Progressive 2003 Annual Report Download - page 34

Download and view the complete annual report

Please find page 34 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-34 -
Market Value at Market Value at Total
December 31, 2003 December 31, 2002 Return1
Common Stocks2$ 1,929.7*million $ 1,275.0*million 28.6%
Russell 1000 Index3$ 594.56 $ 466.18 29.9%
1Includes gross dividends reinvested and price appreciation/depreciation.
2The market value at December 31,2003,includes appreciation/depreciation in the value of the underlying securities as well as dividend income received and net cash
infusions/withdrawals made during the year needed to maintain the Company’s 85%/15% fixed income to equity allocation.
3This broad-based index, which is used for comparative benchmarking, incepted December 31,1986,with a base valuation of $130. Market values exclude dividends
reinvested.
The Company’s common equity allocation is intended to enhance the return of and provide diversification for the total
portfolio.To maintain high correlation with the Russell 1000,the Company holds approximately 700 of the common stocks
comprising the index. Individual holdings are measured based on their contribution to the correlation with the index. For
2003, the equity-indexed portfolio returns were outside the anticipated annual tracking error.The variance was partially due
to rebalancing the portfolio in response to tax initiated strategies during the year.
Other risk investments include private equity investments and limited partnership interests in private equity and mezzanine
investment funds which have no off-balance-sheet exposure or contingent obligations, except for the $28.4 million open
funding commitments discussed in Note 12 – Commitments and Contingencies.The Company is no longer initiating investments
in these types of securities and expects to continue reducing its current holdings over time.
The Company monitors the value at risk of the fixed-income and equity portfolios,as well as the total portfolio,to evaluate
the potential maximum expected loss. For further information, see the Quantitative Market Risk Disclosures,a supplemental
schedule provided in this Annual Report.
Tra ding Se curities Trading securities are entered into for the purpose of near-term profit generation.At December 31,2003
and 2002,the Company did not hold any trading securities. Net realized gains on trading securities for the year ended
December 31,2003 was $.1million,compared to $0 in 2002 and net realized losses of $6.5 million in 2001.Trading securities
are not material to the Company’s financial condition,cash flows or results of operations and are reported within the available-
for-sale portfolio rather than separately disclosed.
Common equities, which generally have greater risk and volatility of market value than fixed-maturity securities,have a
target allocation of15% and may range from 0 to 25% of the investment portfolio.At December 31,2003 and 2002,excluding
the net unsettled security transactions,these securities comprised 15.8% and 13.2%,respectively,of the total portfolio.Common
stocks are managed externally to the Russell 1000 index with an anticipated annual tracking error of +/- 50 basis points.
The results of the common stock portfolio relative to the benchmark index are noted in the table below: