Progressive Corporation 2020 Shareholders’ Report

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think

Introduction

For this year’s annual report, we chose “think broadly” as the theme and selected the work of 30 multicultural artists from Progressive’s expanding collection of contemporary art. This diverse set of artists reflects our versatility as an organization as well as our willingness to step back and assess the many potential ways with which to grow. The painting A CHANGE IS GONNA COME was created by artist Jeffrey Gibson, who combines indigenous history and textiles with words he believes resonate not only for Native American people but people of all backgrounds. Gibson states, “Ultimately, everyone is at an intersection of multiple cultures, times, histories. The world is shifting and changing and if you’re engaged in the world, you are also shifting and changing.” At Progressive, we relish change and know that it’s not only inevitable, but exciting and it fuels us to come to work every day with a mindset to win, and win in the right way. The multiple vantage points shown throughout this report offer a glimpse into our unique company culture and enduring business.

Jeffrey Gibson, A Change is Gonna Come — **Jeffrey Gibson,** *A CHANGE IS GONNA COME*

About Progressive

broadly

The Progressive Group of Insurance Companies, in business since 1937, is one of the country’s largest auto insurance groups, the largest seller of motorcycle policies, the market leader in commercial auto insurance, and one of the top 15 homeowners carriers, based on premiums written. Progressive is committed to becoming consumers’ number one choice and destination for auto and other insurance by providing competitive rates and innovative products and services that meet customers’ needs throughout their lifetimes, including superior mobile, online, and in-person customer service, and best-in-class, 24-hour claims service.

Progressive companies offer consumers choices in how to shop for, buy, and manage their insurance policies. Progressive offers personal and commercial auto, motorcycle, boat, recreational vehicle, and home insurance. We operate our Personal and Commercial Lines businesses through more than 35,000 independent insurance agencies throughout the U.S. and directly from the Company online, by phone, or on mobile devices. Our homeowners business is underwritten by Progressive Home, and other select carriers, throughout the United States.

Bovey Lee, Rescue Mission — **Bovey Lee,** *Rescue Mission*

Five-Year Financial Highlights

	Six Months Ended June 30,		Years Ended December 31,
	2020	2019	2019	2018	2017	2016
(billions – except per share amounts)
Net premiums written	$20.0	$18.4	$37.6	$32.6	$27.1	$23.4
Growth over prior year	9%	14%	15%	20%	16%	14%
Net premiums earned	$19.1	$17.3	$36.2	$30.9	$25.7	$22.5
Growth over prior year	10%	17%	17%	20%	14%	13%
Total revenues	$20.3	$18.8	$39.0	$32.0	$26.8	$23.4
Net income attributable to Progressive	$2.49	$2.06	$3.97	$2.62	$1.59	$1.03
Per common share	$4.22	$3.48	$6.72	$4.42	$2.72	$1.76
Underwriting margin	12.7%	10.4%	9.1%	9.4%	6.6%	4.9%

	Six Months Ended June 30,		Years Ended December 31,
	2020	2019	2019	2018	2017	2016
At Period-End (billions – except shares outstanding, per share amounts, and policies in force)
Common shares outstanding (millions)	585.4	584.1	584.6	583.2	581.7	579.9
Book value per common share	$27.63	$21.98	$22.54	$17.71	$15.96	$13.72
Consolidated shareholders’ equity	$16.7	$13.3	$13.7	$10.8	$9.3	$8.0
Common share close price	$80.11	$79.93	$72.39	$60.33	$56.32	$35.50
Market capitalization	$46.9	$46.7	$42.3	$35.2	$32.8	$20.6
Return on average common shareholders’ equity
Net income attributable to Progressive	31.2%	28.3%	31.3%	24.7%	17.8%	13.2%
Comprehensive income attributable to Progressive	34.9%	34.3%	35.0%	23.8%	21.7%	14.9%

