Progressive 2012 Annual Report Download - page 46

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.
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