10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-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 March 31, 2009

or

¨ 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    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 681,014,026 outstanding at April 30, 2009

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The Progressive Corporation and Subsidiaries

Consolidated Statements of Income

(unaudited)

Three months ended March 31, (millions - except per share amounts)	2009			2008		% Change
Revenues
Net premiums earned	$	3,406.6		$	3,390.0	—
Investment income		131.5			159.3	(17	)
Net realized gains (losses) on securities		(73.4	)		32.2	NM
Service revenues		3.5			4.4	(20	)
Total revenues		3,468.2			3,585.9	(3	)
Expenses
Losses and loss adjustment expenses		2,337.0			2,484.0	(6	)
Policy acquisition costs		336.2			339.5	(1	)
Other underwriting expenses		377.4			384.3	(2	)
Investment expenses		2.6			1.5	73
Service expenses		4.6			5.1	(10	)
Interest expense		33.7			34.3	(2	)
Total expenses		3,091.5			3,248.7	(5	)
Net Income
Income before income taxes		376.7			337.2	12
Provision for income taxes		144.2			97.8	47
Net income	$	232.5		$	239.4	(3	)
Computation of Earnings Per Share
Basic:
Average shares outstanding		668.6			671.5	—
Per share	$	.35		$	.36	(2	)
Diluted:
Average shares outstanding		668.6			671.5	—
Net effect of dilutive stock-based compensation		3.4			5.8	(41	)
Total equivalent shares		672.0			677.3	(1	)
Per share	$	.35		$	.35	—
Dividends declared per share1	$	—		$	—

NM  =  Not Meaningful

¹ Progressive maintains an annual dividend program. See Note 9 – Dividends for further discussion.

See notes to consolidated financial statements.

2

The Progressive Corporation and Subsidiaries

Consolidated Balance Sheets

(unaudited)

	March 31,					December 31, 2008
(millions)	2009			2008
Assets
Investments - Available-for-sale, at fair value:
Fixed maturities (amortized cost: $10,685.1, $8,182.4, and $10,295.3)	$	10,309.0		$	8,120.7	$	9,946.7
Equity securities:
Nonredeemable preferred stocks (cost: $863.5, $2,635.7, and $1,131.3)		815.2			2,121.5		1,150.0
Common equities (cost: $284.1, $1,330.3, and $553.6)		350.4			2,104.2		727.8
Short-term investments (amortized cost: $1,293.8, $1,533.3, and $1,153.6)		1,293.8			1,533.3		1,153.6
Total investments		12,768.4			13,879.7		12,978.1
Cash		134.5			8.5		2.9
Accrued investment income		112.9			125.8		125.7
Premiums receivable, net of allowance for doubtful accounts of $105.4, $105.2, and $113.7		2,516.8			2,503.2		2,408.6
Reinsurance recoverables, including $40.7, $42.8, and $44.0 on paid losses		284.5			322.2		288.5
Prepaid reinsurance premiums		60.8			66.9		62.4
Deferred acquisition costs		427.4			434.1		414.0
Income taxes		766.0			190.6		821.6
Property and equipment, net of accumulated depreciation of $670.4, $621.2, and $653.6		997.5			1,000.6		997.1
Other assets		146.3			185.2		151.6
Total assets	$	18,215.1		$	18,716.8	$	18,250.5
Liabilities and Shareholders’ Equity
Unearned premiums	$	4,290.6		$	4,307.9	$	4,175.9
Loss and loss adjustment expense reserves		6,077.3			5,952.1		6,177.4
Accounts payable, accrued expenses, and other liabilities		1,368.0			1,532.9		1,506.4
Debt1		2,175.9			2,174.3		2,175.5
Total liabilities		13,911.8			13,967.2		14,035.2
Common Shares, $1.00 par value (authorized 900.0; issued 797.8, 797.9, and 797.9, including treasury shares of 117.1, 120.4, and 121.4)		680.7			677.5		676.5
Paid-in capital		901.3			846.3		892.9
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on securities		(227.8	)		135.7		(76.8	)
Net unrealized gains on forecasted transactions		24.1			27.1		24.9
Retained earnings		2,925.0			3,063.0		2,697.8
Total shareholders’ equity		4,303.3			4,749.6		4,215.3
Total liabilities and shareholders’ equity	$	18,215.1		$	18,716.8	$	18,250.5

¹ Consists of long-term debt. See Note 4 – Debt.

See notes to consolidated financial statements.

3

The Progressive Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

Three months ended March 31, (millions)	2009			2008
Cash Flows From Operating Activities
Net income	$	232.5		$	239.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20.6			23.8
Amortization of fixed-income securities		59.9			69.9
Amortization of stock-based compensation		9.3			6.5
Net realized (gains) losses on securities		73.4			(32.2	)
Net loss on disposition of property and equipment		—			.5
Changes in:
Premiums receivable		(108.2	)		(108.1	)
Reinsurance recoverables		4.0			12.9
Prepaid reinsurance premiums		1.6			2.9
Deferred acquisition costs		(13.4	)		(7.8	)
Income taxes		124.6			92.7
Unearned premiums		114.7			97.5
Loss and loss adjustment expense reserves		(100.1	)		9.4
Accounts payable, accrued expenses, and other liabilities		104.5			25.4
Other, net		18.0			28.6
Net cash provided by operating activities		541.4			461.4
Cash Flows From Investing Activities
Purchases:
Fixed maturities		(4,383.7	)		(473.0	)
Equity securities		(.2	)		(244.8	)
Short-term investments - auction rate securities		—			(414.7	)
Sales:
Fixed maturities		3,898.3			1,376.1
Equity securities		353.4			101.5
Short-term investments - auction rate securities		—			240.6
Maturities, paydowns, calls, and other:
Fixed maturities		121.7			120.4
Equity securities		—			34.9
Net purchases of short-term investments - other		(140.3	)		(976.7	)
Net unsettled security transactions		(235.6	)		2.4
Purchases of property and equipment		(21.2	)		(24.2	)
Sale of property and equipment		.2			—
Net cash used in investing activities		(407.4	)		(257.5	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		4.0			9.1
Tax benefit from exercise/vesting of stock-based compensation		(1.3	)		4.1
Dividends paid to shareholders1		—			(98.3	)
Acquisition of treasury shares		(5.1	)		(116.1	)
Net cash used in financing activities		(2.4	)		(201.2	)
Increase in cash		131.6			2.7
Cash, January 1		2.9			5.8
Cash, March 31	$	134.5		$	8.5

¹ Progressive maintains an annual dividend program. See Note 9 – Dividends for further discussion.

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, 2008.

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 period ended March 31, 2009, are not necessarily indicative of the results expected for the full year.

Note 2 Investments — The composition of the investment portfolio was:

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
March 31, 2009
Fixed maturities	$	10,685.1	$	130.6	$	(506.7	)	$	—		$	10,309.0	80.7	%
Equity securities:
Nonredeemable preferred stocks		863.5		6.3		(31.3	)		(23.3	)		815.2	6.4
Common equities		284.1		81.2		(18.3	)		3.4			350.4	2.8
Short-term investments:
Other short-term investments		1,293.8		—		—			—			1,293.8	10.1
Total portfolio2,3	$	13,126.5	$	218.1	$	(556.3	)	$	(19.9	)	$	12,768.4	100.0	%
March 31, 2008
Fixed maturities4	$	8,182.4	$	118.2	$	(179.9	)	$	—		$	8,120.7	58.5	%
Equity securities:
Nonredeemable preferred stocks		2,635.7		3.5		(506.9	)		(10.8	)		2,121.5	15.3
Common equities		1,330.3		793.8		(19.9	)		—			2,104.2	15.2
Short-term investments:
Auction rate municipal obligations		174.1		—		—			—			174.1	1.2
Other short-term investments		1,359.2		—		—			—			1,359.2	9.8
Total short-term investments		1,533.3		—		—			—			1,533.3	11.0
Total portfolio2,3	$	13,681.7	$	915.5	$	(706.7	)	$	(10.8	)	$	13,879.7	100.0	%
December 31, 2008
Fixed maturities	$	10,295.3	$	195.9	$	(544.5	)	$	—		$	9,946.7	76.6	%
Equity securities:
Nonredeemable preferred stocks		1,131.3		73.5		(17.3	)		(37.5	)		1,150.0	8.9
Common equities		553.6		203.5		(29.3	)		—			727.8	5.6
Short-term investments:
Other short-term investments		1,153.6		—		—			—			1,153.6	8.9
Total portfolio2,3	$	13,133.8	$	472.9	$	(591.1	)	$	(37.5	)	$	12,978.1	100.0	%

¹ Represents net holding period gains (losses) on certain hybrid securities (discussed below) and on common equity options (see the Derivative Instruments section below for further discussion).

² At March 31, 2009, March 31, 2008, and December 31, 2008, we had $18.6 million, $79.4 million, and $254.2 million of unsettled security transactions (offset in other liabilities), respectively.

³ March 31, 2009, March 31, 2008, and December 31, 2008 totals include $.8 billion, $1.8 billion, and $1.0 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

⁴ Balance at March 31, 2008 includes $44.7 million of collateral in the form of Treasury Notes delivered to a counterparty on an open derivative position; the position was closed in the fourth quarter 2008. See the Derivative Instruments section below for further discussion.

5

Our fixed-maturity securities include debt securities and redeemable preferred stocks. At March 31, 2009, March 31, 2008, and December 31, 2008, the nonredeemable preferred stock portfolio included $17.8 million, $149.7 million, and $53.0 million, respectively, of hybrid securities (i.e., perpetual preferred stocks that have call features with fixed-rate coupons, whereby the change in value of the call features is a component of the overall change in value of the preferred stocks). Common equities include common stocks and other risk investments (i.e., private equity investments and limited partnership interests in private equity and mezzanine funds). Our other short-term investments include Eurodollar deposits, commercial paper, and other investments which are expected to mature within one year.

Our securities are reported at fair value, with the changes in fair value of these securities (other than hybrid securities and derivative instruments) reported as a component of accumulated other comprehensive income, net of deferred income taxes. The change in fair value of the hybrid securities and derivative instruments is recorded as a component of net realized gains (losses) on securities.

During the first quarter 2009, we wrote-down $223.4 million in securities determined to have had other-than-temporary declines in fair value. The write-downs included $200.2 million in nonredeemable preferred stocks, $15.7 million of common equities, and $7.5 million of fixed-maturities ($6.1 million of redeemable preferred stocks and $1.4 million of asset-backed securities, which included $.9 million of home equity loan securities; we did not have any write-downs on our Alt-A securities). All of these write-downs were the result of either fundamental issues with the underlying securities or issuers and/or because we were unable to objectively determine that these securities would substantially recover in the near term. For those fixed-income securities not written down, we continue to have the intent and ability to hold those securities for the periods of time that we anticipate to be necessary to recover the investments’ impairment and collect the interest and dividend obligations, and will do so, as long as the securities continue to be consistent with our investment and financial strategies. We retain the common stocks necessary to maintain correlation to the Russell 1000 Index. We will continue to closely monitor these common stocks, and analyze developments and conditions relating to the issuers and the overall market, to determine if any impairment write-downs are necessary.

Trading Securities At March 31, 2009, March 31, 2008, and December 31, 2008 we did not hold any trading securities and did not have any net realized gains (losses) on trading securities for the quarters ended March 31, 2009 and 2008.

Derivative Instruments We invest in the following derivative exposures at various times: interest rate swaps; asset-backed credit default swaps; U.S. corporate debt credit default swaps; and cash flow hedges. In addition, during the first quarter 2009, we invested in equity options on a single banking institution as an economic, forecasted forward sale, in anticipation of a conversion of our preferred stock holdings to common stock.

For all derivative positions discussed below, realized holding period gains and losses are netted with any upfront cash that may be exchanged under the contract to determine if the net position should be classified either as an asset or liability. To be reported as a component of the available-for-sale portfolio, the inception-to-date realized gain on the derivative position at period end would have to exceed any upfront cash received (net derivative asset). On the other hand, a net derivative liability would include any inception-to-date realized loss plus the amount of upfront cash received (or netted, if upfront cash was paid) and would be reported as a component of other liabilities. These net derivative assets/liabilities are not separately disclosed on the balance sheet due to the immaterial effect on our financial condition, cash flows, and results of operations.

6

The following table shows the status of our derivative instruments at March 31, 2009, March 31, 2008, and December 31, 2008, and for the quarters ended, March 31, 2009 and 2008:

								Balance Sheet										Income Statement
	Notional Value								Fair Value									Net Realized Gains (Losses) on Securities
(millions)	March 31,				Dec. 31, 2008				March 31,						Dec. 31, 2008			Quarters ended March 31,
Derivatives designated as:	2009			2008			Purpose	Classification	2009			2008						2009			2008
Hedging instruments
Foreign currency cash flow hedge	$	8		—	$	8	Forecasted transaction	Accumulated other comprehensive income	$	.1		$	—		$	.2		$	—		$	—
Non-hedging instruments
Assets:
Interest rate swaps		1,718		225		1,800	Manage interest rate risk	Investments - fixed maturities		26.9			1.1			96.3			14.5			1.0
Corporate credit default swaps1		25		—		—	Manage credit risk	Investments - fixed maturities		—			—			—			.5			—
Equity options (115,372 contracts)		(a	)	—		—	Manage price risk	Investments - common equities		3.0			—			—			3.4			—
Liabilities:
Equity options (10,000 contracts)		(a	)	—		—	Manage price risk	Other liabilities		(.5	)		—			—			.2			—
Asset-backed credit default swaps		—		140		—	General portfolio investing	Other liabilities		—			(75.3	)		—			—			(13.1	)
Corporate credit default swaps		—		—		25	Manage credit risk	Other liabilities		—			—			(.5	)		—			—
Closed:
Interest rate swaps		1,275		1,325		NA	Manage interest rate risk	—		—			—			—			(11.0	)		50.3
Total		NA		NA		NA			$	29.5		$	(74.2	)	$	96.0		$	7.6		$	38.2

(a) Each contract is equivalent to 100 shares of common stock of the issuer.

NA  =  Not Applicable

¹ The fair value at March 31, 2009 is less than $.1 million.

CASH FLOW HEDGES

During the fourth quarter 2008, we entered into a cash flow hedge of forecasted foreign currency transactions. The hedge was designated as, and qualified for, cash flow hedge accounting treatment. We will defer the pretax gain or loss on this hedge and report the amount in accumulated other comprehensive income. The gain or loss on the contract will be amortized over the period during which foreign denominated expenses occur, which is expected to begin in the second half of 2009.

INTEREST RATE SWAPS

During the periods ended March 31, 2009, March 31, 2008, and December 31, 2008, we invested in interest rate swap positions primarily to manage the fixed-income portfolio duration. As of March 31, 2009, March 31, 2008, and December 31, 2008, we had received $32.2 million, $1.9 million, and $79.6 million, respectively, in cash collateral from the counterparties on our then open interest rate swap positions, which was invested in short-term securities.

7

CORPORATE CREDIT DEFAULT SWAPS

During the periods ended March 31, 2009 and December 31, 2008, we held a position on one corporate issuer within the financial services sector where we bought credit default protection in the form of credit default swaps for a 5-year time horizon. We hold this protection to reduce our exposure to additional valuation declines on our preferred stock due to potential credit impairment of the issuer. We held no corporate credit default swap positions during the first quarter of 2008.

EQUITY OPTIONS

During the quarter ended March 31, 2009, we simultaneously sold and purchased a substantially equivalent amount of call and put options, respectively, on the common stock of a single issuer of one of our preferred stock holdings (i.e., Citigroup). The purpose of this transaction was to affect a forward sale of the common stock we expected to receive from Citigroup resulting from the planned conversion of our preferred stock into common stock pursuant to Citigroup’s intended exchange. This was achieved through matching the strike price and term of the option contracts and was meant to offset the downside price risk of the common stock during the time period pending the exchange. During the first quarter 2009, we delivered $8.8 million in the form of cash to a counterparty as collateral to cover potential assignments of outstanding call options.

ASSET-BACKED CREDIT DEFAULT SWAPS

We held no asset-backed credit default swap positions during the first quarter 2009. During the quarter ended March 31, 2008, we held a position for which we sold credit protection in the form of a credit default swap comprised of a basket of 20 asset-backed bonds supported by sub-prime mortgage loans. We covered the credit default swap’s notional exposure by acquiring U.S. Treasury Notes of equal maturity and principal amount and reducing our overall exposure with any upfront cash received. During the fourth quarter 2008, we closed our entire asset-backed credit default swap position. As a result, we did not have any collateral deliveries related to this position outstanding at March 31, 2009 or December 31, 2008, compared to $52.4 million of delivered collateral ($44.7 million of U.S. Treasury Notes and $7.7 million of cash) at March 31, 2008.

Note 3 Fair Value — We have categorized our financial instruments, based on the degree of subjectivity inherent in the valuation technique, into a fair value hierarchy of three levels, as follows:

• Level 1: Inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. Government securities and active exchange-traded equity securities).

• Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3: Inputs that are unobservable. Unobservable inputs reflect the reporting entity’s subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).

8

The composition of the investment portfolio was:

(millions)	Level 1 Fair Value		Level 2 Fair Value		Level 3 Fair Value		Total Fair Value		Cost
March 31, 2009
Fixed maturities	$	4,512.5	$	5,696.3	$	100.2	$	10,309.0	$	10,685.1
Nonredeemable preferred stocks		314.4		388.6		112.2		815.2		863.5
Common equities		336.9		—		13.5		350.4		284.1
	$	5,163.8	$	6,084.9	$	225.9		11,474.6		11,832.7
Other short-term investments1								1,293.8		1,293.8
Total portfolio							$	12,768.4	$	13,126.5
Debt2							$	1,575.7	$	2,175.9
March 31, 2008
Fixed maturities	$	320.0	$	7,644.8	$	155.9	$	8,120.7	$	8,182.4
Nonredeemable preferred stocks		952.7		1,168.8		—		2,121.5		2,635.7
Common equities		2,090.5		—		13.7		2,104.2		1,330.3
Short-term investments:
Auction rate municipal obligations3		—		174.1		—		174.1		174.1
	$	3,363.2	$	8,987.7	$	169.6		12,520.5		12,322.5
Other short-term investments1								1,359.2		1,359.2
Total portfolio							$	13,879.7	$	13,681.7
Debt2							$	2,082.1	$	2,174.3
December 31, 2008
Fixed maturities	$	3,705.7	$	6,131.4	$	109.6	$	9,946.7	$	10,295.3
Nonredeemable preferred stocks		477.2		560.5		112.3		1,150.0		1,131.3
Common equities		714.3		—		13.5		727.8		553.6
	$	4,897.2	$	6,691.9	$	235.4		11,824.5		11,980.2
Other short-term investments1								1,153.6		1,153.6
Total portfolio							$	12,978.1	$	13,133.8
Debt2							$	1,581.6	$	2,175.5

¹ These securities are not subject to fair value measurement since they mature within six months; therefore, we report these securities at cost, which approximates fair value.

² Debt is not subject to measurement at fair value in the consolidated Balance Sheets; therefore, it is not broken out by hierarchy level. Fair values are obtained from publicly quoted sources.

³ These securities are backed by municipal obligations with a maturity of 14 years or greater. Due to the short-term nature of auction rate securities (generally 7-49 days between auctions), these securities are valued at cost, which approximates fair value.

Our portfolio valuations classified as either Level 1 or Level 2 in the above table are priced exclusively by external sources, including: pricing vendors, dealers/market makers, and exchange-quoted prices. With limited exceptions, our Level 3 securities are also priced externally; however, due to several factors (e.g., nature of the securities, level of activity, lack of similar securities trading to obtain observable market level inputs), these valuations are more subjective in nature. Certain private equity investments and fixed-income investments included in the Level 3 securities are valued using external pricing supplemented by internal review and analysis.

At March 31, 2009, vendor quoted prices represented approximately 87% of our Level 1 classifications, compared to 74% at December 31, 2008 and 10% at March 31, 2008. The securities quoted by vendors in Level 1 represent holdings in our U.S. Treasury Notes, which are frequently traded and the quotes are considered similar to exchange trade quotes. The increase in Level 1 percentages for the periods reported above was the result of increasing our holdings in U.S Treasury Notes as a result of our decision to reduce valuation volatility risk in the current environment. The balance of our Level 1 pricing comes from quotes obtained directly from trades made on an active exchange. Almost 95% of our Level 2 classifications were vendor quoted at both March 31, 2009 and 2008, compared to almost 97% at December 31, 2008. We reviewed independent documentation detailing the pricing techniques, models, and methodologies used by these pricing vendors and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted. We continue to monitor any changes or modifications to their process due to the recent market events. During 2009 and 2008, we reviewed each sector for transaction volumes and determined that sufficient activity and liquidity existed to provide a source for market level valuations, despite being below historical averages.

