Progressive 2015 Annual Report Download - page 94

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The Progressive Corporation and Subsidiaries
Quantitative Market Risk Disclosures
(unaudited)
Quantitative market risk disclosures are only presented for market risk categories when risk is considered material.
Materiality is determined based on the fair value of the financial instruments at December 31, 2015, and the potential for
near-term losses from reasonably possible near-term changes in market rates or prices. We had no trading financial
instruments at December 31, 2015 and 2014. See Management’s Discussion and Analysis of Financial Condition and
Results of Operations for our discussion of the qualitative information about market risk.
OTHER-THAN-TRADING FINANCIAL INSTRUMENTS
Financial instruments subject to interest rate risk were:
Fair Value
-200 bps -100 bps +100 bps +200 bps
(millions) Change1Change1Actual Change Change
U.S. government obligations2$ 2,416.6 $ 2,424.4 $ 2,429.2 $ 2,430.2 $ 2,431.2
State and local government obligations 2,855.9 2,812.0 2,721.4 2,633.0 2,549.7
Foreign government obligations 18.6 18.6 18.6 18.6 18.6
Asset-backed securities 6,430.3 6,350.2 6,237.1 6,123.5 6,013.7
Corporate securities 3,915.0 3,821.3 3,691.6 3,565.1 3,449.5
Nonredeemable preferred stocks 793.2 793.1 782.6 771.0 759.6
Redeemable preferred stocks 237.5 237.5 234.3 230.8 227.4
Short-term investments 2,172.0 2,172.0 2,172.0 2,172.0 2,172.0
Balance at December 31, 2015 $18,839.1 $18,629.1 $18,286.8 $17,944.2 $17,621.7
Balance at December 31, 2014 $16,898.9 $16,772.8 $16,525.7 $16,243.7 $15,970.1
1The amounts reflect an interest rate of 1 basis point (bps) when the hypothetical decline in interest rates would have pushed yields to a negative
level.
2The U.S. government obligations have a negative return in the -100bps and -200bps scenarios due to the negative duration for that portfolio. The
duration for our cash holdings in U.S. government obligations was 2.0, and the duration for our interest swap positions, where we are paying fixed
rate on a notional value of $750 million with a maturity of April 2023, was -7.1. The duration for the U.S. government obligations, which includes
the impact of the interest rate swap positions, was -0.2.
Exposure to risk is represented in terms of changes in fair value due to selected hypothetical movements in market rates.
Bonds and preferred stocks are individually priced to yield to the worst case scenario, which includes any issuer-specific
features, such as a call option. Asset-backed securities and state and local government housing securities are priced
assuming deal specific prepayment scenarios, considering the deal structure, prepayment penalties, yield maintenance
agreements, and the underlying collateral.
Financial instruments subject to equity market risk were:
Fair Value
(millions) -10% Actual +10%
Common equities at December 31, 2015 $2,387.7 $2,650.5 $2,913.3
Common equities at December 31, 2014 $2,240.6 $2,492.3 $2,744.0
The model represents the estimated value of our common equity portfolio given a +/-10% change in the market, based on
the common stock portfolio’s weighted average beta of .99 for 2015 and 1.01 for 2014. The beta is derived from recent
historical experience, using the S&P 500 as the market surrogate. The historical relationship of the common stock portfolio’s
beta to the S&P 500 is not necessarily indicative of future correlation, as individual company or industry factors may affect
price movements. Betas are not available for all securities. In such cases, the change in fair value reflects a direct +/-10%
change; the portion of our securities without betas is 0.1%.
App.-A-93