Progressive's (PGR) May Earnings Plunge Y/Y As Expenses Rise

The Progressive Corporation PGR reported earnings per share of 13 cents for May 2019, which plunged 71% year over year. Improvement in revenues was offset by an increase in expenses.

May Results in Details

Progressive’s net premiums written were $2.66 billion, up 10% from $2.4 billion in the year-ago month. Net premiums earned were $2.73 billion, up 16% from $2.4 billion reported in the year-ago period.

Net realized loss on securities was $204.3 million against gain of $55.7 million in the year-ago month.

Catastrophe losses amounted to $95.8 million, wider than $52.3 million in the year-ago period, largely stemming from tornadoes and severe storms across the United States in May. Combined ratio — percentage of premiums paid out as claims and expenses — deteriorated 130 basis points (bps) year over year to 91.6%.

Total operating revenues came in at $2.9 billion. The top line improved 16.3% year over year owing to a 15.8% increase in premiums, a 33.4% surge in investment income, 20.6% growth in fees and other revenues plus 18.6% rise in service revenues.

Total expenses shot up 17.5% to $1.9 billion. This increase can be primarily attributed to 17.7% higher losses and loss adjustment expenses and 16% increase in policy acquisition costs. However, a 12.9% decline in other underwriting expenses was a partial offset.

In May, policies in force were impressive in both Vehicle and Property businesses. In its vehicle business, Personal Auto segment improved 13% year over year to nearly 14.2 million. Special Lines inched increased 3% from the year-earlier month to 4.5 million policies.

In Progressive’s Personal Auto segment, Agency Auto policies in force increased 11% to 6.7 million while Direct Auto increased 14% to nearly 7.5 million.

Progressive’s Commercial Auto segment rose 8% year over year to 0.7 million. The Property business had about nearly 2 million policies in force in the reported month, up 19% year over year.

Progressive’s book value per share was $21.08 as of May 31, 2019, up nearly 18.8% from $17.75 as of May 31, 2018.

Return on equity in the trailing 12 months was 31.7%, up 1000 bps from 21.7% in May 2018. Debt-to-total-capital ratio improved 70 bps year over year to 25.6% as of May 31, 2019.

Share Price Performance

Year to date, shares of Progressive have rallied 34.5%, outperforming the industry’s increase of 4.8%. Sustained solid operational results drove the outperformance.

Zacks Rank and Other Stocks to Consider    

Progressive currently carries a Zacks Rank #2 (Buy). Other top-ranked property and casualty insurance stocks include Alleghany Corporation Y, Argo Group International Holdings, Ltd. ARGO and CNA Financial Corporation CNA. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprise of 32.51% in the last reported quarter.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company delivered positive surprise of 34.09% in the last reported quarter.

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered positive surprise of 12.50% in the last reported quarter.

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