Progressive 2003 Annual Report Download - page 30

- APP.-B-30 -
Personal Lines The Company’s Personal Lines business units write insurance for private passenger automobiles and recreation
vehicles, and represented 88% of the Company’s total 2003 net premiums written.Personal Lines net premiums written grew
26% in 2003, 29% in 2002 and 15% in 2001; net premiums earned grew 27% in 2003, 22% in 2002 and 11% in 2001.The
Personal Lines business is generated either by an agency or written directly by the Company.The Agency channel includes
business written by the Company’s network of 30,000 independent insurance agencies, insurance brokers in several states
and through strategic alliance business relationships (other insurance companies,financial institutions,employers and national
brokerage agencies).Direct business includes business written through 1-800-PROGRESSIVE,online at progressive.com and
on behalf of affinity groups.
As discussed above, the increase in premiums for both 2003 and 2002 was a result of an increase in new applications, rate
increases and strong renewals, while 2001results reflected a decrease in policies in force offset by rate increases. In general,
during 2003,the Agency channel continued to experience strong quoting demand,but saw a slight decline in the conversion
rate (i.e.converting a quote to a sale).The Company is currently seeing many competitors in the independent agency channel
being more aggressive,as evidenced by their marketing programs.This type of activity is expected as the industry is entering
a softer market.The Company remains confident in its strategies of reducing costs to improve its competitive position and
creating the most easy to use business model for agents and customers. In addition, the Company continues to test new
product designs in both the Agency and Direct channels directed at incremental auto growth.
The Company believes that continued growth in the Direct business is dependent on (among other factors) price and customer
retention, as well as the success of the Company’s advertising and other marketing efforts.Despite an increase in the amount
that the Company spent on advertising during 2003, it appears as if some competitors have increased their advertising at a
faster pace.As a result,the Company’s quote volume has fallen; however,the Company has experienced an offsetting increase
in the conversion rate. In addition, the Company has seen a greater proportion of its business generated via the Internet, as
expected, given its advertising approach.The Company is advertising on a national basis and supplements its coverage by
local market media campaigns in over 100 designated marketing areas.The Company’s Direct business expense ratio benefited
from business mix changes (i.e.a higher percentage of its business came from renewals).
The Agency Channel
Growth over prior year
2003 2002 2001
Net premiums written 24% 26% 6%
Net premiums earned 25% 18% 1%
Auto policies in force 17% 22% (1)%
The Direct Channel
Growth over prior year
2003 2002 2001
Net premiums written129% 39% 41%
Net premiums earned 31% 32% 46%
Auto policies in force 20% 27% 18 %
1Growth rates for 2002 and 2001were adjusted to exclude the effect of $37.7 million of previously ceded written premiums that were assumed by the Company upon the
commutation of a reinsurance agreement that was part of a strategic alliance relationship that was terminated in the first quarter 2001.This strategic alliance relationship was
terminated by mutual agreement of the Company and the other party because the business interests of the parties were no longer aligned. In addition, the Company did not
envision that this relationship would help the Company in meeting its long-term profitability objectives.The commutation of the reinsurance agreement was the necessary
result of terminating the relationship.