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Nonrenewal of homeowners partnership may add to Progressive's property growth

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Nonrenewal of homeowners partnership may add to Progressive's property growth

The termination of one of several third-party arrangements through which Progressive Corp. offers homeowners coverage to its auto insurance customers could incrementally add to an already fast-growing book of business.

Ameriprise Financial Inc. officials confirmed during a recent conference call that the company is curtailing a partnership with Progressive that dates back to the start of the decade as part of a broader effort to curtail catastrophe exposure. Product filings submitted by Ameriprise's IDS Property Casualty Insurance Co. indicate that a Progressive subsidiary intends to offer replacement coverage to the affected policyholders.

Progressive has continued to refer customers to companies like Ameriprise and American Family Mutual Insurance Co. S.I.'s Homesite Group Inc. even after it acquired a majority stake in the homeowners insurance group that includes American Strategic Insurance Corp. in 2015, filings show. IDS uses a range of co-branding alliances with commercial institutions and affinity groups to generate much of its auto, home and umbrella product sales; its arrangement with Costco Wholesale Corp., which began in August 2001 and runs through March 2020, accounted for 93% of all new policies sold in 2017 and 91.7% of its new home and umbrella sales.

The Costco partnership was an offshoot of the credit card agreement that the warehouse club maintained at the time with American Express Co., the company that would later spin off Ameriprise.

The importance of homeowners coverage to Progressive has only increased since then given the success the company has found in attracting customers who wish to bundle their auto and home coverages. That strategic focus is reflected in the accelerating growth in the number of homeowners policies written directly by Progressive companies. Progressive's property policies in force surged by 34.7% in June to nearly 1.8 million, according to its most recent earnings release. It marked the 12th consecutive month in which the year-over-year growth rate increased.

Progressive plans to transition American Strategic Insurance's products to its own brand in the coming years, and its introduction of the HomeQuote Explorer application in 2017 facilitated ASI's expansion into the direct channel. The agency channel has traditionally accounted for a majority of American Strategic Insurance's business.

The amount of policies written by IDS and its affiliates through the Progressive partnership is not immediately clear on a nationwide basis. But in New York, according to one filing, IDS reported that it acquired 23.2% of its 8,237 homeowners policies in force as of February, including condominium and renters business, through the Progressive Home Advantage program.

The filing confirmed that IDS intends to "nonrenew the entire book" of Progressive Home Advantage business following a "mutually agreed upon termination" of the agency agreement. The New York nonrenewals will occur through June 2021 based on a provision of the state's insurance law that provides for a three-year required policy period for personal lines coverage. IDS separately reported 1,221 policies affected by the termination in Oklahoma.

Ameriprise CFO Walter Berman said during the earnings call that the company has been particularly seeking to reduce its homeowners insurance exposure in "severe convective storm states. He also noted that the company's homeowners policy count had declined by 12% on a year-over-year basis. Statutory data show that homeowners direct premiums written by IDS and its affiliates declined by 14.2% in the first quarter, which represented their first year-over-year decline since the time of the Costco partnership.

Net results from the Insurance Expense Exhibits of the annual statutory statements of IDS and its affiliates show that the group generated a combined ratio of 131.3% in the homeowners business in 2017, and their combined ratios in the business line have exceeded 107% in each of the past three years. Based on data reported on the state pages of annual statements, the group generated direct incurred loss ratios in the homeowners line of 100% and above four times in the past five years in Colorado, Georgia, Montana, Nebraska and South Dakota. Perhaps more problematic to recent results were the 2017 homeowners direct incurred loss ratios of 170.2% and 117.2% in California and Texas, its two largest states for the business line.

IDS entered a reinsurance agreement in 2017 through which it ceded 90% of the premiums and losses of a segment of its homeowners business as it sought to address the risk of significant losses.

When asked about Ameriprise's future in the P&C business, Chairman and CEO James Cracchiolo said that it is "well on its way" to showing improved underwriting results. From a strategic perspective, Cracchiolo said that the business benefits from "very good" partnerships and customer satisfaction, but he did not rule out eventually conducting an evaluation with those partners "if there are things that we should consider" in a strategic sense.