Progressive 2013 Annual Report Download - page 59

2012
• The unfavorable prior year reserve development was primarily attributable to accident year 2011 and to a lesser
extent accident year 2010. The aggregate reserve development for accident years 2009 and prior was favorable.
Despite overall unfavorable reserve development, we did experience favorable reserve adjustments, primarily in
our loss adjustment expenses and our personal auto bodily injury reserves for accident years 2009 and 2008.
• Slightly more than half of the total unfavorable reserve development was attributable to our Commercial Lines
business, with the remainder in our personal auto business. In our personal auto business, unfavorable
development in the Agency channel was partially offset by favorable development in the Direct channel, primarily
reflecting that unfavorable development on our PIP coverage was more skewed to the Agency channel, and that
our Direct business had favorable development on our collision coverage, as we experienced more subrogation
recoveries in this channel.
• Our personal auto product’s development was primarily attributable to unfavorable development in our Florida PIP
coverage and an increase in our estimate of bodily injury severity for accident year 2011.
• Unfavorable development in our Commercial Lines business reflects higher than anticipated frequency and
severity costs on late emerging claims and higher settlements on large losses.
2011
• About half of the favorable reserve development was attributable to accident years 2008 and prior, while the
balance was primarily due to claims from accident year 2010.
• Approximately 70% of the favorable reserve development was attributable to our Personal Lines business, with our
Agency and Direct channels contributing 25% and 75%, respectively; the balance was primarily in our Commercial
Lines business.
• The 2011 favorable development was driven primarily by favorable settlement of larger losses and lower defense
and cost containment costs, but was partially offset by unfavorable development on our total IBNR reserves,
reflecting a greater than anticipated increase in the number of late emerging claims.
We continue to focus on our loss reserve analysis, attempting to enhance accuracy and to further our understanding of our
loss costs. A detailed discussion of our loss reserving practices can be found in our Report on Loss Reserving Practices,
which was filed in a Form 8-K on July 12, 2013.
Because we are primarily an insurer of motor vehicles, our exposure as an insurer of environmental, asbestos, and general
liability claims is limited. We have established reserves for these exposures in amounts that we believe to be adequate
based on information currently known. These exposures do not have a material effect on our liquidity, financial condition,
cash flows, or results of operations.
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 0.5 points and 0.6 points for 2013 and 2012, respectively, over the prior
year periods. In both 2013 and 2012, our underwriting expenses grew at a slower rate than net premiums earned, due in
part to an increase in earned premium per policy as a result of rate increases taken in 2012.
C. Personal Lines
Growth Over Prior Year
2013 2012 2011
Net premiums written 6% 8% 5%
Net premiums earned 7% 7% 5%
Policies in force 3% 4% 5%
Progressive’s Personal Lines business writes insurance for personal autos and recreational vehicles and represented 90%
of our total net premiums written for both 2013 and 2011 and 89% in 2012. 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.
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