Progressive Corp.'s commercial auto results improved in late 2016 even before many of the numerous rate increases for which it filed had taken effect for renewing policies.
A review of U.S. product filings obtained by S&P Global Market Intelligence finds that Progressive subsidiaries submitted more than 20 requests for commercial auto rate increases ranging up to as much as 20.7% between August 2016 and December 2016. They filed for only two such rate increases during the year-earlier period.
The recent activity followed what former CEO Glenn Renwick characterized during an August 2016 conference call as a "rare spike" in the company's commercial auto combined ratios during the middle part of the year. Commercial Lines President John Barbagallo said during Progressive's Oct. 6, 2016, investor day, that the company had kicked its ability to change rates across the portfolio "into gear" after it began to observe an uptick in claims frequency.
Progressive reported a commercial lines combined ratio of 103.3% in June 2016, the first time in 27 months that its combined ratio in that segment exceeded 94.2%. The commercial lines combined ratios during the subsequent three months were 98.7%, 102.7% and 96.8%. Underwriting margins have come down since then, and the company reported a favorable year-over-year comparison in its commercial lines combined ratio in December 2016 for the first time since February 2016 with a result of 90.9%.
Notwithstanding the recent moderation, the company's full-year commercial lines combined ratio of 93.6% marked an increase from 84.1% in 2015, and it stands as the highest such result Progressive has reported since 2012.
"We've responded decisively, and we've responded quickly, and those rate changes will certainly help the combined ratio, but it will take time," Barbagallo said during the investor day as he explained that about 90% of the company's commercial lines policies have a 12-month term.
The effective dates for renewal business for the rate increases Progressive submitted since the start of August 2016 and had been approved or otherwise disposed by year-end 2016 ranged from Nov. 5, 2016, for a United Financial Casualty Co. commercial auto program in Pennsylvania with $76.1 million in annualized written premium and an Artisan & Truckers Casualty Co. Wisconsin program with $23.9 million in premium to Feb. 5 for a Progressive Mountain Insurance Co. Georgia program with $85.8 million in premium. As such, certain of the rate increases may not fully earn into Progressive's commercial auto book until as late as 2019.
The Georgia action represented one of the nine requests for commercial auto rate increases of 10% or more that had been submitted by individual Progressive subsidiaries and disposed during the last five months of 2016. Progressive Casualty Insurance Co. most recently obtained approval Jan. 25 for a 15.8% increase in commercial auto rates on a Connecticut program with $30.9 million in associated premium. The same subsidiary also is responsible for the largest increase a Progressive company received on a percentage basis during the recent filing cycle: a 20.7% hike on its $9.9 million portion of a Massachusetts book with nearly $21 million in premium.
Barbagallo said Progressive implemented various steps on an interim basis aside from rate filings to address the margin compression it observed, including through restricting new business writings in certain high-frequency segments and slowing down its growth rate.
Commercial lines policies in force increased 9.4% year over year in December 2016 to approximately 607,900. But that was the slowest year-over-year growth rate the segment had posted since January 2016. The commercial lines policy count declined sequentially in both November 2016 and December 2016 after it peaked at approximately 613,100 in October 2016.
Barbagallo said there had been an increase in claims frequency in the auto business in general, with factors such as a rise in distracted driving and miles driven during a time of lower gas prices possibly contributing. In commercial auto more specifically, Barbagallo has witnessed "positive movement in a number of the macroeconomic factors that we track that generally correlate with frequency," such as home sales, construction spending, trade tonnage and aggregate deliveries.
"We believe this is real, and we are reacting to it," Barbagallo said, adding that he believes Progressive began to take action before many of its competitors.
"When that's happened historically," he said, "that has typically set up very favorable market conditions for us down the road."