Progressive (NYSE:PGR) used its fourth-quarter investor event to review what executives described as a “very strong year” in 2023, while also walking investors through the company’s capital model, dividend approach, investment portfolio positioning, and several operating trends discussed during the live Q&A.
2023 results and market position
Chief Financial Officer John Sauerland said the company added “almost $9 billion” in net premiums written in 2023 and “almost 3.7 million” additional policies in force. Citing statutory private passenger auto market results through the third quarter of 2023, he said Progressive believed it picked up “close to an additional two points of market share” versus the prior year, moving to “around 18.5%” market share.
By line of business, Sauerland said policy-in-force growth was positive across businesses, led by personal vehicles at “12%” (or “almost 3.5 million more policies”). In property, he said profitability benefited from a “lighter than average catastrophe year,” and he emphasized the company is “actively looking for ways to increase growth in property through bundling.” In commercial lines, he said growth was primarily from business auto and contractor risks, while trucking remained challenged by industry headwinds. He said commercial lines produced “excellent profitability” despite what Progressive believed was an underwriting loss for the broader commercial auto industry.
Capital strategy: operating leverage, layers of capital, and shareholder returns
Management repeatedly returned to Progressive’s stated operating mandate: to “grow as fast as we can” while maintaining “less than or equal to a 96 combined ratio” at the enterprise level and providing strong customer service.
Sauerland said Progressive received regulatory approval (disclosed previously in its third-quarter 2023 Form 10-Q) to increase operating leverage at most entities to a maximum of “3.5 to 1 premiums to surplus.” He explained that net premiums-to-surplus is a key regulatory solvency measure and said Progressive’s “rigorous underwriting,” “conservative investment posture,” and “relatively modest reserve development” supported the case for holding less statutory surplus at operating subsidiaries. He said an incremental “$1.6 billion” was freed up in 2023, bringing enterprise premiums-to-surplus closer to 3 versus an average of 2.8 over the prior five years, and noted the company intends to move closer to 3.5 over time, subject to other regulatory constraints.
Sauerland described Progressive’s capital framework as three layers:
- Regulatory capital, overseen by state regulators;
- Contingent capital, set by the company’s risk appetite and designed so it would take a “1 in 200 year” modeled scenario to erode contingent capital down to the regulatory layer; and
- Additional capital, held above contingent levels depending on volatility, leverage, and opportunities such as investments, acquisitions, or repurchases.
He also noted that Progressive’s reinsurance program influences the size of the contingent layer, citing “fairly modest retentions” and “relatively high” catastrophe limits.
Dividend and repurchase policy
Treasurer Maureen Spooner said Progressive’s top capital priority is ensuring sufficient capital to write as much profitable insurance as possible at a 96 combined ratio or better. If excess capital exists, she said management evaluates potential deployment among corporate development, share repurchases, or increased investment risk, weighing valuations and expected returns.
On repurchases, Spooner said Progressive’s policy is to buy back shares to neutralize employee stock compensation and, additionally, to repurchase shares when the stock price is attractive relative to the company’s view of intrinsic value. She said the company had not repurchased a “significant number” of shares in recent years, citing periods where capital was needed to support growth or where the share price was not viewed as attractive. More recently, she said, Progressive had become “more active,” noting that in January 2024 the company repurchased shares with a value similar to all of 2023’s repurchases.
Regarding dividends, Spooner reiterated that in 2019 Progressive changed its approach to include a modest fixed quarterly dividend of $0.10 per share and a fully discretionary annual variable dividend. She said the prior formulaic approach sometimes led to returning capital while also needing to raise capital to support growth.
The board declared a $13.50 per share variable dividend in December that was paid in January 2024. Spooner said the payment largely reflected “robust capital generation in 2023” from underwriting and investments and the shift to higher operating leverage. At year-end 2023, she said the holding company level had about $13 billion of capital; after paying “almost $8 billion” in variable dividends, that figure was about $5 billion, which she said provides flexibility for growth, repurchases, investment risk, strategic opportunities, or contingencies.
She also reviewed Progressive’s leverage guideline of keeping debt-to-total-capital “under 30%” over the longer term, while emphasizing the company does not target a minimum leverage level. She said the ratio briefly exceeded 30% during the financial crisis and again in 2022 due largely to unrealized investment losses, and in both cases returned to guideline levels through normal operations.
