Progressive 2012 Annual Report Download - page 67

initial call date, by either paying a higher dividend amount or by paying floating-rate coupons. Of our fixed-rate securities,
approximately 90% will convert to floating-rate dividend payments if not called at their initial call date. The interest rate
duration of our preferred securities is calculated to reflect both the call and floating rate features. Although a preferred
security may remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. The
table below shows the exposure break-down by sector and rating, reflecting any changes in ratings since acquisition:
Preferred Stocks (at December 31, 2012)
Sector BBB
Non-Investment
Grade/ Non-
Rated
%of
Preferred
Stock
Portfolio
Financial Services
U.S. banks 31.9% 23.1% 55.0%
Foreign banks 0 1.8 1.8
Insurance 7.7 9.9 17.6
Other 0 2.7 2.7
Total financial services 39.6 37.5 77.1
Industrials 5.7 9.3 15.0
Utilities 7.9 0 7.9
Total 53.2% 46.8% 100.0%
Approximately 65% of our preferred stock securities pay dividends that have tax preferential characteristics, while the
balance pay dividends that are fully taxable. In addition, all of our non-investment-grade preferred stocks were with issuers
that maintain investment-grade senior debt ratings.
Common Equities
Common equities, as reported on the balance sheets at December 31, were comprised of the following:
($ in millions) 2012 2011
Common stocks $1,887.0 99.4% $1,834.1 99.4%
Other risk investments 12.0 .6 11.5 .6
Total common equities $1,899.0 100.0% $1,845.6 100.0%
At December 31, 2012, 11.5% of the total investment portfolio was in common equities, compared to 11.6% at the same
time in 2011. Our indexed common stock portfolio, which makes up 88.9% of our December 31, 2012 common stock
holdings, is managed externally to track the Russell 1000 Index with an anticipated annual tracking error of +/- 50 basis
points. Our individual holdings are selected based on their contribution to the correlation with the index. For both periods
reported in the table above, the GAAP basis total return was within the desired tracking error when compared to the Russell
1000 Index. We held 740 out of 992, or 75%, of the common stocks comprising the Russell 1000 Index at December 31,
2012, which made up 93% of the total market capitalization of the index. During the year, we reduced our indexed portfolio
by $330.0 million to reduce our overall risk profile in the portfolio.
The remaining 11.1% reflects our decision to invest in common stocks on an actively managed basis. We have two external
investment managers who have the authority to invest up to $250 million in aggregate in common stocks, including one
manager selected during 2012 with $100 million of authorization. At December 31, 2012, the fair value of the actively
managed portfolio was $209.0 million, compared to a cost basis of $193.8 million; neither manager had fully deployed their
allocated funds into common stock investments.
App.-A-67