAA
Other		124.9		6.2			1.0		A+
		251.2		12.4			.8	AA
Total asset-backed securities	$	2,028.9		100.0	%		2.3	AAA-
2005
Collateralized mortgage obligations	$	587.7		22.9	%		2.4	AAA
Commercial mortgage-backed obligations		334.5		13.0			3.0	AA-
Commercial mortgage-backed obligations: interest-only		707.6		27.6			2.4	AAA
		1,042.1		40.6			2.6	AA+
Other asset-backed securities:
Automobile		548.9		21.4			.8	AAA-
Home equity		256.0		10.0			.9	AAA
Other		129.8		5.1			1.5	AA-
		934.7		36.5			1.0	AAA-
Total asset-backed securities	$	2,564.5		100.0	%		1.9	AAA-

Common Equities

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

(millions)	June 30, 2006				June 30, 2005
Common stocks	$	2,094.4	99.3	%	$	1,913.8	98.8	%
Other risk investments		15.4	.7			22.7	1.2
Total common equities	$	2,109.8	100.0	%	$	1,936.5	100.0	%

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Common equities comprised 14.6% and 13.9% of the total portfolio, excluding the net unsettled security transactions, at June 30, 2006 and 2005, respectively. Common stocks are managed externally to track the Russell 1000 Index with an anticipated annual tracking error of +/- 50 basis points. To maintain high correlation with the Russell 1000, we held approximately 71% of the common stocks comprising the index at June 30, 2006. Our individual holdings are selected based on their contribution to the correlation with the index. Our common equity allocation and management strategy are intended to provide diversification for the total portfolio and focus on changes in value of the equity portfolio relative to the change in value of the index on an annual basis. For the first six months of 2006 and 2005, the GAAP return was within the designated tracking error.

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 $1.8 million of open funding commitments at June 30, 2006.

Trading Securities

Trading securities are entered into for the purpose of near-term profit generation. We did not have any trading securities, with the exception of the derivatives classified as trading discussed below, at any time during the first six months of 2006 and 2005.

Derivative Instruments

From time to time, we invest in derivative instruments, which are primarily used to manage the risks of the available-for-sale portfolio. This is accomplished by modifying the duration, interest rate or foreign currency characteristics of the portfolio, hedged securities or hedged cash flows. We had no risk management derivatives at any time during the first six months of 2006 or 2005.

Derivative instruments may also be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction. As of the end of the second quarter 2006, 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. Our open derivative positions had a notional amount of $115.0 million at June 30, 2006. During the quarter, one derivative position, with a notional amount of $15.0 million, matured. At June 30, 2005, the derivative positions held had a notional amount of $65.0 million. For the second quarter and first six months of 2006, these positions generated a net gain of $2.8 million and $8.0 million, respectively, compared to $1.9 million for both the second quarter and first six months of 2005. 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 gain reported as a component of net realized gains (losses) on securities.

Investment Results

Recurring investment income (interest and dividends, before investment and interest expenses) increased 25% and 26% for the second quarter and first six months of 2006, respectively, compared to the same periods last year, primarily the result of higher yields on new acquisitions through cash inflows from operations and portfolio turnover. Asset growth contributed the remainder of the income increase.

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We report total return to reflect more accurately the management philosophy of the portfolio and our evaluation of 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 securities. We generated the following investment results for the periods ended June 30:

	Three Months						Six Months
	2006			2005			2006			2005
Pretax recurring investment book yield		4.7	%		4.0	%		4.5	%		3.9	%
Weighted average FTE book yield		5.3	%		4.7	%		5.2	%		4.6	%
FTE total return:
Fixed-income securities		.7	%		2.4	%		1.2	%		2.2	%
Common stocks		(1.2	)%		2.1	%		3.4	%		.4	%
Total portfolio		.5	%		2.3	%		1.5	%		1.9	%

Realized Gains/Losses

The components of net realized gains (losses) for the periods ended June 30 were:

	Three Months						Six Months
(millions)	2006			2005			2006			2005
Gross realized gains:
Fixed maturities	$	6.8		$	22.1		$	13.3		$	40.2
Preferred stocks		—			—			—			—
Common equities		10.3			.9			19.3			7.2
Short-term investments
Auction rate municipal obligations		.1			—			.1			—
Auction rate preferred stocks		—			—			—			—
Other short-term investments		—			—			—			—
		17.2			23.0			32.7			47.4
Gross realized losses:
Fixed maturities		36.4			18.5			46.5			24.2
Preferred stocks		—			—			3.2			—
Common equities		7.8			8.3			9.4			16.8
Short-term investments
Auction rate municipal obligations		.1			—			.1			—
Auction rate preferred stocks		—			—			.1			—
Other short-term investments		—			—			—			—
		44.3			26.8			59.3			41.0
Net realized gains (losses) on securities:
Fixed maturities		(29.6	)		3.6			(33.2	)		16.0
Preferred stocks		—			—			(3.2	)		—
Common equities		2.5			(7.4	)		9.9			(9.6	)
Short-term investments
Auction rate municipal obligations		—			—			—			—
Auction rate preferred stocks		—			—			(.1	)		—
Other short-term investments		—			—			—			—
	$	(27.1	)	$	(3.8	)	$	(26.6	)	$	6.4
Per share	$	(.02	)	$	—		$	(.02	)	$	.01

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

Other-Than-Temporary Impairment (OTI)

From time to time, realized losses include write-downs of 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

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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 criteria set forth in current accounting guidance.

