Progressive(PGR) - 2023 Q2 - Quarterly Report

Premium Growth and Policy Performance - Net premiums written grew 18% year-over-year to $14.7 billion in Q2 2023, driven by policy growth and rate increases[112] - Policies in force increased by 12$11,600.1 million in Q2 2023 compared to $9,472.5 million in Q2 2022[183] - Total underwriting operations net premiums written grew by 18$14,716.9 million in Q2 2023 from $12,422.1 million in Q2 2022[183] - Total Personal Lines net premiums earned grew 23$11,387.9 million in Q2 2023 from $9,272.4 million in Q2 2022[183] - Commercial Lines net premiums written increased by 2$2,366.4 million in Q2 2023 compared to $2,308.8 million in Q2 2022[183] Underwriting Performance and Losses - Combined ratio increased by 4.8 points to 100.4 in Q2 2023, primarily due to unfavorable prior accident years reserve development and higher catastrophe losses[109] - Catastrophe losses contributed 7.1 points to the underwriting loss in Q2 2023, with nearly 60$(71.2) million with a margin of (1.4)% in Q2 2023, compared to $260.3 million and 6.0$(64.3) million with a margin of (0.4)% in Q2 2023, down from $538.5 million and 4.4$12,170.1 million in Q2 2023 from $9,421.1 million in Q2 2022[159] - The total loss and LAE ratio increased by 6.5 points in Q2 2023 compared to the same period last year, primarily due to increased severity and higher catastrophe losses[160] - Net catastrophe losses incurred totaled$1,024.6 million in Q2 2023, up from $528.3 million in Q2 2022[161] - The company experienced 19 catastrophic weather events in Q2 2023, compared to 23 events in Q2 2022[161] Investment Performance - Net income increased by 164$59.3 billion at June 30, 2023, up from $53.5 billion at December 31, 2022[134] - Recurring investment income generated a pretax book yield of 3.1$59.27 billion, with fixed-income securities accounting for 95.4% ($56.56 billion) and common equities making up 4.6$2.71 billion)[209] - U.S. government obligations represented 53.3% ($31.60 billion) of the portfolio as of June 30, 2023, up from 36.0$18.72 billion) in June 2022[209] - Corporate debt securities accounted for 17.4% ($10.30 billion) of the portfolio as of June 30, 2023, slightly down from 19.6$10.17 billion) in June 2022[209] - The fixed-income portfolio had a duration of 2.9 years as of June 30, 2023, within the acceptable range of 1.5 to 5 years[217] - The portfolio's credit quality rating was AA as of June 30, 2023, with 26.9% of the fixed-income portfolio allocated to 5-year duration securities[218] - Group I securities (higher risk) made up 7.6% ($4.52 billion) of the portfolio as of June 30, 2023, down from 11.4$5.90 billion) in June 2022[212] - Group II securities (lower risk) accounted for 92.4% ($54.74 billion) of the portfolio as of June 30, 2023, up from 88.6$46.03 billion) in June 2022[212] - The fixed-maturity portfolio had total after-tax net unrealized losses of $2.6 billion as of June 30, 2023, compared to$2.2 billion in June 2022[213] - Equity securities had net holding period gains of $1.92 billion as of June 30, 2023, up from$1.84 billion in December 2022[215] - The portfolio's short-term investments decreased to 2.5% ($1.49 billion) as of June 30, 2023, from 8.9$4.61 billion) in June 2022[212] - AAA-rated fixed-income portfolio increased to 68.4% in June 2023, up from 57.7% in June 2022[219] - The company expects approximately $3.1 billion (13$9,845.8 million in June 2023, down from $11,929.9 million in June 2022[221] - Residential mortgage-backed securities decreased by 3.1$1,481.3 million and $820.8 million respectively, representing 63.7$2,154.7 million, including $472.2 million in single-family housing revenue bonds[230][231] - Corporate debt securities portfolio decreased to$10.3 billion in Q2 2023 from $10.7 billion in Q1 2023, with a reduction in high-yield securities exposure[233] - Preferred stocks portfolio declined to$1.1 billion in Q2 2023 from $1.3 billion in Q1 2023, primarily due to called or sold securities with less attractive risk/reward profiles[235][236] - Common equities portfolio held 762 out of 1,008 stocks in the Russell 1000 Index, representing 95$2.0 billion in damages, with additional substantial coverage for a second or third hurricane[163] - The new aggregate excess of loss reinsurance contract has a first retention layer threshold ranging from $500 million to$575 million, excluding named tropical storms and hurricanes[164] - Reinsurance coverage limits are $100 million for non-named storm property catastrophe losses and$85 million for other events[165] Expense Management and Ratios - Advertising spend decreased by 34% in Q2 2023, reducing the contribution to the combined ratio by 2.0 points[112] - Underwriting expense ratio decreased by 1.7 points in Q2 2023 compared to the same period last year, driven by a 34% reduction in advertising spend[180] - Non-acquisition expense ratio (NAER) increased by 0.4 points in Commercial Lines and 0.7 points in Property businesses in Q2 2023 compared to the same period last year[181] Capital and Shareholder Equity - Total capital (debt plus shareholders' equity) increased to $23.6 billion at June 30, 2023, compared to$22.0 billion at June 30, 2022[140] - The company repurchased 0.3 million common shares in the first six months of 2023 at a total cost of $40.1 million[144] Tax and Financial Metrics - The company reported recoverable income taxes of$44.0 million at June 30, 2023, compared to net current income taxes payable of $114.0 million at June 30, 2022[201] - Net federal deferred tax assets were$1.2 billion at June 30, 2023, compared to $1.0 billion at June 30, 2022[201] - The effective tax rate for the three and six months ended June 30, 2023, was 20.7$490.4 million for Q2 2023, with prior accident years contributing $206.9 million and current accident year contributing$283.5 million[172]