Policies in force (thousands)
Personal Lines
Agency – auto	7,362.5	6,783.7	6,994.3	6,358.3	5,670.7	5,045.4
Direct – auto	8,507.6	7,528.4	7,866.5	7,018.5	6,039.1	5,348.3
Special lines	4,790.5	4,510.2	4,547.8	4,382.2	4,365.7	4,263.1
Total Personal Lines	20,660.6	18,822.3	19,408.6	17,759.0	16,075.5	14,656.8
Growth over prior year	10%	10%	9%	10%	10%	6%
Commercial Lines	775.8	734.2	751.4	696.9	646.8	607.9
Growth over prior year	6%	8%	8%	8%	6%	9%
Property	2,336.1	2,071.6	2,202.1	1,936.5	1,461.7	1,201.9
Growth over prior year	13%	17%	14%	32%	22%	12%
Companywide total	23,772.5	21,628.1	22,362.1	20,392.4	18,184.0	16,466.6
Growth over prior year	10%	10%	10%	12%	10%	7%

Private passenger auto insurance market¹	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	NA	$240.7	$222.3	$206.6
Market share²	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	NA	11.1%	10.1%	9.4%

	Six Months Ended June 30,		Years Ended December 31,
	2020	2019	2019	2018	2017	2016
Stock Price Appreciation (Depreciation)³
Progressive	14.4%	37.7%	25.1%	9.3%	61.6%	14.7%
S&P 500	(3.1)%	18.5%	31.5%	(4.4)%	21.9%	11.9%

NA = Not available; final comparable industry data will not be available until our third quarter report.

¹Represents net premiums written as reported by A.M. Best Company, Inc.

²Represents Progressive’s private passenger auto business, including motorcycle insurance, as a percent of the private passenger auto insurance market.

³Represents average compounded rate of increase (decrease) and assumes dividend reinvestment.

Our four cornerstones—who we are, why we are here, where we are headed, and how we will get there—are the construct Progressive uses to think about having a competitive advantage. These cornerstones permit all people associated with us to understand what we expect of ourselves and each other and how we conduct our business.

imagine

Barbara Probst, Exposure #91: N.Y.C., Prince & Mercer Streets, 06.22.11, 10:41 a.m. — **Barbara Probst,** *Exposure #91: N.Y.C., Prince & Mercer Streets, 06.22.11, 10:41 a.m.*

Our Four Cornerstones

Core Values > Who We Are

Progressive’s Core Values serve as the foundation for our corporate culture. They govern our decisions and define the manner in which we conduct our business and how we interact with all interested parties. We want them understood and embraced by all Progressive people.

Integrity We revere honesty. We adhere to high ethical standards, provide timely, accurate, and complete financial reporting, encourage disclosing bad news, and welcome disagreement.

Golden Rule We respect all people, value the differences among them, and deal with them in the way they want to be dealt with. This requires us to know ourselves and to try to understand others.

Objectives We strive to communicate clearly Progressive’s ambitious objectives and our people’s personal and team objectives. We evaluate performance against all these objectives.

Excellence We strive constantly to improve in order to meet and exceed the highest expectations of our customers, agents, shareholders, and people. We teach and encourage our people to improve performance and to reduce the costs of what they do for customers. We base their rewards on results and promotion on ability.

Profit We seek to earn a profit by offering consumers products and services they want. Profit is how the free-enterprise system motivates investment and rewards companies that consistently create value.

Purpose > Why We’re Here

True to our name. Progressive.

Vision > Where We’re Headed

Become consumers’ and agents’ #1 choice and destination for auto, home, and other insurance.

Strategy > How We’ll Get There

We will achieve our Vision through four Strategic Pillars:

Ensuring that our people and culture collectively remain our most powerful source of competitive advantage;
Meeting the broader needs of our customers throughout their lifetimes;
Maintaining a leading brand recognized for innovative offerings and supported by experiences that instill confidence; and
Offering competitive prices driven by industry-leading segmentation, claims accuracy, and operational efficiency.

We continue to adapt to the ever-changing dynamics of our world as it relates to COVID-19. The nimbleness that our teams across the company have shown has been phenomenal. We have adjusted to our new reality and have turned our focus to being flexible with how our future might look and leveraging our strengths to reimagine an even stronger Progressive for all of our constituents. As I’ve said many times over the past four years, during challenging times is when we are at our best. I continue to be amazed at the resilience of the people of Progressive.

