The Barchart.com data for Wednesday’s price surprises shows Cleveland-based property and casualty insurance company Progressive (PGR) in the 11th spot, up 8.8% in morning trading on volume of 1.75 million, 72% of its 30-day average volume.
We’re only one hour into trading, folks. Get ready for PGR stock to blow through its 30-day.
What’s going on? Progressive reported its July results. Premiums are way up. However, because the company is focused on taking market share at the moment, its profits aren’t nearly as high as they historically have been. As a result, investors have stayed away in 2023.
Despite today’s gains, it’s only up 4.7% on the year. Without today’s bump, it would be in the red year-to-date.
If you didn’t buy Progressive in July’s correction, you still have time to hop on the bandwagon. Here’s why you should.
Let’s Consider July’s Results
Progressive’s net premiums written (NPW) in July was $5.95 billion, 21% higher than in July 2022. Meanwhile, its net premiums earned (NPE) were $5.65 billion, 20% higher year-over-year.
Double-digit growth. That’s what I call taking market share. Of course, its net income in July was 12% lower than a year ago. Per-share earnings declined by 13% to $1.02 a share.
Countrywide, its total policies in force were 29.64 million, 11% higher than a year ago July. All three of its segments: personal lines, commercial lines, and property, all experienced gains in their policies in force during July. Its personal lines business, which accounts for 86% of its policies in force, jumped by 12% in the month.
As I said, Progressive is opting to make hay while the sun shines, forgoing profits for market share.
Through the first seven months of the year, Progressive’s NPW was $36.78 billion, 20% higher than in the same period a year ago, while its NPE was $33.64 billion, 17% higher YOY.
Due to wildfires and floods, the company’s net catastrophe loss ratio YTD on a companywide basis was 4.3%, up from 2.6% a year ago. However, despite the losses from its property business, the combination of strong underwriting practices and double-digit increases in NPE, its combined ratio -- defined as (Claim-related Losses + Expenses) / Earned Premium -- was 98.2% YTD. Anything below 100% indicates an underwriting profit.
YTD through July, business remains healthy across Progressive’s various segments.
What About Market Share?
The company aims to generate a combined ratio of 96% or lower. In the first six months of 2023, it hasn’t done that, and that lack of industry-beating profitability has weighed on its share price.
So, the combined ratio of 90.6% in July is likely one of the reasons PGR is up Wednesday. That’s a significant improvement from 104.9% in June.
CEO Tricia Griffith discussed its 96% target in the Q2 2023 conference call. Specifically, she emphasized that it's a balancing act between growth and profit. Sometimes, you can’t have both.
“While our results through the first half of 2023 fell well short of our 96 combined ratio target, I continue to believe in our people and our strategy. …” Griffith stated.
“We continue to manage to this calendar year target, maintaining the discipline that has allowed us to grow in the past with better profitability than the industry.
“At the same time, we will be pragmatic in our approach to growth and remain cognizant of long-term value, which we continue to believe is served well by balancing growth and profitability.”
Further, the CEO explained that there is a 96% combined ratio target for a client's lifetime, balanced with a 96% combined ratio in a calendar year.
“[We] price across the lifetime of a policy and balance our near-term and long-term growth with our 96 calendar-year,” she said while concluding her prepared remarks for the Q2 2023 conference call.
When asked whether Progressive would meet its 96% target for the calendar year 2023, the CEO said there were ways to meet the target, such as cutting back on advertising if it felt reaching the target was more important than continuing to take market share and grow.
Griffith points out in the Q2 2023 conference call that in the first six months of 2023, Progressive added 2.2 million policies in force, a “spectacular” number, in her opinion.
However, she further emphasized that a commitment to profits is one of the company’s five core values. They help pay for future growth. It won’t have a problem throttling back on growth through reduced spending or higher-priced policies.
Ultimately, it will gain market share in the future, whether this year, next year, or five years from now.
Bottom Line: Progressive’s a Buy!
From where I sit, Griffith is one of the best CEOs in the S&P 500. Since taking the helm on July 1, 2016, Progressive’s stock is up 327%, almost three-fold higher than the index.
I don’t doubt that the company will continue to deliver profitable growth for shareholders under Griffith's leadership.
But much like share prices, it won’t move higher in a straight line. There will be setbacks over the years, such as what’s happening in 2023.
If you’re a long-term investor, PGR is a buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
