10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

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)

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

Title of each class	Name of each exchange on which registered
Common Shares, $1.00 Par Value	New York Stock Exchange

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

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x  Yes    ¨  No

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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    x  No

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2012: $11,552,341,405

The number of the registrant’s Common Shares, $1.00 par value, outstanding as of January 31, 2013: 603,919,706

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2013, and the Annual Report to Shareholders for the year ended December 31, 2012, included as Exhibit 13 to this Form 10-K, are incorporated by reference in Parts I, II, III, and IV hereof.

INTRODUCTION

Portions of the information included in The Progressive Corporation’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2013 (the “Proxy Statement”) have been incorporated by reference herein and are identified under the appropriate items in this Form 10-K. The 2012 Annual Report to Shareholders (the “Annual Report”) of The Progressive Corporation and subsidiaries, which will be attached as an Appendix to the 2013 Proxy Statement, is included as Exhibit 13 to this Form 10-K. Cross references to relevant sections of the Annual Report are included under the appropriate items of this Form 10-K.

PART I

ITEM 1. BUSINESS

(a) General Development of Business

The Progressive insurance organization began business in 1937. The Progressive Corporation, an insurance holding company formed in 1965, currently has 54 subsidiaries, 1 mutual insurance company affiliate, and 1 limited partnership investment affiliate. Our insurance subsidiaries and mutual insurance company affiliate provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Our property-casualty insurance products protect our customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. Our non-insurance subsidiaries and limited partnership investment affiliate generally support our insurance and investment operations. We operate our businesses throughout the United States and sell personal auto insurance on an Internet-only basis in Australia.

(b) Financial Information About Segments

Incorporated by reference from Note 10 - Segment Information in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

(c) Narrative Description of Business

We offer a number of personal and commercial property-casualty insurance products primarily related to motor vehicles. Net premiums written were $16.4 billion in 2012, compared to $15.1 billion in 2011 and $14.5 billion in 2010. Our combined ratio, which we calculate by dividing the sum of our loss and loss adjustment expenses, policy acquisition costs, and other underwriting expenses, net of fees and other revenues, by our net premiums earned, was 95.6 in 2012, 93.0 in 2011, and 92.4 in 2010.

Organization

Auto insurance differs greatly by community because legal requirements and decisions vary by state and because, among other factors, traffic, law enforcement, cultural attitudes, insurance agents, medical services, and auto repair services vary by community. To respond to these local differences, we are organized as follows:

• Personal Lines – A Group President manages our Personal Lines business, which includes insurance for personal autos and special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, snowmobiles, and similar items):

• We currently write personal auto insurance in all 50 of the United States, the District of Columbia, and on an Internet-only basis in Australia. Our personal auto management group is organized by state into four geographic regions in the United States, plus a region for Australia. Each region is led by a general manager. We have a separate manager for our California Agency organization.

• We write the majority of our special lines products in all 50 states. Our special lines management group is organized by product and led by a general manager.

• Commercial Auto – A Group President manages our Commercial Auto business, which offers products in 49 states; we do not currently write Commercial Auto in Hawaii or the District of Columbia. The Commercial Auto business is organized by state, with product managers responsible for local implementation. These state-level managers are led by two regional directors who report to a general manager.

• Claims – A Group President manages our Claims business function, which is organized into four groups. Three of the groups are based on geographic region, and one is a countrywide group that provides various claims-related services, including catastrophe response and special investigations. Each group is headed by a general manager, and each handles both Personal Lines and Commercial Auto claims.

Our customer service groups, located at call centers in Mayfield Village, Ohio; Austin, Texas; Tampa, Florida; Sacramento, California; Tempe, Arizona; and Colorado Springs, Colorado, support our policy servicing, agency distribution, claims, and direct sales operations.

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Our executive management team sets policies and makes key strategic decisions. This team includes the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Investment Officer, Chief Information Officer, Chief Human Resource Officer, and Chief Marketing Officer, as well as our three Group Presidents (discussed above). The Group Presidents are responsible for the development and management of our product offerings and customer service processes that are tailored to the unique characteristics and purchasing preferences of customers who shop for and select our insurance products.

Personal Lines

Our Personal Lines segment writes insurance for personal autos and recreational and other vehicles. This business generally offers more than one program in a single state, with each program targeted to a specific distribution channel, market, or customer group. The Personal Lines business accounted for approximately 90% of total net premiums written during each of the last three years. Our strategy is to be a competitively priced provider of a full line of auto insurance products with distinctive service, distributed through whichever channel the customer prefers. Volume potential is driven by our price competitiveness, brand recognition, service quality, and the actions of our competitors, among other factors. See “Competitive Factors” on page 5 of this report for further discussion.

We ranked fourth in market share in the U.S. private passenger auto market for 2011 based on net premiums written and believe that we held that position for 2012. There are approximately 340 competitors in this market. Progressive and the other leading 13 private passenger auto insurers, each of which writes over $2.0 billion of premiums, comprise about 75% of this market. For 2011, the industry net premiums written for private passenger auto insurance in the United States was $163.0 billion, and our share of this market was approximately 8.2%, compared to $160.1 billion and 7.9% in 2010, respectively; comparable industry data is not available for 2012 at this time. All industry data, including ranking and market share, was obtained directly from data reported by either SNL Financial or A.M. Best Company, Inc. (“A.M. Best”), or was estimated using A.M. Best data as the primary source.

The Personal Lines segment consists of our personal auto insurance products, as well as our special lines products.

• Personal auto insurance represented approximately 90% of our total Personal Lines net premiums written for each of the last three years. This business includes Snapshot^®, our usage-based insurance product, which is available to consumers through both the Agency and Direct channels in 38 states and the District of Columbia and to consumers in 5 more states in our Direct channel only; continued expansion is planned for 2013, depending on regulatory approval and business results.

• Special lines products include insurance for motorcycles, ATVs, RVs, mobile homes, watercraft, snowmobiles, and similar items, and represent about 10% of our Personal Lines business. Due to the nature of these products, we typically experience higher losses during the warmer weather months. Our competitors are specialty companies and large multi-line insurance carriers. Although industry figures are not available, based on our analysis of this market, we believe that we are one of the largest participants in the specialty personal lines market, and that we have been the market share leader for the motorcycle product since 1998. We also offer a personal umbrella insurance product in 32 states through certain independent agents and to Direct customers via telephone.

Our Personal Lines products are sold through both the agency and direct channels:

• The Agency business includes business written by our network of more than 35,000 independent insurance agencies located throughout the United States, including brokerages in New York and California. These independent insurance agents and brokers have the ability to place business with Progressive for specified insurance coverages within prescribed underwriting guidelines, subject to compliance with company-mandated procedures. Our guidelines prescribe the kinds and amounts of coverage that may be written and the premium rates that may be charged for specified categories of risk. The agents and brokers do not have authority on behalf of Progressive to establish underwriting guidelines, develop rates, settle or adjust claims, or enter into other transactions or commitments. The Agency business writes insurance through strategic alliance business relationships with other insurance companies, financial institutions, and national agencies. The total net premiums written through the Agency business represented 56% of our Personal Lines volume in 2012, compared to 57% in 2011 and 58% in 2010.

• The Direct business includes business written directly by us online, via mobile devices, and over the phone. The Direct business represented 44% of our Personal Lines volume in 2012, compared to 43% in 2011 and 42% in 2010.

Commercial Auto

The Commercial Auto business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses and represented approximately 10% of our total net premiums written during each of the last three years. The

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majority of our Commercial Auto customers insure two or fewer vehicles. The Commercial Auto business, which is primarily distributed through the independent agency channel, operates in the following business market targets:

• Business auto – autos, vans, and pick-up trucks used by small businesses, such as retailing, farming, services, and private trucking

• For-hire transportation – tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses and non-fleet long-haul operators

• Contractor – vans, pick-up trucks, and dump trucks used by small businesses, such as artisans, heavy construction, and landscapers/snowplowers

• For-hire specialty – dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-type businesses, and

• Tow – tow trucks and wreckers used in towing services and gas/service station businesses.

Business auto is the largest business market target, measured by premium volume, and accounts for approximately one third of our total Commercial Auto premiums, while the for-hire transportation and contractor business market targets each account for another 25%. Business auto and contractor each account for approximately one third of the vehicles we insure in this business, while for-hire transportation accounts for about 15%. Although the Commercial Auto business differs from Personal Lines auto in its customer bases and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service.

There are approximately 340 competitors in the total commercial auto market. We primarily compete with about 31 other large companies/groups, each with over $130 million of commercial auto premiums written annually. These leading commercial auto insurers comprise about 75% of this market. Our Commercial Auto business ranked third in the commercial auto insurance market for 2011, and we believe that we will rank second for 2012.

Other Indemnity

Our other indemnity businesses consist of managing our run-off businesses, including the run-off of our professional liability business, which was sold in 2010. Pursuant to our agreement with the purchaser of this business, from the date of sale through April 30, 2012, we continued to write these policies, principally directors and officers liability insurance for community banks, which were 100% reinsured. The sale of this business did not have a material effect on our financial condition, results of operations, or cash flows.

Service Businesses

Our service businesses, which represent less than 1% of our total revenues and do not have a material effect on our operations, primarily include:

• Commercial Auto Insurance Procedures/Plans (CAIP) – We are the only servicing carrier on a nationwide basis for CAIP, which are state-supervised plans servicing the involuntary market in 42 states and the District of Columbia. As a service provider, we provide policy issuance and claims adjusting services and collect fee revenue that is earned on a pro rata basis over the terms of the related policies. In 2010, we reached an agreement with AIPSO (the national organization responsible for administering the involuntary insurance market) under which we will receive a supplemental fee, when necessary, to satisfy a minimum servicing fee requirement; this agreement is scheduled to expire on August 31, 2014. We cede 100% of the premiums and losses to the plans. Reimbursements to us from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations, or cash flows.

• Commission-Based Businesses – We have two commission-based service businesses.

Through Progressive Home Advantage^®, we offer, either directly or through our network of independent agents, new and existing Agency and Direct customers home, condominium, and renters insurance written by unaffiliated homeowner’s insurance companies. Progressive Home Advantage is not available to customers in Florida and Alaska. For the policies written under this program in our Direct business, we receive commissions, all of which are used to offset the expenses associated with maintaining this program.

Through Progressive Commercial Advantage^SM, we offer our customers the ability to package their auto coverage with other commercial coverages that are underwritten by four unaffiliated insurance companies or placed with other companies through an unaffiliated agency. This program offers general liability and business owners policies in the 49 states where we write commercial auto insurance and workers’ compensation coverage in 14 states as of December 31, 2012. We receive commissions for the policies written under this program, all of which are used to offset the expenses associated with maintaining this program.

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Claims

We manage our claims handling on a companywide basis through approximately 280 claims offices located throughout the United States. In addition, we have in operation 54 service centers, in 41 metropolitan areas across the country, that provide our concierge level claims service, of which 14 have combined our claims offices and service centers to improve our efficiency. If a customer elects to repair their vehicle through this option, these service centers provide end-to-end resolution for auto physical damage losses. Customers can choose to bring their vehicles to one of these sites, where they can pick up a rental vehicle. Our representatives will then select a qualified repair shop, arrange the repair, including pick-up and delivery of the vehicle, and inspect the vehicle once the repairs are complete. We also guarantee the repairs for as long as the customer owns or leases their car. If a customer decides not to repair their vehicle, our representatives will write an estimate and the customer can receive payment on the spot. This innovative approach to the vehicle repair process increases consumer satisfaction and our productivity and improves the cycle time in comparison to our other claims settlement processes.

Competitive Factors

The automobile insurance and other property-casualty markets in which we operate are highly competitive. Property-casualty insurers generally compete on the basis of price, agent commission rates, consumer recognition and confidence, coverages offered and other product features, claims handling, financial stability, customer service, and geographic coverage. Vigorous competition is provided by large, well-capitalized national companies in both the Agency and Direct channels, and by smaller regional insurers. In the Agency channel, some of our competitors have broad distribution networks of employed or captive agents. With widely available comparative rating services, consumers can easily compare prices among competitors. Many competitors invest heavily in advertising and marketing efforts and/or expanding their online service offerings. Over the past decade, these changes have further intensified the competitive nature of the automobile and other property-casualty insurance markets in which we operate.

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

Competition in our insurance markets is affected by the pace of technological developments. An insurer’s ability to innovate, develop, and implement new applications and other technology can affect its competitive position. In addition, there has been a proliferation of patents related to new ways in which vehicle insurance is being offered, sold, and serviced. We have six U.S. patents, and additional U.S. patent applications pending, with respect to certain methods, systems, and devices related to usage-based insurance. Certain of these patent rights expire on or about January 29, 2016, while others extend well beyond that date. We also have a significant amount of “know-how” developed from years of experience with, and data derived from over 5 billion miles related to usage-based insurance. We believe this intellectual property provides us with a competitive advantage in the usage-based insurance market. During 2012, we began to pursue ways in which to leverage this intellectual property. Currently, we do not expect these activities to have a material effect on our operations, results of operations, or financial condition in the current fiscal year. We also hold a U.S. patent (expiring June 2021), and a U.S. patent application pending, on our innovative approach to the vehicle repair service described above and two patents (expiring July 2019), and additional patents pending, related to our online policy self-service technology.

State Insurance Licenses

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

Insurance Regulation 

Progressive’s insurance subsidiaries are generally subject to regulation and supervision by insurance departments of the jurisdictions in which they are domiciled or licensed to transact business. At least one of our insurance subsidiaries is licensed and subject to regulation in each of the 50 states and the District of Columbia. The nature and extent of such regulation and supervision varies from jurisdiction to jurisdiction. Generally, an insurance company is subject to a higher degree of regulation and supervision in its state of domicile. Progressive’s insurance subsidiaries and its mutual insurance company affiliate are domiciled in the states of Indiana, Louisiana, Michigan, New Jersey, New York, Ohio, Texas, and Wisconsin. In addition, California and Florida treat certain Progressive subsidiaries as domestic insurers for certain purposes under their “commercial domicile” laws.

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State insurance laws impose numerous requirements, conditions, and limitations on the operations of insurance companies. Insurance departments have broad regulatory powers relating to those operations. Regulated areas include, among others:

• Licensing of insurers and agents

• Capital and surplus requirements

• Statutory accounting principles specific to insurance companies and the content of required financial and other reports

• Requirements for establishing insurance reserves

• Investments

• Acquisitions of insurers and transactions between insurers and affiliates

• Limitations on rates of return or profitability

• Rating criteria, rate levels, and rate changes

• Insolvencies of insurance companies

• Assigned risk programs

• Authority to exit a business, and

• Numerous requirements relating to other areas of insurance operations, including: required coverages, policy forms, underwriting standards, and claims handling.

Insurance departments are authorized to conduct periodic and other examinations of regulated insurers’ financial condition and operations to monitor the financial stability of the insurers and to ensure adherence to statutory accounting principles and compliance with state insurance laws and regulations. In addition, in some states, the attorney general’s office may exercise certain supervisory authority over insurance companies and, from time to time, may investigate certain insurance company practices.

Insurance departments establish and monitor compliance with capital and surplus requirements. Although the ratio of writings to surplus that the regulators will allow is a function of a number of factors (including applicable law, the type of business being written, the adequacy of the insurer’s reserves, and the quality of the insurer’s assets), the annual net premiums that an insurer may write have historically been perceived to be limited to a specified multiple of the insurer’s total surplus, generally 3 to 1. Thus, the amount of an insurer’s statutory surplus, in certain cases, may limit its ability to grow its business. At year-end 2012, we had net premiums written of $16.4 billion and statutory surplus of $5.6 billion. The combined premiums-to-surplus ratio for all Progressive insurance companies was 2.9 to 1. In addition, as of December 31, 2012, we had access to $1.4 billion of securities held in a non-insurance subsidiary, portions of which could be contributed to the capital of our insurance subsidiaries to support growth as needed. The National Association of Insurance Commissioners (NAIC) also has developed a risk-based capital (RBC) program to enable regulators to identify and take appropriate and timely regulatory actions relating to insurers that show signs of weak or deteriorating financial condition. RBC is a series of dynamic surplus-related formulas that contain a variety of factors that are applied to financial balances based on the degree of certain risks, such as asset, credit, and underwriting risks. Progressive’s RBC ratios are well in excess of minimum requirements.

Insurance companies are generally required to file detailed annual and other reports with the insurance department of each jurisdiction in which they conduct business. These reports include:

• the insurer’s financial statements under statutory accounting principles

• details concerning claims reserves held by the insurer

• specific investments held by the insurer, and

• numerous other disclosures about the insurer’s financial condition and operations.

State insurance laws and insurance departments also regulate investments that insurers are permitted to make. Limitations are placed on the amounts an insurer may invest in a particular issuer, as well as the aggregate amount an insurer may invest in certain types of investments. Certain investments are prohibited.

Insurance holding company laws enacted in many jurisdictions authorize insurance departments to regulate acquisitions of insurers and certain other transactions and to require periodic disclosure of specified information. These laws impose prior approval requirements for certain transactions between insurers and their affiliates and generally regulate dividend and other distributions, including loans and cash advances, between insurers and their affiliates. See the “Dividends” discussion in Item 5(c) herein for further information on these dividend limitations. The scope of insurance holding company regulation has expanded as states have adopted the revised model holding company act promulgated by the NAIC in 2010.

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

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to provide insurance to involuntary risks. These plans, through assessments, pass underwriting and administrative expenses on to insurers that write voluntary coverages in those states.

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

As mentioned above, insurance departments have regulatory authority over many other aspects of an insurer’s insurance operations, including coverages, forms, rating criteria, and rate levels. The ability to implement changes to these items on a timely basis is critical to our ability to compete effectively in the marketplace. Rate regulation varies from “use and file,” to “file and use,” to prior approval.

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

Regulation of insurance constantly changes as real or perceived issues and developments arise. Some changes may be due to economic developments, such as changes in investment laws made to recognize new investment products or to respond to perceived investment risks, while others reflect concerns about consumer privacy, insurance availability, prices, allegations of discriminatory pricing, underwriting practices, and solvency. In recent years, legislation, regulatory measures, and voter initiatives have been introduced, and in some cases adopted, which deal with use of non-public consumer information, use of credit information in underwriting and rating, insurance rate development, rate of return limitations, and the ability of insurers to cancel or non-renew insurance policies. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new Federal Insurance Office, which is required to collect information about the insurance industry and monitor the industry for systemic risk.

In addition to our U.S. operations, we write personal auto physical damage and property damage liability insurance in Australia through a branch of one of our U.S. insurance subsidiaries. This insurance is offered solely through the Internet. We do not write auto bodily injury liability or medical payment insurance in Australia. There are two primary agencies that regulate insurance in Australia: the Australian Securities and Investment Commission, which regulates customer disclosures, and the Australian Prudential Regulatory Authority, which regulates solvency. Both agencies enforce laws within their jurisdiction, issue regulations, take enforcement actions, and, in general, have broad regulatory powers. Progressive Direct Insurance Company has been issued licenses by both agencies and the licenses are in good standing.

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Statutory Accounting Principles

Our results are reported in accordance with GAAP, which differ in certain respects from amounts reported under statutory accounting principles (SAP) prescribed by insurance regulatory authorities. Certain significant differences are described below:

Category	GAAP Accounting	SAP Accounting
Acquisition Expenses	Commissions, premium taxes, and other variable costs incurred in connection with the successful acquisition of new and renewal business are capitalized and amortized pro rata over the policy term as premiums are earned.	Commissions, premium taxes, and all other acquisition expenses are expensed as incurred.
Non-admitted Assets	Premium receivables are reported net of an allowance for doubtful accounts.	Premium receivables over 90 days past due are “non-admitted,” which means they are excluded from surplus. For premium receivables less than 90 days past due, we also estimate a bad debt reserve.
	Furniture, equipment, application software, leasehold improvements, and prepaid expenses are capitalized and amortized over their useful lives or periods benefited.	Excluding computer equipment and operating software, the value of all other furniture, equipment, application software, leasehold improvements, and prepaid expenses, net of accumulated depreciation or amortization, is non-admitted against surplus. Computer equipment and operating software are capitalized, subject to statutory limitations based on surplus, and depreciated over three years.
	Deferred tax assets are recorded based on estimated future tax effects attributable to temporary differences. A valuation allowance would be recorded for any tax benefits that are not expected to be realized.	The accounting for deferred tax assets is consistent with GAAP, except for certain deferred tax assets that do not meet statutory requirements for recognition, which are non-admitted against surplus.
Reinsurance	Ceded reinsurance balances are shown as an asset on the balance sheet as “prepaid reinsurance premiums” and “reinsurance recoverables.”	Ceded unearned premiums are netted against the “unearned premiums” liability. Ceded unpaid loss and loss adjustment expense (LAE) amounts are netted against “loss and LAE reserves.” Only ceded paid loss and LAE are shown as a “reinsurance recoverables” asset.
Investment Valuation	Fixed-maturity securities, which are classified as available-for-sale, are reported at current fair values.	Fixed-maturity securities are reported at amortized cost or the lower of amortized cost or fair value, depending on the NAIC designation of the security.
	Preferred stocks, both redeemable and nonredeemable, are reported at fair values.	Redeemable preferred stocks are reported at amortized cost or the lower of amortized cost or fair value, depending on the NAIC designation of the security. Nonredeemable preferred stocks are reported at quoted fair value, consistent with GAAP.
Federal Income Taxes	Federal tax expense includes current and deferred income taxes.	For income statement reporting, federal tax expense only includes the current tax provision. Deferred taxes are posted to surplus. SAP deferred tax assets are subject to certain limitations on admissibility.

Investments

Our approach to investment and capital management seeks to ensure that we have sufficient capital to support all of the insurance premiums that we can profitably write. Our portfolio is invested primarily in short-term and intermediate-term, investment-grade fixed-income securities. Our investment portfolio had a fair value of $16.5 billion at December 31, 2012, compared to $16.0 billion at December 31, 2011. Investment income is affected by the variability of cash flows to or from the portfolio, shifts in the type and quality of investments in the portfolio, changes in yield, and other factors. Total investment income, including net realized gains (losses) on securities, before expenses and taxes, was $749.8 million in 2012, compared to $582.6 million in 2011 and $616.2 million in 2010. For more detailed discussion, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

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Employees

The number of employees, excluding temporary employees, at December 31, 2012 was 25,889, all of whom were employed by subsidiaries of The Progressive Corporation.

Liability for Property-Casualty Losses and Loss Adjustment Expenses

The consolidated financial statements include the estimated liability for unpaid losses and loss adjustment expenses (LAE) of Progressive’s insurance subsidiaries. Our objective is to ensure that total reserves (i.e., case reserves and incurred but not recorded reserves, or “IBNR”) are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. The liabilities for losses and LAE are determined using actuarial and statistical procedures and represent undiscounted estimates of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of future trends on claims settlement, among other factors. These estimates are continually reviewed and adjusted as experience develops and new information becomes known. Adjustments, if any, relating to accidents that occurred in prior years are reflected in the current year results of operations and are referred to as “development” of the prior year estimates. A detailed discussion of our loss reserving practices can be found in our “Report on Loss Reserving Practices,” which was filed with the Securities and Exchange Commission (SEC) on Form 8-K on August 7, 2012, as well as in section “V. Critical Accounting Policies” of our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report, which is included as Exhibit 13 to this Form 10-K. The accompanying tables present information concerning our property-casualty losses and LAE.

The following table provides a reconciliation of beginning and ending estimated liability balances for the last three years:

RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

(millions)	2012		2011			2010
Balance at January 1	$	7,245.8	$	7,071.0		$	6,653.0
Less reinsurance recoverables on unpaid losses		785.7		704.1			529.4
Net balance at January 1		6,460.1		6,366.9			6,123.6
Incurred related to:
Current year		11,926.0		10,876.8			10,451.7
Prior years		22.0		(242.0	)		(320.4	)
Total incurred		11,948.0		10,634.8			10,131.3
Paid related to:
Current year		7,895.3		7,289.3			6,841.0
Prior years		3,536.5		3,252.3			3,047.0
Total paid		11,431.8		10,541.6			9,888.0
Net balance at December 31		6,976.3		6,460.1			6,366.9
Plus reinsurance recoverables on unpaid losses		862.1		785.7			704.1
Balance at December 31	$	7,838.4	$	7,245.8		$	7,071.0

Our reserves developed unfavorably by $22.0 million in 2012 and favorably by $242.0 million and $320.4 million in 2011 and 2010, respectively, which is reflected as “Incurred related to prior years” in the table above. Total development consists of net changes made by our actuarial department on prior accident year reserves, based on regularly scheduled reviews, claims settling for more or less than reserved, changes in reserve estimates by claim representatives, and emergence of unrecorded claims at rates different than anticipated.

During 2012, unfavorable reserve development in our personal auto product was primarily attributable to reserve development in our Florida personal injury protection coverage (PIP) and an increase in our estimate of bodily injury severity for accident year 2011. In addition, unfavorable development in our Commercial Auto business reflects higher than anticipated frequency and severity costs on late emerging claims and higher settlements on large losses. This unfavorable development was partially offset by favorable reserve adjustments, primarily in our loss adjustment expense reserves and our personal auto bodily injury reserves for accident years 2009 and 2008.

In both 2011 and 2010, the favorable reserve development reflected the settlement of larger losses for amounts less than we originally reserved in our Personal Lines (primarily in our personal auto product) and Commercial Auto businesses. We also experienced lower than expected defense and cost containment costs, reflecting a combination of fewer claims being litigated, as well as the fact that a greater percentage of these cases are now being handled by our in-house counsel, which is a cost-effective alternative to using external law firms. In addition, for 2010, our IBNR reserves developed favorably due to lower severity and frequency of late emerging claims. However, in 2011, the number of late emerging claims increased over 2010 and was greater than anticipated by our carried IBNR, thus we recognized unfavorable development on our total IBNR reserves.

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In establishing loss reserves, we take into account projected changes in claim severity caused by anticipated inflation and a number of factors that vary with the individual type of policies written. These severities are projected based on historical trends adjusted for anticipated changes in underwriting standards, inflation, policy provisions, claims resolution practices, and general economic trends. These anticipated trends are reconsidered periodically based on actual development and are modified if necessary.

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

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ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(millions)
	2002		2003		2004		2005			2006			2007			2008			2009		2010		2011			2012
LIABILITY FOR UNPAID LOSSES AND LAE - GROSS	$	3,813.0	$	4,576.3	$	5,285.6	$	5,660.3		$	5,725.0		$	5,942.7		$	6,177.4		$	6,653.0	$	7,071.0	$	7,245.8		$	7,838.4
LESS: REINSURANCE RECOVERABLES ON UNPAID LOSSES		180.9		229.9		337.1		347.2			361.4			287.5			244.5			529.4		704.1		785.7			862.1
LIABILITY FOR UNPAID LOSSES AND LAE - NET1		3,632.1		4,346.4		4,948.5		5,313.1			5,363.6			5,655.2			5,932.9			6,123.6		6,366.9		6,460.1			6,976.3
PAID (CUMULATIVE) AS OF:
One year later		1,860.7		2,233.8		2,355.5		2,662.1			2,897.4			3,036.9			3,172.0			3,047.0		3,252.3		3,536.5
Two years later		2,688.9		3,148.1		3,430.6		3,931.0			4,240.4			4,361.4			4,427.8			4,348.4		4,724.0		0
Three years later		3,084.6		3,642.5		3,999.9		4,584.7			4,856.2			4,966.1			5,031.7			5,007.9		0		0
Four years later		3,291.6		3,873.0		4,269.6		4,839.1			5,121.9			5,227.5			5,314.7			0		0		0
Five years later		3,381.7		3,977.1		4,368.6		4,948.7			5,229.0			5,340.1			0			0		0		0
Six years later		3,416.7		4,012.5		4,419.2		4,995.6			5,282.1			0			0			0		0		0
Seven years later		3,428.7		4,034.4		4,445.7		5,023.7			0			0			0			0		0		0
Eight years later		3,440.7		4,047.3		4,459.8		0			0			0			0			0		0		0
Nine years later		3,449.7		4,054.9		0		0			0			0			0			0		0		0
Ten years later		3,455.2		0		0		0			0			0			0			0		0		0
LIABILITY RE-ESTIMATED AS OF:
One year later		3,576.0		4,237.3		4,592.6		5,066.2			5,443.9			5,688.4			5,796.9			5,803.2		6,124.9		6,482.1
Two years later		3,520.7		4,103.3		4,485.2		5,130.5			5,469.8			5,593.8			5,702.1			5,647.7		6,074.4		0
Three years later		3,459.2		4,048.0		4,501.6		5,093.6			5,381.9			5,508.0			5,573.8			5,575.0		0		0
Four years later		3,457.8		4,070.0		4,471.0		5,046.7			5,336.5			5,442.1			5,538.5			0		0		0
Five years later		3,475.4		4,073.7		4,475.5		5,054.6			5,342.8			5,452.8			0			0		0		0
Six years later		3,472.5		4,072.4		4,486.4		5,060.8			5,352.8			0			0			0		0		0
Seven years later		3,470.1		4,080.5		4,486.3		5,070.2			0			0			0			0		0		0
Eight years later		3,477.3		4,077.8		4,493.3		0			0			0			0			0		0		0
Nine years later		3,475.9		4,082.7		0		0			0			0			0			0		0		0
Ten years later		3,479.8		0		0		0			0			0			0			0		0		0
NET CUMULATIVE DEVELOPMENT FAVORABLE/ (UNFAVORABLE)	$	152.3	$	263.7	$	455.2	$	242.9		$	10.8		$	202.4		$	394.4		$	548.6	$	292.5	$	(22.0	)
PERCENTAGE2		4.2		6.1		9.2		4.6			0.2			3.6			6.6			9.0		4.6		(0.3	)
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - GROSS	$	3,756.0	$	4,459.6	$	4,999.5	$	5,675.4		$	6,001.3		$	6,117.9		$	6,203.5		$	6,286.4	$	6,855.8	$	7,296.6
LESS: RE-ESTIMATED REINSURANCE RECOVERABLES ON UNPAID LOSSES		276.2		376.9		506.2		605.2			648.5			665.1			665.0			711.4		781.4		814.5
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - NET1	$	3,479.8	$	4,082.7	$	4,493.3	$	5,070.2		$	5,352.8		$	5,452.8		$	5,538.5		$	5,575.0	$	6,074.4	$	6,482.1
GROSS CUMULATIVE DEVELOPMENT: FAVORABLE/ (UNFAVORABLE)	$	57.0	$	116.7	$	286.1	$	(15.1	)	$	(276.3	)	$	(175.2	)	$	(26.1	)	$	366.6	$	215.2	$	(50.8	)

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

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

The above table presents the development of balance sheet liabilities for losses and LAE from 2002 through 2011. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years for the property-casualty insurance subsidiaries only. This liability represents the estimated amount of losses and LAE for claims that were unpaid at the balance sheet date, including IBNR. The table also presents the re-estimated liability for unpaid losses and LAE on a gross and net basis, with separate disclosure of the re-estimated reinsurance recoverables on unpaid losses.

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The upper section of the table (labeled “Paid (Cumulative) as of:”) shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. The lower portion of the table (labeled “Liability Re-estimated as of:”) shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The re-estimated amount is the sum of the paid amounts above and the outstanding reserve for occurrences prior to the reserve date. The estimate is increased or decreased as more information about the claims becomes known for individual years. For example, as of December 31, 2012, our insurance subsidiaries had paid $4,054.9 million of the currently estimated $4,082.7 million of losses and LAE that had been unpaid at the end of 2003; thus, an estimated $27.8 million of losses incurred through 2003 remain unpaid as of the current financial statement date.

The “Net Cumulative Development” represents the aggregate change in the ultimate loss estimate over all prior years. For example, the 2002 liability has developed favorably by $152.3 million over ten years. That amount has been reflected in income over the ten years and had the largest impact on income in calendar year 2005. The effects on income during the past three years due to changes in estimates of the liabilities for losses and LAE are shown in the reconciliation table on page 9 as the “prior years” contribution to incurred losses and LAE.

In evaluating this information, note that each cumulative development amount includes the effects of all changes in amounts during the current year for prior periods. For example, the amount of the development related to losses settled in 2012, but incurred in 2009, will be included in the cumulative development amount for years 2009, 2010, and 2011. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it generally is not appropriate to extrapolate future development based on this table.

Our bodily injury severity change was much lower than we expected between 2002 and 2005; thus, the reserve run-off for these years was very favorable following the end of each year, or about 4% to 9% of our original carried amounts. The reserve development for 2006 and 2007 was less than 4% of our original carried reserves. For both 2008 and 2009, we experienced favorable reserve development of more than 6% of our original estimates, which reflects the decreases in severity we experienced in both our personal auto (about 4%) and Commercial Auto (about 6%) businesses through 2012. The favorable development of approximately 5% for 2010 also reflects lower severity estimates for both personal auto and Commercial Auto, but to a lesser extent than the previous two years. In 2011, we experienced very minimal unfavorable development, or less than 0.5% of our original estimate.

Although the detail is not presented in the table on page 11, we also re-estimate the reinsurance recoverables on unpaid losses each year. The top of the table shows the amount of reinsurance recoverables on unpaid losses that we had at the end of the calendar year, while the bottom shows the reserves re-estimated based on development in subsequent years. For example, at December 31, 2011, we estimated our reinsurance recoverables on unpaid losses to be $785.7 million. During 2012, these reserves developed unfavorably by $28.8 million, bringing the re-estimated reinsurance recoverables on unpaid losses to $814.5 million, as shown at the bottom of the table. Over the last ten years, we experienced unfavorable development in our reinsurance recoverables on unpaid losses. This development primarily reflects our claims organization’s continuing process of re-evaluating Michigan PIP claims that require lifetime reserve estimates. As a result, we increased both our direct reserves and corresponding reinsurance recoverables, since these claims are reinsured through the Michigan Catastrophic Claims Association (MCCA) state-mandated plan. The MCCA is funded through an assessment that insurance companies collect from policyholders in the state; therefore, our exposure to losses from the failure of this reinsurer is minimal.

The Analysis of Loss and Loss Adjustment Expenses Development table on page 11 is constructed from Schedule P, Part-1, from the Consolidated Annual Statements of Progressive’s insurance subsidiaries, as filed with the state insurance departments.

(d) Financial Information About Geographic Areas

We operate our businesses throughout the United States; we also sell personal auto physical damage insurance via the Internet in Australia. The amount of Australian revenues and assets is insignificant.

(e) Available Information

Our website is located at progressive.com. As soon as reasonably practicable, we make all documents that we file with, or furnish to, the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, available free of charge via our website at progressive.com/investors. These reports are also available on the SEC’s website: http://www.sec.gov.

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ITEM 1A. RISK FACTORS

Progressive’s business involves various risks and uncertainties, certain of which are discussed in this section. Management divides these risks into four broad categories in assessing how they may affect our financial condition and operating results, as well as our ability to achieve our business objectives:

• Insurance Risks – risks associated with assuming, or indemnifying for, the losses of, or liabilities incurred by, policyholders

• Operating Risks – the risks stemming from external or internal events or circumstances that directly or indirectly may affect our insurance operations

• Market Risks – changes in the value of assets held in our investment portfolios, which might result from a variety of factors impacting the investment marketplace generally, or the sectors, industries, or individual securities in which we have invested, and

• Credit Risks – the risks that a counterparty to a transaction will fail to perform according to the terms of a contract or that we will be unable to obtain capital when necessary or to pay or otherwise satisfy our obligations when due.

Although we have organized risks generally according to these categories in the discussion below, many of the risks may have ramifications in more than one category. For example, although presented as an Operating Risk below, governmental regulation of insurance companies also affects our investing and financing activities, which are addressed separately under Market Risks and Credit Risks below. These categories, therefore, should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential impact of the matters discussed.

It also should be noted that our business and that of other insurers may be adversely affected by a downturn in general economic conditions and other forces beyond our control. Issues such as unemployment rates, the number of vehicles sold, inflation or deflation, consumer confidence, and construction spending, among a host of other factors, will have a bearing on the amount of insurance that is purchased by consumers and small businesses. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any such risks or uncertainties, or any of the following risks or uncertainties, develop into actual events, we could experience a materially adverse effect on our business, financial condition, cash flows, or results of operations. In that case, the market price of our common shares or debt securities could decline materially.

This information is not all encompassing and should be considered carefully together with the other information contained in this report and in the other reports and materials filed by us with the Securities and Exchange Commission (“SEC”), as well as news releases and other information we publicly disseminate from time to time.

I. Insurance Risks

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

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

Pricing involves the acquisition and analysis of historical accident and loss data, and the projection of future accident trends, loss costs and expenses, and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets. Our ability to price accurately is subject to a number of risks and uncertainties, including, without limitation:

• the availability of sufficient, reliable data

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

• uncertainties inherent in estimates and assumptions, generally

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

• our ability to predict changes in operating expenses with reasonable accuracy

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

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

• our ability to implement rate changes and obtain any required regulatory approvals on a timely basis

• our ability to predict policyholder retention accurately

• unanticipated court decisions, legislation, or regulatory action

• the frequency and severity of catastrophic events, such as hurricanes, hail storms, other severe weather, and terrorist events

• our ability to understand the impact of ongoing changes in our claims settlement practices

• changing driving patterns

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• advancements in vehicle technology and safety features, such as accident prevention technologies or the development of autonomous or partially autonomous vehicles

• unexpected changes in the medical sector of the economy, including medical costs and systemic changes resulting from national or state health care laws or regulations, and

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

The realization of one or more of such risks may result in our pricing being based on inadequate or inaccurate data or inappropriate analyses, assumptions, or methodologies, and may cause us to estimate incorrectly future changes in the frequency or severity of claims. As a result, we could underprice risks, which would negatively affect our underwriting profit margins, or we could overprice risks, which could reduce our competitiveness and growth prospects. In either event, our operating results, financial condition, and cash flows could be materially adversely affected. In addition, underpricing insurance policies over time could erode the capital position of one or more of our insurance subsidiaries, thereby constraining our ability to write new business.

Our success depends on our ability to establish accurate loss reserves.

Our financial statements include loss reserves, which represent our best estimate of the amounts that the subsidiaries ultimately will pay on claims that have been incurred, and the related costs of adjusting those claims, as of the date of the financial statements. There is inherent uncertainty in the process of establishing property and casualty insurance loss reserves, which can arise from a number of factors, including:

• the availability of sufficient, reliable data

• the difficulty in predicting the rate and direction of changes in frequency and severity trends, including the effects of future inflation rates, in multiple markets

• unexpected changes in medical and auto repair costs

• unanticipated changes in governing statutes and regulations

• new or changing interpretations of insurance policy provisions and coverage-related issues by courts

• the effects of changes in our claims settlement practices

• our ability to recognize fraudulent or inflated claims

• the accuracy of our estimates regarding claims that have been incurred but not recorded as of the date of the financial statements

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

• the accuracy and timeliness of estimates of total loss and loss adjustment expenses as determined by our employees for different categories of claims.

As a result of these and other risks and uncertainties, the ultimate paid losses and loss adjustment expenses may deviate, perhaps substantially, from point-in-time estimates of such losses and expenses, as reflected in the loss reserves included in our financial statements. Consequently, ultimate losses paid could materially exceed reported loss reserves and have a materially adverse effect on our results of operations, liquidity, or financial position. Further information on our loss reserves can be found in the “Liability for Property-Casualty Losses and Loss Adjustment Expenses” discussion beginning on page 9 of this report, as well as our “Report on Loss Reserving Practices,” which was filed with the SEC on Form 8-K on August 7, 2012.

Our insurance operating results may be materially adversely affected by severe weather conditions or other catastrophic events.

Catastrophes can be caused by natural events, such as hurricanes, tornadoes, windstorms, floods, earthquakes, hailstorms, severe winter weather, and fires, or other events, such as explosions, terrorist attacks, riots, and hazardous material releases. The incidence and severity of such events are inherently unpredictable. Moreover, changing climate conditions, whether due to an increase in average temperatures (global climate change) or other causes, may increase how often severe weather events and other natural disasters occur and how much insured damage they cause.

The extent of insured losses from a catastrophe is a function of both our total net insured exposure in the area affected by the event and the nature and severity of the event. We use catastrophe modeling tools and third-party experts to help estimate our exposures to such events, but those tools and expert opinions are based on historical data and other assumptions that limit their reliability, and they may become even less reliable as climatic conditions change. As a result, our forecasting efforts may generate projections that prove to be materially inaccurate. An increase in the frequency or severity of catastrophes during a given period could materially adversely affect our financial performance, cash flows, and results of operations.

II. Operating Risks

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

We face vigorous competition from large, well-capitalized national and international companies, as well as smaller regional insurers. Other large national and international insurance or financial services companies also may enter these markets in the future. Many of these companies have substantial resources, experienced management, and strong marketing, underwriting, and

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pricing capabilities. The automobile insurance industry is a relatively mature industry, in which brand recognition, marketing skills, operational effectiveness (including, for example, rate and claim-paying accuracy, customer experience, and application of information technology), pricing, scale, and cost control are major competitive factors.

Our business focuses on insurance for personal autos and recreational vehicles and on commercial auto policies for small businesses, all of which are highly competitive markets. If our competitors offer similar insurance products at lower prices, offer such insurance products bundled with other products or services that we do not offer, or engage in other successful competitive initiatives, our ability to generate new business or to retain a sufficient number of our existing customers could be seriously compromised. In addition, due to our focus on the auto insurance market, we may be more sensitive than other insurers to trends that could affect auto insurance coverages and rates over time. For example, if governmental restrictions, economic conditions, demographic trends, changing driving patterns, rising gasoline prices, advancements in vehicle technology or safety features, or other factors, were to result in decreased auto insurance rates for an extended period, the automobile insurance market as a whole could shrink and our ability to generate revenue growth could be significantly impaired.

Historically, the auto insurance industry has been known as a cyclical industry, with periods of relatively strong profitability being followed by increased pricing competition among insurers. This price competition, which is sometimes referred to as a “soft market,” can adversely affect revenue and profitability levels. Unexpected increases in the insurers’ underlying costs (such as vehicle repair costs, medical costs, and the expenses to resolve claims) can reduce profits or result in underwriting losses. As the insurers recognize this situation (which can occur at different times for different companies, as a result of varying loss cost experiences and profitability goals), the historical reaction has been for insurers to raise their rates (sometimes referred to as a “hard market”) in an attempt to restore profit to acceptable levels. As more insurers react in this way, profit levels in the industry may increase to a point where some insurers begin to lower their rates, starting the cycle over again. In the past, this cycle has generally played out over a number of years. We cannot determine whether such cyclicality is currently impacting the auto insurance market, nor can we predict whether it will do so in the future.

The highly competitive nature of the insurance marketplace could result in the consolidation of our competition, or in the failure of one or more competitors. The concentration of premium volume in a reduced number of major competitors could significantly alter the competitive landscape in ways that cannot be predicted, but which may or may not be favorable for Progressive’s business prospects at that time. In addition, in the event of a failure of a major insurer or a state-sponsored catastrophic fund, we could be adversely affected, as our company and other insurance companies may be required under the laws of various jurisdictions to absorb the losses of the failed insurer or fund, and we could be faced with an unexpected surge in new business from a failed insurer’s former policyholders, which could strain our service capabilities in the near term.

Our success depends on the ability to innovate effectively, respond to our competitors’ initiatives, and efficiently manage complexity.

From time to time, we undertake strategic initiatives to maintain and improve our competitive position in auto insurance markets. Based on a culture that encourages innovation, these strategies at times involve significant departures from our, and/or our competitors’, then-current or historical modes of doing business, and must be instituted in the context of a complicated regulatory environment. These innovations also may require extensive modifications to our systems and processes, and thus may add to our costs and entail a high degree of complexity and risk, which makes their implementation a challenge. In addition, our efforts may disrupt our relationships with certain of our customers and producers (i.e., agents and brokers). Many of these initiatives are also implemented in cooperation with, or in reliance on, third-party vendors and their systems, which may further limit our control of implementation, quality, customer experiences, and successful outcomes. Our efforts ultimately may not achieve the business goals that we have set. Our ability to develop and implement such strategic initiatives that are accepted and valued by our customers and create a sustainable advantage is critical, however, to maintaining or enhancing our competitive position; if we fail to do so, or if we are unable to maintain the advantage over our competition, our business could be materially adversely affected.

At the same time, innovations by competitors or other market participants may increase the level of competition in the industry. These developments can include product, pricing, or marketing innovations, new or improved services, technological advances, or new modes of doing business that enhance the customer’s ability to shop and compare prices from multiple companies, among other initiatives. The growth in mobile communications and the prominence of social media as a source of information for consumers are recent examples of significant developments in the marketplace where we are committing substantial resources. Our ability to react to such advances, develop and maintain winning strategies, and then navigate the new competitive environment is important to our success.

The fast pace of change and innovation in our businesses, combined with ongoing technological, regulatory, and other developments, results in significant levels of complexity in our products and in the systems and processes we use to run our business. This complexity is compounded by the proliferation of patents related to new ways in which vehicle insurance is being marketed, sold, and serviced (e.g., mobile applications), which may result in challenges to certain of our business practices by third parties, including other insurance companies and non-insurance entities, alleging that we are violating their patent rights. Similarly, we may seek or obtain patent protection for innovations developed by us; enforcement of such patent rights through litigation, however, can be time consuming and is inherently uncertain, potentially complicating business plans related to these efforts. The complexity may create barriers to implementing or defending certain new ideas or providing high-quality products

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and customer experiences, may require us to modify our business practices, and may lead to the increased possibility of error in executing our business strategies, as well as difficult management decisions regarding the allocation of available resources (such as IT resources) for competing initiatives or projects. If we are unable to manage this complexity effectively, to bring new ideas to market, to allocate and prioritize appropriately our resources, or to prevent errors, our businesses could experience decreased ability to compete effectively for insurance business, poor experiences for customers, substantially increased costs, liability to third parties, regulatory investigations and sanctions, and damage to our brand.

We must develop and maintain a brand that is recognized and trusted by consumers.

It is critical to our business that consumers recognize and trust the Progressive brand. We undertake distinctive advertising and marketing campaigns and other efforts to improve brand recognition, generate new business, and increase the retention of our current customers. We believe that improving the effectiveness of our advertising and marketing campaigns relative to those of our competitors is particularly important given the significance of brand and reputation in the marketplace and the continuing high level of advertising and marketing efforts and related expenditures within the automobile insurance market. If our campaigns are unsuccessful or are less effective than those of competitors, or if our reliance on a particular spokesperson or character is compromised, our business could be materially adversely affected.

Our brand could also be adversely affected by incidents that reflect negatively on our company. These situations might include, among others, failing to protect sensitive customer information, systems failures, effects of cyber attacks (such as computer hacking, data theft, system disruption, and viruses and malware), errors in handling a customer’s policy, inappropriate handling of claims of policyholders or other parties, misconduct by our officers, directors or employees or others acting on our behalf, inability to service outstanding policies or write new business due to our systems failures or the failure of third-party systems that we use, facility shut-downs or other causes, litigation or regulatory actions challenging our business practices, and actions by our other business partners, including unaffiliated businesses through which we offer bundled products (such as homeowners insurance), and many of the other matters that are discussed in these Risk Factors. Moreover, the negative impacts of these or other events may be aggravated as the perceptions of consumers and others are formed based on modern communication and social media tools over which we have no control.

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

Our success depends on our ability to attract, develop, compensate, motivate, and retain talented employees, including executives and other key managers. Our loss of certain key officers and employees, or the failure to attract or develop talented executives and managers with diverse backgrounds and experiences, could have a materially adverse effect on our business.

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

Our success also depends, in large part, on our ability to maintain and improve the staffing effectiveness and employee culture that we have developed over the years. Our ability to do so may be impaired as a result of litigation against us, other judicial decisions, legislation or regulations, or other factors in the employment marketplace. In such events, the productivity of certain of our workers and the efficiency of our operations could be adversely affected, which could lead to an erosion of our operating performance and margins.

The Progressive Corporation and its insurance subsidiaries are subject to a variety of complex laws and regulations.

Progressive’s insurance businesses operate in highly regulated environments. Our insurance subsidiaries are subject to regulation and supervision by state insurance departments in all 50 states, the District of Columbia, and Australia, each of which has a unique and complex set of laws and regulations. In addition, certain federal laws impose additional requirements on businesses, including insurers, in a wide range of areas such as the use of credit information, privacy, and the reimbursement of certain medical costs incurred by the government. Our insurance subsidiaries’ ability to implement business plans and remain competitive while complying with these laws and regulations, and to obtain necessary regulatory action in a timely manner, is and will continue to be critical to our success.

Most jurisdictions impose restrictions on, or require prior regulatory approval of, various actions by regulated insurers, which may adversely affect our insurance subsidiaries’ ability to operate, innovate, and obtain necessary rate adjustments in a timely manner. Our compliance efforts are further complicated by changes in laws or regulations applicable to insurance companies, or by court-imposed interpretations of those laws or regulations, such as, in recent years, matters concerning the use of nonpublic consumer information and related privacy issues, the use of credit scoring in underwriting, procedures for settling claims with our insureds and claimants, and efforts to freeze, set, or roll back insurance premium rates or limit the rate of return that an insurance company may earn. Insurance laws and regulations may limit, among other things, our insurance subsidiaries’ ability to underwrite and price risks accurately, prevent our subsidiaries from obtaining timely rate changes to recognize increased or

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decreased costs, restrict our subsidiaries’ ability to discontinue unprofitable businesses or exit unprofitable markets, prevent insurers from terminating policies under certain circumstances, prescribe the form and content of certain disclosures and notices to policyholders, and dictate the types of investments that an insurance company may hold. Moreover, inconsistencies between requirements at the state and federal level may further complicate our compliance efforts, potentially resulting in additional costs being imposed on us. In addition, laws in certain jurisdictions mandate that insurance companies pay assessments in a number of circumstances, including assessments to pay claims upon the insolvency of other insurance companies or to cover losses in government-provided insurance programs for high risk auto and homeowners coverages. Compliance with laws and regulations often results in increased costs, which can be substantial, to our insurance subsidiaries. These costs, in turn, may adversely affect our profitability or our ability or desire to grow or operate our business in the applicable jurisdictions.

The actual or alleged failure to comply with this complex variety of laws and regulations by us or other companies in the insurance, financial services, or related industries, also could result in actions or investigations by regulators, state attorneys general, federal officials, or other law enforcement officials. Such actions and investigations, and any determination that we have not complied with an applicable law or regulation, could potentially lead to significant monetary payments, fines and penalties, adverse publicity and damage to our reputation in the marketplace, and in extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions. In addition, The Progressive Corporation and its subsidiaries could face individual and class action lawsuits by insureds and other parties for alleged violations of certain of these laws or regulations.

New legislation or regulations may be adopted in the future which could adversely affect our operations or ability to write business profitably in one or more jurisdictions. From time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. For example, the Federal Insurance Office (FIO) collects information about the insurance industry and monitors the industry for systemic risk. If the FIO were to recommend to the Financial Stability Oversight Council that Progressive or the insurance industry as a whole is “systemically significant,” we could be subject to additional regulation, and our businesses could be affected significantly. At this time, we are unable to predict whether any additional federal laws or regulations will be enacted and how and to what extent such laws and regulations would affect our businesses.

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

Our success depends on our ability to adjust claims accurately.

We must accurately evaluate and pay claims that are made under our insurance policies. Many factors can affect our ability to pay claims accurately, including the training, experience, and skill of our claims representatives, the extent of and our ability to recognize and respond to fraudulent or inflated claims, the claims organization’s culture and the effectiveness of its management, our ability to develop or select and implement appropriate procedures, technologies, and systems to support our claims functions, and the success of our concierge level claims services program. Our failure to pay claims fairly, accurately, and in a timely manner, or to deploy claims resources appropriately, could result in unanticipated costs to us, lead to material litigation, undermine customer goodwill and our reputation in the marketplace, and impair our brand image and, as a result, materially adversely affect our competitiveness, financial results, prospects, and liquidity.

Lawsuits challenging our business practices, and those of our competitors and other companies, are pending and more may be filed in the future.

The Progressive Corporation and/or its subsidiaries are named as defendants in class action and other lawsuits challenging various aspects of the subsidiaries’ business operations. Other such litigation may arise in the future concerning similar or other business practices. These lawsuits include cases alleging damages as a result of our subsidiaries’ use of credit in underwriting and related requirements under the U.S. Fair Credit Reporting Act; methods used for evaluating and paying certain bodily injury, personal injury protection, and medical payment claims; other claims handling procedures; challenges to our direct repair program and service center program; interpretations of the provisions of our insurance policies; and policy implementation and renewal procedures, among other matters. From time to time, we also may be involved in litigation or other disputes alleging that certain of our subsidiaries’ business practices or systems violate the patent, trademark, or other intellectual property rights of third parties. Additional litigation may be filed against us concerning our employment-related practices, allegations of medical or attorney malpractice, and other general liability causes of action arising from our operations. In addition, lawsuits have been filed, and other lawsuits may be filed in the future, against our competitors and other businesses, and although we are not a party to such litigation, the results of those cases may create additional risks for, and/or impose additional costs, and/or limitations on, our subsidiaries’ business operations.

Lawsuits against us often seek significant monetary damages and injunctive relief. The potential for injunctive relief can threaten our use of important business practices, including how vehicles are repaired and other claims are settled. Moreover, the resolution of individual or class action litigation in insurance or related fields may lead to a new layer of court-imposed regulation, resulting in material increases in our costs of doing business.

Litigation is inherently unpredictable. Except to the extent we have established reserves with respect to particular lawsuits that are currently pending against us, we are unable to predict the effect, if any, that these pending or any future lawsuits may have on our

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business, operations, profitability, or financial condition. For further information on pending litigation, see Note 12 – Litigation in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

Our business could be materially and adversely affected by a security breach or other attack involving our computer systems or the systems of one or more of our vendors.

Our business requires that we build and maintain large and complex computer systems to run our operations and to store the significant volume of data that we acquire, including the personal confidential information of our customers and employees and our intellectual property, trade secrets, and other sensitive business and financial information. These systems are subject to attacks by sophisticated third parties with substantial computing resources and capabilities. Such attacks may include, among other things, attempts to gain unauthorized access to:

• steal, corrupt, or destroy data

• misappropriate funds

• disrupt or shut down our systems

• deny customers or others access to our systems, or

• infect our systems with viruses or malware.

Similarly, an employee, consultant, agent, or other person with legitimate access to our systems may take actions, or be the subject of a security breach or cyber attack, which could result in improper or unauthorized access to our systems, and in the loss, corruption, or theft of our intellectual property or the personal information of our customers or employees.

We also conduct significant business functions and computer operations using the systems of third-party vendors, which may provide software, data storage, and other computer services to us (some of which may be referred to as “cloud computing”). These third-party systems may experience cyber attacks and other security breaches, along with the possible risk of loss, corruption, or unauthorized publication of Progressive’s information or the confidential information of our customers and employees. These relationships present further risk management challenges for us, including, among others: confirming and monitoring the third-party’s security measures; the potential for improper handling of or access to, or the inability to retrieve, our data; and data location uncertainty and the possibility of data storage in inappropriate jurisdictions, where laws or security measures may be inadequate.

We undertake substantial efforts to protect our systems and sensitive or confidential information. These efforts include internal processes and technological defenses that are preventative or detective, and other controls designed to provide multiple layers of security assurance. Examples include physical security measures, access and password policies, firewalls, systems monitoring, malicious code protection, network and host-based intrusion detection and prevention measures, data loss prevention measures, configuration assurance, data encryption, and event management, as well as third party intrusion vulnerability testing. In addition, we seek to assure the security and confidentiality of information provided to our vendors under “cloud computing” or other arrangements through appropriate risk evaluation, security and financial due diligence, contracts designed to set and maintain high security and confidentiality standards, and ongoing testing, auditing, and evaluation of third-party compliance with the required standards. While we expend significant resources on these defensive measures, there can be no assurance that we will be successful in preventing attacks or detecting and stopping them once they have begun.

Our business could be significantly damaged by a security breach, data loss or corruption, or cyber attack. In addition to the potentially high costs of investigating and stopping such an event and implementing necessary fixes, we could incur substantial liability if confidential customer information is stolen or if another party’s systems are adversely affected. In addition, such an event could cause a significant disruption of our ability to conduct our insurance operations, adversely affect our competitive position if material trade secrets or other confidential information are stolen, and have severe ramifications on our reputation and brand, potentially causing customers to refrain from buying insurance from us or other businesses to refrain from doing business with us. We have elected to self-insure these risks at this time. The occurrence of a security breach, data loss or corruption, or cyber attack, if sufficiently severe, could have a materially adverse effect on our business results, prospects, and liquidity.

We also rely heavily on credit card acceptance for payment of premiums and claims deductibles. Data security standards for merchants and service providers that accept credit card payments are prescribed by the Payment Card Industry Security Standards Council (PCI), an independent body formed by an association of the major credit card vendors. These standards are intended to promote a common set of data security measures that companies accepting credit card payments, such as Progressive, must satisfy with respect to the handling of sensitive information. While the PCI standards set a high bar for data security, compliance with them does not alone ensure that sensitive information will be maintained on a secure basis. In August 2012, an independent organization recognized by PCI for such purposes, recertified Progressive as being in compliance with the current PCI standards. The PCI data security standards, however, will likely evolve over time to address emerging payment security risks and other issues, requiring additional compliance efforts by us and annual recertification of our processes. Our intention is to maintain compliance with PCI’s data security standards. The failure to do so could result in contractual fines or disruption of our ability to receive credit card payments.

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Our business depends on the secure and uninterrupted operation of our facilities, systems, and business functions.

Our business is highly dependent upon our employees’ ability to perform, in an efficient and uninterrupted manner, necessary business functions (such as Internet support and 24-hour call centers), processing new and renewal business, and processing and paying claims and other obligations. Our facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including, without limitation, natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyber attacks (as discussed above), riots, hazardous material releases, medical epidemics, utility outages, interruptions of our data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. Likewise, we could experience a failure or corruption of one or more of our information technology, telecommunications, or other systems for various reasons, including failures that might occur as existing systems are replaced or upgraded.

The shut-down or unavailability of one or more of our systems or facilities for any reason could significantly impair our ability to perform critical business functions on a timely basis. In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions. This could result in a materially adverse effect on our business results, prospects, and liquidity, as well as damage to customer goodwill.

Our business is also highly dependent on access to, and the operation of, the financial markets and related facilities to provide us with the ability to liquidate securities and transfer or receive funds on a timely basis. Disruptions in financial markets, or an interruption or breakdown in the federal wire transfer systems, could limit our ability to meet payment obligations. A mismatch or timing difference between our cash inflows and our cash needs, or the inability to convert investment securities into cash when needed, could also adversely affect our ability to make timely payments.

III. Market Risks

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

Our investment portfolio is comprised principally of fixed-income securities and common equities. Our fixed-income portfolio is actively managed by our investment group and includes short-term investments, fixed-maturity securities, and preferred stocks. The performance of the fixed-income portfolio is subject to a number of risks, including:

• Interest rate risk – the risk of adverse changes in the value of fixed-income securities as a result of increases in market interest rates.

• Investment credit risk – the risk that the value of certain investments may decrease due to a deterioration in the financial condition, operating performance or business prospects of, or the liquidity available to, one or more issuers of those securities or, in the case of asset-backed securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss. In the case of governmental issuers, the risk includes the potential for unbalanced budgets, required austerity measures, debt defaults, or other social or political turmoil.

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

• Prepayment or extension risk – (applicable to certain securities in the portfolio, such as residential mortgage-backed securities) the risk that, as interest rates change, the principal of such securities may be repaid earlier than anticipated, or that a security may not be redeemed when anticipated, adversely affecting the value of, or income from, such securities and the portfolio by investing at less attractive rates.

• Liquidity risk – the risk that we will not be able to convert investment securities into cash on favorable terms and on a timely basis, or that we will not be able to sell them at all, when we desire to do so. Disruptions in the financial markets, or a lack of buyers for the specific securities that we are trying to sell, could prevent us from liquidating securities or cause a reduction in prices to levels that are not acceptable to us. Investments in securities that are not publicly traded are illiquid by their nature.

In addition, the success of our investment strategies and asset allocations in the fixed-income portfolio may vary depending on the market environment. The fixed-income portfolio’s performance also may be adversely impacted if, among other factors: there is a lack of transparency regarding the underlying businesses of the issuers of the securities that we purchase; credit ratings assigned to such securities by nationally recognized securities rating organizations are based on incomplete or inaccurate information or otherwise prove unwarranted; or our risk mitigation strategies are ineffective for the applicable market conditions.

The common equity portfolio is primarily managed by a third party to track the Russell 1000 Index, with a small portion actively managed by external investment advisory firms. Our equity investments are subject to general movements in the values of equity markets and to the changes in the prices of the securities we hold. An investment portfolio that is designed to track an index, such as the Russell 1000, or that follows a specific investment discipline, such as value investing, does not reduce the risks inherent in equity investing and is not necessarily less risky than other equity investment strategies. Equity markets, sectors, industries, and individual securities may be subject to high volatility and to long periods of depressed or declining valuations, and also may be

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subject to some of the same risks that affect our fixed-income portfolio, as discussed above. For example, a rapid rise in interest rates may cause equity prices to fall, particularly those of interest-sensitive companies. In addition, even though the Russell 1000 Index is broadly diversified, significant portions of the index may be concentrated in one or more sectors, such as the financial services industry, which may adversely affect the performance of our common equity portfolio if such a sector underperforms. A decline in the aggregate value of the equities that make up the index would be expected to result in a commensurate decline both in the value of our common equity portfolio and in our capital. Likewise, the actively managed equity portfolio will be subject to risks arising from the investment decisions of the investment advisors, including sector or industry concentrations, lack of geographic diversification, and the performance of individual issuers.

Both the fixed-income and the common equity portfolios are also subject to risks inherent in the nation’s and world’s capital markets. The functioning of those markets, the values of the investments we hold, and our ability to liquidate them when desired may be adversely affected if those markets are disrupted or otherwise affected by significant negative factors, including, without limitation:

• local, national, or international events, such as regulatory changes, power outages, system failures, wars, or terrorist attacks

• a recession, depression, political or social upheaval, or other development in either the U.S. or other economies that adversely affects the value of securities held in our portfolios

• financial weakness or failure of one or more financial institutions that play a prominent role in securities markets or act as a counterparty for various financial instruments, such as derivative transactions, which could further disrupt the markets or cause us to incur losses if counterparties to one or more of our transactions should default

• inactive markets for specific kinds of securities, or for the securities of certain issuers or in certain sectors, which could result in decreased valuations and impact our ability to sell a specific security or a group of securities at a reasonable price when desired

• the failure, or perceived failure, of governmental attempts to stabilize their budgets or economies through austerity programs, tax increases or other measures, to stabilize specific companies or groups of companies through capital injections, to shore up markets, or otherwise to spur economic recovery or growth, or the failure or refusal of a government to engage in such efforts

• investor fear, whether substantiated or not, causing the market to react irrationally

• a significant change in inflation expectations, or the onset of deflation or stagflation

• a default on sovereign debt, or the perception that such a default is likely, and

• a significant devaluation of governmental or private sector credit, currencies or financial markets, or other factors or events.

If the fixed-income or equity portfolios, or both, were to suffer a substantial decrease in value due to market, sector, or issuer-specific conditions, our liquidity, financial position, and financial results could be materially adversely affected. Under these circumstances, our income from these investments could be materially reduced, and declines in the value of certain securities could further reduce our reported earnings and capital levels. A decrease in value of an insurance subsidiary’s investment portfolio could also put the subsidiary at risk of failing to satisfy regulatory minimum capital requirements and could limit the subsidiary’s ability to write new business. If we, at that time, are unable to supplement the subsidiary’s capital from The Progressive Corporation’s other assets or by issuing debt or equity securities on acceptable terms, our business could be materially adversely affected.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report, which is included as Exhibit 13 to this Form 10-K, for additional discussion of the composition of our investment portfolio as of December 31, 2012, and of the market risk associated with our investment portfolio.

IV. Credit Risks

Our financial condition may be adversely affected if one or more parties with which we enter into significant contracts become insolvent, experience other financial difficulties, or default in the performance of contractual obligations.

Our business is dependent on the performance by third parties of their responsibilities under various contractual or service arrangements. These include, for example, contracts for the acquisition of goods and services (such as telecommunications and information technology facilities, equipment and support, and other systems and services that are integral to our operations), agreements with other insurance carriers to bundle products that we do not offer, and arrangements for transferring certain of our risks (including reinsurance used by us in connection with certain of our insurance products and our corporate insurance policies). In addition, from time to time, we enter into significant financial transactions, such as derivative instruments, with major banks or other financial institutions. If one or more of these parties were to default in the performance of their obligations under their respective contracts or determine to abandon or terminate support for a system, product, or service that is significant to our business, we could suffer significant financial losses and operational interruptions or other problems, which could in turn adversely affect our financial performance, cash flows, or results of operations and cause damage to our brand and reputation.

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Our insurance subsidiaries may be limited in the amount of dividends that they can pay to the holding company, which in turn may limit the holding company’s ability to pay dividends to shareholders, repurchase its securities, repay indebtedness, or make capital contributions to its other subsidiaries or affiliates.

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

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

• Insurance regulations restrict the amounts available for distribution based on either net income or surplus of the insurance company

• Competitive pressures require our insurance subsidiaries to maintain high financial strength ratings, or

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

Further information on insurance laws and regulations that may limit the ability of our insurance subsidiaries to pay dividends can be found in Item 5(c), “Dividends,” of this report.

If we fail to maintain sufficient capital to support our business, our financial condition and our ability to grow could be adversely affected.

We intend to maintain capital levels as necessary to pay all claims and other business expenses, to meet regulatory requirements, to support the growth of our insurance businesses, to provide for additional protection against possible large, unexpected losses, and to provide the necessary resources to pay dividends, repurchase stock or other securities, and fund corporate opportunities. The appropriate level of capital at any time is estimated by management based, in part, on current and anticipated business results and growth prospects, and projections of the levels of capital needed to protect us against unexpected events within a confidence level determined through our risk management process. The amount of capital that we seek to maintain also is driven by our assessment of potential exposures and correlations to our underwriting, investing, and operating risks, including those discussed in these Risk Factors. The estimates for unexpected events are internally produced and are the result of extensive analysis and modeling of the types and magnitude of risks that we are likely to face. While we regularly implement new measures to improve our techniques for estimating our capital needs, our ability to predict accurately the nature, size, and scope of unexpected events is inherently uncertain.

The amount of capital that we hold at any given time is determined by regulatory requirements and the performance of our insurance operations and investment results (including investment income, valuation changes in our portfolio, and the realization of any deferred tax benefits), as well as by our capital management activities, such as the payment of cash dividends, repurchases of our common shares and debt securities, the establishment of credit lines, and the issuance by us of debt, equity, or other securities. If we experience losses in our insurance operations or from our investment portfolio, our capital levels may be reduced, perhaps significantly. If our capital level falls lower than the amount needed at a given time, our ability to grow and successfully operate the insurance business could be constrained until additional sources of capital are secured. Such a deterioration of our financial condition could adversely affect the perception of our company by insurance regulators and other third parties (such as rating agencies, underwriters, institutional and other investors, and consumers), potentially resulting in regulatory actions or our inability to gain access to debt or equity markets at favorable rates, and the price of our common shares or debt securities could fall significantly.

In addition, the recoverability of certain of our deferred tax assets is predicated on the market valuation of our invested assets and certain tax planning strategies that, in part, depend on the substantial recovery to original cost of our fixed-income securities and redeemable preferred stocks. Should fair values of such securities decline or not substantially recover in value, a valuation allowance against the related deferred tax assets may become necessary, which would reduce our capital levels.

Our access to capital markets, ability to enter into new or renew existing financing arrangements, obligations to post collateral under certain derivative contracts, and business operations are dependent on favorable evaluations and ratings by credit and other rating agencies.

Our credit and financial strength are evaluated and rated by various rating agencies, such as Standard & Poor’s, Moody’s Investors Service, Fitch Ratings, and A.M. Best. Progressive and its insurance subsidiaries currently enjoy favorable, stable ratings. Downgrades in our credit ratings could adversely affect our ability to access the capital markets and/or lead to increased borrowing costs in the future (although the interest rates we pay on our current indebtedness would not be affected), as would adverse recommendations by equity analysts at the various brokerage houses and investment firms. Perceptions of our company by investors, producers, other businesses, and consumers could also be significantly impaired. In addition, a downgrade could trigger contractual obligations in certain derivative transactions requiring us to post substantial amounts of collateral, in cash or high-grade assets, for the benefit of the other party to the transaction. Downgrades in the ratings of our insurance subsidiaries

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could likewise negatively impact our operations, potentially resulting in lower or negative premium growth. In any such event, our financial performance could be materially adversely affected.

The Progressive Corporation’s annual dividend policy will result in a variable payment to shareholders each year, or no payment in some years, and the dividend program ultimately may be changed in the discretion of the Board of Directors.

We have previously announced our intention to pay a dividend to shareholders on an annual basis under a formula that multiplies our annual after-tax underwriting income by a percentage factor set by the Board of Directors (33-1/3% for 2012 and 2013) and then by the Gainshare factor (determined under our employee Gainsharing (cash bonus) plans based on the operating performance of our principal insurance businesses). If our Gainshare factor for the year is zero or after-tax comprehensive income (which includes net investment income, realized investment gains and losses, and the change in unrealized investment gains and losses) is less than after-tax underwriting income, no dividend will be paid under our annual variable dividend policy.

Because the dividend calculation is performance-based, the amount (if any) to be paid in any particular year may not be subject to accurate prediction and will likely vary, perhaps significantly, from the amounts paid in the preceding year(s). As a result, the amount paid may be inconsistent with some shareholders’ expectations. In addition, although we have announced our intent to repeat the annual dividend in 2013 (to be paid early in 2014), the dividend, if any, would not be declared by the Board until late 2013 or early 2014, and the Board retains the discretion, at any time, to alter our policy or not to pay the annual dividend for 2013 or future years. Such an action by the Board could result from, among other reasons, changes in the insurance marketplace, changes in our performance or capital needs, changes in U.S. federal income tax laws, disruptions of national or international capital markets, or other events affecting our liquidity or financial position as described above under “Investing Risks.” Any such change could adversely affect investors’ perceptions of the company and the value of, or the total return of an investment in, our common shares or debt securities.

We do not manage to short-term earnings expectations; our goal is to maximize the long-term value of the enterprise, which at times may adversely affect short-term results.

We believe that shareholder value will be increased in the long run if we meet or exceed the financial goals and policies that we establish each year. We do not manage our business to maximize short-term stock performance or the amount of the dividend that may be paid under our annual variable dividend policy or otherwise. We report earnings and other operating results on a monthly basis. We also do not provide earnings estimates to the market and do not comment on earnings estimates by analysts. As a result, our reported results for a particular period may vary, perhaps significantly, from investors’ expectations, which could result in significant volatility in the price of our common shares or debt securities.

In addition, due to our focus on the long-term value of the enterprise, we may undertake business strategies and establish related financial goals for a specific year that are designed to enhance our longer-term performance, while understanding that such strategies may not always similarly benefit short-term results, such as our annual underwriting profit or earnings per share. Such strategies, for example, may involve a reduction in premiums for certain products or customers, or increases in advertising spend, to support growth or enhance retention of current customers. Consequently, these strategies may adversely affect short-term performance or the amount of our variable dividend for a given year, and may result in additional volatility in the price of our common shares or debt securities.

ITEM 1B. UNRESOLVED STAFF COMMENTS

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

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ITEM 2. PROPERTIES

All of our properties are owned or leased by subsidiaries of The Progressive Corporation and are used for office functions (corporate, claims, and business unit), as call centers, for training, for warehouse space, or as service centers that provide our concierge level of claims service.

We own 73 buildings located throughout the United States. These facilities, which contain approximately 4.2 million square feet of space, are not segregated by industry segment. In addition to our corporate headquarters and another office complex and call center in Mayfield Village, Ohio, we own significant locations in Colorado Springs, Colorado; Tampa, Florida; and Tempe, Arizona.

We lease approximately 2.7 million square feet of space throughout the United States and one location in Australia. These leases are generally short-term to medium-term leases of commercial space.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market Information

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

Year	Quarter		High		Low		Close		Dividends Declared Per Share
2012		1	$	23.37	$	19.01	$	23.18	$	0
		2		23.41		20.22		20.83		0
		3		21.28		19.17		20.74		0
		4		23.19		20.68		21.10		1.2845
			$	23.41	$	19.01	$	21.10	$	1.2845
2011		1	$	21.24	$	19.12	$	21.13	$	0
		2		22.08		19.79		21.38		0
		3		21.66		16.88		17.76		0
		4		19.74		16.97		19.51		.4072
			$	22.08	$	16.88	$	19.51	$	.4072

The closing price of our common shares on January 31, 2013, was $22.49.

(b) Holders

We had 3,114 shareholders of record on December 31, 2012.

(c) Dividends

Progressive maintains a policy of paying an annual variable dividend that, if declared, would be payable shortly after the close of the 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. The Board determined the target percentage to be 33-1/3% for both 2012 and 2011 and 25% for 2010. This target will remain at 33-1/3% for 2013. 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 Compensation Committee of the Board. This Gainshare factor is also used in 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. Our annual variable dividend program is subject to certain limitations. If the Gainshare factor is zero or if comprehensive income is less than after-tax underwriting income, no dividend will be paid.

Although it is our intent to calculate an annual dividend based on the formula outlined above, the Board could decide to alter our policy, or not to pay the annual dividend for 2013 or future years, at any time prior to the declaration of the dividend for the year. Such an action by the Board could result from, among other reasons, changes in the insurance marketplace, changes in our performance or capital needs, changes in federal income tax laws, disruptions of national or international capital markets, or other events affecting our business, liquidity, or financial position. In December 2012, the Board of Directors declared an annual dividend, which was paid in February 2013 to shareholders of record at the close of business on January 25, 2013. The amount of the dividend was $.2845 per common share, or $172.0 million. The 2011 annual dividend was declared by the Board in December 2011 and paid to shareholders in February 2012; the total amount of dividends was $249.4 million, or $.4072 per common share. The 2010 annual dividend was declared by the Board in December 2010 and paid to shareholders in February 2011; the total amount of dividends was $263.8 million, or $.3987 per common share.

In addition to the annual variable dividend, in November 2012 and October 2010, we returned $604.7 million and $663.2 million, respectively, to shareholders via special cash dividends of $1.00 per share each.

24

Consolidated statutory surplus was $5.6 billion on December 31, 2012, and $5.3 billion on December 31, 2011. At December 31, 2012, $501.9 million of consolidated statutory surplus represented net admitted assets of Progressive’s insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed. The companies may be licensed in states other than their states of domicile, however, which may have higher minimum statutory surplus requirements. Based on the dividend laws currently in effect, the insurance subsidiaries could pay aggregate dividends of $975.5 million in 2013 without prior approval from regulatory authorities, provided the dividend payments are not made within 12 months of previous dividends paid by the applicable subsidiary.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

The following information is set forth with respect to our equity compensation plans at December 31, 2012.

EQUITY COMPENSATION PLAN INFORMATION
Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders:
Employee Plans:
2010 Equity Incentive Plan		4,805,164	1		NM		13,186,558
2003 Incentive Plan2		2,856,110	1		NM		2,438,119
Subtotal Employee Plans		7,661,274			NM		15,624,677
Director Plans:
2003 Directors Equity Incentive Plan		0		$	0		570,138
Subtotal Director Plans		0		$	0		570,138
Equity compensation plans not approved by security holders:
None
Total		7,661,274			NM		16,194,815

NM = Not meaningful since restricted stock unit awards do not have an exercise price.

¹ Represents restricted stock unit awards, including reinvested dividend equivalents, under which, upon vesting, the holder has the right to receive common shares on a one-to-one basis; there is no exercise price associated with restricted stock unit awards. Performance-based restricted stock units, including dividend equivalents, of 1,945,808, are included under the 2010 Equity Incentive Plan at their target value. The actual number that will vest can range from 0 to 200% of target, or from 0 to 3,891,616 units. For further discussion of these awards, see Note 9—Employee Benefit Plans in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

² This plan expired on January 31, 2013 and no further awards can be made thereunder; however, dividend equivalents will still be issued on awards made prior to expiration. This plan does not have any performance-based awards currently outstanding that can vest at greater than their target values.

(e) Performance Graph

Incorporated by reference from the Performance Graph section in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

(f) Recent Sales of Unregistered Securities

None.

25

(g) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES
2012 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
October		0	$	0		32,731,173		42,268,827
November		0		0		32,731,173		42,268,827
December		194,846		20.94		32,926,019		42,073,981
Total		194,846	$	20.94

In June 2011, the Board approved an authorization to repurchase up to 75 million of our common shares; this Board authorization does not have an expiration date. 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. During the fourth quarter, all repurchases were accomplished through the open market or in conjunction with our incentive compensation plans at the then-current market prices.

Progressive’s financial policies state that we will repurchase shares to neutralize dilution from equity-based compensation in the year of issuance and as an option to return underleveraged capital to investors. See Note 9 - Employee Benefit Plans, “Incentive Compensation Plans” in our Annual Report, which is included as Exhibit 13 to this Form 10-K, for a summary of our restricted equity grants.

ITEM 6. SELECTED FINANCIAL DATA

(millions - except per share amounts)

	For the years ended December 31,
	2012		2011		2010		2009		2008
Total revenues1	$	17,083.9	$	15,774.6	$	15,215.5	$	14,791.1	$	13,049.0
Net income (loss)		902.3		1,015.5		1,068.3		1,057.5		(70.0	)
Per share:
Net income (loss)2		1.48		1.59		1.61		1.57		(.10	)
Dividends		1.2845		.4072		1.3987		.1613		0
Comprehensive income (loss)		1,080.8		924.3		1,398.8		1,752.2		(614.7	)
Total assets		22,694.7		21,844.8		21,150.3		20,049.3		18,250.5
Debt outstanding		2,063.1		2,442.1		1,958.2		2,177.2		2,175.5

¹ Revenues for 2008 through 2011 have been revised to conform to the 2012 presentation. See the “Revision” section of Note 1 – Reporting and Accounting Policies in our Annual Report, which is included as Exhibit 13 to this Form 10-K for further information.

² For 2008, amount represents basic earnings per share, since diluted earnings per share was antidilutive due to the net loss for the year.

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

Incorporated by reference from Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

26

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

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

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

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

The attestation of the independent registered public accounting firm is incorporated by reference from our Annual Report, which is included as Exhibit 13 to this Form 10-K.

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

ITEM 9B. OTHER INFORMATION

None.

27

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information relating to all of the directors, and the individuals who have been nominated for election as directors at the 2013 Annual Meeting of Shareholders of the Registrant, is incorporated herein by reference from the section entitled “Item 1: Election of Directors” in the Proxy Statement.

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

Name	Age	Offices Held and Last Five Years’ Business Experience
Glenn M. Renwick	57	President and Chief Executive Officer
Brian C. Domeck	53	Vice President and Chief Financial Officer
Charles E. Jarrett	55	Vice President, Secretary, and Chief Legal Officer
Thomas A. King	53	Vice President and Treasurer
Jeffrey W. Basch	54	Vice President and Chief Accounting Officer
John A. Barbagallo	53	Commercial Lines Group President, including Agency Operations
M. Jeffrey Charney	53	Chief Marketing Officer since November 2010; Senior Vice President and Chief Marketing Officer of Aflac Incorporated from November 2008 to October 2010; Senior Vice President and Chief Marketing Officer of QVC, Inc. prior to November 2008
William M. Cody	50	Chief Investment Officer
Susan Patricia Griffith	48	Claims Group President since March 2008; Chief Human Resource Officer prior to March 2008
Valerie Krasowski	47	Chief Human Resource Officer since August 2008; Special Lines General Manager prior to August 2008
John P. Sauerland	48	Personal Lines Group President
Raymond M. Voelker	49	Chief Information Officer

28

Section 16(a) Beneficial Ownership Reporting Compliance. Incorporated by reference from the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the Proxy Statement.

Code of Ethics. Progressive has a Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and other senior financial officers. This Code of Ethics is available at: progressive.com/governance. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, and waivers from, the provisions of the foregoing Code of Ethics by posting such information on our Internet website at: progressive.com/governance.

Shareholder-Proposed Candidate Procedures. There were no material changes to Progressive’s shareholder-proposed candidate procedures during 2012. The description of those procedures is incorporated by reference from the “Shareholder-Proposed Candidate Procedures” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Audit Committee. Incorporated by reference from the “Audit Committee” section of the Proxy Statement.

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

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the sections of the Proxy Statement entitled “Compensation Discussion and Analysis,” “Executive Compensation,” “Other Board of Directors Information: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from the section of the Proxy Statement entitled “Other Board of Directors Information,” subsections “Board of Directors Independence Determinations” and “Certain Relationships and Related Transactions.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

29

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Listing of Financial Statements

The following consolidated financial statements included in Progressive’s 2012 Annual Report, which is included as Exhibit 13 to this Form 10-K, are incorporated by reference in Item 8:

• Report of Independent Registered Public Accounting Firm

• Consolidated Statements of Comprehensive Income - For the Years Ended December 31, 2012, 2011, and 2010

• Consolidated Balance Sheets - December 31, 2012 and 2011

• Consolidated Statements of Changes in Shareholders’ Equity - For the Years Ended December 31, 2012, 2011, and 2010

• Consolidated Statements of Cash Flows - For the Years Ended December 31, 2012, 2011, and 2010

• Notes to Consolidated Financial Statements

• Supplemental Information (Unaudited)

(a)(2) Listing of Financial Statement Schedules

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

• Schedule I - Summary of Investments - Other than Investments in Related Parties

• Schedule II - Condensed Financial Information of Registrant

• Schedule III - Supplementary Insurance Information

• Schedule IV - Reinsurance

• Schedule VI - Supplemental Information Concerning Property-Casualty Insurance Operations

• Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

• Consent of Independent Registered Public Accounting Firm

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

(a)(3) Listing of Exhibits

See exhibit index contained herein beginning at page 43. Management contracts and compensatory plans and arrangements are identified in the Exhibit Index as Exhibit Nos. 10.4 through 10.73.

(b) Exhibits

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

(c) Financial Statement Schedules

30

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

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

	December 31, 2012
Type of Investment	Cost		Fair Value		Amount At Which Shown In The Balance Sheet
Available-for-sale
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	2,806.4	$	2,896.5	$	2,896.5
States, municipalities, and political subdivisions		1,914.4		1,964.4		1,964.4
Public utilities		48.0		48.4		48.4
Corporate and other debt securities		2,934.9		3,064.6		3,064.6
Asset-backed securities		3,313.3		3,425.5		3,425.5
Redeemable preferred stocks		356.9		374.7		374.7
Total fixed maturities		11,373.9		11,774.1		11,774.1
Equity securities:
Common stocks:
Public utilities		102.0		134.1		134.1
Banks, trusts, and insurance companies		199.2		260.1		260.1
Industrial, miscellaneous, and all other		1,069.1		1,504.8		1,504.8
Nonredeemable preferred stocks		404.0		812.4		812.4
Total equity securities		1,774.3		2,711.4		2,711.4
Short-term investments1		1,990.0		1,990.0		1,990.0
Total investments	$	15,138.2	$	16,475.5	$	16,475.5

¹ Includes $21.9 million in treasury bills issued by the Australian government.

Progressive did not have any securities of any one issuer with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at December 31, 2012.

31

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	Years Ended December 31,
	2012			2011			2010
Revenues
Dividends from subsidiaries	$	782.3		$	875.3		$	1,216.2
Undistributed income (loss) from subsidiaries		193.1			225.7			(73.5	)
Equity in net income of subsidiaries*		975.4			1,101.0			1,142.7
Intercompany investment income*		6.1			5.6			6.6
Gains (losses) on extinguishment of debt		(1.8	)		(.1	)		6.4
Total revenues		979.7			1,106.5			1,155.7
Expenses
Interest expense		126.3			138.0			139.5
Deferred compensation1		5.5			.4			4.3
Other operating costs and expenses		3.7			4.7			3.9
Total expenses		135.5			143.1			147.7
Income before income taxes		844.2			963.4			1,008.0
Provision (benefit) for income taxes		(58.1	)		(52.1	)		(60.3	)
Net income	$	902.3		$	1,015.5		$	1,068.3
Other comprehensive income (loss)		178.5			(91.2	)		330.5
Comprehensive income	$	1,080.8		$	924.3		$	1,398.8

* Eliminated in consolidation.

¹  See Note 4 – Employee Benefit Plans in these condensed financial statements.

See notes to condensed financial statements.

32

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	December 31,
	2012		2011
Assets
Investment in affiliate	$	1.0	$	1.0
Investment in subsidiaries*		6,648.6		6,179.5
Receivable from investment subsidiary*		1,322.9		2,096.6
Intercompany receivable*		296.2		237.6
Net deferred income taxes		48.3		40.1
Other assets		82.0		81.0
Total Assets	$	8,399.0	$	8,635.8
Liabilities and Shareholders’ Equity
Accounts payable, accrued expenses, and other liabilities	$	156.9	$	137.4
Dividend payable		172.0		249.6
Debt		2,063.1		2,442.1
Total liabilities		2,392.0		2,829.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)		604.6		613.0
Paid-in capital		1,077.0		1,006.2
Retained earnings		3,454.4		3,495.0
Total accumulated other comprehensive income		871.0		692.5
Total shareholders’ equity		6,007.0		5,806.7
Total Liabilities and Shareholders’ Equity	$	8,399.0	$	8,635.8

* Eliminated in consolidation.

See notes to condensed financial statements.

33

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	Years Ended December 31,
	2012			2011			2010
Cash Flows From Operating Activities:
Net income	$	902.3		$	1,015.5		$	1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed (income) loss from subsidiaries		(193.1	)		(225.7	)		73.5
Amortization of equity-based compensation		2.0			2.1			2.4
(Gains) losses on extinguishment of debt		1.8			.1			(6.4	)
Changes in:
Intercompany receivable		(58.6	)		(58.5	)		(54.1	)
Accounts payable, accrued expenses, and other liabilities		.3			4.5			7.3
Income taxes		21.7			(3.4	)		(12.2	)
Other, net		(9.9	)		4.2			(1.9	)
Net cash provided by operating activities		666.5			738.8			1,076.9
Cash Flows From Investing Activities:
Additional investments in equity securities of consolidated subsidiaries		(36.1	)		(11.8	)		(3.5	)
Received from investment subsidiary		773.7			23.6			122.0
Net cash provided by investing activities		737.6			11.8			118.5
Cash Flows From Financing Activities:
Proceeds from exercise of stock options		.5			22.4			27.2
Tax benefit from exercise/vesting of equity-based compensation		5.8			6.4			14.0
Net proceeds from debt issuance		0			497.0			0
Payment of debt		(350.0	)		0			0
Reacquisition of debt		(32.5	)		(15.0	)		(214.3	)
Dividends paid to shareholders		(853.7	)		(263.6	)		(763.7	)
Acquisition of treasury shares		(174.2	)		(997.8	)		(258.6	)
Net cash used in financing activities		(1,404.1	)		(750.6	)		(1,195.4	)
Change in cash		0			0			0
Cash, beginning of year		0			0			0
Cash, end of year	$	0		$	0		$	0

See notes to condensed financial statements.

34

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

Note 1. Statements of Cash Flows — For the purpose of the Statements of Cash Flows, cash includes only bank demand deposits. The Progressive Corporation does not hold any cash but has unrestricted access to funds maintained in a non-insurance, investment subsidiary to meet its holding company obligations; at year-end 2012 and 2011, $1.4 billion and $2.0 billion, respectively, of marketable securities were available in this company. Non-cash activity includes declared but unpaid dividends. For the years ended December 31, we paid the following:

(millions)	2012		2011		2010
Income taxes, net of refunds	$	389.1	$	435.0	$	434.0
Interest		135.0		129.5		138.4

Note 2. Income Taxes — The Progressive Corporation files a consolidated federal income tax return with all subsidiaries and acts as an agent for the consolidated tax group when making payments to the Internal Revenue Service. The consolidated group’s net income taxes currently payable/recoverable are included in other liabilities/assets, respectively, in the accompanying Condensed Balance Sheets based on the balance at the end of the year. The Progressive Corporation and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated federal income taxes. Amounts allocated to the subsidiaries under the written agreement are included in “Intercompany Receivable” in the accompanying Condensed Balance Sheets.

Note 3. Debt — The information relating to debt is incorporated by reference from Note 4 – Debt in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 4. Employee Benefit Plans — The information relating to incentive compensation plans and deferred compensation is incorporated by reference from Note 9 – Employee Benefit Plans in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 5. Other Comprehensive Income — On the condensed Statements of Comprehensive Income, other comprehensive income (loss) represents activity of the subsidiaries of The Progressive Corporation and includes net unrealized gains (losses) on securities, net unrealized gains on forecasted transactions, and foreign currency translation adjustments.

35

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

			Future
			policy
			benefits,				Other
			losses,				policy						Benefits,		Amortization
	Deferred		claims,				claims						claims,		of deferred
	policy		and				and				Net		losses, and		policy		Other			Net
	acquisition		loss		Unearned		benefits		Premium		investment		settlement		acquisition		operating			premiums
Segment	costs1		expenses1		premiums1		payable1		revenue		income1,2		expenses		costs		expenses			written
Year ended December 31, 2012:
Personal Lines									$	14,368.1			$	10,745.3	$	1,250.4	$	2,010.5		$	14,636.8
Commercial Auto										1,649.0				1,196.6		186.2		195.2			1,735.9
Other indemnity										.9				6.1		0		.6			0
Total	$	434.5	$	7,838.4	$	4,930.7	$	0	$	16,018.0	$	427.6	$	11,948.0	$	1,436.6	$	2,206.3		$	16,372.7
Year ended December 31, 2011:
Personal Lines									$	13,431.1			$	9,615.2	$	1,231.9	$	1,915.6		$	13,612.2
Commercial Auto										1,467.1				1,010.7		166.6		171.9			1,534.3
Other indemnity										4.6				8.9		.7		.5			.1
Total	$	433.6	$	7,245.8	$	4,579.4	$	0	$	14,902.8	$	466.5	$	10,634.8	$	1,399.2	$	2,088.0		$	15,146.6
Year ended December 31, 2010:
Personal Lines									$	12,826.9			$	9,159.6	$	1,188.1	$	1,814.7		$	13,024.4
Commercial Auto										1,474.2				958.6		167.9		177.9			1,449.5
Other indemnity										13.7				13.1		3.9		(.3	)		2.9
Total	$	417.2	$	7,071.0	$	4,353.8	$	0	$	14,314.8	$	508.2	$	10,131.3	$	1,359.9	$	1,992.3		$	14,476.8

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

² Excludes total net realized gains (losses) on securities.

36

SCHEDULE IV — REINSURANCE

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

					Assumed				Percentage
			Ceded to		From				of Amount
	Gross		Other		Other				Assumed
Year Ended:	Amount		Companies		Companies		Net Amount		to Net
December 31, 2012
Premiums earned:
Property and liability insurance	$	16,207.6	$	189.6	$	0	$	16,018.0		0
December 31, 2011
Premiums earned:
Property and liability insurance	$	15,107.5	$	204.7	$	0	$	14,902.8		0
December 31, 2010
Premiums earned:
Property and liability insurance	$	14,519.2	$	204.4	$	0	$	14,314.8		0

37

SCHEDULE VI — SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

	Losses and Loss Adjustment
	Expenses Incurred Related to					Paid Losses and Loss Adjustment Expenses
Year Ended	Current Year		Prior Years
December 31, 2012	$	11,926.0	$	22.0		$	11,431.8
December 31, 2011	$	10,876.8	$	(242.0	)	$	10,541.6
December 31, 2010	$	10,451.7	$	(320.4	)	$	9,888.0

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

38

Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

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

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 26, 2013 appearing in the 2012 Annual Report to Shareholders of The Progressive Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

February 26, 2013

39

Consent of Independent Registered Public Accounting Firm

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

Form	Filing No.	Filing Date
S-8	333-185704	December 27, 2012
S-8	333-185703	December 27, 2012
S-8	333-172663	March 8, 2011
S-8	333-104646	April 21, 2003
S-8	333-104653	April 21, 2003
S-8	333-41238	July 12, 2000
S-8	33-57121	December 29, 1994
S-8	33-51034	August 20, 1992
S-8	33-16509	August 14, 1987

of our report dated February 26, 2013 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in the 2012 Annual Report to Shareholders, which is incorporated by reference in The Progressive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012. We also consent to the incorporation by reference of our report dated February 26, 2013 relating to the financial statement schedules, which appears in such Annual Report on
Form 10-K.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

February 26, 2013

40

SIGNATURES

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

	THE PROGRESSIVE CORPORATION
February 26, 2013	By:	/s/ Glenn M. Renwick
		Glenn M. Renwick
		Director, President, and Chief Executive Officer

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

* Peter B. Lewis	Director, Chairman of the Board	February 26, 2013
/s/ Glenn M. Renwick	Director, President, and Chief Executive Officer	February 26, 2013
Glenn M. Renwick
/s/ Brian C. Domeck	Vice President and Chief Financial Officer	February 26, 2013
Brian C. Domeck
/s/ Jeffrey W. Basch	Vice President and Chief Accounting Officer	February 26, 2013
Jeffrey W. Basch
* Stuart B. Burgdoerfer	Director	February 26, 2013
* Charles A. Davis	Director	February 26, 2013
* Roger N. Farah	Director	February 26, 2013
* Lawton W. Fitt	Director	February 26, 2013
* Stephen R. Hardis	Director	February 26, 2013
* Jeffrey D. Kelly	Director	February 26, 2013
* Heidi G. Miller, Ph.D.	Director	February 26, 2013
* Patrick H. Nettles, Ph.D.	Director	February 26, 2013
* Bradley T. Sheares, Ph.D.	Director	February 26, 2013

41

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

By:	/s/ Charles E. Jarrett	February 26, 2013
	Charles E. Jarrett
	Attorney-in-fact

42

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
3(i)	3.1	Amended Articles of Incorporation of The Progressive Corporation (as amended April 18, 2008)	Quarterly Report on Form 10-Q (filed on May 6, 2008; Exhibit 3.1 therein)
3(ii)	3.2	Code of Regulations of The Progressive Corporation (as amended April 20, 2012)	Quarterly Report on Form 10-Q (filed on May 7, 2012; Exhibit 3.1 therein)
4	4.1	Form of 7% Notes due 2013 issued in the aggregate principal amount of $150,000,000 under the 1993 Senior Indenture, as amended and supplemented	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 4.4 therein)
4	4.2	Form of 3.75% Senior Notes due 2021, issued in the aggregate principal amount of $500,000,000 under the 1993 Senior Indenture, as amended and supplemented	Current Report on Form 8-K (filed on August 22, 2011; Exhibit 4.2 therein)
4	4.3	Form of 6 5/8% Senior Notes due 2029, issued in the aggregate principal amount of $300,000,000 under the 1993 Senior Indenture, as amended and supplemented	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 4.5 therein)
4	4.4	Form of 6.25% Senior Notes due 2032, issued in the aggregate principal amount of $400,000,000 under the 1993 Senior Indenture, as amended and supplemented	Filed herewith
4	4.5	Form of 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 issued in the original aggregate principal amount of $1,000,000,000 under the Junior Subordinated Indenture (see exhibit 4.12 below), as amended and supplemented	Filed herewith
4	4.6	Indenture dated as of September 15, 1993 between The Progressive Corporation and State Street Bank and Trust Company (successor in interest to The First National Bank of Boston), as Trustee (“1993 Senior Indenture”) (including table of contents and cross-reference sheet)	Registration Statement No. 333-48935 (filed on March 31, 1998; Exhibit 4.1 therein)
4	4.7	First Supplemental Indenture dated March 15, 1996 to the 1993 Senior Indenture between The Progressive Corporation and State Street Bank and Trust Company	Registration Statement No. 333-01745 (filed on March 15, 1996; Exhibit 4.2 therein)
4	4.8	Second Supplemental Indenture dated February 26, 1999 to the 1993 Senior Indenture between The Progressive Corporation and State Street Bank and Trust Company, as Trustee	Registration Statement No. 333-100674 (filed on October 22, 2002; Exhibit 4.3 therein)

43

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
4	4.9	Fourth Supplemental Indenture dated November 21, 2002 to the 1993 Senior Indenture between The Progressive Corporation and State Street Bank and Trust Company, as Trustee	Registration Statement No. 333-143824 (filed on June 18, 2007; Exhibit 4.5 therein)
4	4.10	Fifth Supplemental Indenture dated June 13, 2007 to the 1993 Senior Indenture between The Progressive Corporation and U.S. Bank National Association, evidencing the designation of U.S. Bank National Association as successor Trustee under the 1993 Senior Indenture	Registration Statement No. 333-143824 (filed on June 18, 2007; Exhibit 4.6 therein)
4	4.11	Sixth Supplemental Indenture dated August 22, 2011 to the 1993 Senior Indenture between The Progressive Corporation and U.S. Bank National Association, as Trustee	Quarterly Report on Form 10-Q (filed on November 7, 2011; Exhibit 4.1 therein)
4	4.12	Junior Subordinated Indenture dated as of June 21, 2007 between The Progressive Corporation and The Bank of New York Trust Company, N.A., Trustee (“Junior Subordinated Indenture”) (including table of contents and cross-reference sheet)	Filed herewith
4	4.13	First Supplemental Indenture dated June 21, 2007 to the Junior Subordinated Indenture between The Progressive Corporation and The Bank of New York Trust Company, N.A., as Trustee	Filed herewith
4	4.14	Second Supplemental Indenture dated September 2, 2011, to the Junior Subordinated Indenture dated June 21, 2007, between The Progressive Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee	Current Report on Form 8-K (filed on September 7, 2011; Exhibit 4 therein)
4	4.15	Replacement Capital Covenant dated June 21, 2007, of The Progressive Corporation	Filed herewith
4	4.16	Termination of Replacement Capital Covenant, dated June 23, 2010	Current Report on Form 8-K (filed on June 24, 2010; Exhibit 4 therein)
10(ii)	10.1	Sublease Agreement for Aircraft Hangar dated as of August 21, 2006 between Progressive Casualty Insurance Company and Acme Operating Corporation	Annual Report on Form 10-K (filed on March 1, 2011; Exhibit 10.1 therein)
10(ii)	10.2	First Amendment to Sublease Agreement for Aircraft Hangar dated June 6, 2011 between Progressive Casualty Insurance Company and Acme Operating Corporation	Quarterly Report on Form 10-Q (filed on August 9, 2011; Exhibit 10.1 therein)

44

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(ii)	10.3	Assignment and Assumption of Lease Agreement dated July 7, 2010, between Acme Operating Company and Acme Acquisition Company	Annual Report on Form 10-K (filed on March 1, 2011; Exhibit 10.2 therein)
10(iii)	10.4	The Progressive Corporation 2011 Gainsharing Plan	Annual Report on Form 10-K (filed on March 1, 2011; Exhibit 10.8 therein)
10(iii)	10.5	The Progressive Corporation 2012 Gainsharing Plan	Annual Report on Form 10-K (filed on February 28, 2012; Exhibit 10.7 therein)
10(iii)	10.6	The Progressive Corporation 2013 Gainsharing Plan	Filed herewith
10(iii)	10.7	The Progressive Corporation 2007 Executive Bonus Plan	Annual Report on Form 10-K (filed on February 28, 2012; Exhibit 10.8 therein)
10(iii)	10.8	The Progressive Corporation 2003 Incentive Plan	Registration Statement No. 333-104646 (filed on April 21, 2003; Exhibit 4(a) therein)
10(iii)	10.9	First Amendment to The Progressive Corporation 2003 Incentive Plan	Annual Report on Form 10-K (filed on February 28, 2012; Exhibit 10.10 therein)
10(iii)	10.10	Second Amendment to The Progressive Corporation 2003 Incentive Plan	Current Report on Form 8-K (filed on February 4, 2010; Exhibit 10.1 therein)
10(iii)	10.11	Third Amendment to The Progressive Corporation 2003 Incentive Plan	Current Report on Form 8-K (filed on February 2, 2011; Exhibit 10.2 therein)
10(iii)	10.12	Fourth Amendment to The Progressive Corporation 2003 Incentive Plan	Quarterly Report on Form 10-Q (filed on May 7, 2012; Exhibit 10.4 therein)
10(iii)	10.13	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Time-Based Award) (for March 2007 and thereafter)	Filed herewith
10(iii)	10.14	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for 2004 through February 2007)	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 10.16 therein)
10(iii)	10.15	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for March 2007 through February 2009)	Filed herewith
10(iii)	10.16	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for March 2009 through February 2010)	Quarterly Report on Form 10-Q (filed on May 11, 2009; Exhibit 10.2 therein)

45

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(iii)	10.17	Form of Restricted Stock Unit Award Agreement for Time-Based Awards under The Progressive Corporation 2003 Incentive Plan	Current Report on Form 8-K (filed on March 30, 2010; Exhibit 10.1 therein)
10(iii)	10.18	Form of Restricted Stock Unit Award Agreement for Performance-Based Awards under The Progressive Corporation 2003 Incentive Plan	Current Report on Form 8-K (filed on March 30, 2010; Exhibit 10.2 therein)
10(iii)	10.19	The Progressive Corporation 2010 Equity Incentive Plan	Registration Statement No. 333-172663 (filed on March 8, 2011; Exhibit 4.1 therein)
10(iii)	10.20	First Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Registration Statement No. 333-172663 (filed on March 8, 2011; Exhibit 4.2 therein)
10(iii)	10.21	Second Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Registration Statement No. 333-172663 (filed on March 8, 2011; Exhibit 4.3 therein)
10(iii)	10.22	Third Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Registration Statement No. 333-172663 (filed on March 8, 2011; Exhibit 4.4 therein)
10(iii)	10.23	Fourth Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Current Report on Form 8-K (filed on February 2, 2012; Exhibit 10.1 therein)
10(iii)	10.24	Fifth Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Quarterly Report on Form 10-Q (filed on May 7, 2012; Exhibit 10.5 therein)
10(iii)	10.25	Sixth Amendment to The Progressive Corporation 2010 Equity Incentive Plan	Current Report on Form 8-K (filed on December 11, 2012; Exhibit 10.1 therein)
10(iii)	10.26	Form of Restricted Stock Unit Award Agreement for Time-Based Awards under The Progressive Corporation 2010 Equity Incentive Plan	Current Report on Form 8-K (filed on March 25, 2011; Exhibit 10.1 therein)
10(iii)	10.27	Form of Restricted Stock Unit Award Agreement for Performance-Based Awards under The Progressive Corporation 2010 Equity Incentive Plan	Current Report on Form 8-K (filed on March 25, 2011; Exhibit 10.2 therein)
10(iii)	10.28	Form of Restricted Stock Unit Award Agreement for Performance-Based Awards (Investment Performance) under The Progressive Corporation 2010 Equity Incentive Plan, as amended	Current Report on Form 8-K (filed on March 22, 2012; Exhibit 10.1 therein)
10(iii)	10.29	The Progressive Corporation 2003 Directors Equity Incentive Plan	Registration Statement No. 333-104653 (filed on April 21, 2003; Exhibit 4(a) therein)
10(iii)	10.30	Amendment No. 1 to The Progressive Corporation 2003 Directors Equity Incentive Plan	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 10.21 therein)

46

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(iii)	10.31	Amendment No. 2 to The Progressive Corporation 2003 Directors Equity Incentive Plan	Current Report on Form 8-K (filed on February 2, 2012; Exhibit 10.2 therein)
10(iii)	10.32	Amendment No. 3 to The Progressive Corporation 2003 Directors Equity Incentive Plan	Quarterly Report on Form 10-Q (filed on May 7, 2012; Exhibit 10.3 therein)
10(iii)	10.33	Form of The Progressive Corporation 2003 Directors Equity Incentive Plan Restricted Stock Award Agreement (for 2004 and thereafter)	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 10.22 therein)
10(iii)	10.34	The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.3 therein)
10(iii)	10.35	First Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.4 therein)
10(iii)	10.36	Second Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.5 therein)
10(iii)	10.37	Third Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.6 therein)
10(iii)	10.38	Fourth Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.7 therein)
10(iii)	10.39	The Progressive Corporation Executive Deferred Compensation Plan (2008 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.8 therein)
10(iii)	10.40	First Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2008 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.9 therein)
10(iii)	10.41	The Progressive Corporation Executive Deferred Compensation Plan (2010 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.10 therein)
10(iii)	10.42	First Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2010 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.11 therein)

47

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(iii)	10.43	Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2005 through 2009)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.12 therein)
10(iii)	10.44	Form of The Progressive Corporation Executive Deferred Compensation Plan Gainsharing/Bonus Deferral Agreement (for 2010 and thereafter)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.13 therein)
10(iii)	10.45	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2004)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.14 therein)
10(iii)	10.46	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2005)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.15 therein)
10(iii)	10.47	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2006 through 2009)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.16 therein)
10(iii)	10.48	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Unit Deferral Agreement (for 2010 and thereafter)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.17 therein)
10(iii)	10.49	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2003)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.18 therein)
10(iii)	10.50	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2004)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.19 therein)
10(iii)	10.51	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2005)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.20 therein)
10(iii)	10.52	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2006 through 2009)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.21 therein)
10(iii)	10.53	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Unit Deferral Agreement (for 2010 and thereafter)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.22 therein)

48

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(iii)	10.54	The Progressive Corporation Executive Deferred Compensation Trust (November 8, 2002 Amendment and Restatement)	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.23 therein)
10(iii)	10.55	First Amendment to Trust Agreement between Fidelity Management Trust Company and Progressive	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.24 therein)
10(iii)	10.56	Second Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.25 therein)
10(iii)	10.57	Third Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.26 therein)
10(iii)	10.58	Fourth Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.27 therein)
10(iii)	10.59	Fifth Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.28 therein)
10(iii)	10.60	Sixth Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.29 therein)
10(iii)	10.61	Seventh Amendment to The Progressive Corporation Executive Deferred Compensation Trust	Registration Statement No. 333-185704 (filed on December 27, 2012; Exhibit 4.30 therein)
10(iii)	10.62	The Progressive Corporation Directors Deferral Plan (2008 Amendment and Restatement)	Filed herewith
10(iii)	10.63	The Progressive Corporation Directors Restricted Stock Deferral Plan (2008 Amendment and Restatement)	Filed herewith
10(iii)	10.64	First Amendment to The Progressive Corporation Directors Restricted Stock Deferral Plan (2008 Amendment and Restatement)	Annual Report on Form 10-K (filed on February 25, 2009; Exhibit 10.47 therein)
10(iii)	10.65	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement	Annual Report on Form 10-K (filed on March 1, 2010; Exhibit 10.53 therein)
10(iii)	10.66	Director Compensation Schedule for 2011 and 2012	Annual Report on Form 10-K (filed on March 1, 2011; Exhibit 10.64 therein)

49

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
10(iii)	10.67	The Progressive Corporation Executive Separation Allowance Plan (2006 Amendment and Restatement)	Annual Report on Form 10-K (filed on March 1, 2011; Exhibit 10.65 therein)
10(iii)	10.68	First Amendment to The Progressive Corporation Executive Separation Allowance Plan (2006 Amendment and Restatement)	Filed herewith
10(iii)	10.69	Second Amendment to The Progressive Corporation Executive Separation Allowance Plan (2006 Amendment and Restatement)	Quarterly Report on Form 10-Q (filed on May 9, 2011; Exhibit 10.1 therein)
10(iii)	10.70	Third Amendment to The Progressive Corporation Executive Separation Allowance Plan (2006 Amendment and Restatement)	Quarterly Report on Form 10-Q (filed on May 9, 2011; Exhibit 10.2 therein)
10(iii)	10.71	2011 Non-plan Cash Bonus Paid to William M. Cody, Chief Investment Officer	Current Report on Form 8-K (filed on March 6, 2012; description under “Item 5.02” therein)
10(iii)	10.72	2012 Progressive Capital Management Bonus Plan	Current Report on Form 8-K (filed on March 6, 2012; Exhibit 10.1 therein)
10(iii)	10.73	2013 Progressive Capital Management Bonus Plan	Filed herewith
11	11	Computation of Earnings Per Share	Filed herewith
13	13	The Progressive Corporation 2012 Annual Report to Shareholders	Filed herewith
21	21	Subsidiaries of The Progressive Corporation	Filed herewith
23	23	Consent of Independent Registered Public Accounting Firm	Incorporated herein by reference to page 40 of this Annual Report on Form 10-K
24	24	Powers of Attorney	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	Furnished herewith
32	32.2	Section 1350 Certification of the Principal Financial Officer, Brian C. Domeck	Furnished herewith

50

EXHIBIT INDEX
Exhibit No. Under Reg. S-K, Item 601	Form 10-K Exhibit No.	Description of Exhibit	If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with SEC
99	99	Letter to Shareholders from Glenn M. Renwick, President and Chief Executive Officer	Furnished herewith
101	101.INS	XBRL Instance Document	Filed herewith
101	101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101	101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

51

EX-4.4

Exhibit 4.4

(Face of Security)

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

REGISTERED NO. R-001 $400,000,000

CUSIP No. 743315 AL 7

THE PROGRESSIVE CORPORATION

6.25% SENIOR NOTE DUE 2032

THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Issuer”), for value received, hereby promises to pay to CEDE & Co., c/o The Depository Trust Company, 55 Water Street, New York, New York 10041 or registered assigns, at the office or agency of the Issuer at the office of the Trustee in Boston, Massachusetts, the principal sum of FOUR HUNDRED MILLION DOLLARS ($400,000,000) on December 1, 2032, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest semiannually on June 1 and December 1 of each year, commencing on June 1, 2003, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from the June 1 or the December 1, as the case may be, next preceding the date of this Note to which interest has been paid, unless the date hereof is a date to which interest has been paid, in which case from the date of this Note, or unless no interest has been paid on the Notes, in which case from November 21, 2002, until payment of said principal sum has been made or duly provided for; provided, that payment of interest may be made at the option of the Issuer by check mailed to the address of the person entitled thereto as such address shall appear on the Security Register. The interest so payable on any June 1 or December 1 will, subject to certain exceptions provided in the Indenture referred to on the reverse hereof, be paid to the person in whose name this Note is registered at the close of business on May 15 or November 15, as the case may be, next preceding such June 1 or December 1.

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

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

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

	THE PROGRESSIVE CORPORATION
[CORPORATE SEAL]		By:
		Stephen D. Peterson
		Treasurer

Attest:
	Charles E. Jarrett Secretary

Dated: November 21, 2002

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

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

- 1 -

(Back of Security)

THE PROGRESSIVE CORPORATION

6.25% SENIOR NOTE DUE 2032

This Note is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Issuer (hereinafter called the “Securities”) of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of September 15, 1993, as heretofore supplemented and amended (herein called the “Indenture”), between the Issuer and State Street Bank and Trust Company, as Trustee (herein called the “Trustee”), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Issuer and the Holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary as in the Indenture provided. This Note is one of a series designated as the 6.25% Senior Notes Due 2032 of the Issuer, limited in initial aggregate principal amount to $400,000,000, subject to the right of the Issuer to reopen such series.

In case an Event of Default, as defined in the Indenture, with respect to the 6.25% Senior Notes Due 2032 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture.

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

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

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

The Notes of the series designated as the 6.25% Senior Notes due 2032 are subject to redemption upon not more than 60 or less than 30 days’ notice by mail, in whole at any time or in part from time to time at the option of the Issuer on any date (a “Redemption Date”), at a redemption price equal to the accrued and unpaid interest on the principal amount being redeemed to the redemption date plus the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments (as defined below) of the Notes to be redeemed, discounted to the redemption date, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months), at rate equal to the Treasury Rate (defined below), plus 20 basis points.

‘‘Remaining Scheduled Payments’’ means, with respect to any redemption, the remaining scheduled payments of the principal and interest that would be due after the redemption date of a Note if such Note were not redeemed and were held until maturity. However, if the redemption date is not a scheduled interest payment date, the amount of the next succeeding scheduled interest payment on such Note will be reduced by the amount of interest accrued on such Note to such redemption date.

- 2 -

“Treasury Rate” means, with respect to any redemption, an annual rate equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (as defined below), assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the redemption date. The semiannual equivalent yield to maturity will be computed as of the third business day immediately preceding the redemption date.

“Comparable Treasury Issue” means, with respect to any redemption, the United States Treasury security selected by Credit Suisse First Boston or an affiliate as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes.

“Comparable Treasury Price” means, with respect to any redemption, the average of three Reference Treasury Dealer Quotations (as defined below) obtained by the Trustee for the redemption date.

“Reference Treasury Dealer” means, with respect to any redemption, Credit Suisse First Boston (so long as it continues to be a primary U.S. Government securities dealer) and any two other primary U.S. Government securities dealers chosen by the Issuer. If Credit Suisse First Boston ceases to be a primary U.S. Government securities dealer, the Issuer will appoint in its place another nationally recognized investment banking firm that is a primary U.S. Government securities dealer.

“Reference Treasury Dealer Quotation” means, with respect to any redemption, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by a Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day preceding the redemption date.

