Progressive 2013 Annual Report Download - page 76

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C. Repurchase and Reverse Repurchase Transactions
From time to time, we enter into reverse repurchase commitment transactions. In these transactions, we loan cash to
internally approved counterparties and receive U.S. Treasury Notes pledged as collateral against the cash borrowed. We
choose to enter into these transactions as rates and credit quality are more attractive than other short-term rates available
in the market. Our exposure to credit risk is limited due to the nature of the collateral (i.e., U.S. Treasury Notes) received.
The income generated on these transactions is calculated at the then applicable general collateral rates on the value of U.S.
Treasury securities received. We have counterparty exposure on reverse repurchase agreements in the event of a
counterparty default to the extent the general collateral securities’ value is below the amount of cash we delivered to acquire
the collateral. The short-term duration of the transactions (primarily overnight investing) reduces that default exposure.
We earned income of $0.2 million, $1.0 million, and $0.4 million on reverse repurchase agreements for the years ended
December 31, 2013, 2012, and 2011, respectively. We had $200.0 million of open reverse repurchase commitments with
one counterparty at December 31, 2013, compared to $581.0 million open with two counterparties at December 31, 2012.
During 2013, our largest single outstanding balance of reverse repurchase commitments was $851.4 million, which was
open for five days; the average daily balance of reverse repurchase commitments was $375.3 million. During 2012, our
largest single outstanding balance of reverse repurchase commitments was $1,245.1 million, which was open for one day;
the average daily balance of reverse repurchase commitments was $775.9 million.
Additionally, during 2013 and 2012, we entered into repurchase commitment transactions for a period of 48 days and
25 days, respectively. In these transactions, we loan U.S. Treasury securities to internally approved counterparties in
exchange for cash equal to the fair value of the securities. The cash proceeds were invested in unsecured commercial
paper issued by large, high-quality institutions. These transactions were entered into as overnight arrangements, and we
had no open repurchase commitments at December 31, 2013 or 2012. During the period we invested in repurchase
transactions in 2013, the largest single outstanding balance was $252.5 million, which was open for six days; the average
daily balance of repurchase commitments was $94.8 million. In 2012, the largest single outstanding balance during the
period we invested in repurchase transactions was $145.1 million, which was open for one day; the average daily balance
was $144.2 million. We earned income of $43 thousand and $10 thousand during the period these transactions were open
in 2013 and 2012, respectively.
App.-A-76