We continue to make progress towards our vision of becoming consumers’ and agents’ #1 choice and destination for auto, home, and other insurance. Based on final 2019 statutory direct premiums written, we’re now consumers’ #1 choice for private passenger auto in seven states and #2, with our eye on becoming #1, in an additional 19 states. While we’re still the third largest auto writer in the United States, we continue to execute against our strategy to leverage our strong brand, provide competitive prices, and offer a breadth of products/distribution to provide consumers with the protection they need, where, when, and how they choose to buy it. We believe the key strategy to achieving our ultimate goal is to continue to leverage our culture and our people, our two most important assets.

Ian Wright, Marley Weave — **Ian Wright,** *Marley Weave*

Personal Lines

At the beginning of the second quarter, our Personal Lines business experienced a drop in new business volume as the shelter-in-place restrictions were implemented, but we had a solid rebound in growth across all Personal Lines products as the quarter progressed. Both distribution channels experienced a similarly shaped recovery from the shelter-in-place period, but the speed of the recovery in Direct has materially outpaced our Agency channel, due in part to our agents often being small businesses who are, in some cases, still working to get their offices compliant with social distancing requirements and their operations back to pre-COVID levels. At the close of the second quarter, we were pleased to see overall shopping volume returning to pre-COVID levels with Direct auto quotes up 6% year-over-year (YOY) for the quarter. Overall, total auto quotes were relatively flat, although a decline in conversion resulted in a 4% decrease in new auto applications during the quarter. Given where we started off, coupled with solid improvements throughout the quarter, we’re happy with new business applications that are only down slightly on a year-to-date basis.

Policies in force are far less volatile than new business applications given that approximately three quarters of in-force policies are renewal customers and the processes we implemented throughout the countrywide non-pay cancel moratorium have helped many of these renewal customers remain insured with Progressive. On a YOY basis, we ended the first quarter with auto policies in force up 10% and at June 30, saw our YOY growth accelerate to 11%, representing growth of more than 1.5 million in-force policies vs. June 2019. Improvement in our growth rate benefitted from our Apron Relief Program, where we invested in our customers to help them maintain continuous insurance following the moratorium, and from recovery in new business applications.

Our special lines (motorcycle, boat, RV) business experienced strong double-digit new business application growth (+22%) during the second quarter due to an increase in both quotes and a solid improvement in conversion. Similar to auto, early in the second quarter, new business volumes declined but both quotes and sales significantly improved in May and June, leading to outstanding growth for the remainder of the quarter. Special lines policies in force were up 6% from last June versus only up 4% at the end of the first quarter.

Our Personal Lines profitability was strong during the second quarter despite the over $1 billion in policyholder credits that we provided our Agency and Direct personal auto customers. Our results reflect a decrease in auto accident frequency as a result of lower miles driven due to the COVID-19 restrictions that were in place during the quarter. As states began to lift these restrictions, vehicle miles traveled have returned to pre-COVID levels in many states, but both miles traveled and claims frequency remain down versus this same period in 2019.

While significant uncertainty remains surrounding the pace of recovery and implications on our vehicle and property lines of business, we’re confident that we have the appropriate monitoring and action plans in place to rapidly adapt our business to capitalize on changing market conditions.

We continued to rollout our 8.6 auto product model by adding 5 states during the second quarter and Snapshot®, our usage-based insurance product, continued to experience growth in enrollment. In June, we successfully elevated a completely revised product offering to comply with Michigan’s PIP reform legislation. We’re the #1 writer of personal auto insurance in Michigan and we continue to rapidly grow both our auto and property book of business in the state. While market disruption can prove challenging to many organizations, we typically find that disruption drives shopping, and shopping results in more consumers switching to Progressive. The new business rates went into effect July 2^nd in Michigan and we’ll closely monitor how the business performs during the remainder of the year.

