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Calendar, COVID-19 policyholder relief cloud Progressive comparisons

The perils of monthly financial reporting occasionally lead to unusual comparisons in certain metrics for Progressive Corp., but the unique circumstances facing the auto insurance industry further complicated matters in May.

Progressive reported a rate of growth in net premiums written for the month that was boosted by the inclusion of a few days from June as well as the effects of renewals from March and April that were pushed forward by billing leniency policies adopted in response to COVID-19.

Net premiums written in Progressive's personal lines business, excluding its property line, surged by nearly 20.8% in May after rising by 1.1% and 5.3% in March and April, respectively. It was the second-strongest monthly growth rate in the last two years, trailing only a December 2019 result that also reflected calendar-related effects. The first few days of June typically are associated with higher levels of premium volume, the company noted.

Progressive said the May growth rate in personal lines net premiums written "would have been about 8% to 10% lower than reported" in the absence of the calendar differences and the increase in renewals and decrease in cancellations owing to customer relief initiatives. The company did not break out the specific effects of each of those items on the reported growth rate.

"While significant uncertainty remains with respect to the impact of COVID-19 and federal, state, and local social distancing and shelter-in-place restrictions on our business, we anticipate that June's written premium growth rate will be negatively impacted due to the fiscal calendar timing and as a portion of policy cancellations suppressed by the billing leniency and state moratoriums are expected to take effect in June," the company said.

When viewing trends in personal lines net premiums written on a trailing-12-months basis, which may help reduce noise associated with month-to-month fluctuations in the fiscal calendar, Progressive's growth rate ticked up to 12.6% through May from 11.8% through April, but was slightly below the 12.7% expansion the company had posted through March.

Progressive, which ranks as the No. 1 U.S. commercial auto insurer based on 2019 direct premiums written, reported a 12.7% rise in its commercial lines net premiums written in May. For the first five months of 2020, Progressive's commercial lines premium volume remains down by 2.9% on a year-over-year basis. When excluding a one-time adjustment of $110.5 million in March related to Progressive's transportation network company businesses, however, the year-to-date change would have been positive by 2.7% all else being equal.

Commercial lines policies in force rose to a new high of 776,600, an increase of more than 6.6% year over year. The release did not include any discussion specific to commercial lines premium trends, however.

The effects of COVID-19 were also evident in both losses and expenses.

Progressive's combined ratio in its agency auto business of 93.6% marked an increase of 4.5 percentage points from May 2019. It was the highest monthly combined ratio for that business segment since October 2018.

On a companywide basis, Progressive's loss and loss-adjustment-expense ratio declined to 55.1% from 70.5% on a year-over-year basis, but its expense ratio surged to 38.6% from 21.1%. Progressive primarily attributed the sharply lower loss ratio to a "significant decrease in auto accident frequency that we experienced as a result of the COVID-19 restrictions."

The higher expense ratio reflected Progressive's chosen means of accounting for the $510 million in premium credits that it issued to customers with personal auto policies in force as of May 31 in response to those lower claims trends. It also reflected approximately 1.1 points from a build in the allowance for doubtful accounts following an internal assessment of premiums receivable linked to billing leniencies.

Progressive subsidiaries, such as Progressive Preferred Insurance Co., have informed state regulators in a series of filings that insured commercial vehicles may be eligible for a lay-up credit of between 25% and 75% of one or two months of premium for periods of non-use or significantly limited use.

All told, Progressive's reported companywide combined ratio of 93.7% was only 2.1 percentage points higher than in May 2019 despite the numerous moving parts.

It would be premature to extrapolate the company's results to the remainder of the auto insurance industry, however, given various differences in the way in which carriers have opted to provide and account for COVID-19 premium credits.