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

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

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

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

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

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

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)

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

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

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

- 4 -

EX-4.5

Exhibit 4.5

FORM OF DEBENTURES

The Debentures are to be substantially in the following form and shall bear the following legend and shall include the Trustee’s certificate of authentication in the form required by Section 2.2 of the Indenture:

[If a Global Security:] [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED

IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. ]

No. •	Principal Amount: $	•
Issue Date: •

THE PROGRESSIVE CORPORATION

6.70% FIXED-TO-FLOATING RATE

JUNIOR SUBORDINATED DEBENTURES DUE 2067

The Progressive Corporation, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the “Issuer”, which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to • [ If Global Security: ] [ Cede & Co., ] or registered assigns, the principal sum of • dollars ($ • ) as may be revised from time to time on Schedule I hereto on June 15, 2037, or if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”) or any subsequent Interest Payment Date (as defined in the First Supplemental Indenture) to the extent set forth in the First Supplemental Indenture. If that amount is not paid in full on the Scheduled Maturity Date or any subsequent Interest Payment Date, the remaining principal amount will be due and payable on the Final Maturity Date. The Final Maturity Date will be June 15, 2067, or if such day is not a Business Day, the following Business Day.

The Issuer further promises to pay interest on said principal sum from and including June 21, 2007, or from and including the most recent Interest Payment Date on which interest has been paid or duly provided for, until the principal thereof is paid or made available for payment semi-annually (subject to deferral as set forth herein) in arrears on June 15 and December 15 of each year, commencing on December 15, 2007 and ending on June 15, 2017, at the rate of 6.70% per annum (computed on the basis of a 360-day year consisting of twelve 30-day months), and thereafter to pay interest on said outstanding principal sum quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, commencing on September 15, 2017 at a floating annual rate equal to Three-Month LIBOR (as defined in the First Supplemental Indenture) plus 2.0175% (computed on the basis of a 360-day year and the actual number of days elapsed in the 360-day year). Accrued interest that is not paid on the applicable Interest Payment Date, including interest deferred pursuant to Section 2.05 of the First Supplemental Indenture, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time provided in Section 2.04(a) of the First Supplemental Indenture, from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date.

        In the event that any Semi-Annual Interest Payment Date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date will be made on the immediately succeeding day that is a Business Day (and, in the case of payments on or prior to June 15, 2017, without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. In the event that any Quarterly Interest Payment Date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date shall be postponed to the immediately succeeding day that is a Business Day, provided that if such Business Day is in the immediately succeeding calendar month, such Interest Payment Date shall be the immediately preceding Business Day, and interest will accrue to but excluding the date on which the interest is actually paid. A “Business Day” shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) on or after June 15, 2017, a day that is not a London Banking Day. “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date, as provided in the Indenture, will be paid to the Person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be June 1 or December 1, as the case may be, immediately preceding such Interest Payment Date until June 15, 2017 (whether or not a Business Day), and shall be March 1, June 1, September 1 and December 1, as the case may be, immediately preceding the relevant Interest Payment Date after June 15, 2017. Any such interest installment not so punctually paid or duly provided for (other than interest deferred in accordance with the next paragraph) shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor securities) is registered at the close of business on a special record date for the payment of such Additional Interest on such date to be fixed by the Trustee (the “Special Record Date”), notice whereof shall be given to Holders of Securities of this series not less than ten days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

The Issuer shall have the right at any time or from time to time during the term of this Security to defer payment of interest on this Security for one or more consecutive Interest Periods (each a “Deferral Period”) that do not exceed ten years for the applicable Deferral Period, during which Deferral Periods the Issuer shall have the right, subject to Sections 2.05 and 2.06 of the First Supplemental Indenture, to make partial payments of interest on any Interest Payment Date, and at the end of which the Issuer shall pay all interest then accrued and unpaid; provided, however, that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment or redemption in full of the Securities. Upon the termination of any Deferral Period and upon the payment of all deferred interest then due, the Issuer may elect to begin a new Deferral Period, subject to the above requirements. Except as provided in Section 2.06 of the First Supplemental Indenture, no interest shall be due and payable during a Deferral Period except at the end thereof.

So long as any Securities remain outstanding, if the Issuer has given notice of its election to defer interest payments on the Securities but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Issuer shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or other distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Issuer’s capital stock, (ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any debt securities of the Issuer that rank upon the Issuer’s liquidation on a parity with this Security (including this Security, the “Pari Passu Securities”) or junior to this Security or (iii) make any guarantee payments regarding any guarantee issued by the Issuer of securities of any Subsidiary if the guarantee ranks upon the Issuer’s liquidation on a parity with or junior to this Security (other than (a) any purchase, redemption or other acquisition of shares of its capital stock by the Issuer in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors, (2) the satisfaction of the Issuer’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period, (3) a dividend reinvestment or shareholder purchase plan, or (4) the issuance of shares of the Issuer’s capital stock, or securities convertible into or exercisable for such shares, as consideration in an acquisition transaction entered into prior to the applicable Deferral Period, (b) any exchange, redemption or conversion of any class or series of the Issuer’s capital stock, or the capital stock of one of its Subsidiaries, for any other class or series of its capital stock, or of any class or series of its indebtedness for any class or series of its capital stock, (c) any purchase of fractional interests in shares of the Issuer’s capital stock pursuant to the conversion or exchange provisions of such shares or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (f) (1) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities (including the this Security); provided that such payments are made in accordance with Section 2.06(c)(ii) of the First Supplemental Indenture to the extent it applies, and (2) any payments of principal or current or deferred interest on Pari Passu Securities that, if not made, would cause the Issuer to breach the terms of the instrument governing such Pari Passu Securities; or (g) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as this Security, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.02(a) of the First Supplemental Indenture, and that is made on a pro rata basis among one or more series of Pari Passu Securities (including this Security) having such a provision. In addition, if any Deferral Period lasts longer than one year, the Issuer may not redeem or purchase any securities of the Issuer that on the Issuer’s bankruptcy or liquidation rank pari passu or junior to any of its Qualifying APM Securities the proceeds of which were used to settle deferred interest on the Debentures during the relevant Deferral Period until the first anniversary of the date on which all deferred interest on this Security has been paid. However, if the Issuer is involved in a Business Combination where immediately after its consummation more than 50% of the voting shares of the surviving entity of such Business Combination, or the Person to whom all or substantially all of the Issuer’s properties or assets are conveyed, transferred or leased in such Business Combination, is owned, directly or indirectly, by the shareholders of the other party to such Business Combination, then the immediately preceding sentence will not apply during the Deferral Period that is terminated on the next Interest Payment Date following the date of consummation of such Business Combination.

The Issuer shall give written notice of its election to commence or continue any Deferral Period to the Trustee and the Holders of all Securities then Outstanding at least one Business Day and not more than 60 Business Days before the next Interest Payment Date. Such notice shall be given to the Trustee and each Holder of this Security at such Holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Payment of the principal of (and premium, if any) and interest on this Security will be made at the paying agency office or agency of the Issuer maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Issuer, payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such bank account number as may be designated by the Person entitled thereto as specified in the Securities Register in writing not less than ten days before the relevant Interest Payment Date.

        The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on such Holder’s behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee such Holder’s attorney-in-fact for any and all such purposes. Each Holder hereof, by such Holder’s acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions.

The Issuer and, by acceptance of this Security or a beneficial interest in this Security, each Holder hereof and any person acquiring a beneficial interest herein, agree that for United States federal, state and local tax purposes, it is intended that this Security constitute indebtedness.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed.

[Corporate Seal]	THE PROGRESSIVE CORPORATION
Attest:	By:
Name:		Name:
Title:		Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

	THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee
Dated:	By:
		Name: Title:    Authorized Signatory

(FORM OF REVERSE OF DEBENTURES)

This Security is one of a duly authorized issue of securities of the Issuer (herein called the “Securities”), issued and to be issued in one or more series under the Junior Subordinated Indenture, dated as of June 21, 2007 (herein called the “Base Indenture”), between the Issuer and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”), as amended and supplemented by the First Supplemental Indenture, dated as of June 21, 2007, between the Issuer and the Trustee (the “First Supplemental Indenture”, and together with the Base Indenture, the “Indenture”), to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Issuer and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. By the terms of the Indenture, the Securities are issuable in series that may vary as to amount, date of maturity, rate of interest, rank and in any other respect provided in the Indenture.

All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

The Securities shall be redeemable at the option of the Issuer in accordance with the terms of the Indenture. The Securities are redeemable in whole or in part at the option of the Issuer at any time after the date hereof. In the case of any redemption, the Redemption Price shall be equal to (1) in the case of any redemption on or after June 15, 2017, 100% of the principal amount of the Securities being redeemed plus accrued and unpaid interest to the Redemption Date or (2) in the case of any redemption prior to June 15, 2017, the greater of (i) 100% of the principal amount plus accrued and unpaid interest to the Redemption Date, and (ii) the Make-Whole Redemption Price. If the Securities are not redeemed in whole, the Issuer may not effect such redemption unless at least $25 million aggregate principal amount of the Securities, excluding any Securities held by the Issuer or any of its affiliates, remains outstanding after giving effect to such redemption.

Notwithstanding the foregoing, the Issuer may not redeem the Securities in part if the principal amount of the Securities has been accelerated pursuant to Section 5.1 of the Base Indenture (as amended by Section 2.07(a) of the First Supplemental Indenture) and such acceleration has not been rescinded. In addition, the Issuer may not redeem the Securities in part unless all accrued and unpaid interest, including deferred interest, has been paid in full on all Outstanding Securities for all Interest Periods terminating on or before the Redemption Date.

No sinking fund is provided for the Securities.

The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Issuer with certain conditions set forth in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Issuer and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Issuer and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, (i) if an Event of Default (other than an Event of Default relating to certain insolvency events, as set forth in the Indenture) with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the entire principal amount and all accrued but unpaid interest of all the Securities to be due and payable immediately, by a notice in writing to the Issuer (and to the Trustee if given by Holders), and (ii) if an Event of Default relating to insolvency events as set forth in the Indenture occurs, the principal amount of the Securities shall automatically become due and payable; provided that in any such case the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article Eleven of the Indenture.

        The Holder of this Security, by such Holder’s acceptance hereof, agrees that if a bankruptcy event of the Issuer shall occur prior to the redemption or repayment of such Securities, such Holder shall have no claim for, and thus no right to receive, any deferred interest pursuant to Section 2.05 that has not been paid pursuant to Sections 2.05 and 2.06 to the extent the amount of such interest exceeds the sum of (x) interest that relates to the earliest two years of the portion of the Deferral Period for which interest has not been paid and (y) an amount equal to such Holder’s pro rata share of the excess, if any, of the Preferred Shares Issuance Cap over the aggregate amount of net proceeds from the sale of Qualifying Non-Cumulative Preferred Shares and unconverted Mandatorily Convertible Preferred Shares that has been applied to fund deferred interest pursuant to the alternative payment mechanism set forth in Section 2.06; provided that each Holder is deemed to agree that to the extent the remaining claim exceeds the amount set forth in clause (x), the amount it receives in respect of such excess shall not exceed the amount it would have received had the claim for such excess ranked pari passu with the interests of the holders, if any, of Qualifying Non-Cumulative Preferred Shares.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

4

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Issuer maintained under Section 3.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee shall have the right to treat and shall treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Issuer, the Trustee nor any such agent shall be affected by notice to the contrary.

The Securities are issuable only in registered form without coupons in minimum denominations of $1,000 and any integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

The Issuer and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree to treat for United States Federal income tax purposes (i) the Securities as indebtedness of the Issuer, and (ii) the stated interest on the Securities as ordinary interest income that is includible in the Holder’s or beneficial owner’s gross income at the time the interest is paid or accrued in accordance with the Holder’s or beneficial owner’s regular method of tax accounting, and otherwise to treat the Securities as described in the final prospectus supplement provided to investors in connection with the offering of the Securities.

THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

This is one of the Securities referred to in the within mentioned Indenture.

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

agent to transfer this Security on the books of the Securities Registrar. The agent may substitute another to act for him or her.

Dated:	Signature:
	Signature Guarantee:

(Sign exactly as your name appears on the other side of this Security)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Securities Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

SCHEDULE I

SCHEDULE OF PRINCIPAL AMOUNT REDUCTIONS

Principal amount of Debentures outstanding represented by this Security as of ,  : .

Thereafter, the following decreases have been made:

Date of Repayment, Redemption or Purchase	Principal Amount Repaid, Redeemed or Purchased	Principal Amount Remaining	Notation Made by or on Behalf of the Trustee
	$	$

EX-4.12

Exhibit 4.12

THE PROGRESSIVE CORPORATION

AND

THE BANK OF NEW YORK TRUST COMPANY,

N.A., Trustee

Junior Subordinated Indenture

Dated as of June 21, 2007

CROSS-REFERENCE SHEET¹*

Between

Provisions of Trust Indenture Act of 1939 and Indenture to be dated as of June 21, 2007 between THE PROGRESSIVE CORPORATION and THE BANK OF NEW YORK TRUST COMPANY, N.A., Trustee:

Section of the Act	Section of Indenture
310(a)(1) and (2)	6.8
310(a)(3) and (4)	Inapplicable
310(a)(5)	6.8
310(b)	6.9(a), (b) and (d)
310(b)(1)	6.13
310(c)	Inapplicable
311(a)	6.12
311(b)	6.12
311(c)	Inapplicable
312(a)	4.1 and 4.2(a)
312(b)	4.2(a) and (b)(i) and (ii)
312(c)	4.2(c)
313(a)	4.4
313(b)(1)	Inapplicable
313(b)(2)	4.4
313(c)	4.4
313(d)	4.4
314(a)	4.3
314(b)	Inapplicable
314(c)(1) and (2)	11.5
314(c)(3)	Inapplicable
314(d)	Inapplicable
314(e)	11.5
314(f)	Inapplicable
315(a), (c) and (d)	6.1
315(b)	5.11
315(e)	5.12
316(a)(1)	5.9
316(a)(2)	Not required
316(a)(last sentence)	7.4
316(b)	5.7
317(a)	5.2
317(b)	3.4(a) and (b)

¹  This Cross Reference Sheet is not part of the Indenture.

TABLE OF CONTENTS

		Page
ARTICLE ONE DEFINITIONS			1
SECTION 1.1	Certain Terms Defined		1
ARTICLE TWO SECURITIES			5
SECTION 2.1	Forms Generally		5
SECTION 2.2	Form of Trustee’s Certificate of Authentication		6
SECTION 2.3	Amount Unlimited; Issuable in Series		6
SECTION 2.4	Authentication and Delivery of Securities		8
SECTION 2.5	Execution of Securities		9
SECTION 2.6	Certificate of Authentication		9
SECTION 2.7	Denomination and Date of Securities; Payments of Interest		10
SECTION 2.8	Registration, Transfer and Exchange		11
SECTION 2.9	Mutilated, Defaced, Destroyed, Lost and Stolen Securities		14
SECTION 2.10	Cancellation of Securities; Destruction Thereof		15
SECTION 2.11	Temporary Securities		15
SECTION 2.12	Global Securities		16
ARTICLE THREE COVENANTS OF THE ISSUER			16
SECTION 3.1	Payment of Principal and Interest		16
SECTION 3.2	Offices for Payments, etc.		17
SECTION 3.3	Appointment to Fill a Vacancy in Office of Trustee		17
SECTION 3.4	Paying Agents		17
SECTION 3.5	Written Statement to Trustee		18
SECTION 3.6	Existence		18
ARTICLE FOUR SECURITYHOLDERS’ LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE			18
SECTION 4.1	Issuer to Furnish Trustee Information as to Names and Addresses of Securityholders		18
SECTION 4.2	Preservation and Disclosure of Securityholders’ Lists		18
SECTION 4.3	Reports by the Issuer		20
SECTION 4.4	Reports by the Trustee		20

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TABLE OF CONTENTS

(continued)

		Page
ARTICLE FIVE REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT			20
SECTION 5.1	Event of Default Defined; Acceleration of Maturity; Waiver of Default		20
SECTION 5.2	Collection of Indebtedness by Trustee; Trustee May Prove Debt		23
SECTION 5.3	Application of Proceeds		25
SECTION 5.4	Suits for Enforcement		26
SECTION 5.5	Restoration of Rights on Abandonment of Proceedings		26
SECTION 5.6	Limitations on Suits by Securityholders		26
SECTION 5.7	Unconditional Right of Securityholders to Institute Certain Suits		27
SECTION 5.8	Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default		27
SECTION 5.9	Control by Securityholders		27
SECTION 5.10	Waiver of Past Defaults		28
SECTION 5.11	Trustee to Give Notice of Default, But May Withhold in Certain Circumstances		28
SECTION 5.12	Right of Court to Require Filing of Undertaking to Pay Costs		28
ARTICLE SIX CONCERNING THE TRUSTEE			29
SECTION 6.1	Duties and Responsibilities of the Trustee; During Default; Prior to Default		29
SECTION 6.2	Certain Rights of the Trustee		30
SECTION 6.3	Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof		31
SECTION 6.4	Trustee and Agents May Hold Securities or Coupons; Collections, etc.		31
SECTION 6.5	Moneys Held by Trustee		31
SECTION 6.6	Compensation and Indemnification of Trustee and Its Prior Claim		32
SECTION 6.7	Right of Trustee to Rely on Officers’ Certificate, etc.		32
SECTION 6.8	Persons Eligible for Appointment as Trustee		32
SECTION 6.9	Resignation and Removal; Appointment of Successor Trustee		33

-ii-

TABLE OF CONTENTS

(continued)

		Page
SECTION 6.10	Acceptance of Appointment by Successor Trustee		34
SECTION 6.11	Merger, Conversion, Consolidation or Succession to Business of Trustee		35
SECTION 6.12	Preferential Collection of Claims Against the Issuer		35
ARTICLE SEVEN CONCERNING THE SECURITYHOLDERS			35
SECTION 7.1	Evidence of Action Taken by Securityholders		35
SECTION 7.2	Proof of Execution of Instruments and of Holding of Securities		36
SECTION 7.3	Holders to Be Treated as Owners		36
SECTION 7.4	Securities Owned by Issuer Deemed Not Outstanding		37
SECTION 7.5	Right of Revocation of Action Taken		37
ARTICLE EIGHT SUPPLEMENTAL INDENTURES			38
SECTION 8.1	Supplemental Indentures Without Consent of Securityholders		38
SECTION 8.2	Supplemental Indentures With Consent of Securityholders		39
SECTION 8.3	Effect of Supplemental Indenture		40
SECTION 8.4	Documents to Be Given to Trustee		40
SECTION 8.5	Notation on Securities in Respect of Supplemental Indentures		40
ARTICLE NINE CONSOLIDATION, MERGER, SALE OR CONVEYANCE			41
SECTION 9.1	Issuer May Consolidate, etc., on Certain Terms		41
SECTION 9.2	Successor Corporation Substituted		41
SECTION 9.3	Opinion of Counsel to Trustee		41
ARTICLE TEN SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS			42
SECTION 10.1	Satisfaction and Discharge of Indenture; Defeasance		42
SECTION 10.2	Application by Trustee of Funds Deposited for Payment of Securities		44
SECTION 10.3	Repayment of Moneys Held by Paying Agent		44
SECTION 10.4	Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years		44
SECTION 10.5	Indemnity for U.S. Government Obligations		44

-iii-

TABLE OF CONTENTS

(continued)

		Page
ARTICLE ELEVEN MISCELLANEOUS PROVISIONS			45
SECTION 11.1	Incorporators, Shareholders, Officers and Directors of Issuer Exempt from Individual Liability		45
SECTION 11.2	Provisions of Indenture for the Sole Benefit of Parties and Securityholders		45
SECTION 11.3	Successors and Assigns of Issuer Bound by Indenture		45
SECTION 11.4	Notices and Demands on Issuer, Trustee and Securityholders		45
SECTION 11.5	Officers’ Certificates and Opinions of Counsel; Statements to Be Contained Therein		46
SECTION 11.6	Payments Due on Saturdays, Sundays and Holidays		47
SECTION 11.7	Conflict of Any Provision of Indenture with Trust Indenture Act of 1939		47
SECTION 11.8	New York Law to Govern		47
SECTION 11.9	Counterparts		47
SECTION 11.10	Effect of Headings		47
SECTION 11.11	Securities in Foreign Currencies		47
ARTICLE TWELVE REDEMPTION OF SECURITIES AND SINKING FUNDS			47
SECTION 12.1	Applicability of Article		47
SECTION 12.2	Notice of Redemption; Partial Redemptions		48
SECTION 12.3	Payment of Securities Called for Redemption		49
SECTION 12.4	Exclusion of Certain Securities from Eligibility for Selection for Redemption		49
SECTION 12.5	Mandatory and Optional Sinking Funds		50
ARTICLE THIRTEEN SUBORDINATION OF SECURITIES			51
SECTION 13.1	Securities Subordinate to Senior Debt		51
SECTION 13.2	Issuer Not to Pay if Senior Debt of Issuer is in Default		51
SECTION 13.3	Payment over of Proceeds upon Dissolution, Default, Etc., of the Issuer		52
SECTION 13.4	Subrogation to Rights of Holders of Senior Debt		53
SECTION 13.5	Reliance on Certificate of Liquidating Agent		53
SECTION 13.6	Payment Permitted if No Default		53

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TABLE OF CONTENTS

(continued)

		Page
SECTION 13.7	Trustee Not Charged with Knowledge of Prohibition		54
SECTION 13.8	Provisions are Solely to Define Relative Rights		54
SECTION 13.9	No Waiver of Subordination Provisions		54
SECTION 13.10	Trustee to Effectuate Subordination		54
SECTION 13.11	Rights of Trustee as Holder of Senior Debt		55
SECTION 13.12	Article Applicable to Paying Agents		55

-v-

This Junior Subordinated Indenture, dated as of June 21, 2007 (the “Indenture”), between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Issuer”), and THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee (the “Trustee”),

WITNESSETH:

WHEREAS, the Issuer has duly authorized the issue from time to time of its subordinated unsecured debentures, notes or other evidences of indebtedness to be issued in one or more series (the “Securities”) up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture and to provide, among other things, for the authentication, delivery and administration thereof; and

WHEREAS, the Issuer has duly authorized the execution and delivery of this Indenture; and

WHEREAS, all things necessary to make this Indenture a valid indenture and agreement according to its terms have been done;

NOW, THEREFORE:

In consideration of the premises and the purchases of the Securities by the Holders thereof, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders from time to time of the Securities and of the Coupons, if any, appertaining thereto as follows:

ARTICLE ONE

DEFINITIONS

SECTION 1.1 Certain Terms Defined. The following terms (except as otherwise expressly provided or unless the context otherwise clearly requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section. All other terms used in this Indenture that are defined in the Trust Indenture Act of 1939 or the definitions of which in the Securities Act of 1933 (“Securities Act”) are referred to in the Trust Indenture Act of 1939, including terms defined therein by reference to the Securities Act (except as herein otherwise expressly provided or unless the context otherwise clearly requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this Indenture. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles, and the term “generally accepted accounting principles” means such accounting principles as are generally accepted at the time of any computation in the United States of America. The words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular.

1

“Authorized Newspaper” means The Wall Street Journal, The New York Times or other newspaper of general circulation throughout the United States of America.

“Board of Directors” means either the Board of Directors of the Issuer or any committee of such Board duly authorized to act hereunder.

“Business Day” means, with respect to any Security, a day that in the city (or in any of the cities, if more than one) in which amounts are payable, as specified in the form of such Security, is not a day on which banking institutions are authorized by law or regulation to close or a day on which transactions in the currency in which the Securities are payable are not conducted.

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if any time after the execution and delivery of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act of 1939, then the body performing such duties on such date.

“Corporate Trust Office” means the office of the Trustee at which the corporate trust business of the Trustee, at any particular time, shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 2 North La Salle, Chicago, IL 60602, Attn: Global Corporate Trust.

“Coupon” means any interest coupon appertaining to a Security.

“Event of Default” means any event or condition specified as such in Section 5.1.

“Foreign Currency” means a currency issued by the government of a country other than the United States.

“Global Security” means a Security that evidences all or part of a class of Securities, registered in the name of a depositary or its nominee as contemplated by Section 2.12.

“Holder,” “holder of Securities,” “Securityholder” or other similar terms mean (a) in the case of any Registered Security, the Person in whose name such Security is registered in the security register kept by the Issuer for that purpose in accordance with the terms hereof, and (b) in the case of any Unregistered Security, the bearer of such Security, or any Coupon appertaining thereto, as the case may be.

“Indenture” means this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented or both, and shall include the forms and terms of particular series of Securities established as contemplated hereunder.

“Interest” means, when used with respect to non-interest-bearing Securities, interest payable after maturity.

“Issuer” means THE PROGRESSIVE CORPORATION, an Ohio corporation, and, subject to Article Nine, its successors and assigns.

2

“Officers’ Certificate” means a certificate signed by any two of the following officers of the Issuer: president, treasurer, any vice president, secretary or any assistant secretary and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 11.5.

“Opinion of Counsel” means an opinion in writing signed by legal counsel who may be an employee of or counsel to the Issuer or other counsel who shall be satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 11.5, if and to the extent required hereby.

“original issue date” of any Security (or portion thereof) means the earlier of (a) the date of such Security or (b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on registration of transfer, exchange or substitution.

“Original Issue Discount Security” means any Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 5.1.

“Outstanding,” when used with reference to Securities, subject to the provisions of Section 7.4, means, as of any particular time, all Securities authenticated and delivered by the Trustee under this Indenture, except:

(a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(b) Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Issuer) or shall have been set aside, segregated and held in trust by the Issuer for the holders of such Securities (if the Issuer shall act as its own paying agent), provided that if such Securities, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and

(c) Securities in substitution for which other Securities shall have been authenticated and delivered, or which shall have been paid, pursuant to the terms of Section 2.9 (except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Issuer).

In determining whether the holders of the requisite principal amount of Outstanding Securities of any or all series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 5.1.

3

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“principal” whenever used with reference to the Securities or any Security or any portion thereof, shall be deemed to include “and premium, if any.”

“Registered Security” means any Security registered on the Security Register of the Issuer.

“Responsible Officer” when used with respect to the Trustee means any officer of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Security” or “Securities” has the meaning stated in the first recital of this Indenture, or, as the case may be, Securities that have been authenticated and delivered under this Indenture.

“Security Register” shall have the meaning set forth in Section 2.8.

“Senior Debt” means, with respect to the Issuer, the principal of and any premium and interest on, and any other payment, due pursuant to any of the following, whether incurred prior to, on or after the date of this Indenture: (i) all obligations of the Issuer for money borrowed (other than obligations pursuant to this Indenture); (ii) all obligations evidenced by notes, debentures (other than the Securities), bonds or other similar instruments issued by the Issuer, including obligations incurred in connection with the acquisition of property, assets or businesses and including all other debt securities issued by the Issuer to any trust or a trustee of such trust, or to a partnership or other affiliate that acts as a financing vehicle for the Issuer, in connection with the issuance of securities by such vehicles; (iii) all of the Issuer’s obligations under leases required or permitted to be capitalized under generally accepted accounting principles; (iv) all obligations of the Issuer issued or assumed as the deferred purchase price of property or services, including all obligations under master lease transactions pursuant to which the Issuer or any of its subsidiaries have agreed to be treated as owner of the subject property for federal income tax purposes (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) all obligations of the Issuer for the reimbursement on any letter of credit, banker’s acceptance, or security purchase facility or similar facilities for the Issuer’s account; (vi) all of the Issuer’s payment obligations under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including any such obligations incurred solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate indebtedness of the Issuer; (vii) all obligations of the types referred to in clauses (i) through (vi) above of other persons and all dividends of another Person the payment which, in either case, the Issuer has assumed or guaranteed or as to which it is responsible or liable as obligor, guarantor or otherwise, directly or indirectly, jointly or severally; (viii) all compensation and reimbursement obligations of the Issuer to the Trustee pursuant to this Indenture; and (ix) amendments, modifications, refinancings, replacements, renewals, extensions or refundings of any of the indebtedness referred to in clauses (i) through (viii) above.

4

An obligation that constitutes Senior Debt shall continue to be Senior Debt and entitled to the benefits of the subordination provisions hereof irrespective of any amendment, modification or waiver of any term of such obligation or extension or renewal of such obligation. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (1) indebtedness incurred for the purchase of goods, materials or property, or for services obtained in the ordinary course of business or for other liabilities arising in the ordinary course of business, (2) any indebtedness which by its terms expressly provides that it is not superior in right of payment to the Securities or (3) any of Issuer’s indebtedness owed to a person who is the Issuer’s subsidiary or employee (except as required by law).

“Trust Indenture Act of 1939” (except as otherwise provided in Sections 8.1 and 8.2) means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was originally executed.

“Trustee” means the Person identified as “Trustee” in the first paragraph hereof and, subject to the provisions of Article Six, shall also include any successor trustee.

“Unregistered Security” means any Security other than a Registered Security.

“U.S. Government Obligations” means direct obligations of the United States of America, backed by its full faith and credit.

“vice president” when used with respect to the Issuer, means any vice president, whether or not designated by a number or a word or words added before or after the title of “vice president.”

“Yield to Maturity” means the yield to maturity on a series of securities, calculated at the time of issuance of such series, or, if applicable, at the most recent redetermination of interest on such series, and calculated in accordance with accepted financial practice.

ARTICLE TWO

SECURITIES

SECTION 2.1 Forms Generally. The Securities of each series and the Coupons, if any, to be attached thereto shall be substantially in such form (not inconsistent with this Indenture) as shall be established by or pursuant to a resolution of the Board of Directors or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with any rules of any securities exchange or to conform to general usage, all as may be determined by the officers executing such Securities and Coupons, as evidenced by their execution of the Securities and Coupons.

The definitive Securities and Coupons shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities and Coupons, as evidenced by their execution of such Securities and Coupons.

5

SECTION 2.2 Form of Trustee’s Certificate of Authentication. The Trustee’s certificate of authentication on all Securities shall be in substantially the following form:

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

Trustee, as Trustee
By
	Authorized Signatory

SECTION 2.3 Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be established in or pursuant to a resolution of the Board of Directors and set forth in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series,

(1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);

(2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 2.8, 2.9, 2.11 or 12.3);

(3) the date or dates on which the principal of the Securities of the series is payable or the method by which such date or dates shall be determined;

(4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, the interest payment dates on which such interest shall be payable and the record dates for the determination of Holders to whom interest is payable and the person to whom any interest on a Registered Security shall be payable if other than the person in whose name the Security is registered on the record date;

(5) the place or places where the principal and any interest on Securities of the series shall be payable;

(6) the price or prices at which, the period or periods within which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Issuer, pursuant to any sinking fund or otherwise;

6

(7) the obligation, if any, of the Issuer to redeem, purchase or repay Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the price or prices at which and the period or periods within which and the terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation;

(8) if other than denominations of U.S. $1,000 and any integral multiple thereof, in the case of Registered Securities, or U.S. $1,000 in the case of Unregistered Securities, the denominations in which Securities of the series shall be issuable;

(9) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 5.1 or provable in bankruptcy pursuant to Section 5.2;

(10) any authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Securities of such series;

(11) if other than such coin or currency of the United States of America as at the time of payment is legal tender for payment of public or private debts, the coin or currency or units based on or relating to currencies in which payment of the principal of and interest, if any, on the securities of that series shall be payable;

(12) if the principal of or interest, if any, on the Securities of that series are to be payable, at the election of the Issuer or a Holder thereof, in a coin or currency or units based on or relating to currencies other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made;

(13) if the amount of payments of principal of or interest, if any, on the Securities of the series may be determined with reference to an index, formula or other method based on a coin or currency or units based on or relating to currencies other than that in which the Securities are stated to be payable, the manner in which such amounts shall be determined;

(14) whether the Securities of the series will be issuable as Registered Securities or Unregistered Securities (with or without Coupons), or both, any restrictions applicable to the offer, sale or delivery of Unregistered Securities and, if other than as provided in Section 2.8, the terms upon which Unregistered Securities of any series may be exchanged for Registered Securities of such series and vice versa;

(15) whether and under what circumstances the Issuer will pay additional amounts on the Securities of the series held by a Person who is not a U.S. person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Issuer will have the option to redeem such Securities rather than pay such additional amounts;

7

(16) if applicable, that any Securities shall be issuable in whole or in part in the form of one or more Global Securities, the form of any applicable legends to be borne by such Global Security and if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions not otherwise set forth herein, then the form and terms of such certificates, documents or conditions;

(17) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Issuer set forth herein with respect to the Securities of such series;

(18) if applicable, that the subordination provisions of Article XIII shall apply to the Securities of the series or that any different subordination provisions, including a different definition of the term ‘Senior Debt’ shall apply to the Securities of such series; and

(19) any other terms of the series, including provisions for payment by wire transfers, if any, or modifications of the definition of Business Day (which terms shall not adversely affect the interests of the holders of the Securities).

All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such resolution of the Board of Directors or in any such indenture supplemental hereto.

SECTION 2.4 Authentication and Delivery of Securities. At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Securities of any series (having attached thereto appropriate Coupons, if any), executed by the Issuer to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver such Securities and Coupons, if any, to or upon the written order of the Issuer, signed by any two of the following officers of the Issuer: president, treasurer, any vice president, secretary or any assistant secretary, without any further action by the Issuer. In authenticating such Securities and Coupons, if any, and accepting the additional responsibilities under this Indenture in relation to such Securities and Coupons, if any, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon:

(1) a copy of any resolution or resolutions of the Board of Directors by or pursuant to which the form and terms of such series were established, in each case certified by the secretary or an assistant secretary of the Issuer;

(2) an executed supplemental indenture, if any;

(3) an Officers’ Certificate setting forth the form and terms of the Securities and Coupons, if any, as required pursuant to Section 2.3, and prepared in accordance with Section 11.5;

(4) an Opinion of Counsel, prepared in accordance with Section 11.5, which shall state:

8

(a) that the form or forms and terms of such Securities and Coupons, if any, have been established by or pursuant to a resolution of the Board of Directors or by a supplemental indenture as permitted by Sections 2.1 and 2.3 in conformity with the provisions of this Indenture;

(b) that such Securities and Coupons, if any, when authenticated and delivered by the Trustee and issued by the Issuer in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and binding obligations of the Issuer;

(c) that all laws and requirements in respect of the execution and delivery by the Issuer of the Securities and Coupons, if any, have been complied with in all material respects; and

(d) such other matters as the Trustee may reasonably request.

The Trustee shall have the right to decline to authenticate and deliver any Securities and Coupons, if any, under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken by the Issuer or if the Trustee in good faith by its board of directors or board of trustees, executive committee, or a trust committee of directors, trustees or Responsible Officers shall determine that such action would expose the Trustee to personal liability to existing Holders.

SECTION 2.5 Execution of Securities. The Securities and, if applicable, each Coupon appertaining thereto, shall be signed on behalf of the Issuer by both (a) its president or its treasurer under its corporate seal and (b) attested by any of its vice presidents, its secretary or any of its assistant secretaries. Such signatures may be the manual or facsimile signatures of the present or any future such officers. The seal of the Issuer may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security or Coupon that has been duly authenticated and delivered by the Trustee.

In case any officer of the Issuer who shall have signed any of the Securities or Coupons shall cease to be such officer before the Security or Coupon so signed (or the Security to which the Coupon so signed appertains) shall be authenticated and delivered by the Trustee or disposed of by the Issuer, such Security or Coupon nevertheless may be authenticated and delivered or disposed of as though the person who signed such Security or Coupon had not ceased to be such officer of the Issuer; and any Security or Coupon may be signed on behalf of the Issuer by such persons as, at the actual date of the execution of such Security or Coupon, shall be the proper officers of the Issuer, although at the date of the execution and delivery of this Indenture any such person was not such an officer.

SECTION 2.6 Certificate of Authentication. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, executed by the Trustee by the manual signature of one of its authorized signatories, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the

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Trustee upon any Security executed by the Issuer shall be conclusive evidence that the Security so authenticated has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. No Coupon shall be entitled to the benefits of this Indenture or shall be valid or obligatory for any purpose until such certificate by the Trustee shall have become duly executed on the Security to which such Coupon appertains.

SECTION 2.7 Denomination and Date of Securities; Payments of Interest. The Securities shall be issuable as Registered Securities or Unregistered Securities in such denominations as shall be specified as contemplated by Section 2.3. In the absence of any such specification with respect to the Registered Securities of any series, the Registered Securities of such series shall be issuable in dominations of U.S. $1,000 and any integral multiple thereof. In the absence of any such specification with respect to the Unregistered Securities, Unregistered Securities shall be issued in the denomination of U.S. $1,000. The Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plan as the officers of the Issuer executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof.

Each Registered Security shall be dated the date of its authentication. Each Unregistered Security shall be dated as provided in the resolution or resolutions of the Board of Directors of the Issuer or the supplemental indenture referred to in Section 2.3. The Securities of each series shall bear interest, if any, from the date, and such interest shall be payable on the dates, established as contemplated by Section 2.3.

The person in whose name any Registered Security on the Security Register maintained by the Issuer pursuant to Section 2.8 of any series is registered at the close of business on any record date applicable to a particular series with respect to any interest payment date for such series shall be entitled to receive the interest, if any, payable on such interest payment date notwithstanding any transfer or exchange of such Registered Security subsequent to the record date and prior to such interest payment date, except if and to the extent the Issuer shall default in the payment of the interest due on such interest payment date for such series, in which case such defaulted interest shall be paid to the persons in whose names Outstanding Registered Securities for such series are registered at the close of business on a subsequent record date (which shall be not less than five Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Issuer to the holders of Registered Securities not less than 15 days preceding such subsequent record date. The term “record date” as used with respect to any interest payment date (except a date for payment of defaulted interest) shall mean the date specified as such in the terms of the Registered Securities of any particular series, or, if no such date is so specified, if such interest payment date is the first day of a calendar month, the fifteenth day of the next preceding calendar month or, if such interest payment date is the fifteenth day of a calendar month, the first day of such calendar month, whether or not such record date is a Business Day.

Any defaulted interest payable in respect of any Unregistered Security shall be payable pursuant to such procedures as are satisfactory to the Trustee and in such manner so that there is no discrimination as between the holders of Registered Securities and Unregistered Securities of the same series and notice of the payment date therefor shall be given by the Trustee in the name and at the expense of the Issuer by publication at least once in an Authorized Newspaper. In

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case an Unregistered Security is surrendered in exchange for a Registered Security after the close of business on any record date for the payment of defaulted interest and before the opening of business on the proposed date of payment of such defaulted interest, the Coupon appertaining to such surrendered Unregistered Security and due for payment on such proposed date of payment will not be surrendered with such surrendered Unregistered Security and interest payable on such proposed date of payment will be made only to the holder of such Coupon on such proposed date.

SECTION 2.8 Registration, Transfer and Exchange. (a) The Issuer will keep or cause to be kept at each office or agency to be maintained for the purpose as provided in Section 3.2 a register or registers for each series of Registered Securities issued hereunder (collectively, the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, it will register, and will register the transfer of, or cause the registration of transfer of, Registered Securities as in this Article provided. Such register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. At all reasonable times such register or registers shall be open for inspection by the Trustee.

Upon due presentation for registration of transfer of any Registered Security of any series at any such office or agency to be maintained for the purpose as provided in Section 3.2, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Registered Security or Registered Securities of the same series in authorized denominations for a like aggregate principal amount.

Unregistered securities (except for any temporary Unregistered Securities) and Coupons (except for Coupons attached to any temporary Unregistered Securities) shall be transferable by delivery.

Any Registered Security or Registered Securities of any series may be exchanged for a Registered Security or Registered Securities of the same series in other authorized denominations, in an equal aggregate principal amount. Registered Securities of any series to be exchanged shall be surrendered at any office or agency maintained by the Issuer for the purpose as provided in Section 3.2, and the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor the Registered Security or Registered Securities of the same series which the Securityholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding.

If the Securities of any series are issued in both registered and unregistered form, except as otherwise specified pursuant to Section 2.3, at the option of the Holder thereof, Unregistered Securities of any series may be exchanged for Registered Securities of such series, maturity date and interest rate, in any authorized denominations and in a like aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the office or agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Coupons and all matured Coupons in default thereto appertaining, and upon payment, if the Issuer shall so require, of the charges hereinafter provided. At the option of the Holder thereof, if Unregistered Securities of any series, maturity date, interest rate and original issue date are issued in more than one

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authorized denomination, except as otherwise specified pursuant to Section 2.3, such Unregistered Securities may be exchanged for Unregistered Securities of such series, maturity date, interest rate and original issue date, in other authorized denominations and in a like aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the office or agency of the Issuer that shall be maintained for such purpose in accordance with Section 3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered Securities that have Coupons attached, all unmatured Coupons and all matured Coupons in default thereto appertaining, and upon payment, if the Issuer shall so require, of the charges hereinafter provided. Unless otherwise specified pursuant to Section 2.3, Registered Securities of any series may not be exchanged for Unregistered Securities of such series. Whenever any Securities, and the Coupons appertaining thereto, if any, are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Securities, and the Coupons appertaining thereto, if any, which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, if an Unregistered Security of any series is surrendered at any such office or agency in exchange for a Registered Security of the same series after the close of business at such office or agency on any record date and before the opening of business at such office or agency on the applicable interest payment date, such Unregistered Security shall be surrendered without the Coupon, if any, relating to such interest payment date. All Securities and Coupons surrendered upon any exchange or transfer provided for in this Indenture shall be promptly canceled and disposed of by the Trustee and the Trustee will deliver a certificate of disposition thereof to the Issuer.

All Registered Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Issuer or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder or his attorney duly authorized in writing.

The Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities and shall not be required to exchange or register a transfer of any Securities until such payment is made. No service charge shall be made for any such transaction.

The Issuer shall not be required to exchange or register a transfer of (a) any Securities of any series for a period of 15 days next preceding the first mailing of notice of redemption of Securities of such series to be redeemed, or (b) any Securities selected, called or being called for redemption except, in the case of any Security where public notice has been given that such Security is to be redeemed in part, the portion thereof not so to be redeemed and except that an Unregistered Security may be exchanged for a Registered Security of the same series being called for redemption.

All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.

Notwithstanding anything herein or in the terms of any series of Securities to the contrary, neither the Issuer nor the Trustee (which shall rely on an Officers’ Certificate and an Opinion of Counsel) shall be required to exchange any Unregistered Security for a Registered

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Security if such exchange would result in adverse Federal income tax consequences to the Issuer (including, without limitation, the inability of the Issuer to deduct from its income, as computed for Federal income tax purposes, the interest payable on the Unregistered Securities) under then applicable United States Federal income tax laws.

The provisions of clauses (1), (2), (3), (4) and (5) below shall apply only to Global Securities:

(1) Each Global Security that is a Registered Security authenticated under this Indenture shall be registered in the name of the depositary designated for such Global Security or a nominee thereof and delivered to such depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture.

(2) Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the depositary for such Global Security or a nominee thereof unless (A) such depositary (i) has notified the Issuer that it is unwilling or unable to continue as depositary for such Global Security and a successor Depositary has not been appointed by the Issuer within 90 days of receipt by the Issuer of such notification or (ii) has ceased to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor Depositary has not been appointed by the Issuer within 90 days after the Issuer became aware of such cessation or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security.

(3) Subject to clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct.

(4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the depositary for such Global Security or a nominee thereof.

(5) None of the Issuer, the Trustee nor any agent of the Issuer or the Trustee will have any responsibility or liability for the accuracy or completeness of the records relating to or payments made on account of beneficial ownership interests of a Global Security, for any act or omissions of a depositary or transactions between the depositary and beneficial owners, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

(b) Notwithstanding any other provisions of this Indenture or the Securities, transfers of a Global Security, in whole or in part, exchanges of interests in Global Securities or of other Securities as described in the following two paragraphs below shall be made only in accordance with this Section 2.8. Transfers and exchanges subject to this Section 2.8 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 2.8.

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(1) Except as provided in Section 2.8(a), a Global Security may not be transferred, in whole or in part, to any Person other than the depositary or a nominee thereof, and no such transfer to any such other Person may be registered; provided that this clause (1) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any Person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such Person. Nothing in this clause (1) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.8(b).

(2) Securities other than Global Securities may be exchanged (on transfer or otherwise) for Securities that are not Global Securities or for beneficial interests in a Global Security (if any is then Outstanding) only in accordance with such procedures, as may be from time to time adopted by the Issuer and the Trustee and as are consistent with the depositary’s applicable procedures.

SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any temporary or definitive Security or any Coupon appertaining to any Security shall become mutilated, defaced or be destroyed, lost or stolen, the Issuer in its discretion may execute, and upon the written request of any officer of the Issuer, the Trustee shall authenticate and deliver, a new Security of the same series, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of and substitution for the Security so destroyed, lost or stolen, with Coupons corresponding to the Coupons appertaining to the Security so mutilated, defaced, destroyed, lost or stolen, or in exchange or substitution for the Security to which such mutilated, defaced, destroyed, lost or stolen Coupons appertained, with Coupons appertaining thereto corresponding to the Coupons so mutilated, defaced, destroyed, lost or stolen. In every case, the applicant for a substitute Security or Coupon shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indemnity as may be required by the Issuer, Trustee and said agent to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof.

Upon the issuance of any substitute Security or Coupon, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) and the cost of any indemnity bond connected therewith. In case any Security or Coupon which has matured or is about to mature or has been called for redemption in full shall become mutilated or defaced or be destroyed, lost or stolen, the Issuer may, at its sole discretion, instead of issuing a substitute Security or Coupon, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated or defaced Security or Coupon), if the applicant for such payment shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indemnity as any of them may require to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security or Coupon and of the ownership thereof.

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Every substitute Security or Coupon of any series issued pursuant to the provisions of this Section by virtue of the fact that any such Security or Coupon is destroyed, lost or stolen shall constitute an additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Security or Coupon shall be enforceable at any time by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities or Coupons of such series duly authenticated and delivered hereunder. All Securities or Coupons shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, defaced or destroyed, lost or stolen Securities or Coupons and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender.

SECTION 2.10 Cancellation of Securities; Destruction Thereof. All Securities and Coupons surrendered for payment, redemption, registration of transfer or exchange, or for credit against any payment in respect of a sinking or analogous fund, if surrendered to the Issuer or any agent of the Issuer or the Trustee, shall be delivered to the Trustee for cancellation or, if surrendered to the Trustee, shall be canceled by it; and no Securities or Coupons shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Securities and Coupons held by it and deliver a certificate of destruction to the Issuer or shall otherwise comply with its document retention policy and applicable law. If the Issuer shall acquire any of the Securities or Coupons, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities or Coupons unless and until the same are delivered to the Trustee for cancellation.

SECTION 2.11 Temporary Securities. Pending the preparation of definitive Securities for any series, the Issuer may execute and the Trustee shall authenticate and deliver temporary Securities for such series (printed, lithographed, typewritten or otherwise reproduced, in each case in form satisfactory to the Trustee). Temporary Securities of any series shall be issuable as Registered Securities without Coupons, or as Unregistered Securities with or without Coupons attached thereto, of any authorized denomination, and substantially in the form of the definitive Securities of such series, but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Issuer with the concurrence of the Trustee. Temporary Securities may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Security shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Securities. Without unreasonable delay, the Issuer shall execute and shall furnish definitive Securities of such series and thereupon temporary Securities of such series may be surrendered in exchange therefor without charge at each office or agency to be maintained by the Issuer for that purpose pursuant to Section 3.2, and in the case of Unregistered Securities, together with any unmatured Coupons and any matured Coupons in default appertaining thereto, at any office or agency maintained by the Issuer for such purpose as specified pursuant to Section 3.2, and the Trustee shall authenticate and deliver in exchange for such temporary Securities of such series a like aggregate principal amount of

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definitive Securities of the same series in authorized denominations. Until so exchanged, the temporary Securities and any unmatured Coupons appertaining thereto of any series shall be entitled to the same benefits under this Indenture as definitive Securities and any unmatured Coupons appertaining thereto of such series. The provisions of this Section are subject to any restrictions or limitations on the issue and delivery of temporary Unregistered Securities of any series that may be established pursuant to Section 2.3 (including any provision that Unregistered Securities of such series initially be issued in the form of a single global Unregistered Security to be delivered to a depositary or agency of the Issuer located inside or outside the United States and the procedures pursuant to which definitive Unregistered Securities of such series would be issued in exchange for such temporary global Unregistered Security).

SECTION 2.12 Global Securities. Securities may be issued in the form of one or more Global Securities to be held by a securities depositary. If the Issuer determines at any time that Securities of a series shall no longer be represented by Global Security certificates, the Issuer shall inform the depositary of such determination. If participants of the depositary elect to withdraw their beneficial interests, the Issuer shall issue certificates in definitive form in exchange for such beneficial interests in the Global Security certificates. Any Global Security, or portion thereof, shall be exchangeable for Security certificates registered in the names directed by the depositary, as set forth more fully in Section 2.8. Global Securities shall bear customary legends stating that such Securities are Global Securities.

As long as the depositary or its nominee is the registered owner of a Global Security certificate, the depositary or its nominee, as the case may be, shall be considered the sole holder of the Global Security certificates and all Securities represented by such certificates for all purposes under this Indenture.

ARTICLE THREE

COVENANTS OF THE ISSUER

SECTION 3.1 Payment of Principal and Interest. The Issuer covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Securities of such series at the place or places, at the respective times and in the manner provided in such Securities. Except as specified in Section 2.3, the interest on Securities with Coupons attached (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only upon presentation and surrender of the several Coupons for such interest installments as are evidenced thereby as they severally mature. Except as specified in Section 2.3, the interest on any temporary Unregistered Securities (together with any additional amounts payable pursuant to the terms of such Securities) shall be paid, as to the installments of interest evidenced by Coupons attached thereto, if any, only upon presentation and surrender thereof, and, as to the other installments of interest, if any, only upon presentation of such Securities for notation thereon of the payment of such interest. Each installment of interest on the Registered Securities of any series may be paid by mailing checks for such interest payable to or upon the written order of the holders of Registered Securities entitled thereto as they shall appear on the registry books of the Issuer.

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SECTION 3.2 Offices for Payments, etc. So long as any of the Securities remain outstanding, the Issuer will maintain the following for each series: an office or agency (a) where the Registered Securities may be presented for payment, (b) where the Registered Securities may be presented for registration of transfer and for exchange as in this Indenture provided and (c) where notices and demands to or upon the Issuer in respect of the Registered Securities or of this Indenture may be served.

The Issuer will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. With respect to each series of Securities and Coupons whose terms are established pursuant to Section 2.3, the Issuer hereby designates the Corporate Trust Office as the initial office to be maintained by it for each such purpose. In case the Issuer shall fail to so designate or maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Corporate Trust Office.

SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee with respect to each series of Securities hereunder.

SECTION 3.4 Paying Agents. Whenever the Issuer shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section,

(a) that it will hold all sums received by it as such agent for (i) the payment of the principal of or interest on the Securities of such series (whether such sums have been paid to it by the Issuer or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities of such series or the Coupons appertaining thereto or (ii) the payment of any sums due the Trustee hereunder, and

(b) that it will give the Trustee notice of any failure by the Issuer (or by any other obligor on the Securities of such series) to make any payment of the principal of or interest on the Securities of such series when the same shall be due and payable.

The Issuer will, on or prior to each due date of the principal of or interest on the Securities of such series, deposit with the paying agent a sum sufficient to pay such principal or interest so becoming due, and (unless such paying agent is the Trustee) the Issuer will promptly notify the Trustee of any failure to take such action.

If the Issuer shall act as its own paying agent with respect to the Securities or the Coupons appertaining thereto of any series, it will, on or before each due date of the principal of or interest on the Securities or the Coupons appertaining thereto of such series, set aside, segregate and hold in trust for the benefit of the holders of the Securities or the Coupons appertaining thereto of such series a sum sufficient to pay such principal or interest so becoming due. The Issuer will promptly notify the Trustee of any failure to take such action.

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Anything in this Section to the contrary notwithstanding, the Issuer may at any time, for the purpose of obtaining a satisfaction and discharge with respect to one or more or all series of Securities hereunder, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust for any such series by the Issuer or any paying agent hereunder, as required by this Section, such sums to be held by the Trustee upon the trusts herein contained.

Anything in this Section to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Sections 10.3 and 10.4.

SECTION 3.5 Written Statement to Trustee. The Issuer will deliver to the Trustee on or before April 30 in each year (beginning with April 30, 2008) a brief certificate (which need not comply with Section 11.5) from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Issuer’s compliance with all conditions and covenants under this Indenture (such compliance to be determined without respect to any period of grace or requirement of notice provided under the Indenture).

SECTION 3.6 Existence. Subject to Article Nine, the Issuer will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and its material rights (charter and statutory) and franchises; provided, however, that the Issuer shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuer.

ARTICLE FOUR

SECURITYHOLDERS’ LISTS AND REPORTS BY THE

ISSUER AND THE TRUSTEE

SECTION 4.1 Issuer to Furnish Trustee Information as to Names and Addresses of Securityholders. The Issuer covenants and agrees that it will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the holders of the Securities of each series:

(a) semiannually and not more than 15 days after each record date for the payment of interest on such Securities, as hereinabove specified, as of such record date and on dates to be determined pursuant to Section 2.3 for non-interest-bearing securities in each year, and

(b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Issuer of any such request as of a date not more than 15 days prior to the time such information is furnished, provided that if and so long as the Trustee shall be the Security registrar for such series and all of the Securities of such series are Registered Securities, such list shall not be required to be furnished. The Trustee, at the request of the Issuer, shall provide such list to the Issuer for so long as the Trustee shall be the Security registrar.

SECTION 4.2 Preservation and Disclosure of Securityholders’ Lists.

(a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of each series of Securities (i) contained in the most recent list furnished to it as provided in Section 4.1 and (ii) received or maintained by it in the capacity of Security registrar for such series, if so acting. The Trustee may destroy any list furnished to it as provided in Section 4.1 upon receipt of a new list so furnished.

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(b) In case three or more holders of Securities (hereinafter referred to as “applicants”) apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Securities of a particular series (in which case the applicants must all hold Securities of such series) or with holders of all Securities with respect to their rights under this Indenture or under such Securities and such application is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application provide the Issuer with notice of such request and, at its election, either

(i) afford to such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section, or

(ii) inform such applicants as to the approximate number of holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subsection (a) of this Section, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.

If the Trustee shall elect not to afford to such applicants access to such information, the Trustee, upon the written request of such applicants, shall mail to each Securityholder of such series or all Securities, as the case may be, whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Securities of such series or all Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met, and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.

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(c) Each and every holder of Securities and Coupons, by receiving and holding the same, agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Securities in accordance with the provisions of subsection (b) of this Section, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under such subsection (b).

SECTION 4.3 Reports by the Issuer. The Issuer covenants to file with the Trustee, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents, any other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, or if the Issuer is not required to file information, documents or reports pursuant to either of such Sections, then to file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, or in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. The Issuer shall also comply with the provisions of Section 314(a) of the Trust Indenture Act of 1939.

SECTION 4.4 Reports by the Trustee. Any Trustee’s report required under Section 313(a) of the Trust Indenture Act of 1939 shall be transmitted or filed, as the case may be, on or before July 15 in each year beginning July 15, 2008, as provided in Sections 313(b), 313(c) and 313(d) of the Trust Indenture Act of 1939, so long as any Securities are Outstanding hereunder, and shall be dated as of a date convenient to the Trustee no more than 60 days prior thereto.

ARTICLE FIVE

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS

ON EVENT OF DEFAULT

SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. Except as may be provided in any supplemental indenture applicable to any particular series of Securities, “Event of Default” with respect to Securities of any series wherever used herein, means each one of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(a) default in the payment of any installment of interest upon any of the Securities of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days, subject to any mandatory or optional deferral provisions applicable to installments of interest under the terms of the particular series of Securities; or

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(b) default in the payment of all or any part of the principal on any of the Securities of such series as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise; or

(c) default in the payment of any sinking fund installment as and when the same shall become due and payable by the terms of the Securities of such series; or

(d) default in the performance, or breach, in any material respect of any covenant or warranty of the Issuer in respect of the Securities of such series (other than a covenant or warranty in respect of the Securities of such series, a default in the performance or breach of which is elsewhere in this Section specifically dealt with or which is not deemed to constitute an Event of Default under the terms of the particular series of Securities), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of all series affected thereby, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(e) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall appoint a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Issuer or for any substantial part of its property or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or

(f) the Issuer shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case commenced against the Issuer under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Issuer or for any substantial part of its property, or make any general assignment for the benefit of creditors; or

(g) any other Event of Default provided in the supplemental indenture or resolution of the Board of Directors under which such series of Securities is issued or in the form of Security for such series.

If an Event of Default with respect to a particular series of Securities described in clauses (a), (b), (c) or (d) above occurs and is continuing, then, and in each and every such case, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding hereunder (each such series voting as a separate class) by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all Securities of such series and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default described in clause (e) or (f) occurs and is continuing, then and in each and every such case, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the

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Securities then Outstanding hereunder (treated as one class), by notice in writing to the Issuer (and to the Trustee if given by Securityholders), may declare the entire principal (or, if any Securities are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities then Outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable.

The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if the Securities are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of the Securities of any series (or of all the Securities, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Issuer shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Securities of such series (or of all the Securities, as the case may be) and the principal of any and all Securities of such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series (or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be, to the date of such payment or deposit)) and such amount as shall be sufficient to cover reasonable compensation to the Trustee, its agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee except as a result of negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.6, and if any and all Events of Default under the Indenture, other than the nonpayment of the principal of Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein — then and in every such case the Holders of a majority in aggregate principal amount of all the Securities of such series, each series voting as a separate class (or of all the Securities, as the case may be, voting as a single class), then Outstanding, by written notice to the Issuer and to the Trustee, may waive all defaults with respect to such series (or with respect to all the Securities, as the case may be) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.

For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration, and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration, together with interest, if any, thereon and all other amounts then owing thereunder, shall constitute payment in full of such Original Issue Discount Securities.

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SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt. The Issuer covenants that (a) in case default shall be made in the payment of any installment of interest on any of the Securities of any series when such interest shall have become due and payable (unless said installment of interest has been deferred in accordance with the terms of such series of Securities), and such default shall have continued for a period of 30 days or (b) in case default shall be made in the payment of all or any part of the principal of any of the Securities of any series when the same shall have become due and payable, whether upon maturity of the Securities of such series or upon any redemption or by declaration or otherwise—then upon demand of the Trustee, the Issuer will pay to the Trustee for the benefit of the holders of the Securities of such series the whole amount that then shall have become due and payable on all Securities of such series, and Coupons appertaining thereto, for principal or interest, as the case may be (with interest to the date of such payment upon the overdue principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of original Issue Discount Securities) specified in the Securities of such series); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including agreed upon compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and any expenses and liabilities reasonably incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of its negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.6.

Until such demand is made by the Trustee, the Issuer may pay the principal of and interest on the Securities of any series to the Holders, whether or not the principal of and interest on the Securities of such series be overdue.

In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceeding at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Issuer or other obligor upon such Securities and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Securities, wherever situated, the moneys adjudged or decreed to be payable.

In case there shall be pending proceedings relative to the Issuer or any other obligor upon the Securities under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) shall have been appointed for or taken possession of the Issuer or all or substantially all of its property or such other obligor, or in case of any other comparable judicial proceedings relative to the Issuer or other obligor upon the Securities of any series, or Coupons appertaining thereto, or to all or substantially all of property of the Issuer or such other obligor, the Trustee, irrespective of whether the principal of any Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise:

(a) to file and prove a claim or claims for the whole amount of principal and interest (or, if the Securities of any series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) owing and unpaid in respect of

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the Securities of any series, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for agreed upon compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all reasonable expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.6) and of the Securityholders allowed in any judicial proceedings relative to the Issuer or other obligor upon the Securities of any series, or to the property of the Issuer or such other obligor,

(b) unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities of any series in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and

(c) to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute all amounts received with respect to the claims of the Securityholders and of the Trustee on their behalf; and any trustee, receiver, or liquidator, custodian or other similar official is hereby authorized by each of the Securityholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover agreed upon compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other reasonable expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.6.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or Coupons appertaining thereto of any series or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar person.

All rights of action and of asserting claims under this Indenture, or under any of the Securities, or Coupons appertaining thereto, may be enforced by the Trustee without the possession of any of the Securities, or Coupons appertaining thereto, or the production thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements, compensation and all other amounts due pursuant to Section 6.6 to the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the holders of the Securities, or Coupons appertaining thereto, in respect of which such action was taken.

In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the holders of the Securities in respect to which such action was taken, and it shall not be necessary to make any holders of such Securities parties to any such proceedings.

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SECTION 5.3 Application of Proceeds. Any moneys collected by the Trustee pursuant to this Article in respect of any series shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the several Securities, and Coupons appertaining thereto, in respect of which monies have been collected and stamping (or otherwise noting) thereon the payment, or issuing Securities of such series in reduced principal amounts in exchange for the presented Securities of like series if only partially paid, or upon surrender thereof if fully paid:

FIRST: To the payment of costs and expenses applicable to such series in respect of which monies have been collected, including agreed upon compensation to the Trustee and each predecessor Trustee and their respective agents and attorneys and of all reasonable expenses and liabilities incurred, and all advances made, by the Trustee in the exercise of its rights or discharge of its duties hereunder and each predecessor Trustee except as a result of negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 6.6;

SECOND: Subject to Article Thirteen, in case the principal of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest on the Securities of such series in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in such Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or preference;

THIRD: Subject to Article Thirteen, in case the principal of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal and interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such principal and interest or Yield to Maturity, without preference or priority of principal over interest or Yield to Maturity, or of interest or Yield to Maturity over principal, or of any installment of interest over any other installment of interest, or of any Security of such series over any other Security of such series, ratably to the aggregate of such principal and accrued and unpaid interest or Yield to Maturity; and

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FOURTH: Subject to Article Thirteen, to the payment of the remainder, if any, to the Issuer or any other person lawfully entitled thereto.

SECTION 5.4 Suits for Enforcement. In case an Event of Default has occurred, has not been waived and is continuing, the Trustee in its discretion may proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.

SECTION 5.5 Restoration of Rights on Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Issuer and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Issuer, the Trustee and the Securityholders shall continue as though no such proceedings had been taken.

SECTION 5.6 Limitations on Suits by Securityholders. No holder of any Security of any series or of any Coupon appertaining thereto shall have any right by virtue or by availing of any provision of this Indenture or of any Securities to institute any action or proceedings at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture or any Security, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) or for any other remedy hereunder or in respect of any Securitiy, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 5.9; it being understood and intended, and being expressly covenanted by the holder of every Security or Coupon with every other Holder and the Trustee, that no one or more holders of Securities of any series or of any Coupon appertaining thereto shall have any right in any manner whatever by virtue or by availing themselves of any provision of this Indenture or of any Security to affect, disturb or prejudice the rights of any other such holder of Securities or Coupons, or to obtain or seek to obtain priority over or preference to any other such Holder or to enforce any right under this Indenture or in respect of any Security, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities of the applicable series or of any Coupon appertaining thereto. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity.

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SECTION 5.7 Unconditional Right of Securityholders to Institute Certain Suits. Notwithstanding any other provision in this Indenture and any provision of any Security, the right of any holder of any Security or Coupon to receive payment of the principal of and interest on such Security or Coupon on or after the respective due dates expressed in such Security or Coupon, or in any Coupon appertaining thereto, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. Except as provided in Section 2.9, no right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy, to the extent permitted by law, shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

No delay or omission of the Trustee or of any Securityholder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to Section 5.6, every power and remedy given by this Indenture or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders.

SECTION 5.9 Control by Securityholders. The holders of a majority in aggregate principal amount of the Securities of each series affected (with each series voting as a separate class) at the time Outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Securities of such series by this Indenture; provided that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture and any applicable supplemental indenture and provided further that (subject to the provisions of Section 6.1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors, the executive committee, or a trust committee of directors or Responsible Officers of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction would be unduly prejudicial to the interests of holders of the Securities of all series so affected not joining in the giving of said direction, it being understood that (subject to Section 6.1) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders.

Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction or directions by Securityholders.

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SECTION 5.10 Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Securities of any series as provided in Section 5.1, the holders of a majority in aggregate principal amount of the Securities of such series at the time Outstanding on behalf of the holders of all the Securities of such series may waive any past default or Event of Default described in Section 5.1 and its consequences except a default in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Security affected. In the case of any such waiver, the Issuer, the Trustee and the holders of the Securities of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in Certain Circumstances. The Trustee, within 90 days after the occurrence of a default known to the Trustee with respect to the Securities of any series, shall provide notice thereof to the holders of Outstanding Securities of such series and Coupons appertaining thereto, if any, by mailing such notice to such Holders at their addresses as they shall appear in the registry books, unless such defaults shall have been cured before the giving of such notice (the term “default” or “defaults” for the purposes of this Section being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); provided that, except in the case of default in the payment of the principal of or interest on any of the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or trustees and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders of such series; provided, further, that in the case of any default of the character specified in clause (d) of Section 5.1, no such notice to Holders shall be given until at least 60 days after the occurrence thereof.

SECTION 5.12 Right of Court to Require Filing of Undertaking to Pay Costs. The parties to this Indenture agree, and each holder of any Security or Coupon by his acceptance thereof shall be deemed to have agreed, that any court in its discretion may require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder or group of Securityholders of any series holding in the

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aggregate more than 10% in aggregate principal amount of the Securities Outstanding of such series, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security or Coupon on or after the due date expressed in such Security or Coupon.

ARTICLE SIX

CONCERNING THE TRUSTEE

SECTION 6.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default. With respect to the holders of any series of Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Securities of a particular series and after the curing or waiving of all Events of Default which may have occurred with respect to such series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Securities of a series has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

(a) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default with respect to such series which may have occurred:

(i) the duties and obligations of the Trustee with respect to the Securities of any series shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture;

(b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and

(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders pursuant to Section 5.9 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee under, or by reason of exercising any trust or power conferred upon the Trustee, in accordance with the terms of this Indenture.

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None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there shall be reasonable ground for believing that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it.

SECTION 6.2 Certain Rights of the Trustee. In furtherance of and subject to the Trust Indenture Act of 1939, and subject to Section 6.1:

(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers’ Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an Officers’ Certificate or order of the Issuer (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Issuer;

(c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action reasonably taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;

(d) the Trustee shall be under no obligation to exercise any of the trusts, rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby;

(e) the Trustee shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture;

(f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing so to do by the holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity from the requesting Holder against such expenses or liabilities as a condition to proceeding;

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(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder.

(h) in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;

(i) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the particular Securities and this Indenture; and

(j) the rights, privileges, protections, immunities and benefits given to the Trustee hereunder, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its respective capacities hereunder, and each agent, custodian and other Person employed to act on behalf of the Trustee in any such capacity hereunder.

SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof.

The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Securities or Coupons. The Trustee shall not be accountable for the use or application by the Issuer of any of the Securities or of the proceeds thereof.

SECTION 6.4 Trustee and Agents May Hold Securities or Coupons; Collections, etc. The Trustee or any agent of the Issuer or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons with the same rights it would have if it were not the Trustee or such agent and, subject to Sections 6.8 and 6.13, if operative, may otherwise deal with the Issuer and receive, collect, hold and retain collections from the Issuer with the same rights it would have if it were not the Trustee or such agent.

SECTION 6.5 Moneys Held by Trustee. Subject to the provisions of Section 10.4 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Neither the Trustee nor any agent of the Issuer or the Trustee shall be under any liability for interest on any moneys received by it hereunder.

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SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior Claim. The Issuer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, agreed upon compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Issuer covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Issuer also covenants to indemnify the Trustee and each predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including the reasonable costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Issuer under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for reasonable expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. Such additional indebtedness shall be a senior claim to that of the Securities and Coupons upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Securities or Coupons, and the Securities and Coupons are hereby subordinated to such senior claim.

SECTION 6.7 Right of Trustee to Rely on Officers’ Certificate, etc. Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed), in the absence of negligence or bad faith on the part of the Trustee, may be deemed to be conclusively proved and established by an Officers’ Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof.

SECTION 6.8 Persons Eligible for Appointment as Trustee. The Trustee for each series of Securities hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia having a combined capital and surplus of at least $50,000,000, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal, State or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.8, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.8, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.9.

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No obligor upon the Securities or person directly or indirectly controlling, controlled by or under common control with such obligor shall serve as Trustee for any series of Securities.

The Trustee shall comply with Section 310(b) of the Trust Indenture Act of 1939.

The provisions of this Section 6.8 are in furtherance of and subject to Section 310(a) of the Trust Indenture Act of 1939.

SECTION 6.9 Resignation and Removal; Appointment of Successor Trustee.

(a) The Trustee, or any trustee or trustees hereafter appointed, at any time may resign with respect to one or more or all series of Securities by giving written notice of resignation to the Issuer. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor trustee or trustees with respect to the applicable series by written instrument in duplicate, executed by authority of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or trustees. If no successor trustee shall have been so appointed with respect to any series and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Securityholder who has been a bona fide holder of a Security or Securities of the applicable series for at least six months may, subject to the provisions of Section 5.12, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court thereupon, after such notice, if any, as it may deem proper and prescribe, may appoint a successor trustee.

(b) In case at any time any of the following shall occur:

(i) the Trustee shall fail to comply with the provisions of Section 310(b) of the Trust Indenture Act of 1939 with respect to any series of Securities after written request therefor by the Issuer or by any Securityholder who has been a bona fide holder of a Security or Securities of such series for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.8 and shall fail to resign after written request therefor by the Issuer or by any Securityholder; or (iii) the Trustee shall become incapable of acting with respect to any series of Securities, or shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Issuer may remove the Trustee with respect to the applicable series of Securities and appoint a successor trustee for such series by written instrument, in duplicate, executed by order of the Board of Directors of the Issuer, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.1, any Securityholder who has been a bona fide holder of a Security or Securities of such series for at least six months, on behalf of himself and all others similarly situated, may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee with respect to such series. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee.

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(c) The holders of a majority in aggregate principal amount of the Securities of each series at the time Outstanding at any time may remove the Trustee with respect to securities of such series and appoint a successor trustee with respect to the Securities of such series by delivering to the Trustee so removed, to the successor trustee so appointed and to the Issuer the evidence provided for in Section 7.1 of the action in that regard taken by the Securityholders.

(d) Any resignation or removal of the Trustee with respect to any series and any appointment of a successor trustee with respect to such series pursuant to any of the provisions of this Section 6.9 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 6.10.

SECTION 6.10 Acceptance of Appointment by Successor Trustee. Any successor trustee appointed as provided in Section 6.9 shall execute and deliver to the Issuer and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee with respect to all or any applicable series shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations with respect to such series of its predecessor hereunder, with like effect as if originally named as trustee for such series hereunder; but, nevertheless, on the written request of the Issuer or of the successor trustee, upon payment of its charges then unpaid, the trustee ceasing to act, subject to Section 10.4, shall pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act, nevertheless, shall retain a prior claim upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.6.

If a successor trustee is appointed with respect to the Securities of one or more (but not all) series, the Issuer, the predecessor Trustee and each successor trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such trustees as co-trustees of the same trust and that each such trustee shall be deemed to be trustee of a trust or trusts under separate indentures.

No successor trustee with respect to any series of Securities shall accept appointment as provided in this Section 6.10 unless at the time of such acceptance such successor trustee shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible under the provisions of Section 6.8.

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Upon acceptance of appointment by any successor trustee as provided in this Section 6.10, the Issuer shall mail notice thereof to the holders of Securities of each series affected, by first-class mail to such holders of Securities of any series for which such successor trustee is acting as trustee at their last addresses as they shall appear in the Security register. If the Issuer fails to mail such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Issuer.

SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, without the execution or filing of any paper; the giving of any notice or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, provided, that such corporation shall be qualified under Section 310(b) of the Trust Indenture Act of 1939 and eligible under the provisions of Section 6.8.

In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of any series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities of any series shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force that the Securities of such series or this Indenture have granted to such certificate; provided, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities of any series in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.

SECTION 6.12 Preferential Collection of Claims Against the Issuer. The Trustee shall comply with Section 311(a) of the Trust Indenture Act of 1939, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act of 1939.

Any Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act of 1939 to the extent indicated therein.

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

SECTION 7.1 Evidence of Action Taken by Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by a specified percentage in principal amount of the Securityholders of any or all series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such specified percentage of Securityholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee. Proof of

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execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the Issuer, if made in the manner provided in this Article.

SECTION 7.2 Proof of Execution of Instruments and of Holding of Securities.

Subject to Sections 6.1 and 6.2, the execution of any instrument by a Securityholder or his agent or proxy may be proved in the following manner:

The fact and date of the execution by any Holder of any instrument may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the person executing such instruments acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer. Where such execution is by or on behalf of any legal entity other than an individual, such certificate or affidavit shall also constitute sufficient proof of the authority of the person executing the same. The fact of the holding by any holder of an Unregistered Security of any series, and the identifying number of such Security and the date of his holding the same, may be proved by the production of such Security or by a certificate executed by any trust company, bank, banker or recognized securities dealer wherever situated satisfactory to the Trustee, if such certificate shall be deemed by the Trustee to be satisfactory. Each such certificate shall be dated and shall state that on the date thereof a Security of such series bearing a specified identifying number was deposited with or exhibited to such trust company, bank, banker or recognized securities dealer by the person named in such certificate. Any such certificate may be issued in respect of one or more Unregistered Securities of one or more series specified therein. The holding by the person named in any such certificate of any Unregistered Securities of any series specified therein shall be presumed to continue for a period of one year from the date of such certificate unless at the time of any determination of such holding (1) another certificate bearing a later date issued in respect of the same Securities shall be produced, or (2) the Security of such series specified in such certificate shall be produced by some other person, or (3) the Security of such series specified in such certificate shall have ceased to be Outstanding. Subject to Sections 6.1 and 6.2, the fact and date of the execution of any such instrument and the amount and numbers of Securities of any series held by the person so executing such instrument and the amount and numbers of any Security or Securities for such series may also be proven in accordance with such reasonable rules and regulations as may be prescribed by the Trustee for such series or in any other manner which the Trustee for such series may deem sufficient.

SECTION 7.3 Holders to Be Treated as Owners. The Issuer, the Trustee and any agent of the Issuer or the Trustee may deem and treat the person in whose name any Security shall be registered upon the Security register for such series as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest on such Security and for all other purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the holder of any Unregistered Security and the holder of any Coupon as the absolute owner of such Unregistered Security or Coupon (whether or not such

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Unregistered Security or Coupon shall be overdue) for the purpose of receiving payment thereof or on account thereof and for all other purposes and neither the Issuer, the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. All such payments so made to any such person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security or Coupon.

SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding. In determining whether the Holders of the requisite aggregate principal amount of Outstanding Securities of any or all series have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Issuer or any other obligor on the Securities with respect to which such determination is being made or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor on the Securities with respect to which such determination is being made shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Securities which the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Issuer or any other obligor upon the Securities or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor on the Securities. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly a written statement by two of its officers (which need not comply with Section 11.5) listing and identifying all Securities, if any, known by the Issuer to be owned or held by or for the account of any of the above-described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such Officers’ Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination.

SECTION 7.5 Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities of any or all series, as the case may be, specified in this Indenture in connection with such action, any holder of a Security the serial number of which is shown by the evidence to be included among the serial numbers of the Securities the Holders of which have consented to such action may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Security. Except as aforesaid, any such action taken by the holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security and of any Securities issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon any such Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities of any or all series, as the case may be, specified in this Indenture in connection with such action shall be conclusively binding upon the Issuer, the Trustee and the holders of all the Securities affected by such action.

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ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

SECTION 8.1 Supplemental Indentures Without Consent of Securityholders. The Issuer, when authorized by a resolution of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as in force at the date of the execution thereof) for one or more of the following purposes:

(a) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Securities of one or more series any property or assets;

(b) to evidence the succession of another corporation to the Issuer, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Issuer pursuant to Article Nine;

(c) to add to the covenants of the Issuer such further covenants, restrictions, conditions or provisions as its Board of Directors and the Trustee shall consider to be for the protection of the holders of Securities or Coupons, and, if the Issuer and Trustee so agree and provide in the supplemental indenture, to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, that in respect of any such additional covenant, restriction, condition or provision such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such an Event of Default or may limit the remedies available to the Trustee upon such an Event of Default or may limit the right of the Holders of a majority in aggregate principal amount of the Outstanding Securities of such series to waive such an Event of Default;

(d) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture; or to make such other provisions in regard to matters or questions arising under this Indenture or under any supplemental indenture as the Board of Directors may deem necessary or desirable and which shall not adversely affect the interests of the holders of the Securities;

(e) to provide for the issuance of Securities of any series and related Coupons, if any, as permitted by Sections 2.1 and 2.3 hereof and to establish the form and term thereof;

(f) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Securities of one or more series, or of the Coupons appertaining to such Securities, and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Section 6.10; and

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(g) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect and maintain the qualification of this Indenture under the Trust Indenture Act of 1939, or under any similar Federal statute hereafter enacted, and to add to this Indenture such other provisions and make such other changes to this Indenture as may be expressly permitted by the Trust Indenture Act of 1939, or under any similar Federal statute hereafter enacted, excluding however, the provisions referred to in section 316(a)(2) of the Trust Indenture Act of 1939 or any corresponding provisions in any similar Federal statute hereafter enacted.

The Trustee is hereby authorized to join with the Issuer in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section may be executed without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 8.2.

SECTION 8.2 Supplemental Indentures With Consent of Securityholders. With the consent (evidenced as provided in Article Seven) of the Holders of not less than 66-2/3% in aggregate principal amount of the Securities at the time Outstanding of all series affected by such supplemental indenture (voting as one class), the Issuer, when authorized by a resolution of its Board of Directors, and the Trustee, from time to time and at any time, may enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as in force at the date of execution thereof) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Securities of each such series or the coupons appertaining to such Securities; provided, that no such supplemental indenture shall (a) extend the final maturity of any Security, or reduce the principal amount thereof or the method in which amounts of payments of principal or interest thereon are determined, or reduce the rate or extend the time of payment of interest thereon, or change the coin or currency or units based on or related to currencies of payment thereof, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 5.1 or the amount thereof provable in bankruptcy pursuant to Section 5.2, or impair or affect the right of any Securityholder to institute suit for the payment thereof or, if the Securities provide therefor, any right of repayment at the option of the Securityholder without the consent of the holder of each Security so affected, or (b) reduce the aforesaid percentage of Securities of any series, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the holder of each Security so affected.

Upon the request of the Issuer, accompanied by a copy of a resolution of the Board of Directors certified by the secretary or an assistant secretary of the Issuer authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of

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Securityholders as aforesaid and other documents, if any, required by Section 7.1, the Trustee shall join with the Issuer in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.

It shall not be necessary for the consent of the Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.

Promptly after the execution by the Issuer and the Trustee of any supplemental indenture pursuant to the provisions of this Section 8.2, the Issuer shall mail or publish a notice thereof by first class mail to the holders of then Outstanding Securities of each series affected thereby at their addresses as they shall appear on the registry books of the Issuer, and in each case such notice shall set forth in general terms the substance of such supplemental indenture. Any failure of the Issuer to mail or publish such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

SECTION 8.3 Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Issuer and the holders of Securities of each series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

SECTION 8.4 Documents to Be Given to Trustee. The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Officers’ Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article Eight complies with the applicable provisions of this Indenture.

SECTION 8.5 Notation on Securities in Respect of Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Trustee for such series as to any matter provided for by such supplemental indenture. If the Issuer or the Trustee shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Issuer, authenticated by the Trustee and delivered in exchange for the Securities of such series then Outstanding.

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ARTICLE NINE

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

SECTION 9.1 Issuer May Consolidate, etc., on Certain Terms. The Issuer covenants that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any Person, unless (i) either the Issuer shall be the continuing corporation, or the successor corporation or the Person which acquires by sale or conveyance substantially all the assets of the Issuer (if other than the Issuer) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and interest on all the Securities and Coupons, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Issuer, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Issuer or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in any material respect in the performance of any such covenant or condition.

SECTION 9.2 Successor Corporation Substituted. In case of any such consolidation, merger, sale or conveyance, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Issuer, with the same effect as if it had been named herein. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Issuer prior to such succession any or all of the Securities issuable hereunder, together with any Coupons appertaining thereto, which theretofore shall not have been signed by the Issuer and delivered to the Trustee; and, upon the order of such successor corporation instead of the Issuer and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities, together with any Coupons appertaining thereto, which previously shall have been signed and delivered by the officers of the Issuer to the Trustee for authentication, and any Securities, together with any Coupons appertaining thereto, which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Securities, together with any Coupons appertaining thereto, so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities, together with any Coupons appertaining thereto, theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities and Coupons had been issued at the date of the execution hereof.

In case of any such consolidation, merger, sale, lease or conveyance, such changes in phraseology and form (but not in substance) may be made in the Securities and Coupons thereafter to be issued as may be appropriate.

In the event of any such sale or conveyance (other than a conveyance by way of lease), the Issuer or any successor corporation which shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under this Indenture and the Securities and may be liquidated and dissolved.

SECTION 9.3 Opinion of Counsel to Trustee. The Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel, prepared in accordance with Section 11.5, as conclusive evidence that any such consolidation, merger, sale, lease or conveyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture.

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ARTICLE TEN

SATISFACTION AND DISCHARGE OF INDENTURE;

UNCLAIMED MONEYS

SECTION 10.1 Satisfaction and Discharge of Indenture; Defeasance.

(A) If at any time (a) the Issuer shall have paid or caused to be paid the principal of and interest on all the Securities of any series Outstanding hereunder and all unmatured Coupons appertaining thereto (other than Securities or Coupons which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.9) as and when the same shall have become due and payable, or (b) the Issuer shall have delivered to the Trustee for cancellation all Securities of any series theretofore authenticated and all unmatured Coupons appertaining thereto (other than any Securities or Coupons of such series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.9) or (c) (i) all the Securities of such series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be or may be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (ii) the Issuer shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds the entire amount in cash (other than moneys repaid by the Trustee or any paying agent to the Issuer in accordance with Section 10.4) or U.S. Government Obligations, maturing as to principal and interest in such amounts and at such times as will insure the availability of cash (without consideration of any reinvestment of such principal or interest), or a combination of U.S. Government Obligations and cash sufficient to pay at maturity or upon redemption all Securities of such series not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity as the case may be, and if, in any such case, the Issuer shall also pay or cause to be paid all other sums payable hereunder by the Issuer with respect to Securities of such series and Coupons appertaining thereto, then this Indenture shall cease to be of further effect with respect to Securities of such series and Coupons appertaining thereto (except as to (i) rights of registration of transfer and exchange, and the Issuer’s right of optional redemption, (ii) substitution of Securities or Coupons for mutilated, defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons appertaining thereto to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration) and remaining rights of the holders to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, including those under Section 6.6, (v) the rights of the Securityholders of such series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, and (vi) the obligations of the Issuer under Section 3.2), and the Trustee, on demand of the Issuer accompanied by an Officers’ Certificate and an Opinion of Counsel and at the cost and expense of the Issuer, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture with respect to such series; provided, that the rights of holders of the Securities and Coupons to receive amounts in respect of principal of and interest on the Securities and Coupons held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange upon which the Securities are listed. Subject to Section 10.4, all money deposited with the Trustee pursuant to (ii) above shall be held in trust and applied by it, in accordance with the provisions of the Securities and this

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Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money has been deposited with the Trustee. The Issuer agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities and Coupons of such series.

(B) The following provisions shall apply to the Securities of each series unless specifically otherwise provided in a Board Resolution, Officers’ Certificate or indenture supplemental hereto provided pursuant to Section 2.3. In addition to discharge of the Indenture pursuant to the next preceding paragraph, the Issuer shall be deemed to have paid and discharged the entire indebtedness on all the Securities of a series and Coupons appertaining thereto on the 121st day after the date of the deposit referred to in subparagraph (a) below, and the provisions of this Indenture with respect to the Securities of such series and Coupons appertaining thereto shall no longer be in effect (except as to (i) rights of registration of transfer and exchange of Securities of such series, and of Coupons appertaining thereto, (ii) substitution of Securities and Coupons for mutilated, defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons appertaining thereto to receive, from the trust fund described in subparagraph (a) below, payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration) and remaining rights of the holders to receive sinking fund payments, if any, (iv) the rights, obligation, duties and immunities of the Trustee hereunder, including those under Section 6.6, (v) the rights of the holders of Securities of such series and Coupons appertaining thereto as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them and (vi) the obligations of the Issuer under Section 3.2), and the Trustee, at the expense of the Issuer, shall at the Issuer’s request, execute proper instruments acknowledging the same, if

(a) with reference to this provision, the Issuer has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities of such series and Coupons appertaining thereto (i) cash, or (ii) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, in an amount sufficient, in the opinion or a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Securities of such series and Coupons appertaining thereto on the date or dates that such principal or interest is due and payable and (B) any mandatory sinking fund payments on the dates or dates on which such payments are due and payable in accordance with the terms of the Indenture and the Securities of such series;

(b) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Issuer is a party or by which it is bound;

(c) the Issuer has delivered to the Trustee an opinion of independent legal counsel satisfactory to the Trustee to the effect that holders of the Securities of such series and Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; and

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(d) the Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with, and the Opinion of Counsel shall also state that such deposit does not violate applicable law.

SECTION 10.2 Application by Trustee of Funds Deposited for Payment of Securities. Subject to Section 10.4, all moneys deposited with the Trustee pursuant to Section 10.1 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Issuer acting as its own paying agent), to the Holders of the particular Securities of such series and of Coupons appertaining thereto for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law.

SECTION 10.3 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to Securities of any series, all moneys then held by any paying agent under the provisions of this Indenture with respect to such series of Securities, upon demand of the Issuer, shall be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys.

SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years. Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Security of any series or for any other purpose and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable, upon the written request of the Issuer and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, shall be repaid to the Issuer by the Trustee for such series or such paying agent, and the holder of the Security of such series, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, shall thereafter look only to the Issuer for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease; provided, the Trustee or such paying agent, before being required to make any such repayment with respect to moneys deposited with it for any payment or other purpose (a) in respect of Registered Securities of any series, at the expense of the Issuer, may mail by first class mail to Holders of such Securities at their addresses as they shall appear on the Security Register, and (b) in respect of Unregistered Securities of any series, at the expense of the Issuer may cause to be published once, in an Authorized Newspaper, notice, that such moneys remain and that, after a date specified therein, which shall not be less than thirty days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be repaid to the Issuer.

SECTION 10.5 Indemnity for U.S. Government Obligations. The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 10.1 or the principal or interest received in respect of such obligations.

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ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

SECTION 11.1 Incorporators, Shareholders, Officers and Directors of Issuer Exempt from Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture, or in any Security or Coupon appertaining thereto, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future shareholder, officer, director or employee, as such, of the Issuer or of any successor, either directly or through the Issuer or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Securities and any Coupons appertaining thereto by the Holders thereof and as part of the consideration for the issue of the Securities and any Coupons appertaining thereto.

SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties and Securityholders. Nothing in this Indenture or in the Securities and any Coupons appertaining thereto, expressed or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and their successors and the holders of the Securities or Coupons, any legal or equitable right, remedy or claim under this Indenture or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their respective successors and of the holders of the Securities.

SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture. All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Issuer shall bind its successors and assigns, whether so expressed or not.

SECTION 11.4 Notices and Demands on Issuer, Trustee and Securityholders. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Securities or Coupons to or on the Issuer may be given or served by being deposited postage prepaid, first-class mail (except as otherwise specifically provided herein) addressed (until another address of the Issuer is filed by the Issuer with the Trustee) to The Progressive Corporation, 6300 Wilson Mills Road, Mayfield Village, Ohio 44143, Attn: Treasurer. Any notice, direction, request or demand by the Issuer or any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the Corporate Trust Office.

Where this Indenture provides for notice to Holders, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each holder entitled thereto, at his last address as it appears in the registry books or as so filed. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given when mailed, whether or not the Holder receives the notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with

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respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to the Issuer and Securityholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice.

SECTION 11.5 Officers’ Certificates and Opinions of Counsel; Statements to Be Contained Therein. Upon any application or demand by the Issuer to the Trustee to take any action under any of the provisions of this Indenture, the Issuer shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished.

Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based, (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

Any certificate, statement or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters, information with respect to which is in the possession of the Issuer, upon the certificate, statement or opinion of or representations by an officer or officers of the Issuer, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous.

Any certificate, statement or opinion of an officer of the Issuer or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Issuer, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous.

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Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent.

SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays. If the date of maturity of interest on or principal of the Securities of any series or any Coupons appertaining thereto or the date fixed for redemption or repayment of any such Security or Coupon shall not be a Business Day, then payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such maturity date.

SECTION 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included herein by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control.

SECTION 11.8 New York Law to Govern. This Indenture and each Security and Coupon shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such State, except as may otherwise be required by mandatory provisions of law.

SECTION 11.9 Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

SECTION 11.10 Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

SECTION 11.11 Securities in Foreign Currencies. Whenever this Indenture provides for any action by, or the determination of any of the rights of, or any distribution to, holders of Securities denominated in United States dollars and in any other currency or currency unit, in the absence of any provision to the contrary in the form of such Security of any particular series, any amount in respect of any Security denominated in a currency or currency unit other than United States dollars shall be treated for any such action or distribution as that amount of United States dollars that could be obtained for such amount on such reasonable basis of exchange and as of such date as the Issuer may reasonably specify in a written notice to the Trustee or in the absence of such written notice, as the Trustee shall so determine.

ARTICLE TWELVE

REDEMPTION OF SECURITIES AND SINKING FUNDS

SECTION 12.1 Applicability of Article. The provisions of this Article shall be applicable to the Securities of any series which are redeemable before their maturity or to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 2.3 for Securities of such series.

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SECTION 12.2 Notice of Redemption; Partial Redemptions. Notice of redemption to the holders of Securities of any series to be redeemed as a whole or in part at the option of the Issuer shall be given by mailing notice of such redemption by first class mail, postage prepaid at least 30 days and not more than 60 days prior to the date fixed for redemption to such holders of Securities of such series at their last addresses as they shall appear upon the Security Register. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Failure to give notice by mail, or any defect in the notice to the holder of any Security of a series designated for redemption, as a whole or in part, shall not affect the validity of the proceedings for the redemption of any other Security of such series.

The notice of redemption to each such Holder shall specify the principal amount of each Security of such series held by such Holder to be redeemed, the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of such Securities, and, in the case of Securities with Coupons attached thereto, of all Coupons appertaining thereto maturing after the date fixed for redemption, that such redemption is pursuant to the mandatory or optional sinking fund, or both, if such be the case, that interest accrued to the date fixed for redemption will be paid as specified in such notice and that, on and after said date, interest thereon or on the portions thereof to be redeemed will cease to accrue. In case any Security of a series is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Security, a new Security or Securities of such series in principal amount equal to the unredeemed portion thereof will be issued.

The notice of redemption of Securities of any series to be redeemed at the option of the Issuer shall be given by the Issuer or, at the Issuer’s request, by the Trustee in the name and at the expense of the Issuer.

On the redemption date specified in the notice of redemption given as provided in this Section, the Issuer will deposit with the Trustee or with one or more paying agents (or, if the Issuer is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 3.4) an amount of money sufficient to redeem on the redemption date all the Securities of such series so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If any or all of the outstanding Securities of a series are to be redeemed, the Issuer will deliver to the Trustee at least 70 days prior to the date fixed for redemption an Officers’ Certificate stating the date of redemption and the aggregate principal amount of Securities to be redeemed.

If less than all the Securities of a series are to be redeemed, the Trustee shall select, in such manner as at the time shall be required by law or, if no such legal requirement shall then exist, in such manner as it shall deem appropriate and fair, Securities of such series to be redeemed in whole or in part. Securities may be redeemed in part in multiples equal to the minimum authorized denomination for Securities of such series or any integral multiple thereof. The Trustee shall promptly notify the Issuer in writing of the Securities of such series selected for

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redemption and, in the case of any Securities of such series selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities of any series shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed.

SECTION 12.3 Payment of Securities Called for Redemption. If notice of redemption has been given as above provided, the Securities or portions of Securities specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after said date (unless the Issuer shall default in the payment of such Securities at the redemption price, together with interest accrued to said date) interest on the Securities or portions of Securities so called for redemption shall cease to accrue and the unmatured Coupons, if any, appertaining thereto shall be void and, except as provided in Sections 6.5 and 10.4, such Securities shall cease from and after the date fixed for redemption to be entitled to any benefit or security under this Indenture, and the Holders thereof shall have no right in respect of such Securities except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption. On presentation and surrender of such Securities, together with all Coupons appertaining thereto maturing after the date fixed for redemption, at a place of payment specified in said notice, said Securities and Coupons or the specified portions thereof shall be paid and redeemed by the Issuer at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that any semiannual payment of interest becoming due on the date fixed for redemption shall be payable in the case of Securities with Coupons attached thereto, to the bearers of the Coupons for such interest upon surrender thereof, and in the case of Registered Securities, to the holders of such Securities registered as such on the relevant record date subject to the terms and provisions of Section 2.4 hereof.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate of interest or Yield to Maturity (in the case of an Original Issue Discount Security) borne by the Security.

If any Security with Coupons attached thereto is surrendered for redemption and is not accompanied by all such Coupons maturing after the date fixed for redemption, the surrender of such missing Coupon or Coupons may be waived by the Issuer and the Trustee, if there be furnished to each of them such security or indemnity as they may require to save each of them harmless.

Upon presentation of any Security redeemed in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Security or Securities of such series, together with all Coupons, if any, appertaining thereto, of authorized denominations, in principal amount equal to the unredeemed portion of the Security so presented.

SECTION 12.4 Exclusion of Certain Securities from Eligibility for Selection for Redemption. Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an authorized

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officer of the Issuer and delivered to the Trustee at least 40 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Issuer or (b) an entity specifically identified in such written statement directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer.

SECTION 12.5 Mandatory and Optional Sinking Funds. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment”, and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “optional sinking fund payment.” The date on which a sinking fund payment is to be made is herein referred to as the “sinking fund payment date.”

In lieu of making all or any part of any mandatory sinking fund payment with respect to any series of Securities in cash, the Issuer at its option may (a) deliver to the Trustee Securities of such series theretofore purchased or otherwise acquired (except upon redemption pursuant to the mandatory sinking fund) by the Issuer or receive credit for Securities of such series (not previously so credited) theretofore purchased or otherwise acquired (except as aforesaid) by the Issuer and delivered to the Trustee for cancellation pursuant to Section 2.10,(b) receive credit for optional sinking fund payments (not previously so credited) made pursuant to this Section, or (c) receive credit for Securities of such series (not previously so credited) redeemed by the Issuer through any optional redemption provision contained in the terms of such series. Securities so delivered or credited shall be received or credited by the Trustee at the sinking fund redemption price specified in such Securities.

On or before the 60^th day next preceding each sinking fund payment date for any series, the Issuer will deliver to the Trustee a written statement (which need not contain the statements required by Section 11.5) signed by an authorized officer of the Issuer (a) specifying the portion of the mandatory sinking fund payment to be satisfied by payment of cash and the portion to be satisfied by credit of Securities of such series, (b) if applicable, stating that none of the Securities of such series has theretofore been so credited, (c) stating that no defaults in the payment of interest or Events of Default with respect to such series have occurred (which have not been waived or cured) and are continuing and (d) stating whether or not the Issuer intends to exercise its right to make an optional sinking fund payment with respect to such series and, if so, specifying the amount of such optional sinking fund payment which the Issuer intends to pay on or before the next succeeding sinking fund payment date. Any Securities of such series to be credited and required to be delivered to the Trustee in order for the Issuer to be entitled to credit therefor as aforesaid which have not theretofore been delivered to the Trustee shall be delivered for cancellation pursuant to Section 2.10 to the Trustee with such written statement (or reasonably promptly thereafter if acceptable to the Trustee). Such written statement shall be irrevocable and upon its receipt by the Trustee the Issuer shall become unconditionally obligated to make all the cash payments or payments therein referred to, if any, on or before the next succeeding sinking fund payment date. Failure of the Issuer, on or before any such 60^th day, to deliver such written statement and Securities specified in this paragraph, if any, shall not constitute a default, but shall constitute, on and as of such date, the irrevocable election of the Issuer (i) that the mandatory sinking fund payment for such series due on the next succeeding sinking fund payment date shall be paid entirely in cash without the option to deliver or credit Securities of such series in respect thereof and (ii) that the Issuer will make no optional sinking fund payment with respect to such series as provided in this Section.

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If the sinking fund payment or payments (mandatory or optional or both) to be made in cash on the next succeeding sinking fund payment date plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or a lesser sum if the Issuer shall so request) with respect to the Securities of any particular series, such cash shall be applied on the next succeeding sinking fund payment date to the redemption of Securities of such series at the sinking fund redemption price, together with accrued interest to the date fixed for redemption. If such amount shall be $50,000 or less and the Issuer makes no such request, then it shall be carried over until a sum in excess of $50,000 is available. The Trustee shall select, in the manner provided in Section 12.2, for redemption on such sinking fund payment date a sufficient principal amount of Securities of such series to absorb said cash, as nearly as may be, and (if requested in writing by the Issuer) shall inform the Issuer of the serial numbers of the Securities of such series (or portions thereof) so selected. Except as aforesaid, any moneys in the sinking fund for such series at the time when any default or Event of Default shall occur, and any moneys thereafter paid into the sinking fund, during the continuance of such default or Event of Default, shall be deemed to have been collected under Article Five and held for the payment of all such Securities. In case such Event of Default shall have been waived as provided in Section 5.10 or the default cured on or before the 60^th day preceding the sinking fund payment date in any year, such moneys shall thereafter be applied on the next succeeding sinking fund payment date in accordance with this Section to the redemption of such Securities.

ARTICLE THIRTEEN

SUBORDINATION OF SECURITIES

SECTION 13.1 Securities Subordinate to Senior Debt. The Issuer, for itself, its successors and assigns, covenants and agrees, and each Holder likewise covenants and agrees by his acceptance thereof, that the obligations of the Issuer to make any payment on account of the principal of and interest on each and all of the Securities shall be subordinate and junior, to the extent and in the manner hereinafter set forth, in right of payment and upon liquidation to the Issuer’s obligations to the holders of Senior Debt of the Issuer.

SECTION 13.2 Issuer Not to Pay if Senior Debt of Issuer is in Default. No payment on account of principal or interest on the Securities shall be made by the Issuer unless full payment of amounts then due for principal (and premium, if any), sinking funds, and interest on Senior Debt of the Issuer has been made or duly provided for in money or money’s worth in accordance with its terms. No payment on account of principal or interest on the Securities shall be made by the Issuer if, at the time of such payment or immediately after giving effect thereto, there shall have occurred an event of default with respect to any Senior Debt of the Issuer or in any instrument under which the same is outstanding, permitting the holders thereof (or a trustee on behalf of the holders thereof) to accelerate the maturity thereof, or an event that, with the giving of notice or the passage of time or both, would constitute such event of default, and such event of default shall not have been cured or waived.

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SECTION 13.3 Payment over of Proceeds upon Dissolution, Default, Etc., of the Issuer. The Issuer agrees that upon (i) the occurrence of any Senior Debt event of default referred to in Section 13.2 above that shall not have been cured or waived or (ii) any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Issuer, whether voluntary or involuntary or in bankruptcy, insolvency, receivership, conservatorship or other proceedings, all principal (and premium, if any), sinking fund payments and interest due or to become due upon all Senior Debt of the Issuer shall first be paid in full, or payment thereof provided for in money or money’s worth in accordance with its terms, before any payment is made on account of the principal of or interest on the indebtedness evidenced by the Securities, and upon any such dissolution or winding up or liquidation or reorganization, any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities (other than securities of the Issuer or any other Person provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in this Section with respect to the Securities, to the payment in full of all Senior Debt, provided the rights of the Holders of the Senior Debt are not altered by such reorganization or readjustment), to which the Holders of the Securities would, except for the provisions hereof, be entitled, shall be paid by the Issuer or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holders or by the Trustee under this instrument if received by them or it, directly to the holders of Senior Debt of the Issuer (pro rata to each such holder on the basis of the respective amounts of Senior Debt held by such holder) or their representatives, to the extent necessary to pay all Senior Debt of the Issuer in full, in money or money’s worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt, before any payment or distribution is made to the Holders of the indebtedness evidenced by the Securities or to the Trustee or to any paying agent (subject, in the case of the Trustee or any paying agent, to the provisions of Section 6.5) under this instrument.

In the event that any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, including any such payment or distribution that may be payable or deliverable by reason of the payment of any other indebtedness of the Issuer being subordinated to the payment of the Securities, not permitted by the foregoing, shall be received by the Trustee or any Holder before all Senior Debt of the Issuer is paid in full, or provision is made for such payment, in accordance with its terms, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Senior Debt of the Issuer (pro rata to each such holder on the basis of the respective amounts of Senior Debt held by such holder) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Debt of the Issuer may have been issued, as their respective interests may appear, or to any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such distribution, for application to the payment of all Senior Debt of the Issuer remaining unpaid to the extent necessary to pay all such Senior Debt of the Issuer in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt of the Issuer.

The consolidation of the Issuer with, or the merger of the Issuer into, another corporation or the liquidation or dissolution of the Issuer following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in

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Article Nine shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section if the corporation formed by such consolidation or into which the Issuer is merged or the Person that acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, as a part of such consolidation, merger, conveyance or transfer, shall comply with the conditions set forth in Article Nine.

SECTION 13.4 Subrogation to Rights of Holders of Senior Debt. Subject to the prior payment in full of all Senior Debt of the Issuer, the Holders shall be subrogated (equally and ratably with the holders of all indebtedness of the Issuer that by its express terms is subordinated to indebtedness of the Issuer to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property and securities applicable to the Senior Debt of the Issuer until the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions in respect of the Senior Debt of the Issuer of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by Holders of the Securities or the Trustee, as between the Issuer, its creditors other than holders of Senior Debt of the Issuer and the Holders of the Securities, shall be deemed to be a payment or distribution by the Issuer to or on account of the Senior Debt of the Issuer; and no payments or distributions to the Trustee or the Holders of the Securities of cash, property or securities that are applied to the satisfaction of Senior Debt of the Issuer, as the case may be, by virtue of the subordination herein provided for, as between the Issuer, its creditors other than the holders of Senior Debt of the Issuer and the Holders of the Securities, shall be deemed to be a payment by the Issuer to or on account of the Securities.

SECTION 13.5 Reliance on Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Issuer referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders shall be entitled to rely upon an order or decree made by any court of competent jurisdiction in which such dissolution or winding up or liquidation or reorganization or arrangement proceedings are pending or upon a certificate of the trustee in bankruptcy, receiver, conservator, assignee for the benefit of creditors or other person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent or to this Article.

SECTION 13.6 Payment Permitted if No Default. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities, shall prevent (a) the Issuer, at any time except during the pendency of any dissolution, winding up, liquidation or reorganization or other similar proceedings referred to in Section 13.3 or under the conditions described in Section 13.2, from making payments at any time of principal of (or premium, if any) or interest on the Securities or (b) the application by the Trustee or any paying agent of any moneys deposited with it hereunder to the payment of or on account of the principal of (or premium, if any) or interest on Securities, if, at the time of such application, the Trustee or such paying agent, as the case may be, did not have the written notice provided for in Section 13.7 of any event prohibiting the making of such deposit or if, at the time of such deposit (whether or not in trust) by the Issuer with the Trustee or any paying agent (other than the Issuer), such payment would not have been prohibited by the provisions of this Article.

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SECTION 13.7 Trustee Not Charged with Knowledge of Prohibition. Anything in this Article or elsewhere in this Indenture contained to the contrary notwithstanding, the Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Trustee and, subject to the provisions of Section 6.1, shall be entitled to assume that no event of default or prohibition specified in Section 13.2 has happened, until the Trustee shall have received an Officers’ Certificate of the Issuer to that effect or notice in writing signed by or on behalf of the holders, or their representatives, of at least $10,000,000 in principal amount of Senior Debt of the Issuer who shall have been certified by the Issuer or otherwise established to the reasonable satisfaction of the Trustee to be such holders or representatives or from any trustee under any indenture pursuant to which such Senior Debt shall be outstanding.

SECTION 13.8 Provisions are Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand, and the holders of the Senior Debt on the other. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Issuer, its creditors other than holders of Senior Debt and the Holders of the Securities, the obligation of the Issuer, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Debt, is intended to rank equally with all other general obligations of the Issuer), to pay to the Holders of the Securities the principal of (and premium, if any, on) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; (b) affect the relative rights against the Issuer of the Holders of the Securities and creditors of the Issuer other than the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt, to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder.

SECTION 13.9 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt of the Issuer to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Issuer or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Issuer with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with.

SECTION 13.10 Trustee to Effectuate Subordination. Each Holder by his acceptance of a Security or Securities authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes.

The Trustee, however, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders or creditors if it in good faith mistakenly shall pay over or distribute to or on behalf of Holders of the Securities or the Issuer moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article.

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SECTION 13.11 Rights of Trustee as Holder of Senior Debt. The Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior Debt that may at any time be held by it, to the same extent as any other holder of Senior Debt, as the case may be, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.

SECTION 13.12 Article Applicable to Paying Agents. In case at any time any paying agent other than the Trustee shall have been appointed by the Issuer with respect to a series of Securities and be then acting hereunder, the term “Trustee” as used in this Article shall in such case (unless the context shall otherwise require) be construed as extending to, and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee; provided, however, that Sections 13.8 and 13.11 shall not apply to the Issuer or any Affiliate of the Issuer if it or such Affiliate acts as paying agent; and provided, further, that no paying agent (other than the Issuer or any Affiliate of the Issuer if it or such Affiliate acts as paying agent) shall be deemed to owe any fiduciary duty to the holders of Senior Debt or shall be liable to any such holder if it shall pay over or distribute to or on behalf of Holders of Securities or the Issuer or any other Person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article or otherwise.

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of June 21, 2007.

	THE PROGRESSIVE CORPORATION
[Corporate Seal]
	By:	/s/ Thomas A. King
		Name: Thomas A. King
		Title: Vice President and Treasurer

Attest:
By:	/s/ Charles E. Jarrett
Name:	Charles E. Jarrett
Title:	Vice President, Secretary and Chief Legal Officer

THE BANK OF NEW YORK TRUST COMPANY, N.A, as Trustee
By:	/s/ L. Garcia
Name:	L. Garcia
Title:	Authorized Signatory

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STATE OF OHIO                   )

                                                 ) ss.:

COUNTY OF CUYAHOGA )

On this      day of                     , 2007, before me personally came                      to me personally known, who, being by me duly sworn, did depose and say that he resides at                     , Ohio; that he is an officer of THE PROGRESSIVE CORPORATION, one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.

Notary Public

[Notarial Seal]

STATE OF ILLINOIS                 )

                                                      ) ss.:

COUNTY OF COOK )

On this      day of                     , 2007 before me personally came Linda Garcia to me personally known, who, being by me duly sworn, did depose and say that he resides at                     ,                     ; that she is an authorized officer of The Bank of New York Trust Company, N.A., one of the corporations described in and which executed the above instrument, and that she signed her name thereto by like authority.

Notary Public

[Notarial Seal]

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EX-4.13

Exhibit 4.13

FIRST SUPPLEMENTAL INDENTURE

between

THE PROGRESSIVE CORPORATION

and

THE BANK OF NEW YORK TRUST COMPANY, N.A.

as Trustee

Supplemental to Junior Subordinated Indenture

dated as of June 21, 2007

TABLE OF CONTENTS

		Page
ARTICLE ONE	Definitions		1
Section 1.01.	Definitions		1
ARTICLE TWO	General Terms and Conditions of the Debentures		10
Section 2.01.	Designation, Principal Amount and Authorized Denominations		10
Section 2.02.	Repayment		11
Section 2.03.	Form		14
Section 2.04.	Rate of Interest; Interest Payment Date		14
Section 2.05.	Interest Deferral		15
Section 2.06.	Alternative Payment Mechanism		16
Section 2.07.	Events of Default		20
Section 2.08.	Securities Registrar; Paying Agent; Delegation of Trustee Duties		23
Section 2.09.	Limitation on Claims in the Event of Bankruptcy, Insolvency or Receivership		24
Section 2.10.	Location of Payment		24
Section 2.11.	No Sinking Fund		24
Section 2.12.	Subordination		25
Section 2.13.	Defeasance		25
ARTICLE THREE	Covenants		25
Section 3.01.	Dividend and Other Payment Stoppages		25
Section 3.02.	Additional Limitation on Deferral Over One Year		26
ARTICLE FOUR	Redemption of the Debentures		27
Section 4.01.	Redemption Price		27
Section 4.02.	Limitation on Partial Redemption		27
ARTICLE FIVE	Repayment of Debentures		27
Section 5.01.	Repayments		27
Section 5.02.	Selection of the Debentures to be Repaid		27
Section 5.03.	Notice of Repayment		28
Section 5.04.	Deposit of Repayment Amount		28
Section 5.05.	Repayment of Debentures		29
ARTICLE SIX	Original Issue of Debentures		29
Section 6.01.	Calculation of Original Issue Discount		29
ARTICLE SEVEN	Supplemental Indentures		29
Section 7.01.	Supplemental Indentures Without Consent of Holders		29
ARTICLE EIGHT	Miscellaneous		30
Section 8.01.	Effectiveness		30
Section 8.02.	Successors and Assigns		30
Section 8.03	Effect of Recitals		31
Section 8.04.	Ratification of Indenture		31
Section 8.05.	Governing Law		31
Section 8.06.	Severability		31

-i-

FIRST SUPPLEMENTAL INDENTURE

First Supplemental Indenture, dated as of June 21, 2007 (the “First Supplemental Indenture”), between The Progressive Corporation, an Ohio corporation (the “Issuer”), having its principal office at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143, and The Bank of New York Trust Company, N.A., a national banking association, as trustee (hereinafter called the “Trustee”).

RECITALS OF THE ISSUER

The Issuer and the Trustee entered into a Junior Subordinated Indenture, dated as of June 21, 2007 (the “Indenture”).

Section 8.1 of the Indenture provides that the Issuer and the Trustee, without the consent of any Holder, may enter into a supplemental indenture to establish the form or terms of Securities of any series as permitted by Section 2.3 thereof.

Pursuant to Section 2.3 of the Indenture, the Issuer desires to provide for the establishment of a series of Securities under the Indenture, and the form and terms thereof, as hereinafter set forth.

The Issuer has requested that the Trustee execute and deliver this First Supplemental Indenture. The Issuer has delivered to the Trustee an Opinion of Counsel and an Officers’ Certificate pursuant to Section 2.4 of the Indenture to the effect, among other things, that all conditions precedent provided for in the Indenture to the Trustee’s execution and delivery of this First Supplemental Indenture have been complied with. All acts and things necessary have been done and performed to make this First Supplemental Indenture enforceable in accordance with its terms, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects.

NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures (as herein defined) by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows:

ARTICLE ONE

Definitions

Section 1.01. Definitions

For all purposes of this First Supplemental Indenture, except as otherwise expressly provided herein or unless the context otherwise requires:

(a) Terms defined in the Indenture have the same meanings when used in this First Supplemental Indenture unless otherwise defined herein.

(b) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular.

(c) The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision, and any reference to an Article, Section or other subdivision refers to an Article, Section or other subdivision of this First Supplemental Indenture unless otherwise specified.

(d) Any reference herein to “interest” shall include any Additional Interest, except where the context requires otherwise.

In addition, the following terms used in this First Supplemental Indenture have the following respective meanings:

“Additional Interest” means the interest, if any, that shall accrue on any interest on the Debentures the payment of which has not been made on the applicable Interest Payment Date, compounded on each subsequent Interest Payment Date.

“Applicable Spread” means (i) with respect to a redemption of all outstanding Debentures in connection with a Tax Event, 0.50%, (ii) with respect to a redemption of all outstanding Debentures in connection with a Rating Agency Event, 0.50% and (iii) in all other cases, 0.25%.

“Business Day” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, (iii) a day on which the corporate trust office of the Trustee is closed for business or (iv) on or after June 15, 2017, a day that is not a London Banking Day.

“Business Combination” means any transaction that is subject to Section 9.1 of the Indenture.

“Calculation Agent” means, with respect to the Debentures, The Bank of New York Trust Company, N.A., or any other firm appointed by the Issuer, acting as calculation agent in respect of the Debentures.

“Commercially Reasonable Efforts” to sell Qualifying Capital Securities means commercially reasonable efforts to complete the offer and sale of Qualifying Capital Securities to Persons other than Subsidiaries in public offerings or private placements, provided that the Issuer shall not be considered to have made Commercially Reasonable Efforts to effect a sale of Qualifying Capital Securities if it determines not to pursue or complete such sale solely due to pricing, coupon, dividend rate or dilution considerations.

“Common Equity Issuance Cap” has the meaning specified in Section 2.06(a).