grow

Ayana V. Jackson, How Sweet the Song — **Ayana V. Jackson,** *How Sweet the Song* (left), *Labouring Under the Sign of the Future* (center), *Seeking the Source of Perfection* (right)

Ayana V. Jackson, Labouring Under the Sign of the Future — **Ayana V. Jackson,** *How Sweet the Song* (left), *Labouring Under the Sign of the Future* (center), *Seeking the Source of Perfection* (right)

Commercial Lines

Our Commercial Lines business experienced an asymmetric recovery in demand during the second quarter with commercial auto new business applications decreasing by 10% and small business insurance applications increasing by 46%, albeit on a smaller scale. The severe demand shock from COVID-19 restrictions and the closing of many non-essential businesses, which hit in March, clearly carried over into April. However, we experienced a nice recovery in both quoting and sales in May and had an exceptionally strong sales month in June, perhaps partially due to a delay in spring seasonal demand. Notable were strong sales growth for the direct commercial auto product of 4% and our BusinessQuote Explorer® (BQX) platform for small business insurance at 36%, suggesting at least a temporary shift in small business owner purchasing preferences toward the direct channel. Direct distribution of Commercial Lines products is an area where we have made a significant investment, and we are well positioned if a permanent change occurs in small business insurance shopping to the direct channel.

Commercial Lines profitability was aided by reduced vehicle utilization and lower auto accident frequency early in the quarter, producing a combined ratio of 84.1, 4.3 points better than the second quarter last year. Incoming auto claim counts began moving back toward pre-COVID levels as the quarter progressed, especially in the trucking business market targets, which were less disrupted by the pandemic. Working directly with policyholders and agents, we provided premium and billing credits of more than $26 million to customers who experienced reduced business activity during the quarter.

During the second quarter, we decreased net premiums written for our transportation network company (TNC) business by $29.0 million, as we calibrate to new, lower levels of ridesharing usage. Ridesharing mileage is now increasing on a month-to-month basis, though a full recovery may take time as our TNC market presence skews toward southern and southwestern states, which are presently seeing rising coronavirus infection rates. We remain committed to this business segment, due to its synergy with our core commercial auto business and have a positive view of the platforms’ long-term prospects.

At June 30, our Business Owner Policy (BOP) was available through independent agents in 11 states, with the most recent addition of Tennessee in June. Faced with the economic slowdown of March and April, we temporarily pivoted our product development resources from additional state deployment to development of BOP 1.2, a new product version with broader risk acceptance, new coverages, and policy form enhancements. This new BOP product version will be introduced in new states beginning in September. Agent feedback on BOP continues to be positive and we’ve been satisfied with our early claims experience. We now look forward to expanding our geographic footprint and further capitalizing on this investment.

We have been pleasantly surprised by the rate of recovery for our Commercial Lines business given the magnitude of the economic shock from COVID-19. Nonetheless, we still anticipate an uneven recovery (what we have been calling our bumpy road scenario in our planning for the future sessions) in the broader economy and will rely on our business dexterity, breadth of distribution, and facility with data to be appropriately responsive in the face of a changing environment.

Property

We saw new homeowner and condo policy sales decline due to COVID-19 restrictions during April and May, but sales activity recovered in June. New home and condo applications were down 10% YOY for combined April and May, but up 6% in June over last year. Total Property net premiums written were up 12% over the second quarter of 2019 and are up 13% year to date. Our Property policies in force are also up 13% over last June.

Our Property business had a combined ratio of 143.6 for the second quarter, primarily due to 54.3 points of catastrophe losses. We experienced significant wind, hail, and tornado losses from the 20 industry catastrophe events declared during the quarter and recognized unfavorable development from first quarter 2020 storms. Through June, our catastrophe losses and allocated loss adjustment expenses have not exceeded our $375 million retention threshold under our aggregate excess of loss catastrophe reinsurance agreement. If catastrophe events continue at historic levels, we would expect to recover under this agreement during the third quarter.

