Progressive 2014 Annual Report Download - page 62

This business operates in the following business market targets:
•Business auto – autos, vans, and pick-up trucks used by small businesses, such as retailing, farming, services,
and private trucking,
•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,
•Tow – tow trucks and wreckers used in towing services and gas/service station businesses, and
•For-hire livery – non-fleet (i.e., five or fewer vehicles) taxis, black-car services, and airport taxis.
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 10%. 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 increased slightly for 2014, due to a combination of lowering rates in our
business auto and contractor business market targets, lifting some of the underwriting restrictions we placed on new
business, and the tightening of general market conditions. The increase in written premium per policy, for 2014, primarily
reflects rate increases taken throughout 2014, principally on new business in our truck product, which has higher average
premium. Our Commercial Lines business policy life expectancy was flat for 2014, reflecting relative rate stability during the
year.
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 risks on this business were reinsured. We have only 15 policies in force as of December 31,
2014.
Our other indemnity businesses generated operating losses of $11.9 million, $10.8 million, and $5.8 million in 2014, 2013,
and 2012, respectively. The losses primarily reflect actuarial reserve increases and adverse loss development on our run-off
businesses, to the extent not reinsured.
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, subject to a minimum servicing fee requirement;
which is scheduled to expire on August 31, 2018. 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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