9

At both March 31, 2009 and 2008, broker quoted prices represented the remaining 5% of the Level 2 classification, compared to 3% at December 31, 2008. In these instances, we typically use broker/dealers because the security we hold is not widely held or frequently traded and thus is not serviced by the pricing vendors. We reviewed independent documentation detailing the pricing techniques, models, and methodologies used by broker/dealers and determined that they used the same pricing techniques as the external vendor pricing sources discussed above. The broker/dealers contain back office pricing desks, separate from the day-to-day traders that buy and sell the securities. This process creates uniformity in pricing when they quote externally to their various customers. The broker/dealer valuations are quoted in terms of spreads to various indices and the spreads are based off recent transactions adjusted for movements since the last trade or based off similar characteristic securities currently trading in the market. These quotes are not considered binding offers to transact. We will, from time to time, obtain more than one broker quote for a security, when we feel it is necessary. In addition, from time to time, we will receive a broker/dealer quote for those securities priced by vendors as further evaluation of market price. We believe this additional step helps to ensure that we are reporting the most representative price.

When we feel it is necessary to challenge a quote from either a pricing vendor or broker/dealer by using additional estimates to augment those external prices, we review their inputs and to the extent those inputs are determined to not contain sufficient observable market information, we will reclassify the affected security valuations to Level 3. At March 31, 2009 and 2008, as well as December 31, 2008, securities in our fixed-maturity portfolio listed as Level 3 were comprised substantially of several structured securities and represented either (1) private placement deals, (2) thinly held and/or traded securities, or (3) were rated lower tier non-investment-grade where little liquidity exists. Based on these factors it was difficult to independently verify observable market inputs that were used to generate the external valuations we received. At March 31, 2009 and December 31, 2008, our preferred stocks listed as Level 3 represent three issues of a single issuer that, based on illiquidity in the general preferred stock market, as well as the lack of recent trading activity, we concluded the valuation warranted this lower classification. There were no preferred stocks listed as Level 3 at March 31, 2008. Lastly, at March 31, 2009 and 2008, as well as December 31, 2008, one private common equity security with an aggregate value of $10.2 million was priced internally.

During each valuation period, we create internal estimations of portfolio valuation (performance returns), based on current market-related activity (i.e., interest rate and credit spread movements and other credit-related factors) within each major sector of our portfolio. We compare our internally generated portfolio results with those generated based on quotes we received externally and research material valuation differences.

Based on the criteria described above, we believe that the current level classifications are appropriate based on the valuation techniques used and that our fair values accurately reflect current market assumptions in the aggregate.

10

The following tables provide a summary of changes in fair value associated with Level 3 assets for the three months ended March 31, 2009 and 2008:

	Level 3 Fair Value
(millions)	Fixed Maturities			Nonredeemable Preferred Stocks			Common Equities		Total
Fair value at December 31, 2008	$	109.6		$	112.3		$	13.5	$	235.4
Calls/maturities/paydowns		(1.2	)		—			—		(1.2	)
Change in valuation		(6.7	)		(.1	)		—		(6.8	)
Transfers in (out)1		(1.5	)		—			—		(1.5	)
Fair value at March 31, 2009	$	100.2		$	112.2		$	13.5	$	225.9
Fair value at December 31, 2007	$	119.4		$	115.6		$	13.7	$	248.7
Calls/maturities/paydowns		(1.8	)		—			—		(1.8	)
Change in valuation		(8.4	)		—			—		(8.4	)
Transfers in (out)1		46.7			(115.6	)		—		(68.9	)
Fair value at March 31, 2008	$	155.9		$	—		$	13.7	$	169.6

¹ Represents movement between the fair value hierarchy levels, reflecting changes in the inputs used to measure fair value during the period.

There were no purchases, sales, or realized gains (losses) associated with the Level 3 securities during the first quarter 2009 or 2008.

Note 4 Debt — Debt consisted of:

	March 31, 2009				March 31, 2008				December 31, 2008
(millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
6.375% Senior Notes due 2012	$	349.0	$	357.7	$	348.6	$	372.1	$	348.9	$	355.3
7% Notes due 2013		149.3		154.0		149.2		164.3		149.3		154.3
6 5/8% Senior Notes due 2029		294.6		262.8		294.5		295.3		294.6		272.0
6.25% Senior Notes due 2032		394.0		331.7		394.0		374.4		394.0		350.0
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067		989.0		469.5		988.0		876.0		988.7		450.0
Total	$	2,175.9	$	1,575.7	$	2,174.3	$	2,082.1	$	2,175.5	$	1,581.6

On December 31, 2008, we entered into a 364-Day Secured Liquidity Credit Facility Agreement with National City Bank (NCB). Under this agreement, we may borrow up to $125 million, which may be increased to $150 million at our request but subject to NCB’s discretion. In conjunction with this agreement, we deposited $125 million into an FDIC-insured deposit account at NCB in January 2009 to provide us with additional cash availability in the event of a disruption to our cash management operations. Our access to these funds is unrestricted. However, if we withdraw funds from this account for any reason other than in connection with such a disruption in our cash management operations, the availability of borrowings under the NCB credit facility will be reduced on a dollar-for-dollar basis until such time as we replenish the funds to the deposit account. The credit facility will expire on December 31, 2009, unless earlier terminated according to its terms. We had no borrowings under this arrangement in 2008 or through the first quarter of 2009.

Note 5 Income Taxes — In the first quarter 2009, as a result of the continued valuation declines on the common stocks and nonredeemable preferred stocks that we do not have the intent to hold until they substantially recover in value, we recorded a $35.0 million valuation allowance on our deferred tax asset. During the quarter, we realized additional other-than-temporary impairment (OTI) losses and recognized an increase in unrealized losses related to certain securities that we believe are fundamentally impaired or that we are likely to sell in the near future, as well as on our common equity securities. At March 31, 2009, we did not believe that we had sufficient evidence to support recognizing the full tax benefit related to the decline in value of such securities. Based on the nature of the losses (OTI vs. unrealized), $27.0 million of the valuation allowance was reflected in our “provision for income taxes,” while the remaining $8.0 million was a component of “net unrealized losses on securities” and part of other comprehensive income.

Prior to the additional valuation declines in the first quarter 2009, management believed that it was more likely than not that the deferred tax asset would be realized and that we would be able to fully use the deductions that are ultimately recognized for tax purposes. We will continue to evaluate our deferred tax assets to determine if any changes to the valuation allowance are necessary.

11

The effective tax rate for the quarter ending March 31, 2009 was 38%, compared with 29% for the same period last year, primarily reflecting the $27.0 million valuation allowance discussed above.

Note 6 Supplemental Cash Flow Information — Cash includes only bank demand deposits, including $125 million on deposit with National City Bank (see Note 4 – Debt for additional discussion). We paid income taxes of $20.0 million during the first quarter 2009; we did not make any income tax payments in the first quarter 2008. Total interest paid was $21.1 million for both the three months ended March 31, 2009 and 2008. Non-cash activity includes changes in net unrealized gains (losses) on investment securities.

Note 7 Segment Information — Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles. Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses in the specialty truck and business auto markets. Our other indemnity businesses primarily include writing professional liability insurance for community banks and managing a small amount of run-off business. 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.

Operating results were:

	Three Months Ended March 31,
	2009					2008
(millions)	Revenues		Pretax Profit (Loss)			Revenues		Pretax Profit (Loss)
Personal Lines
Agency	$	1,817.3	$	182.8		$	1,846.0	$	114.5
Direct		1,171.1		98.7			1,094.0		41.9
Total Personal Lines1		2,988.4		281.5			2,940.0		156.4
Commercial Auto		412.3		73.8			444.7		25.9
Other indemnity		5.9		.7			5.3		(.1	)
Total underwriting operations		3,406.6		356.0			3,390.0		182.2
Service businesses		3.5		(1.1	)		4.4		(.7	)
Investments2		58.1		55.5			191.5		190.0
Interest expense		—		(33.7	)		—		(34.3	)
Consolidated total	$	3,468.2	$	376.7		$	3,585.9	$	337.2

¹ Private passenger automobile insurance accounted for 90% and 91% of the total Personal Lines segment net premiums earned in the first quarters of 2009 and 2008, respectively; our special lines products accounted for the balance of the Personal Lines net premiums earned.

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

12

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

	Three Months Ended March 31,
	2009			2008
	Underwriting Margin		Combined Ratio	Underwriting Margin		Combined Ratio
Personal Lines
Agency	10.1	%	89.9	6.2	%	93.8
Direct	8.4		91.6	3.8		96.2
Total Personal Lines	9.4		90.6	5.3		94.7
Commercial Auto	17.9		82.1	5.8		94.2
Other indemnity1	NM		NM	NM		NM
Total underwriting operations	10.5		89.5	5.4		94.6

¹ Underwriting margins/combined ratios are not meaningful (NM) for our other indemnity businesses due to the low level of premiums earned by, and the variability of loss costs in, such businesses.

Note 8 Comprehensive Income (Loss) — Total comprehensive income (loss) was:

	Three Months Ended March 31,
(millions)	2009			2008
Net income	$	232.5		$	239.4
After-tax changes in:
Net unrealized gains (losses) on securities		(151.0	)		(329.3	)
Net unrealized gains on forecasted transactions		(.8	)		(.7	)
Comprehensive income (loss)	$	80.7		$	(90.6	)

Note 9 Dividends — Progressive maintains a policy of paying an annual variable dividend that, if declared, would be payable shortly after the close of each year. This annual variable dividend is based on a target percentage of after-tax underwriting income multiplied by a companywide performance factor (“Gainshare factor”), subject to the limitations discussed below. The target percentage is determined by our Board of Directors on an annual basis and announced to shareholders and the public. For 2009, the Board determined the target percentage to be 20% of annual after-tax underwriting income.

The Gainshare factor can range from zero to two and is determined by comparing our operating performance for the year to certain predetermined profitability and growth objectives approved by the Board. This dividend program is consistent with the variable cash incentive program currently in place for our employees (referred to as our “Gainsharing program”). Although recalibrated every year, the structure of the Gainsharing program generally remains the same. Through the first quarter 2009, the Gainshare factor was .71. Since the final factor will be determined based on our results for the full year, the final factor may vary significantly from the factor of any interim period.

Our annual variable dividend program is subject to certain limitations. If the Gainshare factor is zero or our after-tax comprehensive income (which includes net investment income, as well as both realized gains and losses on securities and the change in unrealized gains and losses during the period) is less than after-tax underwriting income, no dividend will be paid. While the declaration of the dividend remains within the Board’s discretion and subject to the above limitations, the Board is expected to declare the 2009 annual dividend in December 2009 with a record date in January 2010 and payment shortly thereafter.

In January 2008, Progressive paid $98.3 million, or $.145 per common share, pursuant to a December 2007 declaration by the Board of Directors under our annual variable dividend policy. However, no dividend was declared for 2008, since our after-tax comprehensive loss for the year was lower than our after-tax underwriting income. For the quarter ended March 31, 2009, our after-tax comprehensive income was $80.7 million, which is lower than the $231.4 million of after-tax underwriting income for the same period.

13

Note 10 Litigation — The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies issued by our subsidiaries in the ordinary course of their businesses. All legal actions relating to such insurance claims are considered by us in establishing our loss and loss adjustment expense reserves.

In addition, various Progressive entities are named as defendants in a number of class action or individual lawsuits arising out of the operations of the insurance subsidiaries. These cases include those alleging damages as a result of our use of consumer reports (such as credit reports) in underwriting and related notice requirements under the federal Fair Credit Reporting Act; practices in evaluating or paying medical or injury claims or benefits, including, but not limited to, personal injury protection, medical payments, uninsured motorist/underinsured motorist (UM/UIM) coverage, and bodily injury benefits; rating practices at policy renewal; the utilization, content, or appearance of UM/UIM rejection forms; the practice of taking betterment on boat repairs; labor rates paid to auto body repair shops; and cases challenging other aspects of our claims or marketing practices or other business operations. Other insurance companies face many of these same issues.

We plan to contest the outstanding suits vigorously, but may pursue settlement negotiations in some cases, if appropriate. In accordance with accounting principles generally accepted in the United States of America (GAAP), we establish loss reserves for a lawsuit when 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 our potential exposure. If any one or more of these lawsuits results in a judgment against, or settlement by, our insurance subsidiaries for an amount that is significantly greater than the amount, if any, so reserved, 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, 2008.

Note 11 New Accounting Standards — In April 2009, the Financial Accounting Standards Board (FASB) issued the following three final FASB Staff Positions (FSPs): FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” and FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” These FSPs are intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairment of securities and will be effective for interim and annual reporting periods ending after June 15, 2009 (second quarter for calendar year companies), with early adoption permitted. We did not early adopt these FSPs for the first quarter 2009 and are currently evaluating the potential effect of these statements on our financial condition and results of operations.

14

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

I. OVERVIEW

In the first quarter 2009, we achieved growth in both premiums and policies in force, and reported net income of $232.5 million, or $.35 per share, for the first quarter 2009, compared to $239.4 million, or $.35 per share, for the same period last year. The Progressive Corporation’s insurance subsidiaries generated underwriting profitability of 10.5%, or $356.0 million, while our investment operations experienced $73.4 million of net realized losses on securities, reflecting further write-downs of securities determined to be other-than-temporarily impaired. These write-downs were primarily on our preferred stocks and the majority represented further write-downs on securities that were previously written down in the third and/or fourth quarters of 2008. Despite the additional losses generated in the investment portfolio, our total capital position increased $88.4 million during the quarter, to $6.5 billion at March 31, 2009.

A. Operations

During the first quarter 2009, we realized a year-over-year increase of 1% in net premiums written, despite the continued decline in our Commercial Auto business. Net premiums earned, which lags written premiums, remained relatively flat for the quarter compared to last year. Companywide policies in force increased 4% over the first quarter last year. Policies in force grew 10% in our Direct auto business and 7% in special lines. On the other hand, both our Agency auto and Commercial Auto businesses experienced a decrease in policies in force of 2%.

Premium growth reflects a combination of new business applications (i.e., issued policies), premium per policy (i.e., rates), and customer retention. On a year-over-year basis, companywide new business applications increased 3%, while renewal applications increased 4%. This is the first time we have seen an increase in companywide new business applications since the third quarter 2007. We believe that one factor that might be contributing to this growth is increased shopping on the part of consumers who are becoming more cost conscious and looking for greater value with their expenditures.

Our Direct auto business experienced double-digit increases in both new and renewal applications, compared to the first quarter last year. The new business acquisition in our Agency auto business was still down for the quarter, but to a much lesser extent than we experienced during all of 2008. Our Commercial Auto business continues to be a challenge, as it is still being adversely affected by the downturn in the economy, primarily in the housing and construction sectors.

We continue to have several initiatives underway aimed at providing consumers with distinctive new auto insurance options, including Name Your Price^® (a program that provides customers the opportunity to select the price they would like to pay for auto insurance), a new product in our Agency auto business which is designed to help improve competitiveness through further price segmentation, and the expansion of MyRate^sm (our usage-based insurance product).

On a year-over-year basis, for the first quarter 2009, total auto written premium per policy decreased 1% despite a slight increase in rates, reflecting shifts in the mix of business. We have seen average written premium per auto policy remain relatively flat for our Agency auto and special lines products, while premiums per policy are down in both Direct and Commercial Auto. We continue to evaluate future rate needs and react quickly as we recognize changing trends.

To continue to grow policies in force, it is critical that we retain our customers for longer periods, which is why increasing retention continues to be one of our most important priorities. Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is one measure of customer retention. The policy life expectancy for our Agency and Direct auto businesses has been on a continuing upward trend over the past few quarters and are now about 7% and 9%, respectively, higher than at the end of the first quarter last year. Our special lines products retention was flat, while Commercial Auto’s retention was down 1%, compared to the same period last year.

Our 10.5% companywide underwriting profit margin for the first quarter 2009 exceeded our target of 4% and was a 5.1 point improvement over the first quarter last year. All of the businesses contributed to these strong results. During the first quarter 2009, we experienced .6 points of favorable prior accident year development, compared to unfavorable development of 1.0 point in the first quarter last year; the development for both years was primarily in the Commercial Auto business. During the first quarter, we experienced declines in both frequency and severity, compared to the first quarter last year.

15

B. Investments and Capital Management

The fair value of our investment portfolio was $12.8 billion at March 31, 2009, including $1.2 billion of redeemable and nonredeemable preferred stocks. At the end of the first quarter 2009, our asset allocation strategy was to maintain 0-25% of our portfolio in common equities (i.e., common stocks and alternative investments) with the balance (75%-100%) of our portfolio in fixed-income securities, which included preferred stocks. At March 31, 2009, our allocation was 97% to fixed-income securities and 3% to common equities.

In April 2009, the Investment and Capital Committee of our Board of Directors approved new guidelines for our portfolio allocation. Our asset allocation strategy now divides our portfolio into two groups. Group I includes common equities, redeemable and nonredeemable preferred stocks (preferred stocks), and non-investment-grade and non-rated fixed-maturity securities. Zero to 25% of our total portfolio will be allocated to Group I securities. The remainder of the portfolio is allocated to Group II securities. Group II includes all other fixed-maturity securities (e.g., U.S. Treasury Notes, municipal bonds, asset-backed securities, corporate debt) and our short-term investments. If the new guidelines had then been in effect, we would have reported at March 31, 2009 a portfolio allocation of 13% to Group I and 87% to Group II, compared to 18% and 82%, respectively, at December 31, 2008. Toward the latter part of the first quarter, we sold a portion of our common stocks to further restructure the portfolio to a lower risk profile.

Our investment portfolio produced a fully taxable equivalent (FTE) total return of (1.2)% for the first three months of 2009. We experienced losses in both our common stock and fixed-income portfolios, with FTE total returns of (10.3)% and (.6)%, respectively. At March 31, 2009, the fixed-income portfolio duration was 3.0 years with a weighted average credit quality of AA+.

During the first quarter 2009, we recorded $223.4 million of other-than-temporary impairment losses on our investment portfolio. The write-downs resulted from fundamental matters related to either specific issues or issuers and/or because we were unable to objectively determine that these securities would substantially recover in the near term. About 90% of the quarter’s write-downs were in our preferred stocks, the vast majority of which had been previously written-down in the third and/or fourth quarters of 2008.

As a result of the continued valuation declines on the common stocks and nonredeemable preferred stocks that we do not have the intent to hold until they substantially recover in value, we recorded a $35.0 million valuation allowance on our deferred tax asset during the quarter. As of quarter end, we did not believe that we had sufficient evidence to support recognizing the full tax benefit related to the decline in value of these securities.

Despite the reduction in value of our investment portfolio and the valuation allowance on our deferred tax asset, our overall capital position (debt and equity) increased $88.4 million during the quarter to $6.5 billion at March 31, 2009. We continue to manage our investing and financing activities in order to maintain sufficient capital to support all the insurance we can profitably underwrite and service.

II. FINANCIAL CONDITION

A. Liquidity and Capital Resources

Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. For the three months ended March 31, 2009 and 2008, operations generated a positive cash flow of $541.4 million and $461.4 million, respectively. During the first quarter 2009, we repurchased .3 million of our common shares at a total cost of $5.1 million (average cost of $14.60 per share); these shares were repurchased in conjunction with our equity compensation plans.

We also have the ability to borrow up to $125 million under a 364-Day Secured Liquidity Credit Facility with National City Bank (NCB). We entered into this agreement at the end of 2008 to provide liquidity in the event of a disruption in our cash management operations that could affect our ability to transfer or receive funds. We did not borrow under this agreement in the first quarter 2009. In addition, we deposited $125 million into an FDIC-insured deposit account at NCB during the first quarter 2009 to provide us with additional cash availability in the event of such a disruption to our cash management operations.

Our capital planning and forecasting efforts lead us to believe that we have sufficient capital resources, cash flows from operations, and borrowing capacity to support our current and anticipated business, scheduled principal and interest payments on our debt, and expected capital requirements. The covenants on our existing debt securities do not include any rating or credit triggers that would require an adjustment of the interest rate or an acceleration of principal payments in the event our securities are downgraded.

Management views our capital position as consisting of three layers, each with a specific size and purpose. The first layer of capital, which we refer to as “regulatory capital,” is the amount of capital we need to satisfy state insurance regulatory requirements and support our objective of writing all the business we can write and service, consistent with our underwriting discipline of achieving a 96 combined ratio. This capital is held largely within our various insurance entities.

The second layer of capital we call “extreme contingency.” While our regulatory capital is, by definition, a cushion for absorbing financial consequences of adverse events, such as loss reserve development, litigation, weather catastrophes, or investment market corrections, we view that as a base and hold additional capital for even more extreme conditions. The modeling used to quantify capital needs for these conditions is quite extensive, including tens of thousands of simulations, representing our best estimates of such contingencies based on historical experience. This capital is held at the holding company and, at times, in our insurance entities potentially eligible for a dividend to the holding company.

The third layer of capital is capital in excess of the sum of the first two layers and provides maximum flexibility to repurchase stock, consider acquisitions, and pay dividends to shareholders, among other purposes. This capital is largely held at the holding company.

16

At all times during 2008 and the first quarter 2009, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency load.

The speed by which the market valuations of the assets held in our portfolio changed, and may continue to change, has our full attention and is a basis for our ongoing review of portfolio risk. To help manage these risks and preserve our capital base, as of March 31, 2009, we held approximately $5.8 billion in cash and U.S. Treasury securities.

B. Commitments and Contingencies

During the first quarter 2009, we completed construction of one new service center to provide concierge level claims service; this project was funded through operating cash flows and replaced a previously leased location. We currently have a total of 54 such centers that are located in 41 metropolitan areas across the United States and serve as our primary approach to damage assessment and coordination of vehicle repairs at authorized auto repair facilities in these markets.

There is currently no significant construction under way.