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 such 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 periods ended June 30 was as follows:

	Three Months						Six Months
			Write-downs		Write-downs				Write-downs		Write-downs
	Total		On Securities		On Securities		Total		On Securities		On Securities
(millions)	Write-downs		Sold		Held at Period End		Write-downs		Sold		Held at Period End
2006
Fixed income	$	.8	$	—	$	.8	$	1.1	$	.3	$	.8
Common equities		.8		.8		—		2.4		2.0		.4
Total portfolio	$	1.6	$	.8	$	.8	$	3.5	$	2.3	$	1.2
2005
Fixed income	$	9.0	$	3.8	$	5.2	$	10.0	$	3.8	$	6.2
Common equities		1.2		—		1.2		1.6		—		1.6
Total portfolio	$	10.2	$	3.8	$	6.4	$	11.6	$	3.8	$	7.8

The following table stratifies the gross unrealized losses in our portfolio at June 30, 2006, 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 loss we would have recognized in the income statement if our policy for market-related declines was different than that stated above.

(millions)

			Total
	Total		Gross
	Market		Unrealized		Decline of Investment Value
Total Portfolio	Value		Losses		>15%		>25%		>35%		>45%
Unrealized loss for 1 quarter	$	2,369.7	$	20.7	$	1.1	$	.5	$	.5	$	—
Unrealized loss for 2 quarters		2,862.4		66.9		.6		.4		—		—
Unrealized loss for 3 quarters		792.1		21.1		—		—		—		—
Unrealized loss for 1 year or longer		4,077.7		145.5		.3		.1		.1		.1
	$	10,101.9	$	254.2	$	2.0	$	1.0	$	.6	$	.1

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We determined that none of the securities represented by the table above met the criteria for other-than-temporary impairment write-downs. However, if we had decided to write down all securities in an unrealized loss position for one year or longer where the securities decline in value exceeded 25%, we would have recognized an additional $.1 million of OTI losses in the income statement.

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.

Repurchase Transactions

During the quarter, we entered into repurchase commitment transactions, whereby we loaned 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 are 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 six months ended June 30, 2006, our largest single outstanding balance of repurchase commitments was $2.6 billion open for 5 days, with an average daily balance of $1.8 billion for the period. We had no open repurchase commitments at June 30, 2006 and 2005. We earned income of $1.2 million and $1.0 million on repurchase commitments during the three months ended June 30, 2006 and 2005, respectively, and earned $2.5 million and $1.5 million for the six months ended June 30, 2006 and 2005, respectively.

     Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this quarterly report on Form 10-Q 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The duration of the financial instruments subject to interest rate risk was 3.3 years at June 30, 2006 and 3.2 years at December 31, 2005. The weighted average beta of the equity portfolio was 1.0 at June 30, 2006 and 1.0 at December 31, 2005, meaning that our equity portfolio generally moves in tandem with the overall stock market. Although components of the portfolio have changed, no material changes have occurred in the total market risk since reported in the Annual Report on Form 10-K for the year ended December 31, 2005.

We use Value-at-Risk (VaR) for measuring exposure to short-term volatility and for longer-term contingency capital planning. The VaR quantifies the potential reductions in market value of our portfolio for the following 22 and 66 trading days (one- and three-month intervals) at the 95th percentile loss. The VaR of the total investment portfolio is less than the sum of the two components (fixed income and equity) due to the benefit of diversification.

(millions)	June 30, 2006			December 31, 2005
22-Day VaR
Fixed-income portfolio	$	(119.3	)	$	(106.0	)
% of portfolio		(1.0	)%		(.9	)%
Equity portfolio	$	(129.1	)	$	(84.6	)
% of portfolio		(6.1	)%		(4.1	)%
Total portfolio	$	(189.5	)	$	(137.4	)
% of portfolio		(1.3	)%		(1.0	)%
66-Day VaR
Fixed-income portfolio	$	(204.5	)	$	(181.9	)
% of portfolio		(1.6	)%		(1.5	)%
Equity portfolio	$	(213.7	)	$	(140.7	)
% of portfolio		(10.1	)%		(6.8	)%
Total portfolio	$	(318.4	)	$	(230.9	)
% of portfolio		(2.2	)%		(1.6	)%

Item 4. 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.

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.

