Progressive boosts H1 reserves on pressure from auto claims, Fla. losses

Progressive Corp. continued to endure unfavorable reserve development in the first half of this year due to significant personal auto claims left over from 2022.

The insurer raised its reserves by $1.1 billion over the first six months of the year, the most in an S&P Global Market Intelligence analysis limited to the 10 property and casualty insurers with the largest favorable or unfavorable reserve release during that time span.

Progressive in its latest Form 10-Q said $870 million, or 78.34%, of the increase was attributable to personal auto claims for physical and property damage and that Florida-related claims, mainly from Hurricane Ian, accounted for 40% of its prior accident year development.

CEO Tricia Griffith said during an earnings call that "unforeseen severity trends" on previously closed claims have been driving prior-year adverse development countrywide, including longer vehicle repair times, longer rental times, higher parts prices and labor rates as well as "changes in subrogation trends."

"Fixing vehicle coverages are short-tailed, which explains why over 80% of the total year-to-date prior-year development is from the 2022 accident year," Griffith said.

The drag from Florida losses on Progressive's reserves is significant. If the Sunshine State is excluded from the equation the development from 2022 would be favorable compared to 2021, said Gary Traicoff, a corporate actuary for Progressive Casualty Insurance Co.

Traicoff added that 85% of the accidents reported in 2022 occurred in the second half of the year, which he said involves short-tail elements such as car repairs and increased severity, and that the insurer has "reacted very quickly to it."

The loss reserve development for Progressive added 1.8 points to the 2022 accident year's loss ratio for its entire group. The ratio stood at 79.3% at the end of June, up from 77.5% at year-end 2022.

Progressive was among 23 of 35 auto-focused insurers in the analysis with unfavorable reserve development through the first six months of 2023.

Nationwide Mutual Insurance Co. also had a substantial increase in its reserves to the tune of $681.6 billion in the first half of the year, during which the Columbus, Ohio-based carrier announced it planned to stop writing new business for selected lines.

Relief for some insurers' reserves

Several insurers in the analysis did manage to make positive strides in reducing their reserves in the first half of 2023.

State Farm Mutual Automobile Insurance Co. released $2.75 billion in reserves, Berkshire Hathaway had a $2.15 billion drop and Liberty Mutual Holding Co. reduced its reserves by $613.7 million.

Others who had reserve reductions included Swiss Re, at $535.9 million; Auto-Owners Insurance Group, with $250.1 million; and AXA SA, at $200.8 million.