EUR 850.00 For Business Accounts Only

Morningstar | Progressive Delivers Strong 1Q

Progressive continues to deliver strong results as it is still benefiting from a couple of tailwinds. Its 12-month trailing return on equity of 27% is strong support for our narrow moat rating and well above the company’s historical range. However, we continue to expect mean reversion over time. While bottom-line results don’t show any impact yet, we see some signs in the numbers that suggest it will come. We will maintain our $57 fair value estimate.

Progressive continues to see strong growth. Policies in force in personal auto lines were up 13% year over year, with this growth slightly tilted toward the direct channel. We continue to be impressed by the double-digit growth Progressive has achieved in the agent channel and attribute this primarily to the ability to now bundle homeowners insurance following the acquisition of ARX. However, the agent channel remains stagnant overall, and we think there is a limit to the amount of share Progressive can ultimately take. We expect growth in this channel to start to slow, and policies in force growth has decelerated modestly over the past three quarters, suggesting this tailwind is starting to lose steam.

Underwriting results also remain strong, with Progressive delivering an overall combined ratio of 88.8% for the quarter, very much on the low end of the company’s historical range. Personal auto is leading the charge with an 89.1% combined ratio for the quarter, with particularly good results in the agent channel. In our view, Progressive, like its peers, is benefiting from strong pricing increases over the past couple of years, but we expect mean reversion on this front over time. Pricing appears to have flattened over the past few quarters, and we think this will ultimately push the combined ratio back in line with historical averages.