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PART II — OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in the risk factors that were discussed in our Annual Report on
Form 10-K for the year ended December 31, 2005

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES
						Total Number of		Maximum Number of
						Shares Purchased as		Shares That May Yet
	Total Number of					Part of Publicly		Be Purchased Under
2006	Shares		Average Price Paid			Announced Plans or		the Plans or
Calendar Month	Purchased1		per Share1			Programs		Programs
April		668,704	$	107.17			12,862,416		62,137,584
May pre-split		331,496		107.94			13,193,912		61,806,088
May post-split		1,932,200		27.16			15,126,112		65,292,152
June		4,137,204		26.01			19,263,316		61,154,948
Total		7,069,604	$	37.84	2

1	We did not split treasury shares.
2	Represents a blended average price per shares; the average price per share was $107.42 on the shares purchased prior to the stock split and $26.38 on the shares purchased post-split.

In April 2003, the Board of Directors authorized the repurchase of up to 15,000,000 Common Shares. 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. On April 21, 2006, the Board approved an increase to the number of Common Shares available for repurchase under this authorization to adjust for the 4-for-1 stock split; the 1,806,088 shares available for repurchase as of May 8, 2006, the record date of the stock split, were adjusted for the stock split.

In addition, on April 21, 2006, the Board set a new authorization to repurchase 60 million Common Shares (on a post-split basis) to be used in addition to, and after completion of, the remaining repurchases available under the April 2003, split-adjusted authorization.

Item 5. Other Information

On April 21, 2006, we granted time-based restricted stock awards covering a total of 15,312 Common Shares to our non-employee directors. These awards are scheduled to vest on March 21, 2007, and had an aggregate dollar value of approximately $1.6 million at the date of grant.

On June 5, 2006, Progressive granted time-based restricted stock awards covering a total of 6,000 Common Shares to two executive officers, under Progressive’s 2003 Incentive Plan; on July 3, 2006, awards covering 3,000 Common Shares were granted to an additional executive officer. These awards were granted at a closing price of $26.91 and $25.75, respectively, as reported on the New York Stock Exchange, on the respective date of grant. As a consequence, these awards had an aggregate dollar value of approximately $.2 million. The time-based restricted stock awards vest in equal installments on January 1 of 2009, 2010 and 2011, respectively.

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Dividends will be paid on these restricted stock awards when and as declared by Progressive’s Board of Directors. In addition, the participants have the right to vote restricted Common Shares prior to the vesting date.

See “Item 5—Other Information” in Part II of our Quarterly Report on Form 10-Q for the period ended March 31, 2006, for details regarding the restricted stock awards granted in the first quarter 2006.

President and CEO Glenn M. Renwick’s letter to shareholders with respect to our second quarter 2006 results is included as Exhibit 99 to this Quarterly Report on Form 10-Q. The letter is also posted on Progressive’s Web site at progressive.com/annualreport.

Item 6. Exhibits

See exhibit index on page 32.

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SIGNATURES

Pursuant to the requirements 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 (Registrant)
Date: August 3, 2006	BY:	/s/ W. Thomas Forrester
		W. Thomas Forrester
		Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.
Under	Form 10-Q		If Incorporated by Reference,
Reg. S-K,	Exhibit		Documents with Which Exhibit
Item 601	Number	Description of Exhibit	was Previously Filed with SEC
(10)(iii)	10(A)	Employment Agreement dated July 17, 2006 between The Progressive Corporation and John A. Barbagallo	Filed herewith
(10)(iii)	10(B)	Employment Agreement dated July 17, 2006 between The Progressive Corporation and John P. Sauerland	Filed herewith
(10)(iii)	10(C)	Employment Agreement dated July 17, 2006 between The Progressive Corporation and Brian A. Silva	Filed herewith
(12)	12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith
(31)	31(A)	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer, Glenn M. Renwick	Filed herewith
(31)	31(B)	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer, W. Thomas Forrester	Filed herewith
(32)	32(A)	Section 1350 Certification of the Principal Executive Officer, Glenn M. Renwick	Filed herewith
(32)	32(B)	Section 1350 Certification of the Principal Financial Officer, W. Thomas Forrester	Filed herewith
(99)	99	Letter to Shareholders from Glenn M. Renwick, President and Chief Executive Officer	Filed herewith

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EX-10.A

Exhibit 10(A)

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT, dated as of the 17th day of July, 2006 (this “Agreement”), by and between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Company”), and John A. Barbagallo (the “Executive”),

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

     Section 1. Certain Definitions.

     (a) “Effective Date” means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or in anticipation of a Change of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.

     (b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

     (c) “Company” means the Company as hereinbefore defined and any successor to its business and/or assets as described below whether by merger, consolidation, purchase or otherwise, that assumes and is bound to perform this Agreement by operation of law or otherwise.

     (d) “Affiliated company” means any company controlled by, controlling or under common control with the Company.

     (e) “Change of Control” means:

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     (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company, (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections l(d)(3)(A), l(d)(3)(B) and l(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities by any Person who has acquired the Outstanding Company Common Shares or Outstanding Company Voting Securities 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 Person of a statement on Schedule 13G (including amendments thereto) pursuant to Regulation 13D under the Exchange Act, as long as such Person continues to hold the Outstanding Company Common Shares or Outstanding Company Voting Securities with an Investment Intent, unless the Incumbent Board (as defined below) determines, by a majority vote, that the acquisition or holding of Outstanding Company Common Shares or Outstanding Company Voting Securities by such Person constitutes a Change of Control.

