Progressive 2012 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2012 Progressive annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 88

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88

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