Progressive 2014 Annual Report Download - page 49

We maintain a policy of paying an annual variable dividend that, if declared, would be payable shortly after the close of the
year. See Note 14 – Dividends for a further discussion of our annual variable dividend policy.
Following is a summary of our shareholder dividends, both variable and special, that were either declared or paid in the last
three years:
Amount
(millions, except per share amounts)
Dividend Type Declared Paid
Per
Share Total1
Annual – Variable December 2014 February 2015 $0.6862 $404.1
Annual – Variable December 2013 February 2014 0.4929 293.9
Special December 2013 February 2014 1.0000 596.3
Annual – Variable December 2012 February 2013 0.2845 172.0
Special October 2012 November 2012 1.0000 604.7
Annual – Variable December 2011 February 2012 0.4072 249.4
1Based on shares outstanding as of the record date.
The declaration of the special dividends did not affect our annual variable dividend program in those years.
B. Liquidity and Capital Resources
Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in
advance of paying claims. As an auto insurer, our claims liabilities are generally short in duration. Typically, at any point in
time, approximately 50% of our outstanding loss and LAE reserves are paid within the following twelve months and about
15% are still outstanding after three years. See Claims Payment Patterns, a supplemental disclosure provided in this
Annual Report, for further discussion of the timing of personal auto claims payments.
For the three years ended December 31, 2014, operations generated positive cash flows of about $5.3 billion, and cash
flows are expected to remain positive in both the short-term and reasonably foreseeable future. In 2014, our operating cash
flows decreased $174.3 million, compared to 2013, primarily due to an increase in our acquisition costs, including higher
advertising expenditures and more agent commissions paid.
As of December 31, 2014, our consolidated statutory surplus was $6.4 billion, compared to $6.0 billion at December 31,
2013. Our net premiums written-to-surplus ratio was 2.9 to 1 at year-end in each of the last three years. At year-end 2014,
we also had access to $1.9 billion of securities held in a non-insurance subsidiary, portions of which could be contributed to
the capital of our insurance subsidiaries to support growth or, for other purposes. We used $404.1 million of available funds
to pay the annual variable dividend in February 2015. These funds are also available to pay the estimated $875 million
purchase price for the pending acquisition of a controlling interest in the parent company of ASI.
Our insurance subsidiaries’ risk-based capital ratios, which are a series of dynamic surplus-related formulas required by the
laws of various states that contain a variety of factors that are applied to financial balances based on the degree of certain
risks (e.g., asset, credit, and underwriting), are well in excess of minimum regulatory requirements. Nonetheless, the
payment of dividends by our insurance subsidiaries may be subject to certain limitations. See Note 8 – Statutory Financial
Information for additional information on insurance subsidiary dividends.
As of December 31, 2014, 77% of our portfolio was invested in Group II securities, as defined above. In addition, our fixed-
income portfolio duration was 1.6 years, with a weighted average credit quality of A+. At year end, we held $4.8 billion in
short-term investments and U.S. Treasury securities. Based on our portfolio allocation and investment strategies, we believe
that we have sufficient readily available marketable securities to cover our claims payments without having a negative effect
on our cash flows from operations. See Item 1A, “Risk Factors,” in our Form 10-K filed with the Securities and Exchange
Commission (SEC) for a discussion of certain matters that may affect our portfolio and capital position.
As noted above, we issued, in January 2015, $400 million of our 3.70% Senior Notes due 2045 and, in 2014, $350 million of
our 4.35% Senior Notes due 2044, in underwritten public offerings. We received net proceeds, after deducting underwriter’s
discounts and commissions and other expenses related to the issuances, of approximately $394.1 million and $345.6
million, respectively, which were added to our investment portfolios. We issued this debt to take advantage of attractive
terms in the market and allow for financial flexibility. We plan to use these funds for general corporate purposes, which may
include the repurchase of our outstanding securities, and repayment or redemption of outstanding indebtedness, among
other uses.
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