Investment portfolio positioning and risk framework
Chief Investment Officer Jonathan Bauer said Progressive’s relatively high operating and financial leverage leads it to run with a comparatively conservative investment policy, particularly during periods of significant growth. He described the investment portfolio as nearing $100 billion at year-end 2023, up from $21 billion at the end of 2015. Bauer said roughly 95% of the portfolio is fixed income and actively managed, while just under 5% is in equities via a passive replication strategy tied to the Russell 1000 Index.
Bauer said the firm manages the portfolio on a total return basis rather than focusing on book yield or investment income alone. He noted that 2023 portfolio return was 7.33%, with strong results from both fixed income and equities, and said the after-tax contribution from investment results was “just short of $5 billion,” contributing to the nearly $13 billion of comprehensive income.
He outlined several portfolio guidelines discussed in the presentation, including limits around riskier assets (high yield, certain preferreds, and equities), duration positioning, and a minimum average credit rating target of A or better. Bauer said the year-end average credit quality was “double A-minus” and noted that the valuation environment did not support significant investment in lower-rated securities. He also said duration was near 3.5 years at year-end—close to the highest in 25 years—up from 2.75 years in mid-2022 and 1.6 years in 2014, reflecting a view that inflation had turned and the Federal Reserve could move toward easing.
Bauer also emphasized liquidity, pointing to how quickly the company generated cash for the variable dividend—from under $2 billion at the end of October to over $10 billion at the end of December—with low transaction costs.
Q&A highlights: severity, pricing/mix, regulation, and autonomous vehicles
In the live Q&A, executives addressed auto severity, noting it had been “relatively flat” for both trailing twelve months and the quarter, though they said bodily injury (BI) severity remains an area watched closely due to factors such as attorney representation and larger loss costs. Management also said it continues monitoring parts and labor trends, noting parts prices were increasing “a little bit higher than labor rates.”
On premiums per policy and pricing, management said it was “hard to say” how the year would unfold and reiterated a willingness to make rate adjustments to support growth while targeting a 96 combined ratio or better. Executives cited factors affecting the relationship between premium growth and policy growth, including rate changes, mix shifts as the company “opened up” growth, and a higher mix of six-month policies versus 12-month policies.
Asked about regulation and affordability, management pointed to Florida as a key example of reform impacting affordability, citing Florida tort reform (House Bill 837) and saying a new policy purchased “today versus a year and a half ago” would be about “20% less” expensive. The company also highlighted internal affordability initiatives, including a “Customer Preservation” team that conducts policy reviews; management said 4 million customers who called in during 2023 saw an average decrease of 21%. It also cited loyalty rewards, which management said equated to “about a billion and a half” in savings in 2023.
On Florida specifically, management said the company reduced rates three times over the past year and is watching combined ratio performance closely, while noting catastrophe risk typically comes later in the year.
On autonomous vehicles, incoming CFO Andrew Quigg said Progressive has modeled advanced safety technology for more than a decade and recently updated projections. Even with “strong assumptions” about safety technology efficacy, he said the company still projects U.S. personal and commercial vehicle insurance will “grow robustly for decades,” while also noting Progressive’s projections have “consistently underestimated” actual market growth. Quigg discussed adoption timelines—citing an average U.S. vehicle age of about 13 years—and described challenges such as “double counting” safety benefits and the potential for higher severity from technology-rich vehicles. He also said Progressive’s telematics (Snapshot), vehicle-level segmentation, and experience insuring transportation network companies position it to respond as mobility changes over time.
Separately, CEO Tricia Griffith announced Sauerland will retire in July and that Quigg is expected to assume the CFO role at that time.
About Progressive (NYSE:PGR)
Progressive Corporation is a large U.S.-based property and casualty insurer that primarily underwrites personal auto insurance along with a broad suite of related products. Its offerings include coverage for private passenger automobiles, commercial auto fleets, motorcycles, boats and recreational vehicles, as well as homeowners, renters, umbrella and other specialty P&C products. Progressive also provides claims handling, risk management and related services to individual and commercial policyholders.
The company distributes its products through a mix of direct channels—online and by phone—and an extensive independent agent network.
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