Off-Balance-Sheet Arrangements

Our off-balance-sheet leverage includes derivative positions, open investment funding commitments, and operating leases and purchase obligations. See the “Derivative Instruments” section of Note 2-Investments and of this Management’s Discussion and Analysis for a summary of our derivative activity since year-end 2008. There have been no material changes in the other off-balance-sheet items since the discussion in the notes to the financial statements in Progressive’s Annual Report on Form 10-K for the year ended December 31, 2008.

Contractual Obligations

During the first quarter 2009, our contractual obligations have not changed materially from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.

III. RESULTS OF OPERATIONS – UNDERWRITING

A. Growth

	Three Months Ended March 31,
(millions)	2009		2008		% Change
NET PREMIUMS WRITTEN
Personal Lines
Agency	$	1,846.8	$	1,868.8	(1	)
Direct		1,265.0		1,160.0	9
Total Personal Lines		3,111.8		3,028.8	3
Commercial Auto		406.2		457.2	(11	)
Other indemnity		4.9		4.4	11
Total underwriting operations	$	3,522.9	$	3,490.4	1
NET PREMIUMS EARNED
Personal Lines
Agency	$	1,817.3	$	1,846.0	(2	)
Direct		1,171.1		1,094.0	7
Total Personal Lines		2,988.4		2,940.0	2
Commercial Auto		412.3		444.7	(7	)
Other indemnity		5.9		5.3	11
Total underwriting operations	$	3,406.6	$	3,390.0	—

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 over the life of the policy using a daily earnings convention.

17

Policies in force, our preferred measure of growth, represents all policies under which coverage is in effect as of the end of the period specified. As of March 31, our policies in force were:

(thousands)	2009	2008	% Change
POLICIES IN FORCE
Personal Lines
Agency auto	4,348.7	4,442.6	(2	)
Direct auto	2,954.0	2,679.4	10
Total auto	7,302.7	7,122.0	3
Special lines1	3,377.8	3,151.8	7
Total Personal Lines	10,680.5	10,273.8	4
Commercial Auto	532.6	545.4	(2	)

¹ Includes insurance for motorcycles, recreational vehicles (RV), mobile homes, watercraft, snowmobiles, and similar items, as well as a personal umbrella product.

To analyze growth, we review new policies, rate levels, and the retention characteristics of our books of business. During the first quarter, we experienced the following growth in new and renewal applications:

	Growth Over Prior Year Quarter
	2009		2008
Personal Lines:
New applications	5	%	(8	)%
Renewal applications	4	%	3	%
Commercial Auto:
New applications	(15	)%	(3	)%
Renewal applications	4	%	3	%

During the first quarter 2009, our Personal Lines business experienced positive growth in new applications. Our Direct auto business saw a double-digit increase in new applications, while our Agency auto business continued to experience modest declines, compared to more significant declines experienced in 2008.

We have several initiatives underway aimed at providing consumers with distinctive new auto insurance options. During 2008, we introduced a program called Name Your Price^® that allows Direct Internet consumers to select a price they would like to pay for their auto insurance; we then will tell them the level of coverage that price provides. As of the end of the first quarter 2009, Name Your Price is available in 24 states. We plan to expand this program to the rest of the country during the year.

In the first quarter 2009, we also continued the roll-out of a new product model in our Agency auto business to five additional states, bringing the total number of states to 18. This product model is designed to help improve competitiveness through further price segmentation; we plan to almost double the number of states offering this product during the remainder of 2009.

In addition, during the first quarter 2009, we expanded MyRate^sm, our Pay As You Drive^® usage-based insurance product, to Agency auto customers in two additional states; we now offer this product to our Direct auto customers in nine states and our Agency auto customers in six of the nine states. During the remainder of 2009, we plan to continue expansion of MyRate into additional states depending on regulatory approval and business results.

On a year-over-year basis, total personal auto written premium per policy decreased 1%, despite a slight increase in rates in the first quarter 2009, primarily reflecting shifts in the mix of business. Our Agency auto business experienced a slight increase in premium per policy on both new business and in total, while our Direct auto premium per policy was down 9% on new business and 3% in total. Our pricing levels are aligned with our profitability targets, but we remain ready to react quickly, and as often as necessary, should trends change.

Another important element affecting growth is customer retention. One measure of retention is policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage. Our policy life expectancy measures for our Agency and Direct private passenger auto products are now higher than the same measures a year ago by approximately 7% and 9%, respectively. Our policy life expectancy in our Commercial Auto business was down 1%, compared to the end of the first quarter 2008. Realizing the importance that retention has on our ability to continue to grow profitably, we continue to emphasize competitive pricing, quality service, and other retention initiatives for our current customers.

18

B. Profitability

Profitability in 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 percentage of net premiums earned, to analyze our results. For the three months ended March 31, our underwriting profitability measures were as follows:

	2009				2008
	Underwriting Profit (Loss)				Underwriting Profit (Loss)
(millions)	$		Margin		$			Margin
Personal Lines
Agency	$	182.8	10.1	%	$	114.5		6.2	%
Direct		98.7	8.4			41.9		3.8
Total Personal Lines		281.5	9.4			156.4		5.3
Commercial Auto		73.8	17.9			25.9		5.8
Other indemnity1		.7	NM			(.1	)	NM
Total underwriting operations	$	356.0	10.5	%	$	182.2		5.4	%

¹ Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such businesses.

All of our businesses contributed to the strong underwriting profitability in the first quarter 2009. Favorable prior accident year development in the first quarter 2009, compared to unfavorable development for the same period last year, along with favorable frequency and severity trends this year, contributed to the improvement over the first quarter last year.

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

	Three Months Ended March 31,
Underwriting Performance1	2009	2008	Change
Personal Lines – Agency
Loss & loss adjustment expense ratio	69.0	72.5	(3.5) pts.
Underwriting expense ratio	20.9	21.3	(.4) pts.
Combined ratio	89.9	93.8	(3.9) pts.
Personal Lines – Direct
Loss & loss adjustment expense ratio	71.0	74.7	(3.7) pts.
Underwriting expense ratio	20.6	21.5	(.9) pts.
Combined ratio	91.6	96.2	(4.6) pts.
Total Personal Lines
Loss & loss adjustment expense ratio	69.8	73.4	(3.6) pts.
Underwriting expense ratio	20.8	21.3	(.5) pts.
Combined ratio	90.6	94.7	(4.1) pts.
Commercial Auto
Loss & loss adjustment expense ratio	60.8	73.2	(12.4) pts.
Underwriting expense ratio	21.3	21.0	.3  pts.
Combined ratio	82.1	94.2	(12.1) pts.
Total Underwriting Operations2
Loss & loss adjustment expense ratio	68.6	73.3	(4.7) pts.
Underwriting expense ratio	20.9	21.3	(.4) pts.
Combined ratio	89.5	94.6	(5.1) pts.
Accident year-Loss & loss adjustment expense ratio3	69.2	72.3	(3.1) pts.

¹ Ratios are expressed as a percentage of net premiums earned.

² Combined ratios for the other indemnity businesses are not presented separately due to the low level of premiums earned by, and the variability of loss costs in, such businesses. For the three months ended March 31, 2009 and 2008, these businesses generated an underwriting profit (loss) of $.7 million and $(.1) million, respectively.

³ The accident year ratio includes only the losses that occurred during the period noted. As a result, accident period results will change over time as our estimates of loss costs improve or deteriorate when payments are made or reserves for that accident period are reviewed.

19

Losses and Loss Adjustment Expenses (LAE)

	Three Months Ended March 31,
(millions)	2009			2008
Change in net loss and LAE reserves	$	(99.4	)	$	17.5
Paid losses and LAE		2,436.4			2,466.5
Total incurred losses and LAE	$	2,337.0		$	2,484.0

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 a function of loss severity and frequency and are influenced by inflation and driving patterns, among other factors. Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves. Our reserves would differ if the underlying assumptions were changed.

During the first quarter 2009, our loss and LAE ratio decreased 4.7 points over the first quarter last year, reflecting lower overall frequency and severity for both Personal and Commercial Auto, as well as favorable prior accident year development for the first quarter 2009, compared to unfavorable development for the same period last year.

Total personal auto paid severity (i.e., average cost per claim) decreased about 1.5% on a quarter-over-prior-year quarter basis driven by a decrease for the property coverages in total, partially offset by increases in severity for both our personal injury protection (PIP)(+12%) and bodily injury (+1%) coverages. It is difficult to estimate future severity, especially for injury claims, but we continue to monitor changes in the underlying costs, such as medical costs, jury verdicts, and regulatory changes, which may affect severity. The severity we experience will also vary relative to the change in our mix of business by limit.

We also experienced a decline in auto accident frequency in the first quarter 2009, compared to the first quarter last year. We cannot predict with any certainty the degree or direction of frequency change that we will experience in the future. We continue to analyze trends to distinguish changes in our experience from external factors, such as changes in the number of vehicles per household, greater vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business.

The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the three months ended March 31:

(millions)	2009			2008
Actuarial Adjustments
Favorable/(Unfavorable)
Prior accident years	$	(2.0	)	$	(8.1	)
Current accident year		(10.2	)		(.1	)
Calendar year actuarial adjustment	$	(12.2	)	$	(8.2	)
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment	$	(2.0	)	$	(8.1	)
All other development		23.9			(24.5	)
Total development	$	21.9		$	(32.6	)
(Increase) decrease to calendar year combined ratio		.6 pts.			(1.0) pts.

Total development consists both of actuarial adjustments and “all other development.” The actuarial adjustments represent the net changes made by our actuarial department to both current and prior accident year reserves based on regularly scheduled reviews. “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 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 reflected in the table above, we experienced favorable development in the first quarter 2009, compared to unfavorable development in the first quarter 2008. Nearly 55% of the total 2009 development related to the 2008 accident year. We experienced some unfavorable development on losses from accident year 2007 and very favorable development for years prior to 2007.

The favorable total prior year loss reserve development we experienced in the three-month period ended March 31, 2009, decreased the reported combined ratio by .6 points, and was primarily attributable to favorable development in our Commercial Auto business. The Personal Lines effect was minimal as the unfavorable development in the Agency channel largely offset the favorable development in the Direct channel.

20

Changes in our estimate of severity from what we originally expected when establishing the reserves is the principal cause of prior year accident development. These changes in estimate are the result of what we are observing in the underlying data as it develops. For both the first quarters 2009 and 2008, our Personal Lines business experienced slightly favorable development, while the Commercial Auto business experienced favorable development in 2009 and unfavorable development in 2008. The 2009 favorable reserve development in Commercial Auto was due to favorable settlements on larger losses, especially for the specialty truck business, while the unfavorable development in the first three months of 2008 was driven by an increase in the number and severity of late reported claims.

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 30, 2008.

Underwriting Expenses

Progressive’s other underwriting expenses and policy acquisition costs as a percentage of premiums earned decreased .4 points in the first quarter 2009, compared to the same period last year. Despite an increase in advertising expenditures, we continued to see a decrease in our average costs per policy on a year-over-year basis, reflecting improved customer retention, a substantial increase in companywide policies in force per employee, as well as a focus on process improvements to help reduce expenses (e.g., moving customers to a paperless environment).

C. Personal Lines

	Growth 2009 vs. 2008 First Quarter
Net premiums written	3	%
Net premiums earned	2	%
Policies in force	4	%

Progressive’s Personal Lines business writes insurance for private passenger automobiles and recreational vehicles, and represented 88% of our total net premiums written in the first quarter 2009, compared to 87% in the first quarter 2008. We currently write our Personal Lines products in all 50 states and our personal auto product in the District of Columbia. In mid-2008, we began offering our personal auto product and boat insurance to Direct Internet customers in Massachusetts. In April 2009, we expanded our offerings in Massachusetts to include motorcycle and RV insurance; these products are available online, over the phone, and through a small number of independent agents. Over time, we expect more products and buying options will be introduced in Massachusetts as we continue to grow in the market.

Private passenger auto represents 92% of our total Personal Lines net premiums written. Our auto policies are primarily written for 6-month terms. The remaining Personal Lines business is comprised of special lines products (e.g., motorcycles, watercraft, and RVs), which are written for 12-month terms. Compared to the first quarter last year, policies in force grew 3% in auto and 7% in special lines, while net premiums written increased 3% in both products.

For the first quarter 2009, our total Personal Lines business generated a 90.6 combined ratio, compared to a 94.7 in the first quarter 2008, primarily reflecting favorable loss trends. The strong underwriting results this quarter were widely distributed by product and state. In the first quarter 2009, 43 states, plus the District of Columbia, were profitable for our private passenger auto business, including 7 of our 10 largest states. During the first quarters of both 2009 and 2008, the special lines results had a favorable effect on the total Personal Lines combined ratio of approximately 3 points, because the special lines vehicles are typically used less in the colder weather months.

The Personal Lines business is comprised of the Agency business and the Direct business.

The Agency Business

	Growth 2009 vs. 2008 First Quarter
Net premiums written	(1	)%
Net premiums earned	(2	)%
Auto: policies in force	(2	)%
new applications	(4	)%
renewal applications	(1	)%

The Agency 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. In the first quarter 2009, we saw new Agency auto application growth in 21 states, including Florida and Texas, two of our largest volume states. However, some of our other big states have not yet seen this growth. In New York, we introduced a new product design in January 2009 and were able to lift the remaining restrictions on writing some

21

classes of new business that were originally put in place in late 2007 and during 2008. In California, first quarter 2009 results continue to reflect that our 2008 efforts to improve profitability in our auto business were successful; we are now focusing on establishing a program in the second half of 2009 to stimulate growth and enhance segmentation in the state.

Written premium per policy on total Agency auto business increased about .5% on a quarter-over-prior-year-quarter basis, driven primarily by an increase in written premium per policy on new business, while written premium per policy on Agency auto renewal business remained relatively flat.

For the first three months of 2009, the total rate of conversion (i.e., converting a quote to a sale) was down on an increase in the number of Agency auto quotes. Within the Agency business, we are continuing to see a shift from traditional agent quoting to quotes generated through third-party comparative rating systems, where our rates are quoted more often, but the conversion rate is significantly lower.

The Direct Business

	Growth 2009 vs. 2008 First Quarter
Net premiums written	9	%
Net premiums earned	7	%
Auto: policies in force	10	%
new applications	18	%
renewal applications	10	%

The Direct business includes business written directly by Progressive online and over the phone. For the first three months of 2009, we experienced an increase in new Direct auto applications in 38 states, including 7 of our top 10 Direct auto states. Internet sales continue to be the most significant source of new business that is initiated in the Direct channel.

Written premium per policy for total Direct auto was down 3% in the first quarter 2009, compared to the prior year period, primarily reflecting a decrease in written premium per policy on new auto business.

The total number of quotes in the Direct business increased significantly in the first three months of 2009, compared to the prior year period. Our entry into Massachusetts in May 2008 with an auto product distributed primarily via the Internet contributed to our increase in online quoting activity. We are continuing to see the Internet becoming a greater portion of our Direct business mix. Phone quotes also increased in the first quarter 2009. On a year-over-year basis, we saw an increase in the total Direct business conversion rate with Internet conversions increasing, while the conversion rate for phone-initiated business decreased.

Advertising expenditures increased in the first quarter 2009, compared to the first quarter 2008. We continue to work toward achieving our key objective of having our efforts in marketing and other brand-building activities match our competency in other technical skills, such as pricing and claims handling. Lower overall average costs per policy more than offset the higher advertising spend during the quarter.

D. Commercial Auto

	Growth 2009 vs. 2008 First Quarter
Net premiums written	(11	)%
Net premiums earned	(7	)%
Policies in force	(2	)%
New applications	(15	)%
Renewal applications	4	%

Progressive’s Commercial Auto business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses, with the majority of our customers insuring three or fewer vehicles. For the first three months of 2009, the Commercial Auto business represented about 12% of our total net premiums written, compared to 13% for the same period last year. This business is primarily distributed through independent agents and operates in the specialty truck and business auto markets. The specialty truck commercial auto market, which accounts for about half of our total Commercial Auto premiums and approximately 40% of the vehicles we insure in this business, includes dump trucks, logging trucks, tow trucks, local cartage, and other short-haul commercial vehicles. The remainder is in the business auto market, which includes autos, vans, and pick-up trucks used by artisans, such as contractors, landscapers, and plumbers, and a variety of other small businesses. Both of these markets have been significantly affected by the downturn in the economy, as well as increased competition in the commercial auto business.

22

We currently write our Commercial Auto business in 49 states; we do not write Commercial Auto in Hawaii or the District of Columbia. The majority of our policies in this business are written for 12-month terms.

Compared to the first quarter 2008, total written premium per policy decreased 4%, with decreases in written premium per policy on both new and renewal business.

E. Other Indemnity

Progressive’s other indemnity businesses, which represent less than 1% of our net premiums written, primarily include writing professional liability insurance for community banks and a small amount of run-off business. We reinsure the majority of the risk on the professional liability insurance coverages with a small mutual reinsurer controlled by its bank customers and various other reinsurance entities. The program, sponsored by the American Bankers Association (ABA), insures over 1,700 banks, representing every state. The underwriting profit (loss) in these businesses may fluctuate widely due to the low premium volume, variability in loss costs, and the run-off nature of some of these products. The effect of these businesses on our overall operations is minimal.

Our community bank program produced an underwriting profit in the first quarter 2009. We continue to review this program in light of the significant turbulence that has impacted the financial markets recently. To date, we have not experienced any increased exposures to claims arising from this financial crisis. From a strategic perspective, community banks tend not to be exposed to the same issues as the larger, highly leveraged financial institutions. Our claim activity has remained fairly consistent with prior periods and our expectations.

We entered into a letter of intent to sell our bank liability insurance program discussed above to an ABA affiliate. This sale will allow the ABA to assume a full ownership position and enable us to focus on our core auto insurance business. Because this is a complicated transaction that requires regulatory approvals and licensing of successor entities, the completion of the transaction could take as long as one year. The sale of this business will not have a material effect on our financial condition, results of operations, or cash flows.

F. Service Businesses

Our service businesses provide insurance-related services and represent less than 1% of our total revenues. 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. We have previously competed with two other major carriers for the CAIP business. However, both of these carriers have ceased writing new business (one in the second quarter 2008 and the other in the first quarter 2009); this leaves us as the largest CAIP provider countrywide. Although our market share will be increasing, we may not realize an immediate increase in revenues as the cyclical downturn in the CAIP market continues.

G. Income Taxes

As reported in the balance sheets, income taxes are comprised of net current income taxes payable and net deferred tax assets and liabilities. A deferred tax asset/liability is a tax benefit/expense that is expected to be realized in a future tax return. At March 31, 2009 and 2008, and at December 31, 2008, our income taxes were in a net asset position.

Our net deferred tax asset was $878.5 million at March 31, 2009, compared to $302.3 million at March 31, 2008 and $793.3 million at December 31, 2008, primarily reflecting the continued write-downs on securities that have not been recognized for tax purposes, as well as net unrealized losses.

In the first quarter 2009, as a result of the continued valuation declines on the common stocks and nonredeemable preferred stocks that we do not have the intent to hold until they substantially recover in value, we recorded a $35.0 million valuation allowance on our deferred tax asset. During the quarter, we realized additional other-than-temporary impairment (OTI) losses and recognized an increase in unrealized losses related to certain securities that we believe are fundamentally impaired or that we are likely to sell in the near future, as well as on our common equity securities. At March 31, 2009, we did not believe that we had sufficient evidence to support recognizing the full tax benefit related to the decline in value of such securities. Based on the nature of the losses (OTI vs. unrealized), $27.0 million of the valuation allowance was reflected in our “provision for income taxes,” while the remaining $8.0 million was a component of “net unrealized losses on securities” and part of other comprehensive income.

Prior to the additional valuation declines in the first quarter 2009, management believed that it was more likely than not that the deferred tax asset would be realized and that we would be able to fully use the deductions that are ultimately recognized for tax purposes. We will continue to evaluate our deferred tax assets to determine if any changes to the valuation allowance are necessary.

The effective tax rate for the quarter ending March 31, 2009 was 38%, compared with 29% for the same period last year, primarily reflecting the $27.0 million valuation allowance discussed above.

There have been no material changes in our uncertain tax positions during the quarter ended March 31, 2009.

23

IV. RESULTS OF OPERATIONS - INVESTMENTS

A. Portfolio Allocation

The composition of the investment portfolio at March 31 was:

($ in millions)	Fair Value		% of Total Portfolio		Duration (years)	Rating1
2009
Fixed maturities	$	10,309.0	80.7	%	3.5	AA
Nonredeemable preferred stocks		815.2	6.4		1.6	BBB
Short-term investments:
Other short-term investments		1,293.8	10.1		<1	AA+
Total fixed-income securities		12,418.0	97.2		3.0	AA+
Common equities		350.4	2.8		na	na
Total portfolio2,3	$	12,768.4	100.0	%	3.0	AA+
2008
Fixed maturities	$	8,120.7	58.5	%	2.7	AA
Nonredeemable preferred stocks		2,121.5	15.3		2.4	A-
Short-term investments:
Auction rate municipal obligations		174.1	1.2		<1	AA
Other short-term investments		1,359.2	9.8		<1	AA+
Total short-term investments		1,533.3	11.0		<1	AA+
Total fixed-income securities		11,775.5	84.8		2.3	AA-
Common equities		2,104.2	15.2		na	na
Total portfolio2,3	$	13,879.7	100.0	%	2.3	AA-

na  =  not applicable

¹ Represents ratings at March 31, 2009 and 2008. 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 fair value and assign a numeric score of 0-5, with non-investment-grade and non-rated securities assigned a score of 0-1. To the extent the weighted average of the ratings falls between a AAA and AA+, we assign an internal rating of AAA-.

