The Progressive Corp. said its results for the first quarter were “significantly impacted” by the spread of the coronavirus and social distancing and shelter-in-place restrictions. Despite a 30 percent increase in underwriting income, Progressive’s consolidated net income —$692.7 million— is a 36 percent drop from the first quarter. The insurer cited significant investment losses as a main reason.
The insurance subsidiaries generated $9.9 billion of net premiums written during first-quarter 2020, which is a 7 percent increase over first-quarter 2019, and they turned in an underwriting profit margin of 13.1 percent for the quarter. Personal lines grew 8 percent and property grew 15 percent, primarily reflecting an increase in volume.
The commercial lines business net premiums written decreased 2 percent in the first quarter– including a $110.5 million reduction the net premiums written on transportation network company business to reflect the impact from COVID-19 restrictions on the estimated number of miles driven.
As a result, on a year-over-year basis, companywide net premium written, which grew 14 percent and 10 percent in January and February, respectively, decreased 3 percent in March.
According to the quarterly filing, the combined ratio for the quarter was 86.9 compared to 88.8 for the same period last year.
Its investment portfolios suffered significant declines during March, after COVID-19 restrictions were put in place, although valuations recovered to an extent by month end.
Over the entire first-quarter 2020, each of the company’s operating segments generated a profit. Underwriting margins varied by month, with January reporting 7.9 percent, February 9.7 percent and March 22.9 percent. Personal lines underwriting profit margin of 13.7 percent for the first quarter of 2020 was favorably impacted by 1.4 points from special lines products. Commercial lines underwriting profit margin for the first quarter was 9.5 percent. On a year-to-date basis through February 2020, personal and commercial lines underwriting profit margins were 8.5 percent and 7.7 percent, respectively.
The insurer is paying back a total of about $1 billion to its personal auto customers, via credits or payments of 20 percent of their monthly premiums. These payments, which will reduce underwriting profitability, will be made separately in May and June.
The carrier recorded a $103.0 million increase to loss and loss adjustment expenses to reflect revised estimates of claim settlement costs. This adjustment increased the loss and loss adjustment expense ratio 1.1 points for the first quarter.
Also, its expense ratio was affected by a $71 million increase in the allowance for doubtful accounts relating to the insurer suspending cancellations and non-renewals for non-payment and pausing collection activities to help policyholders experiencing financial hardship.
COVID: Before and After
The reporting showed a tale of two periods: pre-COVID and post-COVID restrictions. The insurer saw the most significant impacts on activity and operations during the last three weeks of March (the COVID period).
During March, the company began to experience a significant decrease in personal auto accident frequency of 47 percent compared to the same period last year, and it said it expects frequency will continue to be impacted by COVID-19 restrictions, to the extent people continue to drive less. For first-quarter 2020 compared to the same period last year, frequency was down 18 percent for personal auto and 5 percent for commercial auto on a trailing 12-month basis.
Although frequency was down year over year, there was an increase in severity for both personal and commercial auto products of 11 percent and 20 percent, respectively, during March.
During the COVID period, the carrier saw substantial declines in shopping activity and significant decreases in new applications in its personal lines businesses (new personal auto applications were down 23 percent from 2019’s first quarter) and commercial lines businesses (new applications down 29 percent), although the company said renewal application growth rates remained generally consistent with the pre-COVID period.
Prior to COVID-19 restrictions, during January and February 2020, total new personal auto application growth was 8 percent and 12 percent, respectively. Post-COVID-19, there was a decrease in new personal auto applications of about 23 percent. Total personal auto renewal applications were 10 percent higher than the first quarter last year and the renewal application rate was relatively unchanged in the post-COVID period. New applications for special lines products were up 10 percent during first-quarter 2020 but were down about 26 percent post-COVID-19.
For the commercial lines business, new applications increased 5 percent on a year-over-year basis during the first quarter of 2020. Prior to the impact of COVID-19 restrictions, during January and February 2020, commercial lines experienced new application growth of 13 percent and 19 percent, respectively. Post-COVID-19, new commercial applications decreased 29 percent on a year-over-year basis compared to the same period in 2019.
The property business had a 7 percent increase in new applications for first-quarter 2020 compared to a 3 percent increase in new applications for the same period last year. Unlike the personal and commercial lines businesses, the new application growth rate was not notably impacted as a result of COVID-19 restrictions during the first quarter of 2020. The insurers attributes this to the strong housing market for new home sales through the period; however, it cautioned that COVID-19 restrictions “could impact property operating results or growth in future periods.”
In April, auto insurance growth in quotes and new applications from agents was consistent with the decreases recorded in March, post-COVID-19 restrictions. The company said it believes that “agents having to work from home could be contributing to the continuation of these decreases.”
In the direct auto business, there have been positive signs of shopping patterns, especially during the latter part of April, based on quoting activity; however, new applications are still less than the same period last year.
With COVID-19 restrictions still in place for the majority of the country in April, incurred auto frequency continued to be down significantly from last year.
Operations During Pandemic
The insurer instituted work-from-home measures in mid-March, and by early April, 95 percent of its employees were working from home.
To help employees, the company paid a portion of annual bonuses in April, excluding senior leaders, and is providing flexibility in their paid time off.
“We continue to make investments in our infrastructure and are currently maintaining our staffing levels, as we prepare for a return to more normal insurance markets and economic conditions,” the company filing said.
In addition to helping customers, the company is offering its agents an opportunity to receive an advance on their 2020 annual bonuses and will make about $40 million available through these advances. Progressive is also making charitable donations totaling over $10 million.
The insurer said it expects that its operations and financial results will continue to be impacted as long as restrictions related to COVID-19 are in place, “although the nature of these impacts may change over time, and we cannot predict the likely duration or extent of these impacts.”
It also can’t predict what things will be like after restrictions are lifted.
“Moreover, even after the current restrictions begin to be lifted, there remains significant uncertainty regarding the potential for and timing of any economic recovery, whether and when driving and insurance shopping patterns will return to historical patterns, and the near-term and longer-term impacts on insurance markets, small businesses, our critical vendors and counterparties, the investment markets, and the regulatory environment, among many other issues and, ultimately, how our businesses and financial results will be impacted during these recovery periods.”
*This story ran previously in our sister publication Insurance Journal.