Progressive Outperforms in November

Progressive Corp.’s (PGR) earnings per share for November 2011 were 20 cents, increasing 18% year over year while surging 122% sequentially. Net income for the month was $124.7 million, up 13% year over year and 122% sequentially.

The company recorded net premiums of $1.07 billion during November 2011, up 6% from $1.01 billion in November 2010 but declined 26% from $1.45 billion during October 2011. Net premiums earned were $1.16 billion, up 4% from $1.12 billion in the year-ago period but down 20% from $1.45 billion in the prior month.

Net realized gains on securities were $42.1 million during November 2011, an increase from $29.4 million in November 2010 as well as $10.5 million in October 2011. The combined ratio − the percentage of premiums paid out as claims and expenses − improved 60 basis points over the prior-year period to 90.1% in the month under review.

During November, policies in force remained healthy, with the Personal Auto segment increasing 5% year over year and 0.2% sequentially. Special Lines also increased 5% year over year but dragged 0.4% over the preceding month.

In Personal Auto, Direct Auto reported a growth of 7% year over year and 0.4% from the preceding month. Agency Auto was up 4% year over year and 0.1% from the last month. However, Progressive’s Commercial Auto segment continued to drag results, reporting a decline of 0.5% year over year.

Total expenses for the reported month increased 3.7% to $1.06 billion from $1.03 billion in November 2010. The major components contributing to the increase in total expenses were a 1.9% increase in losses and loss adjustment expenses, a 2% increase in underwriting expenses and a 15% increase in policy acquisition costs.

Progressive reported a book value per share of $9.71, up from $9.63 as of November 30, 2010 and up from $9.38 as of October 31, 2011.

Return on equity on a trailing 12-month basis was 17%, up from 16.7% in November 2010 but down from 17.2% in October 2011. The debt-to-total-capital ratio was 29.1% as of November 2011, up from 23.9% as of November 2010 but flat compared to October 2011.

We maintain our Neutral recommendation on Progressive. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Headquartered in Mayfield Village, Ohio, The Progressive Corporation is one of the largest auto insurers in the country. It is a leading independent agency writer of private passenger auto coverage, a market leader for the motorcycle product and is one of the leading companies in the commercial auto insurance market. It competes with Allstate Corporation (ALL).