² At March 31, 2009 and 2008, we had $18.6 million and $79.4 million of unsettled security transactions (offset in other liabilities), respectively.

³ March 31, 2009 and 2008 totals include $.8 billion and $1.8 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

Unrealized Gains and Losses

As of March 31, 2009, our portfolio had $338.2 million of pretax net unrealized losses, recorded as part of accumulated other comprehensive income, compared to net unrealized gains of $208.8 million at March 31, 2008 and net unrealized losses of $118.2 million at December 31, 2008. During the quarter, our fixed-income portfolio’s fair value declined primarily as a result of the continued decline in our nonredeemable and redeemable preferred stock portfolio. In addition, we realized $96.7 million in net gains on security sales. The combination of the preferred stock declines and the gains on security sales accounted for $198.1 million of the $220.0 million change in unrealized losses since December 31, 2008. The net unrealized gains in the common stock portfolio decreased $111.3 million during the first quarter 2009, reflecting both the gains generated from the sales of the securities and the overall negative return of the broad equity markets. See Note 2 – Investments for a further break-out of our gross unrealized gains and losses.

Fixed-Income Securities

The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks. The fixed-maturity securities, including redeemable preferred stocks, and short-term securities, as reported on the balance sheets at March 31, were comprised of the following:

($ in millions)	2009				2008
Investment-grade fixed maturities: 1
Short/intermediate term	$	11,254.9	97.0	%	$	9,199.3	95.3	%
Long term		29.4	.3			178.6	1.8
Non-investment-grade fixed maturities2		318.5	2.7			276.1	2.9
Total	$	11,602.8	100.0	%	$	9,654.0	100.0	%

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

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

24

The increase in fixed maturities over last year represents a management decision to reduce valuation risk by investing in U.S. Treasury Notes and short-term instruments. The reduction in our long-term assets from the first quarter last year represents a decision to reduce our valuation risk to the potential for rising interest rates. Lastly, the increase in dollar amount of our non-investment-grade fixed-maturities is largely the result of security credit downgrades since last year.

A primary exposure for the fixed-income portfolio is interest rate risk, which is managed by maintaining the portfolio’s duration between 1.8 and 5 years. Interest rate risk includes the change in value resulting from movements in the underlying market rates of debt securities held. The fixed-income portfolio had a duration of 3.0 years at March 31, 2009, compared to 3.2 years at December 31, 2008 and 2.3 years at March 31, 2008. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security is expected to change based on a rise or fall in interest rates) are monitored on a regular basis.

As of March 31, the duration distribution of our fixed-income portfolio represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, was:

Duration Distribution	2009		2008
1 year	16.7	%	17.2	%
2 year	22.0		17.6
3 year	21.9		24.7
5 year	29.8		23.8
10 year	9.6		16.7
Total fixed-income portfolio	100.0	%	100.0	%

The shift in duration during 2009 resulted from our decision to reduce the overall portfolio valuation risk exposure.

Another primary exposure related to the fixed-income portfolio is credit risk. This risk is managed by maintaining a minimum average portfolio credit quality rating of A+, as defined by nationally recognized rating agencies. In addition, we limit our non-investment-grade securities, along with our common equities and preferred stocks (both redeemable and nonredeemable), to between 0% and 25% of the portfolio.

Pursuant to guidelines in effect during the first quarter 2009, established by the Investment and Capital Committee of our Board of Directors, investment in a single issuer’s bonds and preferred stocks was limited to no more than 6% of our shareholders’ equity, except for U.S. Treasury and agency bonds; any state’s general obligation bonds were limited to 12% of shareholders’ equity. In April 2009, the Committee approved new investment guidelines that further limit our concentration exposure. Under the revised guidelines, investment in a single issuer, other than U.S. Treasuries or state’s general obligations bonds, is limited to 2.5% of shareholders’ equity, while the single issuer limitation on preferred stock and/or non-investment-grade debt is 1.25% of shareholders’ equity. Additionally, the limitation to any state’s general obligations was reduced to 6% of shareholders’ equity. As of March 31, 2009, the investment portfolio would have exceeded these limitations, and the portfolio may be outside these guidelines for a period of time as management works to bring the portfolio into compliance effectively and efficiently, without creating undesirable trading activity.

The credit quality distribution of the fixed-income portfolio at March 31 was:

Rating	2009		2008
AAA	63.3	%	41.6	%
AA	14.7		23.5
A	10.9		21.0
BBB	7.2		10.7
Non-rated/other	3.9		3.2
Total fixed-income portfolio	100.0	%	100.0	%

During 2009, the AAA rating category increased, while the remaining ratings categories decreased due to our decision to reduce our exposure to the highly volatile market sectors, including common equities (discussed below), and adding to our holdings of U.S. Treasury securities and short-term instruments.

Our portfolio is also exposed to concentration risk. Our credit risk guidelines limit single issuer exposure; however, economic sector allocation is a key concentration risk. During 2008, the concentration risk in our portfolio was evidenced by an overweighting in preferred stocks, predominantly invested in the financial services sector. This concentration risk, coupled with the credit crisis (credit risk), led to the significant decline in valuation of our total portfolio. We consider concentration risk more broadly to asset classes, including but not limited to common equities, residential and commercial mortgage securities, municipal bonds, and high-yield bonds. During the first quarter 2009, our exposure carryover from 2008, primarily invested in financial sector preferred stocks, continued to affect negatively the overall fixed-income portfolio’s valuation. In April 2009, we adjusted our concentration exposure guidelines, to reduce certain sector concentrations, as well as our single issuer guidelines, to reduce credit risk exposure, referred to above. We will transition to the new investment policy guidelines over time to avoid making inefficient and/or ineffective investment decisions through security liquidations.

25

Prepayment and extension risk, especially in our structured product and preferred stock portfolios, is another risk that we monitor in the portfolio. Prepayment risk includes the risk of early redemption of security principal that may need to be reinvested at less attractive rates. Extension risk includes the risk that a security will not be redeemed when anticipated, and that a security we hold has a lower yield than a security we might be able to obtain by reinvesting the expected redemption principal. The different types of structured debt and preferred securities that we hold help minimize this risk. During the first quarter 2009, we did not experience significant prepayment or extension of principal relative to our expectations in the portfolio.

Our preferred stocks continue to be priced under the assumption that issuers will not call their outstanding issues at the first call date (extension risk) and will even choose to leave these securities outstanding as long as possible. This assumption was based on the fact that the current dividend rates on the outstanding securities were lower than those available on new issues, as well as the fact that the preferred stock market for new issues was largely not available during the latter part of 2008 and the first quarter of 2009. The drop in price by assuming extension, particularly for perpetual securities with no mandatory redemption date, was significant.

We also face the risk that our preferred stock dividend payments could be deferred for one or more periods. As of March 31, 2009, all of our preferred securities continue to pay fully and timely dividends, with the exception of Fannie Mae, which is immaterial. In addition, we do not expect Citigroup to continue to pay dividends after the proposed conversion of their preferred stock to common stock. We received $1.0 million of dividends in the first quarter 2009 from Citigroup and $2.7 million in April 2009; we expect this to be their last dividend payment.

Liquidity risk is another risk factor we monitor. Based on the volatility of the markets in general and the widening of credit spreads, we elected to reduce portfolio valuation risk and direct new investments primarily to U.S. Treasury and short-term securities in order to preserve capital and maintain our desired liquidity position. As of March 31, 2009, we had $5.8 billion in U.S. Treasury and short-term securities, approximately three times as much as we had at the same time last year. Another facet of liquidity risk involves the inability to sell securities due to a lack of buyers. Our overall portfolio remains very liquid and sufficient to meet capital requirements; however, beyond U.S. Treasury obligations, market liquidity remains highly variable and generally constrained. There continue to be instances within the portfolio where less liquidity exists. The short to intermediate duration of our portfolio provides an additional source of liquidity, as we expect approximately 12% of our non-U.S. Treasury and short-term, fixed-income portfolio to repay principal over the course of 2009. In addition, cash from interest and dividend payments provides a recurring source of liquidity.

Included in the fixed-income portfolio are U.S. government obligations, which include U.S. Treasury Notes and interest rate swaps. Although the interest rate swaps are not obligations of the U.S. government, they are recorded in this portfolio as the change in fair value is correlated to movements in the U.S. Treasury market. The duration of these securities was comprised of the following at March 31, 2009:

($ in millions)	Fair Value		Duration (years)
U.S. Treasury Notes
Less than two years	$	985.3	1.8
Two to five years		2,647.1	4.1
Five to nine years		840.7	8.2
Total U.S. Treasury Notes		4,473.1	4.4
Interest Rate Swaps
Less than two years ($1,050 notional value)		16.7	1.6
Two to five years ($668 notional value)		10.2	3.3
Total interest rate swaps ($1,718 notional value)		26.9	2.2
Total U.S. government obligations	$	4,500.0	5.2

The total duration of 5.2 years exceeds the duration of the components due to the leverage effect of derivative instruments on the overall duration. This is the case because, in determining duration, we add the interest rate sensitivity of our interest rate swap positions to that of our Treasury holdings, but do not add the notional value of the swaps to our Treasury holdings in order to calculate an unlevered duration for the portfolio.

26

ASSET-BACKED SECURITIES

Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at March 31:

($ in millions)	Fair Value		Net Unrealized Gain (Loss)			% of Asset- Backed Securities		Duration (years)	Rating (at period end)
2009
Collateralized mortgage obligations1	$	388.5	$	(90.3	)	18.5	%	1.5	AA+
Commercial mortgage-backed obligations		941.7		(138.7	)	44.9		2.1	AA+
Commercial mortgage-backed obligations: interest-only		450.6		(31.0	)	21.5		1.4	AAA-
Subtotal commercial mortgage-backed obligations		1,392.3		(169.7	)	66.4		1.9	AA+
Other asset-backed securities:
Automobile		77.5		1.4		3.7		1.9	AAA
Home equity (sub-prime bonds)		187.0		(64.4	)	8.9		.1	A+
Other2		53.4		(3.9	)	2.5		.5	AA
Subtotal other asset-backed securities		317.9		(66.9	)	15.1		.6	AA-
Total asset-backed securities	$	2,098.7	$	(326.9	)	100.0	%	1.6	AA+
2008
Collateralized mortgage obligations1	$	574.5	$	(11.3	)	21.9	%	1.6	AAA-
Commercial mortgage-backed obligations		1,048.0		5.8		40.0		2.8	AA
Commercial mortgage-backed obligations: interest-only		692.7		(9.6	)	26.4		1.8	AAA-
Subtotal commercial mortgage-backed obligations		1,740.7		(3.8	)	66.4		2.4	AA+
Other asset-backed securities:
Home equity (sub-prime bonds)		233.6		(25.2	)	8.9		.1	AA+
Other2		71.6		(1.4	)	2.8		1.0	A
Subtotal other asset-backed securities		305.2		(26.6	)	11.7		.3	AA
Total asset-backed securities	$	2,620.4	$	(41.7	)	100.0	%	2.0	AA+

¹ Includes $29.2 million of Alt-A, non-prime bonds (low document/no document or non-conforming prime loans) with a net unrealized loss of $14.9 million and a credit quality of A- as of March 31, 2009; includes $49.8 million of Alt-A bonds that had a net unrealized gain of $.2 million and a credit quality of AAA as of March 31, 2008. The remainder for both periods represents seasoned prime loans.

² Includes equipment leases, manufactured housing, and other types of structured debt.

At March 31, 2009, our asset-backed securities had a net unrealized loss of $326.9 million, compared to a net unrealized loss of $388.5 million at December 31, 2008. Substantially all of the asset-backed securities have available market quotes, although the spreads between the bid and offer prices are wider than in recent years given the current market conditions, reflecting a general drop in liquidity. As of March 31, 2009, approximately 10% of our asset-backed securities are exposed to non-prime mortgage loans (home equity and Alt-A). We reviewed all of our asset-backed securities for other-than-temporary impairment and yield or asset valuation adjustments under current accounting guidance, and we realized $1.4 million in write-downs on these securities (including $.9 million of home equity loans) during the quarter ended March 31, 2009, compared to $2.9 million of home equity loans during the quarter ended March 31, 2008; we did not have any write-downs on our Alt-A securities.

27

Collateralized Mortgage Obligations At March 31, 2009, 18.5% of our asset-backed securities were collateralized mortgage obligations (CMO). During the quarters ended March 31, 2009 and 2008, we did not record any write-downs on our CMO portfolio. The following table shows the collateralized mortgage obligations by deal origination year, along with the loan classification. In addition, the table shows a comparison of the fair value at March 31, 2009 to our original investment value (adjusted for returns of principal, amortization, and write-downs).

Collateralized Mortgage Obligations

	Deal Origination Year																		% of Collateralized Mortgage Obligations
($ in millions) Category	2007			2006			2005			2004			Pre-2004			Total
Non-agency prime:
With mandatory redemption1	$	—		$	—		$	39.9		$	59.2		$	—		$	99.1		25.5	%
Increase (decrease) in value		—	%		—	%		.1	%		(1.4	)%		—	%		(.8	)%
No mandatory redemption2	$	33.5		$	25.8		$	93.0		$	27.9		$	43.8		$	224.0		57.7	%
Increase (decrease) in value		(21.2	)%		(28.7	)%		(28.7	)%		(21.5	)%		(18.8	)%		(25.0	)%
Alt-A	$	—		$	—		$	15.3		$	7.4		$	6.5		$	29.2		7.5	%
Increase (decrease) in value		—	%		—	%		(45.3	)%		(13.0	)%		(14.8	)%		(33.8	)%
Government/GSE3	$	16.1		$	—		$	—		$	—		$	20.1		$	36.2		9.3	%
Increase (decrease) in value		4.9	%		—	%		—	%		—	%		(3.1	)%		.3	%
Total	$	49.6		$	25.8		$	148.2		$	94.5		$	70.4		$	388.5		100.0	%
Increase (decrease) in value		(14.3	)%		(28.7	)%		(25.2	)%		(9.2	)%		(14.5	)%		(18.8	)%

¹ These securities are required to be retired at par value by May 2009.

² These securities do not have a mandatory redemption date; hence, the securities will retire at the earlier of contractual maturity or projected cash flow expiration. All 2006 and 2007 securities in this category are collateralized primarily (greater than 90%) by mortgages originated in or prior to 2005.

³ The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA).

Commercial Mortgage-Backed Securities At March 31, 2009, 44.9% of our asset-backed securities were commercial mortgage-backed securities (CMBS).

The following table details the credit quality rating and fair value of our CMBS portfolio by year of deal origination.

Commercial Mortgage-Backed Securities

($ in millions) Deal Origination Year	Rating at March 31, 2009
	AAA			AA			A			BBB			Non-Investment Grade			Fair Value			% of Total Exposure
Pre-2000	$	—		$	3.3		$	—		$	26.2		$	8.6		$	38.1		4.0	%
2000		46.7			21.1			—			—			—			67.8		7.2
2001		122.9			27.7			5.3			8.8			—			164.7		17.5
2002		62.9			—			10.4			—			—			73.3		7.8
2003		152.3			8.1			2.1			—			—			162.5		17.3
2004		102.6			15.4			2.1			7.4			—			127.5		13.5
2005		100.8			—			—			2.9			—			103.7		11.0
2006		122.1			—			—			10.1			44.3			176.5		18.8
2007		—			—			8.3			4.0			15.3			27.6		2.9
Total fair value	$	710.3		$	75.6		$	28.2		$	59.4		$	68.2		$	941.7		100.0	%
% of Total fair value		75.4	%		8.0	%		3.0	%		6.3	%		7.3	%		100.0	%

The CMBS portfolio contains 13.6% of securities that are rated BBB or lower, with a net unrealized loss of $43.8 million at March 31, 2009, and an average duration of 1.6 years, compared to 2.1 years for the entire CMBS portfolio.

As with many other asset-backed classes, the CMBS market saw more aggressive underwriting from 2005–2007. These more aggressive underwriting guidelines have led to a higher level of investor concern for deals originated in this timeframe.

28

Our 2005 and 2006 deal origination (vintage) year AAA exposure is heavily weighted to securities with the most senior levels (over 20%) of credit support. While we expect CMBS delinquencies to continue to rise in 2009, we feel that we have an adequate level of credit support to protect the expected cash flows from these investments. The following table displays the amount of senior and junior AAA bonds that we have in each vintage. The average credit support and delinquencies are shown in order to indicate the cushion that is available in these tranches to sustain losses.

($ in millions) Deal Origination Year	Senior AAA1		Junior AAA (AJ) 2		Average Life (years)	Average Credit Support3		Average Delinquencies4		Average Yield to Maturity5
2005	$	90.7	$	10.1	3.1	27.5	%	.7	%	11.0	%
2006	$	122.1	$	—	2.1	29.6	%	1.6	%	11.5	%

¹ Above 20% credit support.

² Above 13% credit support.

³ This represents the amount of cushion available to absorb realized losses.

⁴ This represents the percentage of loans that are 30 days or more past due.

⁵ The yield to maturity equals the return, inclusive of interest and principal payments that we would expect to receive assuming the bond matures at its expected maturity date.

The entire 2005-2006 non-AAA segment is composed of cell phone tower securitizations. All of these bonds have a single borrower and are backed by a cross collateralized pool of cellular phone towers throughout the United States. As can be seen from the table below, these bonds have short average lives and have significant net cash flow relative to their interest payments.

Deal Origination Year	Average Life	Yield to Maturity		Debt Service Coverage Ratio
2005	1.2 years	14.9	%	3.5x
2006	2.5 years	12.5	%	2.9x

Our entire 2007 exposure is made up of two different types of investments. One is a $5.9 million exposure to a B/B2 rated cell tower transaction similar to the exposure in 2005 and 2006 non-AAA rated vintages discussed above. The average life on this bond is 3.1 years and it has a 25.1% yield to maturity. The second 2007 exposure is a $21.7 million position that consists of three different bonds with a single borrower, rated A+, BBB-, and non-rated, and is secured by a cross collateralized portfolio of office properties with a single borrower. The average life on this position is 2.9 years, assuming the borrower exercises its option to extend the final maturity.

Commercial Mortgage-Backed Securities: Interest Only We also held CMBS interest only (IO) securities at March 31, 2009. The IO portfolio had an average credit quality of AAA- and a duration of 1.4 years. During the quarters ended March 31, 2009 and 2008, we did not record any write-downs on our IO portfolio. The following table shows the fair value of the IO securities by deal origination year.

Commercial Mortgage-Backed Securities: Interest Only

($ in millions) Deal Origination Year	Fair Value		% of Total Exposure
Pre-2000	$	4.7	1.0	%
2000		18.7	4.2
2001		15.4	3.4
2002		10.9	2.4
2003		57.9	12.8
2004		67.9	15.1
2005		122.1	27.1
2006		153.0	34.0
Total fair value	$	450.6	100.0	%

Planned amortization class IOs comprised 91.1% of our IO portfolio. This is a class that is structured to provide bondholders with greater protection against loan prepayment, default, or extension risk. The bonds are at the top of the payment order for interest distributions and benefit from increased structural support over time as they repay. Since 2004, 100% of the IO securities that we have purchased were made up of this more protected class.

29

Home-Equity Securities The following table shows the credit quality rating of our home-equity securities by deal origination year, along with a comparison of the fair value at March 31, 2009, to our original investment value (adjusted for returns of principal, amortization, and write-downs).

Home-Equity Securities

($ in millions) Rating (date acquired)	Deal Origination Year												Total			% of Home Equity Loans
	2007			2006			2005			2004
AAA (December 2007-May 2008)	$	—		$	28.6		$	45.7		$	—		$	74.3		39.7	%
Increase (decrease) in value		—	%		(11.1	)%		(16.1	)%		—	%		(14.3	)%
AA (September 2007-April 2008)	$	—		$	5.8		$	31.0		$	7.4		$	44.2		23.7	%
Increase (decrease) in value		—	%		(17.7	)%		(32.8	)%		(47.8	)%		(34.4	)%
A (August 2007-April 2008)	$	—		$	—		$	1.7		$	4.7		$	6.4		3.4	%
Increase (decrease) in value		—	%		—	%		(55.3	)%		(6.1	)%		(27.6	)%
BBB (March 2007-May 2008)	$	—		$	9.5		$	6.5		$	.5		$	16.5		8.8	%
Increase (decrease) in value		—	%		(24.7	)%		(24.6	)%		—	%		(24.1	)%
Non-investment-grade (August 2007-March 2008)	$	.5		$	27.5		$	17.6		$	—		$	45.6		24.4	%
Increase (decrease) in value		19.1	%		(23.9	)%		(41.8	)%		—	%		(31.8	)%
Total	$	.5		$	71.4		$	102.5		$	12.6		$	187.0		100.0	%
Increase (decrease) in value		19.1	%		(18.9	)%		(28.5	)%		(35.9	)%		(25.6	)%

MUNICIPAL SECURITIES

Included in the fixed-income portfolio at March 31, 2009, were $2,728.2 million of state and local government obligations with an overall credit quality of AA, excluding the benefit of credit support from the bond insurance. These securities had a net unrealized gain of $14.1 million at March 31, 2009, compared to a net unrealized loss of $37.0 million at December 31, 2008. The following table details the credit quality rating of our municipal securities at March 31, 2009, without the benefit of credit or bond insurance as discussed below.