     (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

     (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business

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Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding common shares of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

     (4) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     Section 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”).

     Section 3. Terms of Employment.

     (a) Position and Duties.

     (1) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by and assigned to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 25 miles from such office.

     (2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities to the best of his or her ability. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an officer or employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

     (b) Compensation.

     (1) Base Salary. During the Employment Period, the Executive shall receive an annual

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base salary (the “Annual Base Salary”), which Annual Base Salary shall be at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies during the 12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid one-twelfth (1/12^th) each month. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. During the Employment Period, the Annual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so increased.

     (2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s Executive Bonus and/or Gainsharing Plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, except to the extent that the Executive shall elect to defer the receipt of such Annual Bonus pursuant to and in accordance with the Company’s Executive Deferral Plan or any successor plan thereto then in effect.

     (3) Company Equity Incentive Plans. During the Employment Period, the Executive shall be entitled to participate in all restricted stock, stock option and other equity incentive plans, practices, policies and programs (“Equity Incentive Plans”) applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such Equity Incentive Plans provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such Equity Incentive Plans as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. The basis for the valuation for such equity incentive awards for Executive shall be the highest applicable percent of salary within the last three fiscal years prior to the Effective Date, based upon Executive’s job classification, and a target award value that is equal to or greater than the highest target award value of any of the equity incentive awards granted to the Executive during such 3-year period.

     (4) Savings. Retirement and Welfare Benefit Plans. During the Employment Period, the Executive and as applicable the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under any incentive, savings, retirement plans and welfare benefit plans, policies, practices and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive and/or the Executive’s family with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. In the event that

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because of applicable law, or for other good and valid reasons, such applicable benefit plans cannot be provided Executive by the Company following Change of Control, the Company by agreement with Executive, which agreement shall not be unreasonably withheld, may provide Executive with an amount having an overall equivalent tax adjusted value for the applicable period to those employee benefits, programs and the like, not otherwise being provided by the Company to Executive.

     (5) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in the furtherance of the business or affairs of the Company or any of the Affiliated companies in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (6) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (7) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     Section 4. Termination of Employment

     (a) Death or Disability. The Executive’s employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to the Executive written notice in accordance with Section ll(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

     (b) Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. Subject to the last paragraph of Section 4(b), “Cause” means:

     (1) the willful failure of the Executive to perform, and the continuance of such failure to perform for 60 days following the Executive’s receipt of notice from the Company, substantially the Executive’s duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand

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for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive’s duties; or

     (2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company; or

     (3) any violation of the Code of Conduct of the Company, as in effect immediately prior to the Effective Date.

For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.

     Notwithstanding the foregoing, the cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Sections 4(b)(l) or 4(b)(2), and specifying the particulars thereof in detail.

     (c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. “Good Reason” means:

     (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 (a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (3) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 3(a)(l)(B) or the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

     (4) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

     (5) any failure by the Company to comply with and satisfy Section 10(c).

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For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s respective rights hereunder.

     (e) Date of Termination. “Date of Termination” means (1) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

     Section 5. Obligations of the Company upon Termination, (a) Good Reason: Other Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates employment for Good Reason:

     (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

     (A) the sum of (i) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination to the extent not theretofore paid, (ii) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount, the “Highest Annual Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “Accrued Obligations”); and

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     (B) the amount equal to the higher of (i) the product of (x) two and (y) the sum of (l) the Executive’s Annual Base Salary and (2) the Highest Annual Bonus or (ii) the product of (x) four and (y) the Executive’s Annual Base Salary; less

     (C) the value of amounts paid or to be paid to the Executive under any severance pay plans or programs of the Company then in effect.

     (2) for two years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;

     (3) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive’s sole discretion; and

     (4) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided to the Executive or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the “Other Benefits”).

     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s estate, beneficiaries or legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.

     (c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to

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the Executive, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the affiliated companies and their families.

     (d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

     Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or the affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or the affiliated companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.

     Section 7. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be subject to set-off or otherwise affected by any counterclaim, recoupment, defense, or other claim, right or action that the Company or any of the Affiliated companies may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).

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     Section 8. Certain Additional Payments by the Company.

     (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, as the same may be hereafter modified or amended or any successor provision, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers LLP or such other nationally recognized independent accounting firm as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

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     (1) give the Company any information reasonably requested by the Company relating to such claim,

     (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

     (3) cooperate with the Company in good faith in order effectively to contest such claim, and

     (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, upon receipt of such refund, the Executive shall (subject to the Company’s complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

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     Section 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive’s employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). For two years after termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

     Section 10. Successors.

     (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

     Section 11. Miscellaneous.

     (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors, permitted assigns and legal representatives.

     (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

     if to the Executive:

John A. Barbagallo
(at his home address)

     if to the Company:

The Progressive Corporation
6300 Wilson Mills Road N72
Mayfield Village, Ohio 44143
Attention: Chief Legal Officer

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or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

     (d) This Agreement shall not be deemed to modify, amend or supplement the terms of any existing benefit plan or program of the Company.

