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Pandemic-related top-line pressure mostly absent from Progressive's June data

Progressive Corp.'s earlier cautionary statement about the potential for June premium growth to be "negatively impacted" by several factors proved unfounded in several key respects.

The year-over-year rate of growth in personal lines net premiums written of 14.8% in June lagged May's 20.8% result, according to the company's July 15 earnings release. But the pace of expansion on a trailing-12-months basis in that measure of business volume, as calculated by S&P Global Market Intelligence, increased incrementally to 12.7% from 12.6% between the two months.

June's growth rate was Progressive's highest since March 2019 when excluding December 2019 and May 2020, two months during that stretch that benefitted from elevated premium writings due to nuances in Progressive's fiscal calendar.

Progressive warned in its previous earnings release that the inclusion of the first few days of June within its May results artificially elevated the month's rate of growth in personal lines premiums written to such an extent that a normalized figure would have been about 8% to 10% lower than reported. The company, which notably accounted for premium credits to personal auto customers for April and May as underwriting expenses as opposed to a reduction in premium, also said its May results benefitted from the delayed recognition of policy renewals and a lesser amount of policy cancellations.

"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," Progressive said in the May earnings release, "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."

But the trailing-12-months' growth rate in personal lines premiums written increased sequentially in both May and June after having declined in 18 of the previous 19 months from a peak of 19.1% in September 2018. Second-quarter growth of 12.6% as calculated by S&P Global Market Intelligence topped Progressive's rates of expansion of 7.8% for the first quarter of 2020 and 12.5% for the year-earlier period.

The company's policies-in-force statistics also showed signs of continued strength. Across its personal auto business, June policy count rose 10.9%, including growth of 8.5% in the agency channel and 13% in the direct channel. Progressive's personal auto policies-in-force growth rates fell below 10% in March and April after having expanded by double-digit percentages for 30 straight months. June's growth in direct channel policy count was the highest Progressive had posted since June 2019.

Policy count trends were not universally favorable, however. In the commercial lines business, a June rate of expansion of 5.7% compared unfavorably to May's rate of 6.6%. Progressive, the No. 1 U.S. commercial auto insurer by 2019 direct premiums written, last experienced a slower growth rate in that business in November 2017.

From a bottom-line standpoint, Progressive's personal lines underwriting results remained historically favorable during a time in which miles driven have declined due to various COVID-19-related restrictions and behavioral changes, if not necessarily quite as dramatically as earlier in the second quarter.

The company's June GAAP loss ratio in the personal lines business of 62.1% was down from 72.1% from the year-earlier month, but up significantly from March, April and May, when its loss ratios were 52.2%, 42.3% and 52.8%, respectively.

The absence of the impact of the personal auto premium credits that the company distributed in April and May led to normalization in the expense ratio. The June personal lines result of 21.9% represented a decrease from 37.1% in April and 40.7% in May. Expense ratios at those elevated levels in combination with the higher June loss ratio would have caused Progressive's personal lines combined ratio to exceed management's 96% target.

In addition to the previous premium credits, Progressive's subsidiaries filed for premium rate decreases in several states during the past two months that are generally in the low- to mid-single digits.

The group's rate decrease of 4.2% across various companies will take effect on Aug. 27 for Pennsylvania renewals, for example. It has also requested an August effective date for a proposed rate decrease of 3.3% on Oregon personal auto business in a filing that the company said takes into account "emerging and expected experience due to COVID‐19." A previous set of Oregon personal auto rate decreases by Progressive companies was not formally disposed of by the state regulator until May 1, 2020, but they took effect on a file-and-use basis in the third quarter of 2019.