Progressive 2015 Annual Report Download - page 85

Our best estimate of the appropriate amount for our reserves as of year-end 2015 is included in our financial statements for
the year. Our goal is to ensure that total reserves are adequate to cover all loss costs, while sustaining minimal variation
from the time reserves are initially established until losses are fully developed. At the point in time when reserves are set,
we have no way of knowing whether our reserve estimates will prove to be high or low, or whether one of the alternative
scenarios discussed above is “reasonably likely” to occur. The above tables show the possible favorable or unfavorable
development we will realize if our estimates miss by 2% or 4%. During 2015, our estimate of the needed reserves at the end
of 2014 decreased 4.0%. The following table shows how we have performed against this goal over the last ten years:
($ in millions)
For the years ended
December 31, 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Loss and LAE Reserves-net
1
$5,313.1 $5,363.6 $5,655.2 $5,932.9 $6,123.6 $6,366.9 $6,460.1 $6,976.3 $7,433.8 $7,671.5 $8,596.3
Loss and LAE Reserves
acquired-net
2
222.4
Total Loss and LAE Reserves-net 7,893.9
Re-estimated reserves as of:
One year later 5,066.2 5,443.9 5,688.4 5,796.9 5,803.2 6,124.9 6,482.1 7,021.4 7,409.7 7,578.8
Two years later 5,130.5 5,469.8 5,593.8 5,702.1 5,647.7 6,074.4 6,519.6 6,994.7 7,402.4 —
Three years later 5,093.6 5,381.9 5,508.0 5,573.8 5,575.0 6,075.9 6,495.4 6,983.2 — —
Four years later 5,046.7 5,336.5 5,442.1 5,538.5 5,564.6 6,050.6 6,459.8 — — —
Five years later 5,054.6 5,342.8 5,452.8 5,580.0 5,605.6 6,097.4 — — — —
Six years later 5,060.8 5,352.8 5,475.6 5,609.1 5,638.8 — — — — —
Seven years later 5,070.2 5,369.7 5,501.3 5,634.9 ———— ——
Eight years later 5,081.7 5,391.2 5,527.1 ————— ——
Nine years later 5,100.6 5,406.4 —————— ——
Ten years later 5,110.2 — —————— ——
Cumulative Development:
Favorable (Unfavorable) $ 202.9 $ (42.8) $ 128.1 $ 298.0 $ 484.8 $ 269.5 $ 0.3 $ (6.9) $ 31.4 $ 315.1
Percentage
3
3.8 (0.8) 2.3 5.0 7.9 4.2 0 (0.1) 0.4 4.0
1Represents loss and LAE reserves net of reinsurance recoverables on net unpaid losses at the balance sheet date for Progressive prior to the
acquisition of a controlling interest in ARX and its subsidiaries.
2Represents the net reserves acquired as part of the ARX acquisition.
3Cumulative development ÷ loss and LAE reserves.
Note: The chart above represents the development of the property-casualty loss and LAE reserves for 2005 through 2014. The last line in the
triangle for each year represents the following:
Re-estimated reserves = Total amount paid to date + Re-estimated liability for unpaid losses and LAE-net
Changes in the estimated severity and the actual number of late reported claims are the cause of the change in our re-estimated reserves from year
to year. The cumulative development represents the aggregate change in our estimates over all years.
The favorable reserve development for 2005 and 2007 through 2010 was about 2% to 8% of our original carried reserves,
which primarily reflects the decreases in severity between our original estimate and what we experienced in both our
personal auto and commercial auto businesses during that period. For 2011 through 2013, we experienced very minimal
development, or less than 1% of our original estimate. For 2014, the favorable development primarily reflects lower than
anticipated severity than we initially estimated in all segments.
Because Progressive is primarily an insurer of motor vehicles, we have minimal exposure as an insurer of environmental,
asbestos, and general liability claims.
App.-A-84