     (e) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes or other items as shall be required to be withheld pursuant to any applicable law or regulation.

     (f) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(l) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

     (g) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section l(a), prior to the Effective Date, the Executive’s employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.

     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

/s/ John A. Barbagallo
John A. Barbagallo
THE PROGRESSIVE CORPORATION
By:	/s/ Glenn M. Renwick
	Name:	Glenn M. Renwick
	Chief Executive Officer

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EX-10.B

Exhibit 10(B)

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT, dated as of the 17th day of July, 2006 (this “Agreement”), by and between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Company”), and John P. Sauerland (the “Executive”),

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

     Section 1. Certain Definitions.

     (a) “Effective Date” means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or in anticipation of a Change of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.

     (b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

     (c) “Company” means the Company as hereinbefore defined and any successor to its business and/or assets as described below whether by merger, consolidation, purchase or otherwise, that assumes and is bound to perform this Agreement by operation of law or otherwise.

     (d) “Affiliated company” means any company controlled by, controlling or under common control with the Company.

     (e) “Change of Control” means:

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     (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company, (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections l(d)(3)(A), l(d)(3)(B) and l(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities by any Person who has acquired the Outstanding Company Common Shares or Outstanding Company Voting Securities 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 Person of a statement on Schedule 13G (including amendments thereto) pursuant to Regulation 13D under the Exchange Act, as long as such Person continues to hold the Outstanding Company Common Shares or Outstanding Company Voting Securities with an Investment Intent, unless the Incumbent Board (as defined below) determines, by a majority vote, that the acquisition or holding of Outstanding Company Common Shares or Outstanding Company Voting Securities by such Person constitutes a Change of Control.

     (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

     (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business

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Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding common shares of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

     (4) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     Section 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”).

     Section 3. Terms of Employment.

     (a) Position and Duties.

     (1) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by and assigned to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 25 miles from such office.

     (2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities to the best of his or her ability. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an officer or employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

     (b) Compensation.

     (1) Base Salary. During the Employment Period, the Executive shall receive an annual

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base salary (the “Annual Base Salary”), which Annual Base Salary shall be at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies during the 12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid one-twelfth (1/12^th) each month. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. During the Employment Period, the Annual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so increased.

     (2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s Executive Bonus and/or Gainsharing Plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, except to the extent that the Executive shall elect to defer the receipt of such Annual Bonus pursuant to and in accordance with the Company’s Executive Deferral Plan or any successor plan thereto then in effect.

     (3) Company Equity Incentive Plans. During the Employment Period, the Executive shall be entitled to participate in all restricted stock, stock option and other equity incentive plans, practices, policies and programs (“Equity Incentive Plans”) applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such Equity Incentive Plans provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such Equity Incentive Plans as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. The basis for the valuation for such equity incentive awards for Executive shall be the highest applicable percent of salary within the last three fiscal years prior to the Effective Date, based upon Executive’s job classification, and a target award value that is equal to or greater than the highest target award value of any of the equity incentive awards granted to the Executive during such 3-year period.

     (4) Savings. Retirement and Welfare Benefit Plans. During the Employment Period, the Executive and as applicable the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under any incentive, savings, retirement plans and welfare benefit plans, policies, practices and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive and/or the Executive’s family with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. In the event that

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because of applicable law, or for other good and valid reasons, such applicable benefit plans cannot be provided Executive by the Company following Change of Control, the Company by agreement with Executive, which agreement shall not be unreasonably withheld, may provide Executive with an amount having an overall equivalent tax adjusted value for the applicable period to those employee benefits, programs and the like, not otherwise being provided by the Company to Executive.

     (5) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in the furtherance of the business or affairs of the Company or any of the Affiliated companies in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (6) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (7) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     Section 4. Termination of Employment

     (a) Death or Disability. The Executive’s employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to the Executive written notice in accordance with Section ll(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

     (b) Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. Subject to the last paragraph of Section 4(b), “Cause” means:

     (1) the willful failure of the Executive to perform, and the continuance of such failure to perform for 60 days following the Executive’s receipt of notice from the Company, substantially the Executive’s duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand

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for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive’s duties; or

     (2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company; or

     (3) any violation of the Code of Conduct of the Company, as in effect immediately prior to the Effective Date.

For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.

     Notwithstanding the foregoing, the cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Sections 4(b)(l) or 4(b)(2), and specifying the particulars thereof in detail.

     (c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. “Good Reason” means:

     (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 (a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (3) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 3(a)(l)(B) or the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

     (4) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

     (5) any failure by the Company to comply with and satisfy Section 10(c).

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For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s respective rights hereunder.

