Progressive 2007 Annual Report Download

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The Progressive Corporation 2007 Annual Report

Table of contents

  • Page 1
    The Progressive Corporation 2007 Annual Report

  • Page 2
    XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ...

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    ... auto insurance group and largest seller of motorcycle and personal watercraft policies based on premiums written, and is a market leader in commercial auto insurance. Progressive is committed to becoming consumers' #1 choice for auto insurance by providing competitive rates and products that meet...

  • Page 4
    ... Consolidated shareholders' equity Market capitalization Return on average shareholders' equity Policies in Force (thousands) Personal Lines Agency -Auto Direct -Auto Special Lines Total Personal Lines Growth over prior year Commercial Auto Growth over prior year Market share 1 Industry net premiums...

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    F O R E S E E

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    ... shareholder value and to provide a positive environment that attracts quality people who develop and achieve ambitious growth plans. CUSTOMER VALUE PROPOSITION policies, including claims service that respects their time and reduces the trauma and inconvenience of loss. CORE VALUES Our Customer...

  • Page 7
    ... industry on how dissatisfied they were with insurance companies and how difficult it was to shop for car insurance and make effective comparisons. In response, we implemented 24/7 customer and claims service and started offering free apples-to-apples auto insurance rate comparisons by phone. 6

  • Page 8
    ...power of the Internet and changing consumer behavior, in 1995, we became the first major auto insurer in the U.S. to go online-reaching more potential customers than ever before and offering our comparison rates conveniently on our Web site. In 1997, we became the first auto insurer to sell online...

  • Page 9
    E V A L U A T E

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    .... Using the measure of growth we care about most-number of policies in force-we ended the year with more customers than any prior year in each major product line (Personal Auto, Special Lines and Commercial Auto). On the other hand, more traditional measures of growth-written and earned premium...

  • Page 11
    ... a Progressive quote. Our brand development efforts, while producing many encouraging signs in 2007, have not yet put Progressive consistently at the top-of-mind levels for consumers that we believe will be necessary to meet our growth aspirations. Policy growth in Special Lines and Commercial Auto...

  • Page 12
    ... auto offerings sold through agents and direct. Our claims service, including our concierge level of service, continues to be one of the most valued customer experiences we offer and has high measured satisfaction. In addition to macro measures, more targeted views of NPS have become an excellent...

  • Page 13
    ... quickly and effectively when a claim is reported helps reduce the human trauma associated with auto accidents. In 1990, we introduced our Immediate Response® claims service and encouraged all customers to call immediately after an incident so we could make face-to-face contact within a few hours...

  • Page 14
    ... are heading in the right direction, the J.D. Power National Auto Insurance Study reported this year that we had climbed in their rankings of customer service. In fact, over the past five years, we made the largest gain in customer satisfaction in our industry grouping. Full disclosure requires me...

  • Page 15
    ... effort into making this effective and valued. Beyond the sale, customers are increasingly using online service to make changes in their policy, check policy status and make payments. We are actively working toward increasing the number of customers who accept paperless as their preferred means...

  • Page 16
    4 The Importance of Low Cost and Speed to Market Falling average premium per policy during the course of 2007 deleveraged some of the gains we had made in our non-claims expense ratio and we ended the year with a 21.1 expense ratio. Although it is up from the prior year's 20.2, it is still notably ...

  • Page 17
    ... 2008 consistent with our efforts to maximize retention of our customers. If 2007 was a year of "adjustment" for auto insurance rates, it pales in comparison to the "adjustment" in the mortgage-backed investment markets. Our strategy of maintaining a high-quality investment portfolio served us well...

  • Page 18
    ... to expand our monthly disclosures to report consolidated financial statements and in 2004 added monthly commentary to our releases. We remain the only public company providing this level of information monthly. institutions. The market value of these investments has declined as the underlying...

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    E V O L V E

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    ... ability to provide highquality customer service. Progressive is a growth-oriented company and management incentives are tied to profitable growth. We report Personal Lines and Commercial Auto results separately. We further break down our Personal Lines' results by channel (Agency and Direct) to...

  • Page 21
    ... its cost. Presented is an overview of Progressive's Operating, Investing and Financing policies. OPERATING Monitor pricing and reserving discipline X Manage profitability targets and opera- tional performance at our lowest level of product definition X Sustain premiums-to-surplus ratios at ef...

  • Page 22
    ... 1 10 Years 1 Underwriting margin - Progressive -Industry 2 Net premiums written growth Policies in force growth - Personal Auto - Special Lines - Commercial Auto Companywide premiums-to-surplus ratio Investment allocation - fixed:equity Debt-to-total capital ratio Return on average shareholders...

