Progressive 2013 Annual Report Download - page 62

•For-hire transportation – tractors, trailers, and straight trucks primarily used by regional general freight and
expeditor-type businesses and non-fleet long-haul operators
•Contractor – vans, pick-up trucks, and dump trucks used by small businesses, such as artisans, heavy
construction, and landscapers/snowplowers
•For-hire specialty – dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-
type businesses, and
•Tow – tow trucks and wreckers used in towing services and gas/service station businesses.
Business auto is the largest business market target, measured by premium volume, and accounts for approximately one
third of our total Commercial Lines premiums, while the for-hire transportation and contractor business market targets each
account for about another 25%. Business auto and contractor together account for approximately 75% of the vehicles we
insure in this business, while for-hire transportation accounts for about 15%. We currently write our Commercial Lines
business in 49 states; we do not write Commercial Lines in Hawaii or the District of Columbia. The majority of our policies in
this business are written for 12-month terms.
Our Commercial Lines business new applications decreased for 2013, driven by decreases in both our for-hire
transportation and for-hire specialty business market targets primarily due to rate increases taken in both 2012 and 2013.
Rate increases also contributed to the increase in written premium per policy in our Commercial Lines business for 2013.
Written premium per policy increased to a lesser extent in 2013 than in 2012 due to declines in written premium per policy
for our Commercial Lines new business, primarily due to a shift in the mix of our business away from our for-hire
transportation and for-hire specialty business market targets, both of which received greater rate increases and have higher
average premium per policy. Our Commercial Lines business saw an increase in policy life expectancy for 2013, in part due
to shifts in the mix of our business away from our for-hire transportation business market target to our business auto market,
which tends to have a higher rate of retention.
Although Commercial Lines differs from Personal Lines auto in its customer base and products written, both businesses
require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. Since
the Commercial Lines policies have higher limits than Personal Lines auto, we analyze Commercial Lines’ large loss trends
and reserving in more detail to allow us to react quickly to changes in this exposure.
E. Other Indemnity
Our other indemnity businesses consist of managing our run-off businesses, including the run-off of our professional liability
business, which was sold in 2010. Pursuant to our agreement with the purchaser of this business, from the date of sale
through April 30, 2012, we continued to write these policies, principally directors and officers liability insurance for
community banks. All professional liability insurance policies written in July 2010 and later were 100% reinsured. From
August 2009 through June 2010, the substantial majority of the risks on this business were 100% reinsured and prior to
August 2009, a majority of the risk on this business was reinsured with various reinsurance entities.
Our other indemnity businesses generated operating losses of $10.8 million, $5.8 million, and $5.5 million in 2013, 2012,
and 2011, respectively. The 2013 loss primarily reflects actuarial reserve increases and adverse loss development on our
run-off businesses.
F. Service Businesses
Our service businesses, which represent less than 1% of our total revenues and do not have a material effect on our overall
operations, primarily include:
•Commercial Auto Insurance Procedures/Plans (CAIP) – We are the only servicing carrier on a nationwide basis for
CAIP, which are state-supervised plans servicing the involuntary market in 42 states and the District of Columbia.
As a service provider, we provide policy issuance and claims adjusting services and collect fee revenue that is
earned on a pro rata basis over the terms of the related policies. We have an agreement with AIPSO (the national
organization responsible for administering the involuntary insurance market) under which we will receive a
supplemental fee, when necessary, to satisfy a minimum servicing fee requirement; this agreement is scheduled to
expire on August 31, 2014. We cede 100% of the premiums and losses to the plans. Reimbursements to us from
the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can
result in ceding restrictions for the affected business. We have maintained, and plan to continue to maintain,
compliance with these standards. Any changes in our participation as a CAIP service provider would not materially
affect our financial condition, results of operations, or cash flows.
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