     (e) Date of Termination. “Date of Termination” means (1) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

     Section 5. Obligations of the Company upon Termination, (a) Good Reason: Other Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates employment for Good Reason:

     (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

     (A) the sum of (i) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination to the extent not theretofore paid, (ii) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount, the “Highest Annual Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “Accrued Obligations”); and

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     (B) the amount equal to the higher of (i) the product of (x) two and (y) the sum of (l) the Executive’s Annual Base Salary and (2) the Highest Annual Bonus or (ii) the product of (x) four and (y) the Executive’s Annual Base Salary; less

     (C) the value of amounts paid or to be paid to the Executive under any severance pay plans or programs of the Company then in effect.

     (2) for two years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;

     (3) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive’s sole discretion; and

     (4) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided to the Executive or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the “Other Benefits”).

     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s estate, beneficiaries or legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.

     (c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to

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the Executive, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the affiliated companies and their families.

     (d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

     Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or the affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or the affiliated companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.

     Section 7. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be subject to set-off or otherwise affected by any counterclaim, recoupment, defense, or other claim, right or action that the Company or any of the Affiliated companies may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).

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     Section 8. Certain Additional Payments by the Company.

     (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, as the same may be hereafter modified or amended or any successor provision, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers LLP or such other nationally recognized independent accounting firm as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

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     (1) give the Company any information reasonably requested by the Company relating to such claim,

     (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

     (3) cooperate with the Company in good faith in order effectively to contest such claim, and

     (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, upon receipt of such refund, the Executive shall (subject to the Company’s complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

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     Section 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive’s employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). For two years after termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

     Section 10. Successors.

     (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

     Section 11. Miscellaneous.

     (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors, permitted assigns and legal representatives.

     (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

     if to the Executive:

John P. Sauerland
(at his home address)

     if to the Company:

The Progressive Corporation
6300 Wilson Mills Road N72
Mayfield Village, Ohio 44143
Attention: Chief Legal Officer

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or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

     (d) This Agreement shall not be deemed to modify, amend or supplement the terms of any existing benefit plan or program of the Company.

     (e) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes or other items as shall be required to be withheld pursuant to any applicable law or regulation.

     (f) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(l) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

     (g) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section l(a), prior to the Effective Date, the Executive’s employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.

     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

/s/ John P. Sauerland
John P. Sauerland
THE PROGRESSIVE CORPORATION
By:	/s/ Glenn M. Renwick
	Name:	Glenn M. Renwick
	Chief Executive Officer

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EX-10.C

Exhibit 10(C)

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT, dated as of the 17th day of July, 2006 (this “Agreement”), by and between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Company”), and Brian A. Silva (the “Executive”),

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

     Section 1. Certain Definitions.

     (a) “Effective Date” means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or in anticipation of a Change of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.

     (b) “Change of Control Period” means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.

     (c) “Company” means the Company as hereinbefore defined and any successor to its business and/or assets as described below whether by merger, consolidation, purchase or otherwise, that assumes and is bound to perform this Agreement by operation of law or otherwise.

     (d) “Affiliated company” means any company controlled by, controlling or under common control with the Company.

     (e) “Change of Control” means:

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     (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company, (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections l(d)(3)(A), l(d)(3)(B) and l(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities by any Person who has acquired the Outstanding Company Common Shares or Outstanding Company Voting Securities 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 Person of a statement on Schedule 13G (including amendments thereto) pursuant to Regulation 13D under the Exchange Act, as long as such Person continues to hold the Outstanding Company Common Shares or Outstanding Company Voting Securities with an Investment Intent, unless the Incumbent Board (as defined below) determines, by a majority vote, that the acquisition or holding of Outstanding Company Common Shares or Outstanding Company Voting Securities by such Person constitutes a Change of Control.

     (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

     (3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination

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or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding common shares of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

     (4) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

     Section 2. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”).

     Section 3. Terms of Employment.

     (a) Position and Duties.

     (1) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by and assigned to the Executive at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 25 miles from such office.

     (2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities to the best of his or her ability. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an officer or employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

     (b) Compensation.

     (1) Base Salary. During the Employment Period, the Executive shall receive an annual

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base salary (the “Annual Base Salary”), which Annual Base Salary shall be at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies during the 12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid one-twelfth (1/12^th) each month. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. During the Employment Period, the Annual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so increased.

     (2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s Executive Bonus and/or Gainsharing Plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, except to the extent that the Executive shall elect to defer the receipt of such Annual Bonus pursuant to and in accordance with the Company’s Executive Deferral Plan or any successor plan thereto then in effect.

     (3) Company Equity Incentive Plans. During the Employment Period, the Executive shall be entitled to participate in all restricted stock, stock option and other equity incentive plans, practices, policies and programs (“Equity Incentive Plans”) applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such Equity Incentive Plans provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such Equity Incentive Plans as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. The basis for the valuation for such equity incentive awards for Executive shall be the highest applicable percent of salary within the last three fiscal years prior to the Effective Date, based upon Executive’s job classification, and a target award value that is equal to or greater than the highest target award value of any of the equity incentive awards granted to the Executive during such 3-year period.

