Progressive 2010 Annual Report Download - page 9

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UNDERWRITING RESULTS
Our commitment to a profitability target of a 96
combined ratio served well during the decade
and at no time did we fail to meet or exceed our
targets—a result we view with some pride. The
period has seen an emergence of our Direct
business as an industry leader and a significant
contributor to our growth and profitability, joining
our important and now growing Agency opera-
tions. With that emergence has come greater
recognition for the margin contribution effects in
any given calendar year from the timing dynamics
unique to Direct distribution, prompting me last
year at this time to write, “However, under certain
high growth new business scenarios, we would
be happy to see the reported monthly and calendar-
year combined ratios go above 96 for our Direct
business, as long as our new and renewal business
consistently meets predened targets that ensure
a lifetime result at or below 96,” and, by implication,
without compromise to the attainment of an
aggregate companywide 96 in any calendar
year. In fact, we were happy to experience high
growth scenarios in our Direct business in
2010,
notably in the first two quarters, driven by strong
double digit new application growth. On three
occasions during the year, our monthly combined
ratio for the Direct business exceeded 96 but, as
designed, our new and renewal cohorts met the
necessary targets to ensure both lifetime profit-
ability and aggregate calendar-year performance
goals. The Direct business finished the year with
a 94.6 calendar combined ratio, about two points
higher on an accident-year basis—a strong per-
formance given significant new business.
The momentum building in the second half
of 2009 in our Agency auto production carried
into
2010
and we saw attractive growth in new
ap plications and policies in force for the entire
year. Similar to Direct, demand was stronger
on a year-over-year basis earlier in the year, but
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