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“Common Shares” means (i) the Issuer’s common shares, including common shares issued pursuant to any dividend reinvestment plan or the Issuer’s employee benefit plans, (ii) a security of the Issuer ranking upon the Issuer’s liquidation, dissolution or winding up junior to Qualifying Non-Cumulative Preferred Shares and pari passu with the common shares that tracks the performance of, or relates to the results of, a business, unit or division of the Issuer or its Subsidiaries, and (iii) any securities issued in exchange for the securities described in clause (i) or (ii) above in connection with a merger, consolidation, binding share exchange, business combination, recapitalization or other similar event.

“Current Stock Market Price” means, with respect to the Common Shares on any date, (i) the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date (a) as reported in composite transactions by the New York Stock Exchange or (b) if the Common Shares are not then listed on the New York Stock Exchange on such date, as reported by the principal U.S. securities exchange on which the Common Shares are traded or quoted or (ii) if the Common Shares are not listed on any U.S. securities exchange on such date, the last quoted bid price for the Common Shares in the over-the-counter market on such date as reported by the National Quotation Bureau or similar organization or (iii) if the Common Shares are not so quoted, the average of the mid-point of the last bid and ask prices for the Common Shares on such date from each of at least three nationally recognized independent investment banking firms selected by the Issuer for this purpose.

“Date of QCS Notice” has the meaning specified in Section 2.02(a).

“Debentures” has the meaning specified in Section 2.01(a).

“Deferral Period” means the period commencing on an Interest Payment Date with respect to which the Issuer elects to defer interest pursuant to Section 2.05 and ending on the earlier of (i) the tenth anniversary of that Interest Payment Date or (ii) the next Interest Payment Date on which the Issuer has paid all deferred interest and all other accrued interest on the Debentures.

“Depositary” means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, The Depository Trust Company (or any successor thereto).

“Eligible Proceeds” means, for each relevant Interest Payment Date, the net proceeds (after deducting underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale) the Issuer has received during the 180-day period prior to such Interest Payment Date from the issuance or sale of Qualifying APM Securities (excluding sales of Qualifying Non-Cumulative Preferred Shares and Mandatorily Convertible Preferred Shares in excess of the Preferred Shares Issuance Cap) to Persons that are not Subsidiaries.

“Final Maturity Date” has the meaning specified in Section 2.02(b).

“First Supplemental Indenture” means this instrument as originally executed or as it from time to time may be supplemented or amended by one or more agreements supplemental hereto.

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“Fixed Rate Portion” has the meaning specified in Section 2.06(a).

“Global Security” means a Security evidencing all or part of a series of Debentures, issued to the Depositary or its nominee for such series, and registered in the name of such Depositary or its nominee.

“Indenture” has the meaning specified in the Recitals.

“Intent-Based Replacement Disclosure” has the meaning specified in the Replacement Capital Covenant.

“Interest Payment Dates” has the meaning specified in Section 2.04.

“Interest Period” means a Semi-Annual Interest Period or a Quarterly Interest Period, as the case may be.

“Issuer” has the meaning specified in the Recitals.

“LIBOR Determination Date” means the second London Banking Day immediately preceding the first day of the relevant Quarterly Interest Period.

“London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.

“Make-Whole Redemption Price” means, with respect to a redemption of the Debentures in whole or in part, the present value of a principal payment on June 15, 2017 and scheduled payments of interest that would have accrued from the Redemption Date to June 15, 2017 on the Debentures being redeemed, discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Rate (as determined and provided to the Issuer by the Treasury Dealer) plus the Applicable Spread, plus accrued and unpaid interest to the Redemption Date.

“Mandatorily Convertible Preferred Shares” means Preferred Shares with (i) no prepayment obligation of the liquidation preference on the part of the Issuer, whether at the election of the holders or otherwise, and (ii) a requirement that the Preferred Shares mandatorily convert into Common Shares within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of such Preferred Shares.

“Market Disruption Event” means, with respect to the issuance or sale of Qualifying Capital Securities pursuant to Section 2.02 or Qualifying APM Securities pursuant to Section 2.06, the occurrence or existence of any of the following events or set of circumstances:

(i) Trading in securities generally, or in shares of the Issuer’s securities specifically, on the New York Stock Exchange or any other national securities exchange or in the over-the-counter market on which Qualifying APM Securities or Qualifying Capital Securities, as the case may be, are then listed or traded shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or market by the United States Securities and Exchange Commission, by the relevant exchange or by any other regulatory agency or governmental body having jurisdiction such that trading shall have been materially disrupted;

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(ii) The Issuer would be required to obtain the consent or approval of the Issuer’s shareholders or a regulatory body (including, without limitation, any securities exchange) or governmental authority to issue or sell Qualifying APM Securities pursuant to Section 2.06 or to issue Qualifying Capital Securities pursuant to Section 2.02, as the case may be, and such consent or approval has not yet been obtained notwithstanding the Issuer’s commercially reasonable efforts to obtain such consent or approval;

(iii) A banking moratorium shall have been declared by the federal or state authorities of the United States such that the issuance of, or market trading in, the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(iv) A material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States such that the issuance of, or market trading in, the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(v) The United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States, there shall have been a declaration of a national emergency or war by the United States or there shall have occurred any other national or international calamity or crisis such that, in any such case, the issuance of, or market trading in, the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(vi) There shall have occurred such a material adverse change in general domestic or international economic, political or financial conditions, including without limitation as a result of terrorist activities, or the effect of international conditions on the financial markets in the United States shall be such that the issuance of, or market trading in, Qualifying APM Securities or Qualifying Capital Securities, as applicable, shall have been materially disrupted;

(vii) An event occurs and is continuing as a result of which the offering document for such offer and sale of Qualifying APM Securities or Qualifying Capital Securities, as the case may be, in the reasonable judgment of the Issuer, would contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and either (x) the disclosure of that event at such time, in the reasonable judgment of the Issuer, is not otherwise required by law and would have a material adverse effect on the business of the Issuer or (y) the disclosure relates to a previously undisclosed proposed or pending material business transaction, provided that no single suspension period contemplated by this clause (vii) shall exceed 90 consecutive days and multiple suspension periods contemplated by this clause (vii) shall not exceed an aggregate of 180 days in any 360-day period; or

(viii) The Issuer reasonably believes that the offering document for such offer and sale of Qualifying APM Securities or Qualifying Capital Securities, as the case may be, would not be in compliance with a rule or regulation of the United States Securities and

5

Exchange Commission (for reasons other than those referred to in clause (vii) above), and the Issuer determines it is unable to comply with such rule or regulation or such compliance is unduly burdensome, provided that no single suspension period contemplated by this clause (viii) shall exceed 90 consecutive days and multiple suspension periods contemplated by this clause (viii) shall not exceed an aggregate of 180 days in any 360-day period.

“Pari Passu Securities” means debt securities of the Issuer that rank in right of payment upon liquidation on a parity with the Debentures, and includes the Debentures.

“Permitted Remedies” has the meaning specified in the Replacement Capital Covenant.

“Preferred Shares” means the preferred shares of the Issuer.

“Preferred Shares Issuance Cap” has the meaning specified in Section 2.06(a).

“Qualifying APM Securities” means Common Shares, Qualifying Non-Cumulative Preferred Shares, Qualifying Warrants and Mandatorily Convertible Preferred Shares, provided that the Issuer may amend this definition in accordance with Section 2.06(e).

“Qualifying Capital Securities” has the meaning specified in the Replacement Capital Covenant.

“Qualifying Non-Cumulative Preferred Shares” means the Issuer’s non-cumulative Preferred Shares that (w) rank pari passu with or junior to all of the Issuer’s other Preferred Shares, (x) are perpetual, (y) are subject to (a) a Qualifying Replacement Capital Covenant or (b) both (i) mandatory suspension of dividends in the event the Issuer breaches certain financial metrics specified in the offering documents relating to such Preferred Shares and (ii) Intent-Based Replacement Disclosure, and (z) as to which, in both clauses (a) and (b) the transaction documents for such Preferred Shares shall provide for no remedies as a consequence of non-payment of distributions other than Permitted Remedies.

“Qualifying Replacement Capital Covenant” has the meaning specified in the Replacement Capital Covenant.

“Qualifying Warrants” means any net share-settled warrants to purchase Common Shares (i) which have an exercise price at the time of issuance greater than the Current Shares Market Price and (ii) which the Issuer is not entitled to redeem for cash and the holders of which are not entitled to require the Issuer to purchase for cash in any circumstances.

“Quarterly Interest Payment Date” shall have the meaning specified in Section 2.04.

“Quarterly Interest Period” means the period beginning on and including June 15, 2017 and ending on but excluding the next Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next Interest Payment Date.

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“Rating Agency Event” means that any nationally recognized statistical rating organization within the meaning of Section 3(a)(62) of the Securities Exchange Act of 1934 that then publishes a rating for the Issuer (a “rating agency”) amends, clarifies or changes the criteria it uses to assign equity credit to securities such as the Debentures, which amendment, clarification or change results in:

(i) the shortening of the length of time the Debentures are assigned a particular level of equity credit by that rating agency as compared to the length of time they would have been assigned that level of equity credit by that rating agency or its predecessor on the issue date of the Debentures, or

(ii) the lowering of the equity credit (including up to a lesser amount) assigned to the Debentures by that rating agency as compared to the equity credit assigned by that rating agency or its predecessor on the issue date of the Debentures.

“Redemption Date” has the meaning specified in Section 4.01.

“Redemption Price” has the meaning specified in Section 4.01.

“Regular Record Date” means (i) with respect to a Semi-Annual Interest Payment Date, June 1 or December 1, as the case may be, immediately preceding the relevant Semi-Annual Interest Payment Date, and (ii) with respect any Quarterly Interest Payment Date, March 1, June 1, September 1 and December 1, as the case may be, immediately preceding the relevant Quarterly Interest Payment Date.

“Repayment Date” means the Scheduled Maturity Date, each Quarterly Interest Payment Date thereafter until the Issuer shall have repaid or redeemed all of the Debentures and, to the extent that any principal is repaid thereon, the Final Maturity Date.

“Replacement Capital Covenant” means the Replacement Capital Covenant, dated as of June 21, 2007, by the Issuer, as the same may be amended or supplemented from time to time in accordance with the provisions thereof and Section 2.02(a)(vii) hereof.

“Responsible Officer of the Paying Agent” means, with respect to the Trustee in its capacity as Paying Agent, any officer within the corporate trust department (or any successor department, unit or division) who has direct responsibility for the administration of the Paying Agent functions of the Indenture.

“Reuters Page LIBOR01” means the display so designated on the Reuters 3000 Xtra (or such other page as may replace that page on that service, or such other service as may be nominated by the Issuer as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered Rate for U.S. dollar deposits).

“Scheduled Maturity Date” has the meaning specified in Section 2.02(a).

“Securities Registrar” means, with respect to the Debentures, The Bank of New York Trust Company, N.A., or any other firm appointed by the Issuer, acting as securities registrar for the Debentures.

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“Securities Registrar Office” means the office of the applicable Securities Registrar at which at any particular time its corporate agency business shall principally be administered, which office at the date hereof is the Corporate Trust Office of the Trustee.

“Semi-Annual Interest Payment Date” has the meaning specified in Section 2.04.

“Semi-Annual Interest Period” means the period beginning on and including June 21, 2007 and ending on but excluding the first Interest Payment Date thereafter and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next Interest Payment Date until June 15, 2017.

“Share Cap Amount” has the meaning specified in Section 2.06(a).

“Shares Available for Issuance” has the meaning specified in Section 2.06(a).

“Subsidiary” means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Issuer. For the purposes of this definition, “voting stock” means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

“Tax Event” means the receipt by the Issuer of an opinion of counsel experienced in such matters to the effect that, as a result of any:

(i) amendment to or change (including any officially announced proposed change) in the laws or regulations of the United States or any political subdivision or taxing authority of or in the United States that is effective on or after June 21, 2007;

(ii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced on or after June 21, 2007; or

(iii) threatened challenge asserted in connection with an audit of the Issuer or any of its Subsidiaries, or a threatened challenge asserted in writing against the Issuer, any of its Subsidiaries or any tax payer that has raised capital through the issuance of securities that are substantially similar to the Debentures and which securities, as of their issue date, were rated investment grade by at least one nationally recognized statistical rating organization within the meaning of Rule 15c3-1 under the U.S. Securities Exchange Act of 1934, as amended,

there is more than an insubstantial increase in the risk that interest payable by the Issuer on the Debentures is not, or within 90 days of the date of such opinion will not be, deductible by the Issuer, in whole or in part, for United States federal income tax purposes.

“Three-Month LIBOR” means, with respect to any Quarterly Interest Period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Quarterly Interest Period that appears on Reuters Page

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LIBOR01 as of 11:00 a.m., London time, on the LIBOR Determination Date for that Quarterly Interest Period. If such rate does not appear on Reuters Page LIBOR01, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Quarterly Interest Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Calculation Agent (after consultation with the Issuer), at approximately 11:00 a.m., London time, on the LIBOR Determination Date for that Quarterly Interest Period. The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Quarterly Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Quarterly Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of the rates quoted by three major banks in New York City selected by the Calculation Agent (after consultation with the Issuer), at approximately 11:00 a.m., New York City time, on the first day of that Quarterly Interest Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Quarterly Interest Period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the Calculation Agent to provide quotations are quoting as described above, Three-Month LIBOR for that Quarterly Interest Period will be the same as Three-Month LIBOR as determined for the previous Quarterly Interest Period or, in the case of the Quarterly Interest Period beginning on June 15, 2017, 5.360%. The establishment of Three-Month LIBOR for each Quarterly Interest Period by the Calculation Agent shall be final and binding (in the absence of manifest error).

“Trading Day” means a day on which Common Shares are traded on the New York Stock Exchange, or if not then listed on the New York Stock Exchange, a day on which Common Shares are traded or quoted on the principal U.S. securities exchange on which it is listed or quoted, or if not then listed or quoted on a U.S. securities exchange, a day on which Common Shares are quoted in the over-the-counter market.

“Treasury Dealer” means J.P. Morgan Securities Inc. and Goldman, Sachs & Co. (or their successors) or, if J.P. Morgan Securities Inc. and Goldman, Sachs & Co., (or their successors) refuse to act as Treasury Dealer for the purpose of determining the Make-Whole Redemption Price or ceases to be a primary U.S. government securities dealer, another nationally recognized investment banking firm that is a primary U.S. government securities dealer specified by the Issuer to act as Treasury Dealer for the purpose of determining the Make-Whole Redemption Price.

“Treasury Price” means, with respect to a Redemption Date, the bid-side price for the Treasury Security as of the third Trading Day preceding the Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York on that Trading Day and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities”, as determined by the Treasury Dealer, except that: (i) if that release (or any successor release) is not published or does not contain that price information on that Trading Day or (ii) if the Treasury Dealer determines that the price information is not reasonably reflective of the actual bid-side price of the Treasury Security prevailing at 3:30 p.m.,

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New York City time, on that Trading Day, then Treasury Price will instead mean the bid-side price for the Treasury Security at or around 3:30 p.m., New York City time, on that Trading Day (expressed on a next Trading Day settlement basis) as determined by the Treasury Dealer through such alternative means as are commercially reasonable under the circumstances.

“Treasury Rate” means, with respect to a Redemption Date, the semi-annual equivalent yield to maturity of the Treasury Security that corresponds to the Treasury Price (calculated by the Treasury Dealer in accordance with standard market practice and computed as of the second Trading Day preceding the Redemption Date).

“Treasury Security” means the United States Treasury security that the Treasury Dealer determines would be appropriate to use, at the time of determination and in accordance with standard market practice, in pricing the Debentures being redeemed in a tender offer based on a spread to United States Treasury yields.

ARTICLE TWO

General Terms and Conditions of the Debentures

Section 2.01. Designation, Principal Amount and Authorized Denominations

(a) Designation

Pursuant to Section 2.3 of the Indenture, there is hereby established a series of Securities of the Issuer designated as the 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “Debentures”), the principal amount of which to be issued shall be in accordance with Section 2.01(b) hereof and as set forth in any order executed by the Issuer for the authentication and delivery of Debentures pursuant to the Indenture, and the form and terms of which shall be as set forth hereinafter.

(b) Principal Amount; Additional Debentures

Debentures in an initial aggregate principal amount of $1,000,000,000, upon execution of this First Supplemental Indenture, shall be executed by the Issuer and delivered to the Trustee, and the Trustee shall thereupon authenticate and deliver said Debentures in accordance with an order executed by the Issuer. At any time and from time to time after the execution and delivery of this First Supplemental Indenture, without the consent of any Holders, the Issuer may execute and deliver additional Debentures to the Trustee for authentication, together with an order executed by the Issuer for the authentication and delivery of such additional Debentures, so long as such additional Debentures are fungible for U.S. tax purposes with the Debentures issued as of the date of this First Supplemental Indenture. Any additional Debentures so issued shall be governed by this First Supplemental Indenture and shall rank equally and ratably in right of payment with the Debentures issued on the date of this First Supplemental Indenture and, together with the Debentures issued as of the date of this First Supplemental Indenture, shall be treated as a single series of Debentures for all purposes.

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(c) Authorized Denominations

The denominations in which Debentures shall be issuable is $1,000 principal amount and integral multiples thereof.

Section 2.02. Repayment

(a) Scheduled Maturity Date

(i) The principal amount of, and all accrued and unpaid interest on, the Debentures shall be payable in full on June 15, 2037 or, if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”) to the extent of net proceeds received by the Issuer to the Date of QCS Notice from the issuance of Qualifying Capital Securities as contemplated by Section 2.02(a)(iv). In the event the Issuer has delivered an Officers’ Certificate to the Trustee pursuant to clause (v) of this Section 2.02(a) in connection with the Scheduled Maturity Date, (x) the principal amount of Debentures payable on the Scheduled Maturity Date, if any, shall be the principal amount set forth in the notice of repayment, if any, accompanying such Officers’ Certificate, (y) such principal amount of Debentures shall be repaid on the Scheduled Maturity Date pursuant to Article 5 hereof, and (z) subject to clause (ii) of this Section 2.02(a), the remaining Debentures shall remain outstanding and shall be payable on the immediately succeeding Quarterly Interest Payment Date to the extent of net proceeds received by the Issuer to the Date of QCS Notice, without duplication of prior amounts received, of the issuance of Qualifying Capital Securities as contemplated by Section 2.02(a)(iv), and to like extent on each Quarterly Interest Payment Date thereafter until the Debentures are paid in full, or such earlier date on which they are redeemed pursuant to Article 4 hereof or become due and payable pursuant to Section 5.1 of the Indenture.

(ii) In the event the Issuer has delivered an Officers’ Certificate to the Trustee pursuant to clause (v) of this Section 2.02(a) in connection with any Quarterly Interest Payment Date, (x) the principal amount of the Debentures payable on such Quarterly Interest Payment Date shall be the principal amount set forth in the notice of repayment, if any, accompanying such Officers’ Certificate, (y) such principal amount shall be repaid on such Quarterly Interest Payment Date pursuant to Article 5 hereof to the extent of net proceeds received by the Issuer to the Date of QCS Notice, without duplication of prior amounts received, of the issuance of Qualifying Capital Securities as contemplated by Section 2.02 (a)(iv), and (z) the remaining Debentures shall remain outstanding and shall be payable on the immediately succeeding Quarterly Interest Payment Date to the extent of net proceeds received by the Issuer to the Date of QCS Notice, without duplication of prior amounts received, of the issuance of Qualifying Capital Securities as contemplated by Section 2.02 (a)(iv), and on each Quarterly Interest Payment Date thereafter to like extent until the Debentures are paid in full, or such earlier date on which they are redeemed pursuant to Article 4 hereof or become due and payable pursuant to Section 5.1 of the Indenture.

(iii) The obligation of the Issuer to repay the Debentures pursuant to this Section 2.02(a) on any date prior to the Final Maturity Date shall be subject to (x) its obligations under Article Thirteen of the Indenture to the holders of Senior Indebtedness and (y) its obligations under Section 2.05 hereof with respect to the payment of deferred interest on the Debentures.

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(iv) Until the Debentures are paid in full:

(A) the Issuer shall use Commercially Reasonable Efforts, subject to a Market Disruption Event, to raise sufficient net proceeds from the issuance of Qualifying Capital Securities during a 180-day period ending on the date, not more than 15 and not less than ten Business Days prior to the Scheduled Maturity Date, on which the Issuer delivers the notice required by clause (v) of this Section 2.02(a) and Section 5.01, to permit repayment of the Debentures in full on the Scheduled Maturity Date pursuant to clause (i) of this Section 2.02(a); and

(B) if the Issuer is unable for any reason to raise sufficient net proceeds from the issuance of Qualifying Capital Securities to permit repayment in full of the Debentures on the Scheduled Maturity Date or any subsequent Quarterly Interest Payment Date, the Issuer shall use Commercially Reasonable Efforts, subject to a Market Disruption Event, to raise sufficient net proceeds from the issuance of Qualifying Capital Securities during a 90-day period ending on the date, not more than 15 and not less than ten Business Days prior to the following Quarterly Interest Payment Date, on which the Issuer delivers the notice required by clause (v) of this Section 2.02(a) and Section 5.01, to permit repayment of the Debentures in full on such following Quarterly Interest Payment Date pursuant to clause (i) of this Section 2.02(a); and

(C) the Issuer shall apply any such net proceeds to the repayment of the Debentures as provided in clause (vi) of this Section 2.02(a).

For the avoidance of doubt, the Issuer is not obligated to sell any securities other than Qualifying Capital Securities to raise net proceeds for repayment of the Debentures pursuant to this Section 2.02(a), or to apply the proceeds of any such sale of other securities to repayment of the Debentures pursuant to this Section 2.02(a), and no Holder of Debentures may require the Issuer to issue any such other securities in satisfaction of its obligations under this Section 2.02(a).

(v) The Issuer, if it has not raised sufficient net proceeds from the issuance of Qualifying Capital Securities pursuant to clause (iv) above in connection with any Repayment Date, shall deliver an Officers’ Certificate to the Trustee (who shall forward such certificate to each Holder of the Debentures) no more than 15 and no less than ten Business Days prior to such Repayment Date (the date of such delivery, the “Date of QCS Notice”) stating the amount of net proceeds, if any, raised pursuant to clause (iv) above in connection with such Repayment Date. The Issuer shall be excused from its obligation to use Commercially Reasonable Efforts to sell Qualifying Capital Securities pursuant to clause (iv) above if such Officers’ Certificate further certifies that: (A) a Market Disruption Event was existing during the 180-day period preceding the date of such Officers’ Certificate or, in the case of any Repayment Date after the Scheduled Maturity Date, the 90-day period preceding the date of such Officers’ Certificate; and (B) either (x) the Market Disruption Event continued for the entire 180-day period or 90-day period, as the case may be, or (y) the Market Disruption Event continued for only part of the period but the Issuer was unable after Commercially Reasonable Efforts to raise

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sufficient net proceeds during the rest of that period to permit repayment of the Debentures in full. Each Officers’ Certificate delivered pursuant to this clause (v), unless no principal amount of Debentures is to be repaid on the applicable Repayment Date, shall be accompanied by a notice of repayment pursuant to Section 5.01 setting forth the principal amount of the Debentures to be repaid on such Repayment Date, which amount shall be determined after giving effect to clause (vi) of this Section 2.02(a). In the event the Issuer fails to deliver an Officer’s Certificate to the Trustee in the manner described herein in connection with a Repayment Date, the Issuer shall be deemed to have confirmed that sufficient proceeds have been raised from an issuance of Qualifying Capital Securities, and all outstanding principal will be due on such Repayment Date.

(vi) Payments in respect of the Debentures on any Repayment Date will be applied, first, to deferred interest on the Debentures to the extent of Eligible Proceeds raised pursuant to Section 2.06; second, to pay current interest on the Debentures to the extent not paid from other sources; and third, to repay the outstanding principal amount of the Debentures, subject to a minimum principal amount of $5,000,000 to be repaid on any Repayment Date; provided that if the Issuer is obligated to sell Qualifying Capital Securities and apply the net proceeds therefrom to payments of principal of or interest on any Pari Passu Securities in addition to the Debentures, then on any date and for any period, the amount of net proceeds received by the Issuer from those sales and available for such payments shall be applied to the Debentures and those other Pari Passu Securities having the same scheduled maturity date as the Debentures pro rata in accordance with their respective outstanding principal amounts, and no such payments shall be made to any other such Pari Passu Securities having a later scheduled maturity date until the principal of and all accrued and unpaid interest on the Debentures have been paid in full, except to the extent permitted by Sections 3.01 and 2.06(c). If the Issuer raises less than $5,000,000 of net proceeds from the sale of Qualifying Capital Securities during the relevant 180-day or 90-day period, the Issuer will not be required to repay any Debentures on the Scheduled Maturity Date or the next Quarterly Interest Payment Date, as applicable. On the next Quarterly Interest Payment Date as of which the Issuer has raised at least $5,000,000 of net proceeds during the 180-day period (or, if shorter, the period beginning on the date on which the Issuer last repaid any principal amount of Debentures) ending on the date not more than 15 and not less than ten Business Days prior to such Quarterly Interest Payment Date, on which the Issuer delivers the notice required by clause (v) of this Section 2.02(a) and Section 5.01, the Issuer shall be required to repay a principal amount of the Debentures equal to the entire net proceeds from the sale of Qualifying Capital Securities during such 180-day or shorter period on such Quarterly Interest Payment Date.

(vii) The Issuer shall not amend the Replacement Capital Covenant to impose additional restrictions on the type or amount of Qualifying Capital Securities that the Issuer may include for purposes of determining whether or to what extent repayment, redemption or purchase of the Debentures is permitted under the Replacement Capital Covenant, except with the consent of Holders of a majority in principal amount of the Debentures. Except as aforesaid, the Issuer may amend or supplement the Replacement Capital Covenant in accordance with its terms and without the consent of the Holders of the Debentures.

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(b) Final Maturity Date

The principal of, and all accrued and unpaid interest on, all outstanding Debentures shall be due and payable on June 15, 2067 or, if such date is not a Business Day, the following Business Day (the “Final Maturity Date”), regardless of the amount of Qualifying Capital Securities the Issuer may have issued and sold by that time.

Section 2.03. Form

The Debentures shall be substantially in the form of Exhibit A attached hereto and shall be issued in fully registered definitive form without interest coupons. Principal of and interest on the Debentures will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions, and notices and demands to or upon the Issuer in respect of the Debentures and the Indenture may be served, at the Corporate Trust Office of the Trustee, and the Issuer appoints the Trustee as its agent for the foregoing purposes, provided that payment of interest may be made at the option of the Issuer by check mailed to the Holders at such address as shall appear in the Securities Register or by wire transfer in immediately available funds to the bank account number of the Holders specified in writing by the Holders not less than ten days before the relevant Interest Payment Date and entered in the Securities Register by the Securities registrar. The Debentures may be presented for registration of transfer or exchange at the Securities Registrar Office.

The Debentures initially are issuable solely as Global Securities. The Debentures shall be physically transferred to all beneficial owners in definitive form in exchange for their beneficial interests in a Global Security if the Depositary with respect to such Global Securities notifies the Issuer that it is unwilling or unable to continue as Depositary for such Global Security or if it ceases to be a clearing agency registered under the Exchange Act, as the case may be, and a successor Depositary is not appointed by the Issuer within 90 days of such notice.

Section 2.04. Rate of Interest; Interest Payment Date

(a) Rate of Interest; Accrual

The Debentures shall bear interest from and including June 21, 2007, to but excluding, June 15, 2017 (or any earlier date on which the Debentures are redeemed pursuant to Article Four), at the rate of 6.70% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months. Commencing on and including June 15, 2017, the Debentures shall bear interest at an annual rate of Three-Month LIBOR plus 2.0175% (the “Floating Rate”), computed for each Quarterly Interest Period on the basis of a 360-day year and the actual number of days elapsed. Except as provided in Section 2.04(b), interest will accrue from and including each Interest Payment Date to, but excluding, the immediately succeeding Interest Payment Date. Accrued interest that is not paid on the applicable Interest Payment Date, including interest deferred pursuant to Section 2.05, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time provided in this Section 2.04(a), from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date.

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(b) Interest Payment Dates

Subject to the other provisions hereof, accrued interest on the Debentures shall be payable (i) semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2007 and ending on June 15, 2017, or if any such day is not a Business Day, the following Business Day (and no interest shall accrue as a result of such postponement) (each such date, a “Semi-Annual Interest Payment Date”), and (ii) thereafter, quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2017, or if any such day is not a Business Day, the following Business Day (each such date, a “Quarterly Interest Payment Date” and, together with Semi-Annual Interest Payment Dates, each, an “Interest Payment Date”), except that if such Business Day is in the immediately succeeding calendar month, such Quarterly Interest Payment Date shall be the immediately preceding Business Day (and interest shall accrue to but excluding the date that interest is actually paid).

(c) Interest Payment to Holders

Interest will be payable to the Persons in whose name the Debentures are registered at the close of business on the Regular Record Date immediately preceding the relevant Interest Payment Date, except that interest payable at maturity shall be paid to the Person to whom principal is paid.

Section 2.05. Interest Deferral

(a) Option to Defer Interest Payments

(i) Subject to other provisions hereof, the Issuer shall have the right, at any time and from time to time, to defer the payment of interest on the Debentures for one or more consecutive Interest Periods that do not exceed ten years for any single Deferral Period, provided that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment or redemption in full of the Debentures. If the Issuer has paid all deferred interest on the Debentures, the Issuer shall have the right to elect to begin a new Deferral Period pursuant to this Section 2.05.

(ii) At the end of any Deferral Period, the Issuer shall pay all deferred interest on the Debentures (including Additional Interest thereon) to the Persons in whose names the Debentures are registered in the Securities Register at the close of business on the Regular Record Date with respect to the Interest Payment Date at the end of such Deferral Period.

(iii) The Issuer may elect to pay interest on any Interest Payment Date during any Deferral Period to the extent permitted by Section 2.05(b).

(b) Payment of Deferred Interest

Subject to a Market Disruption Event as described under Section 2.06(b), the Issuer will not pay any deferred interest on the Debentures from any source other than Eligible Proceeds prior to the Final Maturity Date, except at any time that the principal amount of the Debentures has been accelerated and such acceleration has not been rescinded or in the case of a Business Combination to the extent described below in Section 2.05(c). Notwithstanding the foregoing, the Issuer may pay current interest from any available funds.

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(c) Business Combination Exception

If (i) the Issuer is involved in a Business Combination where immediately after its consummation more than 50% of the voting shares of the surviving entity of such Business Combination, or the Person to whom all or substantially all of the Issuer’s properties or assets are conveyed, transferred or leased in such Business Combination, is owned, directly or indirectly, by the shareholders of the other party to such Business Combination, and (ii) at the time the Business Combination is consummated a Deferral Period is continuing, then Section 2.05(b) shall not apply to any payment of deferred interest for such Deferral Period, if such Deferral Period is terminated on the next Interest Payment Date following the date of consummation of the Business Combination.

(d) Notice of Deferral

The Issuer shall give written notice of its election to commence or continue any Deferral Period to the Trustee and the Holders of the Debentures at least one Business Day and not more than 60 Business Days before the next Interest Payment Date. Such notice shall be given to the Trustee and each Holder of Debentures at such Holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Section 2.06. Alternative Payment Mechanism

(a) Obligation to Issue Qualifying APM Securities

Immediately following the earlier of (i) the first Interest Payment Date following the commencement of a Deferral Period on which the Issuer pays any current interest on the Debentures (which the Issuer may do from any source of funds) or (ii) the fifth anniversary of the commencement of the Deferral Period, the Issuer, subject to the occurrence and continuation of a Market Disruption Event as described under Section 2.06(b) and subject to Section 2.05(b) and Section 2.06(c), shall issue one or more types of Qualifying APM Securities until the Issuer has raised an amount of Eligible Proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest (including compounding interest thereon) on the Debentures. The Issuer shall apply such Eligible Proceeds on the next Interest Payment Date to the payment of deferred interest in accordance with this Section 2.06. The requirement set forth in this Section 2.06(a) shall be in effect until the end of such Deferral Period. Notwithstanding (and as a qualification to) the foregoing:

(i) the Issuer shall not be required to issue Common Shares or, if the definition of Qualifying APM Securities has been amended to eliminate Common Shares, Qualifying Warrants prior to the fifth anniversary of the commencement of a Deferral Period, to the extent that the number of Common Shares issued or issuable upon exercise of Qualifying Warrants to be applied for purposes of funding deferred interest hereunder, together with the number of Common Shares previously issued or issuable upon exercise of Qualifying Warrants previously issued during such Deferral Period, to the extent still outstanding, and applied for such purposes, would exceed an amount equal to 2% of the total number of issued and

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outstanding Common Shares reported in the Issuer’s then most recent publicly available consolidated financial statements immediately prior to the date of such issuance (the “Common Equity Issuance Cap”); provided that the Common Equity Issuance Cap will cease to apply with respect to a Deferral Period following the fifth anniversary of the commencement of such Deferral Period, at which point the Issuer must pay any deferred interest, regardless of the time at which it was deferred, pursuant to this Section 2.06, subject to a Market Disruption Event and the Share Cap Amount; and provided, further, that if the Common Equity Issuance Cap is reached during a Deferral Period and the Issuer subsequently pays all deferred interest, the Common Equity Issuance Cap will cease to apply with respect to such Deferral Period at the termination of such Deferral Period and will not apply again unless and until the Issuer starts a new Deferral Period;

(ii) the Issuer shall not be permitted to issue Qualifying Non-Cumulative Preferred Shares or Mandatorily Convertible Preferred Shares to the extent that the net proceeds of any issuance of Qualifying Non-Cumulative Preferred Shares and Mandatorily Convertible Preferred Shares, together with the net proceeds of all prior issuances of Qualifying Non-Cumulative Preferred Shares and Mandatorily Convertible Preferred Shares during the current and all prior Deferral Periods, to the extent still outstanding, would exceed 25% of the aggregate principal amount of the Debentures (the “Preferred Share Issuance Cap”); and

(iii) notwithstanding the Common Equity Issuance Cap and the Preferred Share Issuance Cap, so long as there are outstanding Debentures, the Issuer shall not be permitted, subject to the provisions of the three immediately succeeding paragraphs, to sell Common Shares, Qualifying Warrants or Mandatorily Convertible Preferred Shares to pay deferred interest on the Debentures if the number of Common Shares to be issued (or which would be issuable upon exercise or conversion of such Qualifying Warrants or Mandatorily Convertible Preferred Shares) to pay such deferred interest would be in excess of an amount (the “Share Cap Amount”, subject to adjustment as provided in the second succeeding paragraph) equal to the greater of (a) 150,000,000 Common Shares plus the number of Common Shares that the Issuer repurchases or that are added to Shares Available for Issuance (as defined below) pursuant to the second paragraph below, in either case after the date of issuance of the Debentures (the “Fixed Rate Portion” of the Share Cap Amount, provided that the Fixed Rate Portion shall not exceed 250,000,000 shares), in the aggregate, during the period the Debentures are outstanding or (b) on any date on which the Issuer is otherwise obligated to sell Qualifying APM Securities pursuant to this Section 2.06, the Issuer’s then effective Shares Available for Issuance; provided that if the issued and outstanding Common Shares are changed into a different number of shares or a different class by reason of any share split, reverse share split, share dividend, reclassification, recapitalization, split-up, combination, exchange of shares or other similar transaction, the Fixed Rate Portion of the Share Cap Amount shall be correspondingly adjusted. If the Issuer issues additional Debentures, then the Share Cap Amount will be increased accordingly.

The Issuer’s “Shares Available for Issuance” shall be calculated as of any day in two steps. First, from the number of authorized and unissued Common Shares, the maximum number of Common Shares that can be issued under existing options, warrants, convertible securities, any equity-linked contracts, any equity compensation plans for directors,

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officers or employees and other plans and agreements which require or permit the Issuer to issue a determinable number of Common Shares shall be deducted. After deduction of that number of Common Shares from authorized and unissued Common Shares, the remaining available Common Shares shall be allocated on a pro rata basis or on such other basis as the Issuer deems appropriate to the obligation to issue securities under this Section 2.06 and to any other similar commitment that is of an indeterminate nature and under which the Issuer is then required to issue Common Shares. If the Shares Available for Issuance are zero after the two steps described above, there shall be no obligation to obtain additional Common Shares other than the obligation to use commercially reasonable efforts to seek adoption of a shareholder vote at the Issuer’s next occurring annual shareholders’ meeting to increase the number of authorized Common Shares as described below.

The Issuer in any event shall use its commercially reasonable efforts to increase Shares Available for Issuance to at least 250,000,000 Common Shares by not later than five years after initial issuance of the Debentures. Once Shares Available for Issuance are at least 250,000,000 Common Shares, then the Share Cap Amount shall automatically be amended to mean 250,000,000 Common Shares minus the number of Common Shares, if any, sold prior to such date to settle deferred interest pursuant to this Section 2.06 and thereafter will not be determined in part by reference to Shares Available for Issuance. Promptly after each increase in the Share Cap Amount of 50,000,000 Common Shares, the Issuer will file a current report on Form 8-K with the Securities and Exchange Commission giving notice of such increase.

In addition to the Issuer’s obligation described in the preceding paragraph, if the Share Cap Amount has been reached and such amount is not sufficient to allow the Issuer to raise sufficient Eligible Proceeds to pay all deferred interest then accrued in full, the Issuer shall use its commercially reasonable efforts to increase the Share Cap Amount (which it may do in its discretion without the approval of any Holder) (1) only to the extent that the Issuer can do so and simultaneously satisfy its future fixed or contingent obligations under other securities and derivative instruments that provide for settlement or payment in Common Shares or (2) if the Issuer cannot increase the Share Cap Amount as contemplated in the preceding clause (1), by requesting the Issuer’s Board of Directors to adopt a resolution for shareholder vote at the next occurring annual shareholders meeting to increase the number of the Issuer’s authorized Common Shares for purposes of satisfying the Issuer’s obligations to pay deferred interest.

For the avoidance of doubt, (x) once the Issuer reaches the Common Equity Issuance Cap for a Deferral Period, the Issuer shall not be obligated to issue more Common Shares, or if the definition of Qualifying APM Securities has been amended to eliminate Common Shares, more Qualifying Warrants pursuant to this Section 2.06(a) prior to the fifth anniversary of the commencement of such Deferral Period even if the number of outstanding Common Shares subsequently increases, and (y) so long as the definition of Qualifying APM Securities has not been amended to eliminate Common Shares, the sale of Qualifying Warrants to pay deferred interest is an option that may be exercised at the Issuer’s sole discretion, subject to the Common Equity Issuance Cap and the Share Cap Amount, and the Issuer is not obligated to sell Qualifying Warrants or to apply the proceeds of any such sale to pay deferred interest on the Debentures, and no class of holders of the Issuer’s securities, or any other party, may require the Issuer to issue Qualifying Warrants in satisfaction of its obligations under this Section 2.06(a).

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(b) Market Disruption Event

Section 2.06(a) shall not apply, with respect to any Interest Payment Date, if the Issuer shall have provided to the Trustee (which the Trustee will promptly forward upon receipt to each Holder of Debentures) no more than 15 and no less than ten Business Days prior to such Interest Payment Date an Officers’ Certificate stating that (i) a Market Disruption Event was existing after the immediately preceding Interest Payment Date and (ii) either (A) the Market Disruption Event continued for the entire period from the Business Day immediately following the preceding Interest Payment Date to the Business Day immediately preceding the date on which such Officers’ Certificate is provided or (B) the Market Disruption Event continued for only part of such period, but the Issuer was unable despite using commercially reasonable efforts to raise sufficient Eligible Proceeds during the rest of that period to pay all accrued and unpaid interest.

(c) Partial Payment of Deferred Interest

(i) If the Issuer has raised some but not all Eligible Proceeds necessary to pay all deferred interest on any Interest Payment Date pursuant to this Section 2.06, such Eligible Proceeds shall be applied to pay accrued and unpaid interest on the applicable Interest Payment Date in chronological order based on the date each payment was first deferred, subject to the Common Equity Issuance Cap, the Preferred Shares Issuance Cap and the Share Cap Amount, as applicable, and payment on each installment of deferred interest shall be distributed to Holders of the Debentures on a pro rata basis.

(ii) If the Issuer has other outstanding Pari Passu Securities under which the Issuer is obligated to sell securities that are Qualifying APM Securities and apply the Eligible Proceeds to the payment of deferred interest or distributions, then on any date and for any period the amount of Eligible Proceeds received by the Issuer from those sales and available for payment of the deferred interest and distributions shall be applied to the Debentures and those other Pari Passu Securities on a pro rata basis up to the Common Equity Issuance Cap or the Preferred Shares Issuance Cap and the Share Cap Amount (or comparable provisions in the instruments governing those other Pari Passu Securities) in proportion to the total amounts that are due on the Debentures and such other Pari Passu Securities.

(d) Qualifying Warrants

If the Issuer sells Qualifying Warrants to pay deferred interest to satisfy its obligations pursuant to this Section 2.06, the Issuer shall use commercially reasonable efforts, subject to the Common Equity Issuance Cap, to set the terms of such Qualifying Warrants so as to raise sufficient proceeds from their issuance to pay all deferred interest on the Debentures in accordance with this Section 2.06.

(e) Qualifying APM Securities Definition Change

The Issuer may, without the consent of any Holders of the Debentures, amend the definition of Qualifying APM Securities in Section 1.01 to eliminate Common Shares or Qualifying Warrants (but not both) and/or Mandatorily Convertible Preferred Shares from the definition of Qualifying APM Securities if, after the date of the first issuance of any Debentures,

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an accounting standard or interpretive guidance of an existing accounting standard issued by an organization or regulator that has responsibility for establishing or interpreting accounting standards in the United States becomes effective such that there is more than an insubstantial risk that failure to eliminate Common Shares, Qualifying Warrants and/or Mandatorily Convertible Preferred Shares, as the case may be, from the definition would result in a reduction in the Issuer’s earnings per share as calculated in accordance with generally accepted accounting principles in the United States. The Issuer shall send written notice to the Trustee (who shall promptly forward such notice to each Holder of the Debentures) in advance of any such change in the definition of Qualifying APM Securities.

Section 2.07. Events of Default

(a) Solely for purposes of the Debentures, Section 5.1 (other than the last paragraph thereof) of the Indenture shall be deleted and replaced by the following (capitalized terms used in the following text that are not defined in the Indenture but are defined herein shall have the meanings ascribed to such terms herein):

SECTION 5.1. Events of Default Defined; Acceleration of Maturity; Waiver of Default.

“Event of Default”, wherever used herein with respect to the Debentures, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1) default in the payment of accrued interest in full on the Debentures on any Interest Payment Date (whether or not such Interest Payment Date commenced a Deferral Period) and the failure of the Issuer on or before the conclusion of a ten-year period following such Interest Payment Date to pay interest (including compounded interest) then accrued in full; or

(2) default in the payment of principal on the Debentures when due, whether on the Scheduled Maturity Date or the Final Maturity Date, upon redemption, upon a declaration of acceleration, or otherwise, except that the failure to use Commercially Reasonable Efforts to issue Qualifying Capital Securities pursuant to Section 2.02(a)(iv) shall not constitute an Event of Default; or

(3) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Issuer a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or

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composition of or in respect of the Issuer under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(4) the commencement by the Issuer of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Issuer or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Issuer in furtherance of any such action.

If the Issuer gives a timely written notice of its election to commence or continue a Deferral Period on any Interest Payment Date (and, if such notice continues a Deferral Period, the Deferral Period has not continued for ten years), then no “default” or “Event of Default” shall be deemed to arise from the Issuer’s non-payment of interest on such Interest Payment Date.

If the Issuer fails to pay principal on the Debentures on the Scheduled Maturity Date or any subsequent Interest Payment Date as a result of the failure to raise sufficient proceeds from the issuance of Qualifying Capital Securities despite the Issuer’s Commercially Reasonable Efforts to do so pursuant to Section 2.02(a)(iv), such failure shall not constitute a “default” or “Event of Default” hereunder.

When the Trustee incurs expenses or renders services in connection with an Event of Default specified in clauses (3) and (4) set forth in this Section 5.01, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law.

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If an Event of Default (other than an Event of Default specified in (3) or (4) above) with respect to the Debentures occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Debentures may declare the principal amount of all of the Debentures and interest accrued but unpaid thereon, if any, to be due and payable immediately, by a notice in writing to the Issuer (and to the Trustee if given by the Holders), and upon any such declaration, such amount shall become immediately due and payable. If an Event of Default specified in (3) or (4) above occurs, the principal amount of all the Debentures (or, if any Debentures are Original Issue Discount Securities, such portion of the principal amount of such Debentures as may be specified by the terms thereof) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable.

At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in Article Five of the Indenture, the Holders of a majority in aggregate principal amount of the outstanding Debentures by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if:

(x) the Issuer has paid or deposited with the Trustee a sum sufficient to pay:

(A) all Additional Interest on all Debentures,

(B) the principal of (and premium, if any, on) the Debentures which has become due otherwise than by such declaration of acceleration and all interest accrued thereon at the rate or rates prescribed therefor in the Debentures,

(C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in the Debentures, and

(D) all sums paid or advanced by the Trustee hereunder and the agreed upon compensation and reasonable expenses, disbursements and advances of the Trustee, its agents and counsel; and

(y) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such declaration of acceleration, have been cured or waived as provided under Section 5.10 of the Indenture.

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No such rescission shall affect any subsequent Event of Default or impair any right consequent thereon.

(b) The Trustee shall provide to the Holders of the Debentures such notices as it shall from time to time provide with respect to the Debentures under Section 5.11 of the Indenture. In addition, the Trustee shall provide to the Holders of the Debentures notice of any Event of Default or event that, with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Debentures within 90 days after the actual knowledge of a Responsible Officer of the Trustee of such Event of Default or other event. However, except in cases of a default or an Event of Default in payment on the Debentures, the Trustee will be protected in withholding the notice if one of its Responsible Officers determines that withholding of the notice is in the interest of such Holders.

(c) The Issuer’s failure to pay interest on the Debentures during a Deferral Period in accordance with Sections 2.05 and 2.06 of this First Supplemental Indenture shall constitute a default under the Indenture, but in no event shall constitute an Event of Default. Notwithstanding anything to the contrary in the Indenture or this First Supplemental Indenture, the Trustee shall have no obligation to exercise any remedies hereunder unless and except to the extent directed in writing to do so by the Holders of a majority in principal amount of the outstanding Debentures in accordance with and subject to the conditions set forth in Section 5.8 of the Indenture. The Trustee may conclusively assume that Sections 2.05 and 2.06 of this First Supplemental Indenture have been complied with unless the Issuer or the Holders of 25% in aggregate principal amount of the Debentures have given the Trustee written notice to the contrary.

(d) For the avoidance of doubt, and without prejudice to any other remedies that may be available to the Trustee or the Holders of the Debentures under the Indenture, no breach by the Issuer of any covenant or obligation under the Indenture or the terms of the Debentures or the terms of this First Supplemental Indenture, including the Issuer’s obligations under Section 2.02(a)(iv), Section 2.05 or Section 2.06, shall be an Event of Default with respect to the Debentures, other than those specified in this Section 2.07; and except as provided herein and in the Indenture with respect to Events of Default, and as provided in Section 2.07(c) above, the Trustee shall be under no duty or obligation to exercise any remedies or otherwise take any action in respect of any other default that may occur under or in respect of this First Supplemental Indenture or the Indenture.

Section 2.08. Securities Registrar; Paying Agent; Delegation of Trustee Duties

(a) The Issuer appoints the Trustee as Securities Registrar and Paying Agent with respect to the Debentures.

(b) Notwithstanding any provision contained herein, to the extent permitted by applicable law, the Trustee may delegate its duty to provide such notices and to perform such other duties as may be required to be provided or performed by the Trustee under the Indenture, and, to the extent such obligation has been so delegated, the Trustee shall not be responsible for monitoring the compliance of, nor be liable for the default or misconduct of, any such designee.

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Section 2.09. Limitation on Claims in the Event of Bankruptcy, Insolvency or Receivership

Each Holder, by such Holder’s acceptance of the Debentures, agrees that if a bankruptcy event of the Issuer shall occur prior to the redemption or repayment of such Debentures, such Holder shall have no claim for, and thus no right to receive, any deferred interest pursuant to Section 2.05 that has not been paid pursuant to Sections 2.05 and 2.06 to the extent the amount of such interest exceeds the sum of (x) interest that relates to the earliest two years of the portion of the Deferral Period for which interest has not been paid and (y) an amount equal to such Holder’s pro rata share of the excess, if any, of the Preferred Shares Issuance Cap over the aggregate amount of net proceeds from the sale of Qualifying Non-Cumulative Preferred Shares and unconverted Mandatorily Convertible Preferred Shares that the Issuer has applied to pay deferred interest pursuant to the alternative payment mechanism set forth in Section 2.06; provided that each Holder is deemed to agree that to the extent the claim for deferred interest exceeds the amount set forth in clause (x), the amount it receives in respect of such excess shall not exceed the amount it would have received had the claim for such excess ranked pari passu with the interests of the holders, if any, of Qualifying Non-Cumulative Preferred Shares.

Section 2.10. Location of Payment

Solely for the purposes of the Debentures, the text of Section 3.1 of the Indenture following the first sentence thereof shall be deleted and replaced by the following (capitalized terms used in the following text that are not defined in the Indenture but are defined herein shall have the meanings ascribed to such terms herein):

Payment of the principal of (and premium, if any) and interest on the Debentures will be made at the Paying Agent office, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Issuer payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such bank account number as may be designated by the Person entitled thereto as specified in the Securities Register in writing not less than ten days before the relevant Interest Payment Date. The office where the Debentures may be presented or surrendered for payment and the office where the Debentures may be surrendered for transfer or exchange and where notices and demands to or upon the Issuer in respect of the Debentures and the Indenture may be served shall be the Paying Agent office.

Section 2.11. No Sinking Fund

The Debentures shall not be subject to any sinking fund or analogous provisions.

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Section 2.12. Subordination

The subordination provisions of Article Thirteen of the Indenture shall apply to the Debentures.

Section 2.13. Defeasance

The provisions of Section 10.1(B) of the Indenture (relating to discharge of the Indenture) shall apply to the Debentures.

ARTICLE THREE

Covenants

Section 3.01. Dividend and Other Payment Stoppages

So long as any Debentures remain outstanding, if the Issuer has given notice of its election to defer interest payments on the Debentures but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Issuer shall not, and shall not permit any Subsidiary to:

(a) declare or pay any dividends or other distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of capital stock of the Issuer;

(b) make any payment of principal of, or interest or premium, if any, on, or repay, purchase or redeem any of the Issuer’s debt securities that rank upon the Issuer’s liquidation on a parity with or junior to the Debentures; or

(c) make any guarantee payments regarding any guarantee issued by the Issuer of securities of any Subsidiary if the guarantee ranks upon the Issuer’s liquidation on a parity with or junior to the Debentures;

provided, however, the restrictions in clauses (a), (b) and (c) above do not apply to:

(i) any purchase, redemption or other acquisition of shares of its capital stock by the Issuer in connection with;

(A) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors;

(B) the satisfaction of the Issuer’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period;

(C) a dividend reinvestment or shareholder purchase plan; or

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(D) the issuance of shares of the Issuer’s capital stock, or securities convertible into or exercisable for such shares, as consideration in an acquisition transaction, the definitive agreement for which is entered into prior to the applicable Deferral Period;

(ii) any exchange, redemption or conversion of any class or series of the Issuer’s capital stock, or shares of the capital stock of one of its Subsidiaries, for any other class or series of the Issuer’s capital stock, or of any class or series of the Issuer’s indebtedness for any class or series of the Issuer’s capital stock;

(iii) any purchase of fractional interests in shares of the Issuer’s capital stock pursuant to the conversion or exchange provisions of such shares or the securities being converted or exchanged;

(iv) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto; or

(v) any dividend in the form of stock, warrants, options or other rights where the dividend stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock;

(vi) (A) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities; provided that such payments are made in accordance with Section 2.06(c)(ii) to the extent it applies, and (B) any payments of principal or current or deferred interest on Pari Passu Securities that, if not made, would cause the Issuer to breach the terms of the instrument governing such Pari Passu Securities; or

(vii) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as the Debentures, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.02(a), and that is made on a pro rata basis among one or more series of Pari Passu Securities having such a provision and the Debentures.

Section 3.02. Additional Limitation on Deferral Over One Year

If any Deferral Period lasts longer than one year, the Issuer may not redeem or purchase any securities of the Issuer that on the Issuer’s bankruptcy or liquidation rank pari passu with or junior to any of its Qualifying APM Securities the proceeds of which were applied, pursuant to Section 2.06, to fund deferred interest on the Debentures during the relevant Deferral Period until the first anniversary of the date on which all deferred interest on the Debentures has been paid. However, if the Issuer is involved in a Business Combination where immediately after its consummation more than 50% of the voting shares of the surviving entity of such Business Combination, or the Person to whom all or substantially all of the Issuer’s properties or assets are conveyed, transferred or leased in such Business Combination, is owned, directly or indirectly, by the shareholders of the other party to such Business Combination, then the immediately preceding sentence shall not apply during the Deferral Period that is terminated on the next Interest Payment Date following the date of consummation of such Business Combination.

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ARTICLE FOUR

Redemption of the Debentures

Section 4.01. Redemption Price

The Debentures shall be redeemable in accordance with Article Twelve of the Indenture. The Debentures are redeemable in whole or in part at the option of the Issuer at any time and from time to time after the date of this First Supplemental Indenture. In the case of any redemption, the Redemption Price shall be equal to (1) in the case of any redemption on or after June 15, 2017, 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest to the Redemption Date or (2) in the case of any redemption prior to June 15, 2017, the greater of (i) 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest to the Redemption Date and (ii) the Make-Whole Redemption Price (the price set forth in (1) or (2), as applicable, the “Redemption Price”). If a proposed redemption of Debentures is not to be for all of the Debentures in whole, the Issuer may not effect such redemption unless at least $25,000,000 aggregate principal amount of the Debentures, excluding any Debentures held by the Issuer or any of its affiliates, remains outstanding after giving effect to such redemption. The date on which Debentures are to be redeemed pursuant hereto is referred to as the “Redemption Date”.

Section 4.02. Limitation on Partial Redemption

Notwithstanding the foregoing, the Issuer may not redeem the Debentures in part if the principal amount of the Debentures has been accelerated pursuant to Section 5.1 of the Indenture (as amended by Section 2.07(a) hereof) and such acceleration has not been rescinded. In addition, the Issuer may not redeem the Debentures in part unless all accrued and unpaid interest, including deferred interest, has been paid in full on all Outstanding Debentures for all Interest Periods terminating on or before the Redemption Date.

ARTICLE FIVE

Repayment of Debentures

Section 5.01. Repayments

The Issuer, not more than 15 nor less than ten Business Days prior to each Repayment Date (unless a shorter notice shall be satisfactory to the Trustee), shall notify the Trustee of the principal amount of Debentures to be repaid on such date pursuant to Section 2.02(a).

Section 5.02. Selection of the Debentures to be Repaid

If less than all the Debentures are to be repaid on any Repayment Date (unless the Debentures are issued in the form of a Global Security), the particular Debentures to be repaid shall be selected not more than 60 days prior to such Repayment Date by the Trustee, from the Outstanding Debentures not previously repaid or called for redemption, by such method as then may be required by law or if no such legal requirement shall then exist, by lot or such other

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method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Debentures, provided that the portion of the principal amount of any Debentures not repaid shall be in an authorized denomination (which shall not be less than the minimum authorized denomination).

The Trustee shall promptly notify the Issuer in writing of the Debentures selected for partial repayment and the principal amount thereof to be repaid. For all purposes hereof, unless the context otherwise requires, all provisions relating to the repayment of Debentures shall relate, in the case of any Debentures repaid or to be repaid only in part, to the portion of the principal amount of such Debentures which has been or is to be repaid.

Section 5.03. Notice of Repayment

Notice of repayment shall be given by first-class mail, postage prepaid, mailed not earlier than the 60th day, and not later than the 30^th day, prior to the Repayment Date, to each Holder of Debentures to be repaid, at the address of such Holder as it appears in the Security Register.

Each notice of repayment shall identify the Debentures to be repaid (including the Debentures’ CUSIP number, if a CUSIP number has been assigned to the Debentures) and shall state:

(a) the Repayment Date;

(b) if less than all Outstanding Debentures are to be repaid, the identification (and, in the case of partial repayment, the respective principal amounts) of the particular Debentures to be repaid;

(c) that on the Repayment Date, the principal amount of the Debentures to be repaid will become due and payable upon each such Debentures or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; and

(d) the place or places where such Debentures are to be surrendered for payment of the principal amount thereof.

Notice of repayment shall be given by the Issuer or, if the Issuer timely notifies the Trustee, at the Issuer’s request, by the Trustee in the name and at the expense of the Issuer and shall be irrevocable. The notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the Holders receive such notice. In any case, a failure to give such notice by mail or any defect in the notice to any Holder of any Debentures designated for repayment as a whole or in part shall not affect the validity of the proceedings for the repayment of any other Debentures.

Section 5.04. Deposit of Repayment Amount

Prior to 11:00 a.m. New York City time on the Repayment Date specified in the notice of repayment given as provided in Section 5.03, the Issuer will deposit with the Trustee or with one or more Paying Agents (or if the Issuer is acting as its own Paying Agent, the Issuer will segregate and hold in trust as provided in Section 3.4 of the Indenture) an amount of money, in immediately available funds, sufficient to pay the principal amount of, and any accrued interest on, all the Debentures which are to be repaid on that date.

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Section 5.05. Repayment of Debentures

If any notice of repayment has been given as provided in Section 5.03, the Debentures or portion of the Debentures with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice. On surrender of such Debentures at a place of payment in said notice specified, the said Debentures or the specified portions thereof shall be paid by the Issuer at their principal amount, together with accrued interest to but excluding the Repayment Date; provided that, except in the case of a repayment in full of all Outstanding Debentures, installments of interest due on or prior to the Repayment Date will be payable to the Holders of such Debentures, registered as such at the close of business on the relevant Regular Record Dates according to their terms and the provisions of Section 3.1 of the Indenture.

Upon surrender of any Debentures repaid in part only, the Issuer shall execute and the Trustee shall authenticate and make available for delivery to the Holders thereof, at the expense of the Issuer, a new Debenture, of authorized denominations, in aggregate principal amount equal to the portion of the Debentures not repaid and so presented and having the same Scheduled Maturity Date and other terms. If a Global Security is so surrendered, such new Debentures will be a new Global Security.

If any Debentures required to be repaid shall not be so repaid upon surrender thereof, the principal of such Debentures shall bear interest from the applicable Repayment Date until paid at the rate prescribed therefor in the Debentures.

ARTICLE SIX

Original Issue of Debentures

Section 6.01. Calculation of Original Issue Discount

If during any calendar year any original issue discount shall have accrued on the Debentures, the Issuer shall file with each Paying Agent (including the Trustee if it is a Paying Agent) promptly at the end of each calendar year (a) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (b) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time.

ARTICLE SEVEN

Supplemental Indentures

Section 7.01. Supplemental Indentures Without Consent of Holders

Solely for purposes of the Debentures, Section 8.1 of the Indenture shall be deleted and replaced with the following (capitalized terms used in the following text that are not defined in the Indenture but are defined herein shall have the meanings ascribed to such terms herein):

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SECTION 8.1. Supplemental Indentures Without Consent of Holders

Without the consent of any Holders, the Issuer, when authorized by a resolution of the Board of Directors, and the Trustee, at any time and from time to time, may supplement or amend the Indenture and this First Supplemental Indenture for any of the following purposes:

(1) to evidence the succession of another Person to the Issuer and the assumption by any such successor of the covenants of the Issuer herein and in the Debentures; or

(2) to add to or modify the covenants of the Issuer for the benefit of the Holders of Debentures or to surrender any right or power herein conferred upon the Issuer; provided that no such amendment or modification may add Events of Default or acceleration events with respect to the Debentures; or

(3) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures; or

(4) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or in any supplemental indenture, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Debentures in any material respect; or

(5) to make any changes to the Indenture or this First Supplemental Indenture in order to conform the Indenture and this First Supplemental Indenture to the final prospectus supplement provided to investors in connection with the offering of the Debentures.

ARTICLE EIGHT

Miscellaneous

Section 8.01. Effectiveness

This First Supplemental Indenture will become effective upon its execution and delivery.

Section 8.02. Successors and Assigns

All covenants and agreements in the Indenture, as supplemented and amended by this First Supplemental Indenture, by the Issuer shall bind its successors and assigns, whether so expressed or not.

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Section 8.03 Effect of Recitals

The recitals contained herein and in the Debentures, except the Trustee’s certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee does not assume any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Issuer of the Debentures or the proceeds thereof.

Section 8.04. Ratification of Indenture

The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.

Section 8.05. Governing Law

This First Supplemental Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New York.

Section 8.06. Severability

If any provision of the Indenture, as supplemented and amended by this First Supplemental Indenture, shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever.

* * *

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.

THE PROGRESSIVE CORPORATION
By:	/s/ Thomas A. King
Name: Title:	Thomas A. King Vice President and Treasurer
By:	/s/ Charles E. Jarrett
Name: Title:	Charles E. Jarrett Vice President, Secretary and Chief Legal Officer
THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee
By:	/s/ L. Garcia
Name: Title:	Linda Garcia Vice President

EXHIBIT A

FORM OF DEBENTURES

The Debentures are to be substantially in the following form and shall bear the following legend and shall include the Trustee’s certificate of authentication in the form required by Section 2.2 of the Base Indenture:

[If a Global Security:] [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

No. •	Principal Amount: $•
Issue Date: •	CUSIP: 743315 AM5

THE PROGRESSIVE CORPORATION

6.70% FIXED-TO-FLOATING RATE

JUNIOR SUBORDINATED DEBENTURES DUE 2067

The Progressive Corporation, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the “Issuer”, which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to • [If Global Security:] [Cede & Co.,] or registered assigns, the principal sum of • dollars ($•) as may be revised from time to time on Schedule I hereto on June 15, 2037, or if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”) or any subsequent Interest Payment Date (as defined in the First Supplemental Indenture) to the extent set forth in the First Supplemental Indenture. If that amount is not paid in full on the Scheduled Maturity Date or any subsequent Interest Payment Date, the remaining principal amount will be due and payable on the Final Maturity Date. The Final Maturity Date will be June 15, 2067, or if such day is not a Business Day, the following Business Day.

The Issuer further promises to pay interest on said principal sum from and including June 21, 2007, or from and including the most recent Interest Payment Date on which interest has been paid or duly provided for, until the principal thereof is paid or made available for payment semi-annually (subject to deferral as set forth herein) in arrears on June 15 and December 15 of each year, commencing on December 15, 2007 and ending on June 15, 2017, at the rate of 6.70% per annum (computed on the basis of a 360-day year consisting of twelve 30-day months), and thereafter to pay interest on said outstanding principal sum quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, commencing on September 15, 2017 at a floating annual rate equal to Three-Month LIBOR (as defined in the First Supplemental Indenture) plus 2.0175% (computed on the basis of a 360-day year and the actual number of days elapsed in the 360-day year). Accrued interest that is not paid on the

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applicable Interest Payment Date, including interest deferred pursuant to Section 2.05 of the First Supplemental Indenture, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time provided in Section 2.04(a) of the First Supplemental Indenture, from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date.

In the event that any Semi-Annual Interest Payment Date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date will be made on the immediately succeeding day that is a Business Day (and, in the case of payments on or prior to June 15, 2017, without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. In the event that any Quarterly Interest Payment Date on which interest is payable on this Security is not a Business Day, then payment of the interest payable on such date shall be postponed to the immediately succeeding day that is a Business Day, provided that if such Business Day is in the immediately succeeding calendar month, such Interest Payment Date shall be the immediately preceding Business Day, and interest will accrue to but excluding the date on which the interest is actually paid. A “Business Day” shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) on or after June 15, 2017, a day that is not a London Banking Day. “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date, as provided in the Indenture, will be paid to the Person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be June 1 or December 1, as the case may be, immediately preceding such Interest Payment Date until June 15, 2017 (whether or not a Business Day), and shall be March 1, June 1, September 1 and December 1, as the case may be, immediately preceding the relevant Interest Payment Date after June 15, 2017. Any such interest installment not so punctually paid or duly provided for (other than interest deferred in accordance with the next paragraph) shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor securities) is registered at the close of business on a special record date for the payment of such Additional Interest on such date to be fixed by the Trustee (the “Special Record Date”), notice whereof shall be given to Holders of Securities of this series not less than ten days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

The Issuer shall have the right at any time or from time to time during the term of this Security to defer payment of interest on this Security for one or more consecutive Interest Periods (each a “Deferral Period”) that do not exceed ten years for the applicable Deferral Period, during which Deferral Periods the Issuer shall have the right, subject to Sections 2.05 and 2.06 of the First Supplemental Indenture, to make partial payments of interest on any Interest Payment Date, and at the end of which the Issuer shall pay all interest then accrued and unpaid; provided, however, that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment or redemption in full of the Securities. Upon the termination of any Deferral

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Period and upon the payment of all deferred interest then due, the Issuer may elect to begin a new Deferral Period, subject to the above requirements. Except as provided in Section 2.06 of the First Supplemental Indenture, no interest shall be due and payable during a Deferral Period except at the end thereof.

So long as any Securities remain outstanding, if the Issuer has given notice of its election to defer interest payments on the Securities but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Issuer shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or other distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Issuer’s capital stock, (ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any debt securities of the Issuer that rank upon the Issuer’s liquidation on a parity with this Security (including this Security, the “Pari Passu Securities”) or junior to this Security or (iii) make any guarantee payments regarding any guarantee issued by the Issuer of securities of any Subsidiary if the guarantee ranks upon the Issuer’s liquidation on a parity with or junior to this Security (other than (a) any purchase, redemption or other acquisition of shares of its capital stock by the Issuer in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors, (2) the satisfaction of the Issuer’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period, (3) a dividend reinvestment or shareholder purchase plan, or (4) the issuance of shares of the Issuer’s capital stock, or securities convertible into or exercisable for such shares, as consideration in an acquisition transaction entered into prior to the applicable Deferral Period, (b) any exchange, redemption or conversion of any class or series of the Issuer’s capital stock, or the capital stock of one of its Subsidiaries, for any other class or series of its capital stock, or of any class or series of its indebtedness for any class or series of its capital stock, (c) any purchase of fractional interests in shares of the Issuer’s capital stock pursuant to the conversion or exchange provisions of such shares or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (f) (1) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities (including the this Security); provided that such payments are made in accordance with Section 2.06(c)(ii) of the First Supplemental Indenture to the extent it applies, and (2) any payments of principal or current or deferred interest on Pari Passu Securities that, if not made, would cause the Issuer to breach the terms of the instrument governing such Pari Passu Securities; or (g) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as this Security, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.02(a) of the First Supplemental Indenture, and that is made on a pro rata basis among one or more series of Pari Passu Securities (including this Security) having such a provision. In addition, if any Deferral Period lasts longer than one year, the Issuer may not redeem or purchase any securities of the Issuer that on the Issuer’s bankruptcy or liquidation rank pari passu or junior to any of its Qualifying APM Securities the proceeds of which were used to settle deferred interest on the

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Debentures during the relevant Deferral Period until the first anniversary of the date on which all deferred interest on this Security has been paid. However, if the Issuer is involved in a Business Combination where immediately after its consummation more than 50% of the voting shares of the surviving entity of such Business Combination, or the Person to whom all or substantially all of the Issuer’s properties or assets are conveyed, transferred or leased in such Business Combination, is owned, directly or indirectly, by the shareholders of the other party to such Business Combination, then the immediately preceding sentence will not apply during the Deferral Period that is terminated on the next Interest Payment Date following the date of consummation of such Business Combination.

The Issuer shall give written notice of its election to commence or continue any Deferral Period to the Trustee and the Holders of all Securities then Outstanding at least one Business Day and not more than 60 Business Days before the next Interest Payment Date. Such notice shall be given to the Trustee and each Holder of this Security at such Holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Payment of the principal of (and premium, if any) and interest on this Security will be made at the paying agency office or agency of the Issuer maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Issuer, payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such bank account number as may be designated by the Person entitled thereto as specified in the Securities Register in writing not less than ten days before the relevant Interest Payment Date.

The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on such Holder’s behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee such Holder’s attorney-in-fact for any and all such purposes. Each Holder hereof, by such Holder’s acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions.

The Issuer and, by acceptance of this Security or a beneficial interest in this Security, each Holder hereof and any person acquiring a beneficial interest herein, agree that for United States federal, state and local tax purposes, it is intended that this Security constitute indebtedness.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

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Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

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IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed.

THE PROGRESSIVE CORPORATION

By:

Name:

Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee
By:
	Authorized Signatory

Dated:                                 

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(FORM OF REVERSE OF DEBENTURES)

This Security is one of a duly authorized issue of securities of the Issuer (herein called the “Securities”), issued and to be issued in one or more series under the Junior Subordinated Indenture, dated as of June 21, 2007 (herein called the “Base Indenture”), between the Issuer and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”), as amended and supplemented by the First Supplemental Indenture, dated as of June 21, 2007, between the Issuer and the Trustee (the “First Supplemental Indenture”, and together with the Base Indenture, the “Indenture”), to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Issuer and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. By the terms of the Indenture, the Securities are issuable in series that may vary as to amount, date of maturity, rate of interest, rank and in any other respect provided in the Indenture.

All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

The Securities shall be redeemable at the option of the Issuer in accordance with the terms of the Indenture. The Securities are redeemable in whole or in part at the option of the Issuer at any time after the date hereof. In the case of any redemption, the Redemption Price shall be equal to (1) in the case of any redemption on or after June 15, 2017, 100% of the principal amount of the Securities being redeemed plus accrued and unpaid interest to the Redemption Date or (2) in the case of any redemption prior to June 15, 2017, the greater of (i) 100% of the principal amount plus accrued and unpaid interest to the Redemption Date, and (ii) the Make-Whole Redemption Price. If the Securities are not redeemed in whole, the Issuer may not effect such redemption unless at least $25 million aggregate principal amount of the Securities, excluding any Securities held by the Issuer or any of its affiliates, remains outstanding after giving effect to such redemption.

Notwithstanding the foregoing, the Issuer may not redeem the Securities in part if the principal amount of the Securities has been accelerated pursuant to Section 5.1 of the Base Indenture (as amended by Section 2.07(a) of the First Supplemental Indenture) and such acceleration has not been rescinded. In addition, the Issuer may not redeem the Securities in part unless all accrued and unpaid interest, including deferred interest, has been paid in full on all Outstanding Securities for all Interest Periods terminating on or before the Redemption Date.

No sinking fund is provided for the Securities.

The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Issuer with certain conditions set forth in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Issuer and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Issuer and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the

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Outstanding Securities to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, (i) if an Event of Default (other than an Event of Default relating to certain insolvency events, as set forth in the Indenture) with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the entire principal amount and all accrued but unpaid interest of all the Securities to be due and payable immediately, by a notice in writing to the Issuer (and to the Trustee if given by Holders), and (ii) if an Event of Default relating to insolvency events as set forth in the Indenture occurs, the principal amount of the Securities shall automatically become due and payable; provided that in any such case the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article Eleven of the Base Indenture.

The Holder of this Security, by such Holder’s acceptance hereof, agrees that if a bankruptcy event of the Issuer shall occur prior to the redemption or repayment of such Securities, such Holder shall have no claim for, and thus no right to receive, any deferred interest pursuant to Section 2.05 of the First Supplemental Indenture that has not been paid pursuant to Sections 2.05 and 2.06 of the First Supplemental Indenture to the extent the amount of such interest exceeds the sum of (x) interest that relates to the earliest two years of the portion of the Deferral Period for which interest has not been paid and (y) an amount equal to such Holder’s pro rata share of the excess, if any, of the Preferred Shares Issuance Cap over the aggregate amount of net proceeds from the sale of Qualifying Non-Cumulative Preferred Shares and unconverted Mandatorily Convertible Preferred Shares that has been applied to fund deferred interest pursuant to the alternative payment mechanism set forth in Section 2.06 of the First Supplemental Indenture; provided that each Holder is deemed to agree that to the extent the remaining claim exceeds the amount set forth in clause (x), the amount it receives in respect of such excess shall not exceed the amount it would have received had the claim for such excess ranked pari passu with the interests of the holders, if any, of Qualifying Non-Cumulative Preferred Shares.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Issuer maintained under Section 3.2 of the Base Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized

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denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee shall have the right to treat and shall treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Issuer, the Trustee nor any such agent shall be affected by notice to the contrary.

The Securities are issuable only in registered form without coupons in minimum denominations of $1,000 and any integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

The Issuer and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree to treat for United States Federal income tax purposes (i) the Securities as indebtedness of the Issuer, and (ii) the stated interest on the Securities as ordinary interest income that is includible in the Holder’s or beneficial owner’s gross income at the time the interest is paid or accrued in accordance with the Holder’s or beneficial owner’s regular method of tax accounting, and otherwise to treat the Securities as described in the final prospectus supplement provided to investors in connection with the offering of the Securities.

THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

This is one of the Securities referred to in the within mentioned Indenture.

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ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

agent to transfer this Security on the books of the Securities Registrar. The agent may substitute another to act for him or her.

Dated:	Signature:
	Signature Guarantee:

(Sign exactly as your name appears on the other side of this Security)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Securities Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

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SCHEDULE I

SCHEDULE OF PRINCIPAL AMOUNT REDUCTIONS

Principal amount of Debentures outstanding represented by this Security as of         , : $            .

Thereafter, the following decreases have been made:

Date of Repayment, Redemption or Purchase	Principal Amount  Repaid, Redeemed or Purchased	Principal  Amount Remaining	Notation Made by or on Behalf of the Trustee
	$	$

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EX-4.15

Exhibit 4.15

REPLACEMENT CAPITAL COVENANT

REPLACEMENT CAPITAL COVENANT, dated as of June 21, 2007 (this “Replacement Capital Covenant”), by The Progressive Corporation, an Ohio corporation (together with its successors and assigns, the “Corporation”), in favor of and for the benefit of each Covered Debtholder (as defined below).

RECITALS

A. On the date hereof, the Corporation is issuing $1,000,000,000 aggregate principal amount of its 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “Debentures”).

B. This Replacement Capital Covenant is the “Replacement Capital Covenant” referred to in the Corporation’s Prospectus Supplement, dated June 18, 2007, to the Corporation’s prospectus, dated June 18, 2007, included in the registration statement on Form S-3 (File No. 333-143824), relating to the Debentures.

C. The Corporation is entering into and disclosing the content of this Replacement Capital Covenant in the manner provided below with the intent that the covenants provided for in this Replacement Capital Covenant be enforceable by each Covered Debtholder and that the Corporation be estopped from disregarding the covenants in this Replacement Capital Covenant, in each case to the fullest extent permitted by applicable law.

D. The Corporation acknowledges that reliance by each Covered Debtholder upon the covenants in this Replacement Capital Covenant is reasonable and foreseeable by the Corporation and that, were the Corporation to disregard its covenants in this Replacement Capital Covenant, each Covered Debtholder would have sustained an injury as a result of its reliance on such covenants.

NOW, THEREFORE, the Corporation hereby covenants and agrees as follows in favor of and for the benefit of each Covered Debtholder.

SECTION 1. Definitions

Capitalized terms used in this Replacement Capital Covenant (including the Recitals) have the meanings set forth in Schedule I hereto.

SECTION 2. Limitations on Repayment, Redemption and Purchase of Debentures

The Corporation hereby promises and covenants to and for the benefit of each Covered Debtholder that the Corporation shall not repay, redeem or purchase, nor shall any Subsidiary of the Corporation purchase, any of the Debentures prior to the Termination Date except to the extent that the principal amount repaid or the applicable redemption or purchase price does not exceed the sum of the Applicable Percentages of the following amounts:

(i) the aggregate amount of net cash proceeds received by the Corporation and its Subsidiaries since the most recent Measurement Date (without double counting proceeds received in any prior Measurement Period) from the sale of Replacement Capital Securities, plus

(ii) (A) the aggregate amount of net cash proceeds received by the Corporation and its Subsidiaries from the sale of Common Shares and Qualifying Warrants and (B) the Current Stock Market Price of any Common Shares that the Corporation and its Subsidiaries have issued (determined as of the date of issuance) in connection with the conversion of any convertible or exchangeable securities, other than securities for which the Corporation or any of its Subsidiaries has received equity credit from any NRSRO, in each case since the most recent Measurement Date (without double counting proceeds received in any prior Measurement Period),

in each case to Persons other than the Corporation and its Subsidiaries. For purposes of this Replacement Capital Covenant, the terms “repay” and “repayment” include the defeasance by the Corporation of the Debentures as well as the satisfaction and discharge of its obligations under the Indenture with respect to the Debentures.

SECTION 3. Covered Debt

(a) The Corporation represents and warrants that the Initial Covered Debt is Eligible Debt.

(b) On or during the 30-day period immediately preceding any Redesignation Date with respect to the Covered Debt then in effect, the Corporation shall identify the series of Eligible Debt that will become the Covered Debt on and after such Redesignation Date in accordance with the following procedures:

(i) the Corporation shall identify each series of its then-outstanding long-term indebtedness for money borrowed that is Eligible Debt;

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(ii) if only one series of the Corporation’s then outstanding long-term indebtedness for money borrowed is Eligible Debt, such series shall become the Covered Debt commencing on the related Redesignation Date;

(iii) if the Corporation has more than one outstanding series of long-term indebtedness for money borrowed that is Eligible Debt, then the Corporation shall identify the series that has the latest occurring final maturity date as of the date the Corporation is applying the procedures in this Section 3(b) and such series shall become the Covered Debt on the related Redesignation Date;

(iv) the series of outstanding long-term indebtedness for money borrowed that is determined to be Covered Debt pursuant to clause (ii) or (iii) above shall be the Covered Debt for purposes of this Replacement Capital Covenant for the period commencing on the related Redesignation Date and continuing to but excluding the Redesignation Date as of which a new series of outstanding long-term indebtedness for money borrowed is next determined to be the Covered Debt pursuant to the procedures set forth in this Section 3(b); and

(v) in connection with such identification of a new series of Covered Debt, the Corporation shall, as provided for in Section 3(c), give a notice and file with the Commission a current report on Form 8-K including or incorporating by reference this Replacement Capital Covenant as an exhibit within the time frame provided for in Section 3(c).

(c) Notice. In order to give effect to the intent of the Corporation described in Recital C, the Corporation covenants that (i) simultaneously with the execution of this Replacement Capital Covenant or as soon as practicable after the date hereof, it shall (x) give notice to the Holders of the Initial Covered Debt, in the manner provided in the indenture relating to the Initial Covered Debt, of this Replacement Capital Covenant and the rights granted to such Holders hereunder and (y) file a copy of this Replacement Capital Covenant with the Commission as an exhibit to a Form 8-K under the Securities Exchange Act; (ii) so long as the Corporation is a reporting company under the Securities Exchange Act, the Corporation shall include in each annual report filed with the Commission on Form 10-K under the Securities Exchange Act a description of the covenant set forth in Section 2 and identify the series of long-term indebtedness for borrowed money that is Covered Debt as of the date such Form 10-K is filed with the Commission; (iii) if a series of the Corporation’s long-term indebtedness for money borrowed (1) becomes Covered Debt or (2) ceases to be Covered Debt, the Corporation shall give notice of such occurrence within 30 days to the holders of such long-term indebtedness for money borrowed in the manner provided for in the indenture, fiscal agency agreement or other instrument under which such long-term indebtedness for money borrowed was issued and report such change in a current report on Form 8-K including or incorporating by reference this Replacement Capital Covenant, and in the Corporation’s next annual report on Form 10-K, as applicable; (iv) if, and only if, the Corporation ceases to be a reporting company under the Securities Exchange Act, the Corporation shall (x) post on its website the information otherwise required to be included in Securities Exchange Act filings pursuant to clauses (ii) and (iii) of this Section 3(c) and (y) cause a notice of the execution of this Replacement Capital Covenant to be posted on the Bloomberg screen for the Covered Debt or any successor Bloomberg screen and each similar third-party vendor’s screen the Corporation reasonably believes is appropriate (each an “Investor Screen”) and cause a hyperlink to a definitive copy of this Replacement Capital Covenant to be included on the Investor Screen for each series of Covered Debt, in each case to the extent permitted by Bloomberg or such similar third-party vendor, as the case may be; and (v) promptly upon request by any Holder of Covered Debt, the Corporation shall provide such Holder with a copy of this Replacement Capital Covenant as executed.

(d) The Corporation agrees that, if at any time the Covered Debt is held by a trust (for example, where the Covered Debt is part of an issuance of trust preferred securities), a holder of the securities issued by such trust may enforce (including by instituting legal proceedings) this Replacement Capital Covenant directly against the Corporation as though such holder owned Covered Debt directly, and such holder shall be deemed to be a holder of “Covered Debt” for purposes of this Replacement Capital Covenant for so long as the indebtedness held by such trust remains Covered Debt hereunder.

SECTION 4. Termination, Amendment and Waiver

(a) The obligations of the Corporation pursuant to this Replacement Capital Covenant shall remain in full force and effect until the earliest date (the “Termination Date”) to occur of (i) the date, if any, on which the Holders of a majority in principal amount of the then-effective series of Covered Debt consent or agree in writing to the termination of this Replacement Capital Covenant and the obligations of the Corporation hereunder, (ii) the date on which the Corporation ceases to have any series of outstanding Eligible Senior Debt or Eligible Subordinated Debt (in each case without giving effect to the rating requirement in clause (b) of the definition of each such term), (iii) June 15, 2047 or, if earlier, the date on which the Debentures are otherwise repaid, redeemed or purchased in full in accordance with this Replacement Capital Covenant, and (iv) the date on which the Debentures become accelerated due to the occurrence of an event of default. From and after the Termination Date, the obligations of the Corporation pursuant to this Replacement Capital Covenant shall be of no further force and effect.

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(b) This Replacement Capital Covenant may be amended or supplemented from time to time by a written instrument signed by the Corporation with the consent of the Holders of a majority in principal amount of the then-effective series of Covered Debt, provided that this Replacement Capital Covenant may be amended or supplemented from time to time by a written instrument signed only by the Corporation (and without the consent of any Covered Debtholder) if (i) such amendment or supplement eliminates Common Shares, Qualifying Warrants, Mandatorily Convertible Preferred Shares and/or Debt Exchangeable for Common Equity as a Replacement Capital Security and, in the case of this clause (i), after the date of this Replacement Capital Covenant, an accounting standard or interpretive guidance of an existing accounting standard issued by an organization or regulator that has responsibility for establishing or interpreting accounting standards in the United States becomes effective such that there is more than an insubstantial risk that failure to eliminate Common Shares, Qualifying Warrants, Mandatorily Convertible Preferred Shares and/or Debt Exchangeable for Common Equity as a Replacement Capital Security would result in a reduction in the Corporation’s earnings per share as calculated in accordance with generally accepted accounting principles in the United States, (ii) such amendment or supplement is not adverse to the Holders of the then-effective series of Covered Debt and an officer of the Corporation has delivered to the Holders of the then-effective series of Covered Debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such Covered Debt a written certificate stating that, in his or her determination, such amendment or supplement is not adverse to the Holders of the then-effective series of Covered Debt, or (iii) the effect of such amendment or supplement is solely to impose additional restrictions on, or eliminate (subject to clause (i) in the circumstances where it applies) certain of, the types of securities qualifying as Replacement Capital Securities, and an officer of the Corporation has delivered to the Holders of the then-effective series of Covered Debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such Covered Debt a written certificate to that effect.

(c) For purposes of Sections 4(a) and 4(b), the Holders whose consent or agreement is required to terminate, amend or supplement the obligations of the Corporation under this Replacement Capital Covenant shall be the Holders of the then-effective Covered Debt as of a record date established by the Corporation that is not more than 30 days prior to the date on which the Corporation proposes that such termination, amendment or supplement becomes effective.

SECTION 5. Miscellaneous

(a) This Replacement Capital Covenant shall be governed by and construed in accordance with the laws of the State of New York.

(b) This Replacement Capital Covenant shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the Covered Debtholders as they exist from time-to-time (it being understood and agreed by the Corporation that any Person who is a Covered Debtholder shall retain its status as a Covered Debtholder for so long as the series of long-term indebtedness for borrowed money owned by such Person is Covered Debt and if such Person initiates an action, claim or proceeding to enforce its rights under this Replacement Capital Covenant after the Corporation has violated its covenants in Section 2 and before the series of long-term indebtedness for money borrowed held by such Person is no longer Covered Debt, such Person’s rights under this Replacement Capital Covenant shall not terminate by reason of such series of long-term indebtedness for money borrowed no longer being Covered Debt).

(c) All demands, notices, requests and other communications to the Corporation under this Replacement Capital Covenant shall be deemed to have been duly given and made if in writing and (i) if served by personal delivery upon the Corporation, on the day so delivered (or, if such day is not a Business Day, the next succeeding Business Day), or (ii) if delivered by registered post or certified mail, return receipt requested, or sent to the Corporation by a national or international courier service, on the date of receipt by the Corporation (or, if such date of receipt is not a Business Day, the next succeeding Business Day), and in each case to the Corporation at the address set forth below, or at such other address as the Corporation may thereafter notify to Covered Debtholders or post on its website as the address for notices under this Replacement Capital Covenant:

The Progressive Corporation

6300 Wilson Mills Road

Mayfield Village, Ohio 44143

Attention: Treasurer

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IN WITNESS WHEREOF, the Corporation has caused this Replacement Capital Covenant to be executed by its duly authorized officer, as of the day and year first above written.

THE PROGRESSIVE CORPORATION
By:	/s/ Jeffrey W. Basch
	Name:	Jeffrey W. Basch
	Title:	Vice President and Chief Accounting Officer

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SCHEDULE I

DEFINITIONS

“Alternative Payment Mechanism” means, with respect to any Qualifying Capital Securities, provisions in the related transaction documents permitting the Corporation, in its sole discretion, to defer or skip in whole or in part payment of Distributions on such Qualifying Capital Securities for one or more consecutive Distribution Periods not to exceed ten years and requiring the Corporation to issue (or use Commercially Reasonable Efforts to issue) one or more types of APM Qualifying Securities raising eligible proceeds at least equal to the deferred Distributions on such Qualifying Capital Securities and apply the proceeds to pay unpaid Distributions on such Qualifying Capital Securities, commencing on the earlier of (x) the first Distribution Date after commencement of a deferral period on which the Corporation pays current Distributions on such Qualifying Capital Securities and (y) the fifth anniversary of the commencement of such deferral period, and that:

(i) define “eligible proceeds” to mean, for purposes of such Alternative Payment Mechanism, the net proceeds (after underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale of the relevant securities, where applicable, and including the fair market value of property received by the Corporation or any of its Subsidiaries as consideration for such APM Qualifying Securities) that the Corporation has received during the 180 days prior to the related Distribution Date from the issuance of APM Qualifying Securities, up to the Preferred Cap in the case of APM Qualifying Securities that are Qualifying Non-Cumulative Preferred Shares or Mandatorily Convertible Preferred Shares;

(ii) permit the Corporation to pay current Distributions on any Distribution Date out of any source of funds but (x) require the Corporation to pay deferred Distributions only out of eligible proceeds and (y) prohibit the Corporation from paying deferred Distributions out of any source of funds other than eligible proceeds;

(iii) if deferral of Distributions continues for more than one year (or such shorter period as provided for in the terms of such securities), require the Corporation and its Subsidiaries not to repay, redeem or purchase any of its securities ranking junior to or pari passu with any APM Qualifying Securities on a bankruptcy or liquidation of the Corporation the proceeds of which were used to settle deferred interest during the relevant deferral period until at least one year after all deferred Distributions have been paid (a “Repurchase Restriction”), other than the following (none of which shall be restricted or prohibited by a Repurchase Restriction):

(A) purchases of such securities by the Corporation’s Subsidiaries in connection with the distribution thereof or market-making or other secondary-market activities;

(B) purchases, redemptions or other acquisitions of Common Shares in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants; or

(C) purchases of Common Shares pursuant to a contractually binding requirement to buy Common Shares entered into prior to the beginning of the related deferral period, including under a contractually binding stock repurchase plan;

(iv) may include a provision that, notwithstanding the Common Cap and the Preferred Cap, for purposes of paying deferred Distributions, limits the Corporation’s ability to sell Common Shares, Qualifying Warrants or Mandatorily Convertible Preferred Shares above the Share Cap;

(v) in the case of Qualifying Capital Securities other than Qualifying Non-Cumulative Preferred Shares, include a Bankruptcy Claim Limitation Provision;

(vi) permit the Corporation, at its option, to provide that if it is involved in a merger, consolidation, amalgamation, binding share exchange or conveyance, transfer or lease of assets substantially as an entirety to any other person or a similar transaction (a “Business Combination”) where immediately after the consummation of the Business Combination more than 50% of the voting stock of the surviving entity of the Business Combination or the Person to whom all or substantially all of the Corporation’s assets have been transferred, conveyed or leased is owned, directly or indirectly, by the shareholders of the other party to the Business Combination, then clauses (i) through (iii) of this definition will not apply to any deferral period that is terminated on the next Distribution Date following the date of the Business Combination;

(vii) limit the obligation of the Corporation to issue (or use Commercially Reasonable Efforts to issue) APM Qualifying Securities that are Common Shares and Qualifying Warrants to settle deferred Distributions pursuant to the Alternative Payment Mechanism either (A) during the first five years of any deferral period or (B) before an anniversary of the commencement of any deferral period that is not earlier than the fifth such anniversary and not later than the ninth such anniversary (as designated in the terms of such Qualifying Capital Securities) with respect to deferred Distributions attributable to the first five years of such deferral period, either:

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(X) to an aggregate amount of such securities, the net proceeds from the issuance of which is equal to 2% of the product of the average of the Current Stock Market Price of the Common Shares on the ten consecutive trading days ending on the fourth trading day immediately preceding the date of issuance multiplied by the total number of issued and outstanding Common Shares as of the date of the Corporation’s most recent publicly available consolidated financial statements; or

(Y) to a number of Common Shares and Qualifying Warrants, in the aggregate, not in excess of 2% of the outstanding number of Common Shares (such limitation set forth in (X) or (Y), the “Common Cap”); and

(viii) limit the right of the Corporation to issue APM Qualifying Securities that are Qualifying Non-Cumulative Preferred Shares and Mandatorily Convertible Preferred Shares to settle deferred Distributions pursuant to the Alternative Payment Mechanism to an aggregate amount of Qualifying Non-Cumulative Preferred Shares and still-outstanding Mandatorily Convertible Preferred Shares, the net proceeds from the issuance of which with respect to all deferral periods is equal to 25% of the liquidation or principal amount of such Qualifying Capital Securities (the “Preferred Cap”);

provided (and it being understood) that:

(A) the Corporation shall not be obligated to issue (or use Commercially Reasonable Efforts to issue) APM Qualifying Securities for so long as a Market Disruption Event has occurred and is continuing;

(B) if, due to a Market Disruption Event or otherwise, the Corporation is able to raise and apply some, but not all, of the eligible proceeds necessary to pay all deferred Distributions on any Distribution Date, the Corporation will apply any available eligible proceeds to pay accrued and unpaid Distributions on the applicable Distribution Date in chronological order subject to the Common Cap, Preferred Cap and Share Cap, as applicable; and

(C) if the Corporation has outstanding more than one class or series of securities under which it is obligated to sell a type of APM Qualifying Securities and apply some part of the proceeds to the payment of deferred Distributions, then on any date and for any period the amount of net proceeds received by the Corporation from those sales and available for payment of deferred Distributions on such securities shall be applied to such securities on a pro rata basis up to the Common Cap, the Preferred Cap and the Share Cap, as applicable, in proportion to the total amounts that are due on such securities.

“APM Qualifying Securities” means, with respect to an Alternative Payment Mechanism, or any Mandatory Trigger Provision, one or more of the following (as designated in the transaction documents for any Qualifying Capital Securities that include an Alternative Payment Mechanism or a Mandatory Trigger Provision, as applicable):

(i) Common Shares;

(ii) Qualifying Warrants;

(iii) Qualifying Non-Cumulative Preferred Shares; or

(iv) Mandatorily Convertible Preferred Shares;

provided (and it being understood) that (i) if the APM Qualifying Securities for any Alternative Payment Mechanism or Mandatory Trigger Provision include both Common Shares and Qualifying Warrants, such Alternative Payment Mechanism or Mandatory Trigger Provision may permit, but need not require, the Corporation to issue Qualifying Warrants and (ii) such Alternative Payment Mechanism or Mandatory Trigger Provision may permit, but need not require, the Corporation to issue Mandatorily Convertible Preferred Shares.

“Applicable Percentage” means:

(i) in the case of any Common Shares or Qualifying Warrants, (a) 133% with respect to any repayment, redemption or purchase prior to June 15, 2017, (b) 200% with respect to any repayment, redemption or purchase on or after June 15, 2017 and prior to June 15, 2037 and (c) 400% with respect to any repayment, redemption or purchase on or after June 15, 2037;

(ii) in the case of any Mandatorily Convertible Preferred Shares, Debt Exchangeable for Common Equity, Debt Exchangeable for Preferred Equity or any Qualifying Capital Securities described in clause (i) of the definition of such term, (a) 100% with respect to any repayment, redemption or purchase prior to June 15, 2037 and (b) 300% with respect to any repayment, redemption or purchase on or after June 15, 2037;

(iii) in the case of any Qualifying Capital Securities described in clause (ii) of the definition of such term, (a) 100% with respect to any repayment, redemption or purchase prior to June 15, 2037 and (b) 200% with respect to any repayment, redemption or purchase on or after June 15, 2037; and

(iv) in the case of any Qualifying Capital Securities described in clause (iii) of the definition of such term, 100%.

“Bankruptcy Claim Limitation Provision” means, with respect to any Qualifying Capital Securities that have an Alternative Payment Mechanism or a Mandatory Trigger Provision, provisions that, upon any liquidation, dissolution, winding up or reorganization or in connection with any insolvency, receivership or proceeding under any bankruptcy

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law with respect to the issuer, limit the claim of the holders of such securities to Distributions that accumulate during (A) any deferral period, in the case of securities that have an Alternative Payment Mechanism or (B) any period in which the issuer fails to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements, in the case of securities that have a Mandatory Trigger Provision, to:

(i) in the case of Qualifying Capital Securities that have an Alternative Payment Mechanism or Mandatory Trigger Provision with respect to which the APM Qualifying Securities do not include Qualifying Non-Cumulative Preferred Shares or Mandatorily Convertible Preferred Shares, 25% of the stated or principal amount of such Qualifying Capital Securities then outstanding; and

(ii) in the case of any other Qualifying Capital Securities, an amount not in excess of the sum of (x) the first two years of accumulated and unpaid Distributions and (y) an amount equal to the excess, if any, of the Preferred Cap over the aggregate amount of net proceeds from the sale of Qualifying Non-Cumulative Preferred Shares and Mandatorily Convertible Preferred Shares that is still outstanding that the issuer has applied to pay such Distributions pursuant to the Alternative Payment Mechanism or the Mandatory Trigger Provision; provided that the holders of such Qualifying Capital Securities are deemed to agree that, to the extent the remaining claim exceeds the amount set forth in clause (x), the amount they receive in respect of such excess shall not exceed the amount they would have received the claim for such excess ranked pari passu with the interests of the holders, if any, of Qualifying Non-Cumulative Preferred Shares.

“Business Combination” has the meaning specified in clause (vi) of the definition of Alternative Payment Mechanism.

“Business Day” means each day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed.

“Commercially Reasonable Efforts” means, for purposes of selling APM Qualifying Securities, commercially reasonable efforts to complete the offer and sale of APM Qualifying Securities to third parties that are not Subsidiaries of the Corporation in public offerings or private placements. The Corporation shall not be considered to have made Commercially Reasonable Efforts to effect a sale of APM Qualifying Securities if it determines not to pursue or complete such sale due to pricing, coupon, dividend rate or dilution considerations.

“Commission” means the United States Securities and Exchange Commission.

“Common Cap” has the meaning specified in clause (vii) of the definition of Alternative Payment Mechanism.

“Common Shares” means (i) common shares of the Corporation, including common shares issued pursuant to any dividend reinvestment plan or employee benefit plan of the Corporation, (ii) a security of the Corporation, ranking upon the Corporation’s liquidation, dissolution or winding up junior to its Qualifying Non-Cumulative Preferred Shares and pari passu with its Common Shares, that tracks the performance of, or relates to the results of, a business, unit or division of the Corporation, and (iii) any securities issued in exchange for the securities described in clause (i) or (ii) above in connection with a Business Combination.

“Corporation” has the meaning specified in the introduction to this instrument.

“Covered Debt” means (a) at the date of this Replacement Capital Covenant and continuing to but excluding the first Redesignation Date, the Initial Covered Debt and (b) thereafter, commencing with each Redesignation Date and continuing to but excluding the next succeeding Redesignation Date, the Eligible Debt identified pursuant to Section 3(b) as the Covered Debt for such period.

“Covered Debtholder” means each Person to the extent that that Person holds (whether as a Holder or a beneficial owner holding through a participant in a clearing agency) long-term indebtedness for money borrowed of the Corporation during the period that such long-term indebtedness for money borrowed is Covered Debt.

“Current Stock Market Price” means, with respect to the Common Shares on any date, (i) the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions by the New York Stock Exchange or, (ii) if the Common Shares are not then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange on which the Common Shares are traded or quoted on the relevant date or, (iii) if the Common Shares are not listed on any U.S. securities exchange on the relevant date, the last quoted bid price for the Common Shares in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization, or (iv) if the Common Shares are not so quoted, the average of the mid-point of the last bid and ask prices for the Common Shares on the relevant date from each of at least three nationally recognized independent investment banking firms selected by the Corporation for this purpose.

“Debentures” has the meaning specified in Recital A.

“Debt Exchangeable for Common Equity” means a security or combination of securities (together in this definition, “such securities”) that:

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(i) gives the holder a beneficial interest in (a) subordinated debt securities of the Corporation that are not redeemable prior to the settlement date of a related stock purchase contract and (b) a fractional interest in the related stock purchase contract for a Common Share that will be settled in three years or less, with the number of Common Shares purchasable pursuant to such stock purchase contract to be within a range established at the time of issuance of such subordinated debt securities and having customary anti-dilution provisions;

(ii) provides that the holders directly or indirectly grant the Corporation a security interest in such subordinated debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the holders’ direct or indirect obligation to purchase Common Shares pursuant to such stock purchase contracts;

(iii) includes a remarketing feature pursuant to which such subordinated debt securities are remarketed to new investors commencing not later than the last Distribution Date that is at least one month prior to the settlement date of the stock purchase contract; and

(iv) provides for the proceeds raised in the remarketing to be used to purchase Common Shares under the stock purchase contracts and, if there has not been a successful remarketing by the settlement date of the stock purchase contract, provides that the stock purchase contracts will be settled by the Corporation exercising its remedies as a secured party with respect to the subordinated debt securities or other collateral directly or indirectly pledged by holders in the Debt Exchangeable for Common Equity.

“Debt Exchangeable for Preferred Equity” means a security or combination of securities (together in this definition, “such securities”) that:

(i) gives the holder a beneficial interest in (a) subordinated debt securities of the Corporation or one of its Subsidiaries (in this definition, the “issuer”) that include a provision permitting the issuer to defer Distributions in whole or in part on such securities for one or more Distribution Periods of up to at least seven years without any remedies other than Permitted Remedies and that are the most junior subordinated debt of the issuer (or rank pari passu with the most junior subordinated debt of the issuer) and (b) an interest in a stock purchase contract that obligates the holder to acquire a beneficial interest in the Company’s Qualifying Non-Cumulative Preferred Shares;

(ii) provides that the holders directly or indirectly grant to the Corporation a security interest in such subordinated debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the investors’ direct or indirect obligation to purchase Qualifying Non-Cumulative Preferred Shares pursuant to such stock purchase contracts;

(iii) includes a remarketing feature pursuant to which such subordinated debt securities are remarketed to new investors commencing not later than the first Distribution Date that is at least five years after the date of issuance of such securities or earlier in the event of an early settlement event based on (a) the dissolution of the issuer of such Debt Exchangeable for Preferred Equity or (b) one or more financial tests set forth in the terms of the instrument governing such Debt Exchangeable for Preferred Equity;

(iv) provides for the proceeds raised in the remarketing to be used to purchase Qualifying Non-Cumulative Preferred Shares under the stock purchase contracts and, if there has not been a successful remarketing by the first Distribution Date that is six years after the date of issuance of such securities, provides that the stock purchase contracts will be settled by the Corporation exercising its rights as a secured creditor with respect to the subordinated debt securities or other collateral directly or indirectly pledged by investors in the Debt Exchangeable for Preferred Equity;

(v) includes a Qualifying Replacement Capital Covenant that will apply to such securities and to any Qualifying Non-Cumulative Preferred Shares issued pursuant to the stock purchase contracts; provided that such Qualifying Replacement Capital Covenant will not include Debt Exchangeable for Common Equity or Debt Exchangeable for Preferred Equity as “Replacement Capital Securities”; and

(vi) if applicable, after the issuance of such Qualifying Non-Cumulative Preferred Shares, provides the holders with a beneficial interest in such Qualifying Non-Cumulative Preferred Shares.

“Distribution Date” means, as to any Qualifying Capital Securities, Debt Exchangeable for Common Equity or Debt Exchangeable for Preferred Equity, the dates on which Distributions on such securities are scheduled to be made.

“Distribution Period” means, as to any Qualifying Capital Securities, Debt Exchangeable for Common Equity or Debt Exchangeable for Preferred Equity, each period from and including a Distribution Date for such securities to but excluding the next succeeding Distribution Date for such securities.

“Distribution Rate Step-Up” means, as to any Qualifying Capital Securities, Debt Exchangeable for Common Equity or Debt Exchangeable for Preferred Equity, that the rate at which Distributions accrue or are paid on such securities increases over time (including by an increase in the fixed rate of Distributions in the case of securities that accrue and pay Distributions at a fixed rate or by an increase in the margin above the applicable index in the case of securities that accrue and pay Distributions based upon a margin above an index, but not including an increase in the rate of Distributions merely because the index used in calculating such rate increases).

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“Distributions” means, as to any Qualifying Capital Securities, Debt Exchangeable for Common Equity or Debt Exchangeable for Preferred Equity, dividends, interest or other income distributions to the holders thereof that are not Subsidiaries of the Corporation.

“Eligible Debt” means, at any time, Eligible Subordinated Debt or, if no Eligible Subordinated Debt is then outstanding, Eligible Senior Debt.

“Eligible Senior Debt” means, at any time in respect of any issuer, each series of outstanding unsecured long-term indebtedness for money borrowed of such issuer that (a) upon a bankruptcy, liquidation, dissolution or winding up of the issuer, ranks most senior among the issuer’s then outstanding classes of unsecured indebtedness for money borrowed, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a Redesignation Date only if on such date the issuer has outstanding senior long-term indebtedness for money borrowed that satisfies the requirements of clauses (a), (c) and (d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

“Eligible Subordinated Debt” means, at any time in respect of any issuer, each series of the issuer’s then-outstanding unsecured long-term indebtedness for money borrowed that (a) upon a bankruptcy, liquidation, dissolution or winding up of the issuer, ranks subordinate to the issuer’s then outstanding series of unsecured indebtedness for money borrowed that ranks most senior and ranks senior to the Debentures, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a Redesignation Date only if on such date the issuer has outstanding subordinated long-term indebtedness for money borrowed that satisfies the requirements in clauses (a), (c) and (d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

“Holder” means, as to the Covered Debt then in effect, each holder of such Covered Debt as reflected on the securities register maintained by or on behalf of the Corporation with respect to such Covered Debt.

“Indenture” means the Junior Subordinated Indenture, dated June 21, 2007, between the Corporation and The Bank of New York Trust Company, N.A., as Trustee, as amended and supplemented by a First Supplemental Indenture, dated June 21, 2007.

“Initial Covered Debt” means the Corporation’s 6.25% Senior Notes due December 1, 2032, which have CUSIP No. 743315AL7.

“Intent-Based Replacement Disclosure” means, as to any Qualifying Non-Cumulative Preferred Shares or Qualifying Capital Securities, that the issuer has publicly stated its intention, either in the prospectus or other offering document under which such securities were initially offered for sale or in filings with the Commission made by the issuer under the Securities Exchange Act prior to or contemporaneously with the issuance of such securities, that the issuer and its subsidiaries, to the extent such securities provide the issuer with equity credit for purposes of rating by an NRSRO, will repay, redeem or purchase such securities only with the proceeds of replacement capital securities that have terms and provisions at the time of repayment, redemption or purchase that are as or more equity-like than the securities then being repaid, redeemed or purchased, raised within 180 days prior to the applicable repayment, redemption or purchase date.

“Mandatorily Convertible Preferred Shares” means cumulative preferred shares with (a) no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) a requirement that such preferred shares convert into common shares of the issuer within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of such preferred shares and having customary anti-dilution provisions.

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“Mandatory Trigger Provision” means, as to any Qualifying Capital Securities, provisions in the terms thereof or of the related transaction agreements that:

(i) require the issuer of such securities to make payment of Distributions on such securities only pursuant to the issue and sale of APM Qualifying Securities within two years of a failure of the issuer to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements, in an amount such that the net proceeds of such sale are at least equal to the amount of unpaid Distributions on such securities (including without limitation all deferred and accumulated amounts) and require the application of the net proceeds of such sale to pay such unpaid Distributions, provided that (a) if the Mandatory Trigger Provision does not require the issuance and sale within one year of such failure, the amount of Common Shares and/or Qualifying Warrants the net proceeds of which the issuer must apply to pay such Distributions pursuant to such provision may not exceed the Common Cap and (b) the amount of Qualifying Non-Cumulative Preferred Shares and still outstanding Mandatorily Convertible Preferred Shares the net proceeds of which the issuer may apply to pay such Distributions pursuant to such provision may not exceed the Preferred Cap;

(ii) if the provisions described in clause (i) above do not require such issuance and sale within one year of such failure, include a Repurchase Restriction;

(iii) prohibit the issuer of such securities from redeeming or purchasing any of its securities ranking upon the Corporation’s liquidation, dissolution or winding up junior to or pari passu with any APM Qualifying Securities the proceeds of which were used to settle deferred interest during the relevant Deferral Period prior to the date six months after the issuer applies the net proceeds of the sales described in (i) to pay such deferred Distributions in full; and

(iv) include a Bankruptcy Claim Limitation Provision;

provided (and it being understood) that:

(A) the issuer will not be obligated to issue (or use Commercially Reasonable Efforts to issue) APM Qualifying Securities for so long as a Market Disruption Event has occurred and is continuing;

(B) if, due to a Market Disruption Event or otherwise, the issuer is able to raise and apply some, but not all, of the eligible proceeds necessary to pay all deferred Distributions on any Distribution Date, the issuer will apply any available eligible proceeds to pay accrued and unpaid Distributions on the applicable Distribution Date in chronological order subject to the Common Cap, Preferred Cap and Share Cap, as applicable; and

(C) if the issuer has outstanding more than one class or series of securities under which it is obligated to sell a type of APM Qualifying Securities and applies some part of the proceeds to the payment of deferred Distributions, then on any date and for any period the amount of net proceeds received by the issuer from those sales and available for payment of deferred Distributions on such securities shall be applied to such securities on a pro rata basis up to the Common Cap and the Preferred Cap, as applicable, in proportion to the total amounts that are due on such securities.

No remedy other than Permitted Remedies will arise by the terms of such securities or related transaction agreements in favor of the holders of such Qualifying Capital Securities as a result of the issuer’s failure to pay Distributions because of the Mandatory Trigger Provision until Distributions have been deferred for one or more Distribution Periods that total together at least ten years.

“Market Disruption Event” means the occurrence or existence of any of the following events or sets of circumstances:

(i) trading in securities generally, or shares of the Corporation’s securities specifically, on the New York Stock Exchange or any other national securities exchange, or in the over-the-counter market on which APM Qualifying Securities are then listed or traded shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or market by the Commission, the relevant exchange or by any other regulatory body or governmental agency having jurisdiction such that trading shall have been materially disrupted;

(ii) the Corporation would be required to obtain the consent or approval of the Corporation’s shareholders or a regulatory body (including, without limitation, any securities exchange) or governmental authority to issue or sell APM Qualifying Securities pursuant to the Alternative Payment Mechanism and that consent or approval has not yet been obtained notwithstanding the Corporation’s Commercially Reasonable Efforts to obtain that consent or approval;

(iii) a banking moratorium shall have been declared by the federal or state authorities of the United States such that the issuance of, or market trading in, the APM Qualifying Securities has been disrupted or ceased;

(iv) a material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States such that the issuance of, or market trading in, the APM Qualifying Securities has been disrupted or ceased;

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(v) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States, there shall have been a declaration of a national emergency or war by the United States or there shall have occurred any other national or international calamity or crisis such that the issuance of, or market trading in, the APM Qualifying Securities has been disrupted or ceased;

(vi) there shall have occurred such a material adverse change in general domestic or international economic, political or financial conditions, including without limitation as a result of terrorist activities, or the effect of international conditions on the financial markets in the United States shall be such that the issuance of, or market trading in, the APM Qualifying Securities has been materially disrupted;

(vii) an event occurs and is continuing as a result of which the offering document for the offer and sale of APM Qualifying Securities would, in the reasonable judgment of the Corporation, contain an untrue statement of a material fact or omit to state a material fact required to be stated in that offering document or necessary to make the statements in that offering document not misleading and either (a) the disclosure of that event at such time, in the reasonable judgment of the Corporation, is not otherwise required by law and would have a material adverse effect on the Corporation or (b) the disclosure relates to a previously undisclosed proposed or pending material business transaction, provided that no single suspension period described in this clause (vii) shall exceed 90 consecutive days and multiple suspension periods described in this clause (vii) shall not exceed an aggregate of 180 days in any 360-day period; or

(viii) the Corporation reasonably believes that the offering document for the offer and the sale of APM Qualifying Securities would not be in compliance with a rule or regulation of the Commission (for reasons other than those described in clause (vii) above) and the Corporation determines that it is unable to comply with such rule or regulation or such compliance is unduly burdensome, provided that no single suspension period described in this clause (viii) shall exceed 90 consecutive days and multiple suspension periods described in this clause (viii) shall not exceed an aggregate of 180 days in any 360-day period.

The definition of “Market Disruption Event” as used in any Replacement Capital Securities may include less than all of the paragraphs outlined above, as determined by the Corporation at the time of issuance of such securities, and in the case of clauses (i), (ii) and (iii) above, as applicable to a circumstance where the Corporation would otherwise endeavor to issue preferred shares, shall be limited to circumstances affecting markets where the Corporation’s preferred shares traded or where a listing for their trading is being sought.

“Measurement Date” means (a) with respect to any repayment, redemption or purchase of the Debentures on or prior to the Scheduled Maturity Date, the date that is 180 days prior to delivery of notice of such repayment or redemption or the date of such purchase; and (b) with respect to any repayment, redemption or purchase of the Debentures after the Scheduled Maturity Date, the date that is 90 days prior to the date of such repayment, redemption or purchase, except that, if during the 90-day (or any shorter) period preceding the date that is 90 days prior to the date of such repayment, redemption or purchase, the Corporation or its Subsidiaries issued Replacement Capital Securities to Persons other than the Corporation and its Subsidiaries but no repayment, redemption or purchase was made pursuant to Section 2 in connection therewith, the date upon which such 90-day (or shorter) period prior to the date of such repayment, redemption or purchase began.

“Measurement Period” means, with respect to any date on which notice of repayment or redemption is delivered with respect to the Debentures or on which the Corporation purchases, or any Subsidiary of the Corporation purchases, any Debentures, the period beginning on the Measurement Date with respect to such notice or purchase date and ending on such notice or purchase date, as the case may be. Measurement Periods cannot run concurrently.

“No Payment Provision” means a provision or provisions in the transaction documents for securities (referred to in this definition as “such securities”) that include the following:

(i) an Alternative Payment Mechanism; and

(ii) an Optional Deferral Provision modified and supplemented from the general definition of that term to provide that the issuer of such securities may, in its sole discretion, defer in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods of up to five years or, if a Market Disruption Event has occurred and is continuing, ten years, without any remedy other than Permitted Remedies and the obligations (and limitations on obligations) described in the definition of “Alternative Payment Mechanism” applying.

“Non-Cumulative” means, with respect to any Qualifying Capital Securities, that the issuer may elect not to make any number of periodic Distributions without any remedy arising under the terms of the securities or related agreements in favor of the holders, other than one or more Permitted Remedies.

“NRSRO” means a nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act.