     (4) Savings, Retirement and Welfare Benefit Plans. During the Employment Period, the Executive and as applicable the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under any incentive, savings, retirement plans and welfare benefit plans, policies, practices and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive and/or the Executive’s family with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies. In the event that because of applicable law, or

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for other good and valid reasons, such applicable benefit plans cannot be provided Executive by the Company following Change of Control, the Company by agreement with Executive, which agreement shall not be unreasonably withheld, may provide Executive with an amount having an overall equivalent tax adjusted value for the applicable period to those employee benefits, programs and the like, not otherwise being provided by the Company to Executive.

     (5) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in the furtherance of the business or affairs of the Company or any of the Affiliated companies in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (6) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     (7) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.

     Section 4. Termination of Employment

     (a) Death or Disability. The Executive’s employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to the Executive written notice in accordance with Section ll(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

     (b) Cause. The Company may terminate the Executive’s employment during the Employment Period for Cause. Subject to the last paragraph of Section 4(b), “Cause” means:

     (1) the willful failure of the Executive to perform, and the continuance of such failure to perform for 60 days following the Executive’s receipt of notice from the Company, substantially the Executive’s duties with the Company or any affiliated company (other than any

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such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive’s duties; or

     (2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company; or

     (3) any violation of the Code of Conduct of the Company, as in effect immediately prior to the Effective Date.

For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.

     Notwithstanding the foregoing, the cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Sections 4(b)(l) or 4(b)(2), and specifying the particulars thereof in detail.

     (c) Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason. “Good Reason” means:

     (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 (a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

     (3) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 3(a)(l)(B) or the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

     (4) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

     (5) any failure by the Company to comply with and satisfy Section 10(c).

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For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s respective rights hereunder.

     (e) Date of Termination. “Date of Termination” means (1) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

     Section 5. Obligations of the Company upon Termination, (a) Good Reason: Other Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates employment for Good Reason:

     (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

     (A) the sum of (i) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination to the extent not theretofore paid, (ii) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount, the “Highest Annual Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the “Accrued Obligations”); and

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     (B) the amount equal to the higher of (i) the product of (x) two and (y) the sum of (l) the Executive’s Annual Base Salary and (2) the Highest Annual Bonus or (ii) the product of (x) four and (y) the Executive’s Annual Base Salary; less

     (C) the value of amounts paid or to be paid to the Executive under any severance pay plans or programs of the Company then in effect.

     (2) for two years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;

     (3) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive’s sole discretion; and

     (4) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided to the Executive or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the “Other Benefits”).

     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s estate, beneficiaries or legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.

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     (c) Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the affiliated companies and their families.

     (d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) that portion of the Executive’s Annual Base Salary that has accrued prior to the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

     Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or the affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or the affiliated companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.

     Section 7. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be subject to set-off or otherwise affected by any counterclaim, recoupment, defense, or other claim, right or action that the Company or any of the Affiliated companies may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the “Code”).

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     Section 8. Certain Additional Payments by the Company.

     (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, as the same may be hereafter modified or amended or any successor provision, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers LLP or such other nationally recognized independent accounting firm as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such

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claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:

     (1) give the Company any information reasonably requested by the Company relating to such claim,

     (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

     (3) cooperate with the Company in good faith in order effectively to contest such claim, and

     (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, upon receipt of such refund, the Executive shall (subject to the Company’s complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

     Section 9. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive’s employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). For two years after termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

     Section 10. Successors.

     (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

     Section 11. Miscellaneous.

     (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors, permitted assigns and legal representatives.

     (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

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     if to the Executive:

Brian A. Silva
(at his home address)

     if to the Company:

The Progressive Corporation
6300 Wilson Mills Road N72
Mayfield Village, Ohio 44143
Attention: Chief Legal Officer

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

     (d) This Agreement shall not be deemed to modify, amend or supplement the terms of any existing benefit plan or program of the Company.

     (e) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes or other items as shall be required to be withheld pursuant to any applicable law or regulation.

     (f) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(l) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

     (g) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section l(a), prior to the Effective Date, the Executive’s employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.

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     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

/s/ Brian A. Silva
Brian A. Silva
THE PROGRESSIVE CORPORATION
By:	/s/ Glenn M. Renwick
	Name:	Glenn M. Renwick
	Chief Executive Officer

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EX-12

Exhibit No. 12

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

	Six Months Ended
	June 30,
	2006			2005
Income before income taxes	$	1,239.4		$	1,201.4
Fixed Charges:
Interest and amortization on indebtedness		41.4			42.0
Portion of rents representative of the interest factor		10.9			5.7
Total fixed charges		52.3			47.7
Interest capitalized, net of amortized interest		(1.1	)		(.2	)
Total income available for fixed charges	$	1,290.6		$	1,248.9
Ratio of earnings to fixed charges		24.7			26.2

EX-31.A

Exhibit No. 31(A)

CERTIFICATION

I, Glenn M. Renwick, certify that:

1.	I have reviewed this quarterly report on Form 10-Q 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: August 3, 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 quarterly report on Form 10-Q 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: August 3, 2006

