Progressive 2003 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2003 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 53

  • 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

- APP.-B-33 -
The fixed-income portfolio includes fixed-maturity securities, preferred stocks, and short-term investments.A primary
exposure of the fixed-income portfolio is interest rate risk,which is managed by restricting the portfolio’s duration to between
1.8 to 5 years.The distribution of maturities and convexity (i.e. a measure of the change in duration due to the change in
interest rates) are monitored on a regular basis.Interest rate risk includes the change in value resulting from movements in
the underlying market rates of debt securities held.The fixed-income portfolio had a duration of 3.3 years at December 31,
2003, compared to 3.2 years at December 31, 2002. Excluding the unsettled securities transactions, the allocation to fixed-
income securities at December 31, 2003, was 84.2% of the portfolio, within the Company’s normal range of variation; at
December 31,2002,the allocation was 86.8%.
Also included in fixed-income securities are $3,042.6 million of asset-backed securities.These asset-backed securities are
comprised of residential mortgage-backed ($775.7 million),commercial mortgage-backed ($1,175.2 million) and other asset-
backed ($1,091.7 million) securities,with a total duration of 2.6 years and a weighted average credit quality of AA+.The largest
components of the other asset-backed securities are automobile receivable loans ($488.0 million) and home equity loans
($364.4 million).Substantially all of the asset-backed securities are liquid with available market quotes and contain no residual
interest.
Another exposure related to the fixed-income portfolio is credit risk,which is managed by maintaining a minimum average
portfolio credit quality rating of A+,as defined by nationally recognized rating agencies,and limiting non-investment-grade
securities to a maximum of 5% of the fixed-income portfolio.Concentration in a single issuer’s bonds and preferred stocks
is limited to no more than 6% of the Company’s shareholders’ equity, except for U.S.Treasury and agency bonds; any state’s
general obligation bonds cannot exceed 12% of shareholders’ equity.
The quality distribution of the fixed-income portfolio was as follows:
Rating
December 31, 2003 December 31, 2002
AAA 63.9% 65.7%
AA 10.7 8.2
A13.1 12.6
BBB 9.5 11.3
Non Rated/Other 2.8 2.2
100.0% 100.0%
Common Equities Common equities, as reported in the balance sheets, were comprised of the following:
(millions) December 31, 2003 December 31, 2002
Common Stocks $ 1,929.7 97.9% $ 1,275.0 94.6%
Other Risk Investments 42.4 2.1 72.3 5.4
To t a l C o m m o n Equities $ 1,972.1 100.0% $ 1,347.3 100.0%