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“Optional Deferral Provision” means, as to any Qualifying Capital Securities, a provision in the terms thereof or of the related transaction agreements to the effect that:

(a) (i) the issuer of such Qualifying Capital Securities may, in its sole discretion, defer in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods of up to five years or, if a Market Disruption Event is continuing, ten years, without any remedy other than Permitted Remedies and (ii) such Qualifying Capital Securities are subject to an Alternative Payment Mechanism (provided that such Alternative Payment Mechanism need not apply during the first five years of any deferral period and need not include a Common Cap, Preferred Cap, Share Cap, Bankruptcy Claims Limitation Provision or Repurchase Restriction); or

(b) the issuer of such Qualifying Capital Securities may, in its sole discretion, defer or skip in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods of up to ten years without any remedy other than Permitted Remedies.

“Permitted Remedies” means, with respect to any securities, one or more of the following remedies:

(a) rights in favor of the holders of such securities permitting such holders to elect one or more directors of the issuer (including any such rights required by the listing requirements of any stock or securities exchange on which such securities may be listed or traded); and

(b) complete or partial prohibitions on the issuer paying Distributions on or repurchasing common shares or other securities that rank pari passu with or junior as to Distributions to such securities for so long as distributions on such securities, including unpaid distributions, remain unpaid.

“Person” means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof.

“Preferred Cap” has the meaning specified in clause (viii) of the definition of Alternative Payment Mechanism.

“Qualifying Capital Securities” means securities or combinations of securities (other than Common Shares, Qualifying Warrants, Mandatorily Convertible Preferred Shares, Debt Exchangeable for Common Equity and Debt Exchangeable for Preferred Equity) that, in the determination of the Corporation’s Board of Directors reasonably construing the definitions and other terms of this Replacement Capital Covenant, meet one of the following criteria:

(i) in connection with any repayment, redemption or purchase of Debentures prior to June 15, 2017:

(A) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon the liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 60 years and (3) either:

(x) (I) are subject to a Qualifying Replacement Capital Covenant and (II) have a No Payment Provision or are Non-Cumulative, or

(y) (I) have a Mandatory Trigger Provision and are subject to Intent-Based Replacement Disclosure and (II) have an Optional Deferral Provision or a No Payment Provision;

(B) preferred shares issued by the Corporation or its Subsidiaries that (1) are Non-Cumulative, (2) have no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, (3) have no maturity or a maturity of at least 60 years and (4) either:

(x) are subject to a Qualifying Replacement Capital Covenant, or

(y) have a Mandatory Trigger Provision and are subject to Intent-Based Replacement Disclosure; or

(C) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu or junior to the Debentures upon the liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 40 years, (3) are subject to a Qualifying Replacement Capital Covenant and (4) have an Optional Deferral Provision and a Mandatory Trigger Provision; or

(ii) in connection with any repayment, redemption or purchase of Debentures at any time on or after June 15, 2017 but prior to June 15, 2037:

(A) securities described under clause (i) of this definition that would be Qualifying Capital Securities prior to June 15, 2017;

(B) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 60 years, (3) are subject to a Qualifying Replacement Capital Covenant and (4) have an Optional Deferral Provision;

(C) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 60 years, (3) are Non-Cumulative or have a No Payment Provision and (4) are subject to Intent-Based Replacement Disclosure;

(D) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 40 years, (3) are Non-Cumulative or have a No Payment Provision and (d) are subject to a Qualifying Replacement Capital Covenant;

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(E) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 40 years, (3) have an Optional Deferral Provision and a Mandatory Trigger Provision and (4) are subject to Intent-Based Replacement Disclosure;

(F) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding-up of the Corporation, (2) have no maturity or a maturity of at least 25 years, (3) are subject to a Qualifying Replacement Capital Covenant and (4) have an Optional Deferral Provision and a Mandatory Trigger Provision;

(G) cumulative preferred shares issued by the Corporation or its Subsidiaries that (1) have no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, (2) have no maturity or a maturity of at least 60 years and (3) are subject to a Qualifying Replacement Capital Covenant; or

(H) securities issued by the Corporation or its Subsidiaries that rank (i) senior to the Debentures and securities that are pari passu with the Debentures but (ii) junior to all other debt securities of the Corporation (other than (x) the Debentures and securities that are pari passu with the Debentures and (y) securities that are pari passu with such Qualifying Capital Securities) upon its liquidation, dissolution or winding-up, and (2) either:

(x) have no maturity or a maturity of at least 60 years and either (I) are (a) Non-Cumulative or subject to a No Payment Provision and (b) subject to a Qualifying Replacement Capital Covenant or (II) have a Mandatory Trigger Provision and an Optional Deferral Provision and are subject to Intent-Based Replacement Disclosure, or

(y) have no maturity or a maturity of at least 40 years, are subject to a Qualifying Replacement Capital Covenant and have a Mandatory Trigger Provision and an Optional Deferral Provision; or

(iii) in connection with any repayment, redemption or purchase of Debentures at any time on or after June 15, 2037:

(A) securities described under clause (ii) of this definition that would be Qualifying Capital Securities on or after June 15, 2017 but prior to June 15, 2037;

(B) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have an Optional Deferral Provision and (3) either:

(x) have no maturity or a maturity of at least 60 years and are subject to Intent-Based Replacement Disclosure, or

(y) have no maturity or a maturity of at least 40 years and are subject to a Qualifying Replacement Capital Covenant;

(C) securities issued by the Corporation or its Subsidiaries that (1) rank pari passu with or junior to the Debentures upon a liquidation, dissolution or winding up of the Corporation, (2) have no maturity or a maturity of at least 40 years and are subject to Intent-Based Replacement Disclosure and (3) are Non-Cumulative or have a No Payment Provision;

(D) securities issued by the Corporation or its Subsidiaries that rank (1) senior to the Debentures and securities that are pari passu with the Debentures but junior to all other debt securities of the Corporation (other than (x) the Debentures and securities that are pari passu with the Debentures and (y) securities that are pari passu with such Qualifying Capital Securities) upon its liquidation, dissolution or winding-up, and (2) either:

(x) have no maturity or a maturity of at least 60 years and either (i) have an Optional Deferral Provision and are subject to a Qualifying Replacement Capital Covenant or (ii) (a) are Non-Cumulative or have a No Payment Provision and (b) are subject to Intent-Based Replacement Disclosure, or

(y) have no maturity or a maturity of at least 40 years and either (i) (a) are Non-Cumulative or have a No Payment Provision and (b) are subject to a Qualifying Replacement Capital Covenant or (ii) are subject to Intent-Based Replacement Disclosure and have a Mandatory Trigger Provision and an Optional Deferral Provision; or

(E) cumulative preferred shares issued by the Corporation or its Subsidiaries that either (1) have no maturity or a maturity of at least 60 years and are subject to Intent-Based Replacement Disclosure or (2) have a maturity of at least 40 years and are subject to a Qualifying Replacement Capital Covenant.

Notwithstanding the foregoing, no securities or combination of securities will be included in Qualifying Capital Securities if such securities (i) applying the tests set forth above, are required to include Intent-Based Replacement Disclosure and (ii) include a Distribution Rate Step-Up.

“Qualifying Non-Cumulative Preferred Shares” means non-cumulative preferred shares of the Corporation that rank pari passu with or junior to all other preferred shares of the Corporation, are perpetual and are subject to (a) a Qualifying Replacement Capital Covenant or (b) both (i) mandatory suspension of dividends in the event the Corporation breaches certain financial metrics specified in the offering documents relating to such preferred shares and (ii) Intent-Based Replacement Disclosure, provided that with respect to both clauses (a) and (b) the transaction documents shall provide for no remedies as a consequence of non-payment of Distributions other than Permitted Remedies.

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“Qualifying Replacement Capital Covenant” means a replacement capital covenant that is substantially similar to this Replacement Capital Covenant or a replacement capital covenant, as identified by the Corporation’s Board of Directors acting in good faith and in its reasonable discretion and reasonably construing the definitions and other terms of this Replacement Capital Covenant, (i) entered into by a company that at the time it enters into such replacement capital covenant is a reporting company under the Securities Exchange Act and (ii) that restricts the related issuer from repaying, redeeming or purchasing, and its Subsidiaries from purchasing, identified securities, except to the extent of the applicable percentage of the net proceeds from the issuance of specified replacement capital securities that have terms and provisions at the time of repayment, redemption or purchase that are as or more equity-like than the securities then being repaid, redeemed or purchased within the 180-day period prior to the applicable repayment, redemption or purchase date; provided that the term of such replacement capital covenant shall be determined at the time of issuance of the related Replacement Capital Securities taking into account the other characteristics of such securities.

“Qualifying Warrants” means any net share-settled warrants to purchase the Common Shares that (i) have an exercise price greater than the Current Stock Market Price of the Common Shares, and (ii) the Corporation is not entitled to redeem for cash and the holders of which are not entitled to require the Corporation to purchase for cash in any circumstances.

“Redesignation Date” means, as to the Covered Debt in effect at any time, the earliest of (a) the date that is two years prior to the final maturity date of such Covered Debt, (b) if the Corporation elects to redeem, or the Corporation or a Subsidiary of the Corporation elects to repurchase, such Covered Debt either in whole or in part with the consequence that after giving effect to such redemption or repurchase the outstanding principal amount of such Covered Debt is less than $100,000,000, the applicable redemption or repurchase date and (c) if such Covered Debt is not Eligible Subordinated Debt of the Corporation, the date on which the Corporation issues long-term indebtedness for money borrowed that is Eligible Subordinated Debt.

“Replacement Capital Covenant” has the meaning specified in the introduction to this instrument.

“Replacement Capital Securities” means Mandatorily Convertible Preferred Shares, Debt Exchangeable for Common Equity, Debt Exchangeable for Preferred Equity and Qualifying Capital Securities.

“Repurchase Restriction” has the meaning specified in clause (iii) of the definition of Alternative Payment Mechanism.

“Scheduled Maturity Date” has the meaning specified in the Supplemental Indenture.

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

“Share Cap” means, with respect to any Qualifying Capital Securities, a limit on the total number of Common Shares that may be issued by the Corporation pursuant to the Alternative Payment Mechanism with respect to such Qualifying Capital Securities or on the total number of Common Shares underlying all Qualifying Warrants and Mandatorily Convertible Preferred Shares that may be issued by the Corporation pursuant to such Alternative Payment Mechanism, provided that the product of such Share Cap and the Market Value of the Common Shares as of the date of issuance of such Qualifying Capital Securities shall not represent a lower proportion of the aggregate principal or liquidation amount, as applicable, of such Qualifying Capital Securities than the product of the Share Cap applicable to the Debentures and the Current Stock Market Price of the Common Shares as of the date of issuance of such Debentures represents of the aggregate principal amount of such Debentures at the time of issuance.

“Subsidiary” means, at any time, any Person the shares of stock or other ownership interests of which having ordinary voting power to elect a majority of the board of directors or other managers of such Person are at the time owned, or the management or policies of which are otherwise at the time controlled, directly or indirectly through one or more intermediaries (including other Subsidiaries) or both, by another Person (and as of the date of this Replacement Capital Covenant includes Progressive County Mutual Insurance Company, a mutual company affiliate of the Corporation).

“Supplemental Indenture” means the First Supplemental Indenture, dated as of June 21, 2007, between the Corporation and The Bank of New York Trust Company, N.A., as Trustee, to the Indenture.

“Termination Date” has the meaning specified in Section 4(a).

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EX-10.6

Exhibit 10.6

THE PROGRESSIVE CORPORATION

2013 GAINSHARING PLAN

1. The Plan. The Progressive Corporation and its subsidiaries (collectively, “Progressive” or the “Company”) have adopted The Progressive Corporation 2013 Gainsharing Plan (the “Plan”) as part of their overall compensation program. The Plan is performance-based and is administered under the direction of the Compensation Committee of the Board of Directors of The Progressive Corporation (the “Committee”). Plan years will coincide with Progressive’s fiscal years.

2. Participants. Plan participants for each Plan year shall include all officers and regular employees of Progressive, unless determined otherwise by the Committee. The Gainsharing opportunity, if any, for those executive officers who participate in The Progressive Corporation 2007 Executive Bonus Plan (the “Executive Bonus Plan”) will be provided by the Executive Bonus Plan, although participants in that plan may also participate in this Plan if and to the extent determined by the Committee. Throughout this Plan, references to “executive officers” refer to executive officers within the meaning of any Securities and Exchange Commission (“SEC”) or New York Stock Exchange rule applicable to the Company.

3. Gainsharing Formula. Annual Gainsharing Payments under the Plan will be determined by application of the following formula:

Annual Gainsharing Payment = Paid Eligible Earnings x Target Percentage x Performance Factor

4. Paid Eligible Earnings. Paid Eligible Earnings for any Plan year shall mean and include the following: regular, Earned Time Benefit pay (excluding the payout of unused Earned Time Benefit pay at termination), sick pay, holiday pay, funeral pay, overtime pay, military make-up pay, shift differential, and retroactive payments of any of the foregoing items, received by the participant during the Plan year for work or services performed as an officer or employee of Progressive.

For purposes of the Plan, Paid Eligible Earnings shall exclude all other types of compensation, including, without limitation, any short-term or long-term disability payments made to the participant, the earnings replacement component of any workers’ compensation award, any bonus, Gainsharing or other incentive compensation or equity-based awards, including, without limitation, payments from any discretionary cash fund, any dividend payments and any unused Earned Time Benefit.

5. Target Percentages. Target Percentages vary by position. Target Percentages for Plan participants typically are as follows:

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POSITION	TARGET %
Senior Executives and Executive Level Managers		60 - 150%
Business Leaders		35 - 60%
Directors and Senior Directors		20 - 35%
Middle Managers and Senior Managers		15 - 20%
Senior Professionals and Entry Level Managers		8 - 20%
Administrative Support and Entry Level Professionals		0 - 8%

Target Percentages will be established within the above ranges by, and may be changed with the approval of, the following officers of The Progressive Corporation (collectively, the “Designated Executives”): (a) the Chief Executive Officer, and (b) either the Chief Human Resource Officer or the Chief Financial Officer; provided that the Chief Human Resource Officer may establish appropriate procedures to evaluate the need for, and if appropriate, implement individual exceptions to the foregoing ranges. Target Percentages may be changed from year to year by the Designated Executives. Notwithstanding anything herein to the contrary, only the Committee may establish or modify the Target Percentages for the Company’s executive officers.

If a participant’s Target Percentage changes during a Plan year, the Target Percentages used to calculate such participant’s Annual Gainsharing Payment hereunder shall be weighted appropriately to reflect such participant’s tenure in each such position during the Plan year.

6. The Performance Factor.

A. Core Business Defined

The Performance Factor shall be determined by the performance of the Core Business during the Plan year, pursuant to the procedures and calculations described below. The “Core Business” shall be comprised of the following:

• The Agency Auto business unit, consisting of the auto business produced by independent agents or brokers, including Strategic Alliances Agency auto, but excluding all Agency Special Lines businesses;

• The Direct Auto business unit, consisting of the personal auto business produced by phone, over the Internet, or via a mobile device, but excluding all Direct Special Lines businesses;

• The Special Lines business unit, consisting of Special Lines business generated by agents and brokers or directly by phone, over the Internet, or via a mobile device, but excluding umbrella policies; and

• The Commercial Auto business unit.

Each of the Agency Auto, Direct Auto, Special Lines and Commercial Auto business units is referred to herein as a “Business Unit” or “Unit.” For all purposes under this Plan, the results of the Professional Liability business, the CAIP Servicing Group, the Company’s Australia operations, the Midland Financial Group, Inc., umbrella policies, and other businesses in run-off are excluded from the Core Business results.

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Notwithstanding the foregoing, net operating results from any business that is not included in and is not specifically excluded from the descriptions above, if any, will be apportioned among the appropriate Business Units in accordance with the respective amount(s) of net earned premiums generated by each such Business Unit, and the apportioned net operating results will be included in the calculation of the GAAP combined ratio for such Business Unit(s). Assigned risk business is not included in determining the growth of any Business Unit, but the net operating gains/losses for such assigned risk business will be included in determining the GAAP combined ratio for the applicable Business Unit.

B. Matrices

For purposes of computing a performance score for the Core Business, operating performance results for each Business Unit are evaluated using a performance matrix for the Plan year. Each matrix assigns performance scores to various combinations of profitability and growth outcomes for the applicable Business Unit.

For 2013, and for each Plan year thereafter until otherwise determined by the Committee, each Business Unit will be evaluated according to the performance of the Business Unit as a whole. Therefore, separate Gainsharing matrices will be established by the Committee for the following:

• Agency Auto;

• Direct Auto;

• Special Lines; and

• Commercial Auto.

C. Performance Measures

Growth. The growth measure for the Plan year under all matrices will be based on policies in force (“PIFs”).

For all matrices, growth will be measured by the percentage change in average PIFs for the Plan year compared to the average PIFs of the immediately preceding fiscal year. Average PIFs for the Plan year and for the immediately preceding fiscal year will be determined by adding the fiscal-month-end number of PIFs for each month during such year and dividing the total by twelve.

Profitability. For all Business Unit matrices, the measurement of profitability will be the GAAP combined ratio for the Plan year for the applicable Unit.

D. Calculation of Performance Factor

Performance Scores

Using the actual performance results and the Gainsharing matrix for each Business Unit, the GAAP combined ratio for each such Unit will be matched with the growth levels achieved by such Unit, to determine the performance score for each such Unit. The performance score for each Business Unit, which will be used to calculate the Performance Factor as described further below, can vary from 0 to 2.0.

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Performance Factor

The resulting performance scores for each of the Agency Auto, Direct Auto, Commercial Auto and Special Lines Business Units will then be multiplied by a weighting factor, which shall be a fraction or decimal equivalent, determined by dividing the net earned premiums generated by such Business Unit during the Plan year by the net earned premiums generated by all of the Business Units comprising the Core Business in the aggregate. The sum of these weighted performance scores will be the Performance Factor for the Plan year.

E. Limitations

The final Performance Factor cannot exceed 2.0.

7. Payment Procedures; Deferral. Subject to Paragraph 9 below, no later than December 31 of each Plan year, each participant will receive an initial payment in respect of his or her Annual Gainsharing Payment for that Plan year, if any, equal to 75% of an amount calculated on the basis of Paid Eligible Earnings for the first 24 pay periods of the Plan year, estimated earnings for the remainder of the Plan year, and an estimated performance factor determined using the performance data for each Business Unit through the first 11 months of the Plan year (estimated, if necessary), the applicable Gainsharing matrix and the calculations described above. No later than February 28 of the following year, each participant will receive the balance of his or her Annual Gainsharing Payment, if any, for such Plan year, based on his or her Paid Eligible Earnings and performance data for the entire Plan year.

Any Plan participant who is then eligible to participate in The Progressive Corporation Executive Deferred Compensation Plan (“Deferral Plan”) may elect to defer all or a portion of the Annual Gainsharing Payment otherwise payable to him/her under this Plan, subject to and in accordance with the terms of the Deferral Plan.

8. Other Plans. If, for any Plan year, an employee has been selected to participate in both this Plan and another cash incentive plan offered by the Company, then with respect to such employee, the Gainsharing formula set forth in Paragraph 3 hereof shall be appropriately adjusted by applying a weighting factor to reflect the proportion of the employee’s total annual incentive opportunity that is being provided by this Plan. The Committee shall have full authority to determine the incentive plan or plans in which any employee will participate during any plan year and, if an employee is selected to participate in more than one plan, the weighting factor that will apply to each such plan.

9. Qualification Date; Leave of Absence; Withholding. Unless otherwise determined by the Committee, and except as expressly provided herein, in order to be entitled to receive an Annual Gainsharing Payment for any Plan year, the participant must be an active officer or regular employee of the Company on November 30 of the Plan year (“Qualification Date”). Individuals who are hired on or after December 1 of any Plan year are not entitled to an Annual Gainsharing Payment for that Plan year.

Any participant who is on a leave of absence covered by the Family and Medical Leave Act of 1993, as amended, personal leave of absence with the approval of the Company, military leave or short or long-term disability on the Qualification Date with respect to any Plan year will be entitled to receive an Annual Gainsharing Payment for such Plan year, calculated as provided in Paragraphs 3 through 6 above and based on the amount of Paid Eligible Earnings received by such participant during the Plan year.

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All payments made hereunder will be net of any legally required deductions for federal, state and local taxes and other items.

10. Non-Transferability. The right to any Annual Gainsharing Payment hereunder may not be sold, transferred, assigned or encumbered by any participant. Nothing herein shall prevent any participant’s interest hereunder from being subject to involuntary attachment, levy or other legal process.

11. Administration. The Plan shall be administered by or under the direction of the Committee. The Committee shall have the authority to adopt, amend, revise and repeal such rules, guidelines, procedures and practices governing the Plan as it shall, from time to time, in its sole discretion, deem advisable.

The Committee shall have full authority to determine the manner in which the Plan will operate, to interpret the provisions of the Plan and to make all determinations hereunder. All such interpretations and determinations shall be final and binding on Progressive, all Plan participants and all other parties. No such interpretation or determination shall be relied on as a precedent for any similar action or decision.

Unless otherwise determined by the Committee, all of the authority of the Committee hereunder (including, without limitation, the authority to administer the Plan, select the persons entitled to participate herein, interpret the provisions thereof, waive any of the requirements specified herein and make determinations hereunder and to select, approve, establish, change or modify the Business Units and the Gainsharing formulae, weighting factors, performance targets and Target Percentages) may be exercised by the Designated Executives; provided, however, that only the Committee may take such actions or make such determinations for the Company’s executive officers. In the event of a dispute or conflict, the determination of the Committee will govern.

12. Miscellaneous.

A. Recoupment. Progressive shall have the right to recoup any Annual Gainsharing Payment (or an appropriate portion thereof, as hereinafter provided) with respect to any Plan year paid to a participant hereunder who was an executive officer of Progressive at any time during such Plan year, if: (i) the Annual Gainsharing Payment was predicated upon the achievement during such Plan year of certain financial or operating results (which includes, for purposes hereof, the Performance Factor described in Section 6); (ii) such financial or operating results were incorrect and were subsequently the subject of a restatement by Progressive within three (3) years after the date on which such Annual Gainsharing Payment was paid to the participant; and (iii) a lower payment would have been made to the participant if the restated financial or operating results had been known at the time the payment was made. Such recoupment right shall be available to Progressive whether or not the participant in question was at fault or responsible in any way in causing such restatement. In such circumstances, Progressive will have the right to recover from each participant for such Plan year, and each such participant will refund to Progressive, the amount by which the Annual Gainsharing Payment paid to such participant for the Plan year in question exceeded the lower payment that would have been made based on the restated results, without interest; provided, however, that Progressive will not seek to recover such amounts unless the amount due would exceed the lesser of five percent (5%) of the Annual Gainsharing Payment previously paid or twenty-thousand dollars ($20,000). Such recovery, at the Committee’s discretion, may be made by lump sum payment, installment payments, credits against future bonus payments, or other appropriate mechanism.

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B. Further Rights. Notwithstanding the foregoing subsection A., if any participant that was an executive officer at any time during such Plan year engaged in fraud or other misconduct (as determined by the Committee or the Board, in their respective sole discretion) resulting, in whole or in part, in a restatement of the financial or operating results used hereunder to determine the Annual Gainsharing Payments for a specific Plan year, Progressive will further have the right to recover from such participant, and the participant will refund to Progressive upon demand, an amount equal to the entire Annual Gainsharing Payment paid to such participant for such Plan year plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from the date that such bonus was paid to the participant. Progressive shall further have the right to recover from such participant Progressive’s costs and expenses incurred in connection with recovering such Annual Gainsharing Payment from the participant, including, without limitation, reasonable attorneys’ fees. There shall be no time limit on the Company’s right to recover such amounts under this subsection B., except as otherwise provided by applicable law.

C. Rights Not Exclusive. The rights contained in the foregoing subsections A. and B. shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under any applicable law or regulation.

D. Compliance with Law. The Annual Gainsharing Payments determined and paid pursuant to the Plan shall be subject to all applicable laws and regulations. Without limiting the foregoing, and notwithstanding anything to the contrary contained in this Plan, if the SEC promulgates rules under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that require, as a condition to the Company’s continued listing on a national securities exchange, that the Company develop and implement a policy requiring the recovery of erroneously awarded compensation, and such regulations are applicable to the Annual Gainsharing Payments awarded pursuant to the Plan, then the following shall apply:

In the event that the Company is required to prepare a restatement of one or more of its financial statements due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, the Company will be entitled to recover from each participant hereunder who was at the time of grant or payment of an Annual Gainsharing Payment an executive officer of the Company under applicable SEC rules (whether or not such participant remains an executive officer of the Company at the time of such restatement or thereafter), the amount of any Annual Gainsharing Payment that (i) was paid during the three year period preceding the date on which the Company is required to prepare such restatement and (ii) is in excess of what would have been paid to the participant under the restatement, or as may otherwise be required by such rules to be promulgated by the SEC.

13. Termination; Amendment. The Plan may be terminated, amended or revised, in whole or in part, at any time and from time to time by the Committee, in its sole discretion.

14. Unfunded Obligations. The Plan will be unfunded and all payments due under the Plan shall be made from Progressive’s general assets.

15. No Employment Rights. Nothing in the Plan shall be construed as conferring upon any person the right to remain a participant in the Plan or to remain employed by Progressive, nor shall the Plan limit Progressive’s right to discipline or discharge any of its officers or employees or change any of their job titles, duties or compensation.

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16. Set-Off Rights. Progressive shall have the unrestricted right to set off against or recover out of any Annual Gainsharing Payment or other sums owed to any participant under the Plan any amounts owed by such participant to Progressive.

17. Prior Plans. This Plan supersedes all prior plans, agreements, understandings and arrangements regarding bonuses or other cash incentive compensation payable to participants by or due from Progressive. Without limiting the generality of the foregoing, this Plan supersedes and replaces The Progressive Corporation 2012 Gainsharing Plan (the “Prior Plan”), which is and shall be deemed to have terminated on the last day of the Company’s 2012 fiscal year (the “Prior Plan Termination Date”); provided, however, that any bonuses or other sums earned and payable under the Prior Plan with respect to any Plan year ended on or prior to the Prior Plan Termination Date shall be unaffected by such termination and shall be paid to the appropriate participants when and as provided thereunder.

18. Effective Date. This Plan is adopted, and is to be effective, as of the first day of Progressive’s 2013 fiscal year. This Plan shall be effective for the 2013 Plan year and for each Plan year thereafter unless and until terminated by the Committee.

19. Governing Law. This Plan shall be interpreted and construed in accordance with the laws of the State of Ohio.

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EX-10.13

Exhibit 10.13

RESTRICTED STOCK AWARD AGREEMENT

(<Year of Grant> Time-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 Participant has fully executed this Agreement and delivered it to the Company (in the Company’s discretion, such execution and delivery may be accomplished through electronic means).

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

a. One-third of the shares of Restricted Stock shall vest on <Vesting Date>;

b. One-third of the shares of Restricted Stock shall vest on <Vesting Date>; and

c. The final one-third of the shares of Restricted Stock shall vest on <Vesting Date>.

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

4. Manner In Which Shares Will Be Held. 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 4, 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.

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

5. 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.

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

7. 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.

8. 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.

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

Participant must satisfy the minimum statutory tax withholding obligations resulting from the vesting of shares of Restricted Stock (“Minimum Withholding Obligations”) either (a) by surrendering to Company shares of Restricted Stock which are then vesting in an amount sufficient to satisfy the Minimum Withholding Obligations, (b) by surrendering to the Company other unrestricted Common Shares of the Company owned by Participant in an amount sufficient to satisfy the Minimum Withholding Obligations, or (c) by paying the appropriate amount in cash or, if acceptable to the Company, by check or other instrument. Unless Participant advises the Company of his or her election to use an alternative payment method, Participant shall be deemed to have elected to surrender to the Company shares of Restricted Stock which are then vesting in an amount sufficient to satisfy the Minimum Withholding Obligations. If Participant requests that the Company withhold taxes in addition to the Minimum Withholding Obligations, such additional withholding must be satisfied by Participant either (x) by paying the appropriate amount in cash or, if acceptable to the Company, by check or other instrument, or (y) provided that Participant has obtained the approval of either the Company or the Committee (as required under rules adopted by the Committee) prior to the date of vesting, by surrendering unrestricted Common Shares which are not part of the Restricted Stock then vesting and which have then been owned by 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 7 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.

10. 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.

11. 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.

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

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13. 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

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EX-10.15

Exhibit 10.15

RESTRICTED STOCK AWARD AGREEMENT

(<Year of Grant> 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 on the date <Performance-Based Goals>.

The shares of Restricted Stock awarded under this Agreement shall vest in accordance with 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 <Expiration Date>, this Award shall expire on that 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.

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

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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 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 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.

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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

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EX-10.62

Exhibit 10.62

THE PROGRESSIVE CORPORATION

DIRECTORS DEFERRAL PLAN

(2008 Amendment and Restatement)

1. Purposes of the Plan.

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

2. Definitions.

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

(b) “ Change in Control” means a change in the ownership of the Company, a change in effective control of the Company or a change in the ownership of a substantial portion of the Company’s assets, each as determined in accordance with Section 409A of the Code.

(c) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated pursuant thereto.

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

(e) “Company” means The Progressive Corporation.

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

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

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

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

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

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

(l) “Plan” means The Progressive Corporation Directors Deferral Plan (2008 Amendment and Restatement), as set forth herein and as it may be amended from time to time.

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

(n) “Year” means the calendar year.

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

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

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3. Election to Defer Fees.

(a) Eligibility.

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

(b) Time of Election.

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

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

(c) Duration and Nature of Election.

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

4. The Amount and Date of Deferral.

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

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5. Deferral Accounts.

(a) Accounts.

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

(b) Stock Account.

Each Member’s Stock Account shall be credited as follows:

(i) Fees. On the last day of each calendar quarter, the Stock Account shall be credited with the number of Common Shares (whole or fractional, rounded to the nearest thousandth of a share) determined by dividing (A) the sum of the Fees that the Member elects to defer (or that he or she is deemed to have elected to defer under Paragraph 7 hereof) to his or her Stock Account that otherwise would have been paid to him or her during the quarter, by (B) the Market Price of the Company’s Common Shares, $1.00 par value, on the last business day of such quarter.

(ii) Dividends. Except as provided in the final sentence of Paragraph 6

hereof, on the date on which a dividend is paid on (or any other distribution is made on account of) the Company’s Common Shares, $1.00 par value, the Stock Account shall be credited with the number of Common Shares (whole or fractional, rounded to the nearest thousandth of a share) determined by dividing (A) the dollar amount that the Member would have received with respect to the number of Common Shares held in his or her Stock Account on the applicable record date if such Common Shares had been actual shares of the Company’s Common Shares, $1.00 par value, by (B) the Market Price of the Company’s Common Shares, $1.00 par value, on the date on which such dividend is paid.

(c) Cash Account.

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

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(d) Claims of General Creditors.

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

6. Payment of Accounts.

The accounts established and maintained for each Member shall be distributed in a lump sum or installments. The selection of the distribution date(s) and the method of distribution are to be indicated on the Election Agreement to be submitted by the Member.

A Member may elect to change the distribution date(s) and method of distribution set forth in an Election Agreement governing fees deferred in past years. Each such change must be made in writing and on such forms as the Company shall specify. Each such change must be delivered to the Company at least one (1) year prior to the distribution date being changed and shall delay the payment or commencement of the distribution for a period of at least five (5) years following the date such distribution otherwise would have been made or would have commenced. In the case of a distribution to be made in installments, the provisions of this paragraph shall apply to each installment payment as if each such installment payment were a separate distribution.

Changes in the method of and time for payment of the amount of an account may be effected as to Fees deferred for future Years by notifying the Chief Financial Officer in writing prior to the beginning of the Year for which the modification is to apply in accordance with Paragraph 3 above.

Notwithstanding the foregoing, if a Change in Control occurs, each Member’s entire account balance shall be distributed to such Member within thirty (30) days following the Change in Control.

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

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

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

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

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

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

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

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

Notwithstanding anything to the contrary contained herein, if:

(a) a Member would otherwise be entitled to have an amount equal to a dividend (or other distribution) credited to his or her Stock Account under Paragraph 5(b) hereof in respect of Common Shares held in such Stock Account on the record date for such dividend (or other distribution);

(b) the cash equivalent of such Common Shares (or a portion of such Common Shares) was distributed hereunder to the Member after the record date but before the payment date for such dividend (or other distribution); and

(c) such distribution from the Stock Account was either a lump sum distribution or the final payment of an installment distribution hereunder,

then the amount equal to such dividend (or other distribution) in respect of the Common Shares that were so distributed shall not be credited to the Member’s Stock Account, and such amount shall be distributed to the Member in cash as soon as practicable after the payment date for such dividend.

7. Minimum Deferral.

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

8. Death of Member.

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

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9. Valuation of Accounts.

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

10. Capital Changes.

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

11. Deferred Vesting of Common Shares.

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

12. Administration.

This Plan shall be administered by the Board or by an appropriate Committee of Directors selected by the Board. The Board or the appropriate Committee shall have the sole right and authority to interpret and construe the provisions of this Plan, and its decisions on any matter or dispute arising under the Plan shall be binding and conclusive upon the Members. If a Member is part of the Board or Committee that administers this Plan, he shall not participate in any deliberations or actions of the Board or such Committee relating exclusively to his membership or participation in this Plan.

13. Termination.

Notwithstanding any other provision of the Plan, the Board may terminate the Plan at any time for any reason without any liability to any Member, beneficiary or other person for any such termination or for any other action taken pursuant to this Paragraph 13. Following termination of the Plan, and notwithstanding the provisions of any Election

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Agreement entered into prior to such termination, no additional deferrals may be made hereunder, but all existing Deferred Accounts shall be administered in accordance with the Plan, as in effect immediately prior to termination, and shall be distributed in accordance with the terms of the Plan and the applicable Election Agreements, unless and

until the Board elects to accelerate distributions as provided below. Subject to the limitations and conditions provided for in this Paragraph 13, at any time on or after the effective date of termination of the Plan, the Board, in its sole discretion, may elect to accelerate the distribution with respect to all Deferred Accounts to the extent permitted under Section 409A of the Code; provided, that (a) the termination of the Plan is not proximate to a downturn of the Company’s financial health; (b) the Company terminates and liquidates all plans, programs, agreements, and other arrangements (“Other Program”) that must be aggregated with the Plan in accordance with Treasury Regulation Section 1.409A-1(c) if a Member participated in the Other Program; and (c) the Company shall not adopt a new Other Program that would be required to be aggregated with the Plan in accordance with Treasury Regulation Section 1.409A-1(c) if a Member participated in the Other Program within three (3) years following termination of the Plan. Such accelerated distributions shall be made in a lump sum at a time selected by the Company in accordance with Section 409A of the Code; provided, that no accelerated distributions, other than those that could be made under the terms of the Plan absent its termination, shall be made earlier than twelve (12) months from the date that the Company takes all actions necessary to irrevocably terminate the Plan and cause all distributions to be made thereunder and all distributions shall be made no later than twenty-four (24) months from the date the Company takes all actions necessary to irrevocably terminate the Plan and cause all distributions to be made thereunder. Upon completion of distributions to all Members, or beneficiaries, as the case may be, no Member, beneficiary or person claiming under or through them, will have any claims in respect of the Plan.

14. Non-alienation.

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

15. Claims of Other Persons.

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

16. Severability.

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

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17. Governing Law.

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

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer as of the              day of             , 2007, effective January 1, 2008.

THE PROGRESSIVE CORPORATION

By:

Title:

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EX-10.63

Exhibit 10.63

THE PROGRESSIVE CORPORATION

DIRECTORS RESTRICTED STOCK DEFERRAL PLAN

(2008 Amendment and Restatement)

WHEREAS, The Progressive Corporation (“Company”) maintains The Progressive Corporation Directors Restricted Stock Deferral Plan pursuant to a plan document dated February 1, 2004, and one amendment thereto; and

WHEREAS, it is desired to amend and restate the Plan;

NOW, THEREFORE, effective January 1, 2008, the Plan is hereby amended and restated in its entirety to provide as follows:

ARTICLE I

PURPOSE; PARTICIPATION

1.1 Purpose. The purpose of this plan, which shall be known as The Progressive Corporation Directors Restricted Stock Deferral Plan (the “Plan”) is to provide directors of the Company who are not employees of the Company or its subsidiaries with an opportunity to defer the receipt of Common Shares with respect to Eligible Restricted Stock Awards.

ARTICLE II

DEFINITIONS

For purposes of this Plan, the following terms shall have the following meanings:

“Board” means the Board of Directors of the Company.

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“Change in Control” means a change in the ownership of the Company, a change in effective control of the Company or a change in the ownership of a substantial portion of the Company’s assets, each as determined in accordance with Section 409A of the Code.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated pursuant thereto.

“Committee” means the Compensation Committee of the Board.

“Company” means The Progressive Corporation, an Ohio corporation, and its successors.

“Company Directors Equity Plan” means any equity compensation plan for directors who are not employees of the Company or its subsidiaries maintained by the Company providing for the award of Restricted Stock, including but not limited to, The Progressive Corporation 2003 Directors Equity Incentive Plan.

“Deferral Election” means an election, filed with the Committee, pursuant to which a Participant elects to have all or part of an Eligible Restricted Stock Award converted into Stock Units under this Plan, and to have such Stock Units credited to his or her Stock Account under the Plan pursuant to Section 4.2 hereof.

“Designated Deferral Period” shall mean the deferral period selected by the Participant with respect to an Eligible Restricted Stock Award, which deferral period shall specify the date on which distribution of Shares with respect to such Eligible Restricted Stock Award shall be made or begin.

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“Dividend Equivalent Amounts” means the amount of dividends or other distributions to shareholders of the Company that a Participant would have received had the Participant’s Stock Units been actual Shares as of the date of a dividend or other distribution by the Company.

“Eligible Restricted Stock Award” means an award of Restricted Stock made, or to be made, under a Company Directors Equity Plan.

“Participant” means any director of the Company who is not an employee of the Company or its subsidiaries and who participates in this Plan by timely completing a Deferral Election.

“Plan Year” means each calendar year during the term of this Plan.

“Restricted Stock” means Shares awarded, or to be awarded, to a Participant in the form of restricted stock under and pursuant to the terms of a Company Directors Equity Plan.

“Shares” means the Common Shares, $1.00 par value, of the Company.

“Stock Account” means an individual bookkeeping account established for each Participant pursuant to Section 4.3 hereof, with respect to Stock Units credited to the Participant.

“Stock Units” means the units credited to a Participant’s Stock Account, as described in Sections 4.2 and 4.4 hereof. Each Stock Unit credited to a Participant’s Stock Account shall represent the right, subject to the terms and conditions of this Plan, to receive one (1) Share at the end of the Participant’s Designated Deferral Period or at such other time as this Plan may specify for distribution to be made or begin.

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ARTICLE III

PARTICIPATION

3.1 Eligibility and Participation. Directors who shall be eligible to participate in this Plan shall be those directors who are not employees of the Company or its subsidiaries.

ARTICLE IV

DEFERRAL ELECTIONS

4.1 Deferral Elections. Each eligible director who elects to participate in this Plan for any Plan Year shall file a Deferral Election with the Committee before the beginning of such Plan Year, provided that any director who was not a director during the previous two Plan Years may file a Deferral Election with the Committee (i) within thirty (30) days after he/she is elected to the Board and (ii) prior to the grant of Restricted Stock which is the subject of such Deferral Election . The Deferral Election shall be in the form prescribed by the Committee, and in accordance with such rules and procedures as may be established by the Committee in its sole discretion. Once made, a Participant’s Deferral Election shall be irrevocable. A Deferral Election shall be deemed to have been made when the completed and executed election form is received and accepted by the Committee or its designated agent. A separate Deferral Election shall be made by a Participant with respect to all or part of each Eligible Restricted Stock Award to be subject to a Deferral Election during such Plan Year. If an eligible Participant fails to file an appropriate election form with respect to any Eligible Restricted Stock Award before the deadline provided in the first sentence of this Section, he or she shall be deemed to have elected not to make a Deferral Election for such Plan Year.

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4.2 Effect of Deferral Election. If a Participant timely files a Deferral Election with the Committee with respect to an Eligible Restricted Stock Award, each share of Restricted Stock subject to a Deferral Election will be automatically cancelled immediately prior to vesting and will be replaced with a corresponding Stock Unit credited to the Participant’s Stock Account in accordance with Section 4.3. A timely Deferral Election with respect to an Eligible Restricted Stock Award will defer the delivery to the Participant of the Shares subject thereto until the end of the Participant’s Designated Deferral Period or such other time as this Plan may specify for distribution to be made or begin.

4.3 Stock Accounts.

The Committee shall establish and maintain a separate bookkeeping account in the name of each Participant who makes a Deferral Election during the course of his or her participation in the Plan. Each Participant’s Stock Account shall consist of the sum of the Stock Units credited to such Participant’s Stock Account. Each Participant’s Stock Account shall be adjusted as follows:

(a) As of the date of vesting of an Eligible Restricted Stock Award to which a Participant’s Deferral Election is applicable, the Participant’s Stock Account shall be credited with that number of Stock Units equal to the number of Shares to which the Deferral Election relates;

(b) As of the date on which a dividend is paid on (or any other distribution is made on account of) Shares, the Stock Account shall be credited with that number of Stock Units and fraction thereof equal to the number of Shares and fraction thereof that the Dividend Equivalent Amount would have purchased on that date based on the average of the high and low trading prices of the Shares on that date.

(c) As of the date on which Shares are distributed to the Participant in accordance with Section 4.5, the Participant’s Stock Account shall be reduced by an equal number of Stock Units, and fractions thereof, if applicable.

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In the event of any stock split, reverse split, combination or other changes that impact the Company’s capital structure, or Share status, each Participant’s Stock Account and the number of Stock Units credited thereto shall be equitably adjusted by the Committee in its sole discretion in a manner consistent with the treatment of outstanding equity awards pursuant to the Company Directors Equity Plan.

4.4 Dividend Equivalent Amounts. Dividend Equivalent Amounts with respect to the Participant’s Stock Units shall result in the Participant’s Stock Account being credited with an additional number of Stock Units and/or fraction thereof equal to the Dividend Equivalent Amount divided by the average of the high and low trading prices of Shares on the date specified in Section 4.3(b) and shall become subject to the Deferral Election applicable to the Stock Units to which the Dividend Equivalent Amount relates.

4.5 Distribution of Shares from Stock Accounts. Subject to any limitation set forth in this Plan or any other limitations as may be established by the Committee in its sole discretion, each Deferral Election shall specify the method of distribution with respect to the Eligible Restricted Stock Award which is subject to the Deferral Election. A Participant may elect to have his or her Stock Units with respect to any Eligible Restricted Stock Award which is subject to a Deferral Election distributed in any of the following number of installments following the earlier of (i) termination of the Participant’s service as a director of the Company or (ii) expiration of the Participant’s Designated Deferral Period with respect to such Eligible Restricted Stock Award:

(1) a single lump sum;

(2) 3 equal or substantially equal annual installments;

(3) 5 equal or substantially equal annual installments; or

(4) 10 equal or substantially equal annual installments.

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A Participant may elect a different method of distribution with respect to each Eligible Restricted Stock Award that is subject to a Deferral Election. Distributions will be made or commence within thirty (30) days following expiration of the Participant’s Designated Deferral Period or termination of the Participant’s service as a director, as the case may be.

A Participant may elect to change the Designated Deferral Period and the method of distribution set forth in a Deferral Election. Each such change must be made in writing and on such forms as the Committee shall specify. Each such change must be delivered to the Committee at least one (1) year prior to the expiration of the Designated Deferral Period and shall delay the payment or commencement of the distribution for a period of at least five (5) years following the date the Designated Deferral Period otherwise would have expired. In the case of a distribution to be made in installments, the provisions of this paragraph will apply to each installment payment as if each such installment payment were a separate distribution.

Notwithstanding the foregoing, if a Change in Control occurs or a Participant dies, a distribution with respect to all the Stock Units then held in the Participant’s Stock Account shall be made to him/her or his/her beneficiaries in a single lump sum within thirty (30) days following the Change in Control or the date the Committee receives written notice of his/her death.

Distributions with respect to the Stock Units credited to a Participant’s Stock Account under this Plan shall in all cases be satisfied by the delivery by the Company of a number of Shares equal to the number of Stock Units with respect to which such distribution is being made, except that any portion of such distribution that is derived from Dividend Equivalent Amounts or fractional shares shall be satisfied in cash, based on the average of the high and low trading prices of Shares on the business day immediately preceding such distribution.

If a Participant is receiving a distribution in installments, Dividend Equivalent Amounts will continue to be credited with respect to the undistributed Stock Units remaining in such Participant’s Stock Account until all such Stock Units have been distributed.

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ARTICLE V

MISCELLANEOUS

5.1 Beneficiaries. Each Participant shall have the right to designate in writing one or more beneficiaries to receive distributions in the event of the Participant’s death by filing with the Company a beneficiary designation on a form provided by the Committee. The designated beneficiary or beneficiaries may be changed by a Participant at any time prior to his or her death by the delivery to the Committee of a new beneficiary designation form. The change shall become effective only when the new beneficiary designation form is received and accepted by the Committee; provided, however, any beneficiary designation form received by the Committee after the designating Participant’s death will be disregarded. If no beneficiary shall have been designated, or if no designated beneficiary shall survive the Participant, distribution pursuant to this provision shall be made to the Participant’s estate.

5.2 Administration. Except for those powers and duties expressly reserved for the Board hereunder, the Committee will have full power to administer the Plan. Such power includes, but is not limited to, the following authority:

(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of Plan;

(b) To interpret the Plan and to decide all matters arising thereunder, including the right to resolve or remedy any ambiguities, errors, inconsistencies or omissions. All such interpretations shall be final and binding on all parties;

(c) To determine the amount of distributions to be made to each Participant and beneficiary or other person in accordance with the provisions of the Plan;

(d) To authorize distributions under the Plan;

(e) To keep such records and submit such filings, elections, applications, returns or other documents or forms as may be required under applicable law;

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(f) To appoint such agents, counsel, accountants and consultants as may be desirable in administering the Plan;

(g) To exercise the other powers that are expressly granted to it herein, or that are impliedly necessary for it to carry out any of its responsibilities hereunder; and

(h) By written instrument to delegate any of the foregoing powers to one or more designated officers or employees of the Company or other persons.

All decisions of the Committee or its designees shall be binding upon all Participants and their respective legal representatives, successors and assigns, and any and all persons claiming under or through any of them. No member of the Committee or any of its designees shall be liable to any Participant or to the Company for any determination made within the scope of the administrative and interpretive functions provided in this Plan. No member of the Committee shall participate in any discussion or determination involving his or her own rights, benefits or obligations under this Plan.

5.3 Reports. Until a Participant’s entire Stock Account shall have been distributed in full, the Company will furnish or make available to the Participant a written or electronic report, at least annually, setting forth any changes in such Account and the amounts credited to such Account.

5.4 Assignment and Alienation of Benefits. The right of each Participant to any account, benefit, Stock Unit, right or distribution hereunder shall not, to the extent permitted by law, be subject in any manner to attachment or other legal process for the debts of such Participant, and no account, benefit, Stock Unit, right or distribution shall be subject to anticipation, alienation, sale, pledge, transfer, assignment or encumbrance; provided, however, the Company shall have the unrestricted right to set off against or recover out of any distributions due a Participant, beneficiary or other person at the time such distributions would otherwise have been made hereunder, any amounts owed the Company or any subsidiary of the Company by such Participant, beneficiary or other person.

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5.5 Director and Shareholder Status. Nothing in the Plan shall interfere with or limit in any way the right of the Company or its shareholders to terminate any Participant’s service as a director, at any time, nor confer upon any Participant any right to continue as a director of the Company or to be nominated for election to the Board at any time. The Plan will not give any person any right or claim to any benefits under the Plan unless such right or claim has specifically accrued under the terms of the Plan. Participation in the Plan shall not create any rights in a Participant (or any other person) as a shareholder of the Company until Shares are registered in the name of, and distributed to, the Participant (or such other person).

5.6 Assets. No assets shall be segregated or earmarked in respect of any Stock Units, Dividend Equivalent Payments or Stock Accounts. The Plan and the crediting of Stock Accounts hereunder shall not constitute a trust and shall be structured solely for the purpose of recording an unsecured contractual obligation. All amounts payable pursuant to the terms of this Plan shall be paid from the general assets of the Company and in no event shall any Participant or beneficiary have any claims or rights to any payment hereunder that are superior to any claims or rights of any general creditor of the Company.

5.7 Taxes. The Company shall not be responsible for the tax consequences under federal, state or local law of any election made by any Participant under the Plan. The Company shall have the right to make required information reporting and/or to withhold or deduct from any distribution to be made pursuant to this Plan, or to otherwise require prior to the distribution of any amount hereunder, payment by the Participant of any federal, state or local taxes required by law to be withheld with respect to any such distribution to the Participant. In

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addition, to the extent the Company shall be required, prior to the date on which distributions are to be made to a Participant under this Plan, to withhold any taxes in connection with any Stock Units or Dividend Equivalent Amounts credited to a Participant’s accounts under this Plan, the Participant agrees that the Company shall have the right to make such withholding or to require direct payment of such withholding taxes by the Participant to the Company.

5.8 Amendment. Notwithstanding any other provision of this Plan, the Board may amend this Plan at any time for any reason without liability to any Participant, beneficiary or other person for any such amendment or for any other action taken pursuant to this Section 5.8, provided that no such amendment shall be made retroactively in a manner that would deprive any Participant of any rights or benefits which have accrued to his/her benefit under the Plan as of the date such amendment is proposed to be effective, unless such amendment is necessary to comply with applicable law.

5.9 Termination. Notwithstanding any other provision of this Plan, the Board may terminate this Plan at any time for any reason without any liability to any Participant, beneficiary or other person for any such termination or for any other action taken pursuant to this Section 5.9. Following termination of this Plan, and notwithstanding the provisions of any Deferral Election entered into prior to such termination, no additional deferrals may be made hereunder, but all existing Stock Accounts shall be administered in accordance with this Plan, as in effect immediately prior to termination, and shall be distributed in accordance with the terms of this Plan and the applicable Deferral Elections, unless and until the Board elects to accelerate distributions as provided below. Subject to the limitations and conditions provided for in this Section 5.9, at any time on or after the effective date of termination of this Plan, the Board, in its sole discretion, may elect to accelerate the distribution with respect to all Stock Units in all Stock

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Accounts to the extent permitted under Section 409A of the Code; provided, that (a) the termination of this Plan is not proximate to a downturn of the Company’s financial health; (b) the Company terminates and liquidates all plans, programs, agreements, and other arrangements (“Other Program”) that must be aggregated with this Plan in accordance with Treasury Regulation Section 1.409A-1(c) if a Participant participated in the Other Program; and (c) the Company shall not adopt a new Other Program that would be required to be aggregated with this Plan in accordance with Treasury Regulation Section 1.409A-1(c) if a Participant participated in the Other Program within three (3) years following termination of the Plan. Such accelerated distributions shall be made in a lump sum at a time selected by the Company in accordance with Section 409A of the Code; provided, that no accelerated distributions, other than those that could be made under the terms of the Plan absent its termination, shall be made earlier than twelve (12) months from the date that the Company takes all actions necessary to irrevocably terminate the Plan and cause all distributions to be made thereunder and all distributions shall be made no later than twenty-four (24) months from the date the Company takes all actions necessary to irrevocably terminate the Plan and cause all distributions to be made thereunder. Upon completion of distributions to all Participants, or beneficiaries, as the case may be, no Participant, beneficiary or person claiming under or through them, will have any claims in respect of this Plan.

5.10 Notices to Committee. The Committee shall designate one or more addresses to which notices and other communications to the Committee shall be sent with respect to this Plan. No notice or other communication shall be considered to have been given to or received by the Committee until it has been delivered to the Committee’s attention at one of such designated addresses.

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5.11 No Liability. Participation in the Plan is entirely at the risk of each Participant. Neither the Company, the Committee, the Board nor any other person associated with this Plan shall have any liability for any loss or diminution in the value of Stock Accounts, or for any failure of this Plan to effectively defer recognition of income or to achieve any Participant’s desired tax treatment or financial results.

5.12 Facility of Payment. If the Committee determines that a Participant or beneficiary entitled to receive a payment under this Plan is (at the time such payment is to be made) a minor or physically, mentally or legally incompetent to receive such payment and that another person or any institution has legal custody of such minor or incompetent individual, the Committee may cause payment to be made to such person or institution having custody of such Participant or beneficiary. Such payment, to the extent made, shall operate as a complete discharge of obligation by the Committee, the Company and the Board.

5.13 Securities Law Provisions. The issuance and distribution of Shares pursuant to this Plan will not be registered under the Federal or any state securities laws. The Shares will be “restricted securities” as that term is defined under Rule 144 of the Securities Act of 1933 (the “Securities Act”) and may not be sold or transferred absent registration under the Securities Act or in accordance with an applicable exemption.

5.14 Applicable Law. This Plan shall be interpreted under the laws of the State of Ohio.

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IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer as of the              day of             , 2007.

THE PROGRESSIVE CORPORATION

By:

Title:

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EX-10.68

Exhibit 10.68

First Amendment to

The Progressive Corporation

Executive Separation Allowance Plan

(2006 Amendment and Restatement)

WHEREAS, The Progressive Corporation Executive Separation Allowance Plan (“Plan”) is currently maintained pursuant to the 2006 Amendment and Restatement; and

WHEREAS, it is deemed desirable to amend the Plan further;

NOW, THEREFORE, effective August 1, 2007, the Plan is hereby amended as set forth below:

1. Section 2.1 of the Plan is hereby amended by deleting the phrase “ninety (90) days” and inserting in lieu thereof the phrase “forty-five (45) days”.

2. Section 2.2 of the Plan is hereby amended by deleting the phrase “ninety (90) days” and inserting in lieu thereof the phrase “forty-five (45) days”.

3. Section 14 of the Separation Agreement and General Release attached to the Plan as Exhibit A is hereby amended by deleting the phrase “NINETY (90) DAYS” and inserting in lieu thereof the phrase “FORTY-FIVE (45) DAYS”.

4. The following is hereby added as new Section 2.4 of the Plan:

“2.4 Notwithstanding anything in this Plan to the contrary, an Eligible Employee shall not be entitled to receive a separation allowance, and any Separation Agreement and General Release that such Eligible Employee previously may have executed shall be considered null and void, if, at any time prior to payment of a separation allowance to such Eligible Employee, the Company determines that the Eligible Employee has at any time prior to such payment committed a violation of Progressive’s Code of Business Conduct and Ethics that would have led Progressive to terminate the Eligible Employee’s employment in accordance with Progressive’s then current disciplinary practices with respect to the type of violation in question had the Eligible Employee still been actively employed.”

5. Except as expressly set forth in this Amendment, the terms and provisions of the Plan shall remain entirely unchanged and continue in full force and effect.

IN WITNESS WHEREOF, the Company has hereunto caused this Amendment to be executed by its duly authorized representative as of the 20th day of August, 2007.

The Progressive Corporation
By:	/s/ Charles E. Jarrett
Title:	Vice President

EX-10.73

Exhibit 10.73

2013 PROGRESSIVE CAPITAL

MANAGEMENT BONUS PLAN

1. The Plan. The Progressive Corporation and its subsidiaries (collectively “Progressive” or the “Company”) have adopted the 2013 Progressive Capital Management Bonus Plan (the “Plan”) as part of their compensation program for the Company’s investment professionals for the Company’s 2013 fiscal year (the “Plan year”). The Plan is performance-based and is administered under the direction of the Compensation Committee of the Board of Directors of The Progressive Corporation (the “Compensation Committee” or “Committee”). References in this Plan to the investment results of the Company mean the applicable results achieved by the Company’s subsidiaries and affiliate in their respective investment portfolios on an aggregate basis.

The Company’s investment professionals invest the funds of the Company in accordance with investment guidelines approved from time to time by the Investment and Capital Committee of the Board of Directors. Those guidelines address such matters as minimum average credit quality and the duration of the portfolio, as well as limitations on the extent to which the portfolio can be concentrated in individual issuers. Compliance with the guidelines is routinely monitored and variations therefrom must be reported to, and approved by, the Investment and Capital Committee.

2. Participants. Progressive employees who are assigned primarily to the Company’s capital management function, including the Company’s Chief Investment Officer (“CIO”), are eligible to be selected for participation in the Plan. Eligible employees in addition to the CIO will be selected by the CIO in consultation with the Chief Executive Officer (“CEO”) and Chief Human Resource Officer (“CHRO”) (the “Designated Executives”) to participate in the Plan. Participants may also participate in other Gainsharing, bonus or incentive compensation plans maintained by Progressive, if so determined by the Designated Executives (or in the case of the CIO or any other executive officer, by the Compensation Committee). Other eligible employees of the Company may be selected for participation in the Plan for or at any time during the Plan year by the Designated Executives. In such cases, the Designated Executives will determine the new participant’s Target Percentage (described below) and other terms of participation (except with respect to the CIO or any other executive officer, as to whom all determinations must be made by the Committee). Throughout this Plan, references to “executive officers” refer to executive officers within the meaning of any Securities and Exchange Commission (“SEC”) or New York Stock Exchange rule applicable to the Company.

3. Annual Bonus Determination.

A. Annual Bonus. Each participant may earn an annual cash bonus (the “Annual Bonus”), subject to the terms of this Plan. The amount of the Annual Bonus earned by any participant will be determined by application of the following formula:

Annual Bonus = Paid Eligible Earnings x Target Percentage x Performance Factor

B. Paid Eligible Earnings. Paid Eligible Earnings for the Plan year shall mean and include the following: regular, Earned Time Benefit pay (excluding the payout of unused Earned Time Benefit pay at termination), sick pay, holiday pay, funeral pay, military make-up pay, overtime pay, shift differential, and retroactive payments of any of the foregoing items, received by the participant during the Plan year for work or services performed as an officer or employee of Progressive.

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For purposes of the Plan, Paid Eligible Earnings shall exclude all other types of compensation, including, without limitation, any short-term or long-term disability payments made to the participant, the earnings replacement component of any worker’s compensation award, any bonus, Gainsharing or other incentive compensation or equity-based award, including, without limitation, payments from any discretionary cash fund, any dividend payments and any unused Earned Time Benefit.

C. Target Percentage. The Target Percentages for participants in the Plan shall be determined by or under the direction of the Committee, but will not exceed 125% for any participant. Target Percentages may vary among Plan participants and may be changed from year to year by or under the direction of the Designated Executives (or in the case of the CIO or any other executive officer, by the Compensation Committee).

D. Performance Factor. The Performance Factor will be determined by the Committee after the expiration of the Plan year based on the performance of the Company’s fixed-income investment portfolio (the “Fixed-Income Portfolio” or “Portfolio”), and such other factors and information relating to the performance of the Company’s investment professionals as the Committee shall determine.

First, an indicated performance factor will be determined based on the fully taxable equivalent total return of the Fixed-Income Portfolio, in comparison to the total returns of the group of comparable investment firms identified by Rogers Casey (the “Investment Benchmark”), over the one- and three-year periods ending on December 31 of the Plan year, as described below. After the end of the Plan year, Rogers Casey will determine the firms that are included in the Investment Benchmark in accordance with the criteria specified on Exhibit I hereto. Rogers Casey will also provide to the Company the monthly total return data for each of the Investment Benchmark firms for the three-year period ending on December 31 of the Plan year.

Investment results for the Fixed-Income Portfolio will be marked to market, including the benefit of any state premium tax abatements for municipal securities held in the Portfolio that are realized by the Company during the Plan year, in order to calculate the Portfolio’s fully taxable equivalent total return for the one-year (2013) and three-year period (2011-2013) periods, in each case compounded on a monthly basis. The investment performance achieved by the Fixed-Income Portfolio for the one- and three-year periods (each, a “comparison period”) will then be compared against the total returns of the firms included in the Investment Benchmark for the same periods, also compounded on a monthly basis, as determined by the Company from the monthly performance data supplied by Rogers Casey for each firm in the Investment Benchmark, to determine, for each comparison period, where the Fixed Income Portfolio’s performance falls on a percentile basis when compared to the firms in the Investment Benchmark, as further described on Exhibit II (“Performance Ranking”).

The Portfolio’s Performance Ranking will be used to determine a performance score of between 0 and 2.0 for each comparison period, based on the following schedule:

Comparison Period	Score = 0 Rank at or below	Score = 1.0 Rank equal to	Score = 2.0 Rank at or above
One year	15th Percentile	50th Percentile	85th Percentile
Three year	25th Percentile	50th Percentile	75th Percentile

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A Performance Ranking between the values identified in the schedule will be interpolated on a straight-line basis to generate the applicable performance score, as further described on Exhibit II. Once these performance scores are determined, an overall indicated performance factor will be determined by averaging the performance scores for the one- and three-year comparison periods.

The overall indicated performance factor will be reported to the Compensation Committee after the expiration of the Plan year, together with such supporting documentation as the Committee may require. The Committee may consider such additional information as it deems necessary or appropriate in its discretion. Such information may include, without limitation:

• the primary investment factors that are responsible for favorable or unfavorable results relative to the peer group, such as the Company’s duration and yield curve position and the extent of its exposure to sectors of the fixed-income markets, including corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities, government bonds, preferred stocks and non-investment-grade bonds;

• the Company’s holdings within each sector relative to the general market composition of each sector;

• the extent to which material investment decisions may have been driven by Company strategic or capital considerations; and

• the impact on investment results of significant portfolio cash flows driven by Company operations, strategic decisions or capital transactions.

In addition, the Committee may choose to consult with others, including, without limitation, management, the Board’s Investment and Capital Committee, other Board members, and outside compensation and investment professionals, in evaluating the performance of the Company’s investment professionals for the year. The Committee will then determine the Performance Factor, provided that under no circumstances may the Performance Factor exceed 2.0 for the year.

E. In the event that Rogers Casey (or its successor or assigns) discontinues providing the data that is necessary to make the calculations required by this Plan, or modifies the information in such a way as to render the comparisons required by this Plan to be not meaningful, in the Committee’s sole judgment, the determinations required above shall be made using investment return data for comparable firms satisfying the criteria set forth on Exhibit I as may be available from another recognized provider of investment industry data as the Committee may approve in its sole discretion.

4. Payment Procedures; Deferral. The Annual Bonuses will be determined and paid to Plan participants as soon as practicable after the Performance Factor has been determined by the Committee, but no later than March 15th following the Plan year.

Any Plan participant who is eligible to participate in The Progressive Corporation Executive Deferred Compensation Plan (“Deferral Plan”) may elect to defer all or any portion of his or her Annual Bonus otherwise payable under this Plan, subject to and in accordance with the terms of the Deferral Plan.

5. Qualification Date; Leave of Absence; Withholding. Unless otherwise determined by the Committee, and except as otherwise provided herein, in order to be entitled to receive an Annual Bonus for the Plan year, the participant must be an active employee of Progressive on November 30 of the Plan year (“Qualification Date”). Any participant who is on a leave of absence covered by the

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Family and Medical Leave Act of 1993, personal leave approved by the Company, military leave or short- or long-term disability (provided that, in the case of a long-term disability, the participant is still an employee of the Company) on the Qualification Date relating to the Plan year will be entitled to receive an Annual Bonus for the Plan year based on the Paid Eligible Earnings received by the participant during the Plan year. Annual Bonus payments made to participants will be net of any legally required deductions for federal, state and local taxes and other items.

6. Other Plans. Participants may be selected to participate in this Plan and in one or more other incentive plans offered by the Company. In the case of the CIO or any other executive officer, all determinations with respect to such incentive plans and the executive’s participation therein shall be made by the Compensation Committee. In all other cases, the Designated Executives shall have full authority to determine the incentive plan or plans in which any employee shall participate during the Plan year and the weighting factor (if any) that will apply to each such plan.

7. Non-Transferability. The right to any Annual Bonuses hereunder may not be sold, transferred, assigned or encumbered by any participant. Nothing herein shall prevent any participant’s interest hereunder from being subject to involuntary attachment, levy or other legal process.

8. Administration. The Plan will be administered by or under the direction of the Committee. The Committee will have the authority to adopt, alter, amend, modify and repeal such rules, guidelines, procedures and practices governing the Plan as it, from time to time, in its sole discretion deems advisable.

The Committee will have full authority to determine the manner in which the Plan will operate, to interpret the provisions of the Plan and to make all determinations thereunder. All such interpretations and determinations will be final and binding on Progressive, all Plan participants and all other parties. No such interpretation or determination may be relied on as a precedent for any similar action or decision.

Unless otherwise determined by the Committee and except as provided in the immediately succeeding paragraph, all of the authority of the Committee hereunder (including, without limitation, the authority to administer the Plan, select the persons entitled to participate herein, interpret the provisions hereof, waive any of the requirements specified herein and make determinations hereunder and to establish, approve, change or modify Investment Benchmarks, Performance Targets and Target Percentages) may be exercised by the Designated Officers. If one or more of said officers is unavailable or unable to participate, or if such position is vacant, the Chief Financial Officer may act instead of such officer.

Notwithstanding anything in this Plan to the contrary: (a) all determinations made under this Plan with respect to the CIO or any other individual deemed to be an executive officer of the Company must be made only by the Compensation Committee; and (b) only the Committee may make the determination of the Performance Factor required by Section 3.D. above.

9. Miscellaneous.

A. Recoupment. Progressive shall have the right to recoup any Annual Bonus (or an appropriate portion thereof, as hereinafter provided) with respect to any Plan year paid to a participant hereunder who was an executive officer of Progressive at any time during such Plan year, if: (i) the Annual Bonus payment was predicated upon the achievement during such Plan year of certain financial or operating results (which includes, for purposes hereof, the performance of the Fixed-Income Portfolio); (ii) such financial or operating results were incorrect and were subsequently the subject of a restatement by Progressive within three (3) years after the date on

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which such Annual Bonus was paid to the participant; and (iii) a lower payment would have been made to the participant if the restated financial or operating results had been known at the time the payment was made. Such recoupment right shall be available to Progressive whether or not the participant in question was at fault or responsible in any way in causing such restatement. In such circumstances, Progressive will have the right to recover from each participant for such Plan year, and each such participant will refund to Progressive, the amount by which the Annual Bonus paid to such participant for the Plan year in question exceeded the lower payment that would have been made based on the restated results, without interest; provided, however, that Progressive will not seek to recover such amounts unless the amount due would exceed the lesser of five percent (5%) of the Annual Bonus previously paid or twenty-thousand dollars ($20,000). Such recovery, at the Committee’s discretion, may be made by lump sum payment, installment payments, credits against future bonus payments, or other appropriate mechanism.

B. Further Rights. Notwithstanding the foregoing subsection A., if any participant that was an executive officer at any time during such Plan year engaged in fraud or other misconduct (as determined by the Committee or the Board, in their respective sole discretion) resulting, in whole or in part, in a restatement of the financial or operating results used hereunder to determine the Annual Bonuses for a specific Plan year, Progressive will further have the right to recover from such participant, and the participant will refund to Progressive upon demand, an amount equal to the entire Annual Bonus paid to such participant for such Plan year plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from the date that such bonus was paid to the participant. Progressive shall further have the right to recover from such participant Progressive’s costs and expenses incurred in connection with recovering such Annual Bonus from the participant, including, without limitation, reasonable attorneys’ fees. There shall be no time limit on the Company’s right to recover such amounts under this subsection B., except as otherwise provided by applicable law.

C. Rights Not Exclusive. The rights contained in the foregoing subsections A. and B. shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under any applicable law or regulation.

D. Compliance with Law. The Annual Bonuses determined and paid pursuant to the Plan shall be subject to all applicable laws and regulations. Without limiting the foregoing, and notwithstanding anything to the contrary contained in this Plan, if the SEC promulgates rules under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that require, as a condition to the Company’s continued listing on a national securities exchange, that the Company develop and implement a policy requiring the recovery of erroneously awarded compensation, and such regulations are applicable to the Annual Bonuses awarded pursuant to the Plan, then the following shall apply:

In the event that the Company is required to prepare a restatement of one or more of its financial statements due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, the Company will be entitled to recover from each participant hereunder who was at the time of grant or payment of an Annual Bonus an executive officer of the Company under applicable SEC rules (whether or not such participant remains an executive officer of the Company at the time of such restatement or thereafter), the amount of any Annual Bonus that (i) was paid during the three year period preceding the date on which the Company is required to prepare such restatement and (ii) is in excess of what would have been paid to the participant under the restatement, or as may otherwise be required by such rules to be promulgated by the SEC.

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10. Termination; Amendments. The Plan may be terminated, amended or revised, in whole or in part, at any time and from time to time by the Committee, in its sole discretion.

11. Unfunded Obligations. The Plan will be unfunded and all payments due under the Plan will be made from Progressive’s general assets.

12. No Employment Rights. Nothing in the Plan shall be construed as conferring upon any person the right to remain a participant in the Plan or to remain employed by Progressive, nor shall the Plan limit Progressive’s right to discipline or discharge any of its officers or employees or change any of their job titles, duties or compensation.

13. Set off Rights. Progressive shall have the unrestricted right to set off against or recover out of any bonuses or other sums owed to any participant under the Plan any amounts owed by such participant to Progressive.

14. Prior Plans. This Plan supersedes all prior plans, agreements, understandings and arrangements regarding bonuses or other cash incentive compensation payable or due to any participant from Progressive with respect to the performance of Progressive’s investment portfolio. Without limiting the generality of the foregoing, this Plan supersedes and replaces the 2012 Progressive Capital Management Bonus Plan (the “Prior Plan”), which is and shall be deemed to have terminated on the last day of the Company’s 2012 fiscal year (the “Prior Plan Termination Date”); provided, however, that any bonuses or other sums earned and payable under the Prior Plan with respect to any Plan year ended on or prior to the Prior Plan Termination Date shall be unaffected by such termination and shall be paid to the appropriate participants when and as provided thereunder.

15. Effective Date. This Plan is adopted, and is effective, as of the first day of the Company’s 2013 fiscal year and will be effective for the 2013 Plan year (which coincides with Progressive’s 2013 fiscal year, except that investment returns are calculated on a calendar year basis).

16. Governing Law. This Plan shall be interpreted and construed in accordance with the laws of the State of Ohio.

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EXHIBIT I

INVESTMENT BENCHMARK CRITERIA

After the end of the Plan year, Rogers Casey will determine the firms comprising the Investment Benchmark for the Plan year from its records and will supply to the Company the monthly total returns and any other relevant data for each of those firms for the three-year period ending on December 31 of the Plan year.

A firm will be included in the Investment Benchmark if Rogers Casey is able to determine from its records that:

1. The firm has provided monthly data regarding its holdings and investment return, as necessary to determine or calculate such firm’s monthly total return, and to evaluate such firm’s compliance with each of the criteria set forth below, for the entire three-year period ending on December 31 of the Plan year; and

2. At all times during the three-year period ending on December 31 of the Plan year, the information provided by the firm shows, or Rogers Casey is able to calculate, that such firm’s investment portfolio satisfies each of the following criteria:

Duration:	Effective Duration between 1.5 years and 5.0 years
Credit Quality Average	= A, or = AA, or = AAA, or = AAA+
Convexity (%)	>= -1
Sector Allocation:	U.S. High Yield Corporate Debt <= 10%
Sector Allocation:	Mortgages <= 60%
Sector Allocation:	U.S. Investment Grade Corporate Debt <= 60%
Sector Allocation:	CMBS <= 60%
Sector Allocation:	ABS <= 60%
Sector Allocation:	Emerging Markets Debt <= 5%

3. The Company will have no discretion to alter the Investment Benchmark list after it is finalized by Rogers Casey.

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EXHIBIT II

DETERMINATION OF PERFORMANCE RANKING AND PERFORMANCE SCORES

Once all the total returns are calculated, the data is sorted in descending order from highest to lowest total return. From here, the process to compute the Performance Factor is as follows (this Exhibit shows the procedures and related calculations for the 1-year comparison period required by the Plan; the calculations for the 3-year comparison period would follow the same procedures, except that necessary adjustments would be made to determine the top and bottom 25% levels and the performance score variances between those levels):

INTERPOLATED VALUES FOR SETTING TOP AND BOTTOM 15% LEVELS

The top 15% and bottom 15% total return rankings are computed based on the total number of firms in the Investment Benchmark, excluding the PCM Fixed-Income Portfolio return. For example, if there were 279 participants, the return required to earn a 2.0 portfolio performance factor would be determined by interpolating between the forty-first and forty-second firm’s returns, since 15% of 279 = 41.85. The same procedure would be used to determine the 0.0 portfolio performance factor.

The total returns, computed by Investment Accounting, for the interpolated positions are calculated as follows (continuing to use an example of 279 survey firms):

Interpolated Value = Firm 41 return – ((Firm 41 Return – Firm 42 Return)*0.85)

Firm 41 = 18.35%

Firm 42 = 18.23%

Firm 41.85 (Interpolated Value) = 18.35% – ((18.35% – 18.23%)*0.85) = 18.25%.

In this case, the PCM Performance Factor will equal 2.0 if its total return equals the interpolated value for Firm 41.85 of 18.25%. A similar calculation is then used to determine the bottom 15% group and interpolated value for a 0.0 performance score.

Once the two groups are computed, top and bottom 15%, the remainder of the performance scores are calculated as follows:

Performance score variance = (2.00) / Number of positions from first participant after the top 15% ranking to the 1^st participant in the bottom 15% ranking. In the case of 279 participants, the number of positions to divide the 2.00 performance factors by would be 198.

The calculation for the performance score variance from 2.00 – 0.00 would be:

2.00 / 198 = .010101 per position for 279 firms

In the case of a tie in total returns between firms, each firm will have the same performance score, one step under the next higher position. The next lowest position would then be stepped down by a factor based on the number of participants who tie. In the case of a tie between two firms, the step down will be twice the performance score variance to maintain the proper stepping to the 0.00 performance score level.

Example: If firms 42 and 43 each had the same total return in the 279 firm example, then firms 42 and 43 would each have a Performance Factor of 1.989899, which is 2.00 – .0010101. The number 44 position in this example would have a performance score of 1.969697, which is the required step down from 42 to 44.

8

In addition, if the returns are tied between the interpolated value set for the 2.00 performance score and any position below the 2.00 level, those lower positions will also be set to a 2.00 performance score. The step down factor in the performance score will work similarly as noted in the example above. For the last 15% group, all firms with total returns equaling the last interpolated total return value would have the same performance score as the last interpolated value (.0101012), and all others in the last 15% group would have a 0.00 Portfolio Performance Factor.

Once all the performance scores have been created, from 2.00 to 0.00, PCM’s return is compared to the rankings to determine its Performance Factor. If the PCM return is not in the top or bottom 15% and does not match the return of any participant, then PCM’s Performance Factor is an interpolated value between the firms with the next highest and next lowest returns.

The interpolation computation for the Performance Factor based on PCM’s return is as follows:

Performance score of firm below PCM return + (PCM’s Return – Return below PCM) / (Return above PCM – Return below PCM) * (Performance score of firm above PCM – Performance score of firm below PCM)

Assuming the following data, using the 279 firm example:

Firm	Performance score		Total return
Firm above PCM		.90		13.61
PCM				13.39
Firm below PCM		.89		13.34

The calculation of PCM’s Performance Factor is:

0.89 + (13.39-13.34) / (13.61-13.34) * (0.90-0.89) = 0.89

The final performance score is rounded to the nearest one-hundredth, if necessary.

9

EX-11

Exhibit 11

THE PROGRESSIVE CORPORATION

COMPUTATION OF EARNINGS PER SHARE

(millions - except per share amounts)

	Years Ended December 31,
	2012		2011		2010
Net Income	$	902.3	$	1,015.5	$	1,068.3
Computation of Net Income Per Share
Average shares outstanding - Basic		603.3		632.3		657.9
Net effect of dilutive stock-based compensation		4.5		4.6		5.4
Total equivalent shares - Diluted		607.8		636.9		663.3
Basic: Net income per share	$	1.50	$	1.61	$	1.62
Diluted: Net income per share	$	1.48	$	1.59	$	1.61

EX-13

Exhibit 13

THE PROGRESSIVE CORPORATION

2012 ANNUAL REPORT TO SHAREHOLDERS

App.-A-1

The Progressive Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31,

(millions — except per share amounts)	2012			2011			2010
Revenues
Net premiums earned		$16,018.0			$14,902.8		$	14,314.8
Investment income		443.0			480.0			520.1
Net realized gains (losses) on securities:
Other-than-temporary impairment (OTTI) losses:
Total OTTI losses		(7.3	)		(6.0	)		(19.1	)
Non-credit losses, net of credit losses recognized on previously recorded non-credit OTTI losses		(.7	)		.5			5.2
Net impairment losses recognized in earnings		(8.0	)		(5.5	)		(13.9	)
Net realized gains (losses) on securities		314.8			108.1			110.0
Total net realized gains (losses) on securities		306.8			102.6			96.1
Fees and other revenues		281.8			266.5			252.2
Service revenues		36.1			22.8			25.9
Gains (losses) on extinguishment of debt		(1.8	)		(.1	)		6.4
Total revenues		17,083.9			15,774.6			15,215.5
Expenses
Losses and loss adjustment expenses		11,948.0			10,634.8			10,131.3
Policy acquisition costs		1,436.6			1,399.2			1,359.9
Other underwriting expenses		2,206.3			2,088.0			1,992.3
Investment expenses		15.4			13.5			11.9
Service expenses		36.1			19.4			21.4
Interest expense		123.8			132.7			133.5
Total expenses		15,766.2			14,287.6			13,650.3
Net Income
Income before income taxes		1,317.7			1,487.0			1,565.2
Provision for income taxes		415.4			471.5			496.9
Net income		902.3			1,015.5			1,068.3
Other Comprehensive Income (Loss), Net of Tax
Net unrealized gains (losses) on securities:
Net non-credit related OTTI losses, adjusted for valuation changes		5.1			(3.6	)		13.9
Other net unrealized gains (losses) on securities		174.8			(80.9	)		323.2
Total net unrealized gains (losses) on securities		179.9			(84.5	)		337.1
Net unrealized gains on forecasted transactions		(1.8	)		(6.8	)		(6.9	)
Foreign currency translation adjustment		.4			.1			.3
Other comprehensive income (loss)		178.5			(91.2	)		330.5
Comprehensive income	$	1,080.8		$	924.3		$	1,398.8
Computation of Net Income Per Share
Average shares outstanding — Basic		603.3			632.3			657.9
Net effect of dilutive stock-based compensation		4.5			4.6			5.4
Total equivalent shares — Diluted		607.8			636.9			663.3
Basic: Net income per share	$	1.50		$	1.61		$	1.62
Diluted: Net income per share	$	1.48		$	1.59		$	1.61

See notes to consolidated financial statements.

App.-A-2

The Progressive Corporation and Subsidiaries

Consolidated Balance Sheets

December 31,

(millions)	2012			2011
Assets
Investments — Available-for-sale, at fair value:
Fixed maturities (amortized cost: $11,373.9 and $11,455.7)	$	11,774.1		$	11,759.3
Equity securities:
Nonredeemable preferred stocks (cost: $404.0 and $473.7)		812.4			806.3
Common equities (cost: $1,370.3 and $1,431.0)		1,899.0			1,845.6
Short-term investments (amortized cost: $1,990.0 and $1,551.8)		1,990.0			1,551.8
Total investments		16,475.5			15,963.0
Cash		179.1			155.7
Accrued investment income		90.0			105.7
Premiums receivable, net of allowance for doubtful accounts of $138.6 and $124.2		3,183.7			2,929.8
Reinsurance recoverables, including $38.9 and $32.3 on paid losses and loss adjustment expenses		901.0			818.0
Prepaid reinsurance premiums		66.3			69.8
Deferred acquisition costs		434.5			433.6
Net deferred income taxes		109.4			196.0
Property and equipment, net of accumulated depreciation of $625.0 and $573.8		933.7			911.3
Other assets		321.5			261.9
Total assets	$	22,694.7		$	21,844.8
Liabilities and Shareholders’ Equity
Unearned premiums	$	4,930.7		$	4,579.4
Loss and loss adjustment expense reserves		7,838.4			7,245.8
Accounts payable, accrued expenses, and other liabilities1		1,855.5			1,770.8
Debt2		2,063.1			2,442.1
Total liabilities		16,687.7			16,038.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)		604.6			613.0
Paid-in capital		1,077.0			1,006.2
Retained earnings		3,454.4			3,495.0
Accumulated other comprehensive income, net of tax:
Net non-credit related OTTI losses, adjusted for valuation changes		(.3	)		(5.4	)
Other net unrealized gains (losses) on securities		863.0			688.2
Total net unrealized gains (losses) on securities		862.7			682.8
Net unrealized gains on forecasted transactions		6.1			7.9
Foreign currency translation adjustment		2.2			1.8
Total accumulated other comprehensive income		871.0			692.5
Total shareholders’ equity		6,007.0			5,806.7
Total liabilities and shareholders’ equity	$	22,694.7		$	21,844.8

¹See Note 12 – Litigation and Note 13 – Commitments and Contingencies for further discussion.

²Consists of both short- and long-term debt. See Note 4 – Debt for further discussion.

See notes to consolidated financial statements.

App.-A-3

The Progressive Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31,

(millions — except per share amounts)	2012			2011			2010
Common Shares, $1.00 Par Value
Balance, Beginning of year	$	613.0		$	662.4		$	672.6
Stock options exercised		.1			2.0			3.4
Treasury shares purchased		(8.6	)		(51.3	)		(13.3	)
Net restricted equity awards issued (forfeited)		.1			(.1	)		(.3	)
Balance, End of year	$	604.6		$	613.0		$	662.4
Paid-In Capital
Balance, Beginning of year	$	1,006.2		$	1,007.1		$	939.7
Stock options exercised		.4			20.4			23.8
Tax benefit from exercise/vesting of equity-based compensation		5.8			6.4			14.0
Treasury shares purchased		(14.5	)		(80.7	)		(19.3	)
Net restricted equity awards (issued) forfeited		(.1	)		.1			.3
Amortization of equity-based compensation		62.4			50.3			44.8
Reinvested dividends on restricted stock units		11.2			2.6			3.8
Other		5.6			0			0
Balance, End of year	$	1,077.0		$	1,006.2		$	1,007.1
Retained Earnings
Balance, Beginning of year	$	3,495.0		$	3,595.7		$	3,683.1
Net income		902.3			1,015.5			1,068.3
Treasury shares purchased		(151.1	)		(865.8	)		(226.0	)
Cash dividends declared on common shares ($1.2845, $.4072, and $1.3987 per share)		(772.5	)		(248.1	)		(924.8	)
Reinvested dividends on restricted stock units		(11.2	)		(2.6	)		(3.8	)
Other, net		(8.1	)		.3			(1.1	)
Balance, End of year	$	3,454.4		$	3,495.0		$	3,595.7
Accumulated Other Comprehensive Income, Net of Tax
Balance, Beginning of year	$	692.5		$	783.7		$	453.2
Other comprehensive income (loss)		178.5			(91.2	)		330.5
Balance, End of year	$	871.0		$	692.5		$	783.7
Total Shareholders’ Equity	$	6,007.0		$	5,806.7		$	6,048.9

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

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

See notes to consolidated financial statements.

App.-A-4

The Progressive Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31,

(millions)	2012			2011			2010
Cash Flows From Operating Activities
Net income	$	902.3		$	1,015.5		$	1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		94.4			88.5			83.1
Amortization of fixed-income securities		186.7			233.0			229.2
Amortization of equity-based compensation		63.4			50.5			45.9
Net realized (gains) losses on securities		(306.8	)		(102.6	)		(96.1	)
Net (gains) losses on disposition of property and equipment		7.1			8.7			2.3
(Gains) losses on extinguishment of debt		1.8			.1			(6.4	)
Changes in:
Premiums receivable		(253.8	)		(191.4	)		(283.6	)
Reinsurance recoverables		(83.0	)		(76.5	)		(176.7	)
Prepaid reinsurance premiums		3.5			18.3			(18.8	)
Deferred acquisition costs		(.9	)		(16.4	)		(15.0	)
Income taxes		19.8			28.4			48.1
Unearned premiums		351.1			225.6			180.8
Loss and loss adjustment expense reserves		592.6			174.8			418.0
Accounts payable, accrued expenses, and other liabilities		123.6			35.5			210.2
Other, net		(10.4	)		5.9			(10.0	)
Net cash provided by operating activities		1,691.4			1,497.9			1,679.3
Cash Flows From Investing Activities
Purchases:
Fixed maturities		(5,199.2	)		(6,032.4	)		(4,491.7	)
Equity securities		(463.1	)		(582.0	)		(511.4	)
Sales:
Fixed maturities		3,705.6			4,442.6			3,055.8
Equity securities		793.0			423.5			241.9
Maturities, paydowns, calls, and other:
Fixed maturities		1,488.9			1,540.9			1,341.1
Equity securities		16.0			0			0
Net purchases of short-term investments – other		(438.2	)		(461.0	)		(11.5	)
Net unsettled security transactions		(44.0	)		(.6	)		(54.0	)
Purchases of property and equipment		(127.7	)		(78.9	)		(64.7	)
Sales of property and equipment		3.8			3.0			8.0
Net cash used in investing activities		(264.9	)		(744.9	)		(486.5	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		.5			22.4			27.2
Tax benefit from exercise/vesting of equity-based compensation		5.8			6.4			14.0
Net proceeds from debt issuance		0			491.9			0
Payment of debt		(350.0	)		0			0
Reacquisition of debt		(32.5	)		(15.0	)		(214.3	)
Dividends paid to shareholders		(853.7	)		(263.6	)		(763.7	)
Acquisition of treasury shares		(174.2	)		(997.8	)		(258.6	)
Net cash used in financing activities		(1,404.1	)		(755.7	)		(1,195.4	)
Effect of exchange rate changes on cash		1.0			(.5	)		.8
Increase (decrease) in cash		23.4			(3.2	)		(1.8	)
Cash, Beginning of year		155.7			158.9			160.7
Cash, End of year	$	179.1		$	155.7		$	158.9

See notes to consolidated financial statements.

App.-A-5

The Progressive Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2012, 2011, and 2010

1.  REPORTING AND ACCOUNTING POLICIES

Nature of Operations  The Progressive Corporation, an insurance holding company formed in 1965, had 54 subsidiaries, 1 mutual insurance company affiliate, and 1 limited partnership investment affiliate (collectively the “subsidiaries”) as of December 31, 2012. Our insurance subsidiaries and mutual company affiliate (the Progressive Group of Insurance Companies) provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Our Personal Lines segment writes insurance for personal autos and recreational vehicles through both an independent insurance agency channel and a direct channel. Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses through both the independent agency and direct channels. We operate our businesses throughout the United States; we also sell personal auto physical damage insurance via the Internet in Australia.

Basis of Consolidation and Reporting  The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries, which are wholly owned, and affiliates, in which we have a controlling financial interest. All intercompany accounts and transactions are eliminated in consolidation.

Estimates  We are required to make estimates and assumptions when preparing our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP). As estimates develop into fact (e.g., losses are paid), results may, and will likely, differ from those estimates.

Investments  Progressive’s fixed-maturity securities, equity securities, and short-term investments are accounted for on an available-for-sale basis. See Note 2 – Investments for details regarding the composition of our investment portfolio.

Fixed-maturity securities include debt securities and redeemable preferred stocks, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of our asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, or other economic factors. These securities are carried at fair value with the corresponding unrealized gains (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Fair values are obtained from recognized pricing services or are quoted by market makers and dealers, with limited exceptions discussed in Note 3 – Fair Value.

Included in the fixed-maturity portfolio are asset-backed securities. The asset-backed securities are generally accounted for under the retrospective method. The retrospective method recalculates yield assumptions (based on changes in interest rates or cash flow expectations) historically to the inception of the investment holding period, and applies the required adjustment, if any, to the cost basis, with the offset recorded to investment income. The prospective method is used primarily for interest-only securities, non-investment-grade asset-backed securities, and certain asset-backed securities with sub-prime loan exposure or where there is a greater risk of non-performance and where it is possible the initial investment may not be substantially recovered. The prospective method requires a calculation of future expected repayments and resets the yield to allow for future period adjustments; no current period impact to investment income or the security’s cost is made based on the cash flow update. Prepayment assumptions are based on market expectations and are updated quarterly.

Equity securities include common stocks, nonredeemable preferred stocks, and other risk investments and are reported at fair values. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income. To the extent we hold any foreign equities or foreign currency hedges, any change in value due to exchange rate fluctuations would be limited by foreign currency hedges, if any, and would be recognized in income in the current period.

Short-term investments may include Eurodollar deposits, commercial paper, repurchase transactions, and other securities expected to mature within one year. In addition, short-term investments can include auction rate securities (i.e., certain municipal bonds and preferred stocks). Due to the nature of auction rate securities, these securities are classified as

App.-A-6

short-term based upon their expected auction date (generally 7-49 days) rather than on their contractual maturity date (which is greater than one year at original issuance). In the event that an auction fails, the security may need to be reclassified from short-term. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

Trading securities are securities bought principally for the purpose of sale in the near term. To the extent we have trading securities, changes in fair value would be recognized in income in the current period. Derivative instruments, which may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction, are discussed below.

Derivative instruments may include futures, options, forward positions, foreign currency forwards, interest rate swap agreements, and credit default swaps and may be used in the portfolio for general investment purposes or to hedge the exposure to:

• Changes in fair value of an asset or liability (fair value hedge)

• Foreign currency of an investment in a foreign operation (foreign currency hedge), or

• Variable cash flows of a forecasted transaction (cash flow hedge).

To the extent we have derivatives held for general investment purposes, these derivative instruments are recognized as either assets or liabilities and measured at fair value, with changes in fair value recognized in income as a component of net realized gains (losses) on securities during the period of change.

Derivatives designated as hedges are required to be evaluated on established criteria to determine the effectiveness of their correlation to, and ability to reduce the designated risk of, specific securities or transactions. Effectiveness is required to be reassessed regularly. Hedges that are deemed to be effective would be accounted for as follows:

• Fair value hedge:  changes in fair value of the hedge, as well as the hedged item, would be recognized in income in the period of change while the hedge is in effect.

• Foreign currency hedge:  changes in fair value of the hedge, as well as the hedged item, would be reflected as a change in translation adjustment as part of accumulated other comprehensive income. Gains and losses on the foreign currency hedge would offset the foreign exchange gains and losses on the foreign investment as they are recognized into income.

• Cash flow hedge:  changes in fair value of the hedge would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction.

If a hedge is deemed to become ineffective or discontinued, the following accounting treatment would be applied:

• Fair value hedge:  the derivative instrument would continue to be adjusted through income, while the adjustment in the change in value of the hedged item would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income.

• Foreign currency hedge:  changes in the value of the hedged item would continue to be reflected as a change in translation adjustment as part of accumulated other comprehensive income, but the derivative instrument would be adjusted through income for the current period.

• Cash flow hedge:  changes in fair value of the derivative instrument would be reported in income for the current period.

For all derivative positions, net cash requirements are limited to changes in fair values, which may vary based upon changes in interest rates, currency exchange rates, and other factors. Exposure to credit risk is limited to the carrying value; collateral may be required to limit credit risk. We have elected not to offset fair value amounts that arise from derivative positions with the same counterparty under a master netting arrangement.

Investment securities are exposed to various risks such as interest rate, market, credit, and liquidity risk. Fair values of securities fluctuate based on the nature and magnitude of changing market conditions; significant changes in market conditions could materially affect the portfolio’s value in the near term. We regularly monitor our portfolio for price changes, which might indicate potential impairments, and perform detailed reviews of securities with unrealized losses. 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 condition, business prospects, or other factors, (ii) market-related factors, such as interest rates or equity market declines, or (iii) credit-related losses, where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security.

App.-A-7

We analyze our debt securities that are in a loss position to determine if we intend to sell, or if it is more likely than not that we will be required to sell, the security prior to recovery and, if so, we write down the security to its current fair value, with the entire amount of the write-down recorded to earnings. To the extent that it is more likely than not that we will hold the debt security until recovery (which could be maturity), we determine if any of the decline in value is due to a credit loss (i.e., where the present value of future cash flows expected to be collected is lower than the amortized cost basis of the security) and, if so, we recognize that portion of the impairment as a component of net realized gains (losses) in the comprehensive income statement, with the difference (i.e., non-credit related impairment) recognized as part of our net unrealized gains (losses) in accumulated other comprehensive income. When an equity security (common equity and nonredeemable preferred stock) 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 comprehensive income statement. Any future changes in fair value, either increases or decreases, are reflected as changes in unrealized gains (losses) as part of accumulated other comprehensive income.

Realized gains (losses) on securities are computed based on the first-in first-out method and include write-downs on available-for-sale securities considered to have other-than-temporary declines in fair value (excluding non-credit related impairments), as well as holding period valuation changes on derivatives, trading securities, and hybrid instruments (securities with embedded call options, where the call option is a feature of the overall change in the value of the instrument).

Insurance Premiums and Receivables  Insurance premiums written are earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Accordingly, unearned premiums represent the portion of premiums written that is applicable to the unexpired risk. We provide insurance and related services to individuals and small commercial accounts and offer a variety of payment plans. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk. We perform a policy level evaluation to determine the extent to which the premiums receivable balance exceeds the unearned premiums balance. We then age this exposure to establish an allowance for doubtful accounts based on prior experience.

Deferred Acquisition Costs  Deferred acquisition costs include commissions, premium taxes, and other variable underwriting and direct sales costs incurred in connection with the successful acquisition or renewal of insurance contracts. Prior to January 1, 2012, these acquisition costs were deferrable regardless of whether a successful acquisition occurred (see the New Accounting Standards section below). These acquisition costs are deferred and amortized over the policy period in which the related premiums are earned. We consider anticipated investment income in determining the recoverability of these costs. Management believes that these costs will be fully recoverable in the near term. We do not defer any advertising costs.

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

Reinsurance  Our reinsurance transactions primarily include premiums ceded to state-provided reinsurance facilities (e.g., Michigan Catastrophic Claims Association and North Carolina Reinsurance Facility) and premiums written under state-mandated involuntary plans for commercial vehicles (Commercial Auto Insurance Procedures/Plans – “CAIP”) (collectively, “State Plans”) (see Note 7 – Reinsurance for further discussion). Prepaid reinsurance premiums are earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written.

App.-A-8

Income Taxes  The income tax provision is calculated under the balance sheet approach. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal items giving rise to such differences are investment securities (e.g., net unrealized gains (losses), write-downs on securities determined to be other-than-temporarily impaired, and derivative instruments), loss and loss adjustment expense reserves, unearned premiums reserves, deferred acquisition costs, property and equipment, and non-deductible accruals. We review our deferred tax assets regularly for recoverability. See Note 5 – Income Taxes for further discussion.

Property and Equipment  Property and equipment are recorded at cost, less accumulated depreciation, and include capitalized software developed or acquired for internal use. Depreciation is recognized over the estimated useful lives of the assets using accelerated methods for most computer equipment and the straight-line method for certain computer equipment and all other fixed assets. The useful lives range from 2 to 3 years for computer equipment and laptop computers; 7 to 40 years for buildings, improvements, and integrated components; and 3 to 10 years for all other property and equipment. Land and buildings comprised 75% of total property and equipment at both December 31, 2012 and 2011.

Total capitalized interest, which primarily relates to capitalized software projects, for the years ended December 31, was:

(millions)	Capitalized Interest
2012	$	.3
2011		.4
2010		1.1

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

Fees and Other Revenues  Fees and other revenues primarily represent fees collected from policyholders relating to installment charges in accordance with our bill plans, as well as late payment and insufficient funds fees. Other revenues may include revenue from the sale of tax credits, rental income, and other revenue transactions.

Revision  We revised the presentation of our Statements of Comprehensive Income for the years ended December 31, 2011 and 2010, to correctly classify $266.5 million and $252.2 million, respectively, of fees and other revenues as a component of total revenues and to conform to our current-year presentation. Previously, these items were presented net within our other underwriting expenses, which was not in compliance with GAAP, thereby understating both total revenues and total expenses. These revisions were not considered to be material, individually or in the aggregate, to previously issued financial statements. These revisions had no effect on the results of operations (net or comprehensive income), financial condition (shareholders’ equity), or cash flows in any period presented or in any previously issued financial statements.

Service Revenues and Expenses  Our service businesses provide insurance-related services. Service revenues generated from processing business for involuntary CAIP plans are earned on a pro rata basis over the term of the related policies. Service expenses related to these CAIP plans include acquisition expenses, which are deferred and amortized over the period in which the related revenues are earned. Other service business revenues and expenses are recorded in the period in which they are earned or incurred.

App.-A-9

Equity-Based Compensation  We currently issue time-based and performance-based restricted stock unit awards to key members of management as our form of equity compensation, and time-based restricted stock awards to non-employee directors. Prior to 2010, we issued restricted stock awards, instead of restricted stock unit awards, to employees. Collectively, we refer to these awards as “restricted equity awards.” We currently do not issue stock options as a form of equity compensation. Compensation expense for time-based restricted equity awards with installment vesting is recognized over each respective vesting period. For performance-based restricted equity awards, compensation expense is recognized over the respective estimated vesting periods.

We record an estimate for expected forfeitures of restricted equity awards based on our historical forfeiture rates. In addition, we shorten the vesting periods of certain restricted equity awards based on the “qualified retirement” provisions in our incentive compensation plans, under which (among other provisions) the vesting of 50% of outstanding time-based restricted equity awards will accelerate upon retirement if the participant is 55 years of age or older and satisfies certain years-of-service requirements.

The total compensation expense recognized for our equity-based compensation for the years ended December 31, was:

(millions)	2012		2011		2010
Pretax expense	$	63.4	$	50.5	$	45.9
Tax benefit		22.2		17.7		16.1

Net Income Per Share  Basic net income per share is computed using the weighted average number of common shares outstanding during the reporting period, excluding unvested time-based and performance-based restricted equity awards that are subject to forfeiture. Diluted net income per share includes common stock equivalents assumed outstanding during the period. Our common stock equivalents include the incremental shares assumed to be issued for:

• stock option exercises (all remaining stock options were exercised in 2012)

• time-based restricted equity awards, and

• certain performance-based restricted equity awards that satisfied contingency conditions during the period.

Supplemental Cash Flow Information  Cash includes only bank demand deposits. Non-cash activity includes declared but unpaid dividends. For the years ended December 31, we paid the following:

(millions)	2012		2011		2010
Income taxes, net of refunds	$	389.1	$	435.0	$	434.0
Interest		135.0		129.5		138.4

New Accounting Standards  On January 1, 2012, we adopted, on a prospective basis, the accounting standard update related to the accounting for the deferral of costs associated with the successful acquisition or renewal of insurance contracts. As a result, $23 million of deferred acquisition costs that no longer met the criteria for deferral upon adoption were recognized as a reduction to income in 2012.

App.-A-10

2.  INVESTMENTS

The following tables present the composition of our investment portfolio by major security type, consistent with our internal classification of how we manage, monitor, and measure the portfolio:

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,806.4	$	90.1	$	0		$	0		$	2,896.5		17.6	%
State and local government obligations		1,914.4		50.6		(.6	)		0			1,964.4		11.9
Corporate debt securities		2,982.9		124.7		(1.0	)		6.4			3,113.0		18.9
Residential mortgage-backed securities		413.4		24.0		(9.2	)		0			428.2		2.6
Commercial mortgage-backed securities		1,963.9		84.9		(.1	)		0			2,048.7		12.4
Other asset-backed securities		936.0		12.9		(.1	)		(.2	)		948.6		5.8
Redeemable preferred stocks		356.9		30.5		(12.7	)		0			374.7		2.3
Total fixed maturities		11,373.9		417.7		(23.7	)		6.2			11,774.1		71.5
Equity securities:
Nonredeemable preferred stocks		404.0		404.6		0			3.8			812.4		4.9
Common equities		1,370.3		539.0		(10.3	)		0			1,899.0		11.5
Short-term investments:
Other short-term investments		1,990.0		0		0			0			1,990.0		12.1
Total portfolio2,3	$	15,138.2	$	1,361.3	$	(34.0	)	$	10.0		$	16,475.5		100.0	%
($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,842.7	$	120.3	$	0		$	0		$	2,963.0		18.6	%
State and local government obligations		1,938.6		64.1		(.6	)		0			2,002.1		12.5
Corporate debt securities		2,801.5		94.3		(6.5	)		6.9			2,896.2		18.1
Residential mortgage-backed securities		452.9		9.3		(35.3	)		0			426.9		2.7
Commercial mortgage-backed securities		1,829.8		52.3		(5.5	)		0			1,876.6		11.8
Other asset-backed securities		1,210.9		11.3		(1.3	)		(.3	)		1,220.6		7.6
Redeemable preferred stocks		379.3		18.6		(24.0	)		0			373.9		2.3
Total fixed maturities		11,455.7		370.2		(73.2	)		6.6			11,759.3		73.6
Equity securities:
Nonredeemable preferred stocks		473.7		342.6		(3.7	)		(6.3	)		806.3		5.1
Common equities		1,431.0		440.0		(25.4	)		0			1,845.6		11.6
Short-term investments:
Other short-term investments		1,551.8		0		0			0			1,551.8		9.7
Total portfolio2,3	$	14,912.2	$	1,152.8	$	(102.3	)	$	.3		$	15,963.0		100.0	%

¹ Represents net holding period gains (losses) on certain hybrid securities (discussed below).

² At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

³ The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

Our other short-term investments include commercial paper, reverse repurchase transactions, and other investments that are expected to mature within one year. At December 31, 2012 and 2011, we had $21.9 million and $10.0 million, respectively, in treasury bills issued by the Australian government, included in other short-term investments.

App.-A-11

Included in our fixed-maturity and equity securities are hybrid securities, which are reported at fair value at December 31:

(millions)	2012		2011
Fixed maturities:
Corporate debt securities	$	176.1	$	234.9
Other asset-backed securities		16.4		15.5
Total fixed maturities		192.5		250.4
Equity securities:
Nonredeemable preferred stocks		52.8		14.2
Total hybrid securities	$	245.3	$	264.6

Certain corporate debt securities are accounted for as hybrid securities since they were acquired at a substantial premium and contain a change-in-control put option (derivative) that permits the investor, at its sole option if and when a change in control is triggered, to put the security back to the issuer at a 1% premium to par. Due to this change-in-control put option and the substantial market premium paid to acquire these securities, there is the potential that the election to put, upon the change in control, could result in an acceleration of the remaining premium paid on these securities, which would result in a loss of $12.0 million as of December 31, 2012, if all of the bonds experienced a simultaneous change in control and we elected to exercise all of our put options. The put feature limits the potential loss in value that could be experienced in the event a corporate action occurs that results in a change in control that materially diminishes the credit quality of the issuer. We are under no obligation to exercise the put option we hold if a change in control occurs.

The other asset-backed security in the table above represents one hybrid security that was acquired at a deep discount to par due to a failing auction, and contains a put option that allows the investor to put that security back to the auction at par if the auction is restored. This embedded derivative has the potential to more than double our initial investment yield.

The hybrid securities in our nonredeemable preferred stock portfolio are 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.

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 changes in fair value of the hybrid securities and derivative instruments are recorded as a component of net realized gains (losses) on securities.

At December 31, 2012, bonds and certificates of deposit in the principal amount of $139.4 million were on deposit to meet state insurance regulatory and/or rating agency requirements. We did not have any securities of any one issuer, excluding U.S. government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at December 31, 2012 or 2011. At December 31, 2012, we did not have any debt securities that were non-income producing during the preceding 12 months.

Fixed Maturities  The composition of fixed maturities by maturity at December 31, 2012, was:

(millions)	Cost		Fair Value
Less than one year	$	1,432.3	$	1,462.2
One to five years		8,368.7		8,675.0
Five to ten years		1,426.3		1,484.7
Ten years or greater		146.6		152.2
Total	$	11,373.9	$	11,774.1

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

App.-A-12

Gross Unrealized Losses  As of December 31, 2012, we had $23.7 million of gross unrealized losses in our fixed-income securities and $10.3 million in our common equities. We currently do not intend to sell the fixed-income securities and determined that it is more likely than not that we will not be required to sell these securities for the period of time necessary to recover their cost bases. A review of our fixed-income securities indicated that the issuers were current with respect to their interest obligations and that there was no evidence of any deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity. In addition, 89% of our common stock portfolio was indexed to the Russell 1000; as such, this portfolio may contain securities in a loss position for an extended period of time, subject to possible write-downs, as described below. We may retain these securities as long as the portfolio and index correlation remain similar. To the extent there is issuer-specific deterioration, we may write-down the securities of that issuer. The remaining 11% of our common stocks are part of a managed equity strategy selected and administered by external investment advisors. If our strategy were to change and these securities were determined to be other-than-temporarily impaired, we would recognize a write-down in accordance with our stated policy.

The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:

	Total Fair		Gross Unrealized			Less than 12 Months					12 Months or Greater
						Fair		Unrealized			Fair		Unrealized
(millions)	Value		Losses			Value		Losses			Value		Losses
December 31, 2012
Fixed maturities:
State and local government obligations	$	162.8	$	(.6	)	$	123.1	$	(.5	)	$	39.7	$	(.1	)
Corporate debt securities		128.2		(1.0	)		128.2		(1.0	)		0		0
Residential mortgage-backed securities		149.2		(9.2	)		40.2		(.6	)		109.0		(8.6	)
Commercial mortgage-backed securities		7.1		(.1	)		2.1		0			5.0		(.1	)
Other asset-backed securities		25.0		(.1	)		20.8		0			4.2		(.1	)
Redeemable preferred stocks		155.7		(12.7	)		24.9		0			130.8		(12.7	)
Total fixed maturities		628.0		(23.7	)		339.3		(2.1	)		288.7		(21.6	)
Equity securities:
Nonredeemable preferred stocks		0		0			0		0			0		0
Common equities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total equity securities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total portfolio	$	746.2	$	(34.0	)	$	440.0	$	(10.3	)	$	306.2	$	(23.7	)

	Total Fair Value		Gross Unrealized Losses			Less than 12 Months					12 Months or Greater
(millions)						Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2011
Fixed maturities:
State and local government obligations	$	93.6	$	(.6	)	$	79.5	$	(.5	)	$	14.1	$	(.1	)
Corporate debt securities		262.7		(6.5	)		137.3		(4.6	)		125.4		(1.9	)
Residential mortgage-backed securities		308.7		(35.3	)		34.4		(2.0	)		274.3		(33.3	)
Commercial mortgage-backed securities		203.7		(5.5	)		161.4		(3.5	)		42.3		(2.0	)
Other asset-backed securities		284.2		(1.3	)		259.7		(1.0	)		24.5		(.3	)
Redeemable preferred stocks		191.4		(24.0	)		43.5		(1.5	)		147.9		(22.5	)
Total fixed maturities		1,344.3		(73.2	)		715.8		(13.1	)		628.5		(60.1	)
Equity securities:
Nonredeemable preferred stocks		19.5		(3.7	)		19.5		(3.7	)		0		0
Common equities		214.6		(25.4	)		196.7		(23.1	)		17.9		(2.3	)
Total equity securities		234.1		(29.1	)		216.2		(26.8	)		17.9		(2.3	)
Total portfolio	$	1,578.4	$	(102.3	)	$	932.0	$	(39.9	)	$	646.4	$	(62.4	)

App.-A-13

Other-than-Temporary Impairment (OTTI)  The following table shows the total non-credit portion of the OTTI recorded in accumulated other comprehensive income, reflecting the original non-credit loss at the time the credit impairment was determined:

	December 31,
(millions)	2012			2011
Fixed maturities:
Residential mortgage-backed securities	$	(44.2	)	$	(44.8	)
Commercial mortgage-backed securities		(.9	)		(1.0	)
Total fixed maturities	$	(45.1	)	$	(45.8	)

The following tables provide rollforwards of the amounts related to credit losses recognized in earnings for the periods ended December 31, 2012 and 2011, for which a portion of the OTTI losses were also recognized in accumulated other comprehensive income at the time the credit impairments were determined and recognized:

(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2012	$	34.5		$	1.3		$	0		$	35.8
Credit losses for which an OTTI was previously recognized		.1			0			0			.1
Credit losses for which an OTTI was not previously recognized		.3			0			0			.3
Reductions for securities sold/matured		0			(.2	)		0			(.2	)
Change in recoveries of future cash flows expected to be collected1,2		(3.8	)		(.2	)		0			(4.0	)
Reductions for previously recognized credit impairments written-down to fair value3		(4.0	)		(.3	)		0			(4.3	)
Ending balance at December 31, 2012	$	27.1		$	.6		$	0		$	27.7
(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2011	$	32.3		$	1.0		$	6.5		$	39.8
Credit losses for which an OTTI was previously recognized		1.4			0			0			1.4
Credit losses for which an OTTI was not previously recognized		1.1			.4			0			1.5
Reductions for securities sold/matured		0			0			0			0
Change in recoveries of future cash flows expected to be collected1,2		.8			.3			(6.5	)		(5.4	)
Reductions for previously recognized credit impairments written-down to fair value3		(1.1	)		(.4	)		0			(1.5	)
Ending balance at December 31, 2011	$	34.5		$	1.3		$	0		$	35.8

¹  Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security.

²  Includes $1.4 million and $2.0 million at December 31, 2012 and 2011, respectively, received in excess of the cash flows expected to be collected at the time of the write-downs.

³  Reflects reductions of prior credit impairments where the current credit impairment requires writing securities down to fair value (i.e., no remaining non-credit loss).

Although we determined that it is more likely than not that we will not be required to sell the securities prior to the recovery of their respective cost bases (which could be maturity), we are required to measure the amount of credit losses on the securities that were determined to be other-than-temporarily impaired. In that process, we considered a number of factors and inputs related to the individual securities. The methodology and significant inputs used to measure the amount of credit losses in our portfolio included: current performance indicators on the underlying assets (e.g., delinquency rates, foreclosure rates, and default rates); credit support (via current levels of subordination); historical credit ratings; and updated cash flow expectations based upon these performance indicators. In order to determine the amount of credit loss, if any, the net present value of the cash flows expected (i.e., expected recovery value) was calculated using the current book yield for each security, and was compared to its current amortized value. In the event that the net present value was below the amortized value, a credit loss was deemed to exist, and the security was written down.

App.-A-14

Net Realized Gains (Losses)  The components of net realized gains (losses) for the years ended December 31, were:

(millions)	2012			2011			2010
Gross realized gains on security sales
Fixed maturities:
U.S. government obligations	$	20.2		$	59.1		$	39.8
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		58.1			23.0			30.3
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.7			4.6			8.5
Total fixed maturities		115.4			94.6			90.4
Equity securities:
Nonredeemable preferred stocks		78.2			148.9			83.6
Common equities		167.0			11.6			13.4
Subtotal gross realized gains on security sales		360.6			255.1			187.4
Gross realized losses on security sales
Fixed maturities:
U.S. government obligations		(1.9	)		(9.3	)		(12.9	)
Corporate and other debt securities		(.6	)		(3.5	)		(.5	)
Redeemable preferred stocks		(.4	)		(2.2	)		(5.2	)
Total fixed maturities		(2.9	)		(15.0	)		(18.6	)
Equity securities:
Nonredeemable preferred stocks		(1.1	)		0			0
Common equities		(27.1	)		(36.5	)		(7.2	)
Subtotal gross realized losses on security sales		(31.1	)		(51.5	)		(25.8	)
Net realized gains (losses) on security sales
Fixed maturities:
U.S. government obligations		18.3			49.8			26.9
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		57.5			19.5			29.8
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.3			2.4			3.3
Total fixed maturities		112.5			79.6			71.8
Equity securities:
Nonredeemable preferred stocks		77.1			148.9			83.6
Common equities		139.9			(24.9	)		6.2
Subtotal net realized gains (losses) on security sales		329.5			203.6			161.6
Other-than-temporary impairment losses
Fixed maturities:
Residential mortgage-backed securities		(1.6	)		(3.3	)		(11.1	)
Commercial mortgage-backed securities		(.1	)		(.6	)		(1.9	)
Total fixed maturities		(1.7	)		(3.9	)		(13.0	)
Equity securities:
Common equities		(1.8	)		(.2	)		(.5	)
Subtotal other-than-temporary impairment losses		(3.5	)		(4.1	)		(13.5	)
Other gains (losses)
Hybrid securities		14.3			1.7			5.5
Derivative instruments		(43.1	)		(98.9	)		(58.5	)
Litigation settlements		9.6			.3			1.0
Subtotal other gains (losses)		(19.2	)		(96.9	)		(52.0	)
Total net realized gains (losses) on securities	$	306.8		$	102.6		$	96.1

App.-A-15

Gross realized gains and losses were the result of sales transactions in our fixed-income portfolio, related to movements in credit spreads and interest rates, rebalancing of our equity-indexed portfolio, and tax management strategies. In addition, gains and losses reflect recoveries from litigation settlements and holding period valuation changes on hybrids and derivatives. Also included are write-downs for securities determined to be other-than-temporarily impaired in our fixed-maturity and/or equity portfolios.