/s/ W. Thomas Forrester  

W. Thomas Forrester 

Vice President and Chief Financial Officer 

EX-32.A

Exhibit No. 32(A)

SECTION 1350 CERTIFICATION

     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, 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2006 (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 
August 3, 2006

EX-32.B

Exhibit No. 32(B)

SECTION 1350 CERTIFICATION

     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, 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2006 (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
August 3, 2006

EX-99

Exhibit 99

Letter to Shareholders
Second Quarter 2006

Strong profits and weaker growth characterize our second quarter performance. The combined ratio of 86.6 for the quarter was excellent and up only .5 points over the same period last year. The continuation of very favorable profitability is driven by recurring themes that have shaped the auto insurance market for some time, including period-over-period reductions in reported accident frequency per vehicle and very modest inflation in bodily injury claims. The aggregate effect is on both current accident-period results and claims from prior accident periods that have either settled, or are likely to settle, for less than their original reserves. Prior accident periods contributed favorably by about 2 points to the second quarter 2006 calendar-year combined ratio.

Growth is very much our concern. While the industry-wide growth rates for 2005 of .5% and first quarter estimates of .6% reflect the softer market pricing conditions, our quarterly growth of 2% is lower than our expectations. For some time, we have expected margins to return to more normal levels through some increase in frequency and/or severity, but as we signaled in our presentation to analysts and investors in June, we are less confident that we can predict the pace or timing of any change. With reduced expectation of external drivers of margin erosion, we will modify our future pricing trends and seek opportunities that we view as smart moves to stimulate growth in new applications and extend retention of current customers.

Our Drive^® brand, which is the leading writer of auto insurance in the independent agency channel, has had the greatest growth challenge, with new business applications at reduced levels for some time. Total Drive auto policies in force are up only 1% from the same period a year ago. We are seeing, and have reported on, a growing dynamic in the agency channel — more auto insurance prospects initiating their shopping online. This results in an increasing quote volume from Web-based agents and an increase in Web-initiated prospects referred to traditional independent agents. The quote flow from these sources is quite strong, but we are seeing significantly lower conversion as compared to our traditional agency quote flow. This dynamic, while still small in overall contribution, is an important market change and one we feel plays well to our technology and low-cost product positioning. Our strategy of providing agents with very competitive, easy-to-use products and providing their customers superior service remains our key objective for this business.

The shift from phone quoting to Internet quoting that we have commented on for some time in our Direct business continues with Internet sales representing between 60% and 65% of new business activity. As has always been our philosophy, we want to service customers in ways they prefer and we plan to evaluate if we are maximizing our opportunities with the phone buyer at the same time we are advancing our Internet position. We were pleased to see that our Internet site topped the rankings published by Keynote for WebExcellence in June. Auto policies in force are up 6% in the Direct business from the same period last year. We are currently in the early stages of evaluating advertising agencies to select one to assist us in the ongoing development of our Progressive Direct^® brand position and marketing message. The market place for auto insurance spending and messaging is very competitive and we intend to seek ways to enhance our brand position and appeal to current consumers and future prospects.

Our Commercial Auto business had a solid quarter with 9% growth and a 76.4 combined ratio. Market conditions for commercial auto are similar to personal auto with increased

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competition in both our light local and truck segments and softer pricing, especially in the light local market. We share a top three market position in commercial auto with St. Paul Travelers and Zurich and, based on estimated first quarter only numbers, edged into the leading market share position with 6.8% share. At our June meeting, we outlined plans for increasing our focus for key segments of our truck market by expanding our product offering to meet customers’ full range of commercial auto-related insurance needs. We expect continued geographic expansion in New Jersey throughout the year and currently expect a fourth quarter entry into Massachusetts for our Commercial Auto business.

Our Claims Service Center expansion continues on schedule with 42 centers in 18 states up and operational with expectations of an additional 11 sites before year end. We remain very satisfied with the results of these facilities and encouraged by the long-term implications of redefining consumer expectations. Our concierge level of claims service and the measurement of customers’ satisfaction have been central to a more broad adoption of a customer loyalty and satisfaction focus — measures which will become as important in evaluating our business as are our economic goals.

We announced two changes and one addition to the top management group during the quarter. John Barbagallo assumed the presidency of Drive and John Sauerland filled the Group President role for our Direct business. Brian Silva, who has managed the Commercial Auto group for the past eight years, joined my Executive Team during the quarter.

This year, and specifically this quarter, we have been challenged to find the best balance point between growth and profitability. Effecting this balance is something we work at every day at far more specific levels than macro reporting can effectively present. There are no easy answers and the moving parts of our business all have differing dynamics. We are delighted to be building on a base of superior performance on claims quality, target execution of the rollout of our concierge level of claims service for both vehicles that can be repaired and vehicles that need to be replaced, and proven product design. Attracting prospects and retaining customers in all channels is critical and the softer market will make our efforts all the more focused and intense.

As always, we are excited about attacking this challenge and we continue to strive to be Consumers’ #1 Choice for Auto Insurance.

/s/ Glenn M. Renwick Glenn M. Renwick
President and Chief Executive Officer

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