We continue to increase rates and share weather exposure with our customers through implementation of higher deductibles to achieve target profit margins in states with significant hail exposure. We have added minimum deductible or actual cash value requirements for wind/hail coverage in six more states during 2020, bringing the total to 16 states with such mandates. The Property 4.0 product design was launched in seven more states during the quarter, bringing our total to 18 active states. The improved price segmentation and expanded coverage options that come with 4.0 should help us improve profitability and encourage preferred agencies to consider Progressive for their best customers.

We continue our efforts to make it easy for consumers and agents to find and buy our Property products. During the quarter we added our 45^th state, New Hampshire, and launched HomeQuote Explorer® (HQX) Buy for shoppers using mobile devices. HQX Buy allows new customers to buy a Progressive Home policy using their phone or tablet. This capability is now available in 17 states. We also turned on the Portfolio quoting application for agents in four additional states during the quarter. Portfolio, which is now active in 37 states, makes it easy for independent agents to quote the home/auto/recreational lines package of products to meet a household's full spectrum of personal lines insurance needs.

Hung Liu, Unofficial Portraits: The Maiden — **Hung Liu,** *Unofficial Portraits: The Maiden*

Investments

respect

The second quarter total return on our investment portfolio was 4.5%, as we saw a rapid recovery in many of the asset classes that had declined in February and March. The strongest performance was in the equity market, but it was very broad-based across much of our portfolio. With our conservative investment posture coming into the year, we were able to add some attractive investments to our portfolio as valuations improved in several sectors. We continue to view the environment as very uncertain and, therefore, believe a relatively conservative positioning remains appropriate in this environment.

Patty Chang, Shangri-La (Monks) — **Patty Chang,** *Shangri-La (Monks)*

Shirin Neshat, Women of Allah (Version #2) — **Shirin Neshat,** *Women of Allah (Version #2)*

Reflecting on our world

create

It’s truly been a time of reflection, which has refocused our efforts and prompted more investments and actions to support our already strong Diversity and Inclusion agenda. My team and I have been advocates of diversity and inclusion for many years and the recent events have caused us to pause and think even more deeply about the lived experiences of our Black employees and customers, as well as other communities of color. We’ve spent a lot of time listening, learning, and determining what we do differently going forward. Black Lives Matter to me and they matter to us as an organization.

One of our four key pillars is ensuring that our people and our culture collectively remain our most powerful source of competitive advantage. We believe that having a culture where people can be true to who they are is critical to the success of this pillar.

In order to achieve success, our near-term efforts have included outreach to our Black colleagues in partnership with our African American Employee Resource Group, having more in-depth and meaningful conversations throughout the organization about race and racial inequity and forcing ourselves to become more comfortable being uncomfortable. At the end of June, we focused our collective attention as Progressive people participated in an already-planned week of inclusion activities, the theme of which was “allyship.” It was an opportunity for each of us to invest in better understanding the experiences of others, and to commit to actions we will take to advocate for greater equity.

We’ve been sharing our data on the gender and racial makeup of our workforce for a couple of years now. We recognize we still have opportunities, particularly to increase the diversity of our leadership. We can and will do more to ensure equity for all.

In my role as CEO, I am a member of CEO Action for Diversity & Inclusion and am a member of the Business Roundtable where I serve on a subcommittee addressing racial equity and justice. Working with my peers in the private sector, I am confident our actions will lead to meaningful change.

This is a moment of moral reflection and bold action in our country. As citizens, we have to decide whether we are going to live up to our democratic ideals of full equality or whether we go back to turning a blind eye to the injustices and lack of equity in the U.S. As a company, we believe we have a role to play in this—for our customers, for our employees, for our communities, and for our shareholders.

James Baldwin once said that “Not everything that is faced can be changed, but nothing can be changed until it is faced.” We can and will be part of that change, not just today, not just next week, but in the months and years to come.

Typically, at Progressive we see any challenges as an opportunity to demonstrate our culture and our ability to rise to the occasion. The current states of affairs are no different and we are eager to be a part of the change, guided by our long-standing Core Values.