Net Investment Income  The components of net investment income for the years ended December 31, were:

(millions)	2012			2011			2010
Fixed maturities:
U.S. government obligations	$	49.8		$	58.0		$	80.8
State and local government obligations		51.1			60.0			65.4
Corporate debt securities		107.5			106.7			84.3
Residential mortgage-backed securities		16.1			18.6			21.7
Commercial mortgage-backed securities		82.2			83.4			99.1
Other asset-backed securities		20.3			24.5			21.8
Redeemable preferred stocks		24.2			33.0			45.5
Total fixed maturities		351.2			384.2			418.6
Equity securities:
Nonredeemable preferred stocks		43.8			57.7			70.6
Common equities		44.9			35.7			27.3
Short-term investments:
Other short-term investments		3.1			2.4			3.6
Investment income		443.0			480.0			520.1
Investment expenses		(15.4	)		(13.5	)		(11.9	)
Net investment income	$	427.6		$	466.5		$	508.2

Trading Securities  At December 31, 2012 and 2011, we did not hold any trading securities and we did not have any net realized gains (losses) on trading securities for the years ended December 31, 2012, 2011, and 2010.

Derivative Instruments  We have invested in the following derivative exposures at various times: interest rate swaps, asset-backed credit default swaps, U.S. corporate credit default swaps, cash flow hedges, and equity options.

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 net derivative asset and 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. 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 their immaterial effect on our financial condition, cash flows, and results of operations.

App.-A-16

The following table shows the status of our derivative instruments at December 31, 2012 and 2011, and for the years ended December 31, 2012, 2011, and 2010; amounts are on a pretax basis:

(millions)								Balance Sheet							Comprehensive Income Statement
	Notional Value1								Assets (Liabilities) Fair Value						Net Realized Gains (Losses) on Securities
	December 31,								December 31,						Years ended December 31,
Derivatives designated as:	2012		2011		2010		Purpose	Classification	2012			2011			2012			2011			2010
Hedging instruments
Closed:
Ineffective cash flow hedge	$	31	$	15	$	223	Manage interest rate risk	NA	$	0		$	0		$	.6		$	.3		$	5.8
Non-hedging instruments
Assets:
Corporate credit default swaps		0		25		35	Manage credit risk	Investments - fixed maturities		0			.7			0			(.2	)		2.5
Liabilities:
Interest rate swaps		1,263		1,263		713	Manage portfolio duration	Other liabilities		(95.5	)		(76.1	)		(42.7	)		(74.0	)		(66.6	)
Closed:																0			(25.5	)		0
Interest rate swaps		0		350		0	Manage portfolio duration	NA		0			0
Corporate credit default swaps		25		10		25	Manage credit risk	NA		0			0			(1.0	)		.5			(.2	)
Total		NA		NA		NA			$	(95.5	)	$	(75.4	)	$	(43.1	)	$	(98.9	)	$	(58.5	)

¹The amounts represent the value held at year end for open positions and the maximum amount held during the year for closed positions.

NA = Not Applicable

CASH FLOW HEDGES

During the years ended December 31, 2012 and 2011, we repurchased, in the open market, $30.9 million and $15.0 million, respectively, in aggregate principal amount of our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “6.70% Debentures”). For the portion of the 6.70% Debentures we purchased, we reclassified $0.6 million and $0.3 million, in the respective years, on a pretax basis, of the unrealized gain on forecasted transactions from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement.

During 2010, we finalized our tender offer for, and repurchased $222.9 million principal amount of, the 6.70% Debentures. We reclassified $5.8 million (pretax) from accumulated other comprehensive income on the balance sheet to net realized gains (losses) on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the 6.70% Debentures that were repurchased pursuant to the tender offer.

In anticipation of issuing the 6.70% Debentures in 2007, we entered into a forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates. Upon issuance of the 6.70% Debentures, the hedge was closed, and we recognized a pretax gain of $34.4 million, which was recorded as part of accumulated other comprehensive income. The $34.4 million gain, less the $0.6 million, $0.3 million, and $5.8 million reclassifications mentioned above, was deferred and is being recognized as a decrease to interest expense over the 10-year fixed interest rate term of the 6.70% Debentures.

During 2011, we issued $500 million of 3.75% Senior Notes due 2021 (the “3.75% Senior Notes”) and entered into a forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates (see Note 4 – Debt for further

App.-A-17

discussion). Upon issuance of the 3.75% Senior Notes in August 2011, the hedge was closed and we recognized, as part of accumulated other comprehensive income, a pretax unrealized loss of $5.1 million. The $5.1 million loss was deferred and is being recognized as an increase to interest expense over the life of the 3.75% Senior Notes.

During 2012, 2011, and 2010, we recognized $2.1 million, $2.6 million, and $2.7 million, respectively, as net decreases to interest expense on our closed debt issuance cash flow hedges.

INTEREST RATE SWAPS

At December 31, 2012, 2011, and 2010, we invested in interest rate swap positions primarily to manage the fixed-income portfolio duration. During the year ended December 31, 2012, we held a 9-year interest rate swap position (opened in 2009) and two 5-year interest rate swap positions (opened in 2011); in each case, we are paying a fixed rate and receiving a variable rate, effectively shortening the duration of our fixed-income portfolio. We closed a portion of the 9-year position during 2011. The combined open positions have generated an aggregate realized loss, as interest rates have fallen since the inception of these positions. As of December 31, 2012, 2011, and 2010, the balance of the cash collateral that we had delivered to the applicable counterparty on these positions was $105.0 million, $81.7 million, and $52.2 million, respectively.

CORPORATE CREDIT DEFAULT SWAPS

Financial Services Sector – During 2012, we closed a position that was opened during 2008, on one corporate issuer within the financial services sector for which we bought credit default protection in the form of a credit default swap for a 5-year time horizon. We held this protection to reduce some of our exposure to additional valuation declines on a preferred stock position of the same issuer. As of December 31, 2011 and 2010, the balance of the cash collateral that we had received from the counterparty on the then open position was $0.7 million and $0.5 million, respectively.

Automotive Sector – We held no credit default swaps in this sector during 2012. During 2011, we closed a position where we sold credit protection in the form of a corporate credit default swap on one issuer in the automotive sector for a 5-year time horizon; the position was opened during the second quarter 2010. We would have been required to cover a $10 million notional value if a credit event had been triggered, including failure to pay or bankruptcy by the issuer. We acquired an equal par value amount of U.S. Treasury Notes with a similar maturity to cover the credit default swap’s notional exposure. As of December 31, 2010, the balance of the cash collateral that we had received from the counterparty on the then open position was $1.1 million.

Technology Sector – We held no credit default swaps in this sector during 2012 or 2011. During 2010, we opened and closed two positions on one corporate issuer within the technology sector for which we bought credit default protection in the form of credit default swaps for 2-year and 4-year time horizons. We paid $0.2 million in upfront cash when we entered into the 4-year exposure position. We held this protection to reduce our exposure to additional valuation declines on a corporate position of the same issuer due to potential future credit impairment.

3. FAIR VALUE

We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, 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 obligations, active exchange-traded equity securities, and certain short-term 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 our subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).

App.-A-18

Determining the fair value of the investment portfolio is the responsibility of management. As part of the responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio. We review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances exist to create an active market. Based on this evaluation, we concluded that there was sufficient activity related to the sectors and securities for which we obtained valuations.

The composition of the investment portfolio by major security type was:

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,896.5	$	0	$	0	$	2,896.5	$	2,806.4
State and local government obligations		0		1,964.4		0		1,964.4		1,914.4
Corporate debt securities		0		3,113.0		0		3,113.0		2,982.9
Subtotal		2,896.5		5,077.4		0		7,973.9		7,703.7
Asset-backed securities:
Residential mortgage-backed		0		382.7		45.5		428.2		413.4
Commercial mortgage-backed		0		2,023.4		25.3		2,048.7		1,963.9
Other asset-backed		0		948.6		0		948.6		936.0
Subtotal asset-backed securities		0		3,354.7		70.8		3,425.5		3,313.3
Redeemable preferred stocks:
Financials		0		129.7		0		129.7		110.7
Utilities		0		66.7		0		66.7		64.9
Industrials		0		178.3		0		178.3		181.3
Subtotal redeemable preferred stocks		0		374.7		0		374.7		356.9
Total fixed maturities		2,896.5		8,806.8		70.8		11,774.1		11,373.9
Equity securities:
Nonredeemable preferred stocks:
Financials		259.6		494.5		31.9		786.0		383.3
Utilities		0		26.4		0		26.4		20.7
Subtotal nonredeemable preferred stocks		259.6		520.9		31.9		812.4		404.0
Common equities:
Common stocks		1,887.0		0		0		1,887.0		1,367.2
Other risk investments		0		0		12.0		12.0		3.1
Subtotal common equities		1,887.0		0		12.0		1,899.0		1,370.3
Total fixed maturities and equity securities		5,043.1		9,327.7		114.7		14,485.5		13,148.2
Short-term investments:
Other short-term investments		1,679.9		310.1		0		1,990.0		1,990.0
Total portfolio	$	6,723.0	$	9,637.8	$	114.7	$	16,475.5	$	15,138.2
Debt	$	0	$	2,394.4	$	0	$	2,394.4	$	2,063.1

App.-A-19

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,963.0	$	0	$	0	$	2,963.0	$	2,842.7
State and local government obligations		0		2,002.1		0		2,002.1		1,938.6
Corporate debt securities		0		2,896.2		0		2,896.2		2,801.5
Subtotal		2,963.0		4,898.3		0		7,861.3		7,582.8
Asset-backed securities:
Residential mortgage-backed		0		364.6		62.3		426.9		452.9
Commercial mortgage-backed		0		1,855.3		21.3		1,876.6		1,829.8
Other asset-backed		0		1,218.0		2.6		1,220.6		1,210.9
Subtotal asset-backed securities		0		3,437.9		86.2		3,524.1		3,493.6
Redeemable preferred stocks:
Financials		24.1		107.2		0		131.3		124.3
Utilities		0		68.1		0		68.1		70.8
Industrials		0		174.5		0		174.5		184.2
Subtotal redeemable preferred stocks		24.1		349.8		0		373.9		379.3
Total fixed maturities		2,987.1		8,686.0		86.2		11,759.3		11,455.7
Equity securities:
Nonredeemable preferred stocks:
Financials		227.9		525.4		0		753.3		433.7
Utilities		0		53.0		0		53.0		40.0
Subtotal nonredeemable preferred stocks		227.9		578.4		0		806.3		473.7
Common equities:
Common stocks		1,834.1		0		0		1,834.1		1,427.3
Other risk investments		0		0		11.5		11.5		3.7
Subtotal common equities		1,834.1		0		11.5		1,845.6		1,431.0
Total fixed maturities and equity securities	$	5,049.1	$	9,264.4	$	97.7		14,411.2		13,360.4
Short-term investments:
Other short-term investments1								1,551.8		1,551.8
Total portfolio							$	15,963.0	$	14,912.2
Debt1							$	2,664.7	$	2,442.1

¹  Under the prior accounting guidance, fair value hierarchies were not required.

Our portfolio valuations classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including: pricing vendors, dealers/market makers, and exchange-quoted prices. During 2012, we had one redeemable preferred security with a value of $25.0 million that was transferred from Level 1 to Level 2 as it is no longer traded on an exchange. During 2011, we had one nonredeemable preferred security with a value of $44.2 million that was transferred from Level 1 to Level 2 due to the lack of an exchange-quoted price at year-end. The exchange price was not available due to illiquidity in the market place. A consistent exchange-quoted price was previously available for this security, and we will continue to monitor the security for future exchange trading volume. We recognize transfers between levels at the end of the reporting period.

Our short-term security holdings classified as Level 1 are considered highly liquid, actively marketed, and have a very short duration, primarily seven days or less to redemption. These securities are held at their original cost, adjusted for any amortization of discount or premium, since that value very closely approximates what an active market participant would be willing to pay for such securities. The remainder of our short-term securities are classified as Level 2 and are not priced externally since these securities continually trade at par value. These securities are classified as Level 2 since they are primarily longer-dated auction securities issued by municipalities that contain a redemption put feature back to the auction pool with a redemption period of less than seven days. The auction pool is created by a liquidity provider and if the auction is not available at the end of the seven days, we have the right to put the security back to the issuer at par.

App.-A-20

At December 31, 2012, vendor-quoted prices represented 57% of our Level 1 classifications (excluding short-term investments), compared to 59% at December 31, 2011. The securities quoted by vendors in Level 1 represent our holdings in U.S. Treasury Notes, which are frequently traded and the quotes are considered similar to exchange-traded quotes. The balance of our Level 1 pricing comes from quotes obtained directly from trades made on an active exchange.

At December 31, 2012, vendor-quoted prices comprised 98% of our Level 2 classifications (excluding short-term investments), while dealer-quoted prices represented 2%, compared to 96% and 4%, respectively, at December 31, 2011. In our process for selecting a source (e.g., dealer, pricing service) to provide pricing for securities in our portfolio, we reviewed documentation from the sources that detailed the pricing techniques and methodologies used by these sources and determined if their policies adequately considered market activity, either based on specific transactions for the particular security type or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted. Once a source is chosen, we continue to monitor any changes or modifications to their processes by reviewing their documentation on internal controls for pricing and market reviews.

As part of our pricing procedures, we obtain quotes from more than one source to help us fully evaluate the market price of securities. However, our internal pricing policy is to use a consistent source for individual securities in order to maintain the integrity of our valuation process. Quotes obtained from the sources are not considered binding offers to transact. Under our policy, when a review of the valuation received from our selected source appears outside what is considered market level activity (which is defined as trading at spreads or yields significantly different than comparable securities or outside the general sector level movement without a reasonable explanation), we may use an alternate source’s price. To the extent we determine that it is prudent to substitute one source’s price for another, we will contact the initial source to obtain an understanding of the factors that may be contributing to the significant price variance, which often leads the source to adjust their pricing input data for future pricing.

To allow us to determine if our initial source is providing a price that is outside of a reasonable range, we review our portfolio pricing on a weekly basis. We frequently challenge prices from our sources when a price provided does not match our expectations based on our evaluation of market trends/activity. Initially, we perform a global review of our portfolio by sector to identify securities whose prices appear outside of a reasonable range. We refine our review to analyze prices by specific criteria, such as whether the security is investment or non-investment-grade, prime or sub-prime, or a consumer product (e.g., auto, credit card). Through this review, we try to determine what contributed to the price variances among sources by analyzing spread movement, comparable security trades, if available, or industry or specific issuer fundamentals. We review quality control measures of our sources as they become available to determine if any significant changes have occurred from period to period that might indicate issues/concerns regarding their evaluation or market coverage. We also review data assumptions as supplied by our sources to determine if that data is relevant to current market conditions. In addition, we independently review each sector for transaction volumes, new issuances, and changes in spreads, as well as the overall movement of interest rates along the yield curve to determine if sufficient activity and liquidity exists to provide a credible source for our market valuations.

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. We compare our results to index returns for each major sector adjusting for duration and credit quality differences to better understand our portfolio’s results. Additionally, we review on a monthly basis our external sales transactions and compare the actual final market sales price to a previous market valuation price. This review provides us further validation that our pricing sources are providing market level prices, since we are able to explain significant price changes (i.e., greater than 2%) as known events occur in the market place and affect a particular security’s price at sale.

This analysis provides us additional comfort regarding the source’s process, the quality of its review, and its willingness to improve its analysis based on feedback from clients. We believe this effort helps ensure that we are reporting the most representative fair values of our securities.

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, and 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 category are valued using external pricing supplemented by internal review and analysis.

App.-A-21

After all the valuations are received and our review is complete, if the inputs used by vendors are determined to not contain sufficient observable market information, we will reclassify the affected security valuations to Level 3. At December 31, 2012 and 2011, securities in our fixed-maturity portfolio listed as Level 3 were comprised substantially of securities that were either: (i) private placement deals, (ii) thinly held and/or traded securities, or (iii) non-investment-grade securities with little liquidity. Based on these factors, it was difficult to independently verify observable market inputs that were used to generate the external valuations we received. At December 31, 2012, we had one private common equity security with a value of $11.2 million that was priced internally. The same security had a value of $10.2 million at December 31, 2011. At December 31, 2012, we had one private preferred equity security, which was purchased during the third quarter, with a value of $31.9 million that was priced internally. At December 31, 2012, we did not have any securities in our fixed-maturity portfolio that were priced internally. At December 31, 2011, we had two fixed-maturity securities with an aggregate value of $0.5 million that were priced internally. Despite the lack of sufficient observable market information, we believe the valuations received in conjunction with our procedures for evaluating third-party prices support the fair values as reported in the financial statements.

We review the prices from our external sources for reasonableness using internally developed assumptions to derive prices for the securities, which are then compared to the price we received. Based on our review, all the prices received from external sources remain unadjusted.

The following tables provide a summary of changes in fair value associated with Level 3 assets for the years ended December 31, 2012 and 2011:

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2011		Calls/ Maturities/ Paydowns			Purchases		Sales		Net Realized (Gain)/Loss on Sales		Change in Valuation		Net Transfers In (Out)		Fair Value at Dec. 31, 2012
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	62.3	$	(17.3	)	$	0	$	0	$	0	$	.5	$	0	$	45.5
Commercial mortgage-backed		21.3		(3.7	)		0		0		0		7.7		0		25.3
Other asset-backed		2.6		(2.6	)		0		0		0		0		0		0
Total asset-backed securities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Corporate debt securities		0		0			0		0		0		0		0		0
Total fixed maturities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Equity securities:
Nonredeemable preferred stocks:
Financials1		0		0			28.5		0		0		3.4		0		31.9
Common equities:
Other risk investments		11.5		(.2	)		0		0		0		.7		0		12.0
Total Level 3 securities	$	97.7	$	(23.8	)	$	28.5	$	0	$	0	$	12.3	$	0	$	114.7

¹ The $3.4 million represents net holding period gains on a hybrid security which is reflected in net realized gains (losses) on securities in the comprehensive income statement.

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2010		Calls/ Maturities/ Paydowns			Purchases		Sales			Net Realized (Gain)/Loss on Sales			Change in Valuation			Net Transfers In (Out)1			Fair Value at Dec. 31, 2011
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	96.7	$	(19.5	)	$	0	$	0		$	0		$	.5		$	(15.4	)	$	62.3
Commercial mortgage-backed		27.5		(.3	)		0		0			0			(5.9	)		0			21.3
Other asset-backed		5.0		(2.6	)		0		0			0			.2			0			2.6
Total asset-backed securities		129.2		(22.4	)		0		0			0			(5.2	)		(15.4	)		86.2
Corporate debt securities		29.5		0			0		(27.9	)		(.6	)		(1.0	)		0			0
Total fixed maturities		158.7		(22.4	)		0		(27.9	)		(.6	)		(6.2	)		(15.4	)		86.2
Equity securities:
Nonredeemable preferred stocks:
Financials		0		0			0		0			0			0			0			0
Common equities:
Other risk investments		11.8		0			0		0			0			(.3	)		0			11.5
Total Level 3 securities	$	170.5	$	(22.4	)	$	0	$	(27.9	)	$	(.6	)	$	(6.5	)	$	(15.4	)	$	97.7

¹ The $(15.4) million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a residential mortgage-backed security.

App.-A-22

The following table provides a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at December 31, 2012:

	Quantitative Information about Level 3 Fair Value Measurements
($ in millions)	Fair Value at Dec. 31, 2012		Valuation Technique		Unobservable Input			Unobservable Input Assumption
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	.2		External vendor		Prepayment rate	1		16
Commercial mortgage-backed		25.3		External vendor		Prepayment rate	2		0
Total fixed maturities		25.5
Equity securities:
Nonredeemable preferred stocks:
Financials		31.9		Multiple of tangible net book value		Price to book ratio multiple			1.9
Common equities:
Other risk investments		11.2		Discounted consolidated equity		Discount for lack of marketability			20	%
Subtotal Level 3 securities		68.6
Third-party pricing exemption securities3		46.1
Total Level 3 securities	$	114.7

¹ Assumes that one security has 16% of the principal amount of the underlying loans that will be paid off prematurely in each year.

² Assumes that three securities have 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.

³ The fair values for these securities were obtained from non-binding external sources where unobservable inputs are not reasonably available to us.

Due to the relative size of the securities’ fair values compared to the total portfolio’s fair value, any changes in pricing methodology would not have a significant change in valuation that would materially impact net and comprehensive income. During the years ended December 31, 2012 and 2011, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

4.  DEBT

Debt at December 31 consisted of:

	2012				2011
(millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)	$	0	$	0	$	350.0	$	350.5
7% Notes due 2013 (issued: $150.0, October 1993)		149.9		157.1		149.7		162.4
3.75% Senior Notes due 2021 (issued: $500.0, August 2011)		497.3		549.1		497.0		525.3
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		295.2		385.0		295.0		364.4
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		394.5		513.5		394.4		492.4
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
(issued: $1,000.0, June 2007; outstanding: $731.2 and $762.1)		726.2		789.7		756.0		769.7
Total	$	2,063.1	$	2,394.4	$	2,442.1	$	2,664.7

All of the outstanding debt was issued by The Progressive Corporation. Debt includes amounts we have borrowed and contributed to the capital of our insurance subsidiaries or used, or have available for use, for other business purposes. Fair values are obtained from external sources. There are no restrictive financial covenants or credit rating triggers on our debt.

Interest on all debt is payable semiannually at the stated rates. However, the 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “6.70% Debentures”) will only bear interest at this fixed annual rate through, but excluding, June 15, 2017. Thereafter, the 6.70% Debentures will bear interest at an annual rate equal to the three-month LIBOR plus 2.0175%, and the interest will be payable quarterly.

App.-A-23

In September 2011, we entered into an agreement with The Bank of New York Mellon Trust Company, N.A., as trustee, modifying the terms of the 6.70% Debentures. Pursuant to that agreement, among other changes, we surrendered our right to temporarily defer the payment of interest on the 6.70% Debentures and terminated a related obligation to reserve 250 million of our unissued common shares as a source of potential funding to pay any such deferred interest. The changes were effective immediately upon execution of the agreement. Prior to September 2011, and subject to certain conditions, we had the right to defer the payment of interest on our 6.70% Debentures for one or more periods not exceeding ten consecutive years each.

Except for the 6.70% Debentures, all principal is due at the maturity stated in the table above. The 6.70% Debentures will become due on June 15, 2037, the scheduled maturity date, but only to the extent that we have received sufficient net proceeds from the sale of certain qualifying capital securities. We must use our commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the 6.70% Debentures in full on the scheduled maturity date or, if sufficient proceeds are not realized from the sale of such qualifying capital securities by such date, on each interest payment date thereafter. Any remaining outstanding principal will be due on June 15, 2067, the final maturity date.

In January 2012, we retired the entire $350 million of our 6.375% Senior Notes at maturity. The 7% Notes are noncallable. The 3.75% Senior Notes, the 6 5/8% Senior Notes, and the 6.25% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at our option, subject to a “make-whole” provision. The 6.70% Debentures may be redeemed, in whole or in part, at any time: (a) prior to June 15, 2017, at a redemption price equal to the greater of (i) 100% of the principal amount of the 6.70% Debentures being redeemed, or (ii) a “make-whole” amount, in each case plus any accrued and unpaid interest; or (b) on or after June 15, 2017, at a redemption price equal to 100% of the principal amount of the 6.70% Debentures being redeemed, plus any accrued and unpaid interest.

During 2012 and 2011, we repurchased, in the open market, $30.9 million and $15.0 million, respectively, in aggregate principal amount of our 6.70% Debentures. Since the amount paid exceeded the carrying value of the debt we repurchased, we recognized losses on these extinguishments of $1.8 million and $0.1 million for 2012 and 2011, respectively.

Prior to issuance of the Senior Notes and 6.70% Debentures, we entered into forecasted debt issuance hedges against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed and we recognized unrealized gains (losses) as part of accumulated other comprehensive income. The original unrealized gain (loss) at the time of each debt issuance and the unamortized balance at December 31, 2012, on a pretax basis, of these hedges, were as follows:

(millions)	Unrealized Gain (Loss) at Debt Issuance			Unamortized Balance at December 31, 2012
6.375% Senior Notes	$	18.4		$	0
3.75% Senior Notes		(5.1	)		(4.5	)
6 5/8% Senior Notes		(4.2	)		(3.4	)
6.25% Senior Notes		5.1			4.3
6.70% Debentures		34.4			13.0

The gains (losses) on these hedges are deferred and are being amortized as adjustments to interest expense over the life of the related Senior Notes, and over the 10-year fixed interest rate term for the 6.70% Debentures. In addition to this amortization, during 2012 and 2011, we reclassified $0.6 million and $0.3 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods.

During 2012 and 2011, we had the ability to borrow up to $125 million under 364-Day Secured Liquidity Credit Facility Agreements (“Credit Facility Agreement”) with PNC Bank, National Association. The Credit Facility Agreement expired on December 31, 2012. The purpose of the credit facility was to provide liquidity in the event of disruptions in our cash management operations, such as disruptions in the financial markets or related facilities that could have affected our ability to transfer or receive funds. We paid facility fees of $0 and $25,000 in 2012 and 2011, respectively, as consideration for this revolving agreement. We had no borrowings under this arrangement in 2012 or 2011.

App.-A-24

Aggregate principal payments on debt outstanding at December 31, 2012, is as follows:

(millions) Year	Payments
2013	$	150.0
2014		0
2015		0
2016		0
2017		0
Thereafter		1,931.2
Total	$	2,081.2

Our next scheduled debt maturity is $150 million of our 7% Notes due October 2013.

5.  INCOME TAXES

The components of our income tax provision were as follows:

(millions)	2012			2011		2010
Current tax provision	$	424.8		$	440.2	$	433.9
Deferred tax expense (benefit)		(9.4	)		31.3		63.0
Total income tax provision	$	415.4		$	471.5	$	496.9

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

($ in millions)	2012				2011				2010
Income before income taxes	$	1,317.7			$	1,487.0			$	1,565.2
Tax at statutory rate	$	461.2	35	%	$	520.5	35	%	$	547.8	35	%
Tax effect of:
Exempt interest income		(14.7)	(1)			(17.5)	(1)			(19.4)	(1)
Dividends received deduction		(18.2)	(1)			(18.2)	(1)			(17.2)	(1)
Tax credits		0	0			(9.1)	(1)			0	0
Tax-deductible dividends		(11.9)	(1)			(3.8)	0			(13.0)	(1)
Other items, net		(1.0)	0			(.4)	0			(1.3)	0
Total income tax provision	$	415.4	32	%	$	471.5	32	%	$	496.9	32	%

Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2012 and 2011, the components of the net deferred tax asset were as follows:

(millions)	2012			2011
Deferred tax assets:
Unearned premiums reserve	$	344.3		$	319.1
Investment basis differences		208.3			246.1
Non-deductible accruals		191.6			172.1
Loss and loss adjustment expense reserves		107.3			113.6
Other		3.9			5.2
Deferred tax liabilities:
Net unrealized gains on securities		(464.5	)		(367.7	)
Hedges on forecasted transactions		(3.3	)		(4.3	)
Deferred acquisition costs		(152.1	)		(151.8	)
Property and equipment		(103.6	)		(109.9	)
Prepaid expenses		(12.2	)		(16.1	)
Deferred gain on extinguishment of debt		(5.8	)		(5.8	)
Other		(4.5	)		(4.5	)
Net deferred tax asset	$	109.4		$	196.0

App.-A-25

Although realization of the deferred tax asset is not assured, management believes that it is more likely than not that the deferred tax asset will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes and, therefore, no valuation allowance was needed at December 31, 2012.

At December 31, 2012, we had $17.9 million of net taxes currently payable (included in other liabilities on the balance sheet), compared to net taxes recoverable of $12.0 million at December 31, 2011 (included in other assets on the balance sheet).

We have been a participant in the Compliance Assurance Program (CAP) since 2007. Under CAP, the Internal Revenue Service (IRS) begins its examination process for the tax year before the tax return is filed, by examining significant transactions and events as they occur. The goal of the CAP program is to expedite the exam process and to reduce the level of uncertainty regarding a taxpayer’s tax filing positions.

All federal income tax years prior to 2007 are closed. The IRS exams for 2007-2011 have been completed. We consider 2007 through 2009 to be effectively settled, as we have reached settlement at IRS Appeals for all disputed issues for these years. We agreed to extend the statute of limitations for the 2007 and 2008 tax years to June 30, 2013, at the request of IRS Appeals for administrative purposes.

We have two issues in dispute for the 2010 tax year. The first issue relates to partial worthlessness deductions on certain debt instruments. An Industry Director Directive (IDD) was issued in 2012 addressing this issue for open tax years. The deductions we claimed on our tax returns generally follow the guidance in the IDD; therefore, we do not expect any material adjustments. The second unresolved issue relates to our 2010 Tender Offer for the repurchase of a portion of our 6.70% Debentures and the appropriate timing of when to recognize the tax on the gain that we recorded in net income that related to the previously unrealized gain on forecasted transactions. At December 31, 2012, we were at IRS Appeals for this issue. We expect both issues to be resolved during 2013 and believe that neither will have a material effect on our financial condition, results of operations, or cash flows. We consider 2010 to be effectively settled other than for the two identified issues.

For the 2011 tax year, the audit has been completed and no adjustments were proposed. Therefore, we consider 2011 to also be effectively settled.

We recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. We have not recorded any unrecognized tax benefits, or any related interest and penalties, as of December 31, 2012 and 2011. For the years ended December 31, 2012, 2011, and 2010, no interest expense or benefit has been recorded in the tax provision.

6.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Activity in the loss and loss adjustment expense reserves is summarized as follows:

(millions)	2012		2011			2010
Balance at January 1	$	7,245.8	$	7,071.0		$	6,653.0
Less reinsurance recoverables on unpaid losses		785.7		704.1			529.4
Net balance at January 1		6,460.1		6,366.9			6,123.6
Incurred related to:
Current year		11,926.0		10,876.8			10,451.7
Prior years		22.0		(242.0	)		(320.4	)
Total incurred		11,948.0		10,634.8			10,131.3
Paid related to:
Current year		7,895.3		7,289.3			6,841.0
Prior years		3,536.5		3,252.3			3,047.0
Total paid		11,431.8		10,541.6			9,888.0
Net balance at December 31		6,976.3		6,460.1			6,366.9
Plus reinsurance recoverables on unpaid losses		862.1		785.7			704.1
Balance at December 31	$	7,838.4	$	7,245.8		$	7,071.0

App.-A-26

We experienced minimal unfavorable reserve development of $22.0 million in 2012, compared to favorable development of $242.0 million and $320.4 million in 2011 and 2010, respectively, which is reflected as “Incurred related to prior years” in the table above.

2012

• The unfavorable prior year reserve development was primarily attributable to accident year 2011 and to a lesser extent accident year 2010. The aggregate reserve development for accident years 2009 and prior was favorable. Despite overall unfavorable reserve development, we did experience favorable reserve adjustments, primarily in our loss adjustment expenses and our personal auto bodily injury reserves for accident years 2009 and 2008.

• Slightly more than half of the total unfavorable reserve development was attributable to our Commercial Auto business, with the remainder in our personal auto business.

• Our personal auto product’s development was primarily attributable to unfavorable development in our Florida personal injury protection coverage and an increase in our estimate of bodily injury severity for accident year 2011.

• Unfavorable development in our Commercial Auto business reflects higher than anticipated frequency and severity costs on late emerging claims and higher settlements on large losses.

2011

• About half of the favorable reserve development was attributable to accident years 2008 and prior, while the balance was primarily due to claims from accident year 2010.

• Approximately 70% of the favorable reserve development was attributable to our Personal Lines business, with our Agency and Direct channels contributing 25% and 75%, respectively; the balance was primarily in our Commercial Auto business.

• The 2011 favorable development was driven primarily by the same factors we experienced in 2010, including favorable settlement of larger losses and lower defense and cost containment costs, but was partially offset by unfavorable development on our total IBNR reserves, reflecting a greater than anticipated increase in the number of late emerging claims compared to 2010.

2010

• Approximately 70% of the favorable reserve development was attributable to accident year 2009, while the balance was mostly due to claims from accident years 2007 and 2006.

• About 70% of the favorable reserve development was in our Personal Lines business, with our Agency and Direct channels contributing almost equal amounts; the balance was in our Commercial Auto business.

• The favorable reserve development reflected the settlement of larger losses for amounts less than we originally reserved in our Personal Lines (primarily in our personal auto product) and Commercial Auto businesses. We also experienced lower than expected defense and cost containment costs, reflecting a combination of fewer claims being litigated, as well as the fact that a greater percentage of these cases are now being handled by our in-house counsel, which is a cost-effective alternative to using external law firms. In addition, our IBNR reserves developed favorably due to lower severity and frequency of late emerging claims.

Because we are primarily an insurer of motor vehicles, we have limited exposure to environmental, asbestos, and general liability claims. We have established reserves for such exposures, in amounts that we believe to be adequate based on information currently known. These claims are not expected to have a material effect on our liquidity, financial condition, cash flows, or results of operations.

We write personal and commercial auto insurance throughout the United States and could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on our monthly or quarterly results, we believe that, based on historical experience, such an event would not be so material as to disrupt the overall normal operations of Progressive. We are unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

App.-A-27

7.  REINSURANCE

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

	2012						2011						2010
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	16,558.8		$	16,207.6		$	15,333.1		$	15,107.5		$	14,700.0		$	14,519.2
Ceded		(186.1	)		(189.6	)		(186.5	)		(204.7	)		(223.2	)		(204.4	)
Net premiums	$	16,372.7		$	16,018.0		$	15,146.6		$	14,902.8		$	14,476.8		$	14,314.8

Our ceded premiums consist of “State Plans” and “Non-State Plans.” State Plans include: (i) amounts ceded to state-provided reinsurance facilities, including the Michigan Catastrophic Claims Association (“MCCA”) and the North Carolina Reinsurance Facility (“NCRF”), and (ii) state-mandated involuntary Commercial Auto Insurance Procedures/Plans (“CAIP”). Collectively, the State Plans accounted for 98%, 94%, and 82% of our ceded premiums for the years ended December 31, 2012, 2011, and 2010, respectively; the MCCA and NCRF together accounted for 80%, 80%, and 70% of the ceded premiums for these same time periods. In 2010, our professional liability business was sold, which comprised a majority of the reinsurance on our Non-State Plans at that time.

Losses and loss adjustment expenses were net of reinsurance ceded of $230.7 million in 2012, $219.7 million in 2011, and $312.7 million in 2010.

Our prepaid reinsurance premiums and reinsurance recoverables were comprised of the following at December 31:

	Prepaid Reinsurance Premiums										Reinsurance Recoverables
	2012					2011					2012					2011
($ in millions)	$		%			$		%			$		%			$		%
MCCA	$	25.4		38	%	$	21.4		31	%	$	739.2		82	%	$	650.4		80	%
NCRF		19.5		30			19.0		27			50.6		6			51.4		6
CAIP		15.4		23			12.7		18			66.3		7			58.4		7
State Plans		60.3		91			53.1		76			856.1		95			760.2		93
Non-State Plans		6.0		9			16.7		24			44.9		5			57.8		7
Total	$	66.3		100	%	$	69.8		100	%	$	901.0		100	%	$	818.0		100	%

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to Progressive. Since the majority of our reinsurance is through State Plans, our exposure to losses from their failure is minimal, since the plans are funded by mechanisms supported by the insurance companies in the state. We evaluate the financial condition of our other reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.

8.  STATUTORY FINANCIAL INFORMATION

Consolidated statutory surplus was $5,605.2 million and $5,269.2 million at December 31, 2012 and 2011, respectively. Statutory net income was $808.3 million, $1,001.7 million, and $1,049.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.

At December 31, 2012, $501.9 million of consolidated statutory surplus represented net admitted assets of our insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. The companies may be licensed in states other than their states of domicile, which may have higher minimum statutory surplus requirements. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed.

During 2012, the insurance subsidiaries paid aggregate cash dividends of $782.2 million to the parent company. Based on the dividend laws currently in effect, the insurance subsidiaries could pay aggregate dividends of $975.5 million in 2013 without prior approval from regulatory authorities, provided the dividend payments are not made within 12 months of previous dividends paid by the applicable subsidiary.

App.-A-28

9.  EMPLOYEE BENEFIT PLANS

Retirement Plans  Progressive has a defined contribution pension plan (“401(k) Plan”) that covers all United States employees who are 18 years of age or older and have been employed with the company for at least 30 days. Under this plan, Progressive matches up to a maximum of 6% of an employee’s eligible compensation contributed to the plan. Employee and company matching contributions are invested, at the direction of the employee, in a number of investment options available under the plan, including various mutual funds, a self-directed brokerage option, and a Progressive common stock fund. As of December 2010, the Progressive common stock fund was converted to an employee stock ownership program (“ESOP”) within the 401(k) Plan. At December 31, 2012, the ESOP held 27.2 million of our common shares, all of which are included in shares outstanding. Dividends on these shares are reinvested in common shares or paid out in cash at the election of the participant and the related tax benefit is recorded as part of our tax provision.

Matching contributions made by the company for the 401(k) Plan were $66.5 million, $64.1 million, and $61.3 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Postemployment Benefits  Progressive provides various postemployment benefits to former or inactive employees who meet eligibility requirements, and to their beneficiaries and covered dependents. Postemployment benefits include salary continuation and disability-related benefits, including workers’ compensation and, if elected, continuation of health-care benefits for specified limited periods. The liability for these benefits was $22.0 million and $20.8 million at December 31, 2012 and 2011, respectively.

Postretirement Benefits  We provide postretirement health and life insurance benefits to all employees who met requirements as to age and length of service at December 31, 1988. There are approximately 125 people who are eligible for these postretirement benefits. Our funding policy for these benefits is to contribute annually, to a 501(c)(9) trust, the maximum amount that can be deducted for federal income tax purposes.

Incentive Compensation Plans – Employees  Our incentive compensation includes both non-equity incentive plans (cash) and equity incentive plans. Cash incentive compensation includes a cash bonus program for a limited number of senior executives and our Gainsharing program for other employees; the structures of these programs are similar in nature. Equity incentive compensation plans provide for the granting of restricted stock awards and restricted stock unit awards (collectively, “restricted equity awards”) to key members of management. The amounts charged to income for the incentive compensation plans for the years ended December 31, were:

	2012				2011				2010
(millions)	Pretax		After Tax		Pretax		After Tax		Pretax		After Tax
Cash	$	207.0	$	134.6	$	196.1	$	127.5	$	257.3	$	167.2
Equity		63.4		41.2		50.5		32.8		45.9		29.8

Our 2003 Incentive Plan, which provides for the granting of equity-based awards to key members of management, has 18.7 million shares currently authorized, net of restricted equity awards cancelled; 2.4 million shares remain available for future awards. In addition, our 2010 Equity Incentive Plan had 18.0 million shares authorized as of December 31, 2012, and 13.2 million shares remain available for future awards.

We have issued restricted equity awards since 2003. In March 2010, we began issuing restricted stock units in lieu of restricted stock as the basis for our equity awards. The restricted equity awards were issued as either time-based or performance-based awards. The time-based awards vest in equal installments upon the lapse of specified periods of time, typically three, four, and five years. All restricted stock unit conversions at vesting are settled in Progressive common shares from existing treasury shares on a one-to-one basis.

The performance-based awards were granted to our Chief Executive Officer as his sole equity award for 2011 and 2012, and to approximately 40 executives and senior managers in addition to their time-based awards (including the CEO for 2010 and prior), to provide additional incentive to achieve pre-established profitability and growth targets. Vesting for all awards is based upon the achievement of predetermined performance goals within specified time periods. The targets for the performance-based awards, as well as the ultimate number of units that may vest, vary by grant. The performance-based awards granted in 2010 and later may vest from 0% to 200% of the award amount, and have a target value of 100%. Performance-based awards made prior to March 2009 would either vest or be forfeited in full (i.e., no partial vesting).

App.-A-29

Generally, time-based and performance-based equity awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant. Performance-based equity awards that contain variable vesting criteria are expensed based on management’s expected vesting percentage. These estimates can change periodically throughout the measurement period. However, the restricted stock awards granted in 2004 that were deferred pursuant to our deferred compensation plan were accounted for as liability awards, since distributions from the deferred compensation plan for these awards will be made in cash; accordingly, we recorded expense on a pro rata basis based on the current market value of our common shares at the end of each reporting period. The remaining liability awards vested during 2012.

A summary of all employee restricted equity award activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Equity Awards	Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value
Beginning of year		12,296,847		$	16.86		11,681,826		$	16.55		10,614,016		$	17.04
Add (deduct):
Granted2		2,680,229			19.11		2,483,461			20.03		2,841,400			17.50
Vested		(3,188,111	)		15.23		(1,571,237	)		19.88		(1,337,647	)		22.72
Forfeited		(162,984	)		17.93		(297,203	)		15.41		(435,943	)		15.58
End of year3,4		11,625,981		$	17.80		12,296,847		$	16.86		11,681,826		$	16.55
Available, end of year5		15,624,677					18,141,922					20,328,180

¹ Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

² In 2010, we began reinvesting dividend equivalents on restricted stock units. For 2012, 2011, and 2010, the number granted includes 440,029, 55,288, and 134,644 units, respectively, at a weighted average grant date fair value of $0, since the dividends were factored into the grant date fair value of the original grant.

³ At December 31, 2012, the number of shares included 3,393,981 performance-based awards at their target amounts. We expect 4,404,766 performance-based awards to vest, based upon our current estimate of the achievement of pre-determined performance goals.

⁴ At December 31, 2012, the total unrecognized compensation cost related to unvested equity awards was $86.3 million, which includes performance-based awards at their currently estimated vesting value. This compensation expense will be recognized into the income statement over the weighted average vesting period of 2.2 years.

⁵  Represents shares available under the 2003 Incentive Plan and the 2010 Incentive Plan; the 2003 Incentive Plan expired on January 31, 2013, and the remaining 2,438,119 shares thereunder are no longer available for future issuance, however dividend equivalents will be issued on outstanding awards up to the remaining authorization amount.

The aggregate fair value of the restricted equity awards that vested during the years ended December 31, 2012, 2011, and 2010, was $57.7 million, $31.3 million, and $24.3 million, respectively, based on the actual stock price on the vesting date. In 2012, we also had 246,200 deferred liability awards vest with no intrinsic value since, as previously discussed, these awards were expensed based on the current market value at the end of each reporting period.

App.-A-30

The following table is a summary of all employee stock option activity during the years ended December 31, 2011 and 2010. All non-qualified stock options vested on or before January 1, 2007 and expired on December 31, 2011. All options granted had an exercise price equal to the market value of the common shares on the date of grant.

	2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		1,916,416		$	11.31		5,102,888		$	9.31
Add:
Antidilution adjustment1		NA			NA		97,387			NA
Deduct:
Exercised		(1,913,552	)		11.31		(3,283,859	)		7.87
Forfeited		(2,864	)		11.28		0			0
End of year		0		$	0		1,916,416		$	11.31
Exercisable, end of year		0		$	0		1,916,416		$	11.31

NA = Not Applicable

¹  During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

The total pretax intrinsic value of options exercised during the years ended December 31, 2011 and 2010, were $15.2 million and $40.8 million, respectively, based on the actual stock price at the time of exercise.

Incentive Compensation Plans – Directors  Our 2003 Directors Equity Incentive Plan, which provides for the granting of equity-based awards, including restricted stock awards, to non-employee directors of Progressive, had 1.4 million shares authorized as of December 31, 2012, net of restricted stock awards cancelled; 0.6 million shares remain available for future restricted stock grants.

We grant restricted stock awards to our non-employee directors as their sole compensation for serving as members of the Board of Directors. We do not plan to change to restricted stock units as we have with our employees. The restricted stock awards are issued as time-based awards. The vesting period (i.e., requisite service period) must be a minimum of six months and one day. The time-based awards granted to date have typically included vesting periods of 11 months from the date of each grant. To the extent a director is newly appointed during the year, or his or her committee assignments change, the vesting period may be shorter but always greater than six months and one day per the plan’s specifications. The restricted stock awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant.

App.-A-31

A summary of all directors’ restricted stock activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Stock	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning of year		94,106		$	21.80		109,545		$	20.86		118,984		$	15.79
Add (deduct):
Granted		92,957			21.41		94,106			21.80		112,670			20.75
Vested		(94,106	)		21.80		(109,545	)		20.86		(122,109	)		15.82
End of year		92,957		$	21.41		94,106		$	21.80		109,545		$	20.86
Available, end of year1		570,138					663,095					757,201

¹ Represents shares available under the 2003 Directors Equity Incentive Plan.

Prior to 2003, we granted nonqualified stock options as the equity component of the directors’ compensation. These options became exercisable at various dates not earlier than six months, and remain exercisable for up to ten years from the date of grant. All options granted had an exercise price equal to the market value of the common shares on the date of grant and, under the then applicable accounting guidance, no compensation expense was recorded. All option exercises were settled in Progressive common shares from existing treasury shares.

A summary of all stock option activity for both current and former directors during the years ended December 31, follows:

	2012					2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		36,237		$	12.51		120,125		$	10.34		312,545		$	8.46
Add:
Antidilution adjustment1		NA			NA		NA			NA		5,787			NA
Deduct:
Exercised		(36,237	)		12.51		(83,888	)		9.41		(198,207	)		7.07
End of year		0		$	0		36,237		$	12.51		120,125		$	10.34
Exercisable, end of year2		0		$	0		36,237		$	12.51		120,125		$	10.34

NA = Not Applicable

¹ During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

² The 1998 Directors’ Stock Option Plan has expired.

The total pretax intrinsic value of options exercised, and the fair value of the restricted stock vested, during the years ended December 31, 2012, 2011, and 2010, was $2.5 million, $3.3 million, and $5.1 million, respectively, based on the actual stock price at time of exercise/vesting.

Deferred Compensation  We maintain The Progressive Corporation Executive Deferred Compensation Plan (“Deferral Plan”) that permits eligible executives to defer receipt of some or all of their annual bonuses and all of their annual equity awards. Deferred cash compensation is deemed invested in one or more investment funds, including common shares of Progressive, offered under the Deferral Plan and elected by the participant. All Deferral Plan distributions attributable to deferred cash compensation will be paid in cash.

For all equity awards granted in or after March 2005, and deferred pursuant to the Deferral Plan, the deferred amounts are deemed invested in common shares and are ineligible for transfer to other investment funds in the Deferral Plan; distributions of these deferred awards will be made in common shares. For all restricted stock awards granted prior to that date, the deferred amounts are eligible to be transferred to any of the investment funds in the Deferral Plan; distributions of these deferred awards will be made in cash.

App.-A-32

We reserved 11.1 million common shares for issuance under the Deferral Plan. An irrevocable grantor trust has been established to provide a source of funds to assist us in meeting our liabilities under the Deferral Plan.

The Deferral Plan Irrevocable Grantor Trust account held the following assets at December 31:

(millions)	2012		2011
Progressive common shares1	$	53.3	$	35.2
Other investment funds		73.4		66.2
Total	$	126.7	$	101.4

¹ Includes 1.3 million and 0.7 million common shares as of December 31, 2012 and 2011, respectively, to be distributed in common shares.

10.  SEGMENT INFORMATION

We write personal auto and other specialty property-casualty insurance and provide related services throughout the United States. Our Personal Lines segment writes insurance for personal autos and recreational vehicles. The Personal Lines segment is comprised of both the Agency and Direct businesses. The Agency business includes business written by our network of more than 35,000 independent insurance agencies, including brokerages in New York and California, and strategic alliance business relationships (other insurance companies, financial institutions, and national agencies). The Direct business includes business written directly by us online, by phone, or on a mobile device.

Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses in the business auto, for-hire transportation, contractor, for-hire specialty, and tow markets. This segment is distributed through both the independent agency and direct channels.

Our other indemnity businesses manage our run-off businesses, including the run-off of our professional liability insurance for community banks, which was sold in 2010.

Our service businesses provide insurance-related services, including processing CAIP business and serving as an agent for homeowners, general liability, and workers’ compensation insurance through our programs with unaffiliated insurance companies.

All segment revenues are generated from external customers and we do not have a reliance on any major customer.

We evaluate profitability based on pretax underwriting profit (loss) for the Personal Lines and Commercial Auto segments and for the other indemnity businesses. Pretax underwriting profit (loss) is calculated as net premiums earned plus fees and other revenues less each of: (i) losses and loss adjustment expenses; (ii) policy acquisition costs; and (iii) other underwriting expenses. Service business pretax profit (loss) is the difference between service business revenues and service business expenses.

Expense allocations are based on certain assumptions and estimates primarily related to revenue and volume; stated segment operating results would change if different methods were applied. We do not allocate assets or income taxes to operating segments. In addition, we do not separately identify depreciation and amortization expense by segment, and such allocation would be impractical. Companywide depreciation expense was $94.4 million in 2012, $88.5 million in 2011, and $83.1 million in 2010. The accounting policies of the operating segments are the same as those described in Note 1—Reporting and Accounting Policies.

App.-A-33

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

	2012						2011						2010
(millions)	Revenues			Pretax Profit (Loss)			Revenues			Pretax Profit (Loss)			Revenues		Pretax Profit (Loss)
Personal Lines
Agency	$	8,103.9		$	338.9		$	7,627.4		$	564.9		$	7,419.7	$	601.0
Direct		6,264.2			289.5			5,803.7			354.4			5,407.2		291.1
Total Personal Lines1		14,368.1			628.4			13,431.1			919.3			12,826.9		892.1
Commercial Auto		1,649.0			86.3			1,467.1			133.5			1,474.2		185.0
Other indemnity		.9			(5.8	)		4.6			(5.5	)		13.7		6.4
Total underwriting operations		16,018.0			708.9			14,902.8			1,047.3			14,314.8		1,083.5
Fees and other revenues2		281.8			NA			266.5			NA			252.2		NA
Service businesses		36.1			0			22.8			3.4			25.9		4.5
Investments3		749.8			734.4			582.6			569.1			616.2		604.3
Gains (losses) on extinguishment of debt		(1.8	)		(1.8	)		(.1	)		(.1	)		6.4		6.4
Interest expense		NA			(123.8	)		NA			(132.7	)		NA		(133.5	)
Consolidated total	$	17,083.9		$	1,317.7		$	15,774.6		$	1,487.0		$	15,215.5	$	1,565.2

¹ Personal auto insurance accounted for 91% of the total Personal Lines segment net premiums earned in both 2012 and 2011, and 90% in 2010; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

² Pretax profit (loss) for fees and other revenues are allocated to operating segments.

³  Revenues represent recurring investment income and total net realized gains (losses) on securities; pretax profit is net of investment expenses.

NA = Not Applicable

Progressive’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. Underwriting profitability is calculated by subtracting losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses from the total of net premiums earned and fees and other revenues. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from underwriting operations). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins/combined ratios for our underwriting operations for the years ended December 31:

	2012					2011					2010
	Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio
Personal Lines
Agency		4.2	%		95.8		7.4	%		92.6		8.1	%		91.9
Direct		4.6			95.4		6.1			93.9		5.4			94.6
Total Personal Lines		4.4			95.6		6.8			93.2		7.0			93.0
Commercial Auto		5.2			94.8		9.1			90.9		12.5			87.5
Other indemnity1		NM			NM		NM			NM		NM			NM
Total underwriting operations		4.4			95.6		7.0			93.0		7.6			92.4

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.

App.-A-34

11.  OTHER COMPREHENSIVE INCOME (LOSS)

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

	2012									2011									2010
(millions)	Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax
Net unrealized gains (losses) on securities:
Arising during period:
Fixed maturities	$	165.0		$	(57.7	)	$	107.3		$	132.9		$	(46.5	)	$	86.4		$	302.9		$	(106.0	)	$	196.9
Equity securities		323.0			(113.1	)		209.9			(57.5	)		20.1			(37.4	)		241.7			(84.6	)		157.1
Net non-credit related OTTI losses, adjusted for valuation changes		7.9			(2.8	)		5.1			(5.5	)		1.9			(3.6	)		21.4			(7.5	)		13.9
Reclassification adjustment for (gains) losses realized in net income:
Fixed maturities		(75.9	)		26.6			(49.3	)		(47.4	)		16.6			(30.8	)		46.3			(16.2	)		30.1
Equity securities		(143.2	)		50.1			(93.1	)		(152.5	)		53.4			(99.1	)		(93.7	)		32.8			(60.9	)
Change in net unrealized gains (losses) on securities		276.8			(96.9	)		179.9			(130.0	)		45.5			(84.5	)		518.6			(181.5	)		337.1
Net unrealized gains (losses) on forecasted transactions:1
Arising during period		0			0			0			(5.1	)		1.8			(3.3	)		0			0			0
Reclassification adjustment for amounts realized in net income2		(2.8	)		1.0			(1.8	)		(5.3	)		1.8			(3.5	)		(10.6	)		3.7			(6.9	)
Change in net unrealized gains on forecasted transactions		(2.8	)		1.0			(1.8	)		(10.4	)		3.6			(6.8	)		(10.6	)		3.7			(6.9	)
Foreign currency translation adjustment		.6			(.2	)		.4			.2			(.1	)		.1			1.2			(.9	)		.3
Other comprehensive income (loss)	$	274.6		$	(96.1	)	$	178.5		$	(140.2	)	$	49.0		$	(91.2	)	$	509.2		$	(178.7	)	$	330.5

¹  Entered into for the purpose of managing interest rate risk associated with our debt issuances.

²  We expect to reclassify $2.2 million (pretax) into income during the next 12 months. During 2012, 2011, and 2010, we reclassified $0.6 million, $0.3 million, and $5.8 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods (see Note 4 – Debt for further discussion).

12.  LITIGATION

The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies in the ordinary course of our business. We consider all legal actions relating to such claims in establishing our loss and loss adjustment expense reserves.

In addition, The Progressive Corporation and/or its insurance subsidiaries are named as defendants in a number of class action or individual lawsuits arising out of the operations of the insurance subsidiaries. Other insurance companies face many of these same issues. The lawsuits discussed below are in various stages of development. We plan to contest these suits vigorously, but may pursue settlement negotiations in some cases, if appropriate. The outcomes of these cases are uncertain at this time.

We establish accruals for lawsuits when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure, which may include a range of loss (referred to as a loss that is both “probable and estimable” in the discussion below). As to lawsuits in which the loss is not considered both probable and estimable, we have not established a liability at this time. It is generally not possible to determine the exposure associated with our lawsuits for a number of reasons, including, without limitation, one or more of the following: liability appears to be remote; putative class action lawsuits generally pose immaterial exposure until a class is actually certified, which, historically, has not been granted by the courts in the vast majority of our cases in which certification has been sought; class definitions are often indefinite and preclude detailed exposure analysis; and complaints rarely state an amount sought as relief, and when such amount is stated, it is often a function of pleading requirements and may be unrelated to the potential exposure.

App.-A-35

The following is a discussion of potentially significant pending cases at December 31, 2012, and certain cases resolved during the three-year period then ended.

As to the pending cases, although their outcomes are uncertain, in each case we do not believe that the outcome will have a material impact on our consolidated financial condition, cash flows, or results of operations. In addition, we do not consider the losses from the pending cases to be both probable and estimable, and we are unable to estimate a range of loss, if any, at this time, due to the factors discussed above. In the event that any one or more of these cases results in a substantial judgment against, or settlement by, Progressive, the resulting liability could have a material effect on our consolidated financial condition, cash flows, and/or results of operations.

Pending cases at December 31, 2012, include:

• One certified class action lawsuit seeking interest on personal injury protection (PIP) payments that allegedly were late.

• One putative class action lawsuit alleging Progressive did not reimburse any of its insureds who incurred legal fees to recover money from another Progressive insured. We determined that it is probable that a loss has been incurred on this lawsuit; however, due to its complexity, we were unable to estimate a range of loss.

• One putative class action alleging that Progressive’s denial of claims under collision coverage is improper by its interpretation of the duplicate recovery provision when the insured has not recovered all losses from another insurer, such as attorney fees.

• One putative class action alleging that Progressive’s website did not adequately disclose sufficient information concerning the PIP deductibles when customers indicated they are covered by private health insurance.

• Two putative class action lawsuits challenging the labor rates our insurance subsidiaries pay to auto body repair shops.

• One patent matter alleging Progressive infringes on patented marketing technology.

• One putative class action alleging Progressive steers customers to service centers and network shops to have their vehicle repair.

• Five putative class action lawsuits challenging Progressive’s insurance subsidiaries’ practice in Florida of adjusting PIP and first-party medical payments.

• One putative class action alleging Progressive tethers customers to their policies by enforcing a minimum term and charging a purportedly undisclosed but apparently fixed cancellation fee and “other” fees if policies are terminated prior to the expiration of the contract period.

• One putative class action lawsuit that challenges our insurance subsidiaries’ adjustment of bodily injury claims where the plaintiff alleges Progressive undervalued submitted medical bills.

• One putative class action lawsuit challenging our policy form with regard to rejecting uninsured motorist coverage. We determined that it is probable that a loss has been incurred on this lawsuit; however, due to its complexity, we were unable to estimate a range of loss.

• One putative class action lawsuit challenging our insureds’ rejection of medpay coverage.

• One putative class action lawsuit challenging the manner in which Progressive grants a discount for anti-theft devices.

• Two putative class action lawsuits alleging that Progressive charged insureds for illusory uninsured motorist/underinsured motorist coverage.

• One putative class action lawsuit alleging that Progressive failed to have insureds reject, in writing, uninsured motorist coverage with limits equal to the limits of liability coverage.

• One putative class action lawsuit alleging that Progressive improperly applies a preferred provider discount to medical payment claims.

• One putative class action lawsuit alleging that Progressive undervalues total loss claims through the use of certain valuation tools.

• One putative class action lawsuit challenging the manner in which Progressive charges premium and assesses total loss claims for commercial vehicle stated amount policies.

App.-A-36

For cases that have settled, but for which settlement is not complete, an accrual has been established at our best estimate of the exposure. Settlements that are complete are fully reflected in our financial statements. The amounts accrued or paid for these settlements were not material to our consolidated financial condition, cash flows, or results of operations.

Cases settled during 2012, include:

• One putative class action lawsuit that challenged Progressive’s use of certain automated database vendors or software to assist in the adjustment of bodily injury claims where the plaintiffs allege that these databases or software systematically undervalue the claims; an accrual has been established.

Cases settled during 2011, include:

• One putative class action lawsuit that challenged the labor rates our insurance subsidiaries pay to auto body repair shops; the case was settled and paid on an individual basis in 2011.

• One class action lawsuit certified for settlement that alleged Progressive charged insureds for illusory uninsured motorist/underinsured motorist coverage on multiple vehicle policies; an accrual was established and the majority of this settlement was paid in 2012.

Cases settled during 2010, include:

• One putative class action lawsuit challenging our notice of cancellation form for nonpayment of premium and subsequent denial of automobile coverage; an accrual was established and final payments were made in 2012.

13.  COMMITMENTS AND CONTINGENCIES

We have certain noncancelable operating lease commitments with lease terms greater than one year for property and computer equipment. The minimum commitments under these agreements at December 31, 2012, were as follows:

(millions)	Commitments
2013	$	47.1
2014		38.8
2015		29.6
2016		18.2
2017		8.3
Thereafter		9.5
Total	$	151.5

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

(millions)	Expense
2012	$	71.9
2011		80.8
2010		96.7

We also have certain noncancelable purchase obligations. The minimum commitment under these agreements at December 31, 2012, was $246.7 million.

As of December 31, 2012, we had no open investment funding commitments; we had no uncollateralized lines or letters of credit as of December 31, 2012 or 2011.

App.-A-37

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of The Progressive Corporation and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

Cleveland, Ohio

February 26, 2013

App.-A-38

Management’s Report on Internal Control over Financial Reporting

Progressive’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control structure was designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control – Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2012.

During the fourth quarter 2012, there were no changes in our internal control over financial reporting identified in the internal control review process that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PricewaterhouseCoopers LLP, an independent registered public accounting firm that audited the financial statements included in this Annual Report, has audited, and issued an attestation report on the effectiveness of, our internal control over financial reporting as of December 31, 2012; such report appears herein.

CEO and CFO Certifications

Glenn M. Renwick, President and Chief Executive Officer of The Progressive Corporation, and Brian C. Domeck, Vice President and Chief Financial Officer of The Progressive Corporation, have issued the certifications required by Sections 302 and 906 of The Sarbanes-Oxley Act of 2002 and applicable SEC regulations with respect to Progressive’s 2012 Annual Report on Form 10-K, including the financial statements provided in this Report. Among other matters required to be included in those certifications, Mr. Renwick and Mr. Domeck have each certified that, to the best of his knowledge, the financial statements, and other financial information included in the Annual Report on Form 10-K, fairly present in all material respects the financial condition, results of operations, and cash flows of Progressive as of, and for, the periods presented. See Exhibits 31 and 32 to Progressive’s Annual Report on Form 10-K for the complete Section 302 and 906 certifications, respectively.

App.-A-39

The Progressive Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

I.  OVERVIEW

The Progressive Corporation is a holding company that does not have any revenue producing operations, physical property, or employees of its own. The Progressive Group of Insurance Companies, together with our holding company and non-insurance subsidiaries and investment affiliate, comprise what we refer to as Progressive. Progressive has been offering insurance to consumers since 1937 and is estimated to be the country’s fourth largest private passenger auto insurer based on net premiums written during 2012. Our insurance companies offer personal and commercial automobile insurance and other specialty property-casualty insurance and related services throughout the United States, as well as personal auto insurance on an Internet-only basis in Australia. Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles through more than 35,000 independent insurance agencies and directly to consumers online, on a mobile device, and over the phone. Our Commercial Auto segment offers insurance for cars and trucks owned by small businesses through both the independent agency and direct channels; this business is estimated to be ranked second in the commercial auto industry for 2012. Our underwriting operations, combined with our service and investment operations, make up the consolidated group.

The Progressive Corporation receives cash through subsidiary dividends, security sales, borrowings, and other transactions, and uses these funds to contribute to its subsidiaries (e.g., to support growth), to make payments to shareholders and debt holders (e.g., dividends and interest, respectively), to repurchase its common shares and debt, and for other business purposes that might arise. The holding company’s funds are generally held in a non-insurance subsidiary, which at year-end 2012, had $1.4 billion of marketable securities available for use by the holding company. In 2012, The Progressive Corporation received $0.7 billion from its subsidiaries, net of capital contributions.

With our strong capital position and consistent with our long-standing policy of returning underleveraged capital to our investors, we took several actions during 2012, returning nearly $1.0 billion to our shareholders and investors via the following:

• declaring a special dividend of $1.00 per common share, which returned $604.7 million of capital to our shareholders

• declaring our annual variable dividend of $.2845 per common share, or about $172.0 million, which was based on 2012 underwriting results, a target factor of 33 1/3%, and our Gainshare factor of 1.12

• repurchasing 8.6 million of our common shares at a total cost of $174.2 million, and

• repurchasing, in the open market, $30.9 million principal amount of our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067.

We ended 2012 with $8.1 billion of total capital (debt and equity), $0.1 billion less than at the start of the year, inclusive of the actions discussed above. We continue to manage our investing and financing activities in order to maintain sufficient capital to support all the insurance we can profitably write and service, while returning underleveraged capital to shareholders.

During 2012, we hit a milestone by generating over $16 billion of both net premiums written and earned. The written premium growth of $1.2 billion was the highest annual growth achieved since 2004 and the 4^th highest in Progressive’s history. Our growth this year was driven by increases in both rates and volume. In response to rising claims costs, we took rate increases during 2012, primarily in the second and third quarters, in personal auto and throughout the year in Commercial Auto. In addition, we added approximately 460,000 policies during the year, bringing our total policies in force to nearly 13.3 million by year end. The national rollout of Snapshot^®, our usage-based insurance product, along with other product initiatives discussed below, helped contribute to this increase in policy counts. Although new policies are necessary to maintain a growing book of business, we continue to recognize the importance of retaining our current customers as a critical component of our ongoing growth. During the year, policy life expectancy, our measure for retention, was relatively flat for both personal and Commercial Auto.

App.-A-40

Despite strong top line growth and higher realized gains recognized during the year, our net income was down 11% year-over-year, reflecting both lower underwriting profit and recurring investment income. Rising claims costs, including about $100 million of losses from Superstorm Sandy, the late season catastrophe, contributed to the decrease in underwriting profitability. A lower pretax investment book yield drove our recurring income down for the year, despite an increase in our invested assets year-over-year. However, our portfolio generated a 6.8% fully taxable equivalent total return, which was the driver of our 17% increase in comprehensive income for 2012.

A. Operations

In 2012, our insurance subsidiaries generated underwriting profitability of 4.4%, which was consistent with our targeted profitability objective of at least 4%. In our Personal Lines business, 36 states plus the District of Columbia met or exceeded their profitability target; only four states generated an underwriting loss for 2012. In our Commercial Auto business, 41 states generated an underwriting profit during the year.

During the year, we realized $22.0 million, or 0.1 combined ratio points, of unfavorable prior accident year reserve development, compared to 1.6 points of favorable development last year. Slightly more than half of the 2012 unfavorable development was in our Commercial Auto business, with the remainder in our personal auto business. We also recognized about 1.7 points of catastrophe losses, reflecting Superstorm Sandy and an active spring storm season. For the year, our overall incurred severity increased about 5% and frequency was relatively flat compared to the prior year. In response to the rising severity trends, we increased rates in our personal auto business about 6% during 2012.

On a year-over-year basis, net premiums written and earned increased 8% and 7%, respectively. Changes in net premiums written are a function of new business applications (i.e., issued policies), premium per policy, and retention.

During 2012, total new auto applications decreased 1% on a year-over-year basis. Increases during the first half of the year turned negative as we started raising rates. In terms of new applications, our Agency auto business was relatively flat year over year, while Direct auto ended the year down 2%. On a state-by-state basis, we experienced year-over-year growth in 21 states and the District of Columbia in our Agency auto business and in 19 states in our Direct auto business. Our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) generated an increase in new applications of about 1%, while new applications in our Commercial Auto business increased about 3% for the year.

In addition to our efforts to further penetrate customer households through cross-selling products, we remain focused on several other programs/initiatives we have that are designed to help stimulate growth and provide consumers with distinctive insurance options. These programs include:

• Snapshot, our usage-based insurance product – during the year, the annual premium of customers choosing Snapshot crossed $1 billion

• Name Your Price^® – a tool that allows consumers to name or select the price they would like to pay for auto insurance and match it to a range of available coverage combinations

• New product models in both our Personal Lines and Commercial Auto businesses – these models are designed to improve competitiveness with advanced segmentation and product features, and

• Additional functionality in the mobile device space – our mobile functionality includes:

• a feature that enables customers in most states to purchase insurance for up to three drivers and three vehicles directly from their mobile devices after receiving a quote

• the nationwide rollout of a mobile quoting application for our Commercial Auto business and special lines products

• an application available in certain states with the ability to use the camera in a mobile device to send a photo of a driver’s license and/or insurance card, along with some additional information, to get an instantaneous quote

• expansion of our agent offerings on tablet computers, including full quote/buy capabilities, and

• the comparison rate experience.

During 2012, on a year-over-year basis, our written premium per policy for both our Agency and Direct auto businesses increased 3%, primarily reflecting rate increases taken in 2012, while our special lines products remained relatively flat. Commercial Auto experienced a 10% increase in written premium per policy, primarily reflecting rate increases, as well as growth in Florida and a shift to more for-hire transportation business, both of which have higher average premiums per policy.

App.-A-41

Companywide policies in force increased 4% on a year-over-year basis since December 31, 2011. This increase reflects about 452,000 additional Personal Lines policies and about 10,000 additional Commercial Auto policies. The biggest contributor to the Personal Lines growth was our Direct auto business where policies in force grew 4%, or 156,000 policies. In our Agency auto business, policies in force reached another all-time high during the year and ended 2012 with 4.8 million policies, an increase of 142,000 policies, or 3%. Our special lines products increased about 154,000 policies, or 4%.

To further 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 and our efforts to increase the number of multi-product households continues to be a key initiative. 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. Total personal auto policy life expectancy decreased 1% on a year-over-year basis, with our Agency auto business unchanged, while our Direct auto business decreased 2%. Our policy life expectancy is similar in both channels. The decrease in retention is primarily due to rate increases. The policy life expectancy for both our Commercial Auto business and our special lines products remained relatively unchanged from the prior year. We realize the importance that retention has on our ability to continue to grow profitably and will maintain our focus on providing customers with other insurance-related products and services they may need over time in our ongoing efforts to increase retention.

B. Investments and Capital Management

The fair value of our investment portfolio was $16.5 billion at December 31, 2012. Our asset allocation strategy is to maintain 0-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities. We define Group I securities to include:

• common equities

• nonredeemable preferred stocks

• redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends, and

• all other non-investment-grade fixed-maturity securities.

Group II securities include:

• short-term securities

• all other fixed-maturity securities.

We use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) for classifying our residential and commercial mortgage-backed securities, excluding interest-only securities, while all other debt securities derive their credit ratings from external vendors in determining whether securities should be classified as Group I or II. At December 31, 2012 and 2011, 21% of our portfolio was allocated to Group I and 79% to Group II securities.

Our investment portfolio produced a fully taxable equivalent (FTE) total return of 6.8% for 2012. Our common stock and fixed-income portfolios contributed to this positive total return with FTE returns of 16.7% and 5.5%, respectively. Significant appreciation of our preferred stock securities materially contributed to the overall fixed-income returns. At December 31, 2012, the fixed-income portfolio had a weighted average credit quality of AA-. We continue to maintain our fixed-income portfolio strategy of investing in high-quality securities.

Our recurring investment income generated a pretax book yield just under 3% for the year. At December 31, 2012, our duration was 1.9 years to limit the potential loss of capital in the event of an increase in interest rates from their present low levels. We remain confident that our preference for shorter duration during times of extremely low interest rates is our best positioning.

At December 31, 2012, we held $21.9 million in Australian Treasury Bills to support our Australian operations; we held no other foreign sovereign debt. We held $628.1 million of U.S. dollar-denominated corporate bonds, preferred stocks (redeemable and nonredeemable), and other asset-backed securities issued by companies that are domiciled, or whose parent companies are domiciled, in European countries. Of these securities, $526.4 million are corporate bonds from U.K. and other European companies primarily in the consumer, industrial, energy, and communications industries; $6.0 million are U.K.-domiciled other asset-backed securities; and $95.7 million are U.K.-domiciled financial institution preferred stocks (redeemable and nonredeemable). Our total direct exposure to Southern European-domiciled companies was $8.4 million at December 31, 2012. In total, our European-domiciled securities represent approximately 4% of our portfolio at December 31, 2012.

App.-A-42

At December 31, 2012, our total capital (debt plus equity) was $8.1 billion, compared to $8.2 billion at December 31, 2011, and our debt-to-total capital ratio decreased to 25.6% from 29.6% at year-end 2011. We continue to manage our investing and financing activities in order to maintain sufficient capital to support all of the insurance we can profitably write and service.

II.  FINANCIAL CONDITION

A. Holding Company

In 2012, The Progressive Corporation, the holding company, received $0.7 billion of dividends, net of capital contributions, from its subsidiaries. For the three-year period ended December 31, 2012, The Progressive Corporation received $2.8 billion of dividends from its subsidiaries, net of capital contributions. Regulatory restrictions on subsidiary dividends are described in Note 8 – Statutory Financial Information.

Progressive’s debt-to-total capital (debt plus equity) ratios at December 31, 2012, 2011, and 2010 were 25.6%, 29.6%, and 24.5%, respectively. In 2012, we retired all $350 million of our 6.375% Senior Notes at maturity. Our next scheduled debt maturity is the entire $150 million of our 7% Notes due October 2013. In 2011, we issued $500 million of our 3.75% Senior Notes due 2021 (the “3.75% Senior Notes”); no debt was issued in 2012 or 2010.

From time to time, we may elect to repurchase our outstanding debt securities in the open market or in privately negotiated transactions, when management believes that such securities are attractively priced and capital is available for such a purpose. During the last three years, we repurchased $268.8 million in aggregate principal amount of our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “6.70% Debentures”), including $30.9 million in 2012, $15.0 million in 2011, and $222.9 million pursuant to a Tender Offer in 2010. See Note 4 – Debt and the Liquidity and Capital Resources section below for a further discussion of our debt activity.

We continued our practice of repurchasing our common shares in accordance with our financial policies. As of December 31, 2012, we had 42.1 million shares remaining under our 2011 Board authorization. The following table shows our share repurchase activity during the last three years:

(millions, except per share amounts)	2012		2011		2010
Total number of shares purchased		8.6		51.3		13.3
Total cost	$	174.2	$	997.8	$	258.6
Average price paid per share	$	20.26	$	19.45	$	19.40

Progressive maintains a policy of paying an annual variable dividend that, if declared, would be payable shortly after the close of the 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. The Board determined the target percentage to be 33 1/3% for both 2012 and 2011 and 25% for 2010. For 2013, the Board has maintained the target percentage at 33 1/3% 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 Compensation Committee of the Board. This Gainshare factor is also used in the annual cash bonus program currently in place for our employees (our “Gainsharing program”). Although recalibrated every year, the structure of the Gainsharing program generally remains the same. For 2012, the Gainshare factor was 1.12, compared to 1.10 in 2011 and 1.50 in 2010.

Our annual dividend program will result in a variable payment to shareholders each year, subject to certain limitations. If the Gainshare factor is zero or if our comprehensive income is less than after-tax underwriting income, no dividend would be payable under our annual variable dividend policy. However, the ultimate decision on whether or not a dividend will be paid is in the discretion of the Board of Directors.

App.-A-43

Following is a summary of our shareholder dividends that were either declared or paid in the last three years:

(millions, except per share amounts)				Amount
Year	Dividend Type	Declared	Paid	Per Share		Total1
2012	Annual – Variable	December 2012	February 2013	$	.2845	$	172.0
2012	Special	October 2012	November 2012		1.0000		604.7
2011	Annual – Variable	December 2011	February 2012		.4072		249.4
2010	Annual – Variable	December 2010	February 2011		.3987		263.8
2010	Special	October 2010	December 2010		1.0000		663.2
2009	Annual – Variable	December 2009	February 2010		.1613		108.4

¹Based on shares outstanding as of the record date.

The declaration of the special dividends is consistent with our published policy of returning capital to shareholders when appropriate and did not affect our annual variable dividend program in those years.

B. 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. As an auto insurer, our claims liabilities are generally short in duration. Generally, at any point in time, approximately 50% of our outstanding reserves are paid within the following twelve months and less than 15% are still outstanding after three years. See Claims Payment Patterns, a supplemental disclosure provided in this Annual Report, for further discussion of the timing of claims payments.

As of December 31, 2012, our consolidated statutory surplus was $5.6 billion, compared to $5.3 billion at December 31, 2011. Our net premiums written-to-surplus ratio was 2.9 to 1 at year-end in each of the last three years. We also have access to $1.4 billion of securities held in a non-insurance subsidiary, portions of which could be contributed to the capital of our insurance subsidiaries to support growth as needed. In addition, our risk-based capital ratios, which are a series of dynamic surplus-related formulas that contain a variety of factors that are applied to financial balances based on the degree of certain risks (e.g., asset, credit, and underwriting), are well in excess of minimum regulatory requirements. Nonetheless, the payment of dividends by our subsidiaries may be subject to certain limitations. See Note 8 – Statutory Financial Information for additional information on subsidiary dividends.

For the three years ended December 31, 2012, operations generated positive cash flows of $4.9 billion, and cash flows are expected to remain positive in both the short-term and reasonably foreseeable future. In 2012, our operating cash flows increased $194 million, compared to 2011, reflecting premium growth in excess of losses paid in 2012.

As of December 31, 2012, 79% of our portfolio was invested in Group II securities, as defined above. In addition, our fixed-income portfolio duration was 1.9 years, with a weighted average credit quality of AA-. At year end, we held $4.9 billion in short-term investments and U.S. Treasury securities. Based on our portfolio allocation and investment strategies, we believe that we have sufficient readily available marketable securities to cover our claims payments without having a negative effect on our cash flows from operations. See Item 1A, “Risk Factors,” in our Form 10-K filed with the SEC for a discussion of certain matters that may affect our portfolio and capital position.

As noted above, during 2011, we issued $500 million of our 3.75% Senior Notes. We received proceeds of $497 million, after deducting underwriting discounts and commissions, and incurred an additional $1.0 million of expenses related to the issuance. In January 2012, we retired all $350 million of our 6.375% Senior Notes at maturity. Our next scheduled debt maturity will be in October 2013 of the entire $150 million of our 7% Notes.

Based upon our capital planning and forecasting efforts, we believe that we have sufficient capital resources, cash flows from operations, and borrowing capability to support our current and anticipated business, scheduled principal and interest payments on our debt, announced dividends, 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 by a rating agency.

We seek to deploy capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs.

App.-A-44

Management views our capital position as consisting of the following 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 by 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 either at a non-insurance subsidiary of the holding company or in our insurance entities, where it is potentially eligible for a dividend up 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 or other securities, consider acquisitions, and pay dividends to shareholders, among other purposes. This capital is largely held at a non-insurance subsidiary of the holding company.

At all times during the last two years, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency load. At December 31, 2012, we held total capital (debt plus equity) of $8.1 billion, compared to $8.2 billion at December 31, 2011, reflecting the actions taken during the year to return underleveraged capital to our shareholders as discussed above.

Short-Term Borrowings

During the last three years, we did not engage in short-term borrowings to fund our operations. As discussed above, our insurance operations create liquidity by collecting and investing insurance premiums in advance of paying claims. Information concerning our insurance operations can be found below under Results of Operations – Underwriting, and details about our investment portfolio can be found below under Results of Operations – Investments.

During 25 days in 2012, we engaged in repurchase agreements under which we loaned U.S. Treasury securities to accredited brokerage firms in exchange for cash equal to the fair value of the securities, as described in more detail below under Results of Operations – Investments: Repurchase and Reverse Repurchase Transactions. These investment transactions were entered into to enhance the yield from our fixed-income portfolio and not as a source of liquidity or funding for our operations. We had no open repurchase commitments at December 31, 2012 or 2011.

C. Commitments and Contingencies

Contractual Obligations

A summary of our noncancelable contractual obligations as of December 31, 2012, follows:

	Payments due by period
(millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt	$	2,081.2	$	150.0	$	0	$	0	$	1,931.2
Interest payments on debt1		1,227.6		123.1		225.2		200.7		678.6
Operating leases		151.5		47.1		68.4		26.5		9.5
Purchase obligations		246.7		185.4		60.6		.7		0
Loss and loss adjustment expense reserves		7,838.4		3,891.1		2,867.6		562.6		517.1
Total	$	11,545.4	$	4,396.7	$	3,221.8	$	790.5	$	3,136.4

¹  Includes interest on the 6.70% Debentures at the fixed annual rate through, but excluding, June 15, 2017. See Note 4 – Debt for further discussion on the interest rate and maturity dates for these Debentures.

App.-A-45

Purchase obligations represent our noncancelable commitments for goods and services (e.g., software licenses, maintenance on information technology equipment, and media placements). Unlike many other forms of contractual obligations, loss and loss adjustment expense (LAE) reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and LAE reserve payments to be made by period, as shown above, are estimates based on our recent payment patterns. To further understand our claims payments, see Claims Payment Patterns, a supplemental disclosure provided in this Annual Report. In addition, we annually publish a comprehensive Report on Loss Reserving Practices, which was most recently filed with the SEC on a Form 8-K on August 7, 2012, that further discusses our claims payment development patterns.

In 2011, we issued $500 million of 3.75% Senior Notes. We did not enter into any other significant new contractual commitments outside the ordinary course of business during 2012 or 2011.

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

Off-Balance-Sheet Arrangements

Our off-balance-sheet leverage includes derivative positions (as disclosed in Note 2 – Investments and the Derivative Instruments section of this Management’s Discussion and Analysis), operating leases, and purchase obligations (disclosed in the table above).

Other

As of December 31, 2012, we have in operation 54 service centers, in 41 metropolitan areas across the country, that provide our concierge level of claims service and are designed to provide end-to-end resolution for auto physical damage losses. In 14 of these centers, we have combined a claims office with a service center to improve our efficiency. In an effort to provide the service center experience to more of our expanding customer population, over the next four years we expect to complete construction of 10-20 new service centers, each co-located with a full service claims office. The cost of these facilities, excluding land, is estimated to average $4 to $6 million per center, depending on a number of variables, including the size and location of the center.

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

App.-A-46

III.  RESULTS OF OPERATIONS – UNDERWRITING

A. Growth

(millions)	2012			2011			2010
NET PREMIUMS WRITTEN
Personal Lines
Agency	$	8,247.0		$	7,705.8		$	7,490.2
Direct		6,389.8			5,906.4			5,534.2
Total Personal Lines		14,636.8			13,612.2			13,024.4
Commercial Auto		1,735.9			1,534.3			1,449.5
Other indemnity		0			.1			2.9
Total underwriting operations	$	16,372.7		$	15,146.6		$	14,476.8
Growth over prior year		8	%		5	%		3	%
NET PREMIUMS EARNED
Personal Lines
Agency	$	8,103.9		$	7,627.4		$	7,419.7
Direct		6,264.2			5,803.7			5,407.2
Total Personal Lines		14,368.1			13,431.1			12,826.9
Commercial Auto		1,649.0			1,467.1			1,474.2
Other indemnity		.9			4.6			13.7
Total underwriting operations	$	16,018.0		$	14,902.8		$	14,314.8
Growth over prior year		7	%		4	%		2	%

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.

We generated an increase in total written and earned premiums during each of the last three years. The increase in premiums reflects our continued work on several initiatives aimed at providing consumers with distinctive new insurance options (discussed below) and our marketing efforts, as well as rate increases taken during 2012 in response to rising claims costs. The Commercial Auto business generated an increase in written premium, reflecting rate increases taken over the last several years and shifts in our mix of business.

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

(thousands)	2012			2011			2010
POLICIES IN FORCE
Personal Lines
Agency auto		4,790.4			4,648.5			4,480.1
Direct auto		4,000.1			3,844.5			3,610.4
Total auto		8,790.5			8,493.0			8,090.5
Special lines1		3,944.8			3,790.8			3,612.2
Total Personal Lines		12,735.3			12,283.8			11,702.7
Growth over prior year		4	%		5	%		7	%
POLICIES IN FORCE
Commercial Auto		519.6			509.1			510.4
Growth over prior year		2	%		0	%		0	%

¹ Includes insurance for motorcycles, ATVs, RVs, mobile homes, watercraft, snowmobiles, and similar items, as well as a personal umbrella product.

App.-A-47

To analyze growth, we review new policies, rate levels, and the retention characteristics of our books of business. The following table shows our year-over-year changes in new and renewal applications (i.e., issued policies):

	Growth Over Prior Year
	2012			2011			2010
APPLICATIONS
Personal Lines
New		(1)	%		(1)	%		7	%
Renewal		6	%		7	%		5	%
Commercial Auto
New		3	%		(2)	%		(1)	%
Renewal		1	%		(1)	%		(4)	%

Our Personal Lines business had a slight decline in new applications in 2012, compared to last year. Growth early in the year was more than offset in the second half of the year after we took rate increases. On a year-over-year basis, new applications were flat in 2012 in our Agency auto business and decreased slightly in our Direct auto business. In addition to rate increases during the year, we implemented changes in our bill plans to require higher down payments and reduced our advertising spend, which also contributed to the decline in applications.

Our Commercial Auto business experienced an increase in new applications for 2012, compared to 2011, driven by an increase in new applications in our for-hire transportation business market target and a significant increase in new applications in Florida, our largest Commercial Auto state. We are committed to our advertising campaigns, product enhancements, and brand-building efforts in order to stimulate new business in both segments.

We remain focused on providing consumers with distinctive auto insurance options. During 2012, we continued the rollout of personal auto product models, which further refine our segmentation and incorporate the best design elements of the Agency and Direct auto products. We introduced these models to five states during 2012, bringing the total number of states to 44 plus the District of Columbia (“jurisdictions”) at the end of the year. We plan to extend the rollout to two additional states in 2013, which will substantially complete the rollout of these product models.

Snapshot^®, our usage-based insurance product, provides customers the opportunity to improve their auto insurance rates based on their personal driving behavior. Snapshot was made available in four additional states in 2012. Snapshot is available to our Direct auto customers in 44 jurisdictions, while our Agency auto customers have access to Snapshot in 39 of those 44 jurisdictions. We plan to expand Snapshot into additional states, depending on regulatory approval and business results. We currently have six patents, and additional patent applications pending, related to usage-based insurance. During 2012, the annual premium of customers accepting Snapshot exceeded $1 billion.

During 2012, we launched our national rollout of a program to offer consumers the opportunity to “test drive” Snapshot without having to change their current insurance to encourage many more people to consider Progressive for their auto insurance needs. Unfortunately, this program did not have the success we expected. We will enhance our marketing efforts related to “test drive” during 2013 in an effort to increase consumer participation.

We are also continuing with our efforts to further penetrate customer households through cross-selling auto policies with our special lines products and vice versa, as well as through Progressive Home Advantage^®. Multi-product customers are an important part of our strategic agenda, since they tend to stay with us longer, have better loss experience, and represent a sizable segment of the market. We have additional opportunity for growth in this area.

Progressive Home Advantage, the program in which we “bundle” our auto product with property insurance provided by one of several unaffiliated insurance carriers, is becoming an integral part of our consumer offerings. As of December 31, 2012, this program was available to Direct customers in 48 states, Agency customers in 22 states, and to both Direct and Agency customers in the District of Columbia. Progressive Home Advantage is not available to customers in Florida and Alaska. During 2012, we acquired a non-controlling interest in the corporate parent of American Strategic Insurance, our primary Progressive Home Advantage provider for Agency customers. We are actively promoting Progressive Home Advantage to independent agents.

App.-A-48

Expanding our offerings in the mobile space remains an important initiative. Consumers have the ability to obtain a quote and buy an auto insurance policy on our mobile website in all states and the District of Columbia. During 2012, we began to offer the ability to quote up to three drivers and three vehicles on mobile devices. This multi-driver, multi-feature was available to customers in 45 states and the District of Columbia as of December 31, 2012, and will be available in all states in the near future. More and more of our Direct business quotes started on a mobile device.

During the year, we made the comparison rate experience available on a mobile device in most of the country. We also launched a feature that allows consumers to use the camera in their mobile device to photograph their driver license and/or current insurance card, to provide easy data fill for an instantaneous quote. This feature is available in 36 states and the District of Columbia and will be rolled out to additional states in 2013. In addition, policyholders are able to make payments and add certain endorsements from their mobile device, as well as receive identification cards and severe weather text alerts. Furthermore, much of our agency-dedicated website is now accessible to agents for many brands of tablet computers and mobile phones, including auto quote/buy, servicing, and reporting capabilities. We expect to continue to add new functionality to our mobile website and mobile applications next year.

We continued the national rollout of a product model in our Commercial Auto business that began in 2011. This model, which expands our coverage offerings, simplifies the quoting and claims experience, and provides incentives for customers to stay with us longer, is available in 46 states, including 32 states added during 2012. We plan to continue the rollout to our remaining three Commercial Auto business states in early 2013. We also offer our customers general liability and business owners policies in the 49 states where we write commercial auto business, and workers’ compensation coverage in 14 states, through our Progressive Commercial Advantage^SM program; these products are underwritten by four unaffiliated insurance companies.

We experienced the following changes in written premium per policy:

	Change Over Prior Year
	2012			2011			2010
WRITTEN PREMIUM PER POLICY
Personal Lines – auto		3	%		(1)	%		(1)	%
Commercial Auto		10	%		5	%		(6)	%

We increased rates in our personal auto business in 2012 in response to rising claims costs, driven primarily by increased severity. For our Commercial Auto business, increases in written premium per policy in both 2012 and 2011 reflect rate increases taken over the last several years, as well as shifts in our mix of business to Florida and for-hire transportation, both of which have higher average premiums. Adjusting rates is a continuous process and we will continue to evaluate future rate needs and react quickly as we recognize changing trends. See below for additional discussion on written premium per policy for our Agency and Direct auto channels and our Commercial Auto business.

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 (including any renewals) will remain in force before cancellation or lapse in coverage. The following table shows our year-over-year changes in policy life expectancy:

	Change Over Prior Year
	2012			2011			2010
POLICY LIFE EXPECTANCY
Personal Lines:
Auto		(1)	%		2	%		5	%
Special lines		0	%		(1)	%		(1)	%
Commercial Auto		0	%		0	%		(1)	%

Although we experienced an increase in the number of personal auto renewal applications year over year, the length of time these customers are remaining as policyholders has declined in 2012, primarily reflecting the effect of rate increases taken in many states. Policy life expectancies for our special lines products and our Commercial Auto business have seen little change over the last several years. Recognizing the importance that retention has on our ability to continue to grow profitably, we continue to emphasize competitive pricing, quality service, and having the products and services available for our customers as their needs change during their insurable life.

App.-A-49

B. Profitability

Profitability for our underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned plus fees and other revenues 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 years ended December 31, our underwriting profitability results were as follows:

	2012						2011						2010
	Underwriting Profit (Loss)						Underwriting Profit (Loss)						Underwriting Profit (Loss)
($ in millions)	$			Margin			$			Margin			$		Margin
Personal Lines
Agency	$	338.9			4.2	%	$	564.9			7.4	%	$	601.0		8.1	%
Direct		289.5			4.6			354.4			6.1			291.1		5.4
Total Personal Lines		628.4			4.4			919.3			6.8			892.1		7.0
Commercial Auto		86.3			5.2			133.5			9.1			185.0		12.5
Other indemnity1		(5.8	)		NM			(5.5	)		NM			6.4		NM
Total underwriting operations	$	708.9			4.4	%	$	1,047.3			7.0	%	$	1,083.5		7.6	%

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.

Our underwriting margin for 2012 was consistent with our long-term profitability target of 4% and exceeded this target in both 2011 and 2010. Pricing and market conditions are always significant drivers of underwriting margins over any defined period. In addition, the lower underwriting margin in 2012 primarily reflects unfavorable loss reserve development this year, compared to favorable development in both 2011 and 2010, increased auto claims severity, and higher catastrophe losses.

Further underwriting results for our Personal Lines business, including results by distribution channel, the Commercial Auto business, and our underwriting operations in total, as defined in Note 10 – Segment Information, were as follows:

Underwriting Performance1	2012		2011		2010
Personal Lines – Agency
Loss & loss adjustment expense ratio		75.2		71.8		70.6
Underwriting expense ratio		20.6		20.8		21.3
Combined ratio		95.8		92.6		91.9
Personal Lines – Direct
Loss & loss adjustment expense ratio		74.2		71.4		72.6
Underwriting expense ratio		21.2		22.5		22.0
Combined ratio		95.4		93.9		94.6
Total Personal Lines
Loss & loss adjustment expense ratio		74.8		71.6		71.4
Underwriting expense ratio		20.8		21.6		21.6
Combined ratio		95.6		93.2		93.0
Commercial Auto
Loss & loss adjustment expense ratio		72.6		68.9		65.1
Underwriting expense ratio		22.2		22.0		22.4
Combined ratio		94.8		90.9		87.5
Total Underwriting Operations2
Loss & loss adjustment expense ratio		74.6		71.4		70.8
Underwriting expense ratio		21.0		21.6		21.6
Combined ratio		95.6		93.0		92.4
Accident year-Loss & loss adjustment expense ratio3		74.5		73.0		73.0

¹ Ratios are expressed as a percentage of net premiums earned; fees and other revenues are netted with underwriting expenses in the ratio calculations.

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 years ended December 31, 2012, 2011, and 2010, these businesses generated an underwriting profit (loss) of $(5.8) million, $(5.5) million, and $6.4 million, respectively.

³  The accident year ratios include only the losses that occurred during the period noted. As a result, accident period results will change over time, either favorably or unfavorably, as we revise our estimates of loss costs when payments are made or reserves for that accident period are reviewed.

App.-A-50

Losses and Loss Adjustment Expenses (LAE)

(millions)	2012		2011		2010
Change in net loss and LAE reserves	$	516.2	$	93.2	$	243.3
Paid losses and LAE		11,431.8		10,541.6		9,888.0
Total incurred losses and LAE	$	11,948.0	$	10,634.8	$	10,131.3

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. 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 estimated needed reserves are adjusted as these underlying assumptions change. See Critical Accounting Policies for a discussion of the effect of changing estimates.

Our total loss and loss adjustment expense ratio increased 3.2 points in 2012 and 0.6 points in 2011, compared to the prior year. On an accident year basis, which includes the impact of prior accident year reserve development, our loss and LAE ratio increased 1.5 points to 74.5 in 2012 and was 73.0 for both 2011 and 2010. The increase in 2012 primarily reflects year-over-year increases in the severity of personal auto claims for all coverages and, to a lesser extent, about $67 million more catastrophe losses incurred in 2012. Catastrophe losses were about $100 million higher in 2011 than 2010, but lower accident frequency in all coverages, except comprehensive, offset the additional storm costs.

The following discussion of our severity and frequency trends excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. Comprehensive coverage insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft, falling objects, and glass breakage.

Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in reserves) was up about 5.0% and 0.5% in 2012 and 2011, respectively, and was down about 1.5% in 2010, over the prior-year periods.

• 2012 – Severity increases in most of our auto coverages were about 5%, including bodily injury, personal injury protection (PIP), property damage, and collision.

• 2011 – Severity in our bodily injury and property coverages increased about 1%-2%, while our PIP severity was down about 3%.

• 2010 – We experienced a decrease in severity for our bodily injury coverage of about 5% and our property coverages of about 1%, while PIP severity increased about 3%.

In response to the rising severity trends we experienced in 2012, we raised rates in our personal auto business about 6% during the year. It is a challenge to estimate future severity, especially for bodily injury and PIP claims, but we continue to monitor changes in the underlying costs, such as medical costs, health care reform, and jury verdicts, along with regulatory changes, and other factors that may affect severity.

Our incurred frequency of auto accidents, on a calendar-year basis, was relatively flat in both 2012 and 2010, and was down about 2% in 2011, compared to the prior-year periods.

• 2012 – Our collision coverage had a decline in frequency of about 3%, primarily related to the mild winter weather experienced in the northern states during the first quarter 2012. Frequency in our PIP coverage was also down about 2%. In contrast, our bodily injury coverage had an increase in frequency of about 1%, but frequency levels are slightly lower than those experienced in 2010.

• 2011 – Each of our coverages experienced a decline in frequency, with bodily injury and PIP having slightly more of a decrease than the property coverages.

• 2010 – We experienced a slight increase in frequency in bodily injury and PIP coverages, while the frequency in the property coverages remained flat.

App.-A-51

We continue to closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not something that we are able to predict with any certainty. We will analyze trends to distinguish changes in our experience from external factors, such as changes in the number of vehicles per household, miles driven, gasoline prices, greater vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business, to allow us to reserve more accurately for our loss exposure.

We experienced severe weather conditions in several areas of the country during each of the last three years. Hail storms, tornadoes, wind, and flooding contributed to catastrophe losses each year, as well as Superstorm Sandy in late 2012 and Hurricane Irene in 2011. The following table shows catastrophe losses incurred for the years ended December 31:

($ in millions)	2012		2011		2010
Catastrophe losses incurred	$	279.1	$	211.9	$	109.3
Increase to combined ratio		1.7 pts.		1.4 pts.		.8 pts.

We continue to respond promptly to catastrophic storms when they occur in order to provide exemplary claims service to our customers.

The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the years ended December 31:

($ in millions)	2012		2011		2010
Actuarial Adjustments
Reserve decrease/(increase)
Prior accident years	$	85.1	$	151.7	$	124.6
Current accident year		(48.3)		91.7		71.0
Calendar year actuarial adjustments	$	36.8	$	243.4	$	195.6
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustments	$	85.1	$	151.7	$	124.6
All other development		(107.1)		90.3		195.8
Total development	$	(22.0)	$	242.0	$	320.4
(Increase) decrease to calendar year combined ratio		(.1) pts.		1.6 pts.		2.2 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. Through these reviews, our actuaries identify and measure variances in the projected frequency and severity trends, which allows them to adjust the reserves to reflect the current costs. We report these actuarial adjustments separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years’ development.

“All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than anticipated in our incurred but not recorded (IBNR) reserves, 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 development that might be applicable to any one or more of those underlying factors.

Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal variation from the date that the reserves are initially established until losses are fully developed. As reflected in the table above, we experienced minor unfavorable reserve development in 2012 and favorable reserve development in both 2011 and 2010.

App.-A-52

2012

• The unfavorable prior year reserve development was primarily attributable to accident year 2011 and to a lesser extent accident year 2010. The aggregate reserve development for accident years 2009 and prior was favorable. Despite overall unfavorable reserve development, we did experience favorable reserve adjustments, primarily in our loss adjustment expenses and our personal auto bodily injury reserves for accident years 2009 and 2008.

• Slightly more than half of the total unfavorable reserve development was attributable to our Commercial Auto business, with the remainder in our personal auto business. In our personal auto business, unfavorable development in the Agency channel was partially offset by favorable development in the Direct channel, primarily reflecting that unfavorable development on our PIP coverage was more skewed to the Agency channel, and that our Direct business had favorable development on our collision coverage, as we experienced more subrogation recoveries in this channel.

• Our personal auto product’s development was primarily attributable to unfavorable development in our Florida PIP coverage and an increase in our estimate of bodily injury severity for accident year 2011.

• Unfavorable development in our Commercial Auto business reflects higher than anticipated frequency and severity costs on late emerging claims and higher settlements on large losses.

2011

• About half of the favorable reserve development was attributable to accident years 2008 and prior, while the balance was primarily due to claims from accident year 2010.

• Approximately 70% of the favorable reserve development was attributable to our Personal Lines business, with our Agency and Direct channels contributing 25% and 75%, respectively; the balance was primarily in our Commercial Auto business.

• The 2011 favorable development was driven primarily by the same factors we experienced in 2010, including favorable settlement of larger losses and lower defense and cost containment costs, but was partially offset by unfavorable development on our total IBNR reserves, reflecting a greater than anticipated increase in the number of late emerging claims compared to 2010.

2010

• Approximately 70% of the favorable reserve development was attributable to accident year 2009, while the balance was mostly due to claims from accident years 2007 and 2006.

• About 70% of the favorable reserve development was in our Personal Lines business, with our Agency and Direct channels contributing almost equal amounts; the balance was in our Commercial Auto business.

• The favorable reserve development reflected the settlement of larger losses for amounts less than we originally reserved in our Personal Lines (primarily in our personal auto product) and Commercial Auto businesses. We also experienced lower than expected defense and cost containment costs, reflecting a combination of fewer claims being litigated, as well as the fact that a greater percentage of these cases are now being handled by our in-house counsel, which is a cost-effective alternative to using external law firms. In addition, our IBNR reserves developed favorably due to lower severity and frequency of late emerging 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 August 7, 2012.

Because we are primarily an insurer of motor vehicles, our exposure as an insurer of environmental, asbestos, and general liability claims is limited. We have established reserves for these exposures in amounts that we believe to be adequate based on information currently known. These exposures do not have a material effect on our liquidity, financial condition, cash flows, or results of operations.

App.-A-53

Underwriting Expenses

Progressive’s policy acquisition costs and other underwriting expenses, net of fees and other revenues, expressed as a percentage of net premiums earned decreased 0.6 points for 2012 and was relatively unchanged for 2011, over the prior year periods. Higher earned premium in 2012, compared to 2011, contributed to the improved expense ratio for 2012. In 2011, increased advertising expenses and information technology costs were offset by lower Gainsharing expenses. During 2012, we began deferring acquisition costs that are associated only with the successful acquisition or renewal of insurance contracts. These policy acquisition costs are amortized over the policy period in which the related premiums are earned (see Note 1 – Reporting and Accounting Policies). We do not defer any advertising costs.

C. Personal Lines

	Growth Over Prior Year
	2012		2011		2010
Net premiums written		8%		5%		5	%
Net premiums earned		7%		5%		4	%
Policies in force		4%		5%		7	%

Progressive’s Personal Lines business writes insurance for personal autos and recreational vehicles and represented 89% of our total net premiums written for 2012 and 90% in both 2011 and 2010. We currently write our Personal Lines products in all 50 states. We also offer our personal auto product (not special lines products) in the District of Columbia and on an Internet-only basis in Australia.

Personal auto represented about 91% of our total Personal Lines net premiums written in each of the last three years. These 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. Personal auto policies in force increased 4% for 2012, 5% for 2011, and 8% for 2010; policies in force for the special lines products increased 4% in 2012 and 5% in both 2011 and 2010. Net premiums written for personal auto increased 8% in 2012 and 5% in both 2011 and 2010; special lines net premiums written grew 4% in 2012 and 1% in both 2011 and 2010.

Our total Personal Lines business generated a 4.4% underwriting profit in 2012, which was widely distributed by product and state. In 2012, 46 states and the District of Columbia were profitable, including 8 of our 10 largest states. The special lines products had a favorable effect on the total Personal Lines combined ratio of 0.6 points in 2012, 0.9 points in 2011, and 1.5 points in 2010.

Even though our Agency and Direct businesses are managed under one Personal Lines organization, we will continue to report our Agency and Direct business results separately as components of our Personal Lines segment to provide further understanding of our products by channel.

The Agency Business

	Growth Over Prior Year
	2012		2011			2010
Net premiums written		7%		3	%		1	%
Net premiums earned		6%		3	%		0	%
Auto: policies in force		3%		4	%		4	%
new applications		0%		(2	)%		4	%
renewal applications		5%		5	%		1	%
written premium per policy		3%		0	%		0	%
policy life expectancy		0%		6	%		8	%

The Agency business includes business written by more than 35,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. Our Agency auto new applications were flat in 2012; solid increases in new applications in the first half of the year were offset by declines in the second half of the year, primarily due to rate increases taken during the second and third quarters of 2012, as well as changes to bill plans that require higher down payments. In 2012, we generated new Agency auto application growth in 21 states and the District of Columbia, including 2 of our top 10 Agency auto states. For 2011, the decrease in new auto applications over the prior year reflects strong growth in new applications experienced in the first half of 2010 and an apparent decline of consumers shopping for auto insurance.

App.-A-54

Rate increases taken during 2012 were also a primary factor in the year-over-year increase in written premium per policy and the flattening retention (measured by policy life expectancy) experienced in our Agency auto business in 2012.

On a year-over-year basis, we saw a modest increase in total Agency auto quotes in both 2012 and 2010, while quotes were relatively flat in 2011. In each of the last three years, we experienced solid increases in quoting on third-party comparative rating systems. We strive to continually improve our presentation on these systems and identify opportunities to ensure our prices are available for agents. Our Agency auto rate of conversion (i.e., converting a quote to a sale) decreased in both 2012 and 2011 and was relatively flat in 2010.

The underwriting expense ratio in our Agency business was relatively unchanged in 2012 and was down 0.5 points in 2011, compared to 2010.

The Direct Business

	Growth Over Prior Year
	2012			2011			2010
Net premiums written		8	%		7	%		9	%
Net premiums earned		8	%		7	%		9	%
Auto: policies in force		4	%		6	%		13	%
new applications		(2	)%		(2	)%		9	%
renewal applications		7	%		11	%		13	%
written premium per policy		3	%		(1	)%		(3	)%
policy life expectancy		(2	)%		(3	)%		2	%

The Direct business includes business written directly by Progressive on the Internet, through mobile devices, and over the phone. Similar to the Agency business, Direct auto new applications were affected by the rate increases taken during 2012 and changes to bill plans that require higher down payments. In addition, lower advertising spend in the second half of the year also contributed to the decline in new auto applications. Out of our top 10 Direct auto states, four states experienced an increase in new auto applications in both 2012 and 2011, compared to eight states in 2010.

Written premium per policy for our Direct auto business increased in 2012, primarily due to rate increases taken during the year. Written premium per policy on both our new and renewal Direct auto business increased in 2012, with the increase for new business about 3% higher than the increase for renewal business. The decline in written premium per policy in both 2011 and 2010 reflected shifts in the mix of our business (e.g., older age vehicles, state mix, and drivers with proof of prior insurance).

We believe the decline in policy life expectancy for 2012 reflects the rate increases taken in most states during the year. Similarly, the decline in policy life expectancy for 2011 reflects rate increases taken in Florida and Massachusetts, as well as changes in bill plan presentation, which led to more customers paying in installments and, historically, these customers tend to retain for shorter periods.

On a year-over-year basis, the total number of quotes in the Direct business decreased 4% and 3% in 2012 and 2011, respectively, reflecting decreases in both Internet quotes and quotes generated via the phone, compared to an increase in 2010 of 2%; we continue to see more quotes coming from mobile devices. The decrease in 2012 partially reflects our actions to reduce advertising on websites that historically generated significant quotes with low conversion rates. The total Direct business conversion rate was relatively flat in both 2012 and 2011 and had a solid increase in 2010, compared to the prior years.

The underwriting expense ratio for our Direct business decreased 1.3 points for 2012 and increased 0.5 points for 2011, compared to the prior year. Higher earned premium in 2012, compared to 2011, was the primary contributor to the decrease in the underwriting expense ratio for 2012. Year-over-year, total advertising spend was up slightly for 2012, but was significantly lower in the second half of the year as we focused on rate adequacy. Advertising expenditures were up in both 2011 and 2010 over the prior years. We remain focused on maintaining a well-respected brand and will continue to spend on advertising as long as our rate levels match our profitability targets. We continue to use “Flo” and the “Superstore” while trying to find the right balance between the benefits of a highly recognizable campaign and keeping the content fresh and engaging. We continue to invest in the infrastructure of both our mobile capabilities and our usage-based insurance products.

App.-A-55

D. Commercial Auto

	Growth Over Prior Year
	2012			2011			2010
Net premiums written		13	%		6	%		(6	)%
Net premiums earned		12	%		0	%		(9	)%
Policies in force		2	%		0	%		0	%
New applications		3	%		(2	)%		(1	)%
Renewal applications		1	%		(1	)%		(4	)%
Written premium per policy		10	%		5	%		(6	)%
Policy life expectancy		0	%		0	%		(1	)%

Progressive’s Commercial Auto business writes primary liability, physical damage, and other auto-related insurance for automobiles and trucks owned by small businesses, with the majority of our customers insuring two or fewer vehicles. Our Commercial Auto business represented 11% of our total net premiums written in 2012 and 10% in both 2011 and 2010. This business is primarily distributed through independent agents and operates in the following business market targets:

• Business auto – autos, vans, and pick-up trucks used by small businesses, such as retailing, farming, services, and private trucking

• For-hire transportation – tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses and non-fleet long-haul operators

• Contractor – vans, pick-up trucks, and dump trucks used by small businesses, such as artisans, heavy construction, and landscapers/snowplowers

• For-hire specialty – dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-type businesses, and

• Tow – tow trucks and wreckers used in towing services and gas/service station businesses.

Business auto is the largest business market target, measured by premium volume, and accounts for approximately one third of our total Commercial Auto premiums, while the for-hire transportation and contractor business market targets each account for another 25%. Business auto and contractor each account for approximately one third of the vehicles we insure in this business, while for-hire transportation accounts for about 15%. 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.

Our Commercial Auto business generated double digit growth in net premiums written for 2012, compared to 2011, continuing the growth we began to see in the second half of 2011. We have been increasing rates in our Commercial Auto business for the last several years and began to see the effects of these rate increases in the year-over-year growth we saw in written premium per policy in 2011, which increased again, at an even higher percentage, in 2012. In addition, during 2012, we experienced growth in Florida and a shift to more for-hire transportation business, both of which have higher average premiums. The decline in written premium per policy in 2010 was due to shifts in our mix of business (e.g., greater percentage of liability-only policies, changes in geographical mix, and more policies qualifying for discounts).

Although Commercial Auto differs from Personal Lines auto in its customer base and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. Since the Commercial Auto policies have higher limits than Personal Lines auto, we analyze the large loss trends and reserving in more detail to allow us to react quickly to changes in this exposure.

E. Other Indemnity

Our other indemnity businesses consist of managing our run-off businesses, including the run-off of our professional liability business, which was sold in 2010. Pursuant to our agreement with the purchaser of this business from the date of sale through April 30, 2012, we continued to write these policies, principally directors and officers liability insurance for community banks, which were 100% reinsured. The sale of this business did not have a material effect on our financial condition, results of operations, or cash flows.

App.-A-56

F. Service Businesses

Our service businesses, which represent less than 1% of our total revenues and do not have a material effect on our overall operations, primarily include:

• Commercial Auto Insurance Procedures/Plans (CAIP) – We are the only servicing carrier on a nationwide basis for CAIP, which are state-supervised plans servicing the involuntary market in 42 states and the District of Columbia. As a service provider, we provide policy issuance and claims adjusting services and collect fee revenue that is earned on a pro rata basis over the terms of the related policies. In 2010, we reached an agreement with AIPSO (the national organization responsible for administering the involuntary insurance market) under which we will receive a supplemental fee, when necessary, to satisfy a minimum servicing fee requirement; this agreement is scheduled to expire on August 31, 2014. We cede 100% of the premiums and losses to the plans. Reimbursements to us from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations, or cash flows.

• Commission-Based Businesses – We have two commission-based service businesses.

Through Progressive Home Advantage^®, we offer, either directly or through our network of independent agents, new and existing Agency and Direct customers home, condominium, and renters insurance written by unaffiliated homeowner’s insurance companies. Progressive Home Advantage is not available to customers in Florida and Alaska. For the policies written under this program in our Direct business, we receive commissions, all of which are used to offset the expenses associated with maintaining this program.

Through Progressive Commercial Advantage^SM, we offer our customers the ability to package their auto coverage with other commercial coverages that are written by four unaffiliated insurance companies or placed with other companies through an unaffiliated agency. This program offers general liability and business owners policies in the 49 states where we write commercial auto insurance and workers’ compensation coverage in 14 states as of December 31, 2012. We receive commissions for the policies written under this program, all of which are used to offset the expenses associated with maintaining this program.

Our service businesses generated revenues equal to expenses for 2012, compared to an operating profit in both 2011 and 2010, reflecting the recognition of the minimum servicing fee for CAIP discussed above.

G. 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 the subsidiaries in the ordinary course of business. We consider all legal actions relating to such claims 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 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), and bodily injury benefits; rating practices at policy renewal; the utilization, content, or appearance of UM/UIM rejection forms; labor rates paid to auto body repair shops; alleged patent infringement; and cases challenging other aspects of our claims or marketing practices or other business operations. Other insurance companies face many of these same issues. During the last three years, we have settled several class action and individual lawsuits. These settlements did not have a material effect on our financial condition, cash flows, or results of operations. See Note 12 – Litigation for a more detailed discussion.

App.-A-57

H. Income Taxes

Income taxes are comprised of net current income taxes payable/recoverable, which are reported in the balance sheets as part of “other liabilities” in 2012 and “other assets” in 2011, 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.

The $86.6 million decrease in our net deferred tax asset during 2012 is primarily due to the increase in unrealized gains that occurred in our investment portfolio. At both December 31, 2012 and 2011, we determined that we did not need a valuation allowance on our deferred tax asset. Although realization of the deferred tax asset is not assured, management believes it is more likely than not that the gross deferred tax asset will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.

There were no material changes in our uncertain tax positions during 2012.

See Note 5 – Income Taxes for further information.

App.-A-58

IV.   RESULTS OF OPERATIONS – INVESTMENTS

A. Portfolio Allocation

At year-end 2012, the fair value of our investment portfolio was $16.5 billion, 3% greater than at year-end 2011, reflecting operating and investment returns that more than offset our capital transactions during the year, including share repurchases, debt servicing and retirement, and shareholder dividends. Our investment income (interest and dividends) decreased 8% in both 2012 and 2011, as compared to the prior year, reflecting lower yields in the portfolio for both periods.

In 2012, we recognized $306.8 million in net realized gains, compared to $102.6 million and $96.1 million in 2011 and 2010, respectively. The net realized gains for all three periods were primarily the result of security sales, partially offset by changes in valuation of our derivative positions and write-downs of securities determined to have had other-than-temporary declines in fair value. The composition of the investment portfolio at December 31, was:

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Portfolio			Duration (years)		Rating2
2012
Fixed maturities	$	11,373.9	$	417.7	$	(23.7	)	$	6.2		$	11,774.1		71.5	%		2.2		AA-
Nonredeemable preferred stocks		404.0		404.6		0			3.8			812.4		4.9			.9		BBB-
Short-term investments – other		1,990.0		0		0			0			1,990.0		12.1			<.1		AAA-
Total fixed-income securities		13,767.9		822.3		(23.7	)		10.0			14,576.5		88.5			1.9		AA-
Common equities		1,370.3		539.0		(10.3	)		0			1,899.0		11.5			na		na
Total portfolio3,4	$	15,138.2	$	1,361.3	$	(34.0	)	$	10.0		$	16,475.5		100.0	%		1.9		AA-
2011
Fixed maturities	$	11,455.7	$	370.2	$	(73.2	)	$	6.6		$	11,759.3		73.6	%		2.1		AA-
Nonredeemable preferred stocks		473.7		342.6		(3.7	)		(6.3	)		806.3		5.1			1.1		BBB-
Short-term investments – other		1,551.8		0		0			0			1,551.8		9.7			<.1		AA+
Total fixed-income securities		13,481.2		712.8		(76.9	)		.3			14,117.4		88.4			1.9		AA-
Common equities		1,431.0		440.0		(25.4	)		0			1,845.6		11.6			na		na
Total portfolio3,4	$	14,912.2	$	1,152.8	$	(102.3	)	$	.3		$	15,963.0		100.0	%		1.9		AA-

na = not applicable

¹ Represents net holding period gains (losses) on certain hybrid securities.