Municipal Securities Rating

(millions) Rating	General Obligations		Revenue Bonds		Total
AAA	$	355.0	$	364.7	$	719.7
AA		507.6		1,120.3		1,627.9
A		209.7		128.9		338.6
BBB		1.5		30.1		31.6
Other		—		10.4		10.4
Total	$	1,073.8	$	1,654.4	$	2,728.2

Included in revenue bonds are $992.9 million of single family housing revenue bonds issued by state housing finance agencies of which $686.8 million are supported by individual mortgages held by the state housing finance agencies and $306.1 million are supported by mortgage-backed securities. Of the programs supported by mortgage-backed securities, approximately 40% are collateralized by Fannie Mae mortgages; the remaining 60% are collateralized by Ginnie Mae loans, which are fully guaranteed by the U.S. Government. Of the programs supported by individual mortgages held by the state housing finance agencies, the overall credit quality rating is AA. Most of these mortgages are supported by FHA, VA, or private mortgage insurance providers.

Approximately 28%, or $775.5 million, of our total municipal securities were insured general obligation or revenue bonds, which in the aggregate had a decline in credit quality from AA+ at March 31, 2008 to AA- as of March 31, 2009. The credit quality decline was primarily due to rating downgrades of FGIC, AMBAC, and MBIA monoline bond insurers. The following table shows the composition and credit quality rating of these municipal obligations by monoline insurer at March 31, 2009. The credit quality rating represents the rating of the underlying security, excluding credit insurance, based on ratings by nationally recognized rating agencies.

30

Insurance Enhanced Municipal Securities

(millions) Monoline Insurer/ Rating	General Obligations		Revenue Bonds		Total
FGIC
AA	$	61.5	$	26.8	$	88.3
AMBAC
AA	$	74.7	$	43.6	$	118.3
A		38.4		—		38.4
BBB		—		1.0		1.0
Non-rated		—		5.0		5.0
	$	113.1	$	49.6	$	162.7
MBIA
AA	$	102.4	$	135.8	$	238.2
A		113.4		35.8		149.2
BBB		—		5.2		5.2
Non-rated		—		5.4		5.4
	$	215.8	$	182.2	$	398.0
FSA
AA	$	41.6	$	40.7	$	82.3
A		—		23.0		23.0
BBB		—		21.2		21.2
	$	41.6	$	84.9	$	126.5
TOTAL
AA	$	280.2	$	246.9	$	527.1
A		151.8		58.8		210.6
BBB		—		27.4		27.4
Non-rated		—		10.4		10.4
	$	432.0	$	343.5	$	775.5

As of March 31, 2009, the insurance-enhanced general obligation and revenue bonds had a net unrealized gain of $21.3 million, compared to a net unrealized gain of $12.9 million at December 31, 2008. We buy and hold these securities based on our evaluation of the underlying credit without reliance on the monoline insurance. Our policy does not require us to liquidate securities should the insurance provided by the monoline insurers cease to exist.

CORPORATE SECURITIES

Included in our fixed-income securities at March 31, 2009, were $599.2 million of fixed-rate corporate securities, which had a duration of 3.5 years and an overall credit quality rating of BBB+. These securities had a net unrealized loss of $51.1 million at March 31, 2009, compared to a net unrealized loss of $51.9 million at December 31, 2008. During the quarters ended March 31, 2009 and 2008, we did not record any write-downs on our corporate debt portfolio. The table below shows the exposure break-down by rating and sector.

Corporate Securities

	Rating at March 31, 2009
Sector	AAA		AA		A		BBB		Non- Investment- Grade		% of Portfolio
Financial Services
U.S. banks	—	%	—	%	4.6	%	—	%	—	%	4.6	%
Insurance	—		11.0		10.8		—		—		21.8
Other financial	3.4		—		3.4		5.0		2.4		14.2
Total Financial Services	3.4		11.0		18.8		5.0		2.4		40.6
Industrial	—		—		3.3		56.1		—		59.4
Total	3.4	%	11.0	%	22.1	%	61.1	%	2.4	%	100.0	%

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

We hold both redeemable (e.g., mandatory redemption dates) and nonredeemable (e.g., perpetual preferred stocks with call dates) preferred stocks. Nonredeemable preferred stocks also include securities that have call features with fixed-rate coupons (i.e., hybrid securities), whereby the change in value of the call features is a component of the overall change in value of the preferred stocks. The following table lists our preferred stocks, including both redeemable ($363.6 million) and nonredeemable ($815.2 million), as of March 31, 2009. We made no additional investments in preferred stocks during the first quarter 2009.

31

($ in millions) Issuers	Fair Value at March 31, 2009		% of Preferred Stock Portfolio
Bank of America	$	80.5
U. S. Bancorp		66.1
Wells Fargo		64.2
Goldman Sachs		49.7
Citigroup		44.4
Morgan Stanley		39.0
HSBC USA Inc.		38.5
AgFirst Farm Credit Bank		30.0
SunTrust		25.7
Mellon Capital		25.3
Cobank		24.7
JP Morgan Chase		21.2
PNC Preferred		18.1
Fifth Third		16.9
Farm Credit Bank		15.3
BBVA International		14.0
First Tennessee		13.9
Royal Bank of Scotland		10.3
State Street Bank		7.4
Total bank preferred stocks		605.2	51.4	%
Insurance holdings		151.4	12.8	%
Other financial institutions		35.9	3.0	%
Industrials		284.1	24.1	%
Utility		101.4	8.6	%
Agency		.8	.1	%
Total other preferred stocks		573.6	48.6	%
Total preferred stocks	$	1,178.8	100.0	%

Our preferred stock portfolio had a net unrealized loss of $42.6 million at March 31, 2009, compared to a net unrealized gain of $56.9 million at December 31, 2008. During the quarter ended March 31, 2009, we wrote down our preferred stock portfolio by $206.3 million ($200.2 million nonredeemable and $6.1 million redeemable) due to a combination of issuer fundamentals and severe market declines where we had the inability to determine objectively whether the securities would recover substantially in the near term (see the Other-than-Temporary Impairment section below for further discussion).

Our preferred stocks had an overall credit quality rating of BBB at March 31, 2009. The table below shows the exposure break-down by sector and current rating, reflecting any movement in ratings since acquisition.

Preferred Stocks

	Rating at March 31, 2009
Sector	AA		A		BBB		Non- Investment- Grade		% of Preferred Stock Portfolio
Financial Services
U.S. banks	2.5	%	28.9	%	7.3	%	10.6	%	49.3	%
Foreign banks	—		1.2		—		.9		2.1
Insurance	—		2.1		7.1		3.6		12.8
Other financial	—		1.6		—		1.4		3.0
Total Financial Services	2.5		33.8		14.4		16.5		67.2
Agency	—		—		—		.1		.1
Industrial	—		—		14.7		9.4		24.1
Utility	—		2.7		5.9		—		8.6
Total	2.5	%	36.5	%	35.0	%	26.0	%	100.0	%

32

Approximately 60% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable. In addition, all of our non-investment-grade preferred stocks were with issuers that maintain investment-grade senior debt ratings.

Approximately 70% of our preferred stock securities are fixed-rate securities and 30% are floating-rate securities. All of our preferred securities have call or mandatory redemption features. Most of the securities are structured to provide some protection against extension risk in the event the issuer elects not to call such securities at their initial call date by either paying a higher dividend amount or by paying floating-rate coupons. Of our fixed-rate securities, approximately 90% will convert to floating-rate dividend payments if not called at their initial call date.

As a result of the “stress test” the Federal Reserve is using to evaluate the capital position of the largest banks, the possibility exists that some of the issuers of our preferred stocks will offer to convert our holdings to common stock. The terms of the conversion offers, should they occur, may compel us to either sell the preferred securities or convert to common stock, such as the conversion outlined by Citigroup. We cannot predict which other securities may be affected by this type of conversion or the effect that such conversions will have on our portfolio. We will continue to monitor any developments and react appropriately within our investment guidelines.

Common Equities

Common equities, as reported on the balance sheets at March 31, were comprised of the following:

($ in millions)	2009				2008
Common stocks	$	336.9	96.1	%	$	2,090.5	99.3	%
Other risk investments		13.5	3.9			13.7	.7
Total common equities	$	350.4	100.0	%	$	2,104.2	100.0	%

At March 31, 2009, 2.8% of the portfolio was in common equities, compared to 15.2% at the same time last year. The decrease reflects our decision to reduce our exposure to equity securities, which we began toward the end of the third quarter 2008. In addition, the common equities experienced a significant market decline over the last 12 months, which contributed to the reduction in fair value.

Common stocks are managed externally to track the Russell 1000 Index with an anticipated annual tracking error of +/- 50 basis points. Our individual holdings are selected based on their contribution to the correlation with the index. For the first three months of 2009 and 2008, the GAAP basis total return was within our tracking error. We held 510 out of 976, or 52%, of the common stocks comprising the Russell 1000 Index at March 31, 2009, with 84% of the total market capitalization of the index.

Other risk investments include private equity investments and limited partnership interests in private equity and mezzanine investment funds, which have no off-balance-sheet exposure or contingent obligations, except for $.2 million of open funding commitments at March 31, 2009.

Derivative Instruments

We invest in the following derivative exposures at various times: interest rate swaps; asset-backed credit default swaps; U.S. corporate debt credit default swaps; cash flow hedges; and equity options. See Note 2—Investments for further discussion of our derivative positions.

33

INTEREST RATE SWAPS

We invest in interest rate swaps primarily to manage the fixed-income portfolio duration. The following table summarizes our interest rate swap activity classified by the status (open vs. closed) of the swap position as of March 31, 2009.

						Gains (Losses)
		Notional Exposure				Quarters ended March 31,
(millions)	Coupon	2009		2008		2009			2008
Open Positions
2-year exposure	Receive fixed	$	1,050	$	—	$	3.8		$	—
3-year exposure	Receive fixed		440		—		5.3			—
5-year exposure	Receive fixed		228		—		5.4			—
Total open positions		$	1,718	$	—	$	14.5		$	—
Closed Positions
2-year exposure	Receive fixed	$	725	$	—	$	(1.1	)	$	—
5-year exposure	Receive fixed		550		1,175		(9.9	)		46.6
5-year exposure	Receive variable		—		225		—			1.0
10-year exposure	Receive fixed		—		150		—			3.7
Total closed positions		$	1,275	$	1,550	$	(11.0	)	$	51.3
Total interest rate swaps						$	3.5		$	51.3

During April 2009, we closed $1.7 billion in notional value and opened $1.2 billion in notional value for the same exposure terms and recognized a minimal loss for the month.

ASSET-BACKED CREDIT DEFAULT SWAPS

The following table summarizes our holding period gains (losses) on the asset-backed credit default swaps classified by the status of the swap position as of March 31, 2009.

						Gains (Losses)
	Bought or Sold Protection	Notional Exposure				Quarters ended March 31,
(millions)		2009		2008		2009		2008
Closed Positions
BBB- credit exposure	Sold	$	—	$	140	$	—	$	(18.9	)
Treasury Note			—		140		—		5.8
Total asset-backed swaps						$	—	$	(13.1	)

CORPORATE CREDIT DEFAULT SWAPS

The following table summarizes our corporate credit default swap activity classified by the status of the swap position as of March 31, 2009.

						Gains (Losses)
	Bought or Sold Protection	Notional Exposure				Quarters ended March 31,
(millions)		2009		2008		2009		2008
Open Positions
5-year exposure	Bought	$	25	$	—	$	.5	$	—
Total corporate swaps						$	.5	$	—

During April 2009, we opened an additional corporate credit default swap position on a corporate issuer within the industrial sector by purchasing credit default protection for a 2-year time horizon with a $7 million notional value.

34

EQUITY OPTIONS

The following table summarizes our equity options activity classified by the status of the option position as of March 31, 2009.

		Number of Contracts1		Gains (Losses)
	Asset or Liability Position			Quarters ended March 31,
(millions)		2009	2008	2009		2008
Open Positions
Equity option	Asset	115,372	—	$	3.4	$	—
Equity option	Liability	10,000	—		.2		—
Total equity options				$	3.6	$	—

¹ Each contract is equivalent to 100 shares of common stock of the issuer.

CASH FLOW HEDGES

During the fourth quarter 2008, we entered into a cash flow hedge of forecasted foreign currency transactions. The hedge was designated as, and qualified for, cash flow hedge accounting treatment. We will defer the gain or loss on this hedge and report the amount in accumulated other comprehensive income. The gain or loss on the contract will be amortized over the period in which foreign denominated expenses occur, which is expected to begin in the second half of 2009.

B. Investment Results

Recurring investment income (interest and dividends, before investment and interest expenses) decreased 17% for the first quarter 2009, compared to the same period last year. The reduction is primarily the result of investing in lower yielding securities (primarily U.S. Treasury Notes and short-term instruments) in the current interest rate environment due to the following factors: 1) investing new cash in the portfolio from operating profits, 2) cash from security redemptions and maturities, and 3) cash from portfolio turnover through planned sales based on various strategic decisions by management.

We report total return to reflect more accurately the management philosophy governing 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 investments.

We reported the following investment results for the three months ended March 31:

	2009		2008
Pretax recurring investment book yield	4.1	%	4.8	%
Weighted average FTE book yield	4.6	%	5.7	%
FTE total return:
Fixed-income securities	(.6	)%	(.6	)%
Common stocks	(10.3	)%	(9.3	)%
Total portfolio	(1.2	)%	(2.0	)%

A further break-down of our total returns for our fixed-income securities, including the net gains (losses) on our derivative positions, for the three months ended March 31 follows:

	2009		2008
Fixed-income securities:
U.S. Treasury Notes	(.6	)%	11.2	%
Municipal bonds	3.5	%	1.7	%
Corporate bonds	2.5	%	1.3	%
Commercial mortgage-backed securities	6.6	%	(.2	)%
Collateralized mortgage obligations	.9	%	(1.4	)%
Asset-backed securities	(2.4	)%	(5.9	)%
Preferred stocks	(17.3	)%	(7.4	)%

Investment expenses were $2.6 million for the first quarter 2009, compared to $1.5 million for the same period last year, primarily reflecting a true-up in the first quarter 2008 to the final 2007 Gainsharing (cash incentive) payout for our investment managers.

Interest expense for the first quarter 2009 was $33.7 million, compared to $34.3 million for the same period last year.

35

Realized Gains/Losses

The components of net realized gains (losses) for the three months ended March 31, were:

(millions)	2009			2008
Gross realized gains on security sales
Fixed maturities	$	103.3		$	81.8
Nonredeemable preferred stocks		.1			.5
Common equities		83.1			6.3
Subtotal		186.5			88.6
Gross realized losses on security sales
Fixed maturities		(6.1	)		(.1	)
Nonredeemable preferred stocks		(.6	)		(1.2	)
Common equities		(32.3	)		(38.6	)
Subtotal		(39.0	)		(39.9	)
Net realized gains (losses) on security sales
Fixed maturities		97.2			81.7
Nonredeemable preferred stocks		(.5	)		(.7	)
Common equities		50.8			(32.3	)
Subtotal		147.5			48.7
Other-than-temporary impairment losses
Fixed maturities		(7.5	)		(2.9	)
Nonredeemable preferred stocks		(200.2	)		(42.7	)
Common equities		(15.7	)		(5.7	)
Subtotal		(223.4	)		(51.3	)
Net holding period gains (losses)
Hybrid preferred stocks		(5.1	)		(3.4	)
Derivatives		7.6			38.2
Subtotal		2.5			34.8
Total net realized gains (losses) on securities	$	(73.4	)	$	32.2

Gross realized gains and losses were the result of customary investment sales transactions in our fixed-income portfolio, affected by movements in credit spreads and interest rates, sales of our common stock to reduce our risk exposure, and holding period valuation changes on derivatives. From time to time, gross realized losses also include write-downs for securities determined to be other-than-temporarily impaired in our fixed-income and/or equity portfolios. For the three months ended March 31, 2009, realized gains (losses) also included $5.1 million of net losses related to certain hybrid securities within our preferred stock portfolio that are reported at fair value, compared to $3.4 million of net losses for the three months ended March 31, 2008.

Other-Than-Temporary Impairment (OTI)

Realized losses may include write-downs of securities determined to have had an other-than-temporary decline in fair value. We routinely monitor our portfolio for pricing changes that might indicate potential impairments and perform detailed reviews of securities with unrealized losses based on predetermined guidelines. In such cases, changes in fair 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 (e.g., negative return at either a sector index level or at the broader market level).

Fixed-income securities and common equities 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 recovery does not satisfy the criteria set forth in the current accounting guidance.

For fixed-maturity investments with unrealized losses due to market- or sector-related declines, the losses are not deemed to qualify as other-than-temporary where we have the intent and ability to hold the investment for the periods of time that we anticipate to be necessary to recover a substantial portion of the investment’s impairment and collect the interest or dividend obligations. In general, our policy for equity securities with market- or sector-related declines is to recognize impairment losses on individual securities with losses we cannot reasonably conclude will recover in the near term under historical conditions by the earlier of (i) when we are able to objectively determine that the loss is other-than-temporary, or (ii) when the security has been in such a loss position for three consecutive quarters.

36

When a security in our investment portfolio has an unrealized loss in fair value that is deemed to be other-than-temporary, we reduce the book value of such security to its current fair 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 three months ended March 31 was as follows:

(millions)	Total Write-downs		Write-downs on Securities Sold		Write-downs on Securities Held at Period End
2009
Preferred stocks	$	206.3	$	—	$	206.3
Asset-backed securities		1.4		—		1.4
Total fixed income		207.7		—		207.7
Common equities		15.7		—		15.7
Total portfolio	$	223.4	$	—	$	223.4
2008
Preferred stocks	$	42.7	$	—	$	42.7
Asset-backed securities		2.9		—		2.9
Total fixed income		45.6		—		45.6
Common equities		6.9		1.2		5.7
Total portfolio	$	52.5	$	1.2	$	51.3

Our other-than-temporary impairment write-downs resulted from fundamental matters with either the specific security or issuer or due to the severe market-related declines for which we could not objectively determine that a recovery in the near term was likely.

The following table stratifies the gross unrealized losses in our fixed-income and common equity portfolios at March 31, 2009, 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 were different from what is stated above.

	Fair Value		Total Gross Unrealized Losses		Decline of Investment Value
(millions)					>15%		>25%		>35%		>45%
Fixed Income:
Unrealized loss for 1 quarter	$	2,139.2	$	67.2	$	17.0	$	5.8	$	—	$	—
Unrealized loss for 2 quarters		467.1		47.3		42.6		30.2		19.1		1.9
Unrealized loss for 3 quarters		493.8		58.4		32.7		24.2		19.9		19.9
Unrealized loss for 1 year or longer		2,648.6		365.1		236.9		148.4		98.3		65.6
Total	$	5,748.7	$	538.0	$	329.2	$	208.6	$	137.3	$	87.4
Common Equity:
Unrealized loss for 1 quarter	$	51.1	$	9.9	$	7.0	$	4.6	$	3.2	$	.8
Unrealized loss for 2 quarters		21.7		5.4		4.1		2.9		2.3		.5
Unrealized loss for 3 quarters		11.2		1.7		.5		.1		.1		.1
Unrealized loss for 1 year or longer		7.4		1.3		.9		.7		—		—
Total	$	91.4	$	18.3	$	12.5	$	8.3	$	5.6	$	1.4

We completed a thorough review of the existing securities in these loss categories and determined that, applying the procedures and criteria discussed above, these securities were not other-than-temporarily impaired. We continue to have the intent and ability to hold these fixed-income investments for the periods of time that we anticipate to be necessary to recover the investments’ impairment and collect the interest and dividend obligations, and will do so, as long as the securities continue to be consistent with our investment and financial strategies. We will continue to diligently monitor market conditions and issuer-specific fundamental characteristics and, to the extent that there are any significant changes, will re-evaluate our position and, if necessary, take the appropriate write-downs.

We retain the common stocks necessary to maintain correlation to the Russell 1000 Index. We will continue to closely monitor these securities, and analyze developments and conditions relating to the issuers and the overall market, to determine if any impairment write-downs are necessary.

Since total unrealized losses are already a component of our shareholders’ equity, any recognition of these losses as additional OTI losses would have no effect on our comprehensive income, book value, or reported investment total return.

37

C. Repurchase Transactions

From time to time we enter into repurchase commitment transactions, whereby we loan U.S. Treasury or U.S. Government agency securities to accredited brokerage firms in exchange for cash equal to the fair value of the securities. These internally managed transactions are typically overnight arrangements. The cash proceeds are invested in Eurodollar, reverse repurchase transactions, or unsecured commercial paper obligations issued by large, high-quality institutions 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 either short supply or high demand. Our interest rate exposure does not increase or decrease since the borrowing and investing periods match. However, these transactions can carry the risk that the counterparty in the arrangement could default, in which event we would be unable to recover our collateral in a timely manner. To help mitigate this risk, we hold our counterparty’s cash for the full value of the securities we lend and revalue the securities on a regular basis to ensure that we hold sufficient cash to cover the market value of the securities. Nevertheless, in the event of a counterparty default, we may be unable to obtain additional cash if our securities on loan appreciate in value prior to their return.

