UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 20, 2012
THE PROGRESSIVE CORPORATION
(Exact name of registrant as specified in its charter)
| Ohio | 1-9518 | 34-0963169 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 6300 Wilson Mills Road, Mayfield Village, Ohio | 44143 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code 440-461-5000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On April 20, 2012, during The Progressive Corporation’s 2012 Annual Meeting of Shareholders, Glenn M. Renwick, the Company’s President and Chief Executive Officer, will comment on the first quarter 2012 operating results and provide an update on the status of the Company. A copy of Mr. Renwick’s prepared remarks is attached hereto as Exhibit 99.
Item 7.01 Regulation FD Disclosure.
See the information provided under Item 2.02 above and on the attached Exhibit 99.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits |
See exhibit index on page 4.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 20, 2012
| THE PROGRESSIVE CORPORATION | ||||||
| By: | /s/ Jeffrey W. Basch | |||||
| Name: | Jeffrey W. Basch | |||||
| Title: | Vice President and Chief Accounting Officer | |||||
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EXHIBIT INDEX
| Exhibit No. 601 |
Form 8-K Exhibit No. |
Description | ||
| 99 | 99 | Copy of the prepared remarks that Glenn M. Renwick, President and Chief Executive Officer of The Progressive Corporation, will present at the Company’s 2012 Annual Meeting of Shareholders on April 20, 2012 | ||
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Exhibit 99
The Progressive Corporation
Letter to Shareholders
First Quarter 2012
Our encouraging growth momentum of the fourth quarter last year carried over into 2012. At 7%, written premium growth for the first quarter was not quite as robust as the 8% generated in the fourth quarter, but still very encouraging. As many of our competitors struggle with growth and/or profitability, Progressive is positioned to take advantage of this challenging environment, but there are plenty of caution signs to be observed. Our best estimate of the industry growth for last year is around 1.5% with what we expect to be a combined ratio north of 100. We do not expect these industry figures to significantly change in the first quarter.
As encouraging as the growth story is, concerns over combined ratio, which came in at a very acceptable 94.1 for the quarter, are at the forefront of all our product managers’ minds, and few think we won’t have our work cut out to maintain the delicate balance between our desire to grow as fast as possible and our insistence on staying within the framework of our aggregate 96 combined ratio goal. Severity trends in most coverages are increasing and, while frequency trends are still generally favorable, it’s a dangerous combination that can change quickly. Our respect for these conditions is extremely high, especially when any safety net of excess margins has long since been removed. Equally, however, our opportunity to outperform is amplified under these market conditions.
A year-over-year comparison of net income doesn’t suggest the same positive tone, but does reflect the current market reality that our combined ratios for now will be more likely closer to our target 96 than 90. Our capital position remains very strong and investment results, measured by total return, so far this year are considerably ahead of last year at 3.3%. With over $1.3 billion in unrealized gains in our portfolio, comprehensive income, which for the quarter showed a healthy 17% increase over last year, provides a more meaningful measure of current performance.
Even from a windowless office, I would have known February and March were unseasonably warm months in much of the country simply by observing the motorcycle loss ratio. Clearly the early spring was a welcome relief to motorcyclists, who were robbed by so many rainy days last summer. Our
volume of new applications is strong, but so is early loss reporting – all part and parcel of this seasonally influenced business. New customers will add to our significant market presence in this product.
The encouraging second half of last year for our Commercial Auto products has also continued into this year, with double digit written premium growth for the quarter. We are starting to reclaim some of the lost ground on premium the economy stripped away from us since 2008. With rapid growth of any kind, the composition of a book of business is always changing and maintaining underwriting and pricing discipline is paramount and difficult. The first quarter would suggest that both are true and so far so good, with growth of 13% and a combined ratio of 92.4, but we are cautious of March’s results with a combined ratio over 100.
Our personal auto business’s combined ratio results are uncharacteristically about half a point higher than our pricing expectations through the first quarter. Several of our largest states are running a little hot, and we have already taken appropriate rate action to ensure longer-term margin health. Reflecting the increasing trends in severity, we experienced unfavorable reserve development in the quarter. In comparison to the same quarter last year, when we recognized favorable development, the combination of the two items largely reconciles the two calendar year results.
Our independent agent produced auto business had an excellent growth quarter, with new business growth of 8%, reflecting stronger conversion in the channel, along with modest renewal growth. Renewals in our Direct channel were very solid, and new business was up about 4% for the quarter, although essentially flat for March. There is, however, no shortage of advertising attempting to incite consumers to shop. With significant dollars chasing new business, it is essential that we have fresh and appealing messages to present the consumer with a compelling reason to show Progressive preference.
I wrote about one such reason extensively in the Annual Report to Shareholders – Snapshot®, our discount based on measured driving behavior. Each quarter, shipments of the monitoring device set new highs, suggesting strong, and getting stronger, consumer understanding and comfort with this trial.
Electing a Snapshot monitoring period post initial purchase to further distinguish yourself by your driving behaviors from the norms of the data available upon first quote is an appealing, no-lose consumer proposition. Further, this offering is completely consistent with our pricing and margin
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disciplines. Based on sessions with agents over the past month or two, I am as confident as ever that they too accept the proposition, but want to be sure it is “consumer safe” and are rapidly becoming satisfied it is. I look forward to their usage mirroring that of the higher acceptance in the Direct channel.
Name Your Price® is another attractive way to interact with the quoting process, ensuring your selection is the one that best fits your needs from the options and combinations of coverage available.
Adding to the messaging options are exciting new initiatives in mobile quoting and servicing and continued promotion of our Progressive Home Advantage® program, where we offer other companies’ home or renters’ policies bundled with a Progressive product.
Operationally, Progressive is currently very strong, well-staffed in most every area, and Net Promoter® Scores are all moving in the right direction, suggesting service quality continues to reflect our commitment to our customers. The claims organization has already absorbed several weather catastrophes as tornados seem to be following the unusual early weather patterns, all while producing great claims quality and customer experiences .
The current environment, where the markets start to harden and the industry faces significant profitability challenges, in sports jargon, feels more like the playoffs than the regular season. We know what we must do to win. More to follow…
Glenn M. Renwick
President and Chief Executive Officer
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this release 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 possible failure of one or more governmental entities to make scheduled debt payments or satisfy other obligations; the potential or actual downgrading of governmental, corporate, or other securities by a rating agency; 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, including, but not limited to, health care reform and tax law changes; 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 claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods.
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