Progressive 2004 Annual Report Download - page 33

APP.-B-33
New business applications for the Agency auto business were relatively flat for 2004, as compared to the prior year, partially due to fewer
customers being in the marketplace shopping for insurance, which may have resulted from competitors achieving more rate adequacy and
not seeking to impose additional rate increases on their customers. The rate of conversions (i.e., converting a quote to a sale) remained
fairly consistent with prior years.
During the second half of 2004, the Company announced a new brand, Drive Insurance from ProgressiveSM, designed expressly for its
independent agencies. With the introduction of a new brand, the Company believes that it will enhance its positioning with agencies and
will be able to provide them with a more effective marketing voice by promoting their service proposition through advertising. The new
advertising campaign was launched near the end of 2004 to include television, directory listings and billboards, as well as other advertising.
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. Although retention did not improve during 2004, the Direct
Business expense ratio remained relatively flat. During 2004, the Company increased the amount spent on advertising; however, its relative
share of total voice fell as competitors made substantially greater investments in their consumer marketing. Nevertheless, new auto
applications continued to increase in 2004 (about 6%), as the Company experienced an increase in overall quotes as well as in the conversion
rate. In addition, the Company has seen a greater proportion of its business generated via the Internet. 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 BUSINESS
Growth over prior year
2004 2003 2002
Net premiums written 10% 24% 26%
Net premiums earned 14% 25% 18%
Auto policies in force 7% 17% 22%
THE DIRECT BUSINESS
Growth over prior year
2004 2003 2002
Net premiums written117% 29% 39%
Net premiums earned 20% 31% 32%
Auto policies in force 13% 20% 27%
1Growth rates for 2002 were 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 relationship was terminated by
mutual agreement of the parties because their business interests 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.
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 2004 net premiums written. Personal Lines net premiums written grew 12% in 2004, 26% in
2003 and 29% in 2002; net premiums earned grew 16% in 2004, 27% in 2003 and 22% in 2002. The Personal Lines business is comprised
of the Agency Business and the Direct Business. The Agency Business includes business written by the more than 30,000 independent
insurance agencies that represent the Company, as well as brokerages in New York and California. The Direct Business includes business
written directly by the Company through 1-800-PROGRESSIVE and online at progressive.com.