Progressive 2015 Annual Report Download - page 65

• About 55% of our unfavorable reserve development was in our Commercial Lines business, with the remainder
split about equally between our Personal Lines business and our run-off businesses. In our Personal Lines
business, unfavorable development in our Agency auto channel was offset in large part by favorable development
in our Direct auto channel.
• The unfavorable reserve development in our Agency auto business was in our IBNR reserves due to higher
frequency and severity on late emerging claims, as primarily reflected in the “all other development.”
• Lower than anticipated severity costs on case reserves were the primary contributor to the favorable development
in our Direct auto business.
• In our Commercial Lines business, we experienced unfavorable development due to higher frequency and severity
on late emerging claims primarily in our bodily injury coverage for our truck business.
• In our other businesses, we experienced unfavorable development primarily due to reserve increases in our run-off
professional liability group business based on internal actuarial reviews of our claims history.
We continue to focus on our loss reserve analysis, attempting to enhance accuracy and to further our understanding of our
loss costs. A detailed discussion of our loss reserving practices, primarily related to our vehicle businesses, can be found in
our Report on Loss Reserving Practices, which was filed in a Form 8-K on August 26, 2015.
Because we are primarily an insurer of motor vehicles, our exposure as an insurer of environmental, asbestos, and general
liability claims is limited. We have established reserves for these exposures, in amounts that we believe to be adequate
based on information currently known. These exposures have not had and are not expected to have a material effect on our
liquidity, financial condition, cash flows, or results of operations.
Underwriting Expenses
Our underwriting expense ratio (i.e., policy acquisition costs and other underwriting expenses, less fees and other revenues,
expressed as a percentage of net premiums earned) was higher on a year-over-year basis for 2015, primarily reflecting the
additional expenses associated with ARX and greater advertising spend during 2015. For 2014, our underwriting expenses
grew at a slower rate than net premiums earned, due in part to an increase in earned premium per policy.
C. Personal Lines
Growth Over Prior Year
2015 2014 2013
Net premiums written 6% 8% 6%
Net premiums earned 4% 8% 7%
Policies in force 4% 2% 3%
Our Personal Lines business writes insurance for personal autos and recreational vehicles and represented 86% of our total
net premiums written for 2015 and 90% in both 2014 and 2013. The decrease primarily resulted from the acquisition of a
controlling interest in ARX, which in 2015 represented about 3% of our total net premiums written. We currently write our
Personal Lines products in all 50 states. We also offer our personal auto product (not special lines products) in the District
of Columbia and Australia.
Personal auto represented 92% of our total Personal Lines net premiums written in 2015 and 2014, and 91% in 2013.
These auto policies are primarily written for 6-month terms. The remaining Personal Lines business is comprised of special
lines products (e.g., motorcycles, watercraft, and RVs), which are written for 12-month terms, primarily in our Agency
channel. Net premiums written for personal auto increased 6% in 2015, 8% in 2014, and 7% in 2013; special lines net
premiums written grew 3%, 4%, and 5% in 2015, 2014, and 2013, respectively. Personal auto policies in force increased
5% for 2015, 2% for 2014, and 3% for 2013; policies in force for the special lines products increased 2% in 2015 and 1% in
both 2014 and 2013.
Our total Personal Lines business generated a 6.5% underwriting profit margin in 2015, which was widely distributed by
product and state. In 2015, all jurisdictions were profitable. The special lines products had a favorable effect on the total
Personal Lines combined ratio of 1.2 points in 2015, 1.3 points in 2014, and 1.0 point in 2013.
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.
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