² Represents ratings at December 31, 2012 and 2011. 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 AAA and AA+, we assign an internal rating of AAA-.

³ At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

⁴ The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

Our asset allocation strategy is to maintain 0-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities, as defined in the Overview – Investments and Capital Management section and as reflected in the following tables. We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators.

App.-A-59

The following tables show the composition of our Group I and Group II securities at December 31, 2012 and 2011:

($ in millions)	Fair Value		% of Total Portfolio
2012
Group I securities:
Non-investment-grade fixed maturities	$	482.9		2.9	%
Redeemable preferred stocks1		288.2		1.8
Nonredeemable preferred stocks		812.4		4.9
Common equities		1,899.0		11.5
Total Group I securities		3,482.5		21.1
Group II securities:
Other fixed maturities2		11,003.0		66.8
Short-term investments – other		1,990.0		12.1
Total Group II securities		12,993.0		78.9
Total portfolio	$	16,475.5		100.0	%
2011
Group I securities:
Non-investment-grade fixed maturities	$	384.4		2.4	%
Redeemable preferred stocks1		287.8		1.8
Nonredeemable preferred stocks		806.3		5.1
Common equities		1,845.6		11.6
Total Group I securities		3,324.1		20.9
Group II securities:
Other fixed maturities2		11,087.1		69.4
Short-term investments – other		1,551.8		9.7
Total Group II securities		12,638.9		79.1
Total portfolio	$	15,963.0		100.0	%

¹  Includes non-investment-grade redeemable preferred stocks of $201.7 million at both December 31, 2012 and 2011.

²  Includes investment-grade redeemable preferred stocks, with cumulative dividends, of $86.5 million at December 31, 2012 and $86.1 million at December 31, 2011.

To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) for classifying our residential and commercial mortgage-backed securities, excluding interest-only securities, and the credit ratings from nationally recognized securities rating organizations (NRSRO) for all other debt securities. NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and II securities.

Unrealized Gains and Losses

As of December 31, 2012, our portfolio had pretax net unrealized gains, recorded as part of accumulated other comprehensive income, of $1,327.3 million, compared to $1,050.5 million at December 31, 2011.

During the year, the net unrealized gains in our fixed-income portfolio increased $162.7 million, reflecting a material narrowing of credit spreads (i.e., a decrease in the risk premium paid above the comparable Treasury rate) as well as somewhat lower interest rates. The increase in the fixed-income portfolio is net of $189.6 million of net realized gains, which were primarily generated from sales during the year. The net unrealized gains in our common stock portfolio increased $114.1 million during 2012, reflecting positive returns in the broad equity market. The increase in the common stock portfolio is net of $139.9 million of net realized gains, which were primarily generated from sales during the year.

See Note 2 – Investments for a further break-out of our gross unrealized gains and losses.

App.-A-60

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 and short-term investments, as reported on the balance sheets at December 31, were comprised of the following:

($ in millions)	2012				2011
Investment-grade fixed maturities:1
Short/intermediate term	$	12,803.8	93.0	%	$	12,539.3	94.2	%
Long term		91.0	.7			55.7	.4
Non-investment-grade fixed maturities2		869.3	6.3			716.1	5.4
Total	$	13,764.1	100.0	%	$	13,311.1	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 credit quality rating of an equivalent BB+ or lower, classified by the lowest rating from a NRSRO.

A primary exposure for the fixed-income portfolio is interest rate risk, which is managed by maintaining the portfolio’s duration between 1.5 and 5 years. Interest rate risk includes the change in value resulting from movements in the underlying market rates of debt securities held. The duration of the fixed-income portfolio was 1.9 years at December 31, 2012 and 2011. 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) is monitored on a regular basis.

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	2012			2011
1 year		29.8	%		22.6	%
2 years		17.7			22.3
3 years		28.4			31.5
5 years		17.8			20.8
10 years		6.3			2.8
Total fixed-income portfolio		100.0	%		100.0	%

Another primary exposure related to the fixed-income portfolio is credit risk. This risk is managed by maintaining an A+ minimum average portfolio credit quality rating, as defined by NRSROs.

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

Rating	2012			2011
AAA		54.1	%		53.6	%
AA		12.2			13.4
A		4.0			5.1
BBB		21.3			21.3
Non-rated/other		8.4			6.6
Total fixed-income portfolio		100.0	%		100.0	%

Our portfolio is also exposed to concentration risk. Our investment constraints limit investment in a single issuer, other than U.S. Treasury Notes or a state’s general obligation bonds, to 2.5% of shareholders’ equity, while the single issuer guideline on preferred stocks and/or non-investment-grade debt is 1.25% of shareholders’ equity. Additionally, the guideline applicable to any state’s general obligation bonds is 6% of shareholders’ equity. Our credit risk guidelines limit single issuer exposure; however, we also consider sector concentration a risk, and we frequently evaluate the portfolio’s sector allocation with regard to internal requirements and external market factors. We consider concentration risk in the context of asset classes, including but not limited to common equities, residential and commercial mortgage-backed securities, municipal bonds, and high-yield bonds. At December 31, 2012, we were within all of the constraints described above.

App.-A-61

We monitor prepayment and extension risk, especially in our structured product and preferred stock portfolios. 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 the security that is extended has a lower yield than a security we might be able to obtain by reinvesting the expected redemption principal. Our holdings of different types of structured debt and preferred securities, which are discussed in more detail below, help minimize this risk. During 2012, we did not experience significant prepayment or extension of principal relative to our cash flow expectations in the portfolio.

The pricing on the majority of our preferred stocks continues to reflect expectations that many issuers will not call such securities, and hence reflects an assumption that the securities will remain outstanding for a period of time beyond such initial call date (extension risk). Most of our preferred securities either convert from a fixed-rate coupon to a variable-rate coupon after the call date, or remain variable-rate coupon securities after the call date. The variable-rate coupon is determined by adding a benchmark interest rate, which is reset quarterly to a credit spread premium that was fixed when the security was first issued. Many of these securities have a minimum or floor coupon that is currently in effect. Extension risk on holding these securities is limited to the credit risk premium being below that of a new similar security since the benchmark variable-rate portion of the security’s coupon adjusts for movements in interest rates. Reinvestment risk is similarly limited to receiving a below market level coupon for the credit risk premium portion of a similar security as the benchmark variable interest rate adjusts for changes in short-term interest rate levels. Since the beginning of 2011, ten securities that converted from a fixed-rate coupon to a variable-rate coupon had their first call date; only two of these securities were called. The eight securities that were not called had a value of $343.5 million at December 31, 2012.

We also face the risk that our preferred stock dividend payments could be deferred for one or more periods. As of December 31, 2012, all of our preferred securities continued to pay their dividends in full and on time.

Liquidity risk is another risk factor we monitor. Our overall portfolio remains very liquid and is sufficient to meet expected liquidity requirements. As of December 31, 2012, we held $4.9 billion of U.S. Treasury and short-term securities, compared to $4.5 billion at December 31, 2011. The short-to-intermediate duration of our portfolio provides an additional source of liquidity, as we expect approximately $1.5 billion, or 16%, of our fixed-income portfolio, excluding U.S. Treasury and short-term securities, to repay principal during 2013. Cash from interest and dividend payments provide an additional source of recurring 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 December 31, 2012:

($ in millions)	Fair Value		Duration (years)
U.S. Treasury Notes
Less than two years	$	829.0		1.3
Two to five years		2,067.5		3.2
Total U.S. Treasury Notes		2,896.5		2.7
Interest Rate Swaps
Two to five years ($900 notional value)		0		(3.7	)
Five to nine years ($363 notional value)		0		(6.4	)
Total interest rate swaps ($1,263 notional value)		0		(4.5	)
Total U.S. government obligations	$	2,896.5		.7

The interest rate swap positions show a fair value of zero as they are in an overall liability position of $95.5 million, which is fully funded through collateral payments to the counterparty; the liability is reported in the “other liabilities” section of the Consolidated Balance Sheets. The negative duration of the interest rate swaps is due to the positions being short interest-rate exposure (i.e., receiving a variable-rate coupon). 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.

App.-A-62

ASSET-BACKED SECURITIES

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

($ in millions)	Fair Value		Net Unrealized Gains (Losses)			% of Asset- Backed Securities			Duration (years)		Rating (at period end)
2012
Residential mortgage-backed securities:
Prime collateralized mortgage obligations	$	190.4	$	5.4			5.6	%		1.8		A-
Alt-A collateralized mortgage obligations		40.7		2.8			1.2			1.4		BBB+
Collateralized mortgage obligations		231.1		8.2			6.8			1.8		A-
Home equity (sub-prime bonds)		197.1		6.6			5.8			<.1		BBB
Residential mortgage-backed securities		428.2		14.8			12.6			.7		BBB+
Commercial mortgage-backed obligations:
Commercial mortgage-backed obligations		1,865.3		74.1			54.4			3.1		AA+
Commercial mortgage-backed obligations: interest only		183.4		10.7			5.4			2.1		AAA-
Commercial mortgage-backed obligations		2,048.7		84.8			59.8			3.0		AA+
Other asset-backed securities:
Automobile		498.2		5.7			14.5			1.1		AAA
Credit card		56.0		3.0			1.6			2.2		AAA
Other1		394.4		4.1			11.5			.8		AAA-
Other asset-backed securities		948.6		12.8			27.6			1.0		AAA-
Total asset-backed securities	$	3,425.5	$	112.4			100.0	%		2.2		AA+
2011
Residential mortgage-backed securities:
Prime collateralized mortgage obligations	$	228.6	$	(9.6	)		6.5	%		1.2		A
Alt-A collateralized mortgage obligations		43.2		.9			1.2			2.1		A-
Collateralized mortgage obligations		271.8		(8.7	)		7.7			1.3		A-
Home equity (sub-prime bonds)		155.1		(17.3	)		4.4			<.1		A-
Residential mortgage-backed securities		426.9		(26.0	)		12.1			.8		A-
Commercial mortgage-backed obligations:
Commercial mortgage-backed obligations		1,595.7		39.8			45.3			2.4		AA+
Commercial mortgage-backed obligations: interest only		280.9		7.0			8.0			1.6		AAA-
Commercial mortgage-backed obligations		1,876.6		46.8			53.3			2.2		AA+
Other asset-backed securities:
Automobile		682.6		5.1			19.4			1.3		AAA
Credit card		157.2		4.0			4.4			1.4		AAA
Other1		380.8		.9			10.8			1.1		AAA-
Other asset-backed securities		1,220.6		10.0			34.6			1.2		AAA-
Total asset-backed securities	$	3,524.1	$	30.8			100.0	%		1.7		AA+

¹  Includes equipment leases, manufactured housing, and other types of structured debt.

Substantially all of the asset-backed securities have widely available market quotes. As of December 31, 2012, 7% of our asset-backed securities were exposed to non-prime mortgage loans (home equity and Alt-A). Consistent with our plan to add high-quality, short-maturity, fixed-income securities, during 2012, we continued to purchase investment-grade structured securities, primarily in the commercial mortgage-backed and consumer asset-backed markets. These investments typically have a maturity profile of five years or less, and have substantial structural credit support (i.e., the amount of underlying principal balance that is available to absorb losses before our position begins to recognize losses due

App.-A-63

to further defaults). 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 $1.7 million, $3.9 million, and $13.0 million in write-downs on these securities during the years ended December 31, 2012, 2011, and 2010, respectively. These write-downs occurred primarily in the residential mortgage sectors of our asset-backed portfolio as detailed below.

Collateralized Mortgage Obligations At December 31, 2012, 6.8% of our asset-backed securities were collateralized mortgage obligations (CMO), which are a component of our residential mortgage-backed securities. During the year ended December 31, 2012, we recorded $0.8 million in credit loss write-downs on our CMO portfolio due to estimated principal losses in the security’s most recent cash flow projections, including $0.1 million of Alt-A securities. During the years ended December 31, 2011 and 2010, we recorded $3.1 million and $1.7 million in write-downs on our CMO portfolio, respectively, including $0 and $0.4 million on Alt-A securities. The following table details the credit quality rating and fair value of our collateralized mortgage obligations, along with the loan classification and a comparison of the fair value at December 31, 2012, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Collateralized Mortgage Obligations (at December 31, 2012)
($ in millions) Rating1	Non-agency prime			Alt-A			Government/GSE2			Total			% of Total
AAA	$	55.1		$	.3		$	9.0		$	64.4			27.9	%
AA		0			20.3			2.0			22.3			9.7
A		22.6			2.2			0			24.8			10.7
BBB		18.3			0			0			18.3			7.9
Non-investment grade		80.7			17.9			2.7			101.3			43.8
Total	$	176.7		$	40.7		$	13.7		$	231.1			100.0	%
Increase (decrease) in value		2.4	%		7.5	%		9.6	%		3.7	%

¹  The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings, our non-investment-grade securities (i.e., Group I) represent $10.3 million, or 4.5%, of the total.

²  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).

Home-Equity Securities At December 31, 2012, 5.8% of our asset-backed securities were home-equity securities, which are a component of our residential mortgage-backed securities. We recorded $0.8 million, $0.2 million, and $9.4 million in write-downs for the years ended December 31, 2012, 2011, and 2010, respectively. The following table shows the credit quality rating of our home-equity securities, along with a comparison of the fair value at December 31, 2012, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Home-Equity Securities (at December 31, 2012)
($ in millions) Rating1	Total			% of Total
AAA	$	11.5			5.8	%
AA		11.4			5.8
A		34.4			17.4
BBB		21.4			10.9
Non-investment grade		118.4			60.1
Total	$	197.1			100.0	%
Increase (decrease) in value		3.4	%

¹ The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings, our non-investment-grade securities (i.e., Group I) represent $0.2 million.

App.-A-64

Commercial Mortgage-Backed Securities At December 31, 2012, 54.4% of our asset-backed securities were commercial mortgage-backed securities (CMBS bonds) and 5.4% were CMBS interest-only securities (IO). We recorded $0.1 million, $0.6 million, and $1.9 million in write-downs on our IO portfolio during the years ended December 31, 2012, 2011, and 2010, respectively. No write-downs were recorded on our CMBS bond portfolio during the same periods. The following table details the credit quality rating and fair value of our CMBS bond and IO portfolios:

Commercial Mortgage-Backed Securities (at December 31, 2012)1
($ in millions) Category	AAA			AA			A			BBB			Non-Investment Grade			Total			% of Total
CMBS bonds	$	1,399.7		$	202.2		$	102.6		$	126.1		$	34.7		$	1,865.3			91.0	%
IO		168.5			5.2			0			0			9.7			183.4			9.0
Total fair value	$	1,568.2		$	207.4		$	102.6		$	126.1		$	44.4		$	2,048.7			100.0	%
% of Total fair value		76.5	%		10.1	%		5.0	%		6.2	%		2.2	%		100.0	%

¹  The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings for our CMBS bonds, the non-investment-grade securities (i.e., Group I) represent $68.8 million, or 3.4%, of the total.

The securities in the CMBS bond portfolio that are rated BBB or lower had a net unrealized gain of $15.6 million at December 31, 2012 and an average duration of 1.1 years, compared to 3.0 years for the entire CMBS portfolio. The BBB and non-investment-grade exposure includes $79.9 million of cell tower securitizations; all of these bonds have a single borrower, are backed by a cross-collateralized pool of cell towers throughout the U.S., and have significant net cash flow relative to their interest payments. The following table summarizes the composition of our CMBS bond portfolio:

CMBS Bond Portfolio (at December 31, 2012)
($ in millions) Vintage	Multi- Borrower		Single- Borrower		Total
1997-2005	$	677.9	$	0	$	677.9
2006-2008		15.2		140.2		155.4
2009-2012		551.2		480.8		1,032.0
Total	$	1,244.3	$	621.0	$	1,865.3

CMBS bonds that originated since 2009 are called “CMBS 2.0” and tend to have more conservative underwriting than the 2006-2008 vintages.

Planned amortization class IOs comprised $66.0 million of our $183.4 million 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. With the exception of $100.3 million in Freddie Mac senior multi-family IOs, we have no multi-borrower deal IOs originated after 2006.

MUNICIPAL SECURITIES

Included in the fixed-income portfolio at December 31, 2012 and 2011, were $1,964.4 million and $2,002.1 million, respectively, of state and local government obligations. These securities had a duration of 2.8 years and 2.6 years, at December 31, 2012 and 2011, respectively, with an overall credit quality rating of AA+ (excluding the benefit of credit support from bond insurance) for both years. These securities had net unrealized gains of $50.0 million and $63.5 million at December 31, 2012 and 2011, respectively. During the years ended December 31, 2012, 2011, and 2010, we did not record any write-downs on our municipal portfolio. The following table details the credit quality rating of our municipal securities at December 31, 2012, without the benefit of credit or bond insurance:

Municipal Securities (at December 31, 2012)
(millions) Rating	General Obligations		Revenue Bonds		Total
AAA	$	336.8	$	579.5	$	916.3
AA		382.1		581.4		963.5
A		31.6		10.6		42.2
BBB		0		38.9		38.9
Non-investment grade/non-rated		0		3.5		3.5
Total	$	750.5	$	1,213.9	$	1,964.4

App.-A-65

Included in revenue bonds were $884.6 million of single family housing revenue bonds issued by state housing finance agencies, of which $442.8 million were supported by individual mortgages held by the state housing finance agencies and $441.8 million were supported by mortgage-backed securities. Of the programs supported by mortgage-backed securities, approximately 25% were collateralized by Fannie Mae and Freddie Mac mortgages; the remaining 75% were 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 was AA+. Most of these mortgages were supported by FHA, VA, or private mortgage insurance providers.

Approximately 7%, or $133.6 million, of our total municipal securities were insured general obligation ($99.0 million) or revenue ($34.6 million) bonds with an overall credit quality rating of AA- at December 31, 2012, excluding the benefit of credit insurance provided by monoline insurers. These securities had a net unrealized gain of $5.6 million at December 31, 2012, compared to $9.2 million at December 31, 2011. We buy and hold these securities based on our evaluation of the underlying credit without reliance on the monoline insurance. Our investment 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 December 31, 2012 and 2011, were $3,113.0 million and $2,896.2 million, respectively, of fixed-rate corporate securities. These securities had a duration of 3.3 years at December 31, 2012, compared to 3.2 years at December 31, 2011, with an overall credit quality rating of BBB for both years. These securities had net unrealized gains of $123.7 million and $87.8 million at December 31, 2012 and 2011, respectively. During the years ended December 31, 2012, 2011, and 2010, we did not record any write-downs on our corporate debt portfolio. The table below shows the exposure break-down by sector and rating, reflecting any changes in ratings since acquisition:

Corporate Securities (at December 31, 2012)
Sector	AAA			AA			A			BBB			Non-Investment Grade			% of Portfolio
Consumer		0	%		0	%		.8	%		30.9	%		4.1	%		35.8	%
Industrial		0			.5			3.0			14.3			6.5			24.3
Communications		0			0			1.2			11.9			.5			13.6
Financial Services		.2			2.2			5.4			6.4			1.1			15.3
Technology		0			0			.5			2.6			0			3.1
Basic Materials		0			0			0			3.5			.8			4.3
Energy		0			0			1.2			2.4			0			3.6
Total		.2	%		2.7	%		12.1	%		72.0	%		13.0	%		100.0	%

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

We hold both redeemable (i.e., mandatory redemption dates) and nonredeemable (i.e., perpetual with call dates) preferred stocks. At December 31, 2012, we held $374.7 million in redeemable preferred stocks and $812.4 million in nonredeemable preferred stocks, compared to $373.9 million and $806.3 million, respectively, at December 31, 2011.

Our preferred stock portfolio had net unrealized gains of $422.4 million and $333.5 million at December 31, 2012 and 2011, respectively. We did not record any write-downs on our preferred stock portfolio during the years ended December 31, 2012, 2011, or 2010.

Our preferred stock portfolio had a duration of 1.3 years, which reflects the portfolio’s exposure to changes in interest rates, at December 31, 2012, compared to 1.6 years at December 31, 2011. The overall credit quality rating was BBB- at December 31, 2012 and 2011. Approximately 30% of our preferred stock securities are fixed-rate securities, and 70% 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

App.-A-66

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. The interest rate duration of our preferred securities is calculated to reflect both the call and floating rate features. Although a preferred security may remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. The table below shows the exposure break-down by sector and rating, reflecting any changes in ratings since acquisition:

Preferred Stocks (at December 31, 2012)
Sector	BBB			Non-Investment Grade/ Non- Rated			% of Preferred Stock Portfolio
Financial Services
U.S. banks		31.9	%		23.1	%		55.0	%
Foreign banks		0			1.8			1.8
Insurance		7.7			9.9			17.6
Other		0			2.7			2.7
Total financial services		39.6			37.5			77.1
Industrials		5.7			9.3			15.0
Utilities		7.9			0			7.9
Total		53.2	%		46.8	%		100.0	%

Approximately 65% 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.

Common Equities

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

($ in millions)	2012				2011
Common stocks	$	1,887.0	99.4	%	$	1,834.1	99.4	%
Other risk investments		12.0	.6			11.5	.6
Total common equities	$	1,899.0	100.0	%	$	1,845.6	100.0	%

At December 31, 2012, 11.5% of the total investment portfolio was in common equities, compared to 11.6% at the same time in 2011. Our indexed common stock portfolio, which makes up 88.9% of our December 31, 2012 common stock holdings, is 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 both periods reported in the table above, the GAAP basis total return was within the desired tracking error when compared to the Russell 1000 Index. We held 740 out of 992, or 75%, of the common stocks comprising the Russell 1000 Index at December 31, 2012, which made up 93% of the total market capitalization of the index. During the year, we reduced our indexed portfolio by $330.0 million to reduce our overall risk profile in the portfolio.

The remaining 11.1% reflects our decision to invest in common stocks on an actively managed basis. We have two external investment managers who have the authority to invest up to $250 million in aggregate in common stocks, including one manager selected during 2012 with $100 million of authorization. At December 31, 2012, the fair value of the actively managed portfolio was $209.0 million, compared to a cost basis of $193.8 million; neither manager had fully deployed their allocated funds into common stock investments.

App.-A-67

We recorded $6.3 million in write-downs on our common equities during 2012, compared to $1.6 million during 2011 and $0.9 million during 2010.

The following is a summary of our indexed common stock portfolio holdings by sector compared to the Russell 1000 Index composition:

Sector	Equity Portfolio Allocation at December 31, 2012			Russell 1000 Allocation at December 31, 2012			Russell 1000 Sector Return in 2012
Consumer discretionary		14.3	%		14.9	%		25.8	%
Consumer staples		8.3			8.5			10.3
Financial services		16.8			17.7			27.4
Health care		11.6			11.2			19.6
Materials and processing		4.5			4.6			18.0
Other energy		10.1			10.1			4.2
Producer durable		10.0			11.0			16.5
Technology		16.3			16.2			12.5
Utilities		6.2			5.8			7.8
Other equity		1.9			NA			NA
Total common stocks		100.0	%		100.0	%		16.5	%

NA = Not Applicable

Trading Securities

At December 31, 2012 and 2011, we did not hold any trading securities and we did not have any net realized gains (losses) on trading securities for the years ended December 31, 2012, 2011, and 2010.

Derivative Instruments

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

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 net derivative asset and 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. 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 their immaterial effect on our financial condition, cash flows, and results of operations.

App.-A-68

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:

										Net Realized Gains (Losses)
(millions)	Date			Notional Value						Years ended December 31,
Term	Effective	Maturity	Coupon	2012		2011		2010		2012			2011			2010
Open:
5-year	05/2011	05/2016	Receive variable	$	400	$	400	$	0	$	(10.5	)	$	(20.0	)	$	0
5-year	08/2011	08/2016	Receive variable		500		500		0		(13.5	)		(9.2	)		0
9-year	12/2009	01/2019	Receive variable		363		363		713		(18.7	)		(44.8	)		(66.6	)
Total open positions				$	1,263	$	1,263	$	713	$	(42.7	)	$	(74.0	)	$	(66.6	)
Closed:
9-year	NA	NA	Receive variable		0		350		0		0			(25.5	)		0
Total closed positions				$	0	$	350	$	0	$	0		$	(25.5	)	$	0
Total interest rate swaps										$	(42.7	)	$	(99.5	)	$	(66.6	)

NA = Not Applicable

CORPORATE CREDIT DEFAULT SWAPS

We invest in corporate credit default swaps primarily to manage the fixed-income portfolio credit risk. The following table summarizes our corporate credit default swap activity:

(millions)	Date				Bought or Sold Protection	Notional Value						Net Realized Gains (Losses)
												Years ended December 31,
Term	Effective		Maturity			2012		2011		2010		2012			2011			2010
Open:
5-year		09/2008		09/2013	Bought	$	0	$	25	$	25	$	0		$	(.2	)	$	.9
Corporate swap		NA		NA	Sold		0		0		10		0			0			1.2
Treasury Note1		NA		NA	Sold		0		0		10		0			0			.4
Total open positions												$	0		$	(.2	)	$	2.5
Closed:
2-year		NA		NA	Bought	$	0	$	0	$	10	$	0		$	0		$	0
4-year		NA		NA	Bought		0		0		15		0			0			(.2	)
5-year		NA		NA	Bought		25		0		0		(1.0	)		0			0
Corporate swap		NA		NA	Sold		0		10		0		0			.2			0
Treasury Note1		NA		NA	Sold		0		10		0		0			.3			0
Total closed positions												$	(1.0	)	$	.5		$	(.2	)
Total corporate swaps												$	(1.0	)	$	.3		$	2.3

¹ Used to replicate a long corporate bond position.

NA = Not Applicable

App.-A-69

CASH FLOW HEDGES

We repurchased $30.9 million, $15.0 million, and $222.9 million principal amount of our 6.70% Debentures during 2012, 2011, and 2010, respectively (see Note 4 – Debt for further discussion). We reclassified $0.6 million, $0.3 million, and $5.8 million (pretax) from accumulated other comprehensive income on the balance sheet to net realized gains (losses) on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the repurchased 6.70% Debentures.

During 2011, we issued $500 million of 3.75% Senior Notes and entered into a forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates (see Note 4 – Debt for further discussion). Upon issuance of the 3.75% Senior Notes, the hedge was closed and we recognized, as part of accumulated other comprehensive income, a pretax unrealized loss of $5.1 million. The $5.1 million loss was deferred and is being recognized as an increase to interest expense over the life of the 3.75% Senior Notes.

During 2012, 2011, and 2010, we recognized $2.1 million, $2.6 million, and $2.7 million, respectively, as a net decrease to interest expense on our closed debt issuance cash flow hedges.

B. Investment Results

Investment income (interest and dividends, before investment and interest expenses) decreased 8% for 2012, compared to a decrease of 8% in 2011 and an increase of 3% for 2010. The reductions in both 2012 and 2011 were primarily the result of decreases in investment yields; in 2012, the decrease was partially offset by an increase in average assets. The increase in 2010 was the result of an increase in average invested assets, partially offset by a reduction in the portfolio yield.

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 investment income, net realized gains (losses) on securities, and changes in unrealized gains (losses) on investments.

The following summarizes investment results for the years ended December 31:

	2012			2011			2010
Pretax investment book yield		2.9	%		3.2	%		3.5	%
Weighted average FTE book yield		3.2	%		3.6	%		3.9	%
FTE total return:
Fixed-income securities		5.5	%		3.4	%		6.9	%
Common stocks		16.7	%		2.5	%		17.0	%
Total portfolio		6.8	%		3.2	%		7.8	%

A further break-down of the total returns for our portfolio, including the net gains (losses) on our derivative positions, for the years ended December 31, follows:

	2012			2011			2010
Fixed-income securities:
U.S. Treasury Notes		(.2	)%		3.0	%		4.7	%
Municipal bonds		4.6	%		6.9	%		5.4	%
Corporate bonds		7.3	%		5.6	%		8.4	%
Commercial mortgage-backed securities		7.0	%		3.8	%		8.2	%
Collateralized mortgage obligations		10.8	%		.7	%		10.7	%
Asset-backed securities		4.9	%		1.3	%		7.0	%
Preferred stocks		23.3	%		0	%		15.2	%
Common stocks:
Indexed common stocks		17.0	%		2.4	%		17.0	%
Actively managed common stocks		13.7	%		1.1	%		NA
NA = Not Applicable

App.-A-70

Investment expenses were $15.4 million in 2012, compared to $13.5 million in 2011 and $11.9 million in 2010. The increase in 2012 primarily reflects fees related to our external investment managers who were selected during 2012 and in the fourth quarter 2011. The increase in 2011 was the result of $1.0 million in expenses related to the issuance of our 3.75% Senior Notes during the year (see Note 4 – Debt for further discussion).

Interest expense in 2012 was $123.8 million, compared to $132.7 million in 2011 and $133.5 million in 2010. The decrease in 2012 reflects lower interest expense due to the retirement of $350 million of our 6.375% Senior Notes at maturity in January 2012, partially offset by additional expense incurred following the issuance of $500 million of our 3.75% Senior Notes in August 2011. The 2011 decrease reflects the 2010 repurchase of $222.9 million of our 6.70% Debentures, partially offset by the issuance of our 3.75% Senior Notes (see Note 4 – Debt for further discussion).

Other-Than-Temporary Impairment (OTTI)

Realized losses may include write-downs of securities determined to have had an other-than-temporary decline in fair value. The write-down activity recorded in the comprehensive income statements for the years ended December 31, was as follows:

(millions)	Total Write-downs		Write-downs on Securities Sold			Write-downs on Securities Held at Period End
2012
Residential mortgage-backed securities	$	1.6	$	0		$	1.6
Commercial mortgage-backed securities		.1		0			.1
Total fixed income		1.7		0			1.7
Common equities		6.3		(4.5	)		1.8
Total portfolio	$	8.0	$	(4.5	)	$	3.5
2011
Residential mortgage-backed securities	$	3.3	$	0		$	3.3
Commercial mortgage-backed securities		.6		0			.6
Total fixed income		3.9		0			3.9
Common equities		1.6		(1.4	)		.2
Total portfolio	$	5.5	$	(1.4	)	$	4.1
2010
Residential mortgage-backed securities	$	11.1	$	0		$	11.1
Commercial mortgage-backed securities		1.9		0			1.9
Total fixed income		13.0		0			13.0
Common equities		.9		(.4	)		.5
Total portfolio	$	13.9	$	(.4	)	$	13.5

See Critical Accounting Policies, Other-Than-Temporary Impairment for a complete discussion on our analysis regarding our treatment of OTTI.

App.-A-71

C. Repurchase and Reverse Repurchase Transactions

From time to time, we enter into reverse repurchase commitment transactions. In these transactions, we loan cash to internally approved counterparties and receive U.S. Treasury Notes pledged as collateral against the cash borrowed. We choose to enter into these transactions as rates and credit quality are more attractive than other short-term rates available in the market. Our exposure to credit risk is limited due to the characteristics of the collateral (i.e., U.S. Treasury Notes) received. The income generated on these transactions is calculated at the then applicable general collateral rates on the value of U.S. Treasury securities received. We have counterparty exposure on reverse repurchase agreements in the event of a counterparty default to the extent the general collateral security’s value is below the cash we delivered to acquire the collateral. The short-term duration of the transactions (primarily overnight investing) reduces that default exposure.

We earned income of $1.0 million, $0.4 million, and $1.2 million on reverse repurchase agreements for the years ended December 31, 2012, 2011, and 2010, respectively. We had $581.0 million of open reverse repurchase commitments with two counterparties at December 31, 2012, compared to $384.2 million open with two counterparties at December 31, 2011. During 2012, our largest single outstanding balance of reverse repurchase commitments was $1,245.1 million, which was open for one day; the average daily balance of reverse repurchase commitments was $775.9 million. During 2011, our largest single outstanding balance of reverse repurchase commitments was $975.0 million, which was open for four days; the average daily balance of reverse repurchase commitments was $618.7 million.

Additionally, during 2012 and 2011, we entered into repurchase commitment transactions for periods of 25 days and 10 days, respectively. In these transactions, we loaned U.S. Treasury securities to internally approved counterparties in exchange for cash equal to the fair value of the securities. The cash proceeds were invested in unsecured commercial paper with a maturity matching the repurchase transaction and issued by large, high-quality institutions. These transactions were entered into as overnight arrangements, and we had no open repurchase commitments at December 31, 2012 or 2011. During the period we invested in repurchase transactions in 2012, the largest single outstanding balance was $145.1 million, which was open for one day; the average daily balance of repurchase commitments was $144.2 million. In 2011, the largest single outstanding balance during the period we invested in repurchase transactions was $43.6 million, which was open for one day; the average daily balance was $43.5 million. We earned income of less than $0.1 million on these transactions during the periods they were open in 2012 and 2011, respectively.

App.-A-72

V. CRITICAL ACCOUNTING POLICIES

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

A. Loss and LAE Reserves

Loss and loss adjustment expense (LAE) reserves represent our best estimate of our ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2012, we had $7.0 billion of net loss and LAE reserves, which included $5.5 billion of case reserves and $1.5 billion of incurred but not recorded (IBNR) reserves.

Progressive’s actuarial staff reviews over 400 subsets of business data, which are at a combined state, product, and line coverage level (the “products”), to calculate the needed loss and LAE reserves. We begin our review of a set of data by producing multiple estimates of needed reserves, using both paid and incurred data, to determine if a reserve change is required. In the event of a wide variation among results generated by the different projections, our actuarial group will further analyze the data using additional techniques. Each review develops a point estimate for a relatively small subset of the business, which allows us to establish meaningful reserve levels for that subset. In addition, the actuarial staff completes separate projections of needed case and IBNR reserves.

We do not review loss reserves on a macro level and, therefore, do not derive a companywide range of reserves to compare to a standard deviation. Instead, we review a large majority of our reserves by product/state combination on a quarterly time frame, with the remaining reserves generally reviewed on a semiannual basis. A change in our scheduled reviews of a particular subset of the business depends on the size of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, we have the ability to identify and measure variances in the trends by state, product, and line coverage that otherwise would not be seen on a consolidated basis. Our intricate process of reviewing the aforementioned subsets makes compiling a companywide roll up to generate a range of needed loss reserves not meaningful.

In analyzing the ultimate accident year loss experience, our actuarial staff reviews in detail, at the subset level, frequency (number of losses per earned car year), severity (dollars of loss per each claim), and average premium (dollars of premium per earned car year). The loss ratio, a primary measure of loss experience, is equal to the product of frequency times severity divided by the average premium. The average premium for personal and commercial auto businesses is not estimated. The actual frequency experienced will vary depending on the change in mix of class of drivers insured by Progressive, but the frequency projections for these lines of business is generally stable in the short term, because a large majority of the parties involved in an accident report their claims within a short time period after the occurrence. The severity experienced by Progressive is much more difficult to estimate, especially for injury claims, since severity is affected by changes in underlying costs, such as medical costs, jury verdicts, and regulatory changes. In addition, severity will vary relative to the change in our mix of business by limit.

Assumptions regarding needed reserve levels made by the actuarial staff take into consideration influences on available historical data that reduce the predictiveness of our projected future loss costs. Internal considerations that are process-related, which generally result from changes in our claims organization’s activities, include claim closure rates, the number of claims that are closed without payment, and the level of the claims representatives’ estimates of the needed case reserve for each claim. These changes and their effect on the historical data are studied at the state level versus on a larger, less indicative, countrywide basis.

App.-A-73

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

The manner in which we consider and analyze the multitude of influences on the historical data, as well as how loss reserves affect our financial results, is discussed in more detail in our Report on Loss Reserving Practices, which was filed on August 7, 2012 via Form 8-K.

At December 31, 2012, Progressive had $7.8 billion of carried gross reserves and $7.0 billion of net reserves (net of reinsurance recoverables on unpaid losses). Our net reserve balance implicitly assumes that the loss and LAE severity for accident year 2012 over accident year 2011 will increase by 2.7% for personal auto liability and increase by 4.1% for commercial auto liability. Personal auto liability and commercial auto liability reserves represent approximately 97% of our total carried net reserves. As discussed above, the severity estimates are influenced by many variables that are difficult to precisely quantify and which influence the final amount of claims settlement. That, coupled with changes in internal claims practices, the legal environment, and state regulatory requirements, requires significant judgment in the estimate of the needed reserves to be carried.

The following table highlights what the effect would be to our carried loss and LAE reserves, on a net basis, as of December 31, 2012, if during 2013 we were to experience the indicated change in our estimate of severity for the 2012 accident year (i.e., claims that occurred in 2012):

	Estimated Changes in Severity for Accident Year 2012
(millions)	-4%		-2%		As Reported		+2%		+4%
Personal auto liability	$	5,251.9	$	5,385.3	$	5,518.7	$	5,652.1	$	5,785.5
Commercial auto liability		1,242.8		1,260.6		1,278.4		1,296.2		1,314.0
Other1		179.2		179.2		179.2		179.2		179.2
Total	$	6,673.9	$	6,825.1	$	6,976.3	$	7,127.5	$	7,278.7

¹ Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.

Note: Every percentage point change in our estimate of severity for the 2012 accident year would affect our personal auto liability reserves by $66.7 million and our commercial auto reserves by $8.9 million.

Our 2012 year-end loss and LAE reserve balance also includes claims from prior years. Claims that occurred in 2012, 2011, and 2010, in the aggregate, accounted for approximately 92% of our reserve balance. If during 2013 we were to experience the indicated change in our estimate of severity for the total of the prior three accident years (i.e., 2012, 2011, and 2010), the effect to our year-end 2012 reserve balances would be as follows:

	Estimated Changes in Severity for Accident Years 2012, 2011, and  2010
(millions)	-4%		-2%		As Reported		+2%		+4%
Personal auto liability	$	4,767.9	$	5,143.3	$	5,518.7	$	5,894.1	$	6,269.5
Commercial auto liability		1,176.8		1,227.6		1,278.4		1,329.2		1,380.0
Other1		179.2		179.2		179.2		179.2		179.2
Total	$	6,123.9	$	6,550.1	$	6,976.3	$	7,402.5	$	7,828.7

¹ Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.

Note: Every percentage point change in our estimate of severity for the 2012, 2011, and 2010 accident years would affect our personal auto liability reserves by $187.7 million and our commercial auto reserves by $25.4 million.

App.-A-74

Our best estimate of the appropriate amount for our reserves as of year-end 2012 is included in our financial statements for the year. Our goal is to ensure that total reserves are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. At the point in time when reserves are set, we have no way of knowing whether our reserve estimates will prove to be high or low, or whether one of the alternative scenarios discussed above is “reasonably likely” to occur. The above tables show the possible favorable or unfavorable development we will realize if our estimates miss by 2% or 4%. During 2012, our estimate of the needed reserves at the end of 2011 increased 0.3%. The following table shows how we have performed against this goal over the last ten years:

($ in millions) For the years ended December 31,	2002		2003		2004		2005		2006		2007		2008		2009		2010		2011			2012
Loss and LAE Reserves-net1	$	3,632.1	$	4,346.4	$	4,948.5	$	5,313.1	$	5,363.6	$	5,655.2	$	5,932.9	$	6,123.6	$	6,366.9	$	6,460.1		$	6,976.3
Re-estimated reserves as of:
One year later		3,576.0		4,237.3		4,592.6		5,066.2		5,443.9		5,688.4		5,796.9		5,803.2		6,124.9		6,482.1
Two years later		3,520.7		4,103.3		4,485.2		5,130.5		5,469.8		5,593.8		5,702.1		5,647.7		6,074.4		—
Three years later		3,459.2		4,048.0		4,501.6		5,093.6		5,381.9		5,508.0		5,573.8		5,575.0		—		—
Four years later		3,457.8		4,070.0		4,471.0		5,046.7		5,336.5		5,442.1		5,538.5		—		—		—
Five years later		3,475.4		4,073.7		4,475.5		5,054.6		5,342.8		5,452.8		—		—		—		—
Six years later		3,472.5		4,072.4		4,486.4		5,060.8		5,352.8		—		—		—		—		—
Seven years later		3,470.1		4,080.5		4,486.3		5,070.2		—		—		—		—		—		—
Eight years later		3,477.3		4,077.8		4,493.3		—		—		—		—		—		—		—
Nine years later		3,475.9		4,082.7		—		—		—		—		—		—		—		—
Ten years later		3,479.8		—		—		—		—		—		—		—		—		—
Cumulative Development:
Favorable(Unfavorable)	$	152.3	$	263.7	$	455.2	$	242.9	$	10.8	$	202.4	$	394.4	$	548.6	$	292.5	$	(22.0	)
Percentage2		4.2		6.1		9.2		4.6		0.2		3.6		6.6		9.0		4.6		(0.3	)

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

² Cumulative development ÷ loss and LAE reserves.

Note: The chart above represents the development of the property-casualty loss and LAE reserves for 2002 through 2011. The last line in the triangle for each year represents the following:

Re-estimated reserves = Total amount paid to-date + Re-estimated liability for unpaid losses and LAE-net

Changes in the estimated severity and the actual number of late reported claims are the cause of the change in our re-estimated reserves from year to year. The cumulative development represents the aggregate change in our estimates over all years.

Our bodily injury severity change was much lower than we expected between 2002 and 2005; thus, the reserve run-off for these years was very favorable following the end of each year, or about 4% to 9% of our original carried amounts. The reserve development for 2006 and 2007 was less than 4% of our original carried reserves. For both 2008 and 2009, we experienced favorable reserve development of more than 6% of our original estimates, which reflects the decreases in severity we experienced in both our personal auto (about 4%) and Commercial Auto (about 6%) businesses through 2012. The favorable development of approximately 5% for 2010 also reflects lower severity estimates for both personal auto and Commercial Auto, but to a lesser extent than the previous two years. For 2011, we experienced very minimal unfavorable development, or less than 0.5% of our original estimate.

Because Progressive is primarily an insurer of motor vehicles, we have minimal exposure as an insurer of environmental, asbestos, and general liability claims.

App.-A-75

B. Other-Than-Temporary Impairment (OTTI)

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; (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); or (iii) credit-related losses, where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security.

Fixed-income securities and common equities with declines attributable to issuer-specific fundamentals are reviewed to identify 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-income investments with unrealized losses due to market- or sector-related declines, the losses are not deemed to qualify as other-than-temporary if we do not have the intent to sell the investments, and it is more likely than not that we will not be required to sell the investments, prior to the period of time that we anticipate to be necessary for the investments to recover their cost bases. In general, our policy for common 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 (i) when we are able to objectively determine that the loss is other-than-temporary, or (ii) when the security has been in a significant loss position for three consecutive quarters.

When a security in our fixed-maturity portfolio has an unrealized loss and we intend to sell the security, or it is more likely than not that we will be required to sell the security, we write-down the security to its current fair value and recognize the entire unrealized loss through the comprehensive income statement as a realized loss. If a fixed-maturity security has an unrealized loss and it is more likely than not that we will hold the debt security until recovery (which could be maturity), then we determine if any of the decline in value is due to a credit loss (i.e., where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security) and, if so, we will recognize that portion of the impairment in the comprehensive income statement as a realized loss; any remaining unrealized loss on the security is considered to be due to other factors (e.g., interest rate and credit spread movements) and is reflected in shareholders’ equity, along with unrealized gains or losses on securities that are not deemed to be other-than-temporarily impaired.

The following table stratifies the gross unrealized losses in our fixed-income and common equity portfolios at December 31, 2012, by the duration in a loss position and magnitude of the loss as a percentage of the cost of the security:

	Fair Value		Total Gross Unrealized Losses		Decline of Investment Value
(millions)					>15%		>25%		>35%		>45%
Fixed Income:
Unrealized loss for less than 12 months	$	339.3	$	2.1	$	0	$	0	$	0	$	0
Unrealized loss for 12 months or greater		288.7		21.6		7.1		6.4		.1		0
Total	$	628.0	$	23.7	$	7.1	$	6.4	$	.1	$	0
Common Equity:
Unrealized loss for less than 12 months	$	100.7	$	8.2	$	5.3	$	.3	$	0	$	0
Unrealized loss for 12 months or greater		17.5		2.1		1.0		0		0		0
Total	$	118.2	$	10.3	$	6.3	$	.3	$	0	$	0

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 do not intend to sell these securities. We also determined that it is more likely than not that we will not be required to sell these securities, for the periods of time necessary to recover the cost bases of these securities, and that there is no additional credit-related impairment on our debt securities.

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

App.-A-76

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 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; the outcome of disputes relating to intellectual property rights; the outcome of litigation or governmental investigations that may be pending or 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, and safeguard personal and sensitive information in our possession; 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.

App.-A-77

Supplemental Information

The Progressive Corporation and Subsidiaries

Ten Year Summary – Selected Financial Information

(unaudited)

(millions - except ratios, policies in force, per share amounts, and number of people employed)	2012			2011			2010			2009			2008
Net premiums written	$	16,372.7		$	15,146.6		$	14,476.8		$	14,002.9		$	13,604.3
Growth		8	%		5	%		3	%		3	%		(1	)%
Net premiums earned	$	16,018.0		$	14,902.8		$	14,314.8		$	14,012.8		$	13,631.4
Growth		7	%		4	%		2	%		3	%		(2	)%
Policies in force (thousands):
Personal Lines		12,735.3			12,283.8			11,702.7			10,940.6			10,464.9
Growth		4	%		5	%		7	%		5	%		3	%
Commercial Auto		519.6			509.1			510.4			512.8			539.4
Growth		2	%		0	%		0	%		(5	)%		0	%
Total revenues1	$	17,083.9		$	15,774.6		$	15,215.5		$	14,791.1		$	13,049.0
Underwriting margins:2
Personal Lines		4.4	%		6.8	%		7.0	%		7.6	%		5.4	%
Commercial Auto		5.2	%		9.1	%		12.5	%		14.2	%		5.3	%
Total underwriting operations		4.4	%		7.0	%		7.6	%		8.4	%		5.4	%
Net income (loss)	$	902.3		$	1,015.5		$	1,068.3		$	1,057.5		$	(70.0	)
Per share3		1.48			1.59			1.61			1.57			(.10	)
Average equivalent shares3		607.8			636.9			663.3			672.2			668.0
Comprehensive income (loss)	$	1,080.8		$	924.3		$	1,398.8		$	1,752.2		$	(614.7	)
Total assets	$	22,694.7		$	21,844.8		$	21,150.3		$	20,049.3		$	18,250.5
Debt outstanding		2,063.1			2,442.1			1,958.2			2,177.2			2,175.5
Total shareholders’ equity		6,007.0			5,806.7			6,048.9			5,748.6			4,215.3
Statutory surplus		5,605.2			5,269.2			5,073.0			4,953.6			4,470.6
Common shares outstanding		604.6			613.0			662.4			672.6			676.5
Common share price:
High	$	23.41		$	22.08		$	22.13		$	18.10		$	21.31
Low		19.01			16.88			16.18			9.76			10.29
Close (at December 31)		21.10			19.51			19.87			17.99			14.81
Market capitalization	$	12,757.1		$	11,959.6		$	13,161.9		$	12,100.1		$	10,019.0
Book value per common share		9.94			9.47			9.13			8.55			6.23
Ratios:
Return on average shareholders’ equity
Net income		14.5	%		16.5	%		17.1	%		21.4	%		(1.5	)%
Comprehensive income		17.4	%		15.0	%		22.3	%		35.5	%		(13.3	)%
Debt to total capital		25.6	%		29.6	%		24.5	%		27.5	%		34.0	%
Price to earnings4		14.3			12.3			12.3			11.5			NA
Price to book		2.1			2.1			2.2			2.1			2.4
Earnings to fixed charges4		11.0	x		11.6	x		11.9	x		11.3	x		NA
Net premiums written to statutory surplus		2.9			2.9			2.9			2.8			3.0
Statutory combined ratio		95.2			92.9			92.5			91.6			94.6
Dividends declared per share5	$	1.2845		$	.4072		$	1.3987		$	.1613		$	0
Number of people employed		25,889			25,007			24,638			24,661			25,929

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

¹  Revenues for 2011 and prior have been revised to conform to the 2012 presentation. See the “Revision” section of Note 1 – Reporting and Accounting Policies for further information.

²  Underwriting margins are calculated as pretax underwriting profit (loss), as defined in Note 10 – Segment Information, as a percentage of net premiums earned.

³  Amounts reflect basic net income per share and basic average equivalent shares for 2008 since we reported a net loss; all other periods are presented on a diluted basis.

App.-A-78

(millions – except ratios, policies in force, per share amounts, and number of people employed)	2007			2006			2005			2004			2003
Net premiums written	$	13,772.5		$	14,132.0		$	14,007.6		$	13,378.1		$	11,913.4
Growth		(3	)%		1	%		5	%		12	%		26	%
Net premiums earned	$	13,877.4		$	14,117.9		$	13,764.4		$	13,169.9		$	11,341.0
Growth		(2	)%		3	%		5	%		16	%		28	%
Policies in force (thousands):
Personal Lines		10,115.6			9,741.1			9,494.0			8,680.3			7,807.9
Growth		4	%		3	%		9	%		11	%		19	%
Commercial Auto		539.2			503.2			468.2			420.2			365.1
Growth		7	%		7	%		11	%		15	%		26	%
Total revenues1	$	14,902.9		$	15,008.5		$	14,529.8		$	14,003.6		$	12,104.3
Underwriting margins:2
Personal Lines		7.0	%		12.3	%		11.0	%		14.1	%		12.1	%
Commercial Auto		10.1	%		19.8	%		17.9	%		21.1	%		17.5	%
Total underwriting operations		7.4	%		13.3	%		11.9	%		14.9	%		12.7	%
Net income (loss)	$	1,182.5		$	1,647.5		$	1,393.9		$	1,648.7		$	1,255.4
Per share3		1.65			2.10			1.74			1.91			1.42
Average equivalent shares3		718.5			783.8			799.3			864.8			882.1
Comprehensive income (loss)	$	1,071.0		$	1,853.1		$	1,347.8		$	1,668.5		$	1,511.1
Total assets	$	18,843.1		$	19,482.1		$	18,898.6		$	17,184.3		$	16,281.5
Debt outstanding		2,173.9			1,185.5			1,284.9			1,284.3			1,489.8
Total shareholders’ equity		4,935.5			6,846.6			6,107.5			5,155.4			5,030.6
Statutory surplus		4,587.3			4,963.7			4,674.1			4,671.0			4,538.3
Common shares outstanding		680.2			748.0			789.3			801.6			865.8
Common share price:
High	$	25.16		$	30.09		$	31.23		$	24.32		$	21.17
Low		17.26			22.18			20.35			18.28			11.56
Close (at December 31)		19.16			24.22			29.20			21.21			20.90
Market capitalization	$	13,032.6		$	18,116.6		$	23,040.7		$	17,001.9		$	18,088.9
Book value per common share		7.26			9.15			7.74			6.43			5.81
Ratios:
Return on average shareholders’ equity
Net income		19.5	%		25.3	%		25.0	%		30.0	%		29.1	%
Comprehensive income		17.7	%		28.4	%		24.1	%		30.4	%		35.0	%
Debt to total capital		30.6	%		14.8	%		17.4	%		19.9	%		22.8	%
Price to earnings4		11.6			11.5			16.7			11.1			14.7
Price to book		2.6			2.6			3.8			3.3			3.6
Earnings to fixed charges4		13.5	x		24.7	x		21.3	x		27.1	x		18.8	x
Net premiums written to statutory surplus		3.0			2.8			3.0			2.9			2.6
Statutory combined ratio		92.7			86.5			87.4			84.6			86.2
Dividends declared per share5	$	2.1450		$	.0325		$	.0300		$	.0275		$	.0250
Number of people employed		26,851			27,778			28,336			27,085			25,834

⁴  Ratios are not applicable (NA) for 2008 since we reported a net loss for the year.

⁵  Progressive transitioned to an annual variable dividend policy beginning in 2007. In accordance with this policy, no dividend was declared in 2008 since our comprehensive income was less than after-tax underwriting income. In addition to the annual variable dividend, Progressive’s Board declared special cash dividends of $1.00 per common share in both 2012 and 2010, and $2.00 per common share in 2007. Progressive paid quarterly dividends prior to 2007.

App.-A-79

The Progressive Corporation and Subsidiaries

Quarterly Financial and Common Share Data

(unaudited)

(millions – except per share amounts)
			Net Income				Stock Price1
																Dividends
	Total				Per								Rate of			Declared
Quarter	Revenues2		Total		Share		High		Low		Close		Return3			Per Share4
2012
1	$	4,126.4	$	257.6	$	.42	$	23.37	$	19.01	$	23.18				$	0
2		4,183.0		118.6		.19		23.41		20.22		20.83					0
3		4,423.9		277.0		.46		21.28		19.17		20.74					0
4		4,350.6		249.1		.41		23.19		20.68		21.10					1.2845
	$	17,083.9	$	902.3	$	1.48	$	23.41	$	19.01	$	21.10		15.4	%	$	1.2845
2011
1	$	3,954.6	$	362.9	$	.55	$	21.24	$	19.12	$	21.13				$	0
2		3,938.9		245.2		.38		22.08		19.79		21.38					0
3		3,878.7		150.7		.24		21.66		16.88		17.76					0
4		4,002.4		256.7		.42		19.74		16.97		19.51					.4072
	$	15,774.6	$	1,015.5	$	1.59	$	22.08	$	16.88	$	19.51		.2	%	$	.4072
2010
1	$	3,731.8	$	295.6	$	.44	$	19.69	$	16.18	$	19.09				$	0
2		3,746.5		211.9		.32		20.94		18.67		18.72					0
3		3,831.5		261.6		.40		21.59		18.41		20.87					0
4		3,905.7		299.2		.45		22.13		19.54		19.87					1.3987
	$	15,215.5	$	1,068.3	$	1.61	$	22.13	$	16.18	$	19.87		16.9	%	$	1.3987

¹ Prices are as reported on the consolidated transaction reporting system. Progressive’s common shares are listed on the New York Stock Exchange under the symbol PGR.

² Revenues for 2011 and 2010 have been revised to conform to the 2012 presentation. See the “Revision” section of Note 1 – Reporting and Accounting Policies for further information.

³ Represents annual rate of return, assuming dividend reinvestment.

⁴ Progressive maintains an annual variable dividend policy under which a dividend is typically declared each December and paid early the following year. In addition to the annual variable dividend, in both October 2012 and 2010, Progressive’s Board declared special cash dividends, each for $1.00 per common share, that were paid in November 2012 and December 2010, respectively.

App.-A-80

The Progressive Corporation and Subsidiaries

Performance Graph

(unaudited)

The following performance graph compares the performance of Progressive’s Common Shares (“PGR”) to the Standard & Poor’s Index (“S&P Index”) and the Value Line Property/Casualty Industry Group (“P/C Group”) for the last five years.

Cumulative Five-Year Total Return*

PGR, S&P Index, P/C Group (Performance Results through 12/31/12)

(Assumes $100 was invested at the close of trading on December 31, 2007)
	2008		2009		2010		2011		2012
PGR	$	78.11	$	94.88	$	110.92	$	111.09	$	128.32
S&P Index		63.53		80.34		92.44		94.39		109.49
P/C Group		71.28		87.77		105.96		113.67		136.30

^*Assumes reinvestment of dividends

Source: Value Line Publishing LLC

App.-A-81

The Progressive Corporation and Subsidiaries

Claims Payment Patterns

(unaudited)

The Progressive Group of Insurance Companies is primarily an insurer of automobiles and recreational vehicles owned by individuals, and cars and trucks owned by small businesses. As such, our claims liabilities are generally short in duration. Since our incurred losses consist of both payments and changes in the reserve estimates, it is important to understand our paid development patterns. The charts below show our claims payment patterns, reflecting both dollars and claims counts paid, for personal auto physical damage and bodily injury claims, as well as on a total personal auto basis, in each case calculated from the date of loss. Since physical damage claims pay out so quickly, the chart is calibrated on a monthly basis, as compared to a quarterly basis for the bodily injury and total auto payments.

App.-A-82

Note: The above graphs are presented for our personal auto products on an accident period basis and are based on three years of actual experience for physical damage and nine years for bodily injury and total personal auto.

App.-A-83

The Progressive Corporation and Subsidiaries

Quantitative Market Risk Disclosures

(unaudited)

Quantitative market risk disclosures are only presented for market risk categories when risk is considered material. Materiality is determined based on the fair value of the financial instruments at December 31, 2012, and the potential for near-term losses from reasonably possible near-term changes in market rates or prices. We had no trading financial instruments at December 31, 2012 and 2011. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for our discussion of the qualitative information about market risk.

OTHER-THAN-TRADING FINANCIAL INSTRUMENTS

Financial instruments subject to interest rate risk were:

	Fair Value
	-200 bps		-100 bps				+100 bps		+200 bps
(millions)	Change1		Change1		Actual		Change		Change
U.S. government obligations2	$	2,888.6	$	2,888.6	$	2,896.5	$	2,872.4	$	2,848.7
State and local government obligations		2,022.3		2,010.0		1,964.4		1,912.0		1,861.0
Asset-backed securities		3,500.2		3,478.2		3,425.5		3,348.7		3,275.5
Corporate securities		3,197.1		3,179.6		3,113.0		3,008.7		2,907.5
Nonredeemable preferred stocks		832.7		822.5		812.4		802.2		767.7
Redeemable preferred stocks		384.0		379.3		374.7		370.0		354.0
Short-term investments		1,990.0		1,990.0		1,990.0		1,990.0		1,990.0
Balance as of December 31, 2012	$	14,814.9	$	14,748.2	$	14,576.5	$	14,304.0	$	14,004.4
Balance as of December 31, 2011	$	14,274.7	$	14,253.2	$	14,117.4	$	13,865.7	$	13,630.0

¹ The amounts reflect an interest rate of 1 basis point when the hypothetical decline in interest rates would have pushed yields to a negative level.

² Due to the low interest rate environment and our portfolio containing no U.S. Treasury Notes at the longer end of the yield curve, the loss in value associated with the interest rate swap derivative positions with a short exposure (i.e., paying fixed, receiving variable) to interest rates would exceed the increase in value of our long U.S. Treasury Notes, resulting in an overall decline in value of these securities at the -100 bps and -200 bps movement.

Exposure to risk is represented in terms of changes in fair value due to selected hypothetical movements in market rates. Bonds and preferred stocks are individually priced to yield to the worst case scenario, which includes any issuer-specific features, such as a call option. Asset-backed securities and state and local government housing securities are priced assuming deal specific prepayment scenarios, considering the deal structure, prepayment penalties, yield maintenance agreements, and the underlying collateral.

Financial instruments subject to equity market risk were:

	Fair Value
(millions)	-10%		Actual		+10%
Common equities as of December 31, 2012	$	1,705.3	$	1,899.0	$	2,092.7
Common equities as of December 31, 2011	$	1,659.2	$	1,845.6	$	2,032.0

The model represents the estimated value of our common equity portfolio given a +/-10% change in the market, based on the common stock portfolio’s weighted average beta of 1.02 for 2012 and 1.01 for 2011. The beta is derived from recent historical experience, using the S&P 500 as the market surrogate. The historical relationship of the common stock portfolio’s beta to the S&P 500 is not necessarily indicative of future correlation, as individual company or industry factors may affect price movement. Betas are not available for all securities. In such cases, the change in fair value reflects a direct +/-10% change; the portion of securities without betas is 0.6%.

App.-A-84

The Progressive Corporation and Subsidiaries

Net Premiums Written by State

(unaudited)

($ in millions)	2012				2011				2010				2009				2008
Florida	$	2,000.1	12.2	%	$	1,683.1	11.1	%	$	1,603.2	11.1	%	$	1,667.0	11.9	%	$	1,631.0	12.0	%
Texas		1,536.6	9.4			1,403.8	9.3			1,321.4	9.1			1,228.9	8.8			1,151.3	8.5
California		954.4	5.8			935.8	6.2			914.1	6.3			951.9	6.8			1,016.3	7.5
New York		782.3	4.8			713.4	4.7			685.3	4.7			704.1	5.0			738.8	5.4
Georgia		757.1	4.6			738.2	4.9			714.6	4.9			682.9	4.9			699.7	5.1
Ohio		725.8	4.4			689.0	4.5			652.5	4.5			623.9	4.5			632.4	4.7
Pennsylvania		644.2	3.9			623.1	4.1			608.5	4.2			580.7	4.1			563.7	4.1
New Jersey		600.1	3.7			496.3	3.3			440.6	3.1			405.9	2.9			341.0	2.5
Louisiana		515.9	3.2			496.1	3.3			465.9	3.2			414.5	3.0			373.7	2.7
Michigan		488.5	3.0			471.7	3.1			448.4	3.1			455.3	3.2			461.8	3.4
All other		7,367.7	45.0			6,896.1	45.5			6,622.3	45.8			6,287.8	44.9			5,994.6	44.1
Total	$	16,372.7	100.0	%	$	15,146.6	100.0	%	$	14,476.8	100.0	%	$	14,002.9	100.0	%	$	13,604.3	100.0	%

App.-A-85

Principal Office

The Progressive Corporation

6300 Wilson Mills Road

Mayfield Village, Ohio 44143

440-461-5000

progressive.com

24-Hour Insurance Quotes, Claims Reporting, and Customer Service

	Personal autos, motorcycles, and recreational vehicles	Commercial autos/trucks
To receive a quote	1-800-PROGRESSIVE (1-800-776-4737) progressive.com	1-888-806-9598 progressivecommercial.com
To report a claim	1-800-274-4499 progressive.com1	1-800-274-4499
For customer service:
If you bought your policy through an independent agent or broker	1-800-925-2886 (1-800-300-3693 in California) progressiveagent.com	1-800-444-4487 progressivecommercial.com
If you bought your policy directly through Progressive online or by phone	1-800-PROGRESSIVE (1-800-776-4737) progressive.com	1-800-895-2886 progressivecommercial.com
If you have a complaint or concern regarding any claim handling or other claims-related issue2	1-800-274-4641 email: claims@email.progressive.com	1-800-274-4641 email: claims@email.progressive.com

¹  Claims reporting via the website is currently only available for personal auto policies.

²  Any policyholder, claimant, or other interested party who has any complaint or concern regarding any claim handling or other claims-related issue may report such complaint or concern using the contact information above. The complaint or concern will be promptly forwarded to the appropriate management personnel in our claims organization for review and response.

Annual Meeting  The Annual Meeting of Shareholders will be held at the offices of The Progressive Corporation, 6671 Beta Drive, Mayfield Village, Ohio 44143 on May 16, 2013, at 10 a.m. eastern time. There were 3,114 shareholders of record on December 31, 2012.

Common Shares and Dividends  The Progressive Corporation’s common shares are traded on the New York Stock Exchange (symbol PGR). Progressive currently has an annual variable dividend policy. We expect the Board to declare the next annual variable dividend, subject to policy limitations, in December 2013, with a record date in January 2014 and payment shortly thereafter. A complete description of our annual variable dividend policy can be found at: progressive.com/dividend.

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

For financial-related information or to request copies of Progressive’s publicly filed documents free of charge, write to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143, email: investor_relations@progressive.com or call: 440-395-2222.

For all other company information, call: 440-461-5000 or access our website at progressive.com/contactus.

Transfer Agent and Registrar

Registered Shareholders:  If you have questions or changes to your account and your Progressive shares are registered in your name, write to: American Stock Transfer & Trust Company, Attn: Operations Center, 6201 15th Avenue, Brooklyn, NY 11219; phone: 1-866-709-7695; email: info@amstock.com; or visit their website at: www.amstock.com.

Beneficial Shareholders:  If your Progressive shares are held in a brokerage or other financial institution account, contact your broker or financial institution directly regarding questions or changes to your account.

App.-A-86

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

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

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

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

Accounting Complaint Procedure  Any employee or other interested party with a complaint or concern regarding accounting, internal accounting controls, or auditing matters relating to Progressive may report such complaint or concern directly to the Chairman of the Audit Committee, as follows: Patrick H. Nettles, Ph.D., Chairman of the Audit Committee, patrick_nettles@progressive.com.

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

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

Corporate Governance  Progressive’s Corporate Governance Guidelines and Board Committee Charters are available at: progressive.com/governance.

Counsel Baker & Hostetler LLP, Cleveland, Ohio

Charitable Contributions  Progressive contributes annually to The Progressive Insurance Foundation, which provides: (i) financial support to the Insurance Institute for Highway Safety to further its work in reducing the human trauma and economic costs of auto accidents; and (ii) matching funds to eligible 501(c)(3) charitable organizations to which Progressive employees contribute.

Social Responsibility  Progressive uses an interactive online format to communicate our social responsibility efforts. This report can be found at: progressive.com/socialresponsibility.

Online Annual Report and Proxy Statement  Our 2012 Annual Report to Shareholders can be found at: progressive.com/annualreport.

We have also posted copies of our 2013 Proxy Statement and 2012 Annual Report to Shareholders, in a “PDF” format, at: progressiveproxy.com.

App.-A-87

Directors
Stuart B. Burgdoerfer1,6	Peter B. Lewis2,4,6	1 Audit Committee Member
Executive Vice President and	Chairman of the Board,	2 Executive Committee Member
Chief Financial Officer,	The Progressive Corporation	3 Compensation Committee Member
Limited Brands, Inc.	(non-executive)	4 Investment and Capital Committee
(retailing)		Member
	Heidi G. Miller, Ph.D.1,6	5 Nominating and Governance
Charles A. Davis4,5,6	Retired President of International,	Committee Member
Chief Executive Officer,	JPMorgan Chase & Co.	6 Independent Director
Stone Point Capital LLC	(financial services)
(private equity investing)
Roger N. Farah3,6	Patrick H. Nettles, Ph.D.1,6
President and Chief Operating Officer,	Executive Chairman,
Ralph Lauren Corporation	Ciena Corporation
(lifestyle products)	(telecommunications)
Lawton W. Fitt4,5,6	Glenn M. Renwick2
Retired Partner,	President and Chief Executive Officer,
Goldman Sachs Group	The Progressive Corporation
(financial services)
Stephen R. Hardis2,4,5,6	Bradley T. Sheares, Ph.D.3,6
Retired Chairman of the Board and	Former Chief Executive Officer,
Chief Executive Officer,	Reliant Pharmaceuticals, Inc.
Eaton Corporation	(pharmaceuticals)
(manufacturing)
Jeffrey D. Kelly3,6
Executive Vice President and
Chief Financial Officer,
RenaissanceRe Holdings, Ltd.
(reinsurance services)
Corporate Officers	Other Executive Officers
Glenn M. Renwick	John A. Barbagallo
President and Chief Executive Officer	Commercial Lines Group President
Brian C. Domeck	M. Jeffrey Charney
Vice President and Chief Financial Officer	Chief Marketing Officer
Charles E. Jarrett	William M. Cody
Vice President, Secretary,	Chief Investment Officer
and Chief Legal Officer
	Susan Patricia Griffith
Thomas A. King	Claims Group President
Vice President and Treasurer
	Valerie Krasowski
Jeffrey W. Basch	Chief Human Resource Officer
Vice President
and Chief Accounting Officer	John P. Sauerland
	Personal Lines Group President
Mariann Wojtkun Marshall
Assistant Secretary	Raymond M. Voelker
	Chief Information Officer
Peter B. Lewis
Chairman of the Board
(non-executive)

App.-A-88

EX-21

Exhibit 21

SUBSIDIARIES OF THE PROGRESSIVE CORPORATION

Name of Subsidiary	Jurisdiction of Incorporation
Drive Insurance Holdings, Inc.	Delaware
Drive New Jersey Insurance Company	New Jersey
Progressive American Insurance Company	Ohio
Progressive Bayside Insurance Company	Ohio
Progressive Casualty Insurance Company	Ohio
PC Investment Company	Delaware
Progressive Gulf Insurance Company	Ohio
Progressive Specialty Insurance Company	Ohio
Trussville/Cahaba, AL, LLC	Ohio
Progressive Classic Insurance Company	Wisconsin
Progressive Commercial Advantage Agency, Inc.	Ohio
Progressive DLP Corp.	Ohio
Progressive Hawaii Insurance Corp.	Ohio
Progressive Michigan Insurance Company	Michigan
Progressive Mountain Insurance Company	Ohio
Progressive Northern Insurance Company	Wisconsin
Progressive Northwestern Insurance Company	Ohio
Progressive Preferred Insurance Company	Ohio
Progressive Security Insurance Company	Louisiana
Progressive Southeastern Insurance Company	Indiana
Progressive West Insurance Company	Ohio
Garden Sun Insurance Services, Inc.	Hawaii
Pacific Motor Club	California
Progny Agency, Inc.	New York
Progressive Adjusting Company, Inc.	Ohio
Progressive Capital Management Corp.	New York
Progressive Commercial Holdings, Inc.	Delaware
Artisan and Truckers Casualty Company	Wisconsin
National Continental Insurance Company	New York
Progressive Commercial Casualty Company	Ohio
Progressive Express Insurance Company	Ohio
United Financial Casualty Company	Ohio

Name of Subsidiary	Jurisdiction of Incorporation
Progressive Direct Holdings, Inc.	Delaware
Mountain Laurel Assurance Company	Ohio
Progressive Advanced Insurance Company	Ohio
Progressive Auto Pro Insurance Agency, Inc.	Florida
Progressive Choice Insurance Company	Ohio
Progressive Direct Insurance Company	Ohio
Gadsden, AL, LLC	Ohio
Progressive Freedom Insurance Company	New Jersey
Progressive Garden State Insurance Company	New Jersey
Progressive Marathon Insurance Company	Michigan
Progressive Max Insurance Company	Ohio
Progressive Paloverde Insurance Company	Indiana
Progressive Premier Insurance Company of Illinois	Ohio
Progressive Select Insurance Company	Ohio
Progressive Specialty Insurance Agency, Inc.	Ohio
Progressive Universal Insurance Company	Wisconsin
Progressive Investment Company, Inc.	Delaware
Progressive Premium Budget, Inc.	Ohio
Progressive RSC, Inc.	Ohio
Progressive Vehicle Service Company	Ohio
Village Transport Corp.	Delaware
Wilson Mills Land Co.	Ohio

Each subsidiary is wholly owned by its parent.

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 9th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Peter B. Lewis	Director and Chairman of the Board
Peter B. Lewis

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Glenn M. Renwick	Director, President and
Glenn M. Renwick	Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Brian C. Domeck	Vice President and
Brian C. Domeck	Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 7th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Jeffrey W. Basch	Vice President and
Jeffrey W. Basch	Chief Accounting Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 11th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Stuart B. Burgdoerfer
Stuart B. Burgdoerfer	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 8th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Charles A. Davis
Charles A. Davis	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 11th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Roger N. Farah
Roger N. Farah	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 14th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Lawton W. Fitt
Lawton W. Fitt	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12^th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Stephen R. Hardis
Stephen R. Hardis	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Jeffrey D. Kelly
Jeffrey D. Kelly	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 9th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Heidi G. Miller, Ph.D.
Heidi G. Miller, Ph.D.	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Patrick H. Nettles, Ph.D.
Patrick H. Nettles, Ph.D.	Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2012, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 12th day of February, 2013.

Signature	Position(s) with The Progressive Corporation
/s/ Bradley T. Sheares, Ph.D.
Bradley T. Sheares, Ph.D.	Director

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Glenn M. Renwick, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 26, 2013	/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 annual report on Form 10-K of The Progressive Corporation;

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

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

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

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

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

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

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

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

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

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

Date: February 26, 2013	/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 Annual Report on Form 10-K of the Company for the period ended December 31, 2012 (the “Report”), which this certification accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

/s/ Glenn M. Renwick

Glenn M. Renwick

President and Chief Executive Officer

February 26, 2013

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 Annual Report on Form 10-K of the Company for the period ended December 31, 2012 (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

February 26, 2013

EX-99

Exhibit 99

Letter to Shareholders

When late-season, named storms start with letters deep into the alphabet, there’s a good chance it’s been an eventful year for the auto insurance industry; and it was, with the trump card as the finale — Sandy.

Named storms capture headlines, but damage from hail, an exposed vehicle’s worst nightmare, and other wind, flood, and fire events were all at remarkable levels for 2012, and collectively our highest ever number of claims from catastrophes - quite a statement considering the trifecta of Rita, Wilma, and Katrina in 2005. These types of events are ever present reminders that serve to reinforce our raison d’être and the value we are uniquely positioned to provide our customers at such times. So often we find ourselves acting on behalf of our customers and their liability interests, but in these events, fault is rarely the issue, and we get to deal with our customers directly and devote our full attention to getting them back on a path to normalcy. During 2012, we responded to 28 separately declared catastrophes, asking close to 1,300 of our people to stop doing what they had otherwise planned, reassign their work, and immediately travel to the scene of the damage to help our customers alongside our core catastrophe response team. While most measures are relative, and matter most to those in direct management of the situation, to help the reader with an order of magnitude, it’s reasonable to suggest we dedicated close to half a million hours in 2012 helping our customers who experienced the unexpected.

Often the logistics of response are challenging - gas, Internet, and hotels, among many things, just don’t work the way we have come to expect, but the gratitude of customers, often with many more issues yet to resolve, provides a sobering perspective. We resolved 94% of all our Sandy related claims before year end and will not be deep into 2013 before completion. Speed is essential and, balanced with good process and economic consideration, highly valued by customers, who once again rewarded us with extremely high Net Promoter^® scores (NPS) post our catastrophe responses. This is our time to count and the satisfaction of customers is a clear indication of whether we’re meeting or exceeding their expectations and earning their intention to stay.

Performance is our consumer product; performing well while growing and meeting our economic objectives is our challenge. I reported last year that we straddled a new high of $15 billion with written premiums just over and earned just under. This year I can report both written and earned premiums cleared $16 billion. At a growth rate of 8%, our gain in written premiums did not reach the heights of the 2002-2004 period, but our 2012 growth in written premiums of $1.23 billion pleasingly topped all others. (Industry observers will note that CAGR for auto insurance for the last five years rounds to zero, while the prior five is closer to 5%*). Growth without requisite profitability in our business generally does not lead anywhere good and we had our work cut out for us in 2012 to meet or exceed our very clear profitability expectation of a 96 combined ratio or better, most notably in the closing months courtesy of our aforementioned friend Sandy, but we did so ending the year at a combined ratio of 95.6.

* Compound annual growth rate (CAGR) was computed using data from A.M. Best Company, Inc.

Never becoming comfortable is a critical part of who we are, but if “the take home report card for the year” is growth of 8%, a 95.6 combined ratio, and a total return for the portfolio of 6.8%, we might be permitted a moment to say OK - not bad, and then get back at it with renewed enthusiasm.

Underwriting profitability is the necessary condition to drive all else at Progressive. In 2012, our post tax underwriting profit was $461 million, less than last year, and also with less assistance from favorable prior year development, but clearly consistent with our self-imposed objectives. Our post tax recurring contribution primarily from investments, less interest expense, was a further $441 million, for a total net income of $902 million, or $1.48 per share. That said, notwithstanding some very impressive results on the investment front in 2012, some yet unrealized, the current investment climate is not one that favors strong interest-rate-based returns and a valid strategic question could be to challenge the expected ratio of income from underwriting versus investments, or more simply put: is our 96 combined ratio objective the optimal calibration at this time?

Our Business Model

For us a 96 combined ratio is not a “solve for” variable in our business model equation, but rather a constant that provides direction to each and every product and marketing decision and a cultural tipping point that ensures zero ambiguity as to how to act in certain situations. Set at a level, we believe, creates a fair balance between attractive profitability and consumer competitiveness, it’s deeply ingrained and central to our culture, and for me a primary reason our underwriting performance has consistently matched or exceeded any in the industry.

With clarity as to our business constant, we seek to maximize all other important variables and support with appropriate axioms:

Grow as fast as we can subject to our ability to provide high-quality service. Our preferred measure of growth is in customers, best measured by policies in force. Other factors affect aggregate written premium growth, including rate level adjustments, geographic mix of policies, and policy-type distributions, but premium growth is a reasonable proxy and most generally used in market share determination. Market share moves more slowly than I might like, but over reasonable time periods ours has been impressive.

Extend policy life expectancy. Our preference is for the flexibility of shorter policy periods, highlighting however, the importance of retaining customers at policy renewal. Our work is fully inclusive of all points throughout a customer’s tenure and is a never-ending focus, tailored for every customer segment. Our use of Net Promoter scoring provides for a much more dynamic, but highly correlated, measure of policy life expectancy and is an internally acceptable proxy for our ultimate goal of extended life expectancy. Necessary rate increases, many taken in 2012, work against improving either measure; whereas, extraordinary claims response serves to enhance both. Progress sometimes can feel like two steps forward and one step back, but that’s our challenge to accept. Becoming a “destination” insurance company for customers has been a major transformation in the last decade and much work remains, but equally much has been accomplished.

The operations summaries included in this report for Personal Lines and Commercial Auto provide more commentary on our numerous activities to maximize these business drivers and Figure 1 provides them in tabular form for 2012 and over time.

Figure 1

	1-Year			3-Year			5-Year
Policies in Force
Personal lines		3.7	%		5.2	%		4.7	%
Commercial auto		2.1	%		0.4	%		(0.7	)%
Policy Life Expectancy
Personal auto		(0.6	)%		2.1	%		3.7	%
Commercial auto		0.3	%		6.3	%		10.7	%

Clarity as to our objective means other elements of the business model must be appropriately designed to strongly support, but not necessarily amplify, the risk of maximizing all things at the same time. Our articulation of our most critical investment objective is a good example:

Invest in a manner that does not constrain our ability to underwrite all the profitable insurance available to us at an efficient premiums-to-surplus leverage. We often refer to underwriting capacity as the protected asset and for us it is a clear determination of where the risk of leverage is best allocated. We have every reason to be proud of our investment performance, but relative comparisons often lack similar context or constraints on liquidity and risk.

The importance of net income, earnings per share, and return on equity is never lost on us, but we view achieving strong, long-term performance of these measures as stemming from our consistent focus on the primary elements of our business model.

A Snapshot of 2012

The “closing speed” with which I characterized the end of 2011 in fact did carry over into 2012 and volume was strong in the early part of the year. Unseasonably warm weather in much of the country suppressed winter automobile claim frequency, while at the same time advanced the motorcycle riding (and accident) season. Concurrently, we started to see claim severity increase faster than recent history – a combination I labeled as “dangerous.” By mid-year we had our answer and results had shown that the frequency change was not sustained but severity increases were. Our underwriting results had slipped to a “disappointing” quarterly result of 97.6 and thus our rate revision infrastructure was in full response mode. My more encouraging headline for the third quarter was “While better never to fumble, the next best thing is a recovery.” With the benefit of hindsight, our reaction time to the changing environment was too slow. That said, our reaction was well executed, leading to a marginally better than 96 third quarter, which was sustained and improved on, in part with seasonality of special lines products, with a 94.6 combined ratio in the fourth. Any attempt to simplify the combination of multiple products over 51 U.S. regulatory jurisdictions and two distinct distributions, is just that, a simplification, but the flavor of the year for the most part is captured in the fast start, corrective action, and fine tuning game plan outlined above.

Needless to say, momentum in new applications, policy life expectancy, and NPS all paralleled the rating track and often gains from the early part of the year were tempered and/or offset in the latter. We reduced our advertising spend in the second half of the year, ending on a full-year basis, for media and creative development, only slightly ahead of last year. We are more than willing to spend any amount on advertising we feel is supported by our yield expectations, but only when rate level is expected to match our profitability targets. Happily as we end 2012 and enter 2013, we see no reason to adjust our spending based on rate level. We do however appreciate that market competitiveness is a function of the actions of others and our conversion rates are something we watch very closely and, in many cases, we have not yet seen them return to early 2012 levels.

While advertising levels may have been down, we believe the messages were strong.

Snapshot^® , our usage-based insurance program, continues to be the most exciting breakthrough in rating in my career and more than deserved the considerable attention devoted to it in this letter last year.

The annual premium of customers accepting the Snapshot challenge to improve their insurance rates based on their personal driving signature - something I’ve characterized as the “statistics of one” - now tops a billion dollars. Every bit as valuable is the data collected that allows for constant refinement and improvement. Last year we commented that our cumulative miles of Snapshot driving experience was equivalent to multiple round trips to Mars; 2012 added a few more.

Another year confirmed, in no uncertain terms, that observed and measured driving behavior is an extraordinarily powerful basis for matching a rate with the risk presented. As such, we are way past the concept test. However, fully integrating with our existing product infrastructure, a process more detailed than suited for description in this letter, will be a challenge for some time to come and one we have fully embraced.

An inescapable reality of our business today is the massive amounts of data available for collection and analysis, perhaps highlighted by our Snapshot program but matched on other fronts, such as determining the effectiveness of online advertising served at staggering rates in different combinations on incredibly large numbers of websites. An initiative, which by designation of our internal funding mechanism gets special oversight (loosely translated that means me), is in place to ensure that our skills and techniques in data acquisition, storage, and analysis are advancing consistent with the emerging science and field of “Big Data” capabilities, thus ensuring our ongoing ability to do what we do best.

2012 saw the awarding of our fourth, fifth, and sixth patents on usage-based insurance and while exclusivity has its place, we see many benefits to ourselves, consumers, and regulators to license our patents in the future to the broader industry for a fee, which we believe should be attractive to both parties. Pleasingly, consumer surveys report a 57% awareness of Snapshot, and an even more pleasing 82% attribution to Progressive. I would generally bet against consumers caring a great deal about insurance rating details, notwithstanding our advertising, but Snapshot seems to resonate with them as simply making sense. If we had any setbacks in 2012 for Snapshot, it would be that our free Snapshot challenge, “Test Drive,” where consumers could participate and benefit themselves with the information without changing their current insurance and evaluate their options later, did not meet our expectations. In 2013, we will determine if it was our expectations or our messaging clarity that was off-base. Warning – New Snapshot Marketing Ahead.

Survival without a smartphone or similar device seems at times a hardship disproportionate to the time we have actually had them. Be that as it may, the breadth of transactions, services, and data retrieval available is only going in one direction. In 2012, we successfully built on our early work on mobile applications and services, overcoming prior limitations such as single vehicle quoting, to make the functionality of mobile devices more closely approximate the desktop capabilities of agents or websites and, where possible, to extend and exceed prior capabilities.

Our agents tested tablet versions of their primary interface with us and while broader use will take time, we, and they, see significant opportunities in the flexibility provided.

More and more of our direct quoting activity was from mobile devices, and now represents a meaningful transfer of what were once web-based transactions. Similarly, self-service and payment transactions have all materially increased year-over-year. In a relatively short time, our focus on mobile has gone from new and high potential to mainstream and we’re very pleased with our market positioning, in-place capabilities, and commitment to early development.

Our third notable multi-year initiative is Progressive Home Advantage^®. To aspire to policy life expectancies far in excess of our current experience rests in part on having products and services available to meet consumer needs at any stage of their insurable life. Access to home and renters insurance is essential. Our brand has become compelling enough for our customers, that when their needs change they look to us to fulfill them. A significant

percentage of our placed home and renters coverage comes from current relationships. Equally, more and more customers are starting their relationship with us with multiple products and the depth of offerings we have available is an important consideration in meeting their needs.

We’ve been very happy with the options available for those of our customers choosing to deal with us directly, but struggled in the early years of the initiative to find a combination of home insurance to match our auto and special lines products that suited the needs of our agents and their customers. Our relationship with American Strategic Insurance (ASI) and their home insurance offering has gone a long way to resolving that void, and, in 2012, we took a significant step to cement our already strong relationship by acquiring a non-controlling interest in the company. While the investment is important, this is much more a statement of their, and our, commitment to bringing independent agents a well-integrated home and auto offering from providers they respect in their product fields with features only possible in such a relationship. Independent agents over-index in their share of bundled home and auto offerings and it’s often the need for that combination of products that influences the consumer to choose an agent. The ASI offering is not available to agents in all states, but that number has been steadily increasing.

The percent of our customers who are multi-product customers today is in the low teens, something we’re quite proud of given our starting position, but clearly recognize the potential. Whether those multi-products are some combination of Progressive’s auto, commercial auto, motorcycle, RV, or boat, or the home or renters product of a business partner, these are the customers that are viewing Progressive as their insurance destination.

Insurance operations for 2012 were very solid and singling out a couple of highlights leaves many more important contributions unheralded, at least in this letter.

Claims in the Spotlight

Our claims organization, in addition to responding to catastrophes, continued a long streak of extraordinary results in claim resolution quality and making it even more notable this year they did so notching our lowest ever run rate of loss adjustment expense. While an attractive combination, it would be completely unacceptable if declines in employee or customer satisfaction were the balancing items – and without doubt they were not. Our relentless focus on improving process efficiency and the customer experience is now realizing what is sometimes the illusive IRR of long-term efforts; and we’re not done yet. The spotlight has been, in part, directed on the delivery of our concierge level of claims service, at our 54 service centers, to see what stones have been left unturned that might yet take usage, of what all parties agree is our best customer option, to even higher levels. Early work suggests that manageable changes for us to be even more responsive to customer time preferences may move the needle to very exciting levels. More to follow…

Over the next few years, we will provide more of our ever expanding customer population the service center option with the addition of several new facilities, each co-located with full function community claims offices.

Brand and Marketing

Accepting our role as a participant, it would still have been hard to imagine just a few years ago the ubiquity and awareness auto insurance advertising has achieved. Media and advertising options are ever expanding and often dilutive of the cost effective consumer communication we all seek. Reaching people when and how they want to be reached, and doing so from the wide range of involvement options, is making the allocation of dollars spent a science now highly comparable to our indemnity science of segmentation. This, along with our quantitative research on consumer insights and advertising effectiveness, are welcome extensions of our core skills and we have comfortably leveraged our capabilities into what we believe are high performing results.

Our central campaign, usually set in our insurance superstore, starring “Flo” had a great 2012. We continued challenging the creative boundaries, taking her out-of-store occasionally, searching to find that elusive balance between the benefits of a highly recognizable campaign while keeping content fresh and engaging. Among our many measures, the one suggesting Flo’s already strong appeal increased during the year is perhaps the most rewarding to the efforts of so many. She continues to be highly imitated by costumed look-a-likes and this year walked-off with a boatload of recognition awards, including Advertising Age’s addition of her to their “Top Ten Female Ad Icons of All Time” - who knew, Flo and Rosie the Riveter together.

Our plans for 2013 are every bit as ambitious and we’ll keep pushing the boundaries to ensure our creative efforts maximize every dollar spent and even more importantly communicate a clear consumer mindset about who we are as a company and what you should expect as a customer.

Investments and Capital Management

Most readers can remember times when a 6.8% total return, for us, nearly $700 million post tax, on a heavily weighted fixed-income portfolio, would not be particularly notable; in 2012 it deserves that recognition. Very significant appreciation from our holdings of preferred stocks, many of which were the focus of significant mark-to-market reductions in “crisis” years, helped fuel our overall strong fixed-income returns, along with attractive results from our common stocks; a healthy reminder of the value of an investment, capital, and reporting philosophy that focuses on total return over a reasonable time frame and never places us in a position of forced disposition at market lows before the quality we saw in our asset selection can distinguish itself from more global market forces.

Our recurring interest income is frustratingly low at a pretax book yield now just under 3%, but we remain confident that our preference for shorter duration during times of extremely low interest rates is our best positioning to achieve our investment objectives.

During the year, we realized more than $300 million in gains leaving a little over $1.3 billion unrealized at year end – a 2012 increase of $277 million. We publish monthly both net and comprehensive income measures of earnings per share and trailing 12-month return on equity, internally preferring the comprehensive measures as the best all-in assessment, and were pleased with the 23% year-over-year increase in comprehensive EPS to $1.78 and the comprehensive ROE of 17.4%.

We spend significant time and effort modeling our capital requirements and sizing what we call “layers of capital” to satisfy regulatory requirements and any contingencies we can envision for our business. Capital in excess of these layers is available for share repurchases, acquisitions, and shareholder dividends. For 2012, we had some of each. Reflecting our clear philosophy regarding capital above our needs over a reasonable planning horizon, we returned about $600 million as a $1 per share dividend paid in November and further declared a variable dividend in

December contingent on final gainshare and underwriting profit numbers for the year that amounted to $172 million, or just over $0.28 per share. Our capital actions fell more to dividends in 2012, with share repurchases totaling around $174 million for 8.6 million shares. Acquisition was a very minor use of capital and represents the purchase of the equity position in ASI referenced earlier.

We enter 2013 with a strong and well-structured capital position, rate levels that we believe are well suited to achieve our underwriting objectives, exceptionally solid insurance operations, and an investment portfolio positioned to support our objectives. An improved investment environment with interest rates that more comfortably match our longer-term income expectations would be perfect, but, by design, in any given period, we are not dependent on it.

Our People and Culture

Each year writing this valediction becomes a time of some reflection, and recognition of the complexities of a human system designed to consistently produce extraordinary customer experiences and economic results. Catastrophe response, where I started this letter, is simply one visible part of the iceberg with so much more embedded in the pride and passion of all Progressive people committed to what they are doing and the customers we serve.

It’s with this in mind that our first priority must always be to continuously refine our work environment to one where we’re all motivated to do our best work, where we can grow constantly, and that others will want to join. Our people, culture, and aspiration to be “Consumers’ #1 Choice for Auto Insurance” are what make us - Progressive.

To the people of Progressive, our agents and brokers, customers, and shareholders:

Thanks for all you do to make Progressive, progressive.

/s/ Glenn M. Renwick

Glenn M. Renwick

President and Chief Executive Officer

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Summary Of Investments - Other than Investments In Related Parties (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	$ 15,138.2
Fair Value	16,475.5
Amount At Which Shown In The Balance Sheet	16,475.5
Short-term investments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,990.0	[1]
Fair Value	1,990.0	[1]
Amount At Which Shown In The Balance Sheet	1,990.0	[1]
Short-term investments | Foreign Government Debt
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	21.9
Fair Value	21.9
Amount At Which Shown In The Balance Sheet	$ 21.9

[1] Includes $21.9 million in treasury bills issued by the Australian government.

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Investment Portfolio by Major Security Type (Parenthetical) (Detail) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Net unsettled security transactions offset in other assets	$ 90,900,000	$ 46,900,000
Securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions	$ 1,400,000,000	$ 2,000,000,000

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Supplemental Information Concerning Property - Casualty Insurance Operations (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Supplemental Information for Property, Casualty Insurance Underwriters [Line Items]
Losses and Loss Adjustment Expenses Incurred Related to Current Year	$ 11,926.0	$ 10,876.8	$ 10,451.7
Losses and Loss Adjustment Expenses Incurred Related to Prior Years	22.0	(242.0)	(320.4)
Paid Losses and Loss Adjustment Expenses	$ 11,431.8	$ 10,541.6	$ 9,888.0

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Debt (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Debt Instrument [Line Items]
Carrying Value	$ 2,063.1	[1]	$ 2,442.1	[1]
Fair Value	2,394.4		2,664.7
6.375% Senior Notes due 2012
Debt Instrument [Line Items]
Carrying Value	0		350.0
Fair Value	0		350.5
7% Notes due 2013
Debt Instrument [Line Items]
Carrying Value	149.9		149.7
Fair Value	157.1		162.4
3.75% Senior Notes due 2021
Debt Instrument [Line Items]
Carrying Value	497.3		497.0
Fair Value	549.1		525.3
6 5/8% Senior Notes due 2029
Debt Instrument [Line Items]
Carrying Value	295.2		295.0
Fair Value	385.0		364.4
6.25% Senior Notes due 2032
Debt Instrument [Line Items]
Carrying Value	394.5		394.4
Fair Value	513.5		492.4
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
Debt Instrument [Line Items]
Carrying Value	726.2		756.0
Fair Value	$ 789.7		$ 769.7

[1] Consists of both short- and long-term debt. See Note 4 - Debt for further discussion.

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Investments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2007
Schedule of Investments [Line Items]
Principal amount of bonds and certificates of deposit on deposit to meet state insurance regulatory and/or rating agency requirements	$ 139.4
Gross unrealized losses	34.0	102.3
Trading securities	0	0
Net realized gains (losses) on securities	314.8	108.1	110.0
Cash flow hedge gain reclassification from accumulated other comprehensive income to net realized gains/losses on securities	0.6	0.3
Cash flow hedge gain recognized as an adjustment to interest expense	2.1	2.6	2.7
Categories of Investments, Marketable Securities, Trading Securities
Schedule of Investments [Line Items]
Net realized gains (losses) on securities	0	0	0
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
Schedule of Investments [Line Items]
Repurchase of debt, face amount	30.9	15.0	222.9
Cash flow hedge gain reclassification from accumulated other comprehensive income to net realized gains/losses on securities	0.6	0.3	5.8
Hedge gain (loss) included in accumulated other comprehensive income				34.4
Debt instrument fixed interest rate terms				10 years
Senior notes, issuance amount	1,000	1,000
3.75% Senior Notes due 2021
Schedule of Investments [Line Items]
Hedge gain (loss) included in accumulated other comprehensive income		(5.1)
Senior notes, issuance amount	500	500
Fixed maturities
Schedule of Investments [Line Items]
Gross unrealized losses	23.7	73.2
Fixed maturities | Corporate debt securities
Schedule of Investments [Line Items]
Percentage which the issuer receives the security back at once the change of control is triggered	1.00%
Realized investment losses	12.0
Gross unrealized losses	1.0	6.5
Non-Income Producing Investments
Schedule of Investments [Line Items]
Fair value of fixed-maturity securities that were non-income producing during the preceding 12 months	0
Value Of Securities Of Any One Issuer Excluding US Government Obligations Exceeding 10 % Of Total Shareholders Equity
Schedule of Investments [Line Items]
Aggregate cost or fair value of securities	0	0
Fixed Income Securities
Schedule of Investments [Line Items]
Gross unrealized losses	23.7
Equity securities
Schedule of Investments [Line Items]
Gross unrealized losses	10.3	29.1
Equity securities | Common equities
Schedule of Investments [Line Items]
Gross unrealized losses	10.3	25.4
Equity securities | Russell One Thousand | Common equities
Schedule of Investments [Line Items]
Percentage of common stock portfolio	89.00%
Equity securities | Managed Equity Strategy | Common equities
Schedule of Investments [Line Items]
Percentage of common stock portfolio	11.00%
Interest Rate Swaps
Schedule of Investments [Line Items]
Exposure position terms	During the year ended December 31, 2012, we held a 9-year interest rate swap position (opened in 2009) and two 5-year interest rate swap positions (opened in 2011); in each case, we are paying a fixed rate and receiving a variable rate, effectively shortening the duration of our fixed-income portfolio.
Cash collateral delivered to the counterparties	105.0	81.7	52.2
Interest Rate Swaps | Opened in 2009 | Nine Year Time Horizon
Schedule of Investments [Line Items]
Derivative maturity, term	9 years
Number of Interest rate swap position held	1
Interest Rate Swaps | Opened in 2011 | Five Year Time Horizon
Schedule of Investments [Line Items]
Derivative maturity, term	5 years
Number of Interest rate swap position held	2
Corporate Credit Default Swaps | Financial Services Sector
Schedule of Investments [Line Items]
Derivative maturity, term	5 years
Cash collateral received from counterparty		0.7	0.5
Corporate Credit Default Swaps | Automotive Sector
Schedule of Investments [Line Items]
Derivative maturity, term		5 years
Cash collateral received from counterparty			1.1
Notional amount		10
Corporate Credit Default Swaps | Technology Sector
Schedule of Investments [Line Items]
Number of derivative positions opened			2
Number of derivative positions closed			2
Upfront cash payment made when entering exposure position			0.2
Corporate Credit Default Swaps | Technology Sector | 2-year Time Horizon
Schedule of Investments [Line Items]
Derivative maturity, term			2 years
Corporate Credit Default Swaps | Technology Sector | 4-year Time Horizon
Schedule of Investments [Line Items]
Derivative maturity, term			4 years
Foreign Government Debt
Schedule of Investments [Line Items]
Treasury bills issued by the Australian government	$ 21.9	$ 10.0

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Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Line Items]
Net taxes recoverable		$ 12.0
Net taxes payable current	17.9
Provision for income taxes	415.4	471.5	496.9
Interest Expense or Benefit
Income Taxes [Line Items]
Provision for income taxes	$ 0	$ 0	$ 0

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Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Commitments and Contingencies Disclosure [Line Items]
Minimum commitment under noncancelable purchase obligations	$ 246.7

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Supplementary Insurance Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Supplementary Insurance Information, by Segment [Line Items]
Deferred policy acquisition costs	$ 434.5	[1]	$ 433.6	[1]	$ 417.2	[1]
Future policy benefits, losses, claims, and loss expenses	7,838.4	[1]	7,245.8	[1]	7,071.0	[1]
Unearned premiums	4,930.7	[1]	4,579.4	[1]	4,353.8	[1]
Other policy claims and benefits payable	0	[1]	0	[1]	0	[1]
Premium revenue	16,018.0		14,902.8		14,314.8
Net investment income	427.6	[1],[2]	466.5	[1],[2]	508.2	[1],[2]
Benefits, claims, losses, and settlement expenses	11,948.0		10,634.8		10,131.3
Amortization of deferred policy acquisition costs	1,436.6		1,399.2		1,359.9
Other operating expenses	2,206.3		2,088.0		1,992.3
Net premiums written	16,372.7		15,146.6		14,476.8
Personal Lines
Supplementary Insurance Information, by Segment [Line Items]
Premium revenue	14,368.1		13,431.1		12,826.9
Benefits, claims, losses, and settlement expenses	10,745.3		9,615.2		9,159.6
Amortization of deferred policy acquisition costs	1,250.4		1,231.9		1,188.1
Other operating expenses	2,010.5		1,915.6		1,814.7
Net premiums written	14,636.8		13,612.2		13,024.4
Commercial Auto
Supplementary Insurance Information, by Segment [Line Items]
Premium revenue	1,649.0		1,467.1		1,474.2
Benefits, claims, losses, and settlement expenses	1,196.6		1,010.7		958.6
Amortization of deferred policy acquisition costs	186.2		166.6		167.9
Other operating expenses	195.2		171.9		177.9
Net premiums written	1,735.9		1,534.3		1,449.5
Other Indemnity
Supplementary Insurance Information, by Segment [Line Items]
Premium revenue	0.9		4.6		13.7
Benefits, claims, losses, and settlement expenses	6.1		8.9		13.1
Amortization of deferred policy acquisition costs	0		0.7		3.9
Other operating expenses	0.6		0.5		(0.3)
Net premiums written	$ 0		$ 0.1		$ 2.9

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

[2] Excludes total net realized gains (losses) on securities.

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Reinsurance (Tables)

12 Months Ended

Dec. 31, 2012

Effect of Reinsurance on Premiums Written and Earned

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

	2012						2011						2010
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	16,558.8		$	16,207.6		$	15,333.1		$	15,107.5		$	14,700.0		$	14,519.2
Ceded		(186.1	)		(189.6	)		(186.5	)		(204.7	)		(223.2	)		(204.4	)
Net premiums	$	16,372.7		$	16,018.0		$	15,146.6		$	14,902.8		$	14,476.8		$	14,314.8

Prepaid Reinsurance Premiums and Reinsurance Recoverables

Our prepaid reinsurance premiums and reinsurance recoverables were comprised of the following at December 31:

	Prepaid Reinsurance Premiums										Reinsurance Recoverables
	2012					2011					2012					2011
($ in millions)	$		%			$		%			$		%			$		%
MCCA	$	25.4		38	%	$	21.4		31	%	$	739.2		82	%	$	650.4		80	%
NCRF		19.5		30			19.0		27			50.6		6			51.4		6
CAIP		15.4		23			12.7		18			66.3		7			58.4		7
State Plans		60.3		91			53.1		76			856.1		95			760.2		93
Non-State Plans		6.0		9			16.7		24			44.9		5			57.8		7
Total	$	66.3		100	%	$	69.8		100	%	$	901.0		100	%	$	818.0		100	%

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Activity in Loss and loss Adjustment Expense Reserves (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Balance at beginning of period	$ 7,245.8	$ 7,071.0	$ 6,653.0
Less reinsurance recoverables on unpaid losses	785.7	704.1	529.4
Net balance at beginning of period	6,460.1	6,366.9	6,123.6
Incurred related to:
Current year	11,926.0	10,876.8	10,451.7
Prior years	22.0	(242.0)	(320.4)
Total incurred	11,948.0	10,634.8	10,131.3
Paid related to:
Current year	7,895.3	7,289.3	6,841.0
Prior years	3,536.5	3,252.3	3,047.0
Total paid	11,431.8	10,541.6	9,888.0
Net balance at ending of period	6,976.3	6,460.1	6,366.9
Plus reinsurance recoverables on unpaid losses	862.1	785.7	704.1
Balance at ending of period	$ 7,838.4	$ 7,245.8	$ 7,071.0

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Unrealized Gains (Losses) From Debt Hedges Included In Accumulated Other (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended
	Dec. 31, 2001 6.375% Senior Notes due 2012	Dec. 31, 2012 6.375% Senior Notes due 2012	Dec. 31, 2011 3.75% Senior Notes due 2021	Dec. 31, 2012 3.75% Senior Notes due 2021	Dec. 31, 1999 6 5/8% Senior Notes due 2029	Dec. 31, 2012 6 5/8% Senior Notes due 2029	Dec. 31, 2002 6.25% Senior Notes due 2032	Dec. 31, 2012 6.25% Senior Notes due 2032	Dec. 31, 2007 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067	Dec. 31, 2012 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
Debt Instrument [Line Items]
Unrealized Gain (Loss)	$ 18.4		$ (5.1)		$ (4.2)		$ 5.1		$ 34.4
Unamortized Balance		$ 0		$ (4.5)		$ (3.4)		$ 4.3		$ 13.0

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Summary of all Employee Stock Option Activity (Detail) (Employee Stock Option, USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Employee Stock Option
Number of Shares
Beginning of year	1,916,416	5,102,888
Antidilution adjustment		97,387	[1]
Deduct:
Exercised	(1,913,552)	(3,283,859)
Forfeited	(2,864)	0
End of year	0	1,916,416
Exercisable, end of year	0	1,916,416
Weighted Average Exercise Price
Beginning of year	$ 11.31	$ 9.31
Exercised	$ 11.31	$ 7.87
Forfeited	$ 11.28	$ 0.00
End of year	$ 0.00	$ 11.31
Exercisable, end of year	$ 0.00	$ 11.31

[1] During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

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Composition of Fixed Maturities by Maturity (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Available for sale, cost
Less than one year	$ 1,432.3
One to five years	8,368.7
Five to ten years	1,426.3
Ten years or greater	146.6
Total	11,373.9
Available for sale, Fair value
Less than one year	1,462.2
One to five years	8,675.0
Five to ten years	1,484.7
Ten years or greater	152.2
Total	$ 11,774.1

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Reconciliation of Provision (Benefit) for income Taxes Reported in Consolidated Statements Of Income with Tax at Statutory Rate (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Line Items]
Income before income taxes	$ 1,317.7	$ 1,487.0	$ 1,565.2
Tax at statutory rate	461.2	520.5	547.8
Exempt interest income	(14.7)	(17.5)	(19.4)
Dividends received deduction	(18.2)	(18.2)	(17.2)
Tax credits	0	(9.1)	0
Tax-deductible dividends	(11.9)	(3.8)	(13.0)
Other items, net	(1.0)	(0.4)	(1.3)
Total income tax provision	$ 415.4	$ 471.5	$ 496.9
Tax at statutory rate	35.00%	35.00%	35.00%
Exempt interest income	(1.00%)	(1.00%)	(1.00%)
Dividends received deduction	(1.00%)	(1.00%)	(1.00%)
Tax credits	0.00%	(1.00%)	0.00%
Tax-deductible dividends	(1.00%)	0.00%	(1.00%)
Other items, net	0.00%	0.00%	0.00%
Total income tax provision	32.00%	32.00%	32.00%

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Amounts Charged to Income for employees Incentive Compensation Plans (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Incentive Compensation Cash Award
Incentive Compensation Plans Expense [Line Items]
Pretax	$ 207.0	$ 196.1	$ 257.3
After Tax	134.6	127.5	167.2
Stock Compensation Plan
Incentive Compensation Plans Expense [Line Items]
Pretax	63.4	50.5	45.9
After Tax	$ 41.2	$ 32.8	$ 29.8

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Effect of Reinsurance on Premiums Written and Earned (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Direct premiums written	$ 16,558.8	$ 15,333.1	$ 14,700.0
Ceded written	(186.1)	(186.5)	(223.2)
Net premiums written	16,372.7	15,146.6	14,476.8
Direct premiums earned	16,207.6	15,107.5	14,519.2
Ceded earned	(189.6)	(204.7)	(204.4)
Net premiums earned	$ 16,018.0	$ 14,902.8	$ 14,314.8

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Summary of All Employee Restricted Equity Award Activity (Detail) (Employee Restricted Equity Awards, USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Employee Restricted Equity Awards
Number of Shares
Beginning of year	12,296,847	[1],[2],[3]	11,681,826	[1],[2],[3]	10,614,016	[1]
Add (deduct):
Granted	2,680,229	[1],[4]	2,483,461	[1],[4]	2,841,400	[1],[4]
Vested	(3,188,111)	[1]	(1,571,237)	[1]	(1,337,647)	[1]
Forfeited	(162,984)	[1]	(297,203)	[1]	(435,943)	[1]
End of year	11,625,981	[1],[2],[3]	12,296,847	[1],[2],[3]	11,681,826	[1],[2],[3]
Available, end of year	15,624,677	[1],[5]	18,141,922	[1],[5]	20,328,180	[1],[5]
Weighted Average Grant Date Fair Value
Beginning of year	$ 16.86	[2],[3]	$ 16.55	[2],[3]	$ 17.04
Granted	$ 19.11	[4]	$ 20.03	[4]	$ 17.50	[4]
Vested	$ 15.23		$ 19.88		$ 22.72
Forfeited	$ 17.93		$ 15.41		$ 15.58
End of year	$ 17.80	[2],[3]	$ 16.86	[2],[3]	$ 16.55	[2],[3]

[1] Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

[2] At December 31, 2012, the number of shares included 3,393,981 performance-based awards at their target amounts. We expect 4,404,766 performance-based awards to vest, based upon our current estimate of the achievement of pre-determined performance goals.

[3] At December 31, 2012, the total unrecognized compensation cost related to unvested equity awards was $86.3 million, which includes performance-based awards at their currently estimated vesting value. This compensation expense will be recognized into the income statement over the weighted average vesting period of 2.2 years.

[4] In 2010, we began reinvesting dividend equivalents on restricted stock units. For 2012, 2011, and 2010, the number granted includes 440,029, 55,288, and 134,644 units, respectively, at a weighted average grant date fair value of $0, since the dividends were factored into the grant date fair value of the original grant.

[5] Represents shares available under the 2003 Incentive Plan and the 2010 Incentive Plan; the 2003 Incentive Plan expired on January 31, 2013, and the remaining 2,438,119 shares thereunder are no longer available for future issuance, however dividend equivalents will be issued on outstanding awards up to the remaining authorization amount.

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Components of Net Deferred Tax Assets (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Unearned premiums reserve	$ 344.3	$ 319.1
Investment basis differences	208.3	246.1
Non-deductible accruals	191.6	172.1
Loss and loss adjustment expense reserves	107.3	113.6
Other	3.9	5.2
Deferred tax liabilities:
Net unrealized gains on securities	(464.5)	(367.7)
Hedges on forecasted transactions	(3.3)	(4.3)
Deferred acquisition costs	(152.1)	(151.8)
Property and equipment	(103.6)	(109.9)
Prepaid expenses	(12.2)	(16.1)
Deferred gain on extinguishment of debt	(5.8)	(5.8)
Other	(4.5)	(4.5)
Net deferred tax asset	$ 109.4	$ 196.0

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Debt (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Debt instrument, outstanding	$ 2,081.2
6.375% Senior Notes due 2012
Debt Instrument [Line Items]
Debt instrument, face amount	350	350
7% Notes due 2013
Debt Instrument [Line Items]
Debt instrument, face amount	150	150
3.75% Senior Notes due 2021
Debt Instrument [Line Items]
Debt instrument, face amount	500	500
6 5/8% Senior Notes due 2029
Debt Instrument [Line Items]
Debt instrument, face amount	300	300
6.25% Senior Notes due 2032
Debt Instrument [Line Items]
Debt instrument, face amount	400	400
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
Debt Instrument [Line Items]
Debt instrument, face amount	1,000	1,000
Debt instrument, outstanding	$ 731.2	$ 762.1

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

13.  COMMITMENTS AND CONTINGENCIES

We have certain noncancelable operating lease commitments with lease terms greater than one year for property and computer equipment. The minimum commitments under these agreements at December 31, 2012, were as follows:

(millions)	Commitments
2013	$	47.1
2014		38.8
2015		29.6
2016		18.2
2017		8.3
Thereafter		9.5
Total	$	151.5

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

(millions)	Expense
2012	$	71.9
2011		80.8
2010		96.7

We also have certain noncancelable purchase obligations. The minimum commitment under these agreements at December 31, 2012, was $246.7 million.

As of December 31, 2012, we had no open investment funding commitments; we had no uncollateralized lines or letters of credit as of December 31, 2012 or 2011.

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Interest Capitalized (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Capitalized Interest [Line Items]
Capitalized Interest	$ 0.3	$ 0.4	$ 1.1

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Condensed Balance Sheets (Parent Company) (Parenthetical) (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Common Shares, par value	$ 1.00	$ 1.00
Common Shares, authorized	900.0	900.0
Common Shares, issued	797.7	797.7
Common Shares, treasury shares	193.1	184.7
Parent Company
Condensed Financial Statements, Captions [Line Items]
Common Shares, par value	$ 1.00	$ 1.00
Common Shares, authorized	900.0	900.0
Common Shares, issued	797.7	797.7
Common Shares, treasury shares	193.1	184.7

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Components of Income Tax Provision (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Line Items]
Current tax provision	$ 424.8	$ 440.2	$ 433.9
Deferred tax expense (benefit)	(9.4)	31.3	63.0
Total income tax provision	$ 415.4	$ 471.5	$ 496.9

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Operating Results (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Segment Reporting Information [Line Items]
Revenues	$ 17,083.9		$ 15,774.6		$ 15,215.5
Pretax Profit (Loss)	1,317.7		1,487.0		1,565.2
Underwriting Operations Segment
Segment Reporting Information [Line Items]
Revenues	16,018.0		14,902.8		14,314.8
Pretax Profit (Loss)	708.9		1,047.3		1,083.5
Underwriting Operations Segment | Personal Lines
Segment Reporting Information [Line Items]
Revenues	14,368.1	[1]	13,431.1	[1]	12,826.9	[1]
Pretax Profit (Loss)	628.4	[1]	919.3	[1]	892.1	[1]
Underwriting Operations Segment | Personal Lines | Agency Channel
Segment Reporting Information [Line Items]
Revenues	8,103.9		7,627.4		7,419.7
Pretax Profit (Loss)	338.9		564.9		601.0
Underwriting Operations Segment | Personal Lines | Direct Channel
Segment Reporting Information [Line Items]
Revenues	6,264.2		5,803.7		5,407.2
Pretax Profit (Loss)	289.5		354.4		291.1
Underwriting Operations Segment | Commercial Auto
Segment Reporting Information [Line Items]
Revenues	1,649.0		1,467.1		1,474.2
Pretax Profit (Loss)	86.3		133.5		185.0
Underwriting Operations Segment | Other Indemnity
Segment Reporting Information [Line Items]
Revenues	0.9		4.6		13.7
Pretax Profit (Loss)	(5.8)		(5.5)		6.4
Fees and Other Revenues
Segment Reporting Information [Line Items]
Revenues	281.8	[2]	266.5	[2]	252.2	[2]
Service Businesses
Segment Reporting Information [Line Items]
Revenues	36.1		22.8		25.9
Pretax Profit (Loss)	0		3.4		4.5
Investments
Segment Reporting Information [Line Items]
Revenues	749.8	[3]	582.6	[3]	616.2	[3]
Pretax Profit (Loss)	734.4	[3]	569.1	[3]	604.3	[3]
Gains (losses) on extinguishment of debt
Segment Reporting Information [Line Items]
Revenues	(1.8)		(0.1)		6.4
Pretax Profit (Loss)	(1.8)		(0.1)		6.4
Interest Expense
Segment Reporting Information [Line Items]
Pretax Profit (Loss)	$ (123.8)		$ (132.7)		$ (133.5)

[1] Personal auto insurance accounted for 91% of the total Personal Lines segment net premiums earned in both 2012 and 2011, and 90% in 2010; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

[2] Pretax profit (loss) for fees and other revenues are allocated to operating segments.