  • Page 23
    X As an insurer of motor vehicles, we realized we might be missing a segment of the population who liked to bundle their insurance needs. To help meet consumers' needs, in 2000 we started offering Progressive-underwritten homeowners insurance in several states. 22

  • Page 24
    ..., pricing and servicing homeowners insurance was not our area of expertise. Nevertheless, we understand consumers' desire for more coverages from one company. That is why in 2006 we introduced a Personal Umbrella product and partnered with third-party providers to integrate their homeowners product...

  • Page 25
    ...-claims expense ratio and foster growth through more competitive pricing, improved customer retention and by getting our best ideas to market faster for all customers. By the end of 2007, we had largely merged our Agency and Direct product and IT organizations. Our objective for the Personal Lines...

  • Page 26
    ... the first quarter of 2008. Shopping and quoting patterns for personal lines insurance continued to change in 2007. On the Direct side, an even greater proportion of customers are shopping and buying online. While Direct auto new customer quotes were down for the year, in the fourth quarter we saw...

  • Page 27
    ... premiums per policy than specialty truck. Our underwriting expense ratio increased one point to 20.2, a product of the negative premium trend and significant investments in agency distribution and direct marketing capability. We saw several positive milestones achieved for Commercial Auto in 2007...

  • Page 28
    ... forward to building on this past year's momentum created by new markets and products. Continued focus on the needs of our commercial auto customers and remaining vigilant and responsive to changes in the marketplace will guide us in 2008. In our continuing effort to make rates even more accurate...

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    S U R P A S S

  • Page 30
    ... complete Notes to the Consolidated Financial Statements, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations and Supplemental Information, which are included in Progressive's 2007 Annual Report to Shareholders, which is attached as an Appendix to...

  • Page 31
    ... adjusted for the May 18, 2006, 4-for-1 stock split. See notes to the complete consolidated financial statements included in Progressive's 2007 Annual Report to Shareholders, which is attached as an Appendix to Progressive's 2008 Proxy Statement. 30 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

  • Page 32
    ... 16.8 973.4 200.2 $ 19,482.1 Unearned premiums Loss and loss adjustment expense reserves Accounts payable, accrued expenses and other liabilities1 Debt2 Total liabilities Shareholders' equity: Common Shares, $1.00 par value (authorized 900.0; issued 798.1 and 798.7, including treasury shares of 117...

  • Page 33
    ... Voting Preference Shares authorized; no such shares have been issued. See notes to the complete consolidated financial statements included in Progressive's 2007 Annual Report to Shareholders, which is attached as an Appendix to Progressive's 2008 Proxy Statement. 32 THE PROGRESSIVE CORPORATION...

  • Page 34
    ... - auction rate securities Maturities, paydowns, calls and other: Fixed maturities Equity securities Net sales (purchases) of short-term investments - other Net unsettled security transactions Purchases of property and equipment Sale of property and equipment Net cash provided by (used in) investing...

  • Page 35
    ...'s Annual Report on Form 10-K for the complete Section 302 and 906 certifications, respectively. In addition, Mr. Renwick submitted his annual certification to the New York Stock Exchange (NYSE) on May 18, 2007, stating that he was not aware of any violation by Progressive of the NYSE corporate...

  • Page 36
    ... 31, 2006, and the related consolidated statements of income, changes in shareholders' equity and cash ï¬,ows for each of the three years in the period ended December 31, 2007 (not presented herein) appearing in The Progressive Corporation's 2007 Annual Report to Shareholders, which is attached as...

  • Page 37
    ... our releases and publications, and in our 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...

  • Page 38
    ...The Progressive Corporation's common shares (symbol PGR) are traded on the New York Stock Exchange. Progressive currently has an annual variable dividend policy. We expect the Board to declare the next annual variable dividend in December 2008, with a record date in January 2009 and payment shortly...

  • Page 39
    ..., shareholders can access our Web site: progressive.com/sec. To view our earnings and other releases, access progressive.com/investors. To request copies of Progressive's publicly filed documents free of charge, write to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box...

  • Page 40
    ... TO REPORT A CLAIM FOR CUSTOMER SERVICE 1-800-274-4499 1-800-925-2886 (1-800-300-3693 in California) Commercial autos/trucks 1-800-274-4499 1-800-444-4487 If you bought your policy through an independent agent or broker If you bought your policy directly through Progressive online or by phone...

  • Page 41
    A R Design Nesnadny + Schwartz, Cleveland + New York + Toronto Printing AGS Custom Graphics The paper in this annual report is recycled and recyclable. ©2008 The Progressive Corporation 40 3 Diana Cooper A Random Walk, 2007 , paper, ink, vinyl, velour paper and acrylic on paper 6 Will Yackulic ...

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    ... XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The Progressive Corporation 6300 Wilson Mills Road Mayfield Village, Ohio 44143 OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO ...440.461.5000 progressive.com OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX...