Progressive 2010 Annual Report Download - page 22

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Traditional rating segmentation has been, and will continue to be, a
source of competitive advantage for Progressive. We are currently rolling
out new product models within our auto and special lines programs and
we have the next generation of product models in the pipeline. These
models provide even greater accuracy in loss prediction and allow us to
attract more customers from all target segments.
In 2010, we significantly increased our focus on the mobile space and
we are confident we will be reporting much more on this in the future.
We upgraded our mobile Web site for policy services and added the ability
to quote auto insurance in 13 states during 2010. We also elevated apps
for iPhones and Android devices during the year. We are investing in adding
more mobile capabilities for consumers as we see this manner of accessing
the Internet for personal insurance needs growing rapidly.
Commercial Auto The commercial auto industry was characterized by a fourth
consecutive year of declining total written premium. Modest growth in the
number of insurable vehicles over the latter half of the year holds some
promise of future premium growth, although generally strong industry under-
writing profitability and increased capacity have kept prices from rising. The
industry loss ratio began to rise in the third quarter and any continuation of
that trend will put pressure on margins and eventually lead to a turn in pricing.
Our Commercial Auto business produced a calendar-year combined
ratio of 87.5, an increase of 1.7 points over the prior year, but still below our
Commercial Auto target combined ratio. The combined ratio includes nearly
7 points of favorable loss development on prior accident years, as we con-
tinue to see beneficial claims settlement patterns. We did see an increase
in accident frequency during the year, which we have begun to address
with rate level adjustments in most states.
Net premiums written declined 6% for the year due primarily to lower
average premium per policy. The decline in average premium was driven
by shifts in policy mix toward lower average premium states, more policies
qualifying for discounts, and a higher percentage of liability-only policies.
The slow economic recovery continues to influence purchase patterns and
the new vehicle replacement rate. Lower premium put pressure on fixed
expenses and, as a result, the expense ratio increased 1.3 points to 22.4.
Diligent workforce management allowed us to hold the line on our core
efficiency measure, policies in force per full time equivalent employee,
which achieved a modest 1% improvement.
While most states were characterized by solid underwriting profits and
a return to growth in new policies, the business was hampered by profitability
challenges in our largest state, Florida. Changes to underwriting and claims
procedures, coupled with an increase in rates, led to steady improvement
throughout the year with the state finishing 2010 with a small underwriting