During September 2008, we suspended our repurchase activity due to increased counterparty risk and high market volatility and we have not invested in any repurchase transactions during the first quarter 2009. We had no open repurchase commitments at March 31, 2008. We earned income of $.7 million from repurchase transactions during the three months ended March 31, 2008.

Additionally, beginning with the second quarter 2008, we entered into reverse repurchase commitment transactions, whereby we loaned cash to accredited banks and received U.S. Treasury Notes pledged as general collateral against the cash borrowed. Our exposure to credit risk was limited, as these internally managed transactions were overnight arrangements. The income generated on these transactions was calculated at the then applicable general collateral rates on the value of U.S. Treasury securities received.

For the three months ended March 31, 2009, our largest single outstanding balance of reverse repurchase commitments was $1,845.8 million, which was open for one day; the average daily balance of reverse repurchase commitments was $685.3 million. We earned income of $.3 million on reverse repurchase agreements for the three months ended March 31, 2009. We had $569.9 million of open reverse repurchase commitments at March 31, 2009 with two counterparties, reported as part of other short-term investments. No reverse repurchase transactions were entered into during the three months ended March 31, 2008.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this report that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions, and projections generally; inflation and changes in economic conditions (including changes in interest rates and financial markets); the financial condition of, and other issues relating to the strength of and liquidity available to, issuers of securities held in our investment portfolios and other companies with which we have ongoing business relationships, including counterparties to certain financial transactions; the accuracy and adequacy of our pricing and loss reserving methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to retain more customers; initiatives by competitors and the effectiveness of our response; our ability to obtain regulatory approval for requested rate changes and the timing thereof; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments; disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against us; 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; our ability to maintain the uninterrupted operation of our 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 in our releases and publications, and in our 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. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding pending loss and loss adjustment expense reserves becomes known. Reported results, therefore, may be volatile in certain accounting periods.

38

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The duration of the financial instruments held in our portfolios that are subject to interest rate risk was 3.0 years at March 31, 2009 and 3.2 years at December 31, 2008. The weighted average beta of the equity portfolio was 1.0 at both March 31, 2009 and December 31, 2008, 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, 2008.

We use Value-at-Risk (VaR) to estimate the investment portfolio’s exposure to short-term volatility and as a component of our longer-term contingency capital planning. VaR quantifies the potential reductions in total investment returns on a GAAP basis, which includes recurring investment income, realized gains (losses) and changes in unrealized gains (losses) on investments. The VaR estimates below represent the expected loss at 99% confidence within a 66-day trading period (e.g., quarterly period) based on recent market volatility. Total portfolio VaR is less than the sum of the two components (fixed income and equity) due to the benefit of diversification.

($ in millions) 66-Day VaR	March 31, 2009			December 31, 20081
Fixed-income portfolio	$	(471.8	)	$	(455.2	)
% of portfolio		(3.8	)%		(3.7	)%
% of shareholders’ equity		(11.0	)%		(10.8	)%
Common equity portfolio	$	(133.0	)	$	(333.3	)
% of portfolio		(38.0	)%		(45.8	)%
% of shareholders’ equity		(3.1	)%		(7.9	)%
Total portfolio	$	(477.5	)	$	(539.8	)
% of portfolio		(3.7	)%		(4.2	)%
% of shareholders’ equity		(11.1	)%		(12.8	)%

¹ The VaR for our fixed-income and total portfolio were restated to correct for a calculation error in the data provided to us by our third-party vendor at December 31, 2008; all prior quarters for 2008 were properly stated.

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.

39

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, 2008.

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

(c) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES

2009 Calendar Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January	345,234	$	14.60	51,813,161	48,186,839
February	1,468		13.66	51,814,629	48,185,371
March	—		—	51,814,629	48,185,371
Total	346,702	$	14.60

In June 2007, the Board of Directors authorized the repurchase of up to 100 million common shares. This Board authorization will expire on June 30, 2009. Shares repurchased under this authorization may be accomplished through open market purchases or otherwise and may include trading plans entered into with one or more brokerage firms in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. In the first quarter 2009, all repurchases were accomplished in conjunction with our incentive compensation plans at the then current market price. 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.

Item 4. Submission of Matters to a Vote of Security Holders.

At Progressive’s April 24, 2009, Annual Meeting of Shareholders, 590,499,730 common shares were represented in person or by proxy.

At the meeting, shareholders elected the four directors named below. The votes cast with respect to each director were as follows:

Director	Term Expires	For	Against	Abstain
Roger N. Farah	2012	581,293,783	8,605,229	600,718
Stephen R. Hardis	2012	501,995,860	67,967,562	20,536,308
Norman S. Matthews	2012	576,191,177	13,113,674	1,194,879
Bradley T. Sheares, Ph.D.	2012	584,517,012	4,771,466	1,211,252

The following are the directors whose terms continued after the meeting:

Director	Term Expires
Peter B. Lewis	2010
Patrick H. Nettles, Ph.D.	2010
Glenn M. Renwick	2010
Donald B. Shackelford	2010
Charles A. Davis	2011
Bernadine P. Healy, M.D.	2011
Jeffrey D. Kelly	2011
Abby F. Kohnstamm	2011

Shareholders approved an amendment to our Code of Regulations to establish procedures for shareholders to make proposals for consideration at our Annual Meeting of Shareholders outside of SEC Rule 14a-8 (other than nominations for directors). This proposal received 515,087,798 affirmative votes and 74,997,164 negative votes. There were 414,768 abstentions and no broker non-votes with respect to this proposal.

Shareholders approved an amendment to our Code of Regulations to revise the existing procedures relating to shareholder nominations of directors. This proposal received 514,796,561 affirmative votes and 74,974,794 negative votes. There were 728,375 abstentions and no broker non-votes with respect to this proposal.

40

Shareholders ratified the appointment of PricewaterhouseCoopers LLP as Progressive’s independent registered public accounting firm for 2009. This proposal received 583,116,147 affirmative votes and 7,037,788 negative votes. There were 345,795 abstentions and no broker non-votes with respect to this proposal.

Item 5. Other Information.

In March 2009, Progressive granted time-based restricted stock awards covering a total of 3,226,491 common shares to 731 management employees, including 12 executive officers, under Progressive’s 2003 Incentive Plan, as amended. These awards were based on a $12.00 closing price of our common shares, as reported on the New York Stock Exchange, on the date of grant. These awards had an aggregate dollar value of approximately $38.7 million. The time-based restricted stock awards are scheduled to vest in equal installments on January 1 of 2012, 2013, and 2014, respectively.

Consistent with our performance-based compensation philosophy, our executives and senior management are awarded restricted stock with a combination of vesting criteria based on time and achieved performance. In March 2009, we granted performance-based restricted stock awards covering a total of 744,603 common shares to 40 executives and senior managers pursuant to our 2003 Incentive Plan. These awards will vest in full only if the annualized growth of our personal and commercial auto businesses, measured in terms of direct premiums written, for the three-year period ending December 31, 2011 exceeds the comparable Industry’s growth rate over that period by two percentage points or more (determined using A.M. Best data and categorizations), and our combined ratio is 96 or lower for the preceding 12-month period. Partial vesting can occur on a ratable basis if our relative performance exceeds the market’s growth rate, but by an amount less than two percentage points. In the event that the growth goal is satisfied for the three-year period, but the profitability goal is not satisfied at that time, the award will remain open for vesting until January 31, 2014, in order to allow the opportunity to satisfy the profitability goal; the awards will expire and be forfeited if vesting does not occur before that date. Satisfaction of this goal of outperformance would result in an increase in our market share, which, together with the profitability goal, we believe will benefit all Progressive shareholders over time. At the date of grant, these performance-based restricted stock awards had an aggregate dollar value of approximately $8.9 million.

The following table discloses the restricted stock awards granted in March 2009 to each of the named executive officers and two other significant business leaders identified in Progressive’s 2009 Proxy Statement dated March 13, 2009:

	Time-Based Award			Performance-Based Award
Name and Principal Position	Shares	Value1		Shares	Value1
Glenn M. Renwick President and Chief Executive Officer	312,501	$	3,750,012	312,500	$	3,750,000
Brian C. Domeck Vice President and Chief Financial Officer	34,836		418,032	39,584		475,008
Charles E. Jarrett Vice President, Secretary, and Chief Legal Officer	34,167		410,004	34,167		410,004
Susan Patricia Griffith Claims Group President	34,836		418,032	38,000		456,000
Raymond M. Voelker Chief Information Officer	30,417		365,004	33,459		401,508
John P. Sauerland Personal Lines Group President	34,836		418,032	38,000		456,000
William M. Cody Chief Investment Officer	31,668		380,016	34,834		418,008

¹ Value is based on the market value at the date of grant of $12.00 per share, without discount for risk of forfeiture of the awards.

We also granted time-based restricted stock awards covering a total of 121,351 common shares to our non-employee directors in April 2009. These awards are scheduled to vest on April 23, 2010, and had an aggregate dollar value of approximately $1.9 million at the date of grant.

In addition, President and CEO Glenn M. Renwick’s letter to shareholders with respect to our first quarter 2009 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 43.

41

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: May 11, 2009	By:	/s/ Brian C. Domeck
		Brian C. Domeck
		Vice President and Chief Financial Officer

42

EXHIBIT INDEX

Exhibit No. Under Reg. S-K, Item 601	Form 10-Q Exhibit Number	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
(3)(ii)	3.1	Code of Regulations of The Progressive Corporation (as amended April 24, 2009)	Filed herewith
(10)	10.1	Fifth Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Filed herewith
(10)	10.2	Form of Restricted Stock Award Agreement (2009 Performance-Based Award)	Filed herewith
(31)	31.1	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer, Glenn M. Renwick	Filed herewith
(31)	31.2	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer, Brian C. Domeck	Filed herewith
(32)	32.1	Section 1350 Certification of the Principal Executive Officer, Glenn M. Renwick	Filed herewith
(32)	32.2	Section 1350 Certification of the Principal Financial Officer, Brian C. Domeck	Filed herewith
(99)	99	Letter to Shareholders from Glenn M. Renwick, President and Chief Executive Officer	Filed herewith

43

EX-3.1

Exhibit 3.1

CODE OF REGULATIONS

OF

THE PROGRESSIVE CORPORATION

(as amended April 24, 2009)

ARTICLE I

Meetings of Shareholders

Section 1. Annual Meetings. The annual meeting of shareholders shall be held at such time and on such date in the month of April of each year (beginning in 1972) as may be fixed by the board of directors and stated in the notice of the meeting, for the election of directors, the consideration of reports to be laid before such meeting and the transaction of such other business as may properly come before the meeting.

Section 2. Special Meetings. Special meetings of the shareholders shall be called upon the written request of the president, the directors by action at a meeting, a majority of the directors acting without a meeting, or of the holders of shares entitling them to exercise twenty-five percent (25%) of the voting power of the corporation entitled to vote thereat. Calls for such meetings shall specify the time, place, and purposes thereof. No business other than that specified in the call shall be considered at any special meeting.

Section 3. Notices of Meetings. Unless waived, written notice of each annual or special meeting stating the time, place, and the purposes thereof, and the means, if any, by which shareholders can be present and vote at the meeting through the use of communications equipment, shall be given by personal delivery, by mail, by overnight delivery service or by any other means of communication authorized by the shareholder to whom the notice is given, to each shareholder of record entitled to vote at or entitled to notice of the meeting, not more than sixty (60) days nor less than seven (7) days before any such meeting. If mailed or sent by overnight delivery service, such notice shall be directed to the shareholder at his address as the same appears upon the records of the corporation. If sent by any other means of communication authorized by the shareholder, the notice shall be sent to the address furnished by the shareholder for those transmissions. Any shareholder, either before or after any meeting, may waive any notice required to be given by law or under these Regulations.

Section 4. Place of Meetings. Meetings of shareholders shall be held at the principal office of the corporation unless the board of directors determines that a meeting shall be held at some other place within or without the State of Ohio and causes the notice thereof to so state. Notwithstanding the foregoing, the board of directors may determine that a meeting of shareholders shall not be held at any physical place, but instead may be held solely by means of communications equipment as authorized in the following paragraph.

If authorized by the board of directors, the shareholders and proxyholders who are not physically present at a meeting of shareholders may attend a meeting of shareholders by use of communications equipment that enables the shareholder or proxyholder an opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting and to speak or otherwise participate in the proceedings contemporaneously with those physically present. Any shareholder using communications equipment will be deemed present in person at the meeting, whether the meeting is to be held at a designated place or solely by means of communications equipment. The directors may adopt guidelines and procedures for the use of communications equipment in connection with a meeting of shareholders to permit the corporation to verify that a person is a shareholder or proxyholder and to maintain a record of any vote or other action.

Section 5. Quorum. The holders of shares entitling them to exercise a majority of the voting power of the corporation entitled to vote at any meeting, present in person or by proxy, shall constitute a quorum for the transaction of business to be considered at such meeting; provided, however, that no action required by law or by the Articles of Incorporation or these Regulations to be authorized or taken by the holders of a designated proportion of the shares of any particular class or of each class may be authorized or taken by a lesser proportion. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time, until a quorum shall be present.

Section 6. Record Date. The board of directors may fix a record date for any lawful purpose, including, without limiting the generality of the foregoing, the determination of shareholders entitled to (i) receive notice of or to vote at any meeting, (ii) receive payment of any dividend or distribution, (iii) receive or exercise rights of purchase of or subscription for, or exchange or conversion of, shares or other securities, subject to any contract right with respect thereto, or (iv) participate in the execution of written consents, waivers or releases. Said record date, which shall not be a date earlier than the date on which the record date is fixed, shall not be more than sixty (60) days preceding the date of such meeting, the date fixed for the payment of any dividend or distribution or the date fixed for the receipt or the exercise of rights, as the case may be.

If a record date shall not be fixed, the record date for the determination of shareholders who are entitled to notice of, or who are entitled to vote at, a meeting of shareholders, shall be the close of business on the date next preceding the day on which notice is given, or the close of business on the date next preceding the day on which the meeting is held, as the case may be.

Section 7. Proxies. A person who is entitled to attend a shareholders’ meeting, to vote thereat, or to execute consents, waivers or releases, may be represented at such meeting or vote thereat, and execute consents, waivers and releases, and exercise any of his other rights, by proxy or proxies appointed by a writing signed by such person or appointed by a verifiable communication authorized by the person.

Section 8. Notification of Proposals. This Section 8 sets forth the exclusive means by which a shareholder may make a proposal for business to be considered at the annual meeting of shareholders (other than nominations for the election of directors, the means for which are set forth in Section 13 of Article II) if the proposal is not made pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. A shareholder may submit such a proposal for consideration at an annual meeting of shareholders only if the shareholder is entitled to vote at the annual meeting of shareholders, the business is a proper matter for shareholder action, and written notice of such shareholder’s intent to propose such business complying with the requirements of this Section 8 has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation, and has been received by the Secretary of the corporation not less than 60 days, nor more than 90 days, in advance of the first anniversary of the immediately preceding year’s annual meeting of shareholders.

Each such notice shall set forth the following information, together with a representation as to the accuracy of the information, as to (i) each shareholder that holds of record shares of the corporation entitled to vote at the annual meeting of shareholders (the “Record Shareholder(s)”) who is making the proposal and, (ii) if any shareholder making a proposal holds shares of the corporation for the benefit of another, the beneficial owner(s) on whose behalf the proposal is made (the “Beneficial Owner(s)”) (Record Shareholder(s) and Beneficial Owner(s) are hereinafter referred to as “Holder(s)”):

(a) the name and address (as they appear on the corporation’s stock records) of each shareholder who is making the proposal and, if applicable, the name and address of the Beneficial Owner(s) on whose behalf such shareholder is making the proposal;

(b) a representation that each proposing shareholder is a holder of record of shares of the corporation, or holds shares of the corporation for the benefit of another, who is entitled to vote at such meeting, and that such proposing shareholder intends to (i) appear in person or by proxy at the meeting, and (ii) submit the proposal specified in the notice at the meeting in person or through a representative;

(c) a description of all types of each Holder’s economic and voting interests in the corporation, including a description of:

(i) the class or series and number of shares of the corporation that, directly or indirectly, are owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by such Holder, and, to the extent (if any) in addition thereto, the number of shares of any class or series of the corporation as to which such Holder has a right, at that time or at any time in the future, to own of record or acquire beneficial ownership;

(ii) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Holder, the purpose or effect of which is to give such Holder economic risk similar to ownership of shares of, or voting power with respect to, any class or series of the corporation;

(iii) any proxy, agreement, arrangement, understanding or relationship pursuant to which such Holder has or shares a right to vote any shares of any class or series of the corporation;

(iv) any agreement, arrangement, understanding or relationship, including without limitation any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Holder, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Holder with respect to the shares of any class or series of the corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the corporation;

(v) any rights to dividends on the shares of any class or series of the corporation owned beneficially by such Holder that are separated or separable from the underlying shares of the corporation;

(vi) any performance-related fees (other than an asset-based fee) that such Holder is entitled to based on any increase or decrease in the price or value of shares of any class or series of the corporation or any interest described in subsections (ii) and (iv) of this Section 8(c); and

(vii) the aggregate number of voting shares held or beneficially owned by all Holders that are subject to or referred to in this Section 8;

(d) a description of all arrangements or understandings between each Holder and any other person(s) or entity(ies) (naming such person or entity) pursuant to which the proposal or proposals are to be made;

(e) any proportionate interest in shares of the corporation or any interest described in subsection (ii) of Section 8(c) that is held, directly or indirectly, by a general or limited partnership or limited liability company or similar entity in, or with respect to, which any Holder: is a general or limited partner; beneficially owns, directly or indirectly, an interest in a general or any limited partner of such general or limited partnership; or is a member or manager of, or beneficially owns, directly or indirectly, an interest in a member or manager of, such limited liability company or similar entity;

(f) any arrangements, rights or other interests described in Sections 8(c) through 8(e) held by each Holder’s immediate family members;

(g) a representation regarding whether each Holder intends or is part of a group that intends to deliver a proxy statement and/or form of proxy to one or more holders of the corporation’s outstanding capital stock, and/or otherwise to solicit proxies from shareholders, in support of such proposal;

(h) any other information relating to each Holder that would be required to be disclosed by such Holder in a proxy statement or other filings required to be made in connection with solicitations by such Holder of proxies for such proposal pursuant to Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder;

(i) any other information reasonably requested by the corporation; and

(j) a reasonably brief statement of the course of action proposed for the corporation to follow, stated as clearly and specifically as possible; the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Code of Regulations of the company, the language of the proposed amendment); the reasons for making such proposal for business at the next annual meeting; and any material interest in such business of each Holder (including any anticipated benefit to each Holder, or any of such Holder’s affiliates or immediate family members, therefrom).

Such information shall be provided as of the date of the notice and shall be supplemented by the shareholder making the proposal not later than 10 days after the record date for the meeting to disclose such ownership information as of the record date. The presiding officer at the meeting may refuse to acknowledge the submission of any proposal not made in accordance with the provisions hereof and may declare at such meeting that any such proposal was not properly brought before the meeting and shall not be considered.

This Section 8 shall constitute an “advance notice provision” for annual meetings of shareholders for the purposes of Rule 14a-4(c)(1) under the Securities Exchange Act of 1934.

For the purpose of this Section 8, “immediate family members” shall include a person’s spouse, parents, stepparents, children, stepchildren, grandchildren, siblings, stepsiblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, anyone (other than domestic employees) who shares such person’s home, and shall include adoptive relationships; and “affiliates” shall include any corporation or organization of which such person is an officer, director, partner, manager or member or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities or other equity interest, any trust or estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and any other entity that controls, is controlled by, or is under common control with, the Holder. For the purposes hereof, “control” shall mean the right or power, alone or with others, to direct the management or policies of such other entity.

ARTICLE II

Directors

Section 1. Number and Classification of Directors. The number of directors of the corporation, none of whom need to be a shareholder or resident of the State of Ohio, shall be thirteen, and such directors shall be divided into three classes as nearly equal in number as possible, to be known as Class I, Class II and Class III. The classes shall be elected to staggered terms. The shareholders, acting by the affirmative vote of the holders of record of shares representing 75% of the voting power of the corporation on such proposal, may, from time to time, increase or decrease the number of directors, but in no case shall the number of directors be fewer than five or more than thirteen, nor shall any decrease in the number of directors shorten the term of any director then in office. In case of any increase in the number of directors, the directors then in office may select the class or classes to which the additional directors shall be assigned, provided that the directors shall be distributed among the several classes as nearly equally as possible.

Section 2. Election of Directors. Directors shall be elected at the annual meeting of shareholders, but when the annual meeting is not held or directors are not elected thereat, they may be elected at a special meeting called and held for that purpose. Such election shall be by ballot whenever requested by any shareholder entitled to vote at such election; but, unless such request is made, the election may be conducted in any manner approved at such meeting.

Article TENTH of the Company’s Amended Articles of Incorporation, as amended, sets forth voting standards applicable in the election of directors at each meeting of shareholders to elect directors.

