Progressive 2012 Annual Report Download - page 54

Underwriting Expenses
Progressive’s policy acquisition costs and other underwriting expenses, net of fees and other revenues, expressed as a
percentage of net premiums earned decreased 0.6 points for 2012 and was relatively unchanged for 2011, over the prior
year periods. Higher earned premium in 2012, compared to 2011, contributed to the improved expense ratio for 2012. In
2011, increased advertising expenses and information technology costs were offset by lower Gainsharing expenses. During
2012, we began deferring acquisition costs that are associated only with the successful acquisition or renewal of insurance
contracts. These policy acquisition costs are amortized over the policy period in which the related premiums are earned
(see Note 1 – Reporting and Accounting Policies). We do not defer any advertising costs.
C. Personal Lines
Growth Over Prior Year
2012 2011 2010
Net premiums written 8% 5% 5%
Net premiums earned 7% 5% 4%
Policies in force 4% 5% 7%
Progressive’s Personal Lines business writes insurance for personal autos and recreational vehicles and represented 89%
of our total net premiums written for 2012 and 90% in both 2011 and 2010. We currently write our Personal Lines products
in all 50 states. We also offer our personal auto product (not special lines products) in the District of Columbia and on an
Internet-only basis in Australia.
Personal auto represented about 91% of our total Personal Lines net premiums written in each of the last three years.
These auto policies are primarily written for 6-month terms. The remaining Personal Lines business is comprised of special
lines products (e.g., motorcycles, watercraft, and RVs), which are written for 12-month terms. Personal auto policies in force
increased 4% for 2012, 5% for 2011, and 8% for 2010; policies in force for the special lines products increased 4% in 2012
and 5% in both 2011 and 2010. Net premiums written for personal auto increased 8% in 2012 and 5% in both 2011 and
2010; special lines net premiums written grew 4% in 2012 and 1% in both 2011 and 2010.
Our total Personal Lines business generated a 4.4% underwriting profit in 2012, which was widely distributed by product
and state. In 2012, 46 states and the District of Columbia were profitable, including 8 of our 10 largest states. The special
lines products had a favorable effect on the total Personal Lines combined ratio of 0.6 points in 2012, 0.9 points in 2011,
and 1.5 points in 2010.
Even though our Agency and Direct businesses are managed under one Personal Lines organization, we will continue to
report our Agency and Direct business results separately as components of our Personal Lines segment to provide further
understanding of our products by channel.
The Agency Business
Growth Over Prior Year
2012 2011 2010
Net premiums written 7% 3% 1%
Net premiums earned 6% 3% 0%
Auto: policies in force 3% 4% 4%
new applications 0% (2)% 4%
renewal applications 5% 5% 1%
written premium per policy 3% 0% 0%
policy life expectancy 0% 6% 8%
The Agency business includes business written by more than 35,000 independent insurance agencies that represent
Progressive, as well as brokerages in New York and California. Our Agency auto new applications were flat in 2012; solid
increases in new applications in the first half of the year were offset by declines in the second half of the year, primarily due
to rate increases taken during the second and third quarters of 2012, as well as changes to bill plans that require higher
down payments. In 2012, we generated new Agency auto application growth in 21 states and the District of Columbia,
including 2 of our top 10 Agency auto states. For 2011, the decrease in new auto applications over the prior year reflects
strong growth in new applications experienced in the first half of 2010 and an apparent decline of consumers shopping for
auto insurance.
App.-A-54