Progressive 2014 Annual Report Download - page 57

The loss and LAE ratio for our Commercial Lines business saw significant improvement for 2014, with a decrease of 10.2
points, on a year-over-year basis. The improvement is primarily due to rate increases taken during the last two years, lower
frequency, mainly in our truck business, and favorable case reserve development in 2014, compared to unfavorable reserve
development in 2013.
The following discussion of our severity and frequency trends excludes comprehensive coverage because of its inherent
volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. Comprehensive coverage
insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft,
falling objects, and glass breakage.
Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case
reserves) was up over the prior-year periods in the 2% to 5% range for the last three years.
•2014 – Severity increased about 7% for our personal injury protection (PIP) coverage, about 5% for our property
damage coverage, and approximately 3%-4% for our bodily injury and collision coverages.
•2013 – Severity for our collision coverage increased about 5%, and severity for both our bodily injury and property
damage coverages increased about 3%, while severity in our PIP coverage was down about 4%.
•2012 – Severity increases in most of our auto coverages were about 5%, including bodily injury, PIP, property
damage, and collision.
It is a challenge to estimate future severity, especially for bodily injury and PIP claims, but we continue to monitor changes
in the underlying costs, such as medical costs, health care reform, and jury verdicts, along with regulatory changes and
other factors that may affect severity.
Our incurred frequency of auto accidents, on a calendar-year basis, was relatively flat in both 2014 and 2012 and increased
about 2% in 2013, compared to the prior-year periods.
•2014 – Our bodily injury coverage had a decline in frequency of about 2%. Frequency in our PIP coverage was
down about 1%. Our property damage coverage frequency was relatively flat, while our collision coverage
experienced an increase in frequency of about 1%.
• 2013 – Increases in frequency for our collision and property damage coverages contributed to the overall increase
while frequency for our bodily injury and PIP coverages was relatively flat.
• 2012 – Our collision coverage had a decline in frequency of about 3%, primarily related to the mild winter weather
experienced in the northern states during the first quarter 2012. Frequency in our PIP coverage was also down
about 2%. In contrast, our bodily injury coverage had an increase in frequency of about 1%, but had still not
returned to the higher frequency levels we experienced in 2010.
We continue to closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not
something that we are able to predict with any certainty. We will analyze trends to distinguish changes in our experience
from external factors, such as changes in the number of vehicles per household, miles driven, gasoline prices, greater
vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business, to allow us to reserve
more accurately for our loss exposure.
We experienced severe weather conditions in several areas of the country during each of the last three years. Hail storms,
tornadoes, wind, and flooding contributed to catastrophe losses each year. Results included 0.6 points due to Superstorm
Sandy in 2012. The following table shows catastrophe losses incurred for the years ended December 31:
($ in millions) 2014 2013 2012
Catastrophe losses incurred $ 192.2 $ 175.1 $ 279.1
Increase to combined ratio 1.0 pts. 1.0 pts. 1.7 pts.
We continue to respond promptly to catastrophic storms when they occur in order to provide exemplary claims service to
our customers.
App.-A-56