Progressive 2014 Annual Report Download - page 60

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Our total Personal Lines business generated a 6.7% underwriting profit margin in 2014, which was widely distributed by
product and state. In 2014, 46 states and the District of Columbia were profitable, including all of our 10 largest states. The
special lines products had a favorable effect on the total Personal Lines combined ratio of 1.3 points in 2014, 1.0 point in
2013, and 0.6 points in 2012. In 2014, the lack of severe storms helped increase the profitability on our special lines
products.
We report our Agency and Direct business results separately as components of our Personal Lines segment to provide
further understanding of our products by distribution channel.
The Agency Business
Growth Over Prior Year
2014 2012 2012
Net premiums written 5% 6% 7%
Net premiums earned 6% 6% 6%
Auto: policies in force (2)% 1% 3%
new applications (7)% (3)% 0%
renewal applications 3% 2% 5%
written premium per policy 4% 5% 3%
Auto: retention measures
policy life expectancy – trailing 3-months (7)% 1% (6)%
trailing 12-months (2)% (5)% 0%
renewal ratio 0.1% (0.1)% 0.2%
The Agency business includes business written by more than 35,000 independent insurance agencies that represent
Progressive, as well as brokerages in New York and California. The decrease in new application growth for 2014, compared
to 2013, was due in part to rate increases applied to selected states in early 2014 to meet our margin targets and various
actions taken to restrict writing unprofitable business, as well as actions by our competitors to increase their
competitiveness in the marketplace. In 2014, we generated new Agency auto application growth in only 18 states and the
District of Columbia, including four of our top 10 Agency auto states.
Rate increases were the primary factor in the year-over-year increase in written premium per policy in each of the last three
years. In 2014, written premium per policy for both new and renewal Agency auto business increased about 4%, compared
to 2013. In addition, these rate increases also had an effect on policy life expectancy.
On a year-over-year basis, Agency auto quotes were relatively flat for 2014. We saw a significant increase in Agency auto
quotes in 2013, reflecting very strong increases in quoting on third-party comparative rating systems, primarily driven by the
addition of real-time comparative rating in California. Excluding the quote volume generated in California, our Agency auto
quotes experienced a modest increase, compared to 2012. We saw a modest increase in Agency auto quotes in 2012. Our
Agency auto rate of conversion (i.e., converting a quote to a sale) decreased in each of the last three years. The decline in
conversion for 2014 was primarily due to rate increases taken in early 2014, as well as actions by our competitors to
increase their competitiveness in the marketplace.
The Direct Business
Growth Over Prior Year
2014 2013 2012
Net premiums written 12% 7% 8%
Net premiums earned 11% 8% 8%
Auto: policies in force 7% 6% 4%
new applications 10% 6% (2)%
renewal applications 8% 4% 7%
written premium per policy 3% 3% 3%
Auto: retention measures
policy life expectancy – trailing 3-months (4)% 8% (8)%
trailing 12-months 3% (2)% (2)%
renewal ratio 0.5% 0.3% 0.3%
App.-A-59