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

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Minimum Commitments under Noncancelable Operating Lease Agreements

The minimum commitments under these agreements at December 31, 2012, were as follows:

(millions)	Commitments
2013	$	47.1
2014		38.8
2015		29.6
2016		18.2
2017		8.3
Thereafter		9.5
Total	$	151.5

Expense Incurred for Leases

The expense we incurred for the leases disclosed above, as well as other operating leases that may be cancelable or have terms less than one year, was:

(millions)	Expense
2012	$	71.9
2011		80.8
2010		96.7

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Supplemental Cash Flow Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Cash Flow, Supplemental [Line Items]
Income taxes, net of refunds	$ 389.1	$ 435.0	$ 434.0
Interest	$ 135.0	$ 129.5	$ 138.4

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Summary of Changes in Fair Value Associated With Level 3 Assets (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	$ 97.7		$ 170.5
Calls/ Maturities/ Paydowns	(23.8)		(22.4)
Purchases	28.5		0
Sales	0		(27.9)
Net Realized (Gain)/Loss on Sales	0		(0.6)
Change in Valuation	12.3		(6.5)
Net Transfers In (Out)	0		(15.4)	[1]
Ending Fair value	114.7		97.7
Fixed maturities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	86.2		158.7
Calls/ Maturities/ Paydowns	(23.6)		(22.4)
Purchases	0		0
Sales	0		(27.9)
Net Realized (Gain)/Loss on Sales	0		(0.6)
Change in Valuation	8.2		(6.2)
Net Transfers In (Out)	0		(15.4)	[1]
Ending Fair value	70.8		86.2
Fixed maturities | Corporate debt securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	0		29.5
Calls/ Maturities/ Paydowns	0		0
Purchases	0		0
Sales	0		(27.9)
Net Realized (Gain)/Loss on Sales	0		(0.6)
Change in Valuation	0		(1.0)
Net Transfers In (Out)	0		0	[1]
Ending Fair value	0		0
Fixed maturities | Asset-backed Securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	86.2		129.2
Calls/ Maturities/ Paydowns	(23.6)		(22.4)
Purchases	0		0
Sales	0		0
Net Realized (Gain)/Loss on Sales	0		0
Change in Valuation	8.2		(5.2)
Net Transfers In (Out)	0		(15.4)	[1]
Ending Fair value	70.8		86.2
Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	62.3		96.7
Calls/ Maturities/ Paydowns	(17.3)		(19.5)
Purchases	0		0
Sales	0		0
Net Realized (Gain)/Loss on Sales	0		0
Change in Valuation	0.5		0.5
Net Transfers In (Out)	0		(15.4)	[1]
Ending Fair value	45.5		62.3
Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	21.3		27.5
Calls/ Maturities/ Paydowns	(3.7)		(0.3)
Purchases	0		0
Sales	0		0
Net Realized (Gain)/Loss on Sales	0		0
Change in Valuation	7.7		(5.9)
Net Transfers In (Out)	0		0	[1]
Ending Fair value	25.3		21.3
Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	2.6		5.0
Calls/ Maturities/ Paydowns	(2.6)		(2.6)
Purchases	0		0
Sales	0		0
Net Realized (Gain)/Loss on Sales	0		0
Change in Valuation	0		0.2
Net Transfers In (Out)	0		0	[1]
Ending Fair value	0		2.6
Equity securities | Nonredeemable preferred stocks | Financials
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	0	[2]	0
Calls/ Maturities/ Paydowns	0	[2]	0
Purchases	28.5	[2]	0
Sales	0	[2]	0
Net Realized (Gain)/Loss on Sales	0	[2]	0
Change in Valuation	3.4	[2]	0
Net Transfers In (Out)	0	[2]	0	[1]
Ending Fair value	31.9	[2]	0	[2]
Equity securities | Common equities | Other risk investments
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Fair Value	11.5		11.8
Calls/ Maturities/ Paydowns	(0.2)		0
Purchases	0		0
Sales	0		0
Net Realized (Gain)/Loss on Sales	0		0
Change in Valuation	0.7		(0.3)
Net Transfers In (Out)	0		0	[1]
Ending Fair value	$ 12.0		$ 11.5

[1] The $(15.4) million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a residential mortgage-backed security.

[2] The $3.4 million represents net holding period gains on a hybrid security which is reflected in net realized gains (losses) on securities in the comprehensive income statement.

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OTTI Credit Losses Recognized in Earnings (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Change in recoveries of future cash flows expected to be collected	$ (4.0)	[1],[2]	$ (5.4)	[1],[2]
Residential mortgage-backed securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Change in recoveries of future cash flows expected to be collected	(3.8)	[1],[2]	0.8	[1],[2]
Residential mortgage-backed securities | Actual Cash Flow Recovery
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Change in recoveries of future cash flows expected to be collected	$ 1.4		$ 2.0

[1] Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security.

[2] Includes $1.4 million and $2.0 million at December 31, 2012 and 2011, respectively, received in excess of the cash flows expected to be collected at the time of the write-downs.

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Reinsurance (Detail) (Property, Liability and Casualty Insurance Segment, USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Liability and Casualty Insurance Segment
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Gross Amount	$ 16,207.6	$ 15,107.5	$ 14,519.2
Ceded to Other Companies	189.6	204.7	204.4
Assumed From Other Companies	0	0	0
Net Amount	$ 16,018.0	$ 14,902.8	$ 14,314.8
Percentage of Amount Assumed to Net	0.00%	0.00%	0.00%

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SCHEDULE II - Condensed Financial Information Of Registrant

12 Months Ended

Dec. 31, 2012

SCHEDULE II - Condensed Financial Information Of Registrant

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	Years Ended December 31,
	2012			2011			2010
Revenues
Dividends from subsidiaries	$	782.3		$	875.3		$	1,216.2
Undistributed income (loss) from subsidiaries		193.1			225.7			(73.5	)
Equity in net income of subsidiaries*		975.4			1,101.0			1,142.7
Intercompany investment income*		6.1			5.6			6.6
Gains (losses) on extinguishment of debt		(1.8	)		(.1	)		6.4
Total revenues		979.7			1,106.5			1,155.7
Expenses
Interest expense		126.3			138.0			139.5
Deferred compensation1		5.5			.4			4.3
Other operating costs and expenses		3.7			4.7			3.9
Total expenses		135.5			143.1			147.7
Income before income taxes		844.2			963.4			1,008.0
Provision (benefit) for income taxes		(58.1	)		(52.1	)		(60.3	)
Net income	$	902.3		$	1,015.5		$	1,068.3
Other comprehensive income (loss)		178.5			(91.2	)		330.5
Comprehensive income	$	1,080.8		$	924.3		$	1,398.8

* Eliminated in consolidation.

¹  See Note 4 – Employee Benefit Plans in these condensed financial statements.

See notes to condensed financial statements.

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	December 31,
	2012		2011
Assets
Investment in affiliate	$	1.0	$	1.0
Investment in subsidiaries*		6,648.6		6,179.5
Receivable from investment subsidiary*		1,322.9		2,096.6
Intercompany receivable*		296.2		237.6
Net deferred income taxes		48.3		40.1
Other assets		82.0		81.0
Total Assets	$	8,399.0	$	8,635.8
Liabilities and Shareholders’ Equity
Accounts payable, accrued expenses, and other liabilities	$	156.9	$	137.4
Dividend payable		172.0		249.6
Debt		2,063.1		2,442.1
Total liabilities		2,392.0		2,829.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)		604.6		613.0
Paid-in capital		1,077.0		1,006.2
Retained earnings		3,454.4		3,495.0
Total accumulated other comprehensive income		871.0		692.5
Total shareholders’ equity		6,007.0		5,806.7
Total Liabilities and Shareholders’ Equity	$	8,399.0	$	8,635.8

* Eliminated in consolidation.

See notes to condensed financial statements.

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)

(millions)

	Years Ended December 31,
	2012			2011			2010
Cash Flows From Operating Activities:
Net income	$	902.3		$	1,015.5		$	1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed (income) loss from subsidiaries		(193.1	)		(225.7	)		73.5
Amortization of equity-based compensation		2.0			2.1			2.4
(Gains) losses on extinguishment of debt		1.8			.1			(6.4	)
Changes in:
Intercompany receivable		(58.6	)		(58.5	)		(54.1	)
Accounts payable, accrued expenses, and other liabilities		.3			4.5			7.3
Income taxes		21.7			(3.4	)		(12.2	)
Other, net		(9.9	)		4.2			(1.9	)
Net cash provided by operating activities		666.5			738.8			1,076.9
Cash Flows From Investing Activities:
Additional investments in equity securities of consolidated subsidiaries		(36.1	)		(11.8	)		(3.5	)
Received from investment subsidiary		773.7			23.6			122.0
Net cash provided by investing activities		737.6			11.8			118.5
Cash Flows From Financing Activities:
Proceeds from exercise of stock options		.5			22.4			27.2
Tax benefit from exercise/vesting of equity-based compensation		5.8			6.4			14.0
Net proceeds from debt issuance		0			497.0			0
Payment of debt		(350.0	)		0			0
Reacquisition of debt		(32.5	)		(15.0	)		(214.3	)
Dividends paid to shareholders		(853.7	)		(263.6	)		(763.7	)
Acquisition of treasury shares		(174.2	)		(997.8	)		(258.6	)
Net cash used in financing activities		(1,404.1	)		(750.6	)		(1,195.4	)
Change in cash		0			0			0
Cash, beginning of year		0			0			0
Cash, end of year	$	0		$	0		$	0

See notes to condensed financial statements.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

Note 1. Statements of Cash Flows — For the purpose of the Statements of Cash Flows, cash includes only bank demand deposits. The Progressive Corporation does not hold any cash but has unrestricted access to funds maintained in a non-insurance, investment subsidiary to meet its holding company obligations; at year-end 2012 and 2011, $1.4 billion and $2.0 billion, respectively, of marketable securities were available in this company. Non-cash activity includes declared but unpaid dividends. For the years ended December 31, we paid the following:

(millions)	2012		2011		2010
Income taxes, net of refunds	$	389.1	$	435.0	$	434.0
Interest		135.0		129.5		138.4

Note 2. Income Taxes — The Progressive Corporation files a consolidated federal income tax return with all subsidiaries and acts as an agent for the consolidated tax group when making payments to the Internal Revenue Service. The consolidated group’s net income taxes currently payable/recoverable are included in other liabilities/assets, respectively, in the accompanying Condensed Balance Sheets based on the balance at the end of the year. The Progressive Corporation and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated federal income taxes. Amounts allocated to the subsidiaries under the written agreement are included in “Intercompany Receivable” in the accompanying Condensed Balance Sheets.

Note 3. Debt — The information relating to debt is incorporated by reference from Note 4 – Debt in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 4. Employee Benefit Plans — The information relating to incentive compensation plans and deferred compensation is incorporated by reference from Note 9 – Employee Benefit Plans in our Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 5. Other Comprehensive Income — On the condensed Statements of Comprehensive Income, other comprehensive income (loss) represents activity of the subsidiaries of The Progressive Corporation and includes net unrealized gains (losses) on securities, net unrealized gains on forecasted transactions, and foreign currency translation adjustments.

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Components of Net Realized Gains (Losses) (Detail) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	$ 360.6	$ 255.1	$ 187.4
Gross realized losses on securities sales	(31.1)	(51.5)	(25.8)
Net realized gains (losses) on securities sales	329.5	203.6	161.6
Other-than-temporary impairment losses	(3.5)	(4.1)	(13.5)
Total net realized gains (losses) on securities	306.8	102.6	96.1
Fixed maturities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	115.4	94.6	90.4
Gross realized losses on securities sales	(2.9)	(15.0)	(18.6)
Net realized gains (losses) on securities sales	112.5	79.6	71.8
Other-than-temporary impairment losses	(1.7)	(3.9)	(13.0)
Fixed maturities | U.S. government obligations
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	20.2	59.1	39.8
Gross realized losses on securities sales	(1.9)	(9.3)	(12.9)
Net realized gains (losses) on securities sales	18.3	49.8	26.9
Fixed maturities | State and local government obligations
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	15.0	3.5	10.0
Net realized gains (losses) on securities sales	15.0	3.5	10.0
Fixed maturities | Corporate And Other Debt Securities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	58.1	23.0	30.3
Gross realized losses on securities sales	(0.6)	(3.5)	(0.5)
Net realized gains (losses) on securities sales	57.5	19.5	29.8
Fixed maturities | Residential mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	1.2	2.0	0
Net realized gains (losses) on securities sales	1.2	2.0	0
Other-than-temporary impairment losses	(1.6)	(3.3)	(11.1)
Fixed maturities | Commercial mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	19.3	0.3	1.0
Net realized gains (losses) on securities sales	19.3	0.3	1.0
Other-than-temporary impairment losses	(0.1)	(0.6)	(1.9)
Fixed maturities | Other asset-backed securities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	0.9	2.1	0.8
Net realized gains (losses) on securities sales	0.9	2.1	0.8
Fixed maturities | Redeemable preferred stocks
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	0.7	4.6	8.5
Gross realized losses on securities sales	(0.4)	(2.2)	(5.2)
Net realized gains (losses) on securities sales	0.3	2.4	3.3
Equity securities | Nonredeemable preferred stocks
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	78.2	148.9	83.6
Gross realized losses on securities sales	(1.1)	0	0
Net realized gains (losses) on securities sales	77.1	148.9	83.6
Equity securities | Common equities
Gain (Loss) on Investments [Line Items]
Gross realized gains on securities sales	167.0	11.6	13.4
Gross realized losses on securities sales	(27.1)	(36.5)	(7.2)
Net realized gains (losses) on securities sales	139.9	(24.9)	6.2
Other-than-temporary impairment losses	(1.8)	(0.2)	(0.5)
Hybrid and Derivative Instruments and Litigation Settlements
Gain (Loss) on Investments [Line Items]
Other gains (losses)	(19.2)	(96.9)	(52.0)
Hybrid and Derivative Instruments and Litigation Settlements | Hybrid Preferred Stock
Gain (Loss) on Investments [Line Items]
Other gains (losses)	14.3	1.7	5.5
Hybrid and Derivative Instruments and Litigation Settlements | Derivative Instruments
Gain (Loss) on Investments [Line Items]
Other gains (losses)	(43.1)	(98.9)	(58.5)
Hybrid and Derivative Instruments and Litigation Settlements | Litigation Settlements
Gain (Loss) on Investments [Line Items]
Other gains (losses)	$ 9.6	$ 0.3	$ 1.0

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Condensed Statements Of Cash Flows (Parent Company) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash Flows From Operating Activities:
Net income	$ 902.3	$ 1,015.5	$ 1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of equity-based compensation	63.4	50.5	45.9
(Gains) losses on extinguishment of debt	1.8	0.1	(6.4)
Changes in:
Accounts payable, accrued expenses, and other liabilities	123.6	35.5	210.2
Income taxes	19.8	28.4	48.1
Other, net	(10.4)	5.9	(10.0)
Net cash provided by operating activities	1,691.4	1,497.9	1,679.3
Cash Flows From Investing Activities:
Net cash provided by (used in) investing activities	(264.9)	(744.9)	(486.5)
Cash Flows From Financing Activities:
Proceeds from exercise of stock options	0.5	22.4	27.2
Tax benefit from exercise/vesting of equity-based compensation	5.8	6.4	14.0
Net proceeds from debt issuance	0	491.9	0
Payment of debt	(350.0)	0	0
Reacquisition of debt	(32.5)	(15.0)	(214.3)
Dividends paid to shareholders	(853.7)	(263.6)	(763.7)
Acquisition of treasury shares	(174.2)	(997.8)	(258.6)
Net cash used in financing activities	(1,404.1)	(755.7)	(1,195.4)
Increase (decrease) in cash	23.4	(3.2)	(1.8)
Cash, beginning of year	155.7	158.9	160.7
Cash, End of year	179.1	155.7	158.9
Parent Company
Cash Flows From Operating Activities:
Net income	902.3	1,015.5	1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed (income) loss from subsidiaries	(193.1)	(225.7)	73.5
Amortization of equity-based compensation	2.0	2.1	2.4
(Gains) losses on extinguishment of debt	1.8	0.1	(6.4)
Changes in:
Intercompany receivable	(58.6)	(58.5)	(54.1)
Accounts payable, accrued expenses, and other liabilities	0.3	4.5	7.3
Income taxes	21.7	(3.4)	(12.2)
Other, net	(9.9)	4.2	(1.9)
Net cash provided by operating activities	666.5	738.8	1,076.9
Cash Flows From Investing Activities:
Additional investments in equity securities of consolidated subsidiaries	(36.1)	(11.8)	(3.5)
Received from investment subsidiary	773.7	23.6	122.0
Net cash provided by (used in) investing activities	737.6	11.8	118.5
Cash Flows From Financing Activities:
Proceeds from exercise of stock options	0.5	22.4	27.2
Tax benefit from exercise/vesting of equity-based compensation	5.8	6.4	14.0
Net proceeds from debt issuance	0	497.0	0
Payment of debt	(350.0)	0	0
Reacquisition of debt	(32.5)	(15.0)	(214.3)
Dividends paid to shareholders	(853.7)	(263.6)	(763.7)
Acquisition of treasury shares	(174.2)	(997.8)	(258.6)
Net cash used in financing activities	(1,404.1)	(750.6)	(1,195.4)
Increase (decrease) in cash	0	0	0
Cash, beginning of year	0	0	0
Cash, End of year	$ 0	$ 0	$ 0

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2012

Composition of Investment Portfolio by Major Security Type

The composition of the investment portfolio by major security type was:

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,896.5	$	0	$	0	$	2,896.5	$	2,806.4
State and local government obligations		0		1,964.4		0		1,964.4		1,914.4
Corporate debt securities		0		3,113.0		0		3,113.0		2,982.9
Subtotal		2,896.5		5,077.4		0		7,973.9		7,703.7
Asset-backed securities:
Residential mortgage-backed		0		382.7		45.5		428.2		413.4
Commercial mortgage-backed		0		2,023.4		25.3		2,048.7		1,963.9
Other asset-backed		0		948.6		0		948.6		936.0
Subtotal asset-backed securities		0		3,354.7		70.8		3,425.5		3,313.3
Redeemable preferred stocks:
Financials		0		129.7		0		129.7		110.7
Utilities		0		66.7		0		66.7		64.9
Industrials		0		178.3		0		178.3		181.3
Subtotal redeemable preferred stocks		0		374.7		0		374.7		356.9
Total fixed maturities		2,896.5		8,806.8		70.8		11,774.1		11,373.9
Equity securities:
Nonredeemable preferred stocks:
Financials		259.6		494.5		31.9		786.0		383.3
Utilities		0		26.4		0		26.4		20.7
Subtotal nonredeemable preferred stocks		259.6		520.9		31.9		812.4		404.0
Common equities:
Common stocks		1,887.0		0		0		1,887.0		1,367.2
Other risk investments		0		0		12.0		12.0		3.1
Subtotal common equities		1,887.0		0		12.0		1,899.0		1,370.3
Total fixed maturities and equity securities		5,043.1		9,327.7		114.7		14,485.5		13,148.2
Short-term investments:
Other short-term investments		1,679.9		310.1		0		1,990.0		1,990.0
Total portfolio	$	6,723.0	$	9,637.8	$	114.7	$	16,475.5	$	15,138.2
Debt	$	0	$	2,394.4	$	0	$	2,394.4	$	2,063.1

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,963.0	$	0	$	0	$	2,963.0	$	2,842.7
State and local government obligations		0		2,002.1		0		2,002.1		1,938.6
Corporate debt securities		0		2,896.2		0		2,896.2		2,801.5
Subtotal		2,963.0		4,898.3		0		7,861.3		7,582.8
Asset-backed securities:
Residential mortgage-backed		0		364.6		62.3		426.9		452.9
Commercial mortgage-backed		0		1,855.3		21.3		1,876.6		1,829.8
Other asset-backed		0		1,218.0		2.6		1,220.6		1,210.9
Subtotal asset-backed securities		0		3,437.9		86.2		3,524.1		3,493.6
Redeemable preferred stocks:
Financials		24.1		107.2		0		131.3		124.3
Utilities		0		68.1		0		68.1		70.8
Industrials		0		174.5		0		174.5		184.2
Subtotal redeemable preferred stocks		24.1		349.8		0		373.9		379.3
Total fixed maturities		2,987.1		8,686.0		86.2		11,759.3		11,455.7
Equity securities:
Nonredeemable preferred stocks:
Financials		227.9		525.4		0		753.3		433.7
Utilities		0		53.0		0		53.0		40.0
Subtotal nonredeemable preferred stocks		227.9		578.4		0		806.3		473.7
Common equities:
Common stocks		1,834.1		0		0		1,834.1		1,427.3
Other risk investments		0		0		11.5		11.5		3.7
Subtotal common equities		1,834.1		0		11.5		1,845.6		1,431.0
Total fixed maturities and equity securities	$	5,049.1	$	9,264.4	$	97.7		14,411.2		13,360.4
Short-term investments:
Other short-term investments1								1,551.8		1,551.8
Total portfolio							$	15,963.0	$	14,912.2
Debt1							$	2,664.7	$	2,442.1

¹  Under the prior accounting guidance, fair value hierarchies were not required.

Summary of Changes in Fair Value Associated With Level 3 Assets

The following tables provide a summary of changes in fair value associated with Level 3 assets for the years ended December 31, 2012 and 2011:

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2011		Calls/ Maturities/ Paydowns			Purchases		Sales		Net Realized (Gain)/Loss on Sales		Change in Valuation		Net Transfers In (Out)		Fair Value at Dec. 31, 2012
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	62.3	$	(17.3	)	$	0	$	0	$	0	$	.5	$	0	$	45.5
Commercial mortgage-backed		21.3		(3.7	)		0		0		0		7.7		0		25.3
Other asset-backed		2.6		(2.6	)		0		0		0		0		0		0
Total asset-backed securities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Corporate debt securities		0		0			0		0		0		0		0		0
Total fixed maturities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Equity securities:
Nonredeemable preferred stocks:
Financials1		0		0			28.5		0		0		3.4		0		31.9
Common equities:
Other risk investments		11.5		(.2	)		0		0		0		.7		0		12.0
Total Level 3 securities	$	97.7	$	(23.8	)	$	28.5	$	0	$	0	$	12.3	$	0	$	114.7

¹ The $3.4 million represents net holding period gains on a hybrid security which is reflected in net realized gains (losses) on securities in the comprehensive income statement.

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2010		Calls/ Maturities/ Paydowns			Purchases		Sales			Net Realized (Gain)/Loss on Sales			Change in Valuation			Net Transfers In (Out)1			Fair Value at Dec. 31, 2011
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	96.7	$	(19.5	)	$	0	$	0		$	0		$	.5		$	(15.4	)	$	62.3
Commercial mortgage-backed		27.5		(.3	)		0		0			0			(5.9	)		0			21.3
Other asset-backed		5.0		(2.6	)		0		0			0			.2			0			2.6
Total asset-backed securities		129.2		(22.4	)		0		0			0			(5.2	)		(15.4	)		86.2
Corporate debt securities		29.5		0			0		(27.9	)		(.6	)		(1.0	)		0			0
Total fixed maturities		158.7		(22.4	)		0		(27.9	)		(.6	)		(6.2	)		(15.4	)		86.2
Equity securities:
Nonredeemable preferred stocks:
Financials		0		0			0		0			0			0			0			0
Common equities:
Other risk investments		11.8		0			0		0			0			(.3	)		0			11.5
Total Level 3 securities	$	170.5	$	(22.4	)	$	0	$	(27.9	)	$	(.6	)	$	(6.5	)	$	(15.4	)	$	97.7

¹ The $(15.4) million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a residential mortgage-backed security.

Summary of Quantitative Information about Level 3 Fair Value Measurements

The following table provides a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at December 31, 2012:

	Quantitative Information about Level 3 Fair Value Measurements
($ in millions)	Fair Value at Dec. 31, 2012		Valuation Technique		Unobservable Input			Unobservable Input Assumption
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	.2		External vendor		Prepayment rate	1		16
Commercial mortgage-backed		25.3		External vendor		Prepayment rate	2		0
Total fixed maturities		25.5
Equity securities:
Nonredeemable preferred stocks:
Financials		31.9		Multiple of tangible net book value		Price to book ratio multiple			1.9
Common equities:
Other risk investments		11.2		Discounted consolidated equity		Discount for lack of marketability			20	%
Subtotal Level 3 securities		68.6
Third-party pricing exemption securities3		46.1
Total Level 3 securities	$	114.7

¹ Assumes that one security has 16% of the principal amount of the underlying loans that will be paid off prematurely in each year.

² Assumes that three securities have 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.

³ The fair values for these securities were obtained from non-binding external sources where unobservable inputs are not reasonably available to us.

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Investments (Tables)

12 Months Ended

Dec. 31, 2012

Investment Portfolio by Major Security Type

The following tables present the composition of our investment portfolio by major security type, consistent with our internal classification of how we manage, monitor, and measure the portfolio:

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,806.4	$	90.1	$	0		$	0		$	2,896.5		17.6	%
State and local government obligations		1,914.4		50.6		(.6	)		0			1,964.4		11.9
Corporate debt securities		2,982.9		124.7		(1.0	)		6.4			3,113.0		18.9
Residential mortgage-backed securities		413.4		24.0		(9.2	)		0			428.2		2.6
Commercial mortgage-backed securities		1,963.9		84.9		(.1	)		0			2,048.7		12.4
Other asset-backed securities		936.0		12.9		(.1	)		(.2	)		948.6		5.8
Redeemable preferred stocks		356.9		30.5		(12.7	)		0			374.7		2.3
Total fixed maturities		11,373.9		417.7		(23.7	)		6.2			11,774.1		71.5
Equity securities:
Nonredeemable preferred stocks		404.0		404.6		0			3.8			812.4		4.9
Common equities		1,370.3		539.0		(10.3	)		0			1,899.0		11.5
Short-term investments:
Other short-term investments		1,990.0		0		0			0			1,990.0		12.1
Total portfolio2,3	$	15,138.2	$	1,361.3	$	(34.0	)	$	10.0		$	16,475.5		100.0	%

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,842.7	$	120.3	$	0		$	0		$	2,963.0		18.6	%
State and local government obligations		1,938.6		64.1		(.6	)		0			2,002.1		12.5
Corporate debt securities		2,801.5		94.3		(6.5	)		6.9			2,896.2		18.1
Residential mortgage-backed securities		452.9		9.3		(35.3	)		0			426.9		2.7
Commercial mortgage-backed securities		1,829.8		52.3		(5.5	)		0			1,876.6		11.8
Other asset-backed securities		1,210.9		11.3		(1.3	)		(.3	)		1,220.6		7.6
Redeemable preferred stocks		379.3		18.6		(24.0	)		0			373.9		2.3
Total fixed maturities		11,455.7		370.2		(73.2	)		6.6			11,759.3		73.6
Equity securities:
Nonredeemable preferred stocks		473.7		342.6		(3.7	)		(6.3	)		806.3		5.1
Common equities		1,431.0		440.0		(25.4	)		0			1,845.6		11.6
Short-term investments:
Other short-term investments		1,551.8		0		0			0			1,551.8		9.7
Total portfolio2,3	$	14,912.2	$	1,152.8	$	(102.3	)	$	.3		$	15,963.0		100.0	%

¹ Represents net holding period gains (losses) on certain hybrid securities (discussed below).

² At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

³ The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

Hybrid Securities

Included in our fixed-maturity and equity securities are hybrid securities, which are reported at fair value at December 31:

(millions)	2012		2011
Fixed maturities:
Corporate debt securities	$	176.1	$	234.9
Other asset-backed securities		16.4		15.5
Total fixed maturities		192.5		250.4
Equity securities:
Nonredeemable preferred stocks		52.8		14.2
Total hybrid securities	$	245.3	$	264.6

Composition of Fixed Maturities by Maturity

The composition of fixed maturities by maturity at December 31, 2012, was:

(millions)	Cost		Fair Value
Less than one year	$	1,432.3	$	1,462.2
One to five years		8,368.7		8,675.0
Five to ten years		1,426.3		1,484.7
Ten years or greater		146.6		152.2
Total	$	11,373.9	$	11,774.1

Gross Unrealized Losses by Major Security

The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:

	Total Fair		Gross Unrealized			Less than 12 Months					12 Months or Greater
						Fair		Unrealized			Fair		Unrealized
(millions)	Value		Losses			Value		Losses			Value		Losses
December 31, 2012
Fixed maturities:
State and local government obligations	$	162.8	$	(.6	)	$	123.1	$	(.5	)	$	39.7	$	(.1	)
Corporate debt securities		128.2		(1.0	)		128.2		(1.0	)		0		0
Residential mortgage-backed securities		149.2		(9.2	)		40.2		(.6	)		109.0		(8.6	)
Commercial mortgage-backed securities		7.1		(.1	)		2.1		0			5.0		(.1	)
Other asset-backed securities		25.0		(.1	)		20.8		0			4.2		(.1	)
Redeemable preferred stocks		155.7		(12.7	)		24.9		0			130.8		(12.7	)
Total fixed maturities		628.0		(23.7	)		339.3		(2.1	)		288.7		(21.6	)
Equity securities:
Nonredeemable preferred stocks		0		0			0		0			0		0
Common equities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total equity securities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total portfolio	$	746.2	$	(34.0	)	$	440.0	$	(10.3	)	$	306.2	$	(23.7	)

	Total Fair Value		Gross Unrealized Losses			Less than 12 Months					12 Months or Greater
(millions)						Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2011
Fixed maturities:
State and local government obligations	$	93.6	$	(.6	)	$	79.5	$	(.5	)	$	14.1	$	(.1	)
Corporate debt securities		262.7		(6.5	)		137.3		(4.6	)		125.4		(1.9	)
Residential mortgage-backed securities		308.7		(35.3	)		34.4		(2.0	)		274.3		(33.3	)
Commercial mortgage-backed securities		203.7		(5.5	)		161.4		(3.5	)		42.3		(2.0	)
Other asset-backed securities		284.2		(1.3	)		259.7		(1.0	)		24.5		(.3	)
Redeemable preferred stocks		191.4		(24.0	)		43.5		(1.5	)		147.9		(22.5	)
Total fixed maturities		1,344.3		(73.2	)		715.8		(13.1	)		628.5		(60.1	)
Equity securities:
Nonredeemable preferred stocks		19.5		(3.7	)		19.5		(3.7	)		0		0
Common equities		214.6		(25.4	)		196.7		(23.1	)		17.9		(2.3	)
Total equity securities		234.1		(29.1	)		216.2		(26.8	)		17.9		(2.3	)
Total portfolio	$	1,578.4	$	(102.3	)	$	932.0	$	(39.9	)	$	646.4	$	(62.4	)

Total Non-Credit Portion of Other-Than-Temporary Impairment Recorded in Accumulated Other Comprehensive Income, Reflecting Orginal Non-Credit Loss at the Time Credit Impairment

The following table shows the total non-credit portion of the OTTI recorded in accumulated other comprehensive income, reflecting the original non-credit loss at the time the credit impairment was determined:

	December 31,
(millions)	2012			2011
Fixed maturities:
Residential mortgage-backed securities	$	(44.2	)	$	(44.8	)
Commercial mortgage-backed securities		(.9	)		(1.0	)
Total fixed maturities	$	(45.1	)	$	(45.8	)

OTTI Credit Losses Recognized in Earnings

The following tables provide rollforwards of the amounts related to credit losses recognized in earnings for the periods ended December 31, 2012 and 2011, for which a portion of the OTTI losses were also recognized in accumulated other comprehensive income at the time the credit impairments were determined and recognized:

(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2012	$	34.5		$	1.3		$	0		$	35.8
Credit losses for which an OTTI was previously recognized		.1			0			0			.1
Credit losses for which an OTTI was not previously recognized		.3			0			0			.3
Reductions for securities sold/matured		0			(.2	)		0			(.2	)
Change in recoveries of future cash flows expected to be collected1,2		(3.8	)		(.2	)		0			(4.0	)
Reductions for previously recognized credit impairments written-down to fair value3		(4.0	)		(.3	)		0			(4.3	)
Ending balance at December 31, 2012	$	27.1		$	.6		$	0		$	27.7
(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2011	$	32.3		$	1.0		$	6.5		$	39.8
Credit losses for which an OTTI was previously recognized		1.4			0			0			1.4
Credit losses for which an OTTI was not previously recognized		1.1			.4			0			1.5
Reductions for securities sold/matured		0			0			0			0
Change in recoveries of future cash flows expected to be collected1,2		.8			.3			(6.5	)		(5.4	)
Reductions for previously recognized credit impairments written-down to fair value3		(1.1	)		(.4	)		0			(1.5	)
Ending balance at December 31, 2011	$	34.5		$	1.3		$	0		$	35.8

¹  Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security.

²  Includes $1.4 million and $2.0 million at December 31, 2012 and 2011, respectively, received in excess of the cash flows expected to be collected at the time of the write-downs.

³  Reflects reductions of prior credit impairments where the current credit impairment requires writing securities down to fair value (i.e., no remaining non-credit loss).

Components of Net Realized Gains (Losses)

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

(millions)	2012			2011			2010
Gross realized gains on security sales
Fixed maturities:
U.S. government obligations	$	20.2		$	59.1		$	39.8
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		58.1			23.0			30.3
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.7			4.6			8.5
Total fixed maturities		115.4			94.6			90.4
Equity securities:
Nonredeemable preferred stocks		78.2			148.9			83.6
Common equities		167.0			11.6			13.4
Subtotal gross realized gains on security sales		360.6			255.1			187.4
Gross realized losses on security sales
Fixed maturities:
U.S. government obligations		(1.9	)		(9.3	)		(12.9	)
Corporate and other debt securities		(.6	)		(3.5	)		(.5	)
Redeemable preferred stocks		(.4	)		(2.2	)		(5.2	)
Total fixed maturities		(2.9	)		(15.0	)		(18.6	)
Equity securities:
Nonredeemable preferred stocks		(1.1	)		0			0
Common equities		(27.1	)		(36.5	)		(7.2	)
Subtotal gross realized losses on security sales		(31.1	)		(51.5	)		(25.8	)
Net realized gains (losses) on security sales
Fixed maturities:
U.S. government obligations		18.3			49.8			26.9
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		57.5			19.5			29.8
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.3			2.4			3.3
Total fixed maturities		112.5			79.6			71.8
Equity securities:
Nonredeemable preferred stocks		77.1			148.9			83.6
Common equities		139.9			(24.9	)		6.2
Subtotal net realized gains (losses) on security sales		329.5			203.6			161.6
Other-than-temporary impairment losses
Fixed maturities:
Residential mortgage-backed securities		(1.6	)		(3.3	)		(11.1	)
Commercial mortgage-backed securities		(.1	)		(.6	)		(1.9	)
Total fixed maturities		(1.7	)		(3.9	)		(13.0	)
Equity securities:
Common equities		(1.8	)		(.2	)		(.5	)
Subtotal other-than-temporary impairment losses		(3.5	)		(4.1	)		(13.5	)
Other gains (losses)
Hybrid securities		14.3			1.7			5.5
Derivative instruments		(43.1	)		(98.9	)		(58.5	)
Litigation settlements		9.6			.3			1.0
Subtotal other gains (losses)		(19.2	)		(96.9	)		(52.0	)
Total net realized gains (losses) on securities	$	306.8		$	102.6		$	96.1

Components of Net Investment Income

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

(millions)	2012			2011			2010
Fixed maturities:
U.S. government obligations	$	49.8		$	58.0		$	80.8
State and local government obligations		51.1			60.0			65.4
Corporate debt securities		107.5			106.7			84.3
Residential mortgage-backed securities		16.1			18.6			21.7
Commercial mortgage-backed securities		82.2			83.4			99.1
Other asset-backed securities		20.3			24.5			21.8
Redeemable preferred stocks		24.2			33.0			45.5
Total fixed maturities		351.2			384.2			418.6
Equity securities:
Nonredeemable preferred stocks		43.8			57.7			70.6
Common equities		44.9			35.7			27.3
Short-term investments:
Other short-term investments		3.1			2.4			3.6
Investment income		443.0			480.0			520.1
Investment expenses		(15.4	)		(13.5	)		(11.9	)
Net investment income	$	427.6		$	466.5		$	508.2

Derivative Instruments

The following table shows the status of our derivative instruments at December 31, 2012 and 2011, and for the years ended December 31, 2012, 2011, and 2010; amounts are on a pretax basis:

(millions)								Balance Sheet							Comprehensive Income Statement
	Notional Value1								Assets (Liabilities) Fair Value						Net Realized Gains (Losses) on Securities
	December 31,								December 31,						Years ended December 31,
Derivatives designated as:	2012		2011		2010		Purpose	Classification	2012			2011			2012			2011			2010
Hedging instruments
Closed:
Ineffective cash flow hedge	$	31	$	15	$	223	Manage interest rate risk	NA	$	0		$	0		$	.6		$	.3		$	5.8
Non-hedging instruments
Assets:
Corporate credit default swaps		0		25		35	Manage credit risk	Investments - fixed maturities		0			.7			0			(.2	)		2.5
Liabilities:
Interest rate swaps		1,263		1,263		713	Manage portfolio duration	Other liabilities		(95.5	)		(76.1	)		(42.7	)		(74.0	)		(66.6	)
Closed:																0			(25.5	)		0
Interest rate swaps		0		350		0	Manage portfolio duration	NA		0			0
Corporate credit default swaps		25		10		25	Manage credit risk	NA		0			0			(1.0	)		.5			(.2	)
Total		NA		NA		NA			$	(95.5	)	$	(75.4	)	$	(43.1	)	$	(98.9	)	$	(58.5	)

¹The amounts represent the value held at year end for open positions and the maximum amount held during the year for closed positions.

NA = Not Applicable

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Components of Other Comprehensive Income (Loss) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Net unrealized gains (losses) on securities, pretax:
Net non-credit related OTTI losses, adjusted for valuation changes, pretax	$ 7.9		$ (5.5)		$ 21.4
Change in net unrealized gains (losses) on securities, pretax	276.8		(130.0)		518.6
Net unrealized gains (losses) on forecasted transactions, pretax:
Net unrealized gains (losses) on forecasted transactions arising during period, pretax	0	[1]	(5.1)	[1]	0	[1]
Reclassification adjustment for amounts realized in net income, pretax	(2.8)	[1],[2]	(5.3)	[1],[2]	(10.6)	[1],[2]
Change in net unrealized gains on forecasted transactions, pretax	(2.8)		(10.4)		(10.6)
Foreign currency translation adjustment, pretax	0.6		0.2		1.2
Other comprehensive income (loss), pretax	274.6		(140.2)		509.2
Net unrealized gains (losses) securities, tax (provision) benefit
Net non-credit related OTTI losses, adjusted for valuation changes, tax (provision) benefit	(2.8)		1.9		(7.5)
Change in net unrealized gains (losses) on securities, tax (provision) benefit	(96.9)		45.5		(181.5)
Net unrealized gains (losses) on forecasted transactions, tax (provision) benefit:
Net unrealized gains (losses) on forecasted transactions arising during period, tax (provision) benefit	0	[1]	1.8	[1]	0	[1]
Reclassification adjustment for amounts realized in net income, tax (provision) benefit	1.0	[1],[2]	1.8	[1],[2]	3.7	[1],[2]
Change in net unrealized gains on forecasted transactions, tax (provison) benefit	1.0		3.6		3.7
Foreign currency translation adjustment, tax (provision) benefit	(0.2)		(0.1)		(0.9)
Other comprehensive income (loss), tax (provision) benefit	(96.1)		49.0		(178.7)
Net unrealized gains (losses) on securities, after tax:
Net non-credit related OTTI losses, adjusted for valuation changes, after tax	5.1		(3.6)		13.9
Change in net unrealized gains (losses) on securities, after tax	179.9		(84.5)		337.1
Net unrealized gains (losses) on forecasted transactions, after tax:
Net unrealized gains (losses) on forecasted transactions arising during period, after tax	0	[1]	(3.3)	[1]	0	[1]
Reclassification adjustment for amounts realized in net income, after tax	(1.8)	[1],[2]	(3.5)	[1],[2]	(6.9)	[1],[2]
Change in net unrealized gains on forecasted transactions, after tax	(1.8)		(6.8)		(6.9)
Foreign currency translation adjustment, after tax	0.4		0.1		0.3
Other comprehensive income (loss), after tax	178.5		(91.2)		330.5
Fixed maturities
Net unrealized gains (losses) on securities, pretax:
Net unrealized gains (losses) on securities arising during period, pretax	165.0		132.9		302.9
Reclassification adjustment for (gains) losses realized in net income, pretax	(75.9)		(47.4)		46.3
Net unrealized gains (losses) securities, tax (provision) benefit
Net unrealized gains (losses) on securities arising during period, tax (provision) benefit	(57.7)		(46.5)		(106.0)
Reclassification adjustment for (gains) losses realized in net income, tax (provision) benefit	26.6		16.6		(16.2)
Net unrealized gains (losses) on securities, after tax:
Net unrealized gains (losses) on securities arising during period, after tax	107.3		86.4		196.9
Reclassification adjustment for (gains) losses realized in net income, after tax	(49.3)		(30.8)		30.1
Equity securities
Net unrealized gains (losses) on securities, pretax:
Net unrealized gains (losses) on securities arising during period, pretax	323.0		(57.5)		241.7
Reclassification adjustment for (gains) losses realized in net income, pretax	(143.2)		(152.5)		(93.7)
Net unrealized gains (losses) securities, tax (provision) benefit
Net unrealized gains (losses) on securities arising during period, tax (provision) benefit	(113.1)		20.1		(84.6)
Reclassification adjustment for (gains) losses realized in net income, tax (provision) benefit	50.1		53.4		32.8
Net unrealized gains (losses) on securities, after tax:
Net unrealized gains (losses) on securities arising during period, after tax	209.9		(37.4)		157.1
Reclassification adjustment for (gains) losses realized in net income, after tax	$ (93.1)		$ (99.1)		$ (60.9)

[1] Entered into for the purpose of managing interest rate risk associated with our debt issuances.

[2] We expect to reclassify $2.2 million (pretax) into income during the next 12 months. During 2012, 2011, and 2010, we reclassified $0.6 million, $0.3 million, and $5.8 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods (see Note 4 - Debt for further discussion).

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Hybrid Securities (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Hybrid Securities [Line Items]
Hybrid securities	$ 245.3	$ 264.6
Fixed maturities
Hybrid Securities [Line Items]
Hybrid securities	192.5	250.4
Fixed maturities | Corporate debt securities
Hybrid Securities [Line Items]
Hybrid securities	176.1	234.9
Fixed maturities | Other asset-backed securities
Hybrid Securities [Line Items]
Hybrid securities	16.4	15.5
Equity securities | Nonredeemable preferred stocks
Hybrid Securities [Line Items]
Hybrid securities	$ 52.8	$ 14.2

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Condensed Financial Information Of Registrant - Additional Information (Detail) (USD $) In Billions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Securities Held in Consolidated Non-Insurance Subsidiary	$ 1.4	$ 2.0

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Debt (Tables)

12 Months Ended

Dec. 31, 2012

Debt Table

Debt at December 31 consisted of:

	2012				2011
(millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)	$	0	$	0	$	350.0	$	350.5
7% Notes due 2013 (issued: $150.0, October 1993)		149.9		157.1		149.7		162.4
3.75% Senior Notes due 2021 (issued: $500.0, August 2011)		497.3		549.1		497.0		525.3
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		295.2		385.0		295.0		364.4
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		394.5		513.5		394.4		492.4
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
(issued: $1,000.0, June 2007; outstanding: $731.2 and $762.1)		726.2		789.7		756.0		769.7
Total	$	2,063.1	$	2,394.4	$	2,442.1	$	2,664.7

Aggregate Principal Payments on Debt Outstanding

Aggregate principal payments on debt outstanding at December 31, 2012, is as follows:

(millions) Year	Payments
2013	$	150.0
2014		0
2015		0
2016		0
2017		0
Thereafter		1,931.2
Total	$	2,081.2

Cash Flow Hedging

Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges Included in Accumulated Other Comprehensive Income

The original unrealized gain (loss) at the time of each debt issuance and the unamortized balance at December 31, 2012, on a pretax basis, of these hedges, were as follows:

(millions)	Unrealized Gain (Loss) at Debt Issuance			Unamortized Balance at December 31, 2012
6.375% Senior Notes	$	18.4		$	0
3.75% Senior Notes		(5.1	)		(4.5	)
6 5/8% Senior Notes		(4.2	)		(3.4	)
6.25% Senior Notes		5.1			4.3
6.70% Debentures		34.4			13.0

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Components of Income Tax Provision

The components of our income tax provision were as follows:

(millions)	2012			2011		2010
Current tax provision	$	424.8		$	440.2	$	433.9
Deferred tax expense (benefit)		(9.4	)		31.3		63.0
Total income tax provision	$	415.4		$	471.5	$	496.9

Reconciliation of Provision (Benefit) for Income Taxes Reported in Consolidated Statements of Income with Tax at Statutory Rate

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

($ in millions)	2012				2011				2010
Income before income taxes	$	1,317.7			$	1,487.0			$	1,565.2
Tax at statutory rate	$	461.2	35	%	$	520.5	35	%	$	547.8	35	%
Tax effect of:
Exempt interest income		(14.7)	(1)			(17.5)	(1)			(19.4)	(1)
Dividends received deduction		(18.2)	(1)			(18.2)	(1)			(17.2)	(1)
Tax credits		0	0			(9.1)	(1)			0	0
Tax-deductible dividends		(11.9)	(1)			(3.8)	0			(13.0)	(1)
Other items, net		(1.0)	0			(.4)	0			(1.3)	0
Total income tax provision	$	415.4	32	%	$	471.5	32	%	$	496.9	32	%

Components of Net Deferred Tax Assets

At December 31, 2012 and 2011, the components of the net deferred tax asset were as follows:

(millions)	2012			2011
Deferred tax assets:
Unearned premiums reserve	$	344.3		$	319.1
Investment basis differences		208.3			246.1
Non-deductible accruals		191.6			172.1
Loss and loss adjustment expense reserves		107.3			113.6
Other		3.9			5.2
Deferred tax liabilities:
Net unrealized gains on securities		(464.5	)		(367.7	)
Hedges on forecasted transactions		(3.3	)		(4.3	)
Deferred acquisition costs		(152.1	)		(151.8	)
Property and equipment		(103.6	)		(109.9	)
Prepaid expenses		(12.2	)		(16.1	)
Deferred gain on extinguishment of debt		(5.8	)		(5.8	)
Other		(4.5	)		(4.5	)
Net deferred tax asset	$	109.4		$	196.0

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SCHEDULE I - Summary Of Investments - Other Than Investments In Related Parties

12 Months Ended

Dec. 31, 2012

SCHEDULE I - Summary Of Investments - Other Than Investments In Related Parties

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

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

	December 31, 2012
Type of Investment	Cost		Fair Value		Amount At Which Shown In The Balance Sheet
Available-for-sale
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	2,806.4	$	2,896.5	$	2,896.5
States, municipalities, and political subdivisions		1,914.4		1,964.4		1,964.4
Public utilities		48.0		48.4		48.4
Corporate and other debt securities		2,934.9		3,064.6		3,064.6
Asset-backed securities		3,313.3		3,425.5		3,425.5
Redeemable preferred stocks		356.9		374.7		374.7
Total fixed maturities		11,373.9		11,774.1		11,774.1
Equity securities:
Common stocks:
Public utilities		102.0		134.1		134.1
Banks, trusts, and insurance companies		199.2		260.1		260.1
Industrial, miscellaneous, and all other		1,069.1		1,504.8		1,504.8
Nonredeemable preferred stocks		404.0		812.4		812.4
Total equity securities		1,774.3		2,711.4		2,711.4
Short-term investments1		1,990.0		1,990.0		1,990.0
Total investments	$	15,138.2	$	16,475.5	$	16,475.5

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Loss And Loss Adjustment Expense Reserves (Tables)

12 Months Ended

Dec. 31, 2012

Activity in Loss and Loss Adjustment Expense Reserves

Activity in the loss and loss adjustment expense reserves is summarized as follows:

(millions)	2012		2011			2010
Balance at January 1	$	7,245.8	$	7,071.0		$	6,653.0
Less reinsurance recoverables on unpaid losses		785.7		704.1			529.4
Net balance at January 1		6,460.1		6,366.9			6,123.6
Incurred related to:
Current year		11,926.0		10,876.8			10,451.7
Prior years		22.0		(242.0	)		(320.4	)
Total incurred		11,948.0		10,634.8			10,131.3
Paid related to:
Current year		7,895.3		7,289.3			6,841.0
Prior years		3,536.5		3,252.3			3,047.0
Total paid		11,431.8		10,541.6			9,888.0
Net balance at December 31		6,976.3		6,460.1			6,366.9
Plus reinsurance recoverables on unpaid losses		862.1		785.7			704.1
Balance at December 31	$	7,838.4	$	7,245.8		$	7,071.0

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Prepaid Reinsurance Premiums and Reinsurance Recoverables (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	$ 66.3	$ 69.8
Percentage of Prepaid Reinsurance Premiums	100.00%	100.00%
Reinsurance Recoverables	901.0	818.0
Percentage of Reinsurance Recoverables	100.00%	100.00%
State Reinsurance Plan
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	60.3	53.1
Percentage of Prepaid Reinsurance Premiums	91.00%	76.00%
Reinsurance Recoverables	856.1	760.2
Percentage of Reinsurance Recoverables	95.00%	93.00%
State Reinsurance Plan | Michigan Catastrophic Claims Association
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	25.4	21.4
Percentage of Prepaid Reinsurance Premiums	38.00%	31.00%
Reinsurance Recoverables	739.2	650.4
Percentage of Reinsurance Recoverables	82.00%	80.00%
State Reinsurance Plan | North Carolina Reinsurance Facility
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	19.5	19.0
Percentage of Prepaid Reinsurance Premiums	30.00%	27.00%
Reinsurance Recoverables	50.6	51.4
Percentage of Reinsurance Recoverables	6.00%	6.00%
State Reinsurance Plan | Commercial Auto Insurance Procedures Plans
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	15.4	12.7
Percentage of Prepaid Reinsurance Premiums	23.00%	18.00%
Reinsurance Recoverables	66.3	58.4
Percentage of Reinsurance Recoverables	7.00%	7.00%
Non-State Reinsurance Plans
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Prepaid reinsurance premiums	6.0	16.7
Percentage of Prepaid Reinsurance Premiums	9.00%	24.00%
Reinsurance Recoverables	$ 44.9	$ 57.8
Percentage of Reinsurance Recoverables	5.00%	7.00%

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Condensed Statements Of Comprehensive Income (Parent Company) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Revenues
Gains (losses) on extinguishment of debt	$ (1.8)		$ (0.1)		$ 6.4
Total revenues	17,083.9		15,774.6		15,215.5
Expenses
Interest expense	123.8		132.7		133.5
Total expenses	15,766.2		14,287.6		13,650.3
Income before income taxes	1,317.7		1,487.0		1,565.2
Provision (benefit) for income taxes	415.4		471.5		496.9
Net income	902.3		1,015.5		1,068.3
Other comprehensive income (loss)	178.5		(91.2)		330.5
Comprehensive income	1,080.8		924.3		1,398.8
Parent Company
Revenues
Dividends from subsidiaries	782.3		875.3		1,216.2
Undistributed income (loss) from subsidiaries	193.1		225.7		(73.5)
Equity in net income of subsidiaries	975.4	[1]	1,101.0	[1]	1,142.7	[1]
Intercompany investment income	6.1	[1]	5.6	[1]	6.6	[1]
Gains (losses) on extinguishment of debt	(1.8)		(0.1)		6.4
Total revenues	979.7		1,106.5		1,155.7
Expenses
Interest expense	126.3		138.0		139.5
Deferred compensation	5.5	[2]	0.4	[2]	4.3	[2]
Other operating costs and expenses	3.7		4.7		3.9
Total expenses	135.5		143.1		147.7
Income before income taxes	844.2		963.4		1,008.0
Provision (benefit) for income taxes	(58.1)		(52.1)		(60.3)
Net income	902.3		1,015.5		1,068.3
Other comprehensive income (loss)	178.5		(91.2)		330.5
Comprehensive income	$ 1,080.8		$ 924.3		$ 1,398.8

[1] Eliminated in consolidation.

[2] See Note 4 - Employee Benefit Plans in these condensed financial statements.

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Investment Portfolio by Major Security Type (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Cost	$ 15,138.2	[1],[2]	$ 14,912.2	[1],[2]
Gross Unrealized Gains	1,361.3	[1],[2]	1,152.8	[1],[2]
Gross Unrealized Losses	(34.0)	[1],[2]	(102.3)	[1],[2]
Net Realized Gains (Losses)	10.0	[1],[2],[3]	0.3	[1],[2],[3]
Total investments at fair value	16,475.5	[1],[2]	15,963.0	[1],[2]
% of Total Fair Value	100.00%	[1],[2]	100.00%	[1],[2]
Fixed maturities
Schedule of Available-for-sale Securities [Line Items]
Cost	11,373.9		11,455.7
Gross Unrealized Gains	417.7		370.2
Gross Unrealized Losses	(23.7)		(73.2)
Net Realized Gains (Losses)	6.2	[3]	6.6	[3]
Total investments at fair value	11,774.1		11,759.3
% of Total Fair Value	71.50%		73.60%
Fixed maturities | U.S. government obligations
Schedule of Available-for-sale Securities [Line Items]
Cost	2,806.4		2,842.7
Gross Unrealized Gains	90.1		120.3
Gross Unrealized Losses	0		0
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	2,896.5		2,963.0
% of Total Fair Value	17.60%		18.60%
Fixed maturities | State and local government obligations
Schedule of Available-for-sale Securities [Line Items]
Cost	1,914.4		1,938.6
Gross Unrealized Gains	50.6		64.1
Gross Unrealized Losses	(0.6)		(0.6)
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	1,964.4		2,002.1
% of Total Fair Value	11.90%		12.50%
Fixed maturities | Corporate debt securities
Schedule of Available-for-sale Securities [Line Items]
Cost	2,982.9		2,801.5
Gross Unrealized Gains	124.7		94.3
Gross Unrealized Losses	(1.0)		(6.5)
Net Realized Gains (Losses)	6.4	[3]	6.9	[3]
Total investments at fair value	3,113.0		2,896.2
% of Total Fair Value	18.90%		18.10%
Fixed maturities | Residential mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Cost	413.4		452.9
Gross Unrealized Gains	24.0		9.3
Gross Unrealized Losses	(9.2)		(35.3)
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	428.2		426.9
% of Total Fair Value	2.60%		2.70%
Fixed maturities | Commercial mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Cost	1,963.9		1,829.8
Gross Unrealized Gains	84.9		52.3
Gross Unrealized Losses	(0.1)		(5.5)
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	2,048.7		1,876.6
% of Total Fair Value	12.40%		11.80%
Fixed maturities | Other asset-backed securities
Schedule of Available-for-sale Securities [Line Items]
Cost	936.0		1,210.9
Gross Unrealized Gains	12.9		11.3
Gross Unrealized Losses	(0.1)		(1.3)
Net Realized Gains (Losses)	(0.2)	[3]	(0.3)	[3]
Total investments at fair value	948.6		1,220.6
% of Total Fair Value	5.80%		7.60%
Fixed maturities | Redeemable preferred stocks
Schedule of Available-for-sale Securities [Line Items]
Cost	356.9		379.3
Gross Unrealized Gains	30.5		18.6
Gross Unrealized Losses	(12.7)		(24.0)
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	374.7		373.9
% of Total Fair Value	2.30%		2.30%
Equity securities | Nonredeemable preferred stocks
Schedule of Available-for-sale Securities [Line Items]
Cost	404.0		473.7
Gross Unrealized Gains	404.6		342.6
Gross Unrealized Losses	0		(3.7)
Net Realized Gains (Losses)	3.8	[3]	(6.3)	[3]
Total investments at fair value	812.4		806.3
% of Total Fair Value	4.90%		5.10%
Equity securities | Common equities
Schedule of Available-for-sale Securities [Line Items]
Cost	1,370.3		1,431.0
Gross Unrealized Gains	539.0		440.0
Gross Unrealized Losses	(10.3)		(25.4)
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	1,899.0		1,845.6
% of Total Fair Value	11.50%		11.60%
Short-term investments | Other Short-term investments
Schedule of Available-for-sale Securities [Line Items]
Cost	1,990.0		1,551.8
Gross Unrealized Gains	0		0
Gross Unrealized Losses	0		0
Net Realized Gains (Losses)	0	[3]	0	[3]
Total investments at fair value	$ 1,990.0		$ 1,551.8
% of Total Fair Value	12.10%		9.70%

[1] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[2] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

[3] Represents net holding period gains (losses) on certain hybrid securities (discussed below).

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Debt - Additional Information (Detail) (USD $)	12 Months Ended				12 Months Ended				1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011 Upper Limit	Dec. 31, 2012 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067	Dec. 31, 2011 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067	Dec. 31, 2010 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067	Dec. 31, 2012 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 Three Month LIBOR	Jan. 31, 2012 6.375% Senior Notes due 2012	Oct. 31, 2013 7% Notes due 2013 Notes scheduled to be paid in 2013
Debt Instrument [Line Items]
Debt interest payments	Interest on all debt is payable semiannually at the stated rates. However, the 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the "6.70% Debentures") will only bear interest at this fixed annual rate through, but excluding, June 15, 2017. Thereafter, the 6.70% Debentures will bear interest at an annual rate equal to the three-month LIBOR plus 2.0175%, and the interest will be payable quarterly.
Interest payment frequency	Payable semiannually
Basis points								2.0175%
Unissued common shares reserve				250,000,000
Fixed interest rate term						10 years
Payment of debt	$ 350,000,000	$ 0	$ 0						$ 350,000,000	$ 150,000,000
Repurchase of debt, face amount					30,900,000	15,000,000	222,900,000
Gains (losses) on extinguishments of debt	(1,800,000)	(100,000)	6,400,000		(1,800,000)	(100,000)
Cash flow hedge gain reclassification from accumulated other comprehensive income to net realized gains/losses on securities	600,000	300,000			600,000	300,000	5,800,000
364-Day Secured Liquidity Credit Facility Agreement with PNC Bank, National Association (PNC), initial borrowing capacity	125,000,000	125,000,000
Consideration paid for revolving agreement	$ 0	$ 25,000

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Consolidated Statements of Comprehensive Income (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenues
Net premiums earned	$ 16,018.0	$ 14,902.8	$ 14,314.8
Investment income	443.0	480.0	520.1
Other-than-temporary impairment (OTTI) losses:
Total OTTI losses	(7.3)	(6.0)	(19.1)
Non-credit losses, net of credit losses recognized on previously recorded non-credit OTTI losses	(0.7)	0.5	5.2
Net impairment losses recognized in earnings	(8.0)	(5.5)	(13.9)
Net realized gains (losses) on securities	314.8	108.1	110.0
Total net realized gains (losses) on securities	306.8	102.6	96.1
Fees and other revenues	281.8	266.5	252.2
Service revenues	36.1	22.8	25.9
Gains (losses) on extinguishment of debt	(1.8)	(0.1)	6.4
Total revenues	17,083.9	15,774.6	15,215.5
Expenses
Losses and loss adjustment expenses	11,948.0	10,634.8	10,131.3
Policy acquisition costs	1,436.6	1,399.2	1,359.9
Other underwriting expenses	2,206.3	2,088.0	1,992.3
Investment expenses	15.4	13.5	11.9
Service expenses	36.1	19.4	21.4
Interest expense	123.8	132.7	133.5
Total expenses	15,766.2	14,287.6	13,650.3
Net Income
Income before income taxes	1,317.7	1,487.0	1,565.2
Provision for income taxes	415.4	471.5	496.9
Net income	902.3	1,015.5	1,068.3
Net unrealized gains (losses) on securities:
Net non-credit related OTTI losses, adjusted for valuation changes	5.1	(3.6)	13.9
Other net unrealized gains (losses) on securities	174.8	(80.9)	323.2
Total net unrealized gains (losses) on securities	179.9	(84.5)	337.1
Net unrealized gains on forecasted transactions	(1.8)	(6.8)	(6.9)
Foreign currency translation adjustment	0.4	0.1	0.3
Other comprehensive income (loss)	178.5	(91.2)	330.5
Comprehensive income	$ 1,080.8	$ 924.3	$ 1,398.8
Computation of Net Income Per Share
Average shares outstanding - Basic	603.3	632.3	657.9
Net effect of dilutive stock-based compensation	4.5	4.6	5.4
Total equivalent shares - Diluted	607.8	636.9	663.3
Basic: Net income per share	$ 1.50	$ 1.61	$ 1.62
Diluted: Net income per share	$ 1.48	$ 1.59	$ 1.61

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Progressive Corporation Cash Paid (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Cash Flow, Supplemental [Line Items]
Income taxes, net of refunds	$ 389.1	$ 435.0	$ 434.0
Interest	$ 135.0	$ 129.5	$ 138.4

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Segment Information - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Segment Reporting Information [Line Items]
Depreciation	$ 94.4	$ 88.5	$ 83.1
Underwriting Operations Segment | Personal Lines | Agency Channel | Lower Limit
Segment Reporting Information [Line Items]
Independent insurance agencies and brokerages	35,000

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Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Retained Earnings
Cash dividends declared on common shares, per share	$ 1.2845	$ 0.4072	$ 1.3987
Serial Preferred Stock
Preference Shares authorized	20.0
Preference Shares issued	0
Preferred Shares outstanding	0
Voting Preferred Stock
Preference Shares authorized	5.0
Preference Shares issued	0

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Assets Held in Deferral Plan Irrevocable Grantor Trust Account (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Assets held in Deferral Plan Irrevocable Grantor Trust account	$ 126.7		$ 101.4
Progressive common shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Assets held in Deferral Plan Irrevocable Grantor Trust account	53.3	[1]	35.2	[1]
Other Investment Funds
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Assets held in Deferral Plan Irrevocable Grantor Trust account	$ 73.4		$ 66.2

[1] Includes 1.3 million and 0.7 million common shares as of December 31, 2012 and 2011, respectively, to be distributed in common shares.

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Total Non-Credit Portion of Other-Than-Temporary Impairment Recorded in Accumulated Other Comprehensive Income, Reflecting Original Non-Credit Loss at Time Credit Impairment (Detail) (Fixed maturities, USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Other Than Temporary Impairment Non Credit Losses Recognized In Accumulated Other Comprehensive Income [Line Items]
Non-credit portion of other-than-temporary impairments recognized in accumulated other comprehensive income	$ (45.1)	$ (45.8)
Residential mortgage-backed securities
Other Than Temporary Impairment Non Credit Losses Recognized In Accumulated Other Comprehensive Income [Line Items]
Non-credit portion of other-than-temporary impairments recognized in accumulated other comprehensive income	(44.2)	(44.8)
Commercial mortgage-backed securities
Other Than Temporary Impairment Non Credit Losses Recognized In Accumulated Other Comprehensive Income [Line Items]
Non-credit portion of other-than-temporary impairments recognized in accumulated other comprehensive income	$ (0.9)	$ (1.0)

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Underwriting Margins and Combined Ratios for our Underwriting Operations (Detail) (Underwriting Operations Segment)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Segment Reporting Information [Line Items]
Underwriting Margin	4.40%	7.00%	7.60%
Combined Ratio	95.60%	93.00%	92.40%
Personal Lines
Segment Reporting Information [Line Items]
Underwriting Margin	4.40%	6.80%	7.00%
Combined Ratio	95.60%	93.20%	93.00%
Personal Lines | Agency Channel
Segment Reporting Information [Line Items]
Underwriting Margin	4.20%	7.40%	8.10%
Combined Ratio	95.80%	92.60%	91.90%
Personal Lines | Direct Channel
Segment Reporting Information [Line Items]
Underwriting Margin	4.60%	6.10%	5.40%
Combined Ratio	95.40%	93.90%	94.60%
Commercial Auto
Segment Reporting Information [Line Items]
Underwriting Margin	5.20%	9.10%	12.50%
Combined Ratio	94.80%	90.90%	87.50%

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Segment Information (Tables)

12 Months Ended

Dec. 31, 2012

Reconciliation of Revenue and Operating Income from Segments to Consolidated

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

	2012						2011						2010
(millions)	Revenues			Pretax Profit (Loss)			Revenues			Pretax Profit (Loss)			Revenues		Pretax Profit (Loss)
Personal Lines
Agency	$	8,103.9		$	338.9		$	7,627.4		$	564.9		$	7,419.7	$	601.0
Direct		6,264.2			289.5			5,803.7			354.4			5,407.2		291.1
Total Personal Lines1		14,368.1			628.4			13,431.1			919.3			12,826.9		892.1
Commercial Auto		1,649.0			86.3			1,467.1			133.5			1,474.2		185.0
Other indemnity		.9			(5.8	)		4.6			(5.5	)		13.7		6.4
Total underwriting operations		16,018.0			708.9			14,902.8			1,047.3			14,314.8		1,083.5
Fees and other revenues2		281.8			NA			266.5			NA			252.2		NA
Service businesses		36.1			0			22.8			3.4			25.9		4.5
Investments3		749.8			734.4			582.6			569.1			616.2		604.3
Gains (losses) on extinguishment of debt		(1.8	)		(1.8	)		(.1	)		(.1	)		6.4		6.4
Interest expense		NA			(123.8	)		NA			(132.7	)		NA		(133.5	)
Consolidated total	$	17,083.9		$	1,317.7		$	15,774.6		$	1,487.0		$	15,215.5	$	1,565.2

¹ Personal auto insurance accounted for 91% of the total Personal Lines segment net premiums earned in both 2012 and 2011, and 90% in 2010; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

² Pretax profit (loss) for fees and other revenues are allocated to operating segments.

³  Revenues represent recurring investment income and total net realized gains (losses) on securities; pretax profit is net of investment expenses.

NA = Not Applicable

Underwriting Margins and Combined Ratios for our Underwriting Operations

Following are the underwriting margins/combined ratios for our underwriting operations for the years ended December 31:

	2012					2011					2010
	Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio
Personal Lines
Agency		4.2	%		95.8		7.4	%		92.6		8.1	%		91.9
Direct		4.6			95.4		6.1			93.9		5.4			94.6
Total Personal Lines		4.4			95.6		6.8			93.2		7.0			93.0
Commercial Auto		5.2			94.8		9.1			90.9		12.5			87.5
Other indemnity1		NM			NM		NM			NM		NM			NM
Total underwriting operations		4.4			95.6		7.0			93.0		7.6			92.4

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.

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Composition of Investment Portfolio by Major Security Type (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Fair Value Measurements [Line Items]
Portfolio	$ 16,475.5	[1],[2]	$ 15,963.0	[1],[2]
Debt	2,394.4		2,664.7	[3]
Fixed maturities
Fair Value Measurements [Line Items]
Portfolio	11,774.1		11,759.3
Fixed maturities | Redeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	374.7		373.9
Fixed maturities | Redeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	129.7		131.3
Fixed maturities | Redeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	66.7		68.1
Fixed maturities | Redeemable preferred stocks | Industrials
Fair Value Measurements [Line Items]
Portfolio	178.3		174.5
Fixed maturities | Debt Securities
Fair Value Measurements [Line Items]
Portfolio	7,973.9		7,861.3
Fixed maturities | Debt Securities | U.S. government obligations
Fair Value Measurements [Line Items]
Portfolio	2,896.5		2,963.0
Fixed maturities | Debt Securities | State and local government obligations
Fair Value Measurements [Line Items]
Portfolio	1,964.4		2,002.1
Fixed maturities | Debt Securities | Corporate debt securities
Fair Value Measurements [Line Items]
Portfolio	3,113.0		2,896.2
Fixed maturities | Asset-backed Securities
Fair Value Measurements [Line Items]
Portfolio	3,425.5		3,524.1
Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	428.2		426.9
Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	2,048.7		1,876.6
Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value Measurements [Line Items]
Portfolio	948.6		1,220.6
Equity securities | Nonredeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	812.4		806.3
Equity securities | Nonredeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	786.0		753.3
Equity securities | Nonredeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	26.4		53.0
Equity securities | Common equities
Fair Value Measurements [Line Items]
Portfolio	1,899.0		1,845.6
Equity securities | Common equities | Common Stocks
Fair Value Measurements [Line Items]
Portfolio	1,887.0		1,834.1
Equity securities | Common equities | Other risk investments
Fair Value Measurements [Line Items]
Portfolio	12.0		11.5
Total Fixed Maturities and Equity Securities
Fair Value Measurements [Line Items]
Portfolio	14,485.5		14,411.2
Short-term investments
Fair Value Measurements [Line Items]
Portfolio	1,990.0		1,551.8	[3]
Fair Value, Inputs, Level 1
Fair Value Measurements [Line Items]
Portfolio	6,723.0
Debt	0
Fair Value, Inputs, Level 1 | Fixed maturities
Fair Value Measurements [Line Items]
Portfolio	2,896.5		2,987.1
Fair Value, Inputs, Level 1 | Fixed maturities | Redeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	0		24.1
Fair Value, Inputs, Level 1 | Fixed maturities | Redeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	0		24.1
Fair Value, Inputs, Level 1 | Fixed maturities | Redeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Redeemable preferred stocks | Industrials
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Debt Securities
Fair Value Measurements [Line Items]
Portfolio	2,896.5		2,963.0
Fair Value, Inputs, Level 1 | Fixed maturities | Debt Securities | U.S. government obligations
Fair Value Measurements [Line Items]
Portfolio	2,896.5		2,963.0
Fair Value, Inputs, Level 1 | Fixed maturities | Debt Securities | State and local government obligations
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Debt Securities | Corporate debt securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Asset-backed Securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Equity securities | Nonredeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	259.6		227.9
Fair Value, Inputs, Level 1 | Equity securities | Nonredeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	259.6		227.9
Fair Value, Inputs, Level 1 | Equity securities | Nonredeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Equity securities | Common equities
Fair Value Measurements [Line Items]
Portfolio	1,887.0		1,834.1
Fair Value, Inputs, Level 1 | Equity securities | Common equities | Common Stocks
Fair Value Measurements [Line Items]
Portfolio	1,887.0		1,834.1
Fair Value, Inputs, Level 1 | Equity securities | Common equities | Other risk investments
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 1 | Total Fixed Maturities and Equity Securities
Fair Value Measurements [Line Items]
Portfolio	5,043.1		5,049.1
Fair Value, Inputs, Level 1 | Short-term investments
Fair Value Measurements [Line Items]
Portfolio	1,679.9
Fair Value, Inputs, Level 2
Fair Value Measurements [Line Items]
Portfolio	9,637.8
Debt	2,394.4
Fair Value, Inputs, Level 2 | Fixed maturities
Fair Value Measurements [Line Items]
Portfolio	8,806.8		8,686.0
Fair Value, Inputs, Level 2 | Fixed maturities | Redeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	374.7		349.8
Fair Value, Inputs, Level 2 | Fixed maturities | Redeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	129.7		107.2
Fair Value, Inputs, Level 2 | Fixed maturities | Redeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	66.7		68.1
Fair Value, Inputs, Level 2 | Fixed maturities | Redeemable preferred stocks | Industrials
Fair Value Measurements [Line Items]
Portfolio	178.3		174.5
Fair Value, Inputs, Level 2 | Fixed maturities | Debt Securities
Fair Value Measurements [Line Items]
Portfolio	5,077.4		4,898.3
Fair Value, Inputs, Level 2 | Fixed maturities | Debt Securities | U.S. government obligations
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 2 | Fixed maturities | Debt Securities | State and local government obligations
Fair Value Measurements [Line Items]
Portfolio	1,964.4		2,002.1
Fair Value, Inputs, Level 2 | Fixed maturities | Debt Securities | Corporate debt securities
Fair Value Measurements [Line Items]
Portfolio	3,113.0		2,896.2
Fair Value, Inputs, Level 2 | Fixed maturities | Asset-backed Securities
Fair Value Measurements [Line Items]
Portfolio	3,354.7		3,437.9
Fair Value, Inputs, Level 2 | Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	382.7		364.6
Fair Value, Inputs, Level 2 | Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	2,023.4		1,855.3
Fair Value, Inputs, Level 2 | Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value Measurements [Line Items]
Portfolio	948.6		1,218.0
Fair Value, Inputs, Level 2 | Equity securities | Nonredeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	520.9		578.4
Fair Value, Inputs, Level 2 | Equity securities | Nonredeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	494.5		525.4
Fair Value, Inputs, Level 2 | Equity securities | Nonredeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	26.4		53.0
Fair Value, Inputs, Level 2 | Equity securities | Common equities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 2 | Equity securities | Common equities | Common Stocks
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 2 | Equity securities | Common equities | Other risk investments
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 2 | Total Fixed Maturities and Equity Securities
Fair Value Measurements [Line Items]
Portfolio	9,327.7		9,264.4
Fair Value, Inputs, Level 2 | Short-term investments
Fair Value Measurements [Line Items]
Portfolio	310.1
Fair Value, Inputs, Level 3
Fair Value Measurements [Line Items]
Portfolio	114.7
Debt	0
Fair Value, Inputs, Level 3 | Fixed maturities
Fair Value Measurements [Line Items]
Portfolio	70.8		86.2
Fair Value, Inputs, Level 3 | Fixed maturities | Redeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Redeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Redeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Redeemable preferred stocks | Industrials
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Debt Securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Debt Securities | U.S. government obligations
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Debt Securities | State and local government obligations
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Debt Securities | Corporate debt securities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Fixed maturities | Asset-backed Securities
Fair Value Measurements [Line Items]
Portfolio	70.8		86.2
Fair Value, Inputs, Level 3 | Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	45.5		62.3
Fair Value, Inputs, Level 3 | Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	25.3		21.3
Fair Value, Inputs, Level 3 | Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value Measurements [Line Items]
Portfolio	0		2.6
Fair Value, Inputs, Level 3 | Equity securities | Nonredeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	31.9		0
Fair Value, Inputs, Level 3 | Equity securities | Nonredeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	31.9		0
Fair Value, Inputs, Level 3 | Equity securities | Nonredeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Equity securities | Common equities
Fair Value Measurements [Line Items]
Portfolio	12.0		11.5
Fair Value, Inputs, Level 3 | Equity securities | Common equities | Common Stocks
Fair Value Measurements [Line Items]
Portfolio	0		0
Fair Value, Inputs, Level 3 | Equity securities | Common equities | Other risk investments
Fair Value Measurements [Line Items]
Portfolio	12.0		11.5
Fair Value, Inputs, Level 3 | Total Fixed Maturities and Equity Securities
Fair Value Measurements [Line Items]
Portfolio	114.7		97.7
Fair Value, Inputs, Level 3 | Short-term investments
Fair Value Measurements [Line Items]
Portfolio	0
Carrying (Reported) Amount, Fair Value Disclosure
Fair Value Measurements [Line Items]
Portfolio	15,138.2		14,912.2
Debt	2,063.1		2,442.1	[3]
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities
Fair Value Measurements [Line Items]
Portfolio	11,373.9		11,455.7
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Redeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	356.9		379.3
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Redeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	110.7		124.3
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Redeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	64.9		70.8
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Redeemable preferred stocks | Industrials
Fair Value Measurements [Line Items]
Portfolio	181.3		184.2
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Debt Securities
Fair Value Measurements [Line Items]
Portfolio	7,703.7		7,582.8
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Debt Securities | U.S. government obligations
Fair Value Measurements [Line Items]
Portfolio	2,806.4		2,842.7
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Debt Securities | State and local government obligations
Fair Value Measurements [Line Items]
Portfolio	1,914.4		1,938.6
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Debt Securities | Corporate debt securities
Fair Value Measurements [Line Items]
Portfolio	2,982.9		2,801.5
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Asset-backed Securities
Fair Value Measurements [Line Items]
Portfolio	3,313.3		3,493.6
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Asset-backed Securities | Residential mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	413.4		452.9
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Asset-backed Securities | Commercial mortgage-backed securities
Fair Value Measurements [Line Items]
Portfolio	1,963.9		1,829.8
Carrying (Reported) Amount, Fair Value Disclosure | Fixed maturities | Asset-backed Securities | Other asset-backed securities
Fair Value Measurements [Line Items]
Portfolio	936.0		1,210.9
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Nonredeemable preferred stocks
Fair Value Measurements [Line Items]
Portfolio	404.0		473.7
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Nonredeemable preferred stocks | Financials
Fair Value Measurements [Line Items]
Portfolio	383.3		433.7
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Nonredeemable preferred stocks | Utilities
Fair Value Measurements [Line Items]
Portfolio	20.7		40.0
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Common equities
Fair Value Measurements [Line Items]
Portfolio	1,370.3		1,431.0
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Common equities | Common Stocks
Fair Value Measurements [Line Items]
Portfolio	1,367.2		1,427.3
Carrying (Reported) Amount, Fair Value Disclosure | Equity securities | Common equities | Other risk investments
Fair Value Measurements [Line Items]
Portfolio	3.1		3.7
Carrying (Reported) Amount, Fair Value Disclosure | Total Fixed Maturities and Equity Securities
Fair Value Measurements [Line Items]
Portfolio	13,148.2		13,360.4
Carrying (Reported) Amount, Fair Value Disclosure | Short-term investments
Fair Value Measurements [Line Items]
Portfolio	$ 1,990.0		$ 1,551.8	[3]

[1] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[2] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

[3] Under the prior accounting guidance, fair value hierarchies were not required.

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Segment Information

12 Months Ended

Dec. 31, 2012

Segment Information

10.  SEGMENT INFORMATION

We write personal auto and other specialty property-casualty insurance and provide related services throughout the United States. Our Personal Lines segment writes insurance for personal autos and recreational vehicles. The Personal Lines segment is comprised of both the Agency and Direct businesses. The Agency business includes business written by our network of more than 35,000 independent insurance agencies, including brokerages in New York and California, and strategic alliance business relationships (other insurance companies, financial institutions, and national agencies). The Direct business includes business written directly by us online, by phone, or on a mobile device.

Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses in the business auto, for-hire transportation, contractor, for-hire specialty, and tow markets. This segment is distributed through both the independent agency and direct channels.

Our other indemnity businesses manage our run-off businesses, including the run-off of our professional liability insurance for community banks, which was sold in 2010.

Our service businesses provide insurance-related services, including processing CAIP business and serving as an agent for homeowners, general liability, and workers’ compensation insurance through our programs with unaffiliated insurance companies.

All segment revenues are generated from external customers and we do not have a reliance on any major customer.

We evaluate profitability based on pretax underwriting profit (loss) for the Personal Lines and Commercial Auto segments and for the other indemnity businesses. Pretax underwriting profit (loss) is calculated as net premiums earned plus fees and other revenues less each of: (i) losses and loss adjustment expenses; (ii) policy acquisition costs; and (iii) other underwriting expenses. Service business pretax profit (loss) is the difference between service business revenues and service business expenses.

Expense allocations are based on certain assumptions and estimates primarily related to revenue and volume; stated segment operating results would change if different methods were applied. We do not allocate assets or income taxes to operating segments. In addition, we do not separately identify depreciation and amortization expense by segment, and such allocation would be impractical. Companywide depreciation expense was $94.4 million in 2012, $88.5 million in 2011, and $83.1 million in 2010. The accounting policies of the operating segments are the same as those described in Note 1—Reporting and Accounting Policies.

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

	2012						2011						2010
(millions)	Revenues			Pretax Profit (Loss)			Revenues			Pretax Profit (Loss)			Revenues		Pretax Profit (Loss)
Personal Lines
Agency	$	8,103.9		$	338.9		$	7,627.4		$	564.9		$	7,419.7	$	601.0
Direct		6,264.2			289.5			5,803.7			354.4			5,407.2		291.1
Total Personal Lines1		14,368.1			628.4			13,431.1			919.3			12,826.9		892.1
Commercial Auto		1,649.0			86.3			1,467.1			133.5			1,474.2		185.0
Other indemnity		.9			(5.8	)		4.6			(5.5	)		13.7		6.4
Total underwriting operations		16,018.0			708.9			14,902.8			1,047.3			14,314.8		1,083.5
Fees and other revenues2		281.8			NA			266.5			NA			252.2		NA
Service businesses		36.1			0			22.8			3.4			25.9		4.5
Investments3		749.8			734.4			582.6			569.1			616.2		604.3
Gains (losses) on extinguishment of debt		(1.8	)		(1.8	)		(.1	)		(.1	)		6.4		6.4
Interest expense		NA			(123.8	)		NA			(132.7	)		NA		(133.5	)
Consolidated total	$	17,083.9		$	1,317.7		$	15,774.6		$	1,487.0		$	15,215.5	$	1,565.2

¹ Personal auto insurance accounted for 91% of the total Personal Lines segment net premiums earned in both 2012 and 2011, and 90% in 2010; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

² Pretax profit (loss) for fees and other revenues are allocated to operating segments.

³  Revenues represent recurring investment income and total net realized gains (losses) on securities; pretax profit is net of investment expenses.

NA = Not Applicable

Progressive’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. Underwriting profitability is calculated by subtracting losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses from the total of net premiums earned and fees and other revenues. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from underwriting operations). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins/combined ratios for our underwriting operations for the years ended December 31:

	2012					2011					2010
	Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio		Underwriting Margin			Combined Ratio
Personal Lines
Agency		4.2	%		95.8		7.4	%		92.6		8.1	%		91.9
Direct		4.6			95.4		6.1			93.9		5.4			94.6
Total Personal Lines		4.4			95.6		6.8			93.2		7.0			93.0
Commercial Auto		5.2			94.8		9.1			90.9		12.5			87.5
Other indemnity1		NM			NM		NM			NM		NM			NM
Total underwriting operations		4.4			95.6		7.0			93.0		7.6			92.4

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.

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Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2012

Components of Other Comprehensive Income (Loss)

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

	2012									2011									2010
(millions)	Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax
Net unrealized gains (losses) on securities:
Arising during period:
Fixed maturities	$	165.0		$	(57.7	)	$	107.3		$	132.9		$	(46.5	)	$	86.4		$	302.9		$	(106.0	)	$	196.9
Equity securities		323.0			(113.1	)		209.9			(57.5	)		20.1			(37.4	)		241.7			(84.6	)		157.1
Net non-credit related OTTI losses, adjusted for valuation changes		7.9			(2.8	)		5.1			(5.5	)		1.9			(3.6	)		21.4			(7.5	)		13.9
Reclassification adjustment for (gains) losses realized in net income:
Fixed maturities		(75.9	)		26.6			(49.3	)		(47.4	)		16.6			(30.8	)		46.3			(16.2	)		30.1
Equity securities		(143.2	)		50.1			(93.1	)		(152.5	)		53.4			(99.1	)		(93.7	)		32.8			(60.9	)
Change in net unrealized gains (losses) on securities		276.8			(96.9	)		179.9			(130.0	)		45.5			(84.5	)		518.6			(181.5	)		337.1
Net unrealized gains (losses) on forecasted transactions:1
Arising during period		0			0			0			(5.1	)		1.8			(3.3	)		0			0			0
Reclassification adjustment for amounts realized in net income2		(2.8	)		1.0			(1.8	)		(5.3	)		1.8			(3.5	)		(10.6	)		3.7			(6.9	)
Change in net unrealized gains on forecasted transactions		(2.8	)		1.0			(1.8	)		(10.4	)		3.6			(6.8	)		(10.6	)		3.7			(6.9	)
Foreign currency translation adjustment		.6			(.2	)		.4			.2			(.1	)		.1			1.2			(.9	)		.3
Other comprehensive income (loss)	$	274.6		$	(96.1	)	$	178.5		$	(140.2	)	$	49.0		$	(91.2	)	$	509.2		$	(178.7	)	$	330.5

¹  Entered into for the purpose of managing interest rate risk associated with our debt issuances.

²  We expect to reclassify $2.2 million (pretax) into income during the next 12 months. During 2012, 2011, and 2010, we reclassified $0.6 million, $0.3 million, and $5.8 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods (see Note 4 – Debt for further discussion).

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Operating Results (Parenthetical) (Detail) (Underwriting Operations Segment, Personal Auto, Personal Lines)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Underwriting Operations Segment | Personal Auto | Personal Lines
Segment Reporting Information [Line Items]
Personal auto insurance percentage of the total personal lines segment net premiums earned	91.00%	91.00%	90.00%

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Litigation

12 Months Ended

Dec. 31, 2012

Litigation

12.  LITIGATION

The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies in the ordinary course of our business. We consider all legal actions relating to such claims in establishing our loss and loss adjustment expense reserves.

In addition, The Progressive Corporation and/or its insurance subsidiaries are named as defendants in a number of class action or individual lawsuits arising out of the operations of the insurance subsidiaries. Other insurance companies face many of these same issues. The lawsuits discussed below are in various stages of development. We plan to contest these suits vigorously, but may pursue settlement negotiations in some cases, if appropriate. The outcomes of these cases are uncertain at this time.

We establish accruals for lawsuits when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure, which may include a range of loss (referred to as a loss that is both “probable and estimable” in the discussion below). As to lawsuits in which the loss is not considered both probable and estimable, we have not established a liability at this time. It is generally not possible to determine the exposure associated with our lawsuits for a number of reasons, including, without limitation, one or more of the following: liability appears to be remote; putative class action lawsuits generally pose immaterial exposure until a class is actually certified, which, historically, has not been granted by the courts in the vast majority of our cases in which certification has been sought; class definitions are often indefinite and preclude detailed exposure analysis; and complaints rarely state an amount sought as relief, and when such amount is stated, it is often a function of pleading requirements and may be unrelated to the potential exposure.

The following is a discussion of potentially significant pending cases at December 31, 2012, and certain cases resolved during the three-year period then ended.

As to the pending cases, although their outcomes are uncertain, in each case we do not believe that the outcome will have a material impact on our consolidated financial condition, cash flows, or results of operations. In addition, we do not consider the losses from the pending cases to be both probable and estimable, and we are unable to estimate a range of loss, if any, at this time, due to the factors discussed above. In the event that any one or more of these cases results in a substantial judgment against, or settlement by, Progressive, the resulting liability could have a material effect on our consolidated financial condition, cash flows, and/or results of operations.

Pending cases at December 31, 2012, include:

• One certified class action lawsuit seeking interest on personal injury protection (PIP) payments that allegedly were late.

• One putative class action lawsuit alleging Progressive did not reimburse any of its insureds who incurred legal fees to recover money from another Progressive insured. We determined that it is probable that a loss has been incurred on this lawsuit; however, due to its complexity, we were unable to estimate a range of loss.

• One putative class action alleging that Progressive’s denial of claims under collision coverage is improper by its interpretation of the duplicate recovery provision when the insured has not recovered all losses from another insurer, such as attorney fees.

• One putative class action alleging that Progressive’s website did not adequately disclose sufficient information concerning the PIP deductibles when customers indicated they are covered by private health insurance.

• Two putative class action lawsuits challenging the labor rates our insurance subsidiaries pay to auto body repair shops.

• One patent matter alleging Progressive infringes on patented marketing technology.

• One putative class action alleging Progressive steers customers to service centers and network shops to have their vehicle repair.

• Five putative class action lawsuits challenging Progressive’s insurance subsidiaries’ practice in Florida of adjusting PIP and first-party medical payments.

• One putative class action alleging Progressive tethers customers to their policies by enforcing a minimum term and charging a purportedly undisclosed but apparently fixed cancellation fee and “other” fees if policies are terminated prior to the expiration of the contract period.

• One putative class action lawsuit that challenges our insurance subsidiaries’ adjustment of bodily injury claims where the plaintiff alleges Progressive undervalued submitted medical bills.

• One putative class action lawsuit challenging our policy form with regard to rejecting uninsured motorist coverage. We determined that it is probable that a loss has been incurred on this lawsuit; however, due to its complexity, we were unable to estimate a range of loss.

• One putative class action lawsuit challenging our insureds’ rejection of medpay coverage.

• One putative class action lawsuit challenging the manner in which Progressive grants a discount for anti-theft devices.

• Two putative class action lawsuits alleging that Progressive charged insureds for illusory uninsured motorist/underinsured motorist coverage.

• One putative class action lawsuit alleging that Progressive failed to have insureds reject, in writing, uninsured motorist coverage with limits equal to the limits of liability coverage.

• One putative class action lawsuit alleging that Progressive improperly applies a preferred provider discount to medical payment claims.

• One putative class action lawsuit alleging that Progressive undervalues total loss claims through the use of certain valuation tools.

• One putative class action lawsuit challenging the manner in which Progressive charges premium and assesses total loss claims for commercial vehicle stated amount policies.

For cases that have settled, but for which settlement is not complete, an accrual has been established at our best estimate of the exposure. Settlements that are complete are fully reflected in our financial statements. The amounts accrued or paid for these settlements were not material to our consolidated financial condition, cash flows, or results of operations.

Cases settled during 2012, include:

• One putative class action lawsuit that challenged Progressive’s use of certain automated database vendors or software to assist in the adjustment of bodily injury claims where the plaintiffs allege that these databases or software systematically undervalue the claims; an accrual has been established.

Cases settled during 2011, include:

• One putative class action lawsuit that challenged the labor rates our insurance subsidiaries pay to auto body repair shops; the case was settled and paid on an individual basis in 2011.

• One class action lawsuit certified for settlement that alleged Progressive charged insureds for illusory uninsured motorist/underinsured motorist coverage on multiple vehicle policies; an accrual was established and the majority of this settlement was paid in 2012.

Cases settled during 2010, include:

• One putative class action lawsuit challenging our notice of cancellation form for nonpayment of premium and subsequent denial of automobile coverage; an accrual was established and final payments were made in 2012.

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Summary of Changes in Fair Value Associated With Level 3 Assets (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified					12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2011 Residential mortgage-backed securities Fixed maturities Asset-backed Securities	Dec. 31, 2012 Financials Nonredeemable preferred stocks Equity securities
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Net realized gains on hybrid security	$ 10.0	[1],[2],[3]	$ 0.3	[1],[2],[3]		$ 3.4
Transferred out of Level 3 into Level 2					$ (15.4)

[1] Represents net holding period gains (losses) on certain hybrid securities (discussed below).

[2] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[3] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

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Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash Flows From Operating Activities
Net income	$ 902.3	$ 1,015.5	$ 1,068.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	94.4	88.5	83.1
Amortization of fixed-income securities	186.7	233.0	229.2
Amortization of equity-based compensation	63.4	50.5	45.9
Net realized (gains) losses on securities	(306.8)	(102.6)	(96.1)
Net (gains) losses on disposition of property and equipment	7.1	8.7	2.3
(Gains) losses on extinguishment of debt	1.8	0.1	(6.4)
Changes in:
Premiums receivable	(253.8)	(191.4)	(283.6)
Reinsurance recoverables	(83.0)	(76.5)	(176.7)
Prepaid reinsurance premiums	3.5	18.3	(18.8)
Deferred acquisition costs	(0.9)	(16.4)	(15.0)
Income taxes	19.8	28.4	48.1
Unearned premiums	351.1	225.6	180.8
Loss and loss adjustment expense reserves	592.6	174.8	418.0
Accounts payable, accrued expenses, and other liabilities	123.6	35.5	210.2
Other, net	(10.4)	5.9	(10.0)
Net cash provided by operating activities	1,691.4	1,497.9	1,679.3
Purchases:
Fixed maturities	(5,199.2)	(6,032.4)	(4,491.7)
Equity securities	(463.1)	(582.0)	(511.4)
Sales:
Fixed maturities	3,705.6	4,442.6	3,055.8
Equity securities	793.0	423.5	241.9
Maturities, paydowns, calls, and other:
Fixed maturities	1,488.9	1,540.9	1,341.1
Equity securities	16.0	0	0
Net purchases of short-term investments - other	(438.2)	(461.0)	(11.5)
Net unsettled security transactions	(44.0)	(0.6)	(54.0)
Purchases of property and equipment	(127.7)	(78.9)	(64.7)
Sales of property and equipment	3.8	3.0	8.0
Net cash provided by (used in) investing activities	(264.9)	(744.9)	(486.5)
Cash Flows From Financing Activities
Proceeds from exercise of stock options	0.5	22.4	27.2
Tax benefit from exercise/vesting of equity-based compensation	5.8	6.4	14.0
Net proceeds from debt issuance	0	491.9	0
Payment of debt	(350.0)	0	0
Reacquisition of debt	(32.5)	(15.0)	(214.3)
Dividends paid to shareholders	(853.7)	(263.6)	(763.7)
Acquisition of treasury shares	(174.2)	(997.8)	(258.6)
Net cash used in financing activities	(1,404.1)	(755.7)	(1,195.4)
Effect of exchange rate changes on cash	1.0	(0.5)	0.8
Increase (decrease) in cash	23.4	(3.2)	(1.8)
Cash, beginning of year	155.7	158.9	160.7
Cash, End of year	$ 179.1	$ 155.7	$ 158.9

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Investments - Available-for-sale, at fair value:
Fixed maturities (amortized cost: $11,373.9 and $11,455.7)	$ 11,774.1		$ 11,759.3
Equity securities:
Nonredeemable preferred stocks (cost: $404.0 and $473.7)	812.4		806.3
Common equities (cost: $1,370.3 and $1,431.0)	1,899.0		1,845.6
Short-term investments (amortized cost: $1,990.0 and $1,551.8)	1,990.0		1,551.8
Total investments at fair value	16,475.5	[1],[2]	15,963.0	[1],[2]
Cash	179.1		155.7
Accrued investment income	90.0		105.7
Premiums receivable, net of allowance for doubtful accounts of $138.6 and $124.2	3,183.7		2,929.8
Reinsurance recoverables, including $38.9 and $32.3 on paid losses and loss adjustment expenses	901.0		818.0
Prepaid reinsurance premiums	66.3		69.8
Deferred acquisition costs	434.5		433.6
Net deferred income taxes	109.4		196.0
Property and equipment, net of accumulated depreciation of $625.0 and $573.8	933.7		911.3
Other assets	321.5		261.9
Total assets	22,694.7		21,844.8
Liabilities and Shareholders' Equity
Unearned premiums	4,930.7		4,579.4
Loss and loss adjustment expense reserves	7,838.4		7,245.8
Accounts payable, accrued expenses, and other liabilities	1,855.5	[3]	1,770.8	[3]
Debt	2,063.1	[4]	2,442.1	[4]
Total liabilities	16,687.7		16,038.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)	604.6		613.0
Paid-in capital	1,077.0		1,006.2
Retained earnings	3,454.4		3,495.0
Accumulated other comprehensive income, net of tax:
Net non-credit related OTTI losses, adjusted for valuation changes	(0.3)		(5.4)
Other net unrealized gains (losses) on securities	863.0		688.2
Total net unrealized gains (losses) on securities	862.7		682.8
Net unrealized gains on forecasted transactions	6.1		7.9
Foreign currency translation adjustment	2.2		1.8
Total accumulated other comprehensive income	871.0		692.5
Total shareholders' equity	6,007.0		5,806.7
Total liabilities and shareholders' equity	$ 22,694.7		$ 21,844.8

[1] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[2] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

[3] See Note 12 - Litigation and Note 13 - Commitments and Contingencies for further discussion.

[4] Consists of both short- and long-term debt. See Note 4 - Debt for further discussion.

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

5.  INCOME TAXES

The components of our income tax provision were as follows:

(millions)	2012			2011		2010
Current tax provision	$	424.8		$	440.2	$	433.9
Deferred tax expense (benefit)		(9.4	)		31.3		63.0
Total income tax provision	$	415.4		$	471.5	$	496.9

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

($ in millions)	2012				2011				2010
Income before income taxes	$	1,317.7			$	1,487.0			$	1,565.2
Tax at statutory rate	$	461.2	35	%	$	520.5	35	%	$	547.8	35	%
Tax effect of:
Exempt interest income		(14.7)	(1)			(17.5)	(1)			(19.4)	(1)
Dividends received deduction		(18.2)	(1)			(18.2)	(1)			(17.2)	(1)
Tax credits		0	0			(9.1)	(1)			0	0
Tax-deductible dividends		(11.9)	(1)			(3.8)	0			(13.0)	(1)
Other items, net		(1.0)	0			(.4)	0			(1.3)	0
Total income tax provision	$	415.4	32	%	$	471.5	32	%	$	496.9	32	%

Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2012 and 2011, the components of the net deferred tax asset were as follows:

(millions)	2012			2011
Deferred tax assets:
Unearned premiums reserve	$	344.3		$	319.1
Investment basis differences		208.3			246.1
Non-deductible accruals		191.6			172.1
Loss and loss adjustment expense reserves		107.3			113.6
Other		3.9			5.2
Deferred tax liabilities:
Net unrealized gains on securities		(464.5	)		(367.7	)
Hedges on forecasted transactions		(3.3	)		(4.3	)
Deferred acquisition costs		(152.1	)		(151.8	)
Property and equipment		(103.6	)		(109.9	)
Prepaid expenses		(12.2	)		(16.1	)
Deferred gain on extinguishment of debt		(5.8	)		(5.8	)
Other		(4.5	)		(4.5	)
Net deferred tax asset	$	109.4		$	196.0

Although realization of the deferred tax asset is not assured, management believes that it is more likely than not that the deferred tax asset will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes and, therefore, no valuation allowance was needed at December 31, 2012.

At December 31, 2012, we had $17.9 million of net taxes currently payable (included in other liabilities on the balance sheet), compared to net taxes recoverable of $12.0 million at December 31, 2011 (included in other assets on the balance sheet).

We have been a participant in the Compliance Assurance Program (CAP) since 2007. Under CAP, the Internal Revenue Service (IRS) begins its examination process for the tax year before the tax return is filed, by examining significant transactions and events as they occur. The goal of the CAP program is to expedite the exam process and to reduce the level of uncertainty regarding a taxpayer’s tax filing positions.

All federal income tax years prior to 2007 are closed. The IRS exams for 2007-2011 have been completed. We consider 2007 through 2009 to be effectively settled, as we have reached settlement at IRS Appeals for all disputed issues for these years. We agreed to extend the statute of limitations for the 2007 and 2008 tax years to June 30, 2013, at the request of IRS Appeals for administrative purposes.

We have two issues in dispute for the 2010 tax year. The first issue relates to partial worthlessness deductions on certain debt instruments. An Industry Director Directive (IDD) was issued in 2012 addressing this issue for open tax years. The deductions we claimed on our tax returns generally follow the guidance in the IDD; therefore, we do not expect any material adjustments. The second unresolved issue relates to our 2010 Tender Offer for the repurchase of a portion of our 6.70% Debentures and the appropriate timing of when to recognize the tax on the gain that we recorded in net income that related to the previously unrealized gain on forecasted transactions. At December 31, 2012, we were at IRS Appeals for this issue. We expect both issues to be resolved during 2013 and believe that neither will have a material effect on our financial condition, results of operations, or cash flows. We consider 2010 to be effectively settled other than for the two identified issues.

For the 2011 tax year, the audit has been completed and no adjustments were proposed. Therefore, we consider 2011 to also be effectively settled.

We recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. We have not recorded any unrecognized tax benefits, or any related interest and penalties, as of December 31, 2012 and 2011. For the years ended December 31, 2012, 2011, and 2010, no interest expense or benefit has been recorded in the tax provision.

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Expenses Incurred for Leases (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Commitments and Contingencies Disclosure [Line Items]
Expense	$ 71.9	$ 80.8	$ 96.7

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Summary of all Stock Option Activity for both Current and Former Directors (Parenthetical) (Detail) (Non Employee Director Stock Option, USD $)	12 Months Ended
	Dec. 31, 2010
Non Employee Director Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Extraordinary cash dividends declared Per common share	$ 1.00

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Summary of all Directors' Restricted Stock Activity (Detail) (Non Employee Director Restricted Equity Awards, USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Non Employee Director Restricted Equity Awards
Number of Shares
Beginning of year	94,106		109,545		118,984
Add (deduct):
Granted	92,957		94,106		112,670
Vested	(94,106)		(109,545)		(122,109)
End of year	92,957		94,106		109,545
Available, end of year	570,138	[1]	663,095	[1]	757,201	[1]
Weighted Average Grant Date Fair Value
Beginning of year	$ 21.80		$ 20.86		$ 15.79
Granted	$ 21.41		$ 21.80		$ 20.75
Vested	$ 21.80		$ 20.86		$ 15.82
End of year	$ 21.41		$ 21.80		$ 20.86

[1] Represents shares available under the 2003 Directors Equity Incentive Plan.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Jan. 31, 2013	Jun. 30, 2012
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Trading Symbol	PGR
Entity Registrant Name	PROGRESSIVE CORP/OH/
Entity Central Index Key	0000080661
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		603,919,706
Entity Public Float			$ 11,552,341,405

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Loss And Loss Adjustment Expense Reserves

12 Months Ended

Dec. 31, 2012

Loss And Loss Adjustment Expense Reserves

6.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Activity in the loss and loss adjustment expense reserves is summarized as follows:

(millions)	2012		2011			2010
Balance at January 1	$	7,245.8	$	7,071.0		$	6,653.0
Less reinsurance recoverables on unpaid losses		785.7		704.1			529.4
Net balance at January 1		6,460.1		6,366.9			6,123.6
Incurred related to:
Current year		11,926.0		10,876.8			10,451.7
Prior years		22.0		(242.0	)		(320.4	)
Total incurred		11,948.0		10,634.8			10,131.3
Paid related to:
Current year		7,895.3		7,289.3			6,841.0
Prior years		3,536.5		3,252.3			3,047.0
Total paid		11,431.8		10,541.6			9,888.0
Net balance at December 31		6,976.3		6,460.1			6,366.9
Plus reinsurance recoverables on unpaid losses		862.1		785.7			704.1
Balance at December 31	$	7,838.4	$	7,245.8		$	7,071.0

We experienced minimal unfavorable reserve development of $22.0 million in 2012, compared to favorable development of $242.0 million and $320.4 million in 2011 and 2010, respectively, which is reflected as “Incurred related to prior years” in the table above.

2012

• The unfavorable prior year reserve development was primarily attributable to accident year 2011 and to a lesser extent accident year 2010. The aggregate reserve development for accident years 2009 and prior was favorable. Despite overall unfavorable reserve development, we did experience favorable reserve adjustments, primarily in our loss adjustment expenses and our personal auto bodily injury reserves for accident years 2009 and 2008.

• Slightly more than half of the total unfavorable reserve development was attributable to our Commercial Auto business, with the remainder in our personal auto business.

• Our personal auto product’s development was primarily attributable to unfavorable development in our Florida personal injury protection coverage and an increase in our estimate of bodily injury severity for accident year 2011.

• Unfavorable development in our Commercial Auto business reflects higher than anticipated frequency and severity costs on late emerging claims and higher settlements on large losses.

2011

• About half of the favorable reserve development was attributable to accident years 2008 and prior, while the balance was primarily due to claims from accident year 2010.

• Approximately 70% of the favorable reserve development was attributable to our Personal Lines business, with our Agency and Direct channels contributing 25% and 75%, respectively; the balance was primarily in our Commercial Auto business.

• The 2011 favorable development was driven primarily by the same factors we experienced in 2010, including favorable settlement of larger losses and lower defense and cost containment costs, but was partially offset by unfavorable development on our total IBNR reserves, reflecting a greater than anticipated increase in the number of late emerging claims compared to 2010.

2010

• Approximately 70% of the favorable reserve development was attributable to accident year 2009, while the balance was mostly due to claims from accident years 2007 and 2006.

• About 70% of the favorable reserve development was in our Personal Lines business, with our Agency and Direct channels contributing almost equal amounts; the balance was in our Commercial Auto business.

• The favorable reserve development reflected the settlement of larger losses for amounts less than we originally reserved in our Personal Lines (primarily in our personal auto product) and Commercial Auto businesses. We also experienced lower than expected defense and cost containment costs, reflecting a combination of fewer claims being litigated, as well as the fact that a greater percentage of these cases are now being handled by our in-house counsel, which is a cost-effective alternative to using external law firms. In addition, our IBNR reserves developed favorably due to lower severity and frequency of late emerging claims.

Because we are primarily an insurer of motor vehicles, we have limited exposure to environmental, asbestos, and general liability claims. We have established reserves for such exposures, in amounts that we believe to be adequate based on information currently known. These claims are not expected to have a material effect on our liquidity, financial condition, cash flows, or results of operations.

We write personal and commercial auto insurance throughout the United States and could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on our monthly or quarterly results, we believe that, based on historical experience, such an event would not be so material as to disrupt the overall normal operations of Progressive. We are unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

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Loss And Loss Adjustment Expense Reserves - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Insurance Reserves [Line Items]
Prior years reserve development	$ 22.0	$ (242.0)	$ (320.4)
Personal Lines
Insurance Reserves [Line Items]
Favorable development in loss and loss adjustment expense reserves		70.00%	70.00%
Personal Lines | Agency Channel
Insurance Reserves [Line Items]
Favorable development in loss and loss adjustment expense reserves		25.00%
Personal Lines | Direct Channel
Insurance Reserves [Line Items]
Favorable development in loss and loss adjustment expense reserves		75.00%
Accident Year 2009
Insurance Reserves [Line Items]
Favorable development in loss and loss adjustment expense reserves			70.00%

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Summary of all Employee Stock Option Activity (Parenthetical) (Detail) (Employee Stock Option, USD $)	12 Months Ended
	Dec. 31, 2010
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Extraordinary cash dividends declared Per common share	$ 1.00

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Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fixed maturities, amortized cost	$ 11,373.9	$ 11,455.7
Nonredeemable preferred stocks, cost	404.0	473.7
Common equities, cost	1,370.3	1,431.0
Short-term investments, amortized cost	1,990.0	1,551.8
Premiums receivable, allowance for doubtful accounts	138.6	124.2
Reinsurance recoverables, paid losses and loss adjustment expenses	38.9	32.3
Property and equipment, accumulated depreciation	$ 625.0	$ 573.8
Common Shares, par value	$ 1.00	$ 1.00
Common Shares, authorized	900.0	900.0
Common Shares, issued	797.7	797.7
Common Shares, treasury shares	193.1	184.7

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SCHEDULE VI-Supplemental Information Concerning Property - Casualty Insurance Operations

12 Months Ended

Dec. 31, 2012

SCHEDULE VI-Supplemental Information Concerning Property - Casualty Insurance Operations

SCHEDULE VI — SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

	Losses and Loss Adjustment
	Expenses Incurred Related to					Paid Losses and Loss Adjustment Expenses
Year Ended	Current Year		Prior Years
December 31, 2012	$	11,926.0	$	22.0		$	11,431.8
December 31, 2011	$	10,876.8	$	(242.0	)	$	10,541.6
December 31, 2010	$	10,451.7	$	(320.4	)	$	9,888.0

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

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SCHEDULE IV - Reinsurance

12 Months Ended

Dec. 31, 2012

SCHEDULE IV - Reinsurance

SCHEDULE IV — REINSURANCE

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

					Assumed				Percentage
			Ceded to		From				of Amount
	Gross		Other		Other				Assumed
Year Ended:	Amount		Companies		Companies		Net Amount		to Net
December 31, 2012
Premiums earned:
Property and liability insurance	$	16,207.6	$	189.6	$	0	$	16,018.0		0
December 31, 2011
Premiums earned:
Property and liability insurance	$	15,107.5	$	204.7	$	0	$	14,902.8		0
December 31, 2010
Premiums earned:
Property and liability insurance	$	14,519.2	$	204.4	$	0	$	14,314.8		0

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Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2012

Other Comprehensive Income (Loss)

11.  OTHER COMPREHENSIVE INCOME (LOSS)

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

	2012									2011									2010
(millions)	Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax			Pretax			Tax (Provision) Benefit			After Tax
Net unrealized gains (losses) on securities:
Arising during period:
Fixed maturities	$	165.0		$	(57.7	)	$	107.3		$	132.9		$	(46.5	)	$	86.4		$	302.9		$	(106.0	)	$	196.9
Equity securities		323.0			(113.1	)		209.9			(57.5	)		20.1			(37.4	)		241.7			(84.6	)		157.1
Net non-credit related OTTI losses, adjusted for valuation changes		7.9			(2.8	)		5.1			(5.5	)		1.9			(3.6	)		21.4			(7.5	)		13.9
Reclassification adjustment for (gains) losses realized in net income:
Fixed maturities		(75.9	)		26.6			(49.3	)		(47.4	)		16.6			(30.8	)		46.3			(16.2	)		30.1
Equity securities		(143.2	)		50.1			(93.1	)		(152.5	)		53.4			(99.1	)		(93.7	)		32.8			(60.9	)
Change in net unrealized gains (losses) on securities		276.8			(96.9	)		179.9			(130.0	)		45.5			(84.5	)		518.6			(181.5	)		337.1
Net unrealized gains (losses) on forecasted transactions:1
Arising during period		0			0			0			(5.1	)		1.8			(3.3	)		0			0			0
Reclassification adjustment for amounts realized in net income2		(2.8	)		1.0			(1.8	)		(5.3	)		1.8			(3.5	)		(10.6	)		3.7			(6.9	)
Change in net unrealized gains on forecasted transactions		(2.8	)		1.0			(1.8	)		(10.4	)		3.6			(6.8	)		(10.6	)		3.7			(6.9	)
Foreign currency translation adjustment		.6			(.2	)		.4			.2			(.1	)		.1			1.2			(.9	)		.3
Other comprehensive income (loss)	$	274.6		$	(96.1	)	$	178.5		$	(140.2	)	$	49.0		$	(91.2	)	$	509.2		$	(178.7	)	$	330.5

¹  Entered into for the purpose of managing interest rate risk associated with our debt issuances.

²  We expect to reclassify $2.2 million (pretax) into income during the next 12 months. During 2012, 2011, and 2010, we reclassified $0.6 million, $0.3 million, and $5.8 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods (see Note 4 – Debt for further discussion).

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Reinsurance

12 Months Ended

Dec. 31, 2012

Reinsurance

7.  REINSURANCE

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

	2012						2011						2010
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	16,558.8		$	16,207.6		$	15,333.1		$	15,107.5		$	14,700.0		$	14,519.2
Ceded		(186.1	)		(189.6	)		(186.5	)		(204.7	)		(223.2	)		(204.4	)
Net premiums	$	16,372.7		$	16,018.0		$	15,146.6		$	14,902.8		$	14,476.8		$	14,314.8

Our ceded premiums consist of “State Plans” and “Non-State Plans.” State Plans include: (i) amounts ceded to state-provided reinsurance facilities, including the Michigan Catastrophic Claims Association (“MCCA”) and the North Carolina Reinsurance Facility (“NCRF”), and (ii) state-mandated involuntary Commercial Auto Insurance Procedures/Plans (“CAIP”). Collectively, the State Plans accounted for 98%, 94%, and 82% of our ceded premiums for the years ended December 31, 2012, 2011, and 2010, respectively; the MCCA and NCRF together accounted for 80%, 80%, and 70% of the ceded premiums for these same time periods. In 2010, our professional liability business was sold, which comprised a majority of the reinsurance on our Non-State Plans at that time.

Losses and loss adjustment expenses were net of reinsurance ceded of $230.7 million in 2012, $219.7 million in 2011, and $312.7 million in 2010.

Our prepaid reinsurance premiums and reinsurance recoverables were comprised of the following at December 31:

	Prepaid Reinsurance Premiums										Reinsurance Recoverables
	2012					2011					2012					2011
($ in millions)	$		%			$		%			$		%			$		%
MCCA	$	25.4		38	%	$	21.4		31	%	$	739.2		82	%	$	650.4		80	%
NCRF		19.5		30			19.0		27			50.6		6			51.4		6
CAIP		15.4		23			12.7		18			66.3		7			58.4		7
State Plans		60.3		91			53.1		76			856.1		95			760.2		93
Non-State Plans		6.0		9			16.7		24			44.9		5			57.8		7
Total	$	66.3		100	%	$	69.8		100	%	$	901.0		100	%	$	818.0		100	%

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to Progressive. Since the majority of our reinsurance is through State Plans, our exposure to losses from their failure is minimal, since the plans are funded by mechanisms supported by the insurance companies in the state. We evaluate the financial condition of our other reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.

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Statutory Financial Information - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Statutory Accounting Practices [Line Items]
Consolidated statutory policyholders' surplus	$ 5,605.2	$ 5,269.2
Statutory net income	808.3	1,001.7	1,049.1
Consolidated statutory policyholders' surplus, net admitted assets of insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities' states of domicile	501.9
Aggregate cash dividends paid to the parent company by subsidiaries	782.2
Maximum aggregate dividend amount subsidiaries could pay without prior approval from regulatory authorities	$ 975.5

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Fair Value

12 Months Ended

Dec. 31, 2012

Fair Value

3. FAIR VALUE

We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, 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 obligations, active exchange-traded equity securities, and certain short-term 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 our subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).

Determining the fair value of the investment portfolio is the responsibility of management. As part of the responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio. We review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances exist to create an active market. Based on this evaluation, we concluded that there was sufficient activity related to the sectors and securities for which we obtained valuations.

