Progressive's shares fall as combined ratio rises, policy growth slows

Shares of The Progressive Corp. lost more than 5% during a week where the insurer reported first-quarter earnings and March result that showed year-over-year profit declines and increasing combined ratios.

The broader markets likewise slumped during the holiday-shortened week ending April 14, with the S&P 500 losing 2.13% to 4,488.28. The S&P 500 Insurance Index fell 1.25% to 598.47.

Progressive's combined ratio for the first quarter came in at 94.5%, an increase from 89.3% a year earlier. Total policies in force for personal lines in March were up compared to a year ago, but policies in force for agency auto were slightly down.

Progressive has historically been one of the most consistent and most profitable auto insurers for many years but has produced "volatile" results recently as it navigates a period of cost uncertainty, CreditSights analyst Josh Esterov said. The auto insurance market overall is becoming less homogenous with the emergence of two groups of drivers: those who are commuting as they did prior to the pandemic and those who have changed their habits significantly due to work-from-home arrangements.

"You've got this challenging cost environment, combined with a challenging customer retention and customer acquisition environment because now you have to market and have products and solutions for two distinct classes of drivers," Esterov said.

Progressive, which normally has strong membership growth, has seen that slow of late, Esterov added.

CreditSights analyst Connor Burnham also pointed out in an interview that Progressive executives had relayed on a recent investor call that it would take rate increases some time to flow through to insurers' earnings. Progressive may be "uniquely positioned" to experience more benefit from those rate increases than peers since the majority of its policies are issued at a six-month duration, instead of a year, Burnham said.

Progressive's stock dropped 5.43%, placing it among the bigger losers of the week.

Inflation has negatively impacted property and casualty insurers across the board, thanks to higher labor and repair costs. As measured by the consumer price index, U.S. inflation in March rose 8.5% year over year, the largest 12-month increase since December 1981, according to a report from the U.S. Bureau of Labor Statistics. Prices rose 1.2% in March compared to just a month earlier.

Elsewhere in the P&C sector, Chubb Ltd. declined 2.62%, while The Allstate Corp. and The Travelers Cos. Inc. had more modest declines of 0.54% and 0.34%, respectively.

In the managed care space, UnitedHealth Group Inc. released first-quarter earnings reflecting year-over-year revenue and profit increases.

Esterov said the health insurance giant has consistently been one of the "most stellar performers across the insurance industry" and would be able to handle any kind of ongoing uncertainty from the pandemic.

UnitedHealth raised its full-year earnings outlook, as costs related to COVID-19 decreased and there were no signs of significant long-term health impacts due to deferred care during the pandemic.

UnitedHealth shares ended the week down 2.04%.