Progressive 2013 Annual Report Download - page 45

The Progressive Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our consolidated financial statements and the related notes, together with the supplemental information, should be read in
conjunction with the following discussion and analysis of our consolidated financial condition and results of operations.
I. OVERVIEW
The Progressive Corporation is a holding company that does not have any revenue producing operations, physical property,
or employees of its own. The Progressive Group of Insurance Companies consists of our insurance subsidiaries and mutual
insurance company affiliate. The Progressive Group of Insurance Companies, together with our holding company and non-
insurance subsidiaries and investment affiliate, comprise what we refer to as Progressive.
We have been offering insurance to consumers since 1937 and are estimated to be the country’s fourth largest private
passenger auto insurer based on net premiums written during 2013. Our insurance companies offer personal and
commercial automobile insurance and other specialty property-casualty insurance and related services throughout the
United States, as well as personal auto insurance on an Internet-only basis in Australia. Our Personal Lines segment writes
insurance for private passenger automobiles and recreational vehicles through more than 35,000 independent insurance
agencies and directly to consumers online, on mobile devices, and over the phone. Our Commercial Lines segment offers
insurance for cars and trucks owned and/or operated predominantly by small businesses through both the independent
agency and direct channels; this business is estimated to be ranked second in the commercial auto industry for 2013, based
on net premiums written. Our underwriting operations, combined with our service and investment operations, make up the
consolidated group.
The Progressive Corporation receives cash through subsidiary dividends, security sales, borrowings, and other
transactions, and uses these funds to contribute to its subsidiaries (e.g., to support growth), to make payments to
shareholders and debt holders (e.g., dividends and interest, respectively), to repurchase its common shares and debt, and
for other business purposes that might arise. In 2013, The Progressive Corporation received $1.1 billion from its
subsidiaries, net of capital contributions. The holding company’s funds are generally held in a non-insurance subsidiary. At
year-end 2013, this subsidiary had $1.8 billion of marketable securities available for use by the holding company, of which
$890.2 million was used to fund the annual variable and special dividends paid in February 2014.
Consistent with our policy to use underleveraged capital to repurchase shares and pay dividends, and in light of our strong
capital position, during 2013, we took the following actions, which resulted in returning approximately $1.2 billion to our
shareholders and other investors:
• Dividends – we declared both a $1.00 per common share special dividend and a $.4929 per share annual variable
dividend, which combined returned $890.2 million of capital to our shareholders
• Repurchases – we repurchased both our common shares and debt securities
• Shares – we bought back 11.0 million of our common shares at a total cost of $273.4 million
• Debt – we repurchased, in the open market, $54.1 million principal amount of our 6.70% Fixed-to-
Floating Rate Junior Subordinated Debentures due 2067
We ended 2013 with $8.1 billion of total capital (debt and equity) inclusive of the actions discussed above. We continue to
manage our investing and financing activities in order to maintain sufficient capital to support all the insurance we can
profitably write and service, while returning underleveraged capital to shareholders.
During 2013, net written premium exceeded $17 billion, continuing the numeric progression of topping $15 billion in 2011
and $16 billion in 2012. Our growth this year was more a function of the increase in average rate per policy, on a year-over-
year basis, rather than from an increasing number of customers. Despite seeing a record number of quotes, new
applications (i.e., issued policies) were relatively flat compared to last year. In response to rising claims costs, we raised
rates principally in the second and third quarters of 2012 across all of our products, with the largest increases in personal
auto. By the end of 2013, we experienced double digit growth in new business applications in both our Agency and Direct
auto channels.
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