The composition of the investment portfolio by major security type was:

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,896.5	$	0	$	0	$	2,896.5	$	2,806.4
State and local government obligations		0		1,964.4		0		1,964.4		1,914.4
Corporate debt securities		0		3,113.0		0		3,113.0		2,982.9
Subtotal		2,896.5		5,077.4		0		7,973.9		7,703.7
Asset-backed securities:
Residential mortgage-backed		0		382.7		45.5		428.2		413.4
Commercial mortgage-backed		0		2,023.4		25.3		2,048.7		1,963.9
Other asset-backed		0		948.6		0		948.6		936.0
Subtotal asset-backed securities		0		3,354.7		70.8		3,425.5		3,313.3
Redeemable preferred stocks:
Financials		0		129.7		0		129.7		110.7
Utilities		0		66.7		0		66.7		64.9
Industrials		0		178.3		0		178.3		181.3
Subtotal redeemable preferred stocks		0		374.7		0		374.7		356.9
Total fixed maturities		2,896.5		8,806.8		70.8		11,774.1		11,373.9
Equity securities:
Nonredeemable preferred stocks:
Financials		259.6		494.5		31.9		786.0		383.3
Utilities		0		26.4		0		26.4		20.7
Subtotal nonredeemable preferred stocks		259.6		520.9		31.9		812.4		404.0
Common equities:
Common stocks		1,887.0		0		0		1,887.0		1,367.2
Other risk investments		0		0		12.0		12.0		3.1
Subtotal common equities		1,887.0		0		12.0		1,899.0		1,370.3
Total fixed maturities and equity securities		5,043.1		9,327.7		114.7		14,485.5		13,148.2
Short-term investments:
Other short-term investments		1,679.9		310.1		0		1,990.0		1,990.0
Total portfolio	$	6,723.0	$	9,637.8	$	114.7	$	16,475.5	$	15,138.2
Debt	$	0	$	2,394.4	$	0	$	2,394.4	$	2,063.1

	Fair Value
(millions)	Level 1		Level 2		Level 3		Total		Cost
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,963.0	$	0	$	0	$	2,963.0	$	2,842.7
State and local government obligations		0		2,002.1		0		2,002.1		1,938.6
Corporate debt securities		0		2,896.2		0		2,896.2		2,801.5
Subtotal		2,963.0		4,898.3		0		7,861.3		7,582.8
Asset-backed securities:
Residential mortgage-backed		0		364.6		62.3		426.9		452.9
Commercial mortgage-backed		0		1,855.3		21.3		1,876.6		1,829.8
Other asset-backed		0		1,218.0		2.6		1,220.6		1,210.9
Subtotal asset-backed securities		0		3,437.9		86.2		3,524.1		3,493.6
Redeemable preferred stocks:
Financials		24.1		107.2		0		131.3		124.3
Utilities		0		68.1		0		68.1		70.8
Industrials		0		174.5		0		174.5		184.2
Subtotal redeemable preferred stocks		24.1		349.8		0		373.9		379.3
Total fixed maturities		2,987.1		8,686.0		86.2		11,759.3		11,455.7
Equity securities:
Nonredeemable preferred stocks:
Financials		227.9		525.4		0		753.3		433.7
Utilities		0		53.0		0		53.0		40.0
Subtotal nonredeemable preferred stocks		227.9		578.4		0		806.3		473.7
Common equities:
Common stocks		1,834.1		0		0		1,834.1		1,427.3
Other risk investments		0		0		11.5		11.5		3.7
Subtotal common equities		1,834.1		0		11.5		1,845.6		1,431.0
Total fixed maturities and equity securities	$	5,049.1	$	9,264.4	$	97.7		14,411.2		13,360.4
Short-term investments:
Other short-term investments1								1,551.8		1,551.8
Total portfolio							$	15,963.0	$	14,912.2
Debt1							$	2,664.7	$	2,442.1

¹  Under the prior accounting guidance, fair value hierarchies were not required.

Our portfolio valuations classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including: pricing vendors, dealers/market makers, and exchange-quoted prices. During 2012, we had one redeemable preferred security with a value of $25.0 million that was transferred from Level 1 to Level 2 as it is no longer traded on an exchange. During 2011, we had one nonredeemable preferred security with a value of $44.2 million that was transferred from Level 1 to Level 2 due to the lack of an exchange-quoted price at year-end. The exchange price was not available due to illiquidity in the market place. A consistent exchange-quoted price was previously available for this security, and we will continue to monitor the security for future exchange trading volume. We recognize transfers between levels at the end of the reporting period.

Our short-term security holdings classified as Level 1 are considered highly liquid, actively marketed, and have a very short duration, primarily seven days or less to redemption. These securities are held at their original cost, adjusted for any amortization of discount or premium, since that value very closely approximates what an active market participant would be willing to pay for such securities. The remainder of our short-term securities are classified as Level 2 and are not priced externally since these securities continually trade at par value. These securities are classified as Level 2 since they are primarily longer-dated auction securities issued by municipalities that contain a redemption put feature back to the auction pool with a redemption period of less than seven days. The auction pool is created by a liquidity provider and if the auction is not available at the end of the seven days, we have the right to put the security back to the issuer at par.

At December 31, 2012, vendor-quoted prices represented 57% of our Level 1 classifications (excluding short-term investments), compared to 59% at December 31, 2011. The securities quoted by vendors in Level 1 represent our holdings in U.S. Treasury Notes, which are frequently traded and the quotes are considered similar to exchange-traded quotes. The balance of our Level 1 pricing comes from quotes obtained directly from trades made on an active exchange.

At December 31, 2012, vendor-quoted prices comprised 98% of our Level 2 classifications (excluding short-term investments), while dealer-quoted prices represented 2%, compared to 96% and 4%, respectively, at December 31, 2011. In our process for selecting a source (e.g., dealer, pricing service) to provide pricing for securities in our portfolio, we reviewed documentation from the sources that detailed the pricing techniques and methodologies used by these sources and determined if their policies adequately considered market activity, either based on specific transactions for the particular security type or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted. Once a source is chosen, we continue to monitor any changes or modifications to their processes by reviewing their documentation on internal controls for pricing and market reviews.

As part of our pricing procedures, we obtain quotes from more than one source to help us fully evaluate the market price of securities. However, our internal pricing policy is to use a consistent source for individual securities in order to maintain the integrity of our valuation process. Quotes obtained from the sources are not considered binding offers to transact. Under our policy, when a review of the valuation received from our selected source appears outside what is considered market level activity (which is defined as trading at spreads or yields significantly different than comparable securities or outside the general sector level movement without a reasonable explanation), we may use an alternate source’s price. To the extent we determine that it is prudent to substitute one source’s price for another, we will contact the initial source to obtain an understanding of the factors that may be contributing to the significant price variance, which often leads the source to adjust their pricing input data for future pricing.

To allow us to determine if our initial source is providing a price that is outside of a reasonable range, we review our portfolio pricing on a weekly basis. We frequently challenge prices from our sources when a price provided does not match our expectations based on our evaluation of market trends/activity. Initially, we perform a global review of our portfolio by sector to identify securities whose prices appear outside of a reasonable range. We refine our review to analyze prices by specific criteria, such as whether the security is investment or non-investment-grade, prime or sub-prime, or a consumer product (e.g., auto, credit card). Through this review, we try to determine what contributed to the price variances among sources by analyzing spread movement, comparable security trades, if available, or industry or specific issuer fundamentals. We review quality control measures of our sources as they become available to determine if any significant changes have occurred from period to period that might indicate issues/concerns regarding their evaluation or market coverage. We also review data assumptions as supplied by our sources to determine if that data is relevant to current market conditions. In addition, we independently review each sector for transaction volumes, new issuances, and changes in spreads, as well as the overall movement of interest rates along the yield curve to determine if sufficient activity and liquidity exists to provide a credible source for our market valuations.

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. We compare our results to index returns for each major sector adjusting for duration and credit quality differences to better understand our portfolio’s results. Additionally, we review on a monthly basis our external sales transactions and compare the actual final market sales price to a previous market valuation price. This review provides us further validation that our pricing sources are providing market level prices, since we are able to explain significant price changes (i.e., greater than 2%) as known events occur in the market place and affect a particular security’s price at sale.

This analysis provides us additional comfort regarding the source’s process, the quality of its review, and its willingness to improve its analysis based on feedback from clients. We believe this effort helps ensure that we are reporting the most representative fair values of our securities.

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, and 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 category are valued using external pricing supplemented by internal review and analysis.

After all the valuations are received and our review is complete, if the inputs used by vendors are determined to not contain sufficient observable market information, we will reclassify the affected security valuations to Level 3. At December 31, 2012 and 2011, securities in our fixed-maturity portfolio listed as Level 3 were comprised substantially of securities that were either: (i) private placement deals, (ii) thinly held and/or traded securities, or (iii) non-investment-grade securities with little liquidity. Based on these factors, it was difficult to independently verify observable market inputs that were used to generate the external valuations we received. At December 31, 2012, we had one private common equity security with a value of $11.2 million that was priced internally. The same security had a value of $10.2 million at December 31, 2011. At December 31, 2012, we had one private preferred equity security, which was purchased during the third quarter, with a value of $31.9 million that was priced internally. At December 31, 2012, we did not have any securities in our fixed-maturity portfolio that were priced internally. At December 31, 2011, we had two fixed-maturity securities with an aggregate value of $0.5 million that were priced internally. Despite the lack of sufficient observable market information, we believe the valuations received in conjunction with our procedures for evaluating third-party prices support the fair values as reported in the financial statements.

We review the prices from our external sources for reasonableness using internally developed assumptions to derive prices for the securities, which are then compared to the price we received. Based on our review, all the prices received from external sources remain unadjusted.

The following tables provide a summary of changes in fair value associated with Level 3 assets for the years ended December 31, 2012 and 2011:

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2011		Calls/ Maturities/ Paydowns			Purchases		Sales		Net Realized (Gain)/Loss on Sales		Change in Valuation		Net Transfers In (Out)		Fair Value at Dec. 31, 2012
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	62.3	$	(17.3	)	$	0	$	0	$	0	$	.5	$	0	$	45.5
Commercial mortgage-backed		21.3		(3.7	)		0		0		0		7.7		0		25.3
Other asset-backed		2.6		(2.6	)		0		0		0		0		0		0
Total asset-backed securities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Corporate debt securities		0		0			0		0		0		0		0		0
Total fixed maturities		86.2		(23.6	)		0		0		0		8.2		0		70.8
Equity securities:
Nonredeemable preferred stocks:
Financials1		0		0			28.5		0		0		3.4		0		31.9
Common equities:
Other risk investments		11.5		(.2	)		0		0		0		.7		0		12.0
Total Level 3 securities	$	97.7	$	(23.8	)	$	28.5	$	0	$	0	$	12.3	$	0	$	114.7

¹ The $3.4 million represents net holding period gains on a hybrid security which is reflected in net realized gains (losses) on securities in the comprehensive income statement.

	Level 3 Fair Value
(millions)	Fair Value at Dec. 31, 2010		Calls/ Maturities/ Paydowns			Purchases		Sales			Net Realized (Gain)/Loss on Sales			Change in Valuation			Net Transfers In (Out)1			Fair Value at Dec. 31, 2011
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	96.7	$	(19.5	)	$	0	$	0		$	0		$	.5		$	(15.4	)	$	62.3
Commercial mortgage-backed		27.5		(.3	)		0		0			0			(5.9	)		0			21.3
Other asset-backed		5.0		(2.6	)		0		0			0			.2			0			2.6
Total asset-backed securities		129.2		(22.4	)		0		0			0			(5.2	)		(15.4	)		86.2
Corporate debt securities		29.5		0			0		(27.9	)		(.6	)		(1.0	)		0			0
Total fixed maturities		158.7		(22.4	)		0		(27.9	)		(.6	)		(6.2	)		(15.4	)		86.2
Equity securities:
Nonredeemable preferred stocks:
Financials		0		0			0		0			0			0			0			0
Common equities:
Other risk investments		11.8		0			0		0			0			(.3	)		0			11.5
Total Level 3 securities	$	170.5	$	(22.4	)	$	0	$	(27.9	)	$	(.6	)	$	(6.5	)	$	(15.4	)	$	97.7

¹ The $(15.4) million was transferred out of Level 3 into Level 2 due to the availability of vendor pricing on a residential mortgage-backed security.

The following table provides a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at December 31, 2012:

	Quantitative Information about Level 3 Fair Value Measurements
($ in millions)	Fair Value at Dec. 31, 2012		Valuation Technique		Unobservable Input			Unobservable Input Assumption
Fixed maturities:
Asset-backed securities:
Residential mortgage-backed	$	.2		External vendor		Prepayment rate	1		16
Commercial mortgage-backed		25.3		External vendor		Prepayment rate	2		0
Total fixed maturities		25.5
Equity securities:
Nonredeemable preferred stocks:
Financials		31.9		Multiple of tangible net book value		Price to book ratio multiple			1.9
Common equities:
Other risk investments		11.2		Discounted consolidated equity		Discount for lack of marketability			20	%
Subtotal Level 3 securities		68.6
Third-party pricing exemption securities3		46.1
Total Level 3 securities	$	114.7

¹ Assumes that one security has 16% of the principal amount of the underlying loans that will be paid off prematurely in each year.

² Assumes that three securities have 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.

³ The fair values for these securities were obtained from non-binding external sources where unobservable inputs are not reasonably available to us.

Due to the relative size of the securities’ fair values compared to the total portfolio’s fair value, any changes in pricing methodology would not have a significant change in valuation that would materially impact net and comprehensive income. During the years ended December 31, 2012 and 2011, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

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OTTI Credit Losses Recognized in Earnings (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	$ 35.8		$ 39.8
Credit losses for which an OTTI was previously recognized	0.1		1.4
Credit losses for which an OTTI was not previously recognized	0.3		1.5
Reductions for securities sold/matured	(0.2)		0
Change in recoveries of future cash flows expected to be collected	(4.0)	[1],[2]	(5.4)	[1],[2]
Reductions for previously recognized credit impairments written-down to fair value	(4.3)	[3]	(1.5)	[3]
Ending balance	27.7		35.8
Residential mortgage-backed securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	34.5		32.3
Credit losses for which an OTTI was previously recognized	0.1		1.4
Credit losses for which an OTTI was not previously recognized	0.3		1.1
Reductions for securities sold/matured	0		0
Change in recoveries of future cash flows expected to be collected	(3.8)	[1],[2]	0.8	[1],[2]
Reductions for previously recognized credit impairments written-down to fair value	(4.0)	[3]	(1.1)	[3]
Ending balance	27.1		34.5
Commercial mortgage-backed securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	1.3		1.0
Credit losses for which an OTTI was previously recognized	0		0
Credit losses for which an OTTI was not previously recognized	0		0.4
Reductions for securities sold/matured	(0.2)		0
Change in recoveries of future cash flows expected to be collected	(0.2)	[1],[2]	0.3	[1],[2]
Reductions for previously recognized credit impairments written-down to fair value	(0.3)	[3]	(0.4)	[3]
Ending balance	0.6		1.3
Corporate debt securities
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	0		6.5
Credit losses for which an OTTI was previously recognized	0		0
Credit losses for which an OTTI was not previously recognized	0		0
Reductions for securities sold/matured	0		0
Change in recoveries of future cash flows expected to be collected	0	[1],[2]	(6.5)	[1],[2]
Reductions for previously recognized credit impairments written-down to fair value	0	[3]	0	[3]
Ending balance	$ 0		$ 0

[1] Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security.

[2] Includes $1.4 million and $2.0 million at December 31, 2012 and 2011, respectively, received in excess of the cash flows expected to be collected at the time of the write-downs.

[3] Reflects reductions of prior credit impairments where the current credit impairment requires writing securities down to fair value (i.e., no remaining non-credit loss).

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Reporting And Accounting Policies

12 Months Ended

Dec. 31, 2012

Reporting And Accounting Policies

1.  REPORTING AND ACCOUNTING POLICIES

Nature of Operations  The Progressive Corporation, an insurance holding company formed in 1965, had 54 subsidiaries, 1 mutual insurance company affiliate, and 1 limited partnership investment affiliate (collectively the “subsidiaries”) as of December 31, 2012. Our insurance subsidiaries and mutual company affiliate (the Progressive Group of Insurance Companies) provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Our Personal Lines segment writes insurance for personal autos and recreational vehicles through both an independent insurance agency channel and a direct channel. Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses through both the independent agency and direct channels. We operate our businesses throughout the United States; we also sell personal auto physical damage insurance via the Internet in Australia.

Basis of Consolidation and Reporting  The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries, which are wholly owned, and affiliates, in which we have a controlling financial interest. All intercompany accounts and transactions are eliminated in consolidation.

Estimates  We are required to make estimates and assumptions when preparing our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP). As estimates develop into fact (e.g., losses are paid), results may, and will likely, differ from those estimates.

Investments  Progressive’s fixed-maturity securities, equity securities, and short-term investments are accounted for on an available-for-sale basis. See Note 2 – Investments for details regarding the composition of our investment portfolio.

Fixed-maturity securities include debt securities and redeemable preferred stocks, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of our asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, or other economic factors. These securities are carried at fair value with the corresponding unrealized gains (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Fair values are obtained from recognized pricing services or are quoted by market makers and dealers, with limited exceptions discussed in Note 3 – Fair Value.

Included in the fixed-maturity portfolio are asset-backed securities. The asset-backed securities are generally accounted for under the retrospective method. The retrospective method recalculates yield assumptions (based on changes in interest rates or cash flow expectations) historically to the inception of the investment holding period, and applies the required adjustment, if any, to the cost basis, with the offset recorded to investment income. The prospective method is used primarily for interest-only securities, non-investment-grade asset-backed securities, and certain asset-backed securities with sub-prime loan exposure or where there is a greater risk of non-performance and where it is possible the initial investment may not be substantially recovered. The prospective method requires a calculation of future expected repayments and resets the yield to allow for future period adjustments; no current period impact to investment income or the security’s cost is made based on the cash flow update. Prepayment assumptions are based on market expectations and are updated quarterly.

Equity securities include common stocks, nonredeemable preferred stocks, and other risk investments and are reported at fair values. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income. To the extent we hold any foreign equities or foreign currency hedges, any change in value due to exchange rate fluctuations would be limited by foreign currency hedges, if any, and would be recognized in income in the current period.

Short-term investments may include Eurodollar deposits, commercial paper, repurchase transactions, and other securities expected to mature within one year. In addition, short-term investments can include auction rate securities (i.e., certain municipal bonds and preferred stocks). Due to the nature of auction rate securities, these securities are classified as short-term based upon their expected auction date (generally 7-49 days) rather than on their contractual maturity date (which is greater than one year at original issuance). In the event that an auction fails, the security may need to be reclassified from short-term. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

Trading securities are securities bought principally for the purpose of sale in the near term. To the extent we have trading securities, changes in fair value would be recognized in income in the current period. Derivative instruments, which may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction, are discussed below.

Derivative instruments may include futures, options, forward positions, foreign currency forwards, interest rate swap agreements, and credit default swaps and may be used in the portfolio for general investment purposes or to hedge the exposure to:

• Changes in fair value of an asset or liability (fair value hedge)

• Foreign currency of an investment in a foreign operation (foreign currency hedge), or

• Variable cash flows of a forecasted transaction (cash flow hedge).

To the extent we have derivatives held for general investment purposes, these derivative instruments are recognized as either assets or liabilities and measured at fair value, with changes in fair value recognized in income as a component of net realized gains (losses) on securities during the period of change.

Derivatives designated as hedges are required to be evaluated on established criteria to determine the effectiveness of their correlation to, and ability to reduce the designated risk of, specific securities or transactions. Effectiveness is required to be reassessed regularly. Hedges that are deemed to be effective would be accounted for as follows:

• Fair value hedge:  changes in fair value of the hedge, as well as the hedged item, would be recognized in income in the period of change while the hedge is in effect.

• Foreign currency hedge:  changes in fair value of the hedge, as well as the hedged item, would be reflected as a change in translation adjustment as part of accumulated other comprehensive income. Gains and losses on the foreign currency hedge would offset the foreign exchange gains and losses on the foreign investment as they are recognized into income.

• Cash flow hedge:  changes in fair value of the hedge would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction.

If a hedge is deemed to become ineffective or discontinued, the following accounting treatment would be applied:

• Fair value hedge:  the derivative instrument would continue to be adjusted through income, while the adjustment in the change in value of the hedged item would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income.

• Foreign currency hedge:  changes in the value of the hedged item would continue to be reflected as a change in translation adjustment as part of accumulated other comprehensive income, but the derivative instrument would be adjusted through income for the current period.

• Cash flow hedge:  changes in fair value of the derivative instrument would be reported in income for the current period.

For all derivative positions, net cash requirements are limited to changes in fair values, which may vary based upon changes in interest rates, currency exchange rates, and other factors. Exposure to credit risk is limited to the carrying value; collateral may be required to limit credit risk. We have elected not to offset fair value amounts that arise from derivative positions with the same counterparty under a master netting arrangement.

Investment securities are exposed to various risks such as interest rate, market, credit, and liquidity risk. Fair values of securities fluctuate based on the nature and magnitude of changing market conditions; significant changes in market conditions could materially affect the portfolio’s value in the near term. We regularly monitor our portfolio for price changes, which might indicate potential impairments, and perform detailed reviews of securities with unrealized losses. 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 condition, business prospects, or other factors, (ii) market-related factors, such as interest rates or equity market declines, or (iii) credit-related losses, where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security.

We analyze our debt securities that are in a loss position to determine if we intend to sell, or if it is more likely than not that we will be required to sell, the security prior to recovery and, if so, we write down the security to its current fair value, with the entire amount of the write-down recorded to earnings. To the extent that it is more likely than not that we will hold the debt security until recovery (which could be maturity), we determine if any of the decline in value is due to a credit loss (i.e., where the present value of future cash flows expected to be collected is lower than the amortized cost basis of the security) and, if so, we recognize that portion of the impairment as a component of net realized gains (losses) in the comprehensive income statement, with the difference (i.e., non-credit related impairment) recognized as part of our net unrealized gains (losses) in accumulated other comprehensive income. When an equity security (common equity and nonredeemable preferred stock) 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 comprehensive income statement. Any future changes in fair value, either increases or decreases, are reflected as changes in unrealized gains (losses) as part of accumulated other comprehensive income.

Realized gains (losses) on securities are computed based on the first-in first-out method and include write-downs on available-for-sale securities considered to have other-than-temporary declines in fair value (excluding non-credit related impairments), as well as holding period valuation changes on derivatives, trading securities, and hybrid instruments (securities with embedded call options, where the call option is a feature of the overall change in the value of the instrument).

Insurance Premiums and Receivables  Insurance premiums written are earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Accordingly, unearned premiums represent the portion of premiums written that is applicable to the unexpired risk. We provide insurance and related services to individuals and small commercial accounts and offer a variety of payment plans. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk. We perform a policy level evaluation to determine the extent to which the premiums receivable balance exceeds the unearned premiums balance. We then age this exposure to establish an allowance for doubtful accounts based on prior experience.

Deferred Acquisition Costs  Deferred acquisition costs include commissions, premium taxes, and other variable underwriting and direct sales costs incurred in connection with the successful acquisition or renewal of insurance contracts. Prior to January 1, 2012, these acquisition costs were deferrable regardless of whether a successful acquisition occurred (see the New Accounting Standards section below). These acquisition costs are deferred and amortized over the policy period in which the related premiums are earned. We consider anticipated investment income in determining the recoverability of these costs. Management believes that these costs will be fully recoverable in the near term. We do not defer any advertising costs.

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

Reinsurance  Our reinsurance transactions primarily include premiums ceded to state-provided reinsurance facilities (e.g., Michigan Catastrophic Claims Association and North Carolina Reinsurance Facility) and premiums written under state-mandated involuntary plans for commercial vehicles (Commercial Auto Insurance Procedures/Plans – “CAIP”) (collectively, “State Plans”) (see Note 7 – Reinsurance for further discussion). Prepaid reinsurance premiums are earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written.

Income Taxes  The income tax provision is calculated under the balance sheet approach. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal items giving rise to such differences are investment securities (e.g., net unrealized gains (losses), write-downs on securities determined to be other-than-temporarily impaired, and derivative instruments), loss and loss adjustment expense reserves, unearned premiums reserves, deferred acquisition costs, property and equipment, and non-deductible accruals. We review our deferred tax assets regularly for recoverability. See Note 5 – Income Taxes for further discussion.

Property and Equipment  Property and equipment are recorded at cost, less accumulated depreciation, and include capitalized software developed or acquired for internal use. Depreciation is recognized over the estimated useful lives of the assets using accelerated methods for most computer equipment and the straight-line method for certain computer equipment and all other fixed assets. The useful lives range from 2 to 3 years for computer equipment and laptop computers; 7 to 40 years for buildings, improvements, and integrated components; and 3 to 10 years for all other property and equipment. Land and buildings comprised 75% of total property and equipment at both December 31, 2012 and 2011.

Total capitalized interest, which primarily relates to capitalized software projects, for the years ended December 31, was:

(millions)	Capitalized Interest
2012	$	.3
2011		.4
2010		1.1

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

Fees and Other Revenues  Fees and other revenues primarily represent fees collected from policyholders relating to installment charges in accordance with our bill plans, as well as late payment and insufficient funds fees. Other revenues may include revenue from the sale of tax credits, rental income, and other revenue transactions.

Revision  We revised the presentation of our Statements of Comprehensive Income for the years ended December 31, 2011 and 2010, to correctly classify $266.5 million and $252.2 million, respectively, of fees and other revenues as a component of total revenues and to conform to our current-year presentation. Previously, these items were presented net within our other underwriting expenses, which was not in compliance with GAAP, thereby understating both total revenues and total expenses. These revisions were not considered to be material, individually or in the aggregate, to previously issued financial statements. These revisions had no effect on the results of operations (net or comprehensive income), financial condition (shareholders’ equity), or cash flows in any period presented or in any previously issued financial statements.

Service Revenues and Expenses  Our service businesses provide insurance-related services. Service revenues generated from processing business for involuntary CAIP plans are earned on a pro rata basis over the term of the related policies. Service expenses related to these CAIP plans include acquisition expenses, which are deferred and amortized over the period in which the related revenues are earned. Other service business revenues and expenses are recorded in the period in which they are earned or incurred.

Equity-Based Compensation  We currently issue time-based and performance-based restricted stock unit awards to key members of management as our form of equity compensation, and time-based restricted stock awards to non-employee directors. Prior to 2010, we issued restricted stock awards, instead of restricted stock unit awards, to employees. Collectively, we refer to these awards as “restricted equity awards.” We currently do not issue stock options as a form of equity compensation. Compensation expense for time-based restricted equity awards with installment vesting is recognized over each respective vesting period. For performance-based restricted equity awards, compensation expense is recognized over the respective estimated vesting periods.

We record an estimate for expected forfeitures of restricted equity awards based on our historical forfeiture rates. In addition, we shorten the vesting periods of certain restricted equity awards based on the “qualified retirement” provisions in our incentive compensation plans, under which (among other provisions) the vesting of 50% of outstanding time-based restricted equity awards will accelerate upon retirement if the participant is 55 years of age or older and satisfies certain years-of-service requirements.

The total compensation expense recognized for our equity-based compensation for the years ended December 31, was:

(millions)	2012		2011		2010
Pretax expense	$	63.4	$	50.5	$	45.9
Tax benefit		22.2		17.7		16.1

Net Income Per Share  Basic net income per share is computed using the weighted average number of common shares outstanding during the reporting period, excluding unvested time-based and performance-based restricted equity awards that are subject to forfeiture. Diluted net income per share includes common stock equivalents assumed outstanding during the period. Our common stock equivalents include the incremental shares assumed to be issued for:

• stock option exercises (all remaining stock options were exercised in 2012)

• time-based restricted equity awards, and

• certain performance-based restricted equity awards that satisfied contingency conditions during the period.

Supplemental Cash Flow Information  Cash includes only bank demand deposits. Non-cash activity includes declared but unpaid dividends. For the years ended December 31, we paid the following:

(millions)	2012		2011		2010
Income taxes, net of refunds	$	389.1	$	435.0	$	434.0
Interest		135.0		129.5		138.4

New Accounting Standards  On January 1, 2012, we adopted, on a prospective basis, the accounting standard update related to the accounting for the deferral of costs associated with the successful acquisition or renewal of insurance contracts. As a result, $23 million of deferred acquisition costs that no longer met the criteria for deferral upon adoption were recognized as a reduction to income in 2012.

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Investments

12 Months Ended

Dec. 31, 2012

Investments

2.  INVESTMENTS

The following tables present the composition of our investment portfolio by major security type, consistent with our internal classification of how we manage, monitor, and measure the portfolio:

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2012
Fixed maturities:
U.S. government obligations	$	2,806.4	$	90.1	$	0		$	0		$	2,896.5		17.6	%
State and local government obligations		1,914.4		50.6		(.6	)		0			1,964.4		11.9
Corporate debt securities		2,982.9		124.7		(1.0	)		6.4			3,113.0		18.9
Residential mortgage-backed securities		413.4		24.0		(9.2	)		0			428.2		2.6
Commercial mortgage-backed securities		1,963.9		84.9		(.1	)		0			2,048.7		12.4
Other asset-backed securities		936.0		12.9		(.1	)		(.2	)		948.6		5.8
Redeemable preferred stocks		356.9		30.5		(12.7	)		0			374.7		2.3
Total fixed maturities		11,373.9		417.7		(23.7	)		6.2			11,774.1		71.5
Equity securities:
Nonredeemable preferred stocks		404.0		404.6		0			3.8			812.4		4.9
Common equities		1,370.3		539.0		(10.3	)		0			1,899.0		11.5
Short-term investments:
Other short-term investments		1,990.0		0		0			0			1,990.0		12.1
Total portfolio2,3	$	15,138.2	$	1,361.3	$	(34.0	)	$	10.0		$	16,475.5		100.0	%

($ in millions)	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Realized Gains (Losses)1			Fair Value		% of Total Fair Value
December 31, 2011
Fixed maturities:
U.S. government obligations	$	2,842.7	$	120.3	$	0		$	0		$	2,963.0		18.6	%
State and local government obligations		1,938.6		64.1		(.6	)		0			2,002.1		12.5
Corporate debt securities		2,801.5		94.3		(6.5	)		6.9			2,896.2		18.1
Residential mortgage-backed securities		452.9		9.3		(35.3	)		0			426.9		2.7
Commercial mortgage-backed securities		1,829.8		52.3		(5.5	)		0			1,876.6		11.8
Other asset-backed securities		1,210.9		11.3		(1.3	)		(.3	)		1,220.6		7.6
Redeemable preferred stocks		379.3		18.6		(24.0	)		0			373.9		2.3
Total fixed maturities		11,455.7		370.2		(73.2	)		6.6			11,759.3		73.6
Equity securities:
Nonredeemable preferred stocks		473.7		342.6		(3.7	)		(6.3	)		806.3		5.1
Common equities		1,431.0		440.0		(25.4	)		0			1,845.6		11.6
Short-term investments:
Other short-term investments		1,551.8		0		0			0			1,551.8		9.7
Total portfolio2,3	$	14,912.2	$	1,152.8	$	(102.3	)	$	.3		$	15,963.0		100.0	%

¹ Represents net holding period gains (losses) on certain hybrid securities (discussed below).

² At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

³ The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

Our other short-term investments include commercial paper, reverse repurchase transactions, and other investments that are expected to mature within one year. At December 31, 2012 and 2011, we had $21.9 million and $10.0 million, respectively, in treasury bills issued by the Australian government, included in other short-term investments.

Included in our fixed-maturity and equity securities are hybrid securities, which are reported at fair value at December 31:

(millions)	2012		2011
Fixed maturities:
Corporate debt securities	$	176.1	$	234.9
Other asset-backed securities		16.4		15.5
Total fixed maturities		192.5		250.4
Equity securities:
Nonredeemable preferred stocks		52.8		14.2
Total hybrid securities	$	245.3	$	264.6

Certain corporate debt securities are accounted for as hybrid securities since they were acquired at a substantial premium and contain a change-in-control put option (derivative) that permits the investor, at its sole option if and when a change in control is triggered, to put the security back to the issuer at a 1% premium to par. Due to this change-in-control put option and the substantial market premium paid to acquire these securities, there is the potential that the election to put, upon the change in control, could result in an acceleration of the remaining premium paid on these securities, which would result in a loss of $12.0 million as of December 31, 2012, if all of the bonds experienced a simultaneous change in control and we elected to exercise all of our put options. The put feature limits the potential loss in value that could be experienced in the event a corporate action occurs that results in a change in control that materially diminishes the credit quality of the issuer. We are under no obligation to exercise the put option we hold if a change in control occurs.

The other asset-backed security in the table above represents one hybrid security that was acquired at a deep discount to par due to a failing auction, and contains a put option that allows the investor to put that security back to the auction at par if the auction is restored. This embedded derivative has the potential to more than double our initial investment yield.

The hybrid securities in our nonredeemable preferred stock portfolio are 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.

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 changes in fair value of the hybrid securities and derivative instruments are recorded as a component of net realized gains (losses) on securities.

At December 31, 2012, bonds and certificates of deposit in the principal amount of $139.4 million were on deposit to meet state insurance regulatory and/or rating agency requirements. We did not have any securities of any one issuer, excluding U.S. government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at December 31, 2012 or 2011. At December 31, 2012, we did not have any debt securities that were non-income producing during the preceding 12 months.

Fixed Maturities  The composition of fixed maturities by maturity at December 31, 2012, was:

(millions)	Cost		Fair Value
Less than one year	$	1,432.3	$	1,462.2
One to five years		8,368.7		8,675.0
Five to ten years		1,426.3		1,484.7
Ten years or greater		146.6		152.2
Total	$	11,373.9	$	11,774.1

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

Gross Unrealized Losses  As of December 31, 2012, we had $23.7 million of gross unrealized losses in our fixed-income securities and $10.3 million in our common equities. We currently do not intend to sell the fixed-income securities and determined that it is more likely than not that we will not be required to sell these securities for the period of time necessary to recover their cost bases. A review of our fixed-income securities indicated that the issuers were current with respect to their interest obligations and that there was no evidence of any deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity. In addition, 89% of our common stock portfolio was indexed to the Russell 1000; as such, this portfolio may contain securities in a loss position for an extended period of time, subject to possible write-downs, as described below. We may retain these securities as long as the portfolio and index correlation remain similar. To the extent there is issuer-specific deterioration, we may write-down the securities of that issuer. The remaining 11% of our common stocks are part of a managed equity strategy selected and administered by external investment advisors. If our strategy were to change and these securities were determined to be other-than-temporarily impaired, we would recognize a write-down in accordance with our stated policy.

The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:

	Total Fair		Gross Unrealized			Less than 12 Months					12 Months or Greater
						Fair		Unrealized			Fair		Unrealized
(millions)	Value		Losses			Value		Losses			Value		Losses
December 31, 2012
Fixed maturities:
State and local government obligations	$	162.8	$	(.6	)	$	123.1	$	(.5	)	$	39.7	$	(.1	)
Corporate debt securities		128.2		(1.0	)		128.2		(1.0	)		0		0
Residential mortgage-backed securities		149.2		(9.2	)		40.2		(.6	)		109.0		(8.6	)
Commercial mortgage-backed securities		7.1		(.1	)		2.1		0			5.0		(.1	)
Other asset-backed securities		25.0		(.1	)		20.8		0			4.2		(.1	)
Redeemable preferred stocks		155.7		(12.7	)		24.9		0			130.8		(12.7	)
Total fixed maturities		628.0		(23.7	)		339.3		(2.1	)		288.7		(21.6	)
Equity securities:
Nonredeemable preferred stocks		0		0			0		0			0		0
Common equities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total equity securities		118.2		(10.3	)		100.7		(8.2	)		17.5		(2.1	)
Total portfolio	$	746.2	$	(34.0	)	$	440.0	$	(10.3	)	$	306.2	$	(23.7	)

	Total Fair Value		Gross Unrealized Losses			Less than 12 Months					12 Months or Greater
(millions)						Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2011
Fixed maturities:
State and local government obligations	$	93.6	$	(.6	)	$	79.5	$	(.5	)	$	14.1	$	(.1	)
Corporate debt securities		262.7		(6.5	)		137.3		(4.6	)		125.4		(1.9	)
Residential mortgage-backed securities		308.7		(35.3	)		34.4		(2.0	)		274.3		(33.3	)
Commercial mortgage-backed securities		203.7		(5.5	)		161.4		(3.5	)		42.3		(2.0	)
Other asset-backed securities		284.2		(1.3	)		259.7		(1.0	)		24.5		(.3	)
Redeemable preferred stocks		191.4		(24.0	)		43.5		(1.5	)		147.9		(22.5	)
Total fixed maturities		1,344.3		(73.2	)		715.8		(13.1	)		628.5		(60.1	)
Equity securities:
Nonredeemable preferred stocks		19.5		(3.7	)		19.5		(3.7	)		0		0
Common equities		214.6		(25.4	)		196.7		(23.1	)		17.9		(2.3	)
Total equity securities		234.1		(29.1	)		216.2		(26.8	)		17.9		(2.3	)
Total portfolio	$	1,578.4	$	(102.3	)	$	932.0	$	(39.9	)	$	646.4	$	(62.4	)

Other-than-Temporary Impairment (OTTI)  The following table shows the total non-credit portion of the OTTI recorded in accumulated other comprehensive income, reflecting the original non-credit loss at the time the credit impairment was determined:

	December 31,
(millions)	2012			2011
Fixed maturities:
Residential mortgage-backed securities	$	(44.2	)	$	(44.8	)
Commercial mortgage-backed securities		(.9	)		(1.0	)
Total fixed maturities	$	(45.1	)	$	(45.8	)

The following tables provide rollforwards of the amounts related to credit losses recognized in earnings for the periods ended December 31, 2012 and 2011, for which a portion of the OTTI losses were also recognized in accumulated other comprehensive income at the time the credit impairments were determined and recognized:

(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2012	$	34.5		$	1.3		$	0		$	35.8
Credit losses for which an OTTI was previously recognized		.1			0			0			.1
Credit losses for which an OTTI was not previously recognized		.3			0			0			.3
Reductions for securities sold/matured		0			(.2	)		0			(.2	)
Change in recoveries of future cash flows expected to be collected1,2		(3.8	)		(.2	)		0			(4.0	)
Reductions for previously recognized credit impairments written-down to fair value3		(4.0	)		(.3	)		0			(4.3	)
Ending balance at December 31, 2012	$	27.1		$	.6		$	0		$	27.7
(millions)	Residential Mortgage- Backed			Commercial Mortgage- Backed			Corporate Debt			Total
Beginning balance at January 1, 2011	$	32.3		$	1.0		$	6.5		$	39.8
Credit losses for which an OTTI was previously recognized		1.4			0			0			1.4
Credit losses for which an OTTI was not previously recognized		1.1			.4			0			1.5
Reductions for securities sold/matured		0			0			0			0
Change in recoveries of future cash flows expected to be collected1,2		.8			.3			(6.5	)		(5.4	)
Reductions for previously recognized credit impairments written-down to fair value3		(1.1	)		(.4	)		0			(1.5	)
Ending balance at December 31, 2011	$	34.5		$	1.3		$	0		$	35.8

¹  Reflects expected recovery of prior period impairments that will be accreted into income over the remaining life of the security.

²  Includes $1.4 million and $2.0 million at December 31, 2012 and 2011, respectively, received in excess of the cash flows expected to be collected at the time of the write-downs.

³  Reflects reductions of prior credit impairments where the current credit impairment requires writing securities down to fair value (i.e., no remaining non-credit loss).

Although we determined that it is more likely than not that we will not be required to sell the securities prior to the recovery of their respective cost bases (which could be maturity), we are required to measure the amount of credit losses on the securities that were determined to be other-than-temporarily impaired. In that process, we considered a number of factors and inputs related to the individual securities. The methodology and significant inputs used to measure the amount of credit losses in our portfolio included: current performance indicators on the underlying assets (e.g., delinquency rates, foreclosure rates, and default rates); credit support (via current levels of subordination); historical credit ratings; and updated cash flow expectations based upon these performance indicators. In order to determine the amount of credit loss, if any, the net present value of the cash flows expected (i.e., expected recovery value) was calculated using the current book yield for each security, and was compared to its current amortized value. In the event that the net present value was below the amortized value, a credit loss was deemed to exist, and the security was written down.

Net Realized Gains (Losses)  The components of net realized gains (losses) for the years ended December 31, were:

(millions)	2012			2011			2010
Gross realized gains on security sales
Fixed maturities:
U.S. government obligations	$	20.2		$	59.1		$	39.8
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		58.1			23.0			30.3
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.7			4.6			8.5
Total fixed maturities		115.4			94.6			90.4
Equity securities:
Nonredeemable preferred stocks		78.2			148.9			83.6
Common equities		167.0			11.6			13.4
Subtotal gross realized gains on security sales		360.6			255.1			187.4
Gross realized losses on security sales
Fixed maturities:
U.S. government obligations		(1.9	)		(9.3	)		(12.9	)
Corporate and other debt securities		(.6	)		(3.5	)		(.5	)
Redeemable preferred stocks		(.4	)		(2.2	)		(5.2	)
Total fixed maturities		(2.9	)		(15.0	)		(18.6	)
Equity securities:
Nonredeemable preferred stocks		(1.1	)		0			0
Common equities		(27.1	)		(36.5	)		(7.2	)
Subtotal gross realized losses on security sales		(31.1	)		(51.5	)		(25.8	)
Net realized gains (losses) on security sales
Fixed maturities:
U.S. government obligations		18.3			49.8			26.9
State and local government obligations		15.0			3.5			10.0
Corporate and other debt securities		57.5			19.5			29.8
Residential mortgage-backed securities		1.2			2.0			0
Commercial mortgage-backed securities		19.3			.3			1.0
Other asset-backed securities		.9			2.1			.8
Redeemable preferred stocks		.3			2.4			3.3
Total fixed maturities		112.5			79.6			71.8
Equity securities:
Nonredeemable preferred stocks		77.1			148.9			83.6
Common equities		139.9			(24.9	)		6.2
Subtotal net realized gains (losses) on security sales		329.5			203.6			161.6
Other-than-temporary impairment losses
Fixed maturities:
Residential mortgage-backed securities		(1.6	)		(3.3	)		(11.1	)
Commercial mortgage-backed securities		(.1	)		(.6	)		(1.9	)
Total fixed maturities		(1.7	)		(3.9	)		(13.0	)
Equity securities:
Common equities		(1.8	)		(.2	)		(.5	)
Subtotal other-than-temporary impairment losses		(3.5	)		(4.1	)		(13.5	)
Other gains (losses)
Hybrid securities		14.3			1.7			5.5
Derivative instruments		(43.1	)		(98.9	)		(58.5	)
Litigation settlements		9.6			.3			1.0
Subtotal other gains (losses)		(19.2	)		(96.9	)		(52.0	)
Total net realized gains (losses) on securities	$	306.8		$	102.6		$	96.1

Gross realized gains and losses were the result of sales transactions in our fixed-income portfolio, related to movements in credit spreads and interest rates, rebalancing of our equity-indexed portfolio, and tax management strategies. In addition, gains and losses reflect recoveries from litigation settlements and holding period valuation changes on hybrids and derivatives. Also included are write-downs for securities determined to be other-than-temporarily impaired in our fixed-maturity and/or equity portfolios.

Net Investment Income  The components of net investment income for the years ended December 31, were:

(millions)	2012			2011			2010
Fixed maturities:
U.S. government obligations	$	49.8		$	58.0		$	80.8
State and local government obligations		51.1			60.0			65.4
Corporate debt securities		107.5			106.7			84.3
Residential mortgage-backed securities		16.1			18.6			21.7
Commercial mortgage-backed securities		82.2			83.4			99.1
Other asset-backed securities		20.3			24.5			21.8
Redeemable preferred stocks		24.2			33.0			45.5
Total fixed maturities		351.2			384.2			418.6
Equity securities:
Nonredeemable preferred stocks		43.8			57.7			70.6
Common equities		44.9			35.7			27.3
Short-term investments:
Other short-term investments		3.1			2.4			3.6
Investment income		443.0			480.0			520.1
Investment expenses		(15.4	)		(13.5	)		(11.9	)
Net investment income	$	427.6		$	466.5		$	508.2

Trading Securities  At December 31, 2012 and 2011, we did not hold any trading securities and we did not have any net realized gains (losses) on trading securities for the years ended December 31, 2012, 2011, and 2010.

Derivative Instruments  We have invested in the following derivative exposures at various times: interest rate swaps, asset-backed credit default swaps, U.S. corporate credit default swaps, cash flow hedges, and equity options.

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 net derivative asset and 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. 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 their immaterial effect on our financial condition, cash flows, and results of operations.

The following table shows the status of our derivative instruments at December 31, 2012 and 2011, and for the years ended December 31, 2012, 2011, and 2010; amounts are on a pretax basis:

(millions)								Balance Sheet							Comprehensive Income Statement
	Notional Value1								Assets (Liabilities) Fair Value						Net Realized Gains (Losses) on Securities
	December 31,								December 31,						Years ended December 31,
Derivatives designated as:	2012		2011		2010		Purpose	Classification	2012			2011			2012			2011			2010
Hedging instruments
Closed:
Ineffective cash flow hedge	$	31	$	15	$	223	Manage interest rate risk	NA	$	0		$	0		$	.6		$	.3		$	5.8
Non-hedging instruments
Assets:
Corporate credit default swaps		0		25		35	Manage credit risk	Investments - fixed maturities		0			.7			0			(.2	)		2.5
Liabilities:
Interest rate swaps		1,263		1,263		713	Manage portfolio duration	Other liabilities		(95.5	)		(76.1	)		(42.7	)		(74.0	)		(66.6	)
Closed:																0			(25.5	)		0
Interest rate swaps		0		350		0	Manage portfolio duration	NA		0			0
Corporate credit default swaps		25		10		25	Manage credit risk	NA		0			0			(1.0	)		.5			(.2	)
Total		NA		NA		NA			$	(95.5	)	$	(75.4	)	$	(43.1	)	$	(98.9	)	$	(58.5	)

¹The amounts represent the value held at year end for open positions and the maximum amount held during the year for closed positions.

NA = Not Applicable

CASH FLOW HEDGES

During the years ended December 31, 2012 and 2011, we repurchased, in the open market, $30.9 million and $15.0 million, respectively, in aggregate principal amount of our 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “6.70% Debentures”). For the portion of the 6.70% Debentures we purchased, we reclassified $0.6 million and $0.3 million, in the respective years, on a pretax basis, of the unrealized gain on forecasted transactions from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement.

During 2010, we finalized our tender offer for, and repurchased $222.9 million principal amount of, the 6.70% Debentures. We reclassified $5.8 million (pretax) from accumulated other comprehensive income on the balance sheet to net realized gains (losses) on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the 6.70% Debentures that were repurchased pursuant to the tender offer.

In anticipation of issuing the 6.70% Debentures in 2007, we entered into a forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates. Upon issuance of the 6.70% Debentures, the hedge was closed, and we recognized a pretax gain of $34.4 million, which was recorded as part of accumulated other comprehensive income. The $34.4 million gain, less the $0.6 million, $0.3 million, and $5.8 million reclassifications mentioned above, was deferred and is being recognized as a decrease to interest expense over the 10-year fixed interest rate term of the 6.70% Debentures.

During 2011, we issued $500 million of 3.75% Senior Notes due 2021 (the “3.75% Senior Notes”) and entered into a forecasted debt issuance hedge (cash flow hedge) against a possible rise in interest rates (see Note 4 – Debt for further discussion). Upon issuance of the 3.75% Senior Notes in August 2011, the hedge was closed and we recognized, as part of accumulated other comprehensive income, a pretax unrealized loss of $5.1 million. The $5.1 million loss was deferred and is being recognized as an increase to interest expense over the life of the 3.75% Senior Notes.

During 2012, 2011, and 2010, we recognized $2.1 million, $2.6 million, and $2.7 million, respectively, as net decreases to interest expense on our closed debt issuance cash flow hedges.

INTEREST RATE SWAPS

At December 31, 2012, 2011, and 2010, we invested in interest rate swap positions primarily to manage the fixed-income portfolio duration. During the year ended December 31, 2012, we held a 9-year interest rate swap position (opened in 2009) and two 5-year interest rate swap positions (opened in 2011); in each case, we are paying a fixed rate and receiving a variable rate, effectively shortening the duration of our fixed-income portfolio. We closed a portion of the 9-year position during 2011. The combined open positions have generated an aggregate realized loss, as interest rates have fallen since the inception of these positions. As of December 31, 2012, 2011, and 2010, the balance of the cash collateral that we had delivered to the applicable counterparty on these positions was $105.0 million, $81.7 million, and $52.2 million, respectively.

CORPORATE CREDIT DEFAULT SWAPS

Financial Services Sector – During 2012, we closed a position that was opened during 2008, on one corporate issuer within the financial services sector for which we bought credit default protection in the form of a credit default swap for a 5-year time horizon. We held this protection to reduce some of our exposure to additional valuation declines on a preferred stock position of the same issuer. As of December 31, 2011 and 2010, the balance of the cash collateral that we had received from the counterparty on the then open position was $0.7 million and $0.5 million, respectively.

Automotive Sector – We held no credit default swaps in this sector during 2012. During 2011, we closed a position where we sold credit protection in the form of a corporate credit default swap on one issuer in the automotive sector for a 5-year time horizon; the position was opened during the second quarter 2010. We would have been required to cover a $10 million notional value if a credit event had been triggered, including failure to pay or bankruptcy by the issuer. We acquired an equal par value amount of U.S. Treasury Notes with a similar maturity to cover the credit default swap’s notional exposure. As of December 31, 2010, the balance of the cash collateral that we had received from the counterparty on the then open position was $1.1 million.

Technology Sector – We held no credit default swaps in this sector during 2012 or 2011. During 2010, we opened and closed two positions on one corporate issuer within the technology sector for which we bought credit default protection in the form of credit default swaps for 2-year and 4-year time horizons. We paid $0.2 million in upfront cash when we entered into the 4-year exposure position. We held this protection to reduce our exposure to additional valuation declines on a corporate position of the same issuer due to potential future credit impairment.

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Debt

12 Months Ended

Dec. 31, 2012

Debt

4.  DEBT

Debt at December 31 consisted of:

	2012				2011
(millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)	$	0	$	0	$	350.0	$	350.5
7% Notes due 2013 (issued: $150.0, October 1993)		149.9		157.1		149.7		162.4
3.75% Senior Notes due 2021 (issued: $500.0, August 2011)		497.3		549.1		497.0		525.3
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999)		295.2		385.0		295.0		364.4
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		394.5		513.5		394.4		492.4
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067
(issued: $1,000.0, June 2007; outstanding: $731.2 and $762.1)		726.2		789.7		756.0		769.7
Total	$	2,063.1	$	2,394.4	$	2,442.1	$	2,664.7

All of the outstanding debt was issued by The Progressive Corporation. Debt includes amounts we have borrowed and contributed to the capital of our insurance subsidiaries or used, or have available for use, for other business purposes. Fair values are obtained from external sources. There are no restrictive financial covenants or credit rating triggers on our debt.

Interest on all debt is payable semiannually at the stated rates. However, the 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (the “6.70% Debentures”) will only bear interest at this fixed annual rate through, but excluding, June 15, 2017. Thereafter, the 6.70% Debentures will bear interest at an annual rate equal to the three-month LIBOR plus 2.0175%, and the interest will be payable quarterly.

In September 2011, we entered into an agreement with The Bank of New York Mellon Trust Company, N.A., as trustee, modifying the terms of the 6.70% Debentures. Pursuant to that agreement, among other changes, we surrendered our right to temporarily defer the payment of interest on the 6.70% Debentures and terminated a related obligation to reserve 250 million of our unissued common shares as a source of potential funding to pay any such deferred interest. The changes were effective immediately upon execution of the agreement. Prior to September 2011, and subject to certain conditions, we had the right to defer the payment of interest on our 6.70% Debentures for one or more periods not exceeding ten consecutive years each.

Except for the 6.70% Debentures, all principal is due at the maturity stated in the table above. The 6.70% Debentures will become due on June 15, 2037, the scheduled maturity date, but only to the extent that we have received sufficient net proceeds from the sale of certain qualifying capital securities. We must use our commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the 6.70% Debentures in full on the scheduled maturity date or, if sufficient proceeds are not realized from the sale of such qualifying capital securities by such date, on each interest payment date thereafter. Any remaining outstanding principal will be due on June 15, 2067, the final maturity date.

In January 2012, we retired the entire $350 million of our 6.375% Senior Notes at maturity. The 7% Notes are noncallable. The 3.75% Senior Notes, the 6 5/8% Senior Notes, and the 6.25% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at our option, subject to a “make-whole” provision. The 6.70% Debentures may be redeemed, in whole or in part, at any time: (a) prior to June 15, 2017, at a redemption price equal to the greater of (i) 100% of the principal amount of the 6.70% Debentures being redeemed, or (ii) a “make-whole” amount, in each case plus any accrued and unpaid interest; or (b) on or after June 15, 2017, at a redemption price equal to 100% of the principal amount of the 6.70% Debentures being redeemed, plus any accrued and unpaid interest.

During 2012 and 2011, we repurchased, in the open market, $30.9 million and $15.0 million, respectively, in aggregate principal amount of our 6.70% Debentures. Since the amount paid exceeded the carrying value of the debt we repurchased, we recognized losses on these extinguishments of $1.8 million and $0.1 million for 2012 and 2011, respectively.

Prior to issuance of the Senior Notes and 6.70% Debentures, we entered into forecasted debt issuance hedges against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed and we recognized unrealized gains (losses) as part of accumulated other comprehensive income. The original unrealized gain (loss) at the time of each debt issuance and the unamortized balance at December 31, 2012, on a pretax basis, of these hedges, were as follows:

(millions)	Unrealized Gain (Loss) at Debt Issuance			Unamortized Balance at December 31, 2012
6.375% Senior Notes	$	18.4		$	0
3.75% Senior Notes		(5.1	)		(4.5	)
6 5/8% Senior Notes		(4.2	)		(3.4	)
6.25% Senior Notes		5.1			4.3
6.70% Debentures		34.4			13.0

The gains (losses) on these hedges are deferred and are being amortized as adjustments to interest expense over the life of the related Senior Notes, and over the 10-year fixed interest rate term for the 6.70% Debentures. In addition to this amortization, during 2012 and 2011, we reclassified $0.6 million and $0.3 million, respectively, on a pretax basis, from accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of the 6.70% Debentures repurchased during the periods.

During 2012 and 2011, we had the ability to borrow up to $125 million under 364-Day Secured Liquidity Credit Facility Agreements (“Credit Facility Agreement”) with PNC Bank, National Association. The Credit Facility Agreement expired on December 31, 2012. The purpose of the credit facility was to provide liquidity in the event of disruptions in our cash management operations, such as disruptions in the financial markets or related facilities that could have affected our ability to transfer or receive funds. We paid facility fees of $0 and $25,000 in 2012 and 2011, respectively, as consideration for this revolving agreement. We had no borrowings under this arrangement in 2012 or 2011.

Aggregate principal payments on debt outstanding at December 31, 2012, is as follows:

(millions) Year	Payments
2013	$	150.0
2014		0
2015		0
2016		0
2017		0
Thereafter		1,931.2
Total	$	2,081.2

Our next scheduled debt maturity is $150 million of our 7% Notes due October 2013.

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Derivative Instruments (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Derivative [Line Items]
Balance Sheet - Fair Value	$ (95.5)		$ (75.4)
Income Statement - Net Realized Gain (Loss) on Securities	(43.1)		(98.9)		(58.5)
Designated as Hedging Instruments | Closed Positions | Ineffective Cash Flow Hedge
Derivative [Line Items]
Notional Value	31	[1]	15	[1]	223	[1]
Purpose	Manage interest rate risk
Balance Sheet - Fair Value	0		0
Income Statement - Net Realized Gain (Loss) on Securities	0.6		0.3		5.8
Non-hedging Instruments | Closed Positions | Corporate Credit Default Swaps
Derivative [Line Items]
Notional Value	25	[1]	10	[1]	25	[1]
Purpose	Manage credit risk
Balance Sheet - Fair Value	0		0
Income Statement - Net Realized Gain (Loss) on Securities	(1.0)		0.5		(0.2)
Non-hedging Instruments | Closed Positions | Interest Rate Swaps
Derivative [Line Items]
Notional Value	0	[1]	350	[1]	0	[1]
Purpose	Manage portfolio duration
Balance Sheet - Fair Value	0		0
Income Statement - Net Realized Gain (Loss) on Securities	0		(25.5)		0
Non-hedging Instruments | Assets | Corporate Credit Default Swaps | Fixed maturities
Derivative [Line Items]
Notional Value	0	[1]	25	[1]	35	[1]
Purpose	Manage credit risk
Balance Sheet - Fair Value	0		0.7
Income Statement - Net Realized Gain (Loss) on Securities	0		(0.2)		2.5
Non-hedging Instruments | Liabilities | Interest Rate Swaps | Other Liabilities
Derivative [Line Items]
Notional Value	1,263	[1]	1,263	[1]	713	[1]
Purpose	Manage portfolio duration
Balance Sheet - Fair Value	(95.5)		(76.1)
Income Statement - Net Realized Gain (Loss) on Securities	$ (42.7)		$ (74.0)		$ (66.6)

[1] The amounts represent the value held at year end for open positions and the maximum amount held during the year for closed positions.

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Employee Benefit Plans - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	12 Months Ended
	Feb. 28, 2009	Dec. 31, 2012 Person		Dec. 31, 2011 Person		Dec. 31, 2010
Employee Benefits Disclosure [Line Items]
Employee Stock Ownership Plan Shares held		27,200,000
Postemployment benefits liability		22.0		20.8
Employee Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Shares available for future awards		15,624,677	[1],[2]	18,141,922	[1],[2]	20,328,180	[1],[2]
Aggregate fair value of the restricted equity awards that vested during the period		57.7		31.3		24.3
Deferred liability awards vested		246,200
Employee Stock Option
Employee Benefits Disclosure [Line Items]
Total pretax intrinsic value of options exercised				15.2		40.8
Non Employee Director Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Shares available for future awards		570,138	[3]	663,095	[3]	757,201	[3]
Requisite service period, minimum		6 months 1 day
Vesting period of grants to date		11 months
Total pretax intrinsic value of options exercised and restricted stock vested		2.5		3.3		5.1
Executive Deferred Compensation Plan
Employee Benefits Disclosure [Line Items]
Common shares reserved for issuance under executive deferred compensation plan		11,100,000
2003 Incentive Plan | Employee Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Shares authorized		18,700,000
Shares available for future awards		2,400,000
2010 Equity Incentive Plan | Employee Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Shares authorized		18,000,000
Shares available for future awards		13,200,000
2003 Directors Equity Incentive Plan | Non Employee Director Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Shares authorized		1,400,000
Shares available for future awards		600,000
Other Postretirement Benefit Plans, Defined Benefit
Employee Benefits Disclosure [Line Items]
Number of employees, approximately		125
Performance Based Restricted Equity Awards
Employee Benefits Disclosure [Line Items]
Number of employees, approximately		40		40
Performance-based awards vesting range	Either vest or be forfeited in full (i.e., no partial vesting).
Performance-based awards granted vesting target percentage						100.00%
Performance Based Restricted Equity Awards | Upper Limit
Employee Benefits Disclosure [Line Items]
Performance-based awards granted vesting percentage of the award amount						200.00%
Performance Based Restricted Equity Awards | Lower Limit
Employee Benefits Disclosure [Line Items]
Performance-based awards granted vesting percentage of the award amount						0.00%
Defined Contribution Pension Plan 401k
Employee Benefits Disclosure [Line Items]
Matching contributions		66.5		64.1		61.3
Defined Contribution Pension Plan 401k | Upper Limit
Employee Benefits Disclosure [Line Items]
Matching contribution to defined contribution pension plan		6.00%

[1] Represents shares available under the 2003 Incentive Plan and the 2010 Incentive Plan; the 2003 Incentive Plan expired on January 31, 2013, and the remaining 2,438,119 shares thereunder are no longer available for future issuance, however dividend equivalents will be issued on outstanding awards up to the remaining authorization amount.

[2] Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

[3] Represents shares available under the 2003 Directors Equity Incentive Plan.

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Fair Value - Additional Information (Detail) (USD $) In Millions, unless otherwise specified																12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2012 Fair Value, Inputs, Level 1	Dec. 31, 2012 Fair Value, Inputs, Level 1 Vendor Quoted Pricing	Dec. 31, 2011 Fair Value, Inputs, Level 1 Vendor Quoted Pricing	Dec. 31, 2012 Fair Value, Inputs, Level 2	Dec. 31, 2012 Fair Value, Inputs, Level 2 Vendor Quoted Pricing	Dec. 31, 2011 Fair Value, Inputs, Level 2 Vendor Quoted Pricing	Dec. 31, 2012 Fair Value, Inputs, Level 2 Dealer Quoted Pricing	Dec. 31, 2011 Fair Value, Inputs, Level 2 Dealer Quoted Pricing	Dec. 31, 2012 Fair Value, Inputs, Level 3	Dec. 31, 2012 Fair Value, Inputs, Level 3 Fixed maturities Internal Pricing Investment	Dec. 31, 2011 Fair Value, Inputs, Level 3 Fixed maturities Internal Pricing Investment	Dec. 31, 2012 Redeemable preferred stocks Fixed maturities Investment	Dec. 31, 2011 Nonredeemable preferred stocks Equity securities Investment	Dec. 31, 2012 Nonredeemable preferred stocks Fair Value, Inputs, Level 3 Equity securities Internal Pricing Investment	Dec. 31, 2012 Common equities Fair Value, Inputs, Level 3 Equity securities Internal Pricing Investment	Dec. 31, 2011 Common equities Fair Value, Inputs, Level 3 Equity securities Internal Pricing Investment
Fair Value Measurements [Line Items]
Transferred out of Level 1 into Level 2																$ 25.0	$ 44.2
Number of security transferred out of Level 1 into Level 2																1	1
Quoted prices percentage of fair value assets	100.00%	[1],[2]	100.00%	[1],[2]		57.00%	59.00%		98.00%	96.00%	2.00%	4.00%
Portfolio	$ 16,475.5	[1],[2]	$ 15,963.0	[1],[2]	$ 6,723.0			$ 9,637.8					$ 114.7		$ 0.5			$ 31.9	$ 11.2	$ 10.2
Number of securities														0	2			1	1	1

[1] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[2] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

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Minimum Commitments under Noncancelable Operating Lease Agreements (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Commitments and Contingencies Disclosure [Line Items]
2013	$ 47.1
2014	38.8
2015	29.6
2016	18.2
2017	8.3
Thereafter	9.5
Total	$ 151.5

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Components of Net Investment Income (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	$ 443.0	$ 480.0	$ 520.1
Investment expenses	(15.4)	(13.5)	(11.9)
Net investment income	427.6	466.5	508.2
Fixed maturities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	351.2	384.2	418.6
Fixed maturities | U.S. government obligations
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	49.8	58.0	80.8
Fixed maturities | State and local government obligations
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	51.1	60.0	65.4
Fixed maturities | Corporate debt securities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	107.5	106.7	84.3
Fixed maturities | Residential mortgage-backed securities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	16.1	18.6	21.7
Fixed maturities | Commercial mortgage-backed securities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	82.2	83.4	99.1
Fixed maturities | Other asset-backed securities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	20.3	24.5	21.8
Fixed maturities | Redeemable preferred stocks
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	24.2	33.0	45.5
Equity securities | Nonredeemable preferred stocks
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	43.8	57.7	70.6
Equity securities | Common equities
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	44.9	35.7	27.3
Short-term investments | Other Short-term investments
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Investment income	$ 3.1	$ 2.4	$ 3.6

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Summary of all Stock Option Activity for both Current and Former Directors (Detail) (Non Employee Director Stock Option, USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Non Employee Director Stock Option
Number of Shares
Beginning of year	36,237		120,125		312,545
Antidilution adjustment					5,787	[1]
Deduct:
Exercised	(36,237)		(83,888)		(198,207)
End of year	0		36,237		120,125
Exercisable, end of year	0	[2]	36,237	[2]	120,125	[2]
Weighted Average Exercise Price
Beginning of year	$ 12.51		$ 10.34		$ 8.46
Exercised	$ 12.51		$ 9.41		$ 7.07
End of year	$ 0.00		$ 12.51		$ 10.34
Exercisable, end of year	$ 0.00	[2]	$ 12.51	[2]	$ 10.34	[2]

[1] During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

[2] The 1998 Directors' Stock Option Plan has expired.

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2012

Amounts Charged to Income for Employees Incentive Compensation Plans

The amounts charged to income for the incentive compensation plans for the years ended December 31, were:

	2012				2011				2010
(millions)	Pretax		After Tax		Pretax		After Tax		Pretax		After Tax
Cash	$	207.0	$	134.6	$	196.1	$	127.5	$	257.3	$	167.2
Equity		63.4		41.2		50.5		32.8		45.9		29.8

Assets Held in Deferral Plan Irrevocable Grantor Trust Account

The Deferral Plan Irrevocable Grantor Trust account held the following assets at December 31:

(millions)	2012		2011
Progressive common shares1	$	53.3	$	35.2
Other investment funds		73.4		66.2
Total	$	126.7	$	101.4

¹ Includes 1.3 million and 0.7 million common shares as of December 31, 2012 and 2011, respectively, to be distributed in common shares.

Director

Summary of Restricted Stock Activity

A summary of all directors’ restricted stock activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Stock	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning of year		94,106		$	21.80		109,545		$	20.86		118,984		$	15.79
Add (deduct):
Granted		92,957			21.41		94,106			21.80		112,670			20.75
Vested		(94,106	)		21.80		(109,545	)		20.86		(122,109	)		15.82
End of year		92,957		$	21.41		94,106		$	21.80		109,545		$	20.86
Available, end of year1		570,138					663,095					757,201

¹ Represents shares available under the 2003 Directors Equity Incentive Plan.

Summary of Stock Option Activity

A summary of all stock option activity for both current and former directors during the years ended December 31, follows:

	2012					2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		36,237		$	12.51		120,125		$	10.34		312,545		$	8.46
Add:
Antidilution adjustment1		NA			NA		NA			NA		5,787			NA
Deduct:
Exercised		(36,237	)		12.51		(83,888	)		9.41		(198,207	)		7.07
End of year		0		$	0		36,237		$	12.51		120,125		$	10.34
Exercisable, end of year2		0		$	0		36,237		$	12.51		120,125		$	10.34

NA = Not Applicable

¹ During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

² The 1998 Directors’ Stock Option Plan has expired.

Employee

Summary of Restricted Stock Activity

A summary of all employee restricted equity award activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Equity Awards	Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value
Beginning of year		12,296,847		$	16.86		11,681,826		$	16.55		10,614,016		$	17.04
Add (deduct):
Granted2		2,680,229			19.11		2,483,461			20.03		2,841,400			17.50
Vested		(3,188,111	)		15.23		(1,571,237	)		19.88		(1,337,647	)		22.72
Forfeited		(162,984	)		17.93		(297,203	)		15.41		(435,943	)		15.58
End of year3,4		11,625,981		$	17.80		12,296,847		$	16.86		11,681,826		$	16.55
Available, end of year5		15,624,677					18,141,922					20,328,180

¹ Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

² In 2010, we began reinvesting dividend equivalents on restricted stock units. For 2012, 2011, and 2010, the number granted includes 440,029, 55,288, and 134,644 units, respectively, at a weighted average grant date fair value of $0, since the dividends were factored into the grant date fair value of the original grant.

³ At December 31, 2012, the number of shares included 3,393,981 performance-based awards at their target amounts. We expect 4,404,766 performance-based awards to vest, based upon our current estimate of the achievement of pre-determined performance goals.

⁴ At December 31, 2012, the total unrecognized compensation cost related to unvested equity awards was $86.3 million, which includes performance-based awards at their currently estimated vesting value. This compensation expense will be recognized into the income statement over the weighted average vesting period of 2.2 years.

⁵  Represents shares available under the 2003 Incentive Plan and the 2010 Incentive Plan; the 2003 Incentive Plan expired on January 31, 2013, and the remaining 2,438,119 shares thereunder are no longer available for future issuance, however dividend equivalents will be issued on outstanding awards up to the remaining authorization amount.

Summary of Stock Option Activity

The following table is a summary of all employee stock option activity during the years ended December 31, 2011 and 2010. All non-qualified stock options vested on or before January 1, 2007 and expired on December 31, 2011. All options granted had an exercise price equal to the market value of the common shares on the date of grant.

	2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		1,916,416		$	11.31		5,102,888		$	9.31
Add:
Antidilution adjustment1		NA			NA		97,387			NA
Deduct:
Exercised		(1,913,552	)		11.31		(3,283,859	)		7.87
Forfeited		(2,864	)		11.28		0			0
End of year		0		$	0		1,916,416		$	11.31
Exercisable, end of year		0		$	0		1,916,416		$	11.31

NA = Not Applicable

¹  During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

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Equity Based Compensation (Detail) (Stock Compensation Plan, USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock Compensation Plan
Incentive Compensation Plans Expense [Line Items]
Pretax expense	$ 63.4	$ 50.5	$ 45.9
Tax benefit	$ 22.2	$ 17.7	$ 16.1

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans

9.  EMPLOYEE BENEFIT PLANS

Retirement Plans  Progressive has a defined contribution pension plan (“401(k) Plan”) that covers all United States employees who are 18 years of age or older and have been employed with the company for at least 30 days. Under this plan, Progressive matches up to a maximum of 6% of an employee’s eligible compensation contributed to the plan. Employee and company matching contributions are invested, at the direction of the employee, in a number of investment options available under the plan, including various mutual funds, a self-directed brokerage option, and a Progressive common stock fund. As of December 2010, the Progressive common stock fund was converted to an employee stock ownership program (“ESOP”) within the 401(k) Plan. At December 31, 2012, the ESOP held 27.2 million of our common shares, all of which are included in shares outstanding. Dividends on these shares are reinvested in common shares or paid out in cash at the election of the participant and the related tax benefit is recorded as part of our tax provision.

Matching contributions made by the company for the 401(k) Plan were $66.5 million, $64.1 million, and $61.3 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Postemployment Benefits  Progressive provides various postemployment benefits to former or inactive employees who meet eligibility requirements, and to their beneficiaries and covered dependents. Postemployment benefits include salary continuation and disability-related benefits, including workers’ compensation and, if elected, continuation of health-care benefits for specified limited periods. The liability for these benefits was $22.0 million and $20.8 million at December 31, 2012 and 2011, respectively.

Postretirement Benefits  We provide postretirement health and life insurance benefits to all employees who met requirements as to age and length of service at December 31, 1988. There are approximately 125 people who are eligible for these postretirement benefits. Our funding policy for these benefits is to contribute annually, to a 501(c)(9) trust, the maximum amount that can be deducted for federal income tax purposes.

Incentive Compensation Plans – Employees  Our incentive compensation includes both non-equity incentive plans (cash) and equity incentive plans. Cash incentive compensation includes a cash bonus program for a limited number of senior executives and our Gainsharing program for other employees; the structures of these programs are similar in nature. Equity incentive compensation plans provide for the granting of restricted stock awards and restricted stock unit awards (collectively, “restricted equity awards”) to key members of management. The amounts charged to income for the incentive compensation plans for the years ended December 31, were:

	2012				2011				2010
(millions)	Pretax		After Tax		Pretax		After Tax		Pretax		After Tax
Cash	$	207.0	$	134.6	$	196.1	$	127.5	$	257.3	$	167.2
Equity		63.4		41.2		50.5		32.8		45.9		29.8

Our 2003 Incentive Plan, which provides for the granting of equity-based awards to key members of management, has 18.7 million shares currently authorized, net of restricted equity awards cancelled; 2.4 million shares remain available for future awards. In addition, our 2010 Equity Incentive Plan had 18.0 million shares authorized as of December 31, 2012, and 13.2 million shares remain available for future awards.

We have issued restricted equity awards since 2003. In March 2010, we began issuing restricted stock units in lieu of restricted stock as the basis for our equity awards. The restricted equity awards were issued as either time-based or performance-based awards. The time-based awards vest in equal installments upon the lapse of specified periods of time, typically three, four, and five years. All restricted stock unit conversions at vesting are settled in Progressive common shares from existing treasury shares on a one-to-one basis.

The performance-based awards were granted to our Chief Executive Officer as his sole equity award for 2011 and 2012, and to approximately 40 executives and senior managers in addition to their time-based awards (including the CEO for 2010 and prior), to provide additional incentive to achieve pre-established profitability and growth targets. Vesting for all awards is based upon the achievement of predetermined performance goals within specified time periods. The targets for the performance-based awards, as well as the ultimate number of units that may vest, vary by grant. The performance-based awards granted in 2010 and later may vest from 0% to 200% of the award amount, and have a target value of 100%. Performance-based awards made prior to March 2009 would either vest or be forfeited in full (i.e., no partial vesting).

Generally, time-based and performance-based equity awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant. Performance-based equity awards that contain variable vesting criteria are expensed based on management’s expected vesting percentage. These estimates can change periodically throughout the measurement period. However, the restricted stock awards granted in 2004 that were deferred pursuant to our deferred compensation plan were accounted for as liability awards, since distributions from the deferred compensation plan for these awards will be made in cash; accordingly, we recorded expense on a pro rata basis based on the current market value of our common shares at the end of each reporting period. The remaining liability awards vested during 2012.

A summary of all employee restricted equity award activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Equity Awards	Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value		Number of Shares1			Weighted Average Grant Date Fair Value
Beginning of year		12,296,847		$	16.86		11,681,826		$	16.55		10,614,016		$	17.04
Add (deduct):
Granted2		2,680,229			19.11		2,483,461			20.03		2,841,400			17.50
Vested		(3,188,111	)		15.23		(1,571,237	)		19.88		(1,337,647	)		22.72
Forfeited		(162,984	)		17.93		(297,203	)		15.41		(435,943	)		15.58
End of year3,4		11,625,981		$	17.80		12,296,847		$	16.86		11,681,826		$	16.55
Available, end of year5		15,624,677					18,141,922					20,328,180

¹ Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

² In 2010, we began reinvesting dividend equivalents on restricted stock units. For 2012, 2011, and 2010, the number granted includes 440,029, 55,288, and 134,644 units, respectively, at a weighted average grant date fair value of $0, since the dividends were factored into the grant date fair value of the original grant.

³ At December 31, 2012, the number of shares included 3,393,981 performance-based awards at their target amounts. We expect 4,404,766 performance-based awards to vest, based upon our current estimate of the achievement of pre-determined performance goals.

⁴ At December 31, 2012, the total unrecognized compensation cost related to unvested equity awards was $86.3 million, which includes performance-based awards at their currently estimated vesting value. This compensation expense will be recognized into the income statement over the weighted average vesting period of 2.2 years.

⁵  Represents shares available under the 2003 Incentive Plan and the 2010 Incentive Plan; the 2003 Incentive Plan expired on January 31, 2013, and the remaining 2,438,119 shares thereunder are no longer available for future issuance, however dividend equivalents will be issued on outstanding awards up to the remaining authorization amount.

The aggregate fair value of the restricted equity awards that vested during the years ended December 31, 2012, 2011, and 2010, was $57.7 million, $31.3 million, and $24.3 million, respectively, based on the actual stock price on the vesting date. In 2012, we also had 246,200 deferred liability awards vest with no intrinsic value since, as previously discussed, these awards were expensed based on the current market value at the end of each reporting period.

The following table is a summary of all employee stock option activity during the years ended December 31, 2011 and 2010. All non-qualified stock options vested on or before January 1, 2007 and expired on December 31, 2011. All options granted had an exercise price equal to the market value of the common shares on the date of grant.

	2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		1,916,416		$	11.31		5,102,888		$	9.31
Add:
Antidilution adjustment1		NA			NA		97,387			NA
Deduct:
Exercised		(1,913,552	)		11.31		(3,283,859	)		7.87
Forfeited		(2,864	)		11.28		0			0
End of year		0		$	0		1,916,416		$	11.31
Exercisable, end of year		0		$	0		1,916,416		$	11.31

NA = Not Applicable

¹  During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

The total pretax intrinsic value of options exercised during the years ended December 31, 2011 and 2010, were $15.2 million and $40.8 million, respectively, based on the actual stock price at the time of exercise.

Incentive Compensation Plans – Directors  Our 2003 Directors Equity Incentive Plan, which provides for the granting of equity-based awards, including restricted stock awards, to non-employee directors of Progressive, had 1.4 million shares authorized as of December 31, 2012, net of restricted stock awards cancelled; 0.6 million shares remain available for future restricted stock grants.

We grant restricted stock awards to our non-employee directors as their sole compensation for serving as members of the Board of Directors. We do not plan to change to restricted stock units as we have with our employees. The restricted stock awards are issued as time-based awards. The vesting period (i.e., requisite service period) must be a minimum of six months and one day. The time-based awards granted to date have typically included vesting periods of 11 months from the date of each grant. To the extent a director is newly appointed during the year, or his or her committee assignments change, the vesting period may be shorter but always greater than six months and one day per the plan’s specifications. The restricted stock awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant.

A summary of all directors’ restricted stock activity during the years ended December 31, follows:

	2012					2011					2010
Restricted Stock	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning of year		94,106		$	21.80		109,545		$	20.86		118,984		$	15.79
Add (deduct):
Granted		92,957			21.41		94,106			21.80		112,670			20.75
Vested		(94,106	)		21.80		(109,545	)		20.86		(122,109	)		15.82
End of year		92,957		$	21.41		94,106		$	21.80		109,545		$	20.86
Available, end of year1		570,138					663,095					757,201

¹ Represents shares available under the 2003 Directors Equity Incentive Plan.

Prior to 2003, we granted nonqualified stock options as the equity component of the directors’ compensation. These options became exercisable at various dates not earlier than six months, and remain exercisable for up to ten years from the date of grant. All options granted had an exercise price equal to the market value of the common shares on the date of grant and, under the then applicable accounting guidance, no compensation expense was recorded. All option exercises were settled in Progressive common shares from existing treasury shares.

A summary of all stock option activity for both current and former directors during the years ended December 31, follows:

	2012					2011					2010
Options Outstanding	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Beginning of year		36,237		$	12.51		120,125		$	10.34		312,545		$	8.46
Add:
Antidilution adjustment1		NA			NA		NA			NA		5,787			NA
Deduct:
Exercised		(36,237	)		12.51		(83,888	)		9.41		(198,207	)		7.07
End of year		0		$	0		36,237		$	12.51		120,125		$	10.34
Exercisable, end of year2		0		$	0		36,237		$	12.51		120,125		$	10.34

NA = Not Applicable

¹ During the fourth quarter 2010, we declared a $1.00 per common share special cash dividend to shareholders of record at the close of business on December 20, 2010. Since the holders of the outstanding stock option awards were not entitled to receive the cash dividend, we were required to increase the number of shares and reduce the exercise price of any of our then outstanding stock option awards in accordance with the antidilution provisions of our incentive plans.

² The 1998 Directors’ Stock Option Plan has expired.

The total pretax intrinsic value of options exercised, and the fair value of the restricted stock vested, during the years ended December 31, 2012, 2011, and 2010, was $2.5 million, $3.3 million, and $5.1 million, respectively, based on the actual stock price at time of exercise/vesting.

Deferred Compensation  We maintain The Progressive Corporation Executive Deferred Compensation Plan (“Deferral Plan”) that permits eligible executives to defer receipt of some or all of their annual bonuses and all of their annual equity awards. Deferred cash compensation is deemed invested in one or more investment funds, including common shares of Progressive, offered under the Deferral Plan and elected by the participant. All Deferral Plan distributions attributable to deferred cash compensation will be paid in cash.

For all equity awards granted in or after March 2005, and deferred pursuant to the Deferral Plan, the deferred amounts are deemed invested in common shares and are ineligible for transfer to other investment funds in the Deferral Plan; distributions of these deferred awards will be made in common shares. For all restricted stock awards granted prior to that date, the deferred amounts are eligible to be transferred to any of the investment funds in the Deferral Plan; distributions of these deferred awards will be made in cash.

We reserved 11.1 million common shares for issuance under the Deferral Plan. An irrevocable grantor trust has been established to provide a source of funds to assist us in meeting our liabilities under the Deferral Plan.

The Deferral Plan Irrevocable Grantor Trust account held the following assets at December 31:

(millions)	2012		2011
Progressive common shares1	$	53.3	$	35.2
Other investment funds		73.4		66.2
Total	$	126.7	$	101.4

¹ Includes 1.3 million and 0.7 million common shares as of December 31, 2012 and 2011, respectively, to be distributed in common shares.

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Reporting And Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Nature of Operations

Nature of Operations  The Progressive Corporation, an insurance holding company formed in 1965, had 54 subsidiaries, 1 mutual insurance company affiliate, and 1 limited partnership investment affiliate (collectively the “subsidiaries”) as of December 31, 2012. Our insurance subsidiaries and mutual company affiliate (the Progressive Group of Insurance Companies) provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Our Personal Lines segment writes insurance for personal autos and recreational vehicles through both an independent insurance agency channel and a direct channel. Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses through both the independent agency and direct channels. We operate our businesses throughout the United States; we also sell personal auto physical damage insurance via the Internet in Australia.

Consolidation Policy

Basis of Consolidation and Reporting  The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries, which are wholly owned, and affiliates, in which we have a controlling financial interest. All intercompany accounts and transactions are eliminated in consolidation.

Estimates And Assumptions Policy

Estimates  We are required to make estimates and assumptions when preparing our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP). As estimates develop into fact (e.g., losses are paid), results may, and will likely, differ from those estimates.

Investment Policy

Investments  Progressive’s fixed-maturity securities, equity securities, and short-term investments are accounted for on an available-for-sale basis. See Note 2 – Investments for details regarding the composition of our investment portfolio.

Fixed-maturity securities include debt securities and redeemable preferred stocks, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of our asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, or other economic factors. These securities are carried at fair value with the corresponding unrealized gains (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Fair values are obtained from recognized pricing services or are quoted by market makers and dealers, with limited exceptions discussed in Note 3 – Fair Value.

Included in the fixed-maturity portfolio are asset-backed securities. The asset-backed securities are generally accounted for under the retrospective method. The retrospective method recalculates yield assumptions (based on changes in interest rates or cash flow expectations) historically to the inception of the investment holding period, and applies the required adjustment, if any, to the cost basis, with the offset recorded to investment income. The prospective method is used primarily for interest-only securities, non-investment-grade asset-backed securities, and certain asset-backed securities with sub-prime loan exposure or where there is a greater risk of non-performance and where it is possible the initial investment may not be substantially recovered. The prospective method requires a calculation of future expected repayments and resets the yield to allow for future period adjustments; no current period impact to investment income or the security’s cost is made based on the cash flow update. Prepayment assumptions are based on market expectations and are updated quarterly.

Equity securities include common stocks, nonredeemable preferred stocks, and other risk investments and are reported at fair values. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income. To the extent we hold any foreign equities or foreign currency hedges, any change in value due to exchange rate fluctuations would be limited by foreign currency hedges, if any, and would be recognized in income in the current period.

Short-term investments may include Eurodollar deposits, commercial paper, repurchase transactions, and other securities expected to mature within one year. In addition, short-term investments can include auction rate securities (i.e., certain municipal bonds and preferred stocks). Due to the nature of auction rate securities, these securities are classified as short-term based upon their expected auction date (generally 7-49 days) rather than on their contractual maturity date (which is greater than one year at original issuance). In the event that an auction fails, the security may need to be reclassified from short-term. Changes in fair value of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

Trading securities are securities bought principally for the purpose of sale in the near term. To the extent we have trading securities, changes in fair value would be recognized in income in the current period. Derivative instruments, which may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction, are discussed below.

Derivative instruments may include futures, options, forward positions, foreign currency forwards, interest rate swap agreements, and credit default swaps and may be used in the portfolio for general investment purposes or to hedge the exposure to:

• Changes in fair value of an asset or liability (fair value hedge)

• Foreign currency of an investment in a foreign operation (foreign currency hedge), or

• Variable cash flows of a forecasted transaction (cash flow hedge).

To the extent we have derivatives held for general investment purposes, these derivative instruments are recognized as either assets or liabilities and measured at fair value, with changes in fair value recognized in income as a component of net realized gains (losses) on securities during the period of change.

Derivatives designated as hedges are required to be evaluated on established criteria to determine the effectiveness of their correlation to, and ability to reduce the designated risk of, specific securities or transactions. Effectiveness is required to be reassessed regularly. Hedges that are deemed to be effective would be accounted for as follows:

• Fair value hedge:  changes in fair value of the hedge, as well as the hedged item, would be recognized in income in the period of change while the hedge is in effect.

• Foreign currency hedge:  changes in fair value of the hedge, as well as the hedged item, would be reflected as a change in translation adjustment as part of accumulated other comprehensive income. Gains and losses on the foreign currency hedge would offset the foreign exchange gains and losses on the foreign investment as they are recognized into income.

• Cash flow hedge:  changes in fair value of the hedge would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction.

If a hedge is deemed to become ineffective or discontinued, the following accounting treatment would be applied:

• Fair value hedge:  the derivative instrument would continue to be adjusted through income, while the adjustment in the change in value of the hedged item would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income.

• Foreign currency hedge:  changes in the value of the hedged item would continue to be reflected as a change in translation adjustment as part of accumulated other comprehensive income, but the derivative instrument would be adjusted through income for the current period.

• Cash flow hedge:  changes in fair value of the derivative instrument would be reported in income for the current period.

For all derivative positions, net cash requirements are limited to changes in fair values, which may vary based upon changes in interest rates, currency exchange rates, and other factors. Exposure to credit risk is limited to the carrying value; collateral may be required to limit credit risk. We have elected not to offset fair value amounts that arise from derivative positions with the same counterparty under a master netting arrangement.

Investment securities are exposed to various risks such as interest rate, market, credit, and liquidity risk. Fair values of securities fluctuate based on the nature and magnitude of changing market conditions; significant changes in market conditions could materially affect the portfolio’s value in the near term. We regularly monitor our portfolio for price changes, which might indicate potential impairments, and perform detailed reviews of securities with unrealized losses. 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 condition, business prospects, or other factors, (ii) market-related factors, such as interest rates or equity market declines, or (iii) credit-related losses, where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security.

We analyze our debt securities that are in a loss position to determine if we intend to sell, or if it is more likely than not that we will be required to sell, the security prior to recovery and, if so, we write down the security to its current fair value, with the entire amount of the write-down recorded to earnings. To the extent that it is more likely than not that we will hold the debt security until recovery (which could be maturity), we determine if any of the decline in value is due to a credit loss (i.e., where the present value of future cash flows expected to be collected is lower than the amortized cost basis of the security) and, if so, we recognize that portion of the impairment as a component of net realized gains (losses) in the comprehensive income statement, with the difference (i.e., non-credit related impairment) recognized as part of our net unrealized gains (losses) in accumulated other comprehensive income. When an equity security (common equity and nonredeemable preferred stock) 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 comprehensive income statement. Any future changes in fair value, either increases or decreases, are reflected as changes in unrealized gains (losses) as part of accumulated other comprehensive income.

Realized gains (losses) on securities are computed based on the first-in first-out method and include write-downs on available-for-sale securities considered to have other-than-temporary declines in fair value (excluding non-credit related impairments), as well as holding period valuation changes on derivatives, trading securities, and hybrid instruments (securities with embedded call options, where the call option is a feature of the overall change in the value of the instrument).

Insurance Premiums and Receivables Policy

Insurance Premiums and Receivables  Insurance premiums written are earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Accordingly, unearned premiums represent the portion of premiums written that is applicable to the unexpired risk. We provide insurance and related services to individuals and small commercial accounts and offer a variety of payment plans. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk. We perform a policy level evaluation to determine the extent to which the premiums receivable balance exceeds the unearned premiums balance. We then age this exposure to establish an allowance for doubtful accounts based on prior experience.

Deferred Acquisition Costs Policy

Deferred Acquisition Costs  Deferred acquisition costs include commissions, premium taxes, and other variable underwriting and direct sales costs incurred in connection with the successful acquisition or renewal of insurance contracts. Prior to January 1, 2012, these acquisition costs were deferrable regardless of whether a successful acquisition occurred (see the New Accounting Standards section below). These acquisition costs are deferred and amortized over the policy period in which the related premiums are earned. We consider anticipated investment income in determining the recoverability of these costs. Management believes that these costs will be fully recoverable in the near term. We do not defer any advertising costs.

Reserve For Losses And Loss Adjustment Expenses

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

Reinsurance Policy

Reinsurance  Our reinsurance transactions primarily include premiums ceded to state-provided reinsurance facilities (e.g., Michigan Catastrophic Claims Association and North Carolina Reinsurance Facility) and premiums written under state-mandated involuntary plans for commercial vehicles (Commercial Auto Insurance Procedures/Plans – “CAIP”) (collectively, “State Plans”) (see Note 7 – Reinsurance for further discussion). Prepaid reinsurance premiums are earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written.

Income Tax Policy

Income Taxes  The income tax provision is calculated under the balance sheet approach. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal items giving rise to such differences are investment securities (e.g., net unrealized gains (losses), write-downs on securities determined to be other-than-temporarily impaired, and derivative instruments), loss and loss adjustment expense reserves, unearned premiums reserves, deferred acquisition costs, property and equipment, and non-deductible accruals. We review our deferred tax assets regularly for recoverability. See Note 5 – Income Taxes for further discussion.

Property, Plant and Equipment Policy

Property and Equipment  Property and equipment are recorded at cost, less accumulated depreciation, and include capitalized software developed or acquired for internal use. Depreciation is recognized over the estimated useful lives of the assets using accelerated methods for most computer equipment and the straight-line method for certain computer equipment and all other fixed assets. The useful lives range from 2 to 3 years for computer equipment and laptop computers; 7 to 40 years for buildings, improvements, and integrated components; and 3 to 10 years for all other property and equipment. Land and buildings comprised 75% of total property and equipment at both December 31, 2012 and 2011.

Guaranty Fund Assessments Policy

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

Fees and Other Revenues

Fees and Other Revenues  Fees and other revenues primarily represent fees collected from policyholders relating to installment charges in accordance with our bill plans, as well as late payment and insufficient funds fees. Other revenues may include revenue from the sale of tax credits, rental income, and other revenue transactions.

Revision

Revision  We revised the presentation of our Statements of Comprehensive Income for the years ended December 31, 2011 and 2010, to correctly classify $266.5 million and $252.2 million, respectively, of fees and other revenues as a component of total revenues and to conform to our current-year presentation. Previously, these items were presented net within our other underwriting expenses, which was not in compliance with GAAP, thereby understating both total revenues and total expenses. These revisions were not considered to be material, individually or in the aggregate, to previously issued financial statements. These revisions had no effect on the results of operations (net or comprehensive income), financial condition (shareholders’ equity), or cash flows in any period presented or in any previously issued financial statements.

Non-Insurance Service Business

Service Revenues and Expenses  Our service businesses provide insurance-related services. Service revenues generated from processing business for involuntary CAIP plans are earned on a pro rata basis over the term of the related policies. Service expenses related to these CAIP plans include acquisition expenses, which are deferred and amortized over the period in which the related revenues are earned. Other service business revenues and expenses are recorded in the period in which they are earned or incurred.

Equity-Based Compensation

Equity-Based Compensation  We currently issue time-based and performance-based restricted stock unit awards to key members of management as our form of equity compensation, and time-based restricted stock awards to non-employee directors. Prior to 2010, we issued restricted stock awards, instead of restricted stock unit awards, to employees. Collectively, we refer to these awards as “restricted equity awards.” We currently do not issue stock options as a form of equity compensation. Compensation expense for time-based restricted equity awards with installment vesting is recognized over each respective vesting period. For performance-based restricted equity awards, compensation expense is recognized over the respective estimated vesting periods.

We record an estimate for expected forfeitures of restricted equity awards based on our historical forfeiture rates. In addition, we shorten the vesting periods of certain restricted equity awards based on the “qualified retirement” provisions in our incentive compensation plans, under which (among other provisions) the vesting of 50% of outstanding time-based restricted equity awards will accelerate upon retirement if the participant is 55 years of age or older and satisfies certain years-of-service requirements.

Net Income Per Share Policy

Net Income Per Share  Basic net income per share is computed using the weighted average number of common shares outstanding during the reporting period, excluding unvested time-based and performance-based restricted equity awards that are subject to forfeiture. Diluted net income per share includes common stock equivalents assumed outstanding during the period. Our common stock equivalents include the incremental shares assumed to be issued for:

• stock option exercises (all remaining stock options were exercised in 2012)

• time-based restricted equity awards, and

• certain performance-based restricted equity awards that satisfied contingency conditions during the period.

Cash Flow Supplemental Disclosure

Supplemental Cash Flow Information  Cash includes only bank demand deposits. Non-cash activity includes declared but unpaid dividends.

New Accounting Standards

New Accounting Standards  On January 1, 2012, we adopted, on a prospective basis, the accounting standard update related to the accounting for the deferral of costs associated with the successful acquisition or renewal of insurance contracts. As a result, $23 million of deferred acquisition costs that no longer met the criteria for deferral upon adoption were recognized as a reduction to income in 2012.

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Assets Held in Deferral Plan Irrevocable Grantor Trust Account (Parenthetical) (Detail) (Progressive common shares) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Progressive common shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common shares held in Deferral Plan Irrevocable Grantor Trust account to be distributed in-kind	1.3	0.7

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Reporting And Accounting Policies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Significant Accounting Policies [Line Items]
Fees and other revenues	$ 281.8	$ 266.5	$ 252.2
Deferred acquisition costs	434.5	433.6
Adjustments for New Accounting Pronouncement
Significant Accounting Policies [Line Items]
Deferred acquisition costs		$ 23.0
computer equipment and laptop computers | Lower Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	2 years
computer equipment and laptop computers | Upper Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	3 years
Building, Building Improvements, and Integrated Components | Lower Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	7 years
Building, Building Improvements, and Integrated Components | Upper Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	40 years
Property, Plant and Equipment, Other Types | Lower Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	3 years
Property, Plant and Equipment, Other Types | Upper Limit
Significant Accounting Policies [Line Items]
Estimated useful lives	10 years
Land and Building
Significant Accounting Policies [Line Items]
Land and buildings as a percentage of total property and equipment	75.00%	75.00%

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Condensed Balance Sheets (Parent Company) (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Assets
Net deferred income taxes	$ 109.4		$ 196.0
Other assets	321.5		261.9
Total assets	22,694.7		21,844.8
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses, and other liabilities	1,855.5	[1]	1,770.8	[1]
Debt	2,063.1	[2]	2,442.1	[2]
Total liabilities	16,687.7		16,038.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)	604.6		613.0
Paid-in capital	1,077.0		1,006.2
Retained earnings	3,454.4		3,495.0
Total accumulated other comprehensive income	871.0		692.5
Total shareholders' equity	6,007.0		5,806.7		6,048.9
Total Liabilities and Shareholders' Equity	22,694.7		21,844.8
Parent Company
Assets
Investment in affiliate	1.0		1.0
Investment in subsidiaries	6,648.6	[3]	6,179.5	[3]
Receivable from investment subsidiary	1,322.9	[3]	2,096.6	[3]
Intercompany receivable	296.2	[3]	237.6	[3]
Net deferred income taxes	48.3		40.1
Other assets	82.0		81.0
Total assets	8,399.0		8,635.8
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses, and other liabilities	156.9		137.4
Dividend payable	172.0		249.6
Debt	2,063.1		2,442.1
Total liabilities	2,392.0		2,829.1
Common Shares, $1.00 par value (authorized 900.0; issued 797.7, including treasury shares of 193.1 and 184.7)	604.6		613.0
Paid-in capital	1,077.0		1,006.2
Retained earnings	3,454.4		3,495.0
Total accumulated other comprehensive income	871.0		692.5
Total shareholders' equity	6,007.0		5,806.7
Total Liabilities and Shareholders' Equity	$ 8,399.0		$ 8,635.8

[1] See Note 12 - Litigation and Note 13 - Commitments and Contingencies for further discussion.

[2] Consists of both short- and long-term debt. See Note 4 - Debt for further discussion.

[3] Eliminated in consolidation.

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Consolidated Statements of Changes in Shareholders' Equity (USD $) In Millions	Total	Common Shares, $1.00 Par Value	Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income, Net of Tax
Balance, Beginning of year at Dec. 31, 2009		$ 672.6	$ 939.7	$ 3,683.1	$ 453.2
Stock options exercised		3.4	23.8
Net income	1,068.3			1,068.3
Other comprehensive income (loss)	330.5				330.5
Tax benefit from exercise/vesting of equity-based compensation			14.0
Treasury shares purchased		(13.3)	(19.3)	(226.0)
Net restricted equity awards (issued) forfeited		(0.3)	0.3
Cash dividends declared on common shares ($1.2845, $.4072, and $1.3987 per share)				(924.8)
Amortization of equity-based compensation			44.8
Reinvested dividends on restricted stock units			3.8	(3.8)
Other			0	(1.1)
Balance, End of year at Dec. 31, 2010	6,048.9	662.4	1,007.1	3,595.7	783.7
Stock options exercised		2.0	20.4
Net income	1,015.5			1,015.5
Other comprehensive income (loss)	(91.2)				(91.2)
Tax benefit from exercise/vesting of equity-based compensation			6.4
Treasury shares purchased		(51.3)	(80.7)	(865.8)
Net restricted equity awards (issued) forfeited		(0.1)	0.1
Cash dividends declared on common shares ($1.2845, $.4072, and $1.3987 per share)				(248.1)
Amortization of equity-based compensation			50.3
Reinvested dividends on restricted stock units			2.6	(2.6)
Other			0	0.3
Balance, End of year at Dec. 31, 2011	5,806.7	613.0	1,006.2	3,495.0	692.5
Stock options exercised		0.1	0.4
Net income	902.3			902.3
Other comprehensive income (loss)	178.5				178.5
Tax benefit from exercise/vesting of equity-based compensation			5.8
Treasury shares purchased		(8.6)	(14.5)	(151.1)
Net restricted equity awards (issued) forfeited		0.1	(0.1)
Cash dividends declared on common shares ($1.2845, $.4072, and $1.3987 per share)				(772.5)
Amortization of equity-based compensation			62.4
Reinvested dividends on restricted stock units			11.2	(11.2)
Other			5.6	(8.1)
Balance, End of year at Dec. 31, 2012	$ 6,007.0	$ 604.6	$ 1,077.0	$ 3,454.4	$ 871.0

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Summary of All Employee Restricted Equity Award Activity (Parenthetical) (Detail) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Employee Restricted Equity Awards Y		Dec. 31, 2011 Employee Restricted Equity Awards		Dec. 31, 2010 Employee Restricted Equity Awards		Dec. 31, 2012 Employee Restricted Equity Awards Dividend Equivalent Units	Dec. 31, 2011 Employee Restricted Equity Awards Dividend Equivalent Units	Dec. 31, 2010 Employee Restricted Equity Awards Dividend Equivalent Units	Dec. 31, 2012 Employee Restricted Equity Awards Performance Based Restricted Equity Awards	Jan. 31, 2013 Subsequent Event
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number granted units	2,680,229	[1],[2]	2,483,461	[1],[2]	2,841,400	[1],[2]	440,029	55,288	134,644
Weighted average grant date fair value	$ 19.11	[2]	$ 20.03	[2]	$ 17.50	[2]	$ 0	$ 0	$ 0
Equity awards target amount										3,393,981
Equity awards to vest										4,404,766
Unrecognized compensation cost related to unvested equity awards	$ 86.3
Period of recognition of compensation expense related to unvested equity awards (years)	2.2
Shares reserved under expired plan											2,438,119

[1] Includes both restricted stock units and restricted stock. Upon vesting, all units will be converted on a one-for-one basis into Progressive common shares funded from existing treasury shares. All performance-based awards are included at their target amounts.

[2] In 2010, we began reinvesting dividend equivalents on restricted stock units. For 2012, 2011, and 2010, the number granted includes 440,029, 55,288, and 134,644 units, respectively, at a weighted average grant date fair value of $0, since the dividends were factored into the grant date fair value of the original grant.

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SCHEDULE III - Supplementary Insurance Information

12 Months Ended

Dec. 31, 2012

SCHEDULE III - Supplementary Insurance Information

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)

			Future
			policy
			benefits,				Other
			losses,				policy						Benefits,		Amortization
	Deferred		claims,				claims						claims,		of deferred
	policy		and				and				Net		losses, and		policy		Other			Net
	acquisition		loss		Unearned		benefits		Premium		investment		settlement		acquisition		operating			premiums
Segment	costs1		expenses1		premiums1		payable1		revenue		income1,2		expenses		costs		expenses			written
Year ended December 31, 2012:
Personal Lines									$	14,368.1			$	10,745.3	$	1,250.4	$	2,010.5		$	14,636.8
Commercial Auto										1,649.0				1,196.6		186.2		195.2			1,735.9
Other indemnity										.9				6.1		0		.6			0
Total	$	434.5	$	7,838.4	$	4,930.7	$	0	$	16,018.0	$	427.6	$	11,948.0	$	1,436.6	$	2,206.3		$	16,372.7
Year ended December 31, 2011:
Personal Lines									$	13,431.1			$	9,615.2	$	1,231.9	$	1,915.6		$	13,612.2
Commercial Auto										1,467.1				1,010.7		166.6		171.9			1,534.3
Other indemnity										4.6				8.9		.7		.5			.1
Total	$	433.6	$	7,245.8	$	4,579.4	$	0	$	14,902.8	$	466.5	$	10,634.8	$	1,399.2	$	2,088.0		$	15,146.6
Year ended December 31, 2010:
Personal Lines									$	12,826.9			$	9,159.6	$	1,188.1	$	1,814.7		$	13,024.4
Commercial Auto										1,474.2				958.6		167.9		177.9			1,449.5
Other indemnity										13.7				13.1		3.9		(.3	)		2.9
Total	$	417.2	$	7,071.0	$	4,353.8	$	0	$	14,314.8	$	508.2	$	10,131.3	$	1,359.9	$	1,992.3		$	14,476.8

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

² Excludes total net realized gains (losses) on securities.

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Gross Unrealized losses by Major Security (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	$ 746.2	$ 1,578.4
Gross Unrealized Losses	(34.0)	(102.3)
Less than 12 Months Fair Value	440.0	932.0
Less than 12 Months Unrealized Losses	(10.3)	(39.9)
12 Months or Greater Fair Value	306.2	646.4
12 Months or Greater Unrealized Losses	(23.7)	(62.4)
Fixed maturities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	628.0	1,344.3
Gross Unrealized Losses	(23.7)	(73.2)
Less than 12 Months Fair Value	339.3	715.8
Less than 12 Months Unrealized Losses	(2.1)	(13.1)
12 Months or Greater Fair Value	288.7	628.5
12 Months or Greater Unrealized Losses	(21.6)	(60.1)
Fixed maturities | State and local government obligations
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	162.8	93.6
Gross Unrealized Losses	(0.6)	(0.6)
Less than 12 Months Fair Value	123.1	79.5
Less than 12 Months Unrealized Losses	(0.5)	(0.5)
12 Months or Greater Fair Value	39.7	14.1
12 Months or Greater Unrealized Losses	(0.1)	(0.1)
Fixed maturities | Corporate debt securities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	128.2	262.7
Gross Unrealized Losses	(1.0)	(6.5)
Less than 12 Months Fair Value	128.2	137.3
Less than 12 Months Unrealized Losses	(1.0)	(4.6)
12 Months or Greater Fair Value	0	125.4
12 Months or Greater Unrealized Losses	0	(1.9)
Fixed maturities | Residential mortgage-backed securities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	149.2	308.7
Gross Unrealized Losses	(9.2)	(35.3)
Less than 12 Months Fair Value	40.2	34.4
Less than 12 Months Unrealized Losses	(0.6)	(2.0)
12 Months or Greater Fair Value	109.0	274.3
12 Months or Greater Unrealized Losses	(8.6)	(33.3)
Fixed maturities | Commercial mortgage-backed securities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	7.1	203.7
Gross Unrealized Losses	(0.1)	(5.5)
Less than 12 Months Fair Value	2.1	161.4
Less than 12 Months Unrealized Losses	0	(3.5)
12 Months or Greater Fair Value	5.0	42.3
12 Months or Greater Unrealized Losses	(0.1)	(2.0)
Fixed maturities | Other asset-backed securities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	25.0	284.2
Gross Unrealized Losses	(0.1)	(1.3)
Less than 12 Months Fair Value	20.8	259.7
Less than 12 Months Unrealized Losses	0	(1.0)
12 Months or Greater Fair Value	4.2	24.5
12 Months or Greater Unrealized Losses	(0.1)	(0.3)
Fixed maturities | Redeemable preferred stocks
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	155.7	191.4
Gross Unrealized Losses	(12.7)	(24.0)
Less than 12 Months Fair Value	24.9	43.5
Less than 12 Months Unrealized Losses	0	(1.5)
12 Months or Greater Fair Value	130.8	147.9
12 Months or Greater Unrealized Losses	(12.7)	(22.5)
Equity securities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	118.2	234.1
Gross Unrealized Losses	(10.3)	(29.1)
Less than 12 Months Fair Value	100.7	216.2
Less than 12 Months Unrealized Losses	(8.2)	(26.8)
12 Months or Greater Fair Value	17.5	17.9
12 Months or Greater Unrealized Losses	(2.1)	(2.3)
Equity securities | Nonredeemable preferred stocks
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	0	19.5
Gross Unrealized Losses	0	(3.7)
Less than 12 Months Fair Value	0	19.5
Less than 12 Months Unrealized Losses	0	(3.7)
12 Months or Greater Fair Value	0	0
12 Months or Greater Unrealized Losses	0	0
Equity securities | Common equities
Investments, Unrealized Loss Position [Line Items]
Total Fair Value	118.2	214.6
Gross Unrealized Losses	(10.3)	(25.4)
Less than 12 Months Fair Value	100.7	196.7
Less than 12 Months Unrealized Losses	(8.2)	(23.1)
12 Months or Greater Fair Value	17.5	17.9
12 Months or Greater Unrealized Losses	$ (2.1)	$ (2.3)

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Reinsurance - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Reinsurance ceded	$ 230.7	$ 219.7	$ 312.7
State Reinsurance Plan
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Percentage of Ceded Premiums	98.00%	94.00%	82.00%
State Reinsurance Plan | Michigan Catastrophic Claims Association And North Carolina Reinsurance Facility
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Percentage of Ceded Premiums	80.00%	80.00%	70.00%

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Summary of Quantitative Information about Level 3 Fair Value Measurements (Detail) (USD $) In Millions, unless otherwise specified									12 Months Ended			12 Months Ended		12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2012 Fair Value, Inputs, Level 3	Dec. 31, 2012 Internal Pricing Fair Value, Inputs, Level 3 Fixed maturities Investment	Dec. 31, 2011 Internal Pricing Fair Value, Inputs, Level 3 Fixed maturities Investment	Dec. 31, 2012 Internal Pricing Fair Value, Inputs, Level 3 Equity securities Nonredeemable preferred stocks Investment	Dec. 31, 2012 Internal Pricing Fair Value, Inputs, Level 3 Equity securities Nonredeemable preferred stocks Financials	Dec. 31, 2012 Internal Pricing Fair Value, Inputs, Level 3 Equity securities Common equities Investment	Dec. 31, 2011 Internal Pricing Fair Value, Inputs, Level 3 Equity securities Common equities Investment	Dec. 31, 2012 Internal Pricing Fair Value, Inputs, Level 3 Equity securities Common equities Other risk investments	Dec. 31, 2012 External Pricing Fair Value, Inputs, Level 3 Fixed maturities	Dec. 31, 2012 External Pricing Fair Value, Inputs, Level 3 Fixed maturities Asset-backed Securities Residential mortgage-backed securities Prepayment rate sixteen percent Investment		Dec. 31, 2012 External Pricing Fair Value, Inputs, Level 3 Fixed maturities Asset-backed Securities Commercial mortgage-backed securities Prepayment rate zero percent Investment		Dec. 31, 2012 Subtotal Level 3 Securities Fair Value, Inputs, Level 3	Dec. 31, 2012 Third Party Pricing Exemption Securities Fair Value, Inputs, Level 3
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 16,475.5	[1],[2]	$ 15,963.0	[1],[2]	$ 114.7		$ 0.5	$ 31.9	$ 31.9	$ 11.2	$ 10.2	$ 11.2	$ 25.5	$ 0.2		$ 25.3		$ 68.6	$ 46.1	[3]
Valuation Technique									Multiple of tangible net book value			Discounted consolidated equity		External vendor		External vendor
Unobservable Input, prepayment rate														16.00%	[4]	0.00%	[5]
Number of securities						0	2	1		1	1			1		3
Unobservable Input, price to book ratio multiple									1.9
Unobservable Input, discount for lack of marketability												20.00%

[1] The total fair value of the portfolio includes $1.4 billion and $2.0 billion at December 31, 2012 and 2011, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

[2] At December 31, 2012 and 2011, we had $90.9 million and $46.9 million, respectively, of net unsettled security transactions included in other assets.

[3] The fair values for these securities were obtained from non-binding external sources where unobservable inputs are not reasonably available to us.

[4] Assumes that one security has 16% of the principal amount of the underlying loans that will be paid off prematurely in each year.

[5] Assumes that three securities have 0% of the principal amount of the underlying loans that will be paid off prematurely in each year.

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Reporting And Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Interest Capitalized

Total capitalized interest, which primarily relates to capitalized software projects, for the years ended December 31, was:

(millions)	Capitalized Interest
2012	$	.3
2011		.4
2010		1.1

Equity-based Compensation and Related Tax Benefits

The total compensation expense recognized for our equity-based compensation for the years ended December 31, was:

(millions)	2012		2011		2010
Pretax expense	$	63.4	$	50.5	$	45.9
Tax benefit		22.2		17.7		16.1

Supplemental Cash Flow Information

Non-cash activity includes declared but unpaid dividends. For the years ended December 31, we paid the following:

(millions)	2012		2011		2010
Income taxes, net of refunds	$	389.1	$	435.0	$	434.0
Interest		135.0		129.5		138.4

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Aggregate Principal Payments On Debt Outstanding (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Debt Outstanding [Line Items]
2013	$ 150.0
2014	0
2015	0
2016	0
2017	0
Thereafter	1,931.2
Total	$ 2,081.2

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Summary Of Investments - Other than Investments In Related Parties (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	$ 15,138.2
Fair Value	16,475.5
Amount At Which Shown In The Balance Sheet	16,475.5
Fixed maturities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	11,373.9
Fair Value	11,774.1
Amount At Which Shown In The Balance Sheet	11,774.1
Fixed maturities | Bonds | US Government and Government Agencies and Authorities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	2,806.4
Fair Value	2,896.5
Amount At Which Shown In The Balance Sheet	2,896.5
Fixed maturities | Bonds | State and local government obligations
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,914.4
Fair Value	1,964.4
Amount At Which Shown In The Balance Sheet	1,964.4
Fixed maturities | Bonds | Public Utility, Bonds
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	48.0
Fair Value	48.4
Amount At Which Shown In The Balance Sheet	48.4
Fixed maturities | Bonds | Corporate And Other Debt Securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	2,934.9
Fair Value	3,064.6
Amount At Which Shown In The Balance Sheet	3,064.6
Fixed maturities | Bonds | Asset-backed Securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	3,313.3
Fair Value	3,425.5
Amount At Which Shown In The Balance Sheet	3,425.5
Fixed maturities | Redeemable preferred stocks
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	356.9
Fair Value	374.7
Amount At Which Shown In The Balance Sheet	374.7
Equity securities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,774.3
Fair Value	2,711.4
Amount At Which Shown In The Balance Sheet	2,711.4
Equity securities | Common Stocks, by Industry | Utilities
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	102.0
Fair Value	134.1
Amount At Which Shown In The Balance Sheet	134.1
Equity securities | Common Stocks, by Industry | Financials
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	199.2
Fair Value	260.1
Amount At Which Shown In The Balance Sheet	260.1
Equity securities | Common Stocks, by Industry | Industrials
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,069.1
Fair Value	1,504.8
Amount At Which Shown In The Balance Sheet	1,504.8
Equity securities | Nonredeemable preferred stocks
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	404.0
Fair Value	812.4
Amount At Which Shown In The Balance Sheet	812.4
Short-term investments
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost	1,990.0	[1]
Fair Value	1,990.0	[1]
Amount At Which Shown In The Balance Sheet	$ 1,990.0	[1]

[1] Includes $21.9 million in treasury bills issued by the Australian government.

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Statutory Financial Information

12 Months Ended

Dec. 31, 2012

Statutory Financial Information

8.  STATUTORY FINANCIAL INFORMATION

Consolidated statutory surplus was $5,605.2 million and $5,269.2 million at December 31, 2012 and 2011, respectively. Statutory net income was $808.3 million, $1,001.7 million, and $1,049.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.

At December 31, 2012, $501.9 million of consolidated statutory surplus represented net admitted assets of our insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. The companies may be licensed in states other than their states of domicile, which may have higher minimum statutory surplus requirements. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed.

During 2012, the insurance subsidiaries paid aggregate cash dividends of $782.2 million to the parent company. Based on the dividend laws currently in effect, the insurance subsidiaries could pay aggregate dividends of $975.5 million in 2013 without prior approval from regulatory authorities, provided the dividend payments are not made within 12 months of previous dividends paid by the applicable subsidiary.

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Components of Other Comprehensive Income (Loss) (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Components Of Other Comprehensive Income Loss [Line Items]
Cash flow hedge gain reclassification from accumulated other comprehensive income to net realized gains/losses on securities	$ 0.6	$ 0.3
Pre Tax
Components Of Other Comprehensive Income Loss [Line Items]
Net unrealized gains on forecasted transactions, expected to reclassify into income within the next 12 months	2.2
Cash flow hedge gain reclassification from accumulated other comprehensive income to net realized gains/losses on securities	$ 0.6	$ 0.3	$ 5.8