Section 3. Term of Office. The term of office for each director shall be three years, and the members of one class of directors shall be elected annually to serve for such term; except that (i) initially or whenever necessary, a director may be elected for a shorter term in order to provide for a proper rotation of directors, and (ii) a director elected to fill a vacancy pursuant to Section 5 of this Article shall serve for the term specified therein. Each director shall hold office until the date of the annual meeting of shareholders coinciding with the termination of the term of the class of directors to which he or she was elected, or until the termination of the period specified in Section 5 of this Article (if applicable), (“End-of-Term Date”) and until his or her successor shall be elected or until his or her earlier resignation, removal from office or death; provided that:

(a) a director that has not been nominated by the Board of Directors for re-election in an election of directors at an annual meeting of shareholders coinciding with his or her End-of-Term Date (“End-of-Term Election”) shall hold office only until such End-of-Term Date; and

(b) a director that has been nominated for re-election by the Board of Directors in an End-of-Term Election in which a majority vote is required for his or her re-election by the Amended Articles of Incorporation, as amended, but such director fails to achieve a majority of votes cast with respect to his or her nomination and fails to tender his or her resignation to the Board of Directors or an appropriate committee thereof, in accordance with applicable procedures adopted by the Board of Directors or a committee thereof, within 10 days after the results of the vote have been certified, shall hold office only until the earlier of (i) the date that his or her successor shall be elected or (ii) the expiration of such 10 day period.

Section 4. Removal. All directors, or all directors of a particular class, or any individual director may be removed from office, without assigning any cause, by the affirmative vote of the holders of record of shares representing 75% of the voting power of the corporation with respect to the election of directors, provided that unless all the directors, or all the directors of a particular class, are removed, no individual director shall be removed if the votes of a sufficient number of shares are cast against his or her removal which, if cumulatively voted at an election of all the directors, or all the directors of a particular class, as the case may be, would be sufficient to elect at least one director. In case of any such removal, a new director may be elected at the same meeting for the unexpired term of each director removed.

Section 5. Vacancies. Vacancies in the board of directors may be filled by a majority vote of the remaining directors. Any director so elected by the remaining directors to fill a vacancy after the 2005 Annual Meeting of Shareholders shall have a term of office ending on the earlier of the next annual meeting of shareholders or the next special meeting of shareholders held to elect directors. At the expiration of such term, each such director shall then be subject to election by shareholders in accordance with this Article for such term as shall be appropriate to provide for a proper rotation of directors.

Section 6. Quorum and Transaction of Business. A majority of the whole authorized number of directors shall constitute a quorum for the transaction of business, except that a majority of the directors in office shall constitute a quorum for filling a vacancy on the board. Whenever less than a quorum is present at the time and place appointed for any meeting of the board, a majority of those present may adjourn the meeting from time to time, until a quorum shall be present. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board.

Section 7. Annual Meeting. Annual meetings of the board of directors shall be held immediately following annual meetings of the shareholders, or as soon thereafter as is practicable. If no annual meeting of the shareholders is held, or if directors are not elected thereat, then the annual meeting of the board of directors shall be held immediately following any special meeting of the shareholders at which directors are elected, or as soon thereafter as is practicable. If such annual meeting of directors is held immediately following a meeting of the shareholders, it shall be held at the same place at which such meeting of shareholders was held.

Section 8. Regular Meetings. Regular meetings of the board of directors shall be held at such times and places, within or without the State of Ohio, as the board of directors may, by resolution or by-law, from time to time, determine. The secretary shall give notice of each such resolution or bylaw to any director who was not present at the time the same was adopted, but no further notice of such regular meeting need be given.

Section 9. Special Meetings. Special meetings of the board of directors may be called by the chairman of the board or the president to be held at such times and places within or without the State of Ohio as the person calling such meeting shall specify. In addition, any two members of the board of directors may call special meetings of the board of directors to be held at the principal office of the corporation at such times as they may specify.

Section 10. Notice of Annual or Special Meetings. Notice of the time and place of each annual or special meeting shall be given to each director by the secretary or by the person or persons calling such meeting. Such notice need not specify the purpose or purposes of the meeting and may be given in any manner or method and at such time so that the director receiving it may have reasonable opportunity to attend the meeting. Such notice shall, in all events, be deemed to have been properly and duly given if

mailed at least forty-eight (48) hours prior to the meeting and directed to the residence of each director as shown upon the secretary’s records. The giving of notice shall be deemed to have been waived by any director who shall attend and participate in such meeting and may be waived, in a writing, by any director either before or after such meeting.

Section 11. Compensation. The directors, as such, shall be entitled to receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board, and expenses of attendance, if any, may be allowed for attendance of each annual, regular or special meeting of the board. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of the executive committee or of any standing or special committee may by resolution of the board be allowed such compensation for their services as the board may deem reasonable, and additional compensation may be allowed to directors for special services rendered.

Section 12. By-laws. For the government of its actions, the board of directors may adopt by-laws consistent with the Articles of Incorporation and these Regulations.

Section 13. Notification of Nominations. Subject to the rights of the holders of any class or series of stock of the corporation having a preference over the Common Shares as to dividends or upon liquidation to elect directors under specified circumstances, nominations for the election of directors may be made only by the Board of Directors or a committee of the Board of Directors or, subject to this Section 13, by any shareholder of record entitled to vote in the election of directors generally. A shareholder of record entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting of shareholders only if written notice of such shareholder’s intent to make such nomination(s) has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation and has been received by the Secretary of the corporation on or before the following dates, as applicable: (i) with respect to an election to be held at an annual meeting of shareholders, not less than 60 days, nor more than 90 days, in advance of the first anniversary of the immediately preceding year’s annual meeting, or (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. For purposes of this Section 13, notice shall be deemed to be first given to shareholders when disclosure of such date is first made in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

Each such notice shall set forth the following information, together with a representation as to the accuracy of the information, as to (i) each shareholder that holds of record shares of the corporation entitled to vote at the annual meeting of shareholders (the “Record Shareholder(s)”) who is making the nomination(s) and, (ii) if any shareholder making any nomination(s) holds shares of the corporation for the benefit of another, the beneficial owner(s) on whose behalf each nomination is made (the “Beneficial Owner(s)”) (Record Shareholder(s) and Beneficial Owner(s) are hereinafter referred to as “Holder(s)”):

(a) the name and address (as they appear on the corporation’s stock records) of the shareholder who intends to make the nomination(s), and, if applicable, the name and address of the Beneficial Owner(s) on whose behalf such shareholder is making the nomination(s);

(b) a representation that the nominating shareholder is a holder of record of shares of the corporation or holds shares for the benefit of another, who is entitled to vote at such meeting, and that such nominating shareholder intends to (i) appear in person or by proxy at the meeting; and (ii) nominate the person(s) specified in the notice in person or through a representative;

(c) the name, address and principal occupation or employment of each person to be so nominated;

(d) a description of all arrangements or understandings between the nominating shareholder and each nominee and any other person(s) or entity(ies) (naming each such person or entity) pursuant to which the nomination(s) are to be made by the shareholder;

(e) such other information regarding each nominee proposed by such nominating shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, as then in effect, had the nominee been nominated, or intended to be nominated, by the Board of Directors;

(f) a description of all types of each Holder’s economic and voting interests in the corporation, including a description of:

(i) the class or series and number of shares of the corporation that, directly or indirectly, are owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by such Holder, and, to the extent (if any) in addition thereto, the number of shares of any class or series of the corporation as to which such Holder has a right, at that time or at any time in the future, to own of record or acquire beneficial ownership;

(ii) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Holder, the purpose or effect of which is to give such Holder economic risk similar to ownership of shares of, or voting power with respect to, any class or series of the corporation;

(iii) any proxy, agreement, arrangement, understanding or relationship pursuant to which such Holder has or shares a right to vote any shares of any class or series of the corporation;

(iv) any agreement, arrangement, understanding or relationship, including without limitation any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Holder, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Holder with respect to the shares of any class or series of the corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the corporation;

(v) any rights to dividends on the shares of any class or series of the corporation owned beneficially by such Holder that are separated or separable from the underlying shares of the corporation;

(vi) any performance-related fees (other than an asset-based fee) that such Holder is entitled to based on any increase or decrease in the price or value of shares of any class or series of the corporation or any interest described in subsections (ii) and (iv) of this Section 13(f);

(vii) the aggregate number of voting shares held or beneficially owned by all Holders that are subject to or referred to in this Section 13;

(viii) any proportionate interest in shares of the corporation or any interest described in subsection (ii) of this Section 13(f) that is held, directly or indirectly, by a general or limited partnership or limited liability company or similar entity in, or with respect to, which any Holder: is a general or limited partner; beneficially owns, directly or indirectly, an interest in a general or any limited partner of such general or limited partnership; or is a member or manager of, or beneficially owns, directly or indirectly, an interest in a member or manager of, such limited liability company or similar entity; and

(ix) any arrangements, rights or other interests described in Sections 13f(i) through 13f(viii) held by each Holder’s immediate family members;

(g) a representation regarding whether each Holder intends or is part of a group that intends to deliver a proxy statement and/or form of proxy to one or more holders of the corporation’s outstanding capital stock, and/or otherwise to solicit proxies from shareholders, in support of such nomination(s);

(h) any other information relating to each Holder that would be required to be disclosed by such Holder in a proxy statement or other filings required to be made in connection with solicitations by such Holder of proxies for such nomination(s) pursuant to Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder; and

(i) any other information reasonably requested by the corporation.

Such information shall be provided as of the date of the notice and shall be supplemented by the shareholder making the nomination(s) not later than 10 days after the record date for the meeting to disclose such ownership information as of the record date.

For the purpose of this Section 13, “immediate family members” shall include a person’s spouse, parents, stepparents, children, stepchildren, grandchildren, siblings, stepsiblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, anyone (other than domestic employees) who shares such person’s home, and shall include adoptive relationships; and “affiliates” shall include any corporation or organization of which such person is an officer, director, partner, manager or member or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities or other equity interests, any trust or estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and any other entity that controls, is controlled by, or is under common control with, the Holder. For the purposes hereof, “control” shall mean the right or power, alone or with others, to direct the management or policies of such other entity.

To be effective, each notice of intent to make a nomination given hereunder must be accompanied by the written consent of each such nominee to serve as a director of the corporation if elected.

The presiding officer at the meeting may refuse to acknowledge the nomination of any person or persons not made in compliance with the provisions hereof and may declare at such meeting that any such nomination was not properly brought before the meeting and shall not be considered.

This Section 13 shall constitute an “advance notice provision” for annual meetings of shareholders for the purposes of Rule 14a-4(c)(1) under the Securities Exchange Act of 1934.

ARTICLE III

Committees

Section 1. Executive Committee. The board of directors may from time to time, by resolution passed by a majority of the whole board, create an executive committee of three or more directors, the members of which shall be elected by the board of directors to serve during the pleasure of the board. If the board of directors does not designate a chairman of the executive committee, the executive committee shall elect a chairman from its own number. Except as otherwise provided herein and in the resolution creating an executive committee, such committee shall, during the intervals between the meetings of the board of directors, possess and may exercise all of the powers of the board of directors in the management of the business and affairs of the corporation, other than that of filling vacancies among the directors or in any committee of the directors. The executive committee shall keep full records and accounts of its proceedings and transactions. All action by the executive committee shall be reported to the board of directors at its meeting next succeeding such action and shall be subject to control, revision and alteration by the board of directors, provided that no rights of third persons shall be prejudicially affected thereby. Vacancies in the executive committee shall be filled by the directors, and the directors may appoint one or more directors as alternate members of the committee who may take the place of any absent member or members at any meeting.

Section 2. Meetings of Executive Committee. Subject to the provisions of these Regulations, the executive committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the board of directors, and it shall also meet at the call of the president, the chairman of the executive committee or any two members of the committee. Unless otherwise provided by such rules or by such resolutions, the provisions of Section 10 of Article II relating to the notice required to be given of meetings of the board of directors shall also apply to meetings of the executive committee. A majority of the executive committee shall be necessary to constitute a quorum. The executive committee may act in a writing, or by telephone with written confirmation, without a meeting, but no such action of the executive committee shall be effective unless concurred in by all members of the committee.

Section 3. Other Committees. The board of directors may by resolution provide for such other standing or special committees as it deems desirable, and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the board of directors. The provisions of Section 1 and Section 2 of this Article shall govern the appointment and action of such committees so far as consistent, unless otherwise provided by the board of directors. Vacancies in such committees shall be filled by the board of directors or as the board of directors may provide.

ARTICLE IV

Officers

Section 1. General Provisions. The board of directors shall elect a president, such number of vice presidents as the board may from time to time determine, a secretary and a treasurer and, in its discretion, a chairman of the board of directors. The board of directors may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine. The president, any vice president who succeeds to the office of the president, and the chairman of the board shall be, but the other officers need not be, chosen from among the members of the board of directors. Any two of such offices, other than that of president and vice president, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.

Section 2. Term of Office. The officers of the corporation shall hold office during the pleasure of the board of directors, and, unless sooner removed by the board of directors, until the organization meeting of the board of directors following the date of their election and until their successors are chosen and qualified. The board of directors may remove any officer at any time, with or without cause. A vacancy in any office, however created, shall be filled by the board of directors.

ARTICLE V

Duties of Officers

Section 1. Chairman of the Board. The chairman of the board, if one be elected, shall preside at all meetings of the board of directors and shall have such other powers and duties as may be prescribed by the board of directors.

Section 2. President. The president shall be the chief executive officer of the corporation and shall exercise supervision over the business of the corporation and over its several officers, subject, however, to the control of the board of directors. He shall preside at all meetings of shareholders, and, in the absence of the chairman of the board, or if a chairman of the board shall not have been elected, shall also preside at meetings of the board of directors. He shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments requiring his signature; and shall have all the powers and duties prescribed by Chapter 1701 of the Revised Code of Ohio and such others as the board of directors may from time to time assign to him.

Section 3. Vice Presidents. The vice presidents shall have such powers and duties as may from time to time be assigned to them by the board of directors or the president. At the request of the president, or in the case of his absence or disability, the vice president designated by the president (or in the absence of such designation, the vice president designated by the board) shall perform all the duties of the president and, when so acting, shall have all the powers of the president. The authority of vice presidents to sign in the name of the corporation certificates for shares and deeds, mortgages, bonds, agreements, notes and other instruments shall be coordinate with like authority of the president.

Section 4. Secretary. The secretary shall keep minutes of all the proceedings of the shareholders and board of directors and shall make proper record of the same, which shall be attested by him; shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments executed by the corporation requiring his signature; shall give notice of meetings of shareholders and directors; shall produce on request at each meeting of shareholders a certified list of shareholders arranged in alphabetical order; shall keep such books as may be required by the board of directors; and shall have such other powers and duties as may from time to time be assigned to him by the board of directors or the president.

Section 5. Treasurer. The treasurer shall have general supervision of all finances; he shall receive and have in charge all money, bills, notes, deeds, leases, mortgages and similar property belonging to the corporation, and shall do with the same as may from time to time be required by the board of directors. He shall cause to be kept adequate and correct accounts of the business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital and shares, together with such other accounts as may be required, and upon the expiration of his term of office shall turn over to his successor or to the board of directors all property, books, papers and money of the corporation in his hands; and shall have such other powers and duties as may from time to time be assigned to him by the board of directors or the president.

Section 6. Assistant and Subordinate Officers. The board of directors may appoint such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the board of directors, and perform such duties as the board of directors or the president may prescribe.

The board of directors may, from time to time, authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties, and to fix their compensation.

Section 7. Duties of Officers May be Delegated. In the absence of any officer of the corporation, or for any other reason the board of directors may deem sufficient, the board of directors may delegate, for the time being, the powers or duties, or any of them, of such officers to any other officer or to any director.

ARTICLE VI

Indemnification and Insurance

Section 1. Indemnification. The corporation shall indemnify each director, officer and employee and each former director, officer and employee of the corporation, and each person who is serving or has served at its request as a director, officer or employee of another corporation, against expenses, judgments, decrees, fines, penalties or amounts paid in settlement in connection with the defense of any past, pending or threatened action, suit or proceeding, criminal or civil, to which he was, is or may be made a party by reason of being or having been such director, officer or employee, provided a determination is made (i) by the directors of the corporation acting at a meeting at which a quorum consisting of directors who neither were nor are parties to or threatened with any such action, suit or proceeding is present, or (ii) by the shareholders of the corporation at a meeting held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation on such proposal or without a meeting by the written consent of the holders of shares entitling them to exercise two-thirds of the voting power on such proposal, that (a) such director, officer or employee was not, and has not been adjudicated to have been, negligent or guilty of misconduct in the performance of his duty to the corporation of which he is or was a director, officer or employee, (b) he acted in good faith in what he reasonably believed to be the best interest of such corporation, and (c) in any matter the subject of a criminal action, suit or proceeding, he had no reasonable cause to believe that his conduct was unlawful.

Expenses of each person indemnified hereunder incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding (including all appeals) or threat thereof, may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors, whether a disinterested quorum exists or not, upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such expenses unless it shall ultimately be determined that he is entitled to be indemnified by the corporation.

The foregoing rights of indemnification shall not be deemed exclusive of, or in any way to limit, any other rights to which any person indemnified may be, or may become, entitled apart from the provisions of this Article VI.

Section 2. Liability Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or designated agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or designated agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article or of Chapter 1701 of the Ohio Revised Code.

ARTICLE VII

Certificates for Shares; Uncertificated Shares

Section 1. Form and Execution. Except as provided in Section 2 hereof, certificates for shares, certifying the number of full-paid shares owned, shall be issued to each shareholder in such form as shall be approved by the board of directors. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer; provided however, that if such certificates are countersigned by a transfer agent and/or registrar the signatures of any of said officers and the seal of the corporation upon such certificates may be facsimiles, which are engraved, stamped or printed thereon. If any officer or officers, who shall have signed, or whose facsimile signature shall have been used, printed, engraved or stamped on any certificate or certificates for shares, shall cease to be such officer or officers, because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the corporation, such certificate or certificates, if authenticated by the endorsement thereon of the signature of a transfer agent or registrar, shall nevertheless be conclusively deemed to have been adopted by the corporation by the use and delivery thereof and shall be as effective in all respects as though signed by a duly elected, qualified and authorized officer or officers, and as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be an officer or officers of the corporation.

Section 2. Uncertificated Shares. The board of directors, subject to the immediately succeeding paragraph, may provide by resolution that some or all of any or all classes and series of shares of the corporation shall be uncertificated shares, provided that the resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the corporation and the resolution shall not apply to a certificated security issued in exchange for an uncertificated security. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner of the shares a written notice containing the information required to be set forth or stated on share certificates in accordance with all applicable laws. Except as expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.

Notwithstanding the foregoing provisions of this Section 2, a shareholder of record shall at all times have the right to receive one or more certificates for some or all of the shares held of record by such shareholder in accordance with Section 1 hereof by making a written request therefor to the corporation or any transfer agent for the applicable class of shares, accompanied by such assurances as the corporation or such transfer agent may require as to the genuineness of such request; provided, however, that shareholders holding shares of the corporation under one or more of the corporation’s benefit plans for officers, directors and/or employees shall have no such right to have certificates issued unless such a right is provided for under the applicable benefit plan or otherwise ordered by the board of directors or a committee thereof.

Section 3. Registration of Transfer. Any certificate for shares of the corporation shall be transferable in person or by attorney upon the surrender thereof to the corporation or any transfer agent for the class of shares represented by the certificate surrendered of a certificate, properly endorsed for transfer or accompanied by a duly endorsed stock power, together with such assurances as the corporation or such transfer agent may require as to the genuineness and effectiveness of each necessary endorsement or

executed stock power. Any uncertificated shares of the corporation shall be transferable in person or by attorney upon written request in form and substance acceptable to the corporation or any transfer agent for the applicable class of shares, accompanied by a duly endorsed stock power and/or such other assurances as the corporation or such transfer agent may require as to the genuineness and effectiveness thereof.

Section 4. Lost, Destroyed or Stolen Certificates. Subject to the provisions of Section 2 hereof, a new share certificate or certificates may be issued in place of any certificate theretofore issued by the corporation which is alleged to have been lost, destroyed or wrongfully taken upon (i) the execution and delivery to the corporation by the person claiming the certificate to have been lost, destroyed or wrongfully taken of an affidavit of that fact, specifying whether or not, at the time of such alleged loss, destruction or taking, the certificate was endorsed, and (ii) the furnishing to the corporation of indemnity and other assurances satisfactory to the corporation and to all transfer agents and registrars of the class of shares represented by the certificate against any and all losses, damages, costs, expenses or liabilities to which they or any of them may be subjected by reason of the issue and delivery of such new certificate or certificates or in respect of the original certificate.

Section 5. Registered Shareholders. A person in whose name shares are of record on the books of the corporation, whether such shares are evidenced by a certificate or are uncertificated, shall conclusively be deemed the unqualified owner and holder thereof for all purposes and to have capacity to exercise all rights of ownership. Neither the corporation nor any transfer agent of the corporation shall be bound to recognize any equitable interest in or claim to such shares on the part of any other person, whether disclosed upon any such certificate or otherwise, nor shall they be obliged to see to the execution of any trust or obligation.

