Progressive 2015 Annual Report Download - page 67

Written premium per policy for our Direct auto business increased in each of the last three years, primarily due to rate
increases. In 2015, the increases in written premium per policy for both new and renewal businesses were about the same.
Our policy life expectancy using a trailing 3-month measure increased on a year-over-year basis, reflecting a shift in our mix
of business to preferrred customers and increased competitive position in the market.
In 2015, the total number of quotes in our Direct auto business reached new highs and increased 13% on a year-over-year
basis, driven by an increase in advertising, as well as increased quoting from mobile devices. However, the total Direct auto
business conversion rate for 2015 was relatively flat compared to 2014.
The underwriting expense ratio for our Direct business remained flat compared to 2014, despite a 10% increase in total
advertising spend on a year-over-year basis, due to higher earned premiums in 2015. We continue to remain focused on
maintaining a well-respected brand and will continue to spend on advertising as long as we achieve our profitability targets.
D. Commercial Lines
Growth Over Prior Year
2015 2014 2013
Net premiums written 15% 7% 2%
Net premiums earned 9% 4% 7%
Policies in force 8% 0% (1)%
New applications 15% 1% (6)%
Renewal applications 0% 1% 0%
Written premium per policy 8% 4% 5%
Policy life expectancy – trailing 12-months 13% 0% (3)%
Our Commercial Lines business writes primary liability, physical damage, and other auto-related insurance for automobiles
and trucks owned and/or operated predominantly by small businesses, with the majority of our customers insuring
approximately two vehicles. Our Commercial Lines business represented 11% of our total net premiums written in 2015,
and 10% in both 2014 and 2013. While we continue to write over 90% of our Commercial Lines business through the
Agency channel, net premiums written through the Direct channel increased by 12% in 2015.
We currently write our Commercial Lines business in 49 states; we do not write Commercial Lines in Hawaii or the District of
Columbia. We are planning to start writing in Hawaii in late 2016. The majority of our policies in this business are written for
12-month terms.
Our Commercial Lines business operates in the business auto, for-hire transportation, contractor, for-hire specialty, tow, and
for-hire livery markets. Commercial Lines experienced a significant increase in new applications year-over-year, reflecting
strong demand and improved competitiveness in our for-hire transportation, for-hire specialty, and business auto market
targets. The actions we took during the last several years to raise rates and restrict business were ahead of our competition,
and we are now seeing our competitors following suit.
Rate increases and a shift to new business with higher average written premiums contributed to the increase in written
premium per policy in our Commercial Lines business for 2015. Written premium per policy for new Commercial Lines
business was up approximately 22% as a result of these actions, while renewal business was flat from 2014.
Our Commercial Lines business policy life expectancy increased in 2015, reflecting rate decreases throughout 2015 versus
increases taken in 2014, as well as our increased competitive position.
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.
App.-A-66