Progressive 2004 Annual Report Download - page 43

APP.-B-43
For example, if the Company decided to write down all securities in an unrealized loss position for one year or longer where the securities
decline in value exceeded 15%, the Company would recognize an additional $.1 million of OTI losses in the income statement. These OTI
losses would be $0 if the threshold for market decline was greater than 25%.
The $13.1 million of gross unrealized losses that have been impaired for one year or longer are primarily within the fixed-income portfolio.
None of these securities were deemed to have any fundamental issues that would lead the Company to believe that they were other-than-
temporarily impaired. The Company has the intent and ability to hold the fixed-income securities to maturity, and will do so, as long as the
securities continue to meet duration, economic sector and interest rate exposure, as well as portfolio composition, that is consistent with
the current investment strategy. The Company will retain the common stocks to maintain correlation to the Russell 1000 index as long as
the portfolio and index correlation remain similar. If the Company’s strategy were to change and these securities were impaired, the Company
would recognize a write-down in accordance with its stated policy.
Since total unrealized losses are already a component of the Company’s shareholders’ equity, any recognition of additional OTI losses
would have no effect on the Company’s comprehensive income or book value.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this Annual Report that are not historical fact are
forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those
discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections generally;
inflation and changes in economic conditions (including changes in interest rates and financial markets); the accuracy and adequacy of the Company’s
pricing and loss reserving methodologies; pricing competition and other initiatives by competitors; the Company’s ability to obtain regulatory approval
for requested rate changes and the timing thereof; the effectiveness of the Company’s advertising campaigns; legislative and regulatory developments;
disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against the Company; weather conditions
(including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions); changes in driving patterns and loss trends; acts
of war and terrorist activities; the Company’s ability to maintain the uninterrupted operation of its facilities, systems (including information technology
systems) and business functions; court decisions and trends in litigation and health care and auto repair costs; and other matters described from
time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and
Exchange Commission. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve
for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve
is established for one or more contingencies. Reported results, therefore, may appear to be volatile in certain accounting periods.
Total Gross Decline of Investment Value
Unrealized
Total Portfolio Losses > 15% > 25% > 35% > 45%
Unrealized Loss for 1 Quarter $ 9.2 $ 1.5 $ 1.0 $ 1.0 $ 1.0
Unrealized Loss for 2 Quarters 6.2————
Unrealized Loss for 3 Quarters 21.3————
Unrealized Loss for 1 Year or Longer 13.1 .1 — — —
Total $ 49.8 $ 1.6 $ 1.0 $ 1.0 $ 1.0
(millions)
For fixed-income investments with unrealized losses due to market- or industry-related declines, the declines are not deemed to qualify
as other than temporary where the Company has the intent and ability to hold the investment for the period of time necessary to recover a
significant portion of the investment’s original principal and interest obligation. The Company’s policy for equity securities with market-
related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered
under historical market conditions when the security has been in a loss position for three consecutive quarters.
When persuasive evidence exists that causes the Company to evaluate a decline in market value to be other than temporary, the Company
reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. All
other unrealized gains (losses) are reflected in shareholders’ equity.
As of December 31, 2004, the Company’s total portfolio had $49.8 million in gross unrealized losses, compared to $41.7 million in gross
unrealized losses at year-end 2003. The increase in the gross unrealized loss position from 2003 relates primarily to the fixed-maturity
portfolio, the result of the rise in interest rates during 2004.
The following table stratifies the gross unrealized losses in the Company’s portfolio at December 31, 2004, by duration in a loss position
and magnitude of the loss as a percentage of the cost of the security. The individual amounts represent the additional OTI the Company
would have recognized in the income statement if its policy for market-related declines was different than that stated above.