ARTICLE VIII

Fiscal Year

The fiscal year of the corporation shall end on the 31st day of December in each year, or on such other date as may be fixed from time to time by the board of directors.

ARTICLE IX

Seal

The board of directors may provide a suitable seal containing the name of the corporation. If deemed advisable by the board of directors, duplicate seals may be provided and kept for the purposes of the corporation.

ARTICLE X

Amendments

These Regulations may be amended or repealed at any meeting of shareholders called for that purpose by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power of the corporation with respect to such proposal, except that the affirmative vote of the holders of record of shares representing 75% of the voting power of the corporation with respect to any such proposal shall be required to amend, alter, change or repeal Sections 1, 3, 4, 5 or 13 of Article II or this Article X.

EX-10.1

Exhibit 10.1

FIFTH AMENDMENT TO THE PROGRESSIVE CORPORATION

EXECUTIVE DEFERRED COMPENSTATION TRUST

(November 8, 2002 Amendment and Restatement)

THIS FIFTH AMENDMENT, dated as of the twenty-third day of January, 2009, by and between Fidelity Management Trust Company (the “Trustee”) and The Progressive Corporation (“Company”);

WITNESSETH:

WHEREAS, the Trustee and the Company heretofore entered into a Trust Agreement dated November 8, 2002, with regard to The Progressive Corporation Executive Deferred Compensation Trust (the “Trust”); and

WHEREAS, the Company has informed the Trustee that effective as of the close of business on January 23, 2009, the assets of the Fidelity Diversified International Fund, Fidelity Mid-Cap Stock Fund, FMA Small Company Portfolio-Investor Shares, PIMCO Total Return Fund-Administrative Class, and Templeton World Fund-Class A are frozen to new contributions and exchanges in; and

WHEREAS, the Company hereby directs the Trustee, in accordance with Section 5 and Subsection 8(g) of the Trust Agreement, as follows: (i) on January 23, 2009, to liquidate all participant balances held in the Fidelity Diversified International Fund at its net asset value on such day, and to invest the proceeds in the Fidelity Diversified International Fund - Class K at its net asset value on such day; (ii) to redirect all participant contributions directed to the Fidelity Diversified International Fund after January 23, 2009 to be invested in the Fidelity Diversified International Fund - Class K; and (iii) to permit no further investments in the Fidelity Diversified International Fund as an investment option for the Plan after January 23, 2009. The parties hereto agree that the Trustee shall have no discretionary authority with respect to this sale and transfer directed by the Company. Any variation from the procedure described herein may be instituted only at the express written direction of the Company; and

WHEREAS, the Company hereby directs the Trustee, in accordance with Section 5 and Subsection 8(g) of the Trust Agreement, as follows: (i) on January 23, 2009, to liquidate all participant balances held in the Fidelity Mid-Cap Stock Fund at its net asset value on such day, and to invest the proceeds in the Fidelity Mid-Cap Stock Fund - Class K at its net asset value on such day; (ii) to redirect all participant contributions directed to the Fidelity Mid-Cap Stock Fund after January 23, 2009 to be invested in the Fidelity Mid-Cap Stock Fund - Class K; and (iii) to permit no further investments in the Fidelity Mid-Cap Stock Fund as an investment option for the Plan after January 23, 2009. The parties hereto agree that the Trustee shall have no discretionary authority with respect to this sale and transfer directed by the Company. Any variation from the procedure described herein may be instituted only at the express written direction of the Company; and

WHEREAS, the Company hereby directs the Trustee, in accordance with Section 5 and Subsection 8(g) of the Trust Agreement, as follows: (i) on January 23, 2009, to liquidate all participant balances held in the PIMCO Total Return Fund - Administrative Class at its net asset value on such day, and to invest the proceeds in the PIMCO Total Return Fund - Institutional Class at its net asset value on such day; (ii) to redirect all participant contributions directed to the PIMCO Total Return Fund - Administrative Class after January 23, 2009 to be invested in the PIMCO Total Return Fund - Institutional Class; and (iii) to permit no further investments in the PIMCO Total Return Fund - Administrative Class as an investment option for the Plan after January 23, 2009. The parties hereto agree that the Trustee shall have no discretionary authority with respect to this sale and transfer directed by the Company. Any variation from the procedure described herein may be instituted only at the express written direction of the Company; and

WHEREAS, the Trustee and the Company now desire to amend said Trust Agreement as provided for in Section 12 thereof;

NOW THEREFORE, in consideration of the above premises, the Trustee and the Company hereby amend the Trust Agreement by:

(1) Amending the “investment options” section of Schedule “A” to add the following:

• Fidelity Diversified International Fund – Class K

• Fidelity Low-Priced Stock Fund – Class K

• Fidelity Mid-Cap Stock Fund – Class K

• PIMCO Total Return Fund – Institutional Class

• Vanguard Total Bond Market Index Fund – Institutional Shares

The Company hereby acknowledges that the Named Fiduciary has received from the Trustee via regular mail a paper copy of the prospectus for each Fidelity Class K Mutual Fund selected by the Named Fiduciary as a Plan investment option. The Named Fiduciary understands that the Fidelity Class K Mutual Fund prospectus(es) are not available at this time online at www.fidelity.com.

(2) Amending the “investment options” section of Schedule “A” to delete the reference to the “FMA Small Company Portfolio – Investor Shares” and replace it with “FMA Small Company Portfolio – Investor Shares (frozen to new contributions and exchanges in)”.

(3) Amending the “investment options” section of Schedule “A” to delete the reference to the “Templeton World Fund – Class A” and replace it with “Templeton World Fund – Class A (frozen to new contributions and exchanges in)”.

(4) Amending the Other section of Schedule “A” to add the following at the end:

* Participants may access a prospectus at http://www.401(k).com for any Mutual Fund available to the Plan.

(5) Effective after the close of business on January 23, 2009, amending the “investment options” section of Schedule “A” to delete the following:

• Fidelity Diversified International Fund

• Fidelity Mid-Cap Stock Fund

• PIMCO Total Return Fund – Administrative Class

IN WITNESS WHEREOF, the Trustee and the Company have caused this Fifth Amendment to be executed by their duly authorized officers effective as of the day and year first above written. By signing below, the undersigned represent that they are authorized to execute this document on behalf of the respective parties. Notwithstanding any contradictory provision of the agreement that this document amends, each party may rely without duty of inquiry on the foregoing representation.

THE PROGRESSIVE CORPORATION		FIDELITY MANAGEMENT TRUST COMPANY
By:	/s/ Charles E. Jarrett	By:	/s/ Stephanie Nick
Its	Authorized Signatory	Its	Authorized Signatory

EX-10.2

Exhibit 10.2

RESTRICTED STOCK AWARD AGREEMENT

(2009 Performance-Based Award)

This Agreement (“Agreement”) is made this <Grant Date> by and between <Participant Name> (“Participant”) and The Progressive Corporation (the “Company”).

1. Award of Restricted Stock. The Company hereby grants to Participant an award (the “Award”) of restricted stock (the “Restricted Stock”) consisting of <# of Shares> of the Company’s Common Shares, $1 Par Value (“Common Shares”), pursuant and subject to The Progressive Corporation 2003 Incentive Plan, as amended by the First Amendment to The Progressive Corporation 2003 Incentive Plan (collectively, the “Plan”).

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

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

a. Evaluation Period. The Evaluation Period shall be the <#>-year period comprised of the years <Calendar Years>.

b. Vesting. An Award, or portion of an Award, shall vest hereunder only if and when the Compensation Committee of the Board of Directors (the “Committee”) certifies (the “Certification Requirement”):

1. the extent to which the Company’s performance results have satisfied the performance criteria set forth in both subparagraphs (c) and (d) below; and

2. the corresponding number of Common Shares (if any) that have vested as a result of such performance.

Such certification shall occur as soon as practicable after the end of the Evaluation Period, but in any event must occur (if at all) on or before <expiration date> (the “Expiration Date”).

c. Profitability Requirement. No Award, or portion of an Award, shall vest hereunder unless the Company has achieved a combined ratio of 96 or less, determined in accordance with GAAP, for the twelve (12) consecutive fiscal months immediately preceding the date of the certification described in subparagraph (b) above (the “Profitability Requirement”).

d. Number of Shares Vesting. Provided that the Profitability Requirement and the Certification Requirement have both been satisfied, the number of Common Shares (if any) that vest hereunder will be determined as follows:

1. If the Company’s compounded annual rate of growth in direct premiums written for the Evaluation Period (“Company Growth Rate,” determined as provided below) exceeds the compounded annual rate of growth of the market as a whole for the Evaluation Period (“Market Growth Rate,” determined as provided below), by < Full Vesting Goal> percentage points or more, then the entire Award will vest;

2. If the Company Growth Rate exceeds <Partial Vesting Goal>, a portion of the Award (rounded up, if necessary, to the nearest whole number of Common Shares) will vest, according to the following calculation:

<Partial Vesting Formula>

The portion of the Award that will not vest under the foregoing calculation shall be immediately forfeited; and

3. If the Company Growth Rate is equal to or less than the <Minimum Vesting Requirement>, or if either the Profitability Requirement or the Certification Requirement has not been satisfied with respect to the Award on or before the applicable date provided for herein, none of the Award shall vest, and the Award shall be immediately forfeited;

4. For purposes of these determinations:

A. Subject to any adjustment(s) that may be required by subparagraphs (B), (C) or (D) below:

i. The Company Growth Rate will be the compounded annual rate of growth in direct premiums written during the Evaluation Period, determined by comparing (a) the annual aggregate direct premiums written by the Company in its Private Passenger Auto and Commercial Auto businesses for <Last Year of Evaluation Period>, as reported by A.M Best in its annual report currently know as the “A2 Report,” with (b) such direct premiums written by the Company for <Comparison Year> as reported in A.M. Best’s A2 Report; and

ii. The Market Growth Rate will be the compounded annual rate of growth in direct premiums written during the Evaluation Period, determined by comparing (a) the aggregate direct premiums written for the Private Passenger Auto market and the Commercial Auto market for <Last Year of Evaluation Period>, as reported in A.M. Best’s A2 Report, with (b) such direct premiums written for <Comparison Year> as reported in A.M. Best’s A2 Report;

B. If <Last Year of Evaluation Period> is a 53-week year under the Company’s fiscal calendar, then in determining the Company Growth Rate and the Market Growth Rate as set forth in subparagraph (A) above, the aggregate direct premiums written for such year will be reduced, for both the Company and the market as a whole, by an amount equal to twenty percent (20%) of the direct premiums written by the Company in fiscal December for such year in its Private Passenger Auto and Commercial Auto businesses, as determined from the Company’s records;

C. In making the calculations required hereunder, the Company Growth Rate and the Market Growth Rate shall each be rounded to the nearest one-thousandth of a whole percentage point (e.g., a growth rate of 2.376666% will be rounded to 2.377%); and

D. In the event that A.M. Best ceases to publish the A2 Report, or modifies the A2 Report in such a way as to render the comparisons required by this calculation to be not meaningful, in the Committee’s sole judgment, the determinations required above shall be made using such comparable Company and industry-wide data as may be then available from A.M. Best in any successor or replacement report or publication, or such comparable data as may be available from another nationally recognized provider of insurance industry data, in each case as the Committee may approve in its sole discretion.

e. Notwithstanding anything to the contrary contained herein, at the time of vesting or at any time prior thereto, the Committee, in its sole discretion, may reduce the number of Common Shares that otherwise would vest according to this Agreement, or eliminate the Award in full. The Committee may, in its sole discretion, treat individual participants differently for these purposes. Any such determination by the Committee shall be final and binding on the Participant. Under no circumstances shall the Committee have discretion to increase the number of Common Shares that are subject to the Award hereunder.

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

4. Expiration of Award. Notwithstanding anything to the contrary in this Agreement, if Participant’s rights in and to the shares of Restricted Stock granted hereunder have not vested in accordance with Section 3 of this Agreement on or before the Expiration Date, this Award shall expire at 11:59 p.m. on the Expiration Date. Upon such expiration, the Common Shares issued pursuant to this Agreement shall automatically be forfeited, and Participant shall have no further rights with respect thereto.

5. Manner In Which Shares Will Be Held. All shares of Restricted Stock awarded to Participant hereunder shall be issued in book-entry form and held by the Company, or its designee, in such form, and as such, no stock certificates evidencing such shares will be issued or held with respect to such Restricted Stock. Certain terms, conditions and restrictions applicable to such Restricted Stock will be noted in the records of the Company’s transfer agent and in the book-entry system. At the Company’s discretion, and subject to the provisions of this Paragraph 5, stock certificates evidencing the shares of Restricted Stock awarded under this Agreement may be issued and registered in the name of Participant. In such event, such certificates shall be delivered to and held in custody by the Company, or its designee, until the restrictions thereon shall have lapsed or any conditions to the vesting of such Award, or a portion thereof, have been satisfied, and such certificates shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award.

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

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

6. Rights of Shareholder; Restrictions on Cash Dividends. Except as otherwise provided in this Agreement or the Plan, Participant shall have, with respect to the shares of Restricted Stock awarded hereunder, all of the rights of a shareholder of the Company, including the right to vote the shares; provided, however, that notwithstanding the foregoing, Participant’s rights to receive cash dividends on the shares of Restricted Stock awarded hereunder (“Restricted Cash Dividends”) shall be subject to all the terms and conditions regarding vesting and forfeitability that apply to the shares of Restricted Stock to which such Restricted Cash Dividends relate, as set forth in the Plan and this Agreement, and Participant will be paid such Restricted Cash Dividends only if the Restricted Stock to which the Restricted Cash Dividends relate vests, and all restrictions with respect thereto lapse. In addition, such Restricted Cash Dividends shall be subject to the terms and conditions set forth in Section 5(b)(8) of the Plan.

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

8. Executive Deferred Compensation Plan. If Participant is eligible, and has made the appropriate election, to defer the Restricted Stock awarded hereunder into The Progressive Corporation Executive Deferred Compensation Plan (the “Deferral Plan”), upon vesting, the shares of Restricted Stock awarded hereunder shall be considered to be deferred pursuant to the Deferral Plan, subject to and in accordance with the terms and conditions of the Deferral Plan and any deferral agreement entered into by Participant thereunder.

9. Termination of Employment. Except as otherwise provided in the Plan or as determined by the Committee, if Participant’s employment with the Company is terminated for any reason other than death, Disability or Qualified Retirement, all Restricted Stock held by Participant which is unvested or subject to restriction at the time of such termination shall be automatically forfeited. Without limiting the foregoing, in the event that any such termination occurs after the end of the Evaluation Period but prior to the Committee’s certification as described in Section 3(b) above, the Restricted Stock shall be automatically forfeited hereunder.

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

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

Under no circumstances will Participant be entitled to satisfy any such additional withholding by surrendering shares of Restricted Stock which are then vesting or other Common Shares which have then been owned by Participant in unrestricted form for six months or less. In addition, under no circumstances will Participant be entitled to satisfy any Minimum Withholding Obligations or additional withholding hereunder by surrendering shares of Restricted Stock which are not then vesting or any Restricted Stock which Participant has elected to defer under Paragraph 8 hereof. All payments, surrenders of shares, elections or requests for approval hereunder must be made by Participant in accordance with such procedures as may be adopted by the Company in connection therewith, and subject to such rules as have been or may hereafter be adopted by the Committee with respect thereto.

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

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

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

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

Participant evidences his or her agreement with the terms and conditions of this Agreement, and his or her intention to be bound hereby, by electronically accepting the Award granted hereunder pursuant to the procedures adopted by the Company. Upon such acceptance by Participant, this Agreement will be immediately binding and enforceable against Participant and the Company.

THE PROGRESSIVE CORPORATION
By:	/s/ Charles E. Jarrett
	Vice President & Secretary

EX-31.1

Exhibit 31.1

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: May 11, 2009	/s/ Glenn M. Renwick
	Glenn M. Renwick
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian C. Domeck, 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: May 11, 2009	/s/ Brian C. Domeck
	Brian C. Domeck
	Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

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 March 31, 2009 (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

May 11, 2009

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATION

I, Brian C. Domeck, 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 March 31, 2009 (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/ Brian C. Domeck

Brian C. Domeck

Vice President and Chief Financial Officer

May 11, 2009

EX-99

Exhibit 99

The Progressive Corporation

Letter to Shareholders

First quarter 2009

We had two clear and critical imperatives for the first quarter: Meet or exceed underwriting targets and thus contribute healthy additions to our capital base; and Continue with our efforts to “de-risk” the portfolio, thereby reducing the effects of volatility in our capital position. We stepped-up and met the challenge, and while there remain qualifiers, our first quarter performance was a very respectable step in what we hope will be many to outperform in this uncertain economy.

The underwriting performance as a whole was exactly what was needed. A combined ratio just below 90 for the quarter produced $356 million in pretax profit. This solid performance was widely distributed by product and state.

After a period of reporting slow but positive growth in customers served, along with seeing the top line retreat due to reduced average premiums, it was satisfying to see a quarter where the growth in customers outpaced the average premium headwind allowing us to report small but positive premium growth – both written and earned.

While I characterized it as small, our growth of just 1% for the quarter is in fact a considerably bigger and very important story. Because of the challenging economic environment, we did not expect to see anything positive on the growth front from our Commercial Auto business and the negative 11% for the quarter was well within our expectations, and about as comfortable as you can be going backwards for the time being. With the season for our special lines products not yet in full swing, our growth story revolves around private passenger auto. Here the story is quite encouraging. Our year-over-year auto growth for the quarter was 3% for both written premium and policies in force. Our Agency auto business contributed -1% and -2% on the same basis – a considerable improvement over recent trends – and our Direct auto business similarly contributed 9% and 10%.

These measures all understate the more recent trends reflected during the quarter, and more visible in our March release. While recent commentary on growth has focused on the welcomed contribution from retention and that will never be off the radar, the significant increase in new prospects and sales have signaled a big change in market conditions. Agency new auto business is now at run rates similar to a year ago after seeing significant declines during the past twelve months. Our Direct channel, and more specifically Internet production, has experienced increases on a year-over-year basis that would run counter to the general lethargy of the economy. Positioning is everything, and Progressive’s growth has never come in a continuous straight line, but rather in a series of quantums. Maintaining and improving on our ability to manage growth in the slower times and capitalizing on opportunities has been a winning strategy. There is no guarantee that this is other than a blip, but if it’s not we are very prepared.

Theories on why we are seeing growth remain mostly that, but my pseudo science as I visit with Progressive employees tells me that many of us are becoming more cost conscious and looking for increased value with each and every expenditure. Even long-held relationships at established price points that previously just simply didn’t hit the pain threshold are now up for reevaluation. We believe this is also true for auto insurance, and the distribution of companies represented as the prior carrier for these new customers suggests the same, and that none is immune. Our research shows that consumers have clear brand perceptions and now is a good time to be seen as both credible and good value.

Most of our rate actions taken during the first quarter, across states and products, were slightly positive. Severity trends for claims have proven to be relatively mild, with perhaps the exception of personal injury protection in no-fault states. In addition, claims frequency is lower than for the prior year same period, but is slowly climbing from the low levels of last year’s third quarter. While my prior call for maximum vigilance in these market conditions still resonates, the first quarter was relatively normal.

In my recent letter to shareholders for 2008, I described the operating business as the protected asset, and suggested we would take actions to secure both our operating ability and growth opportunities. This rationale remains compelling as the first quarter of ‘09 extends the number of consecutive positive cash flow quarters to 101.

The quarter was active in every respect on the investment front – continued declines in valuations remained more normal than not, numerous government programs introduced new variables and some uncertainty, and late in the quarter equities showed some signs of improvement. The net, for us during the quarter was an active further reduction in our common equity holdings for the time being, a continuation of the rigor we have placed on our recognition of impairment to assets, and an increase in our allocation to cash and U.S. Treasury bonds.

We recognized an additional $223 million in other-than-temporary impairments, mostly in our bank preferred stocks, during this quarter, significantly reducing net income from an otherwise strong underwriting performance. Without even attempting to comment on what the “bottom” might be for asset valuations, we feel considerably better positioned as a result of our risk reduction actions, market-price-based valuation of our positions, and our underwriting prospects.

Our capital position strengthened during the quarter by close to $90 million, and sequentially over our February results by nearly $175 million. Using our previously outlined capital framework, this comfortably puts us several hundred million above what we consider to be appropriate and prudent capital levels.

Today, as we look ahead we see: current demand for our product that is in part, or size, unexpected but welcome; we see our new product offering –“Name Your Price^®” –about to go national in scope after nearly a year of promising rollout; we see increased confidence in our ability to maintain excellent claims quality at lower costs; we see a robust advertising campaign that continues to build momentum for our brand; we see meaningful customer retention, but recognize that we need to be ever mindful of customer satisfaction as our policyholders, too, consider options. Needless to say I’m looking forward to seeing how this script plays out.

Of course we always have our challenges. Selected markets that are not yet where we want them to be, our Commercial Auto growth will likely be less exciting for the immediate future, and we have more good ideas than ability to implement at the speed we would like. My number-one priority remains that we fully understand, successfully react to, and even anticipate the secondary effects of the many changes occurring in the competitive market and in the economy. Overall an outlook and a set of challenges that feel quite good and about right, for now.

Glenn M. Renwick

President and Chief Executive Officer