Progressive 2012 Annual Report Download - page 75

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-net
1
$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)
Percentage
2
4.2 6.1 9.2 4.6 0.2 3.6 6.6 9.0 4.6 (0.3)
1Represents loss and LAE reserves net of reinsurance recoverables on net unpaid losses at the balance sheet date.
2Cumulative 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