Progressive's October Earnings Decrease As Expenses Rise

Progressive Corp.’s (NYSE:PGR) Oct 2016 operating earnings per share of 11 cents plunged 32% year over year.

Including net realized gains, net income per share was 12 cents, down 23% year over year.

Progressive’s net premiums written was $2.3 billion in Oct 2016, up 16% from $1.9 billion in the year-ago month. Net premiums earned jumped 14% year over year to about $2.2 billion from $2 billion.

Net realized gains on securities in the quarter were $5.2 million, up 30% year over year. Combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated 310 basis points (bps) from the prior-year quarter to 97.1%.

Total operating revenue came in at $2.3 billion. Revenues improved 13.3% year over year due to 13.6% increase in premiums, 5.5% higher investment income, 10.1% rise in fees and other revenues, and 11.9% increase in service revenues.

Total expense increased 17% to $2.2 billion. The increase in expenses can be primarily attributed to 22% higher losses and loss adjustment expenses and 12.9% rise in policy acquisition costs. Nonetheless, a 5.2% decrease in other underwriting expenses offered some respite.

In Oct 2016, the company recorded decent policies in force and saw the Personal Auto segment improving 8% from Jun 2015 to 10.4 million. Special Lines inched up 4% from the prior-year month to 4.3 million.

In Progressive's Personal Auto segment, Direct Auto grew 10% year over year to 5.4 million. Agency Auto increased 6% from the comparable year-ago month to nearly 5 million.

Progressive’s Commercial Auto segment improved 11% year over year to 0.6 million. The Property business had about 1.2 million policies in force in the reported month, up 10% year over year.

Progressive’s book value per share was $13.93 as of Oct 31, 2016. This indicates a 5.6% increase from $13.16 as of Oct 31, 2015.

Return on equity on a trailing 12-month basis was 13.3%, down 280 bps from 16.1% in Oct 2015. Debt-to-total capital ratio too deteriorated 200 bps year over year to 28.1% as of Oct 31, 2016.

Zacks Rank and Other Stocks to Consider

Progressive carries a Zacks Rank #3 (Hold). Some better-ranked P&C insurers are Alleghany Corporation (NYSE:Y) , Arch Capital Group Ltd. (NASDAQ:ACGL) , and Mercury General Corporation (NYSE:Y) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercury General, which is engaged in writing personal automobile insurance in the U.S., has returned 24.6% year to date. This is substantially above 6.5% returned by S&P 500.

Alleghany, a provider of P&C reinsurance and insurance businesses in the U.S. and internationally, has returned 18.4% year to date. This is substantially above 6.5% returned by the S&P 500.

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide, has returned 15,3% year to date. This is substantially above 5.7% returned by the Nasdaq.

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