May 17, 2022

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Progressive Insurance Hurt by Rise in Auto Claims, Low Premiums in Q2

Progressive Corp. reported a 56% decrease in net income to $790.1 million for the second quarter. Net income was down 9% for the first six months.

The company said the largest contributor to the year-over-year decreases was the reduction of underwriting income, which decreased 68% for the quarter and 38% for the first six months of 2021. The companywide underwriting margin for the second quarter 2021 was 3.5%, compared to 12.3% for the same period last year.

The combined ratio rose by 8.8 points to reach 96.5, compared to 87.7 in the same period last year.

The results reflect higher auto accident frequency and severity in both personal and commercial auto insurance products, coupled with lower average premiums per policy for its personal auto products.

Given the results, the third largest auto insurer said it is raising its auto rates and trimming its advertising costs.

Despite some negative trends, both premiums and policies in force grew in the second quarter compared to the same period last year. Companywide net premiums written grew 13% in the quarter to $11.5 billion, with Personal Lines growing 6%, Commercial Lines 66%, and Property 15%, primarily reflecting an increase in volume from all of segments.

The company ended the second quarter 2021 with 26.4 million companywide policies, or 2.6 million more policies than were in force at June 30, 2020. Personal Lines renewal applications increased 9%, and both Commercial Lines and Property increased 8%. New applications for special lines products that include policies for motorcycles, boats and recreational vehicles were up 1%.

Personal Lines generated an underwriting profit margin of 3.8%, while Commercial Lines turned in an underwriting profit margin of 8.0%. Property segment had an underwriting loss margin of 16.6% for the quarter, reflecting substantial catastrophe losses of $128.0 million, or 25.5 points on the combined ratio for the quarter.

The insurer noted that as pandemic-related restrictions were significantly reduced during the second quarter 2021, both frequency and vehicle miles traveled increased, especially later in the second quarter. The company said the increase in personal auto severity reflects higher costs to both repair cars and for medical expenses. The year-over-year increase in collision coverage severity, in part, reflects an increase in the valuation of used vehicles in 2021. The bodily injury coverage also saw an increase during the quarter due to more severe accidents.

The insurer’s personal auto incurred accident frequency was up 47% for the second quarter 2021, as compared to the prior year, and severity was up 8%. With more people driving and vehicle miles traveled increasing, loss frequency is more in line with pre-pandemic experience. Collision is a significant driver of the increased severity with the increase in the valuation of used vehicles increasing total loss and repair costs. The company noted that it also had lower collision severity in the second quarter of 2020 as a result of COVID-19 restrictions.

During the second quarter 2021, in the aggregate, rate changes for personal auto for the quarter were about 2%.

“Management continues to assess miles driven, driving patterns, loss severity, weather events, and other components of expected loss costs on a state-by-state basis and, where appropriate, adjust rates accordingly. We are also looking to identify where we may need to tighten underwriting criteria further where losses indicate rate inadequacy,” the company said.

In addition to rate actions, at the beginning of the third quarter 2021, Progressive started reducing its advertising spend in certain areas.

“We will continue to look at key performance indicators to assess where additional action is needed and will react swiftly to address those needs. These actions could result in fewer new business applications,” the company said.

The insurer noted that certain comparisons to last year are affected by COVID-19, when there was a significant reduction in auto accident frequency.

Underwriting expense ratios were 12.5 points and 6.6 points lower for the second quarter and first six months of 2021, respectively, compared to the same periods last year. In April and May 2020, the company issued credits to personal auto policyholders and recognized additional bad debt expense related to the billing leniencies and moratoriums that were in place through the middle of May 2020, which contributed to the year-over-year variances.

Source: Progressive

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