Tricia Griffith
President and Chief Executive Officer

Clare Rojas, Untitled — **Clare Rojas,** *Untitled*

We write personal and commercial auto insurance, personal residential and commercial property insurance, general liability insurance, and other specialty property-casualty insurance and provide related services throughout the United States. Our Personal Lines segment writes insurance for personal autos and recreational vehicles. Our Commercial Lines segment writes auto-related primary liability and physical damage insurance, and general liability and property insurance, predominantly for small businesses. Our Property segment writes residential property insurance for homeowners, other property owners, and renters. We distribute our products through both the agency and direct channels.

Operating Results

	Six Months Ended June 30,
	2020	2019	Change
Personal Lines
Net premiums written (in billions)	$16.76	$15.21	10%
Net premiums earned (in billions)	$15.91	$14.46	10%
Loss and loss adjustment expense ratio	58.3	69.2	(10.9) pts.
Underwriting expense ratio	27.4	20.2	7.2 pts.
Combined ratio	85.7	89.4	(3.7) pts.
Policies in force (in thousands)	20,660.6	18,822.3	10%

	Six Months Ended June 30,
	2020	2019	Change
Commercial Lines
Net premiums written (in billions)	$2.34	$2.35	0%
Net premiums earned (in billions)	$2.32	$2.08	11%
Loss and loss adjustment expense ratio	62.9	65.0	(2.1) pts.
Underwriting expense ratio	24.5	21.0	3.5 pts.
Combined ratio	87.4	86.0	1.4 pts.
Policies in force (in thousands)	775.8	734.2	6%

	Six Months Ended June 30,
	2020	2019	Change
Property
Net premiums written (in billions)	$0.92	$0.81	13%
Net premiums earned (in billions)	$0.85	$0.74	15%
Loss and loss adjustment expense ratio	86.5	73.0	13.5 pts.
Underwriting expense ratio¹	29.8	30.6	(0.8) pts.
Combined ratio¹	116.3	103.6	12.7 pts.
Policies in force (in thousands)	2,336.1	2,071.6	13%

¹Underwriting expense and combined ratios for 2020 and 2019, include 3.4 points and 4.8 points, respectively, of amortization expense predominately associated with the acquisition of a controlling interest in ARX.

David Rathman, Stand a Little Closer to the Lessons You Learned — **David Rathman,** *Stand a Little Closer to the Lessons You Learned*

Consistent achievement of superior results requires that our people understand Progressive’s objectives and their specific roles, and that their personal objectives dovetail with Progressive’s. Our objectives are ambitious, yet realistic. Progressive monitors its financial policies continuously and strives to meet these targets annually. Experience always clarifies objectives and illuminates better policies. We constantly evolve as we monitor the execution of our policies and progress toward achieving our objectives.

Objectives

Profitability Progressive’s most important goal is for our insurance subsidiaries to produce an aggregate calendar year underwriting profit of at least 4%. Our business is a composite of many product offerings defined in part by product type, distribution channel, geography, customer tenure, and underwriting grouping. Each of these products has targeted operating parameters based on level of maturity, underlying cost structures, customer mix, and policy life expectancy. Our aggregate goal is the balanced blend of these individual performance targets in any calendar year.

Growth Our goal is to grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service. Progressive is a growth-oriented company and management incentives are tied to profitable growth.

Aggregate expense ratios and growth rates disguise the true nature and performance of each business. As such, we report Personal Lines, Commercial Lines, and Property business results separately. We further break down our Personal Lines’ results by channel (Agency and Direct) to give shareholders a clearer picture of the business dynamics of each distribution method.

Maurice Mbikayi, Untitled — **Maurice Mbikayi,** *Untitled*

Our Business Model

endure

For us, a 96 combined ratio is not a “solve for” variable in our business model equation, but rather a constant that provides direction to each product and marketing decision and a cultural tipping point that ensures zero ambiguity as to how to act in certain situations. Set at a level we believe creates a fair balance between attractive profitability and consumer competitiveness, it’s deeply ingrained and central to our culture.

With clarity as to our business constant, we seek to maximize all other important variables and support with appropriate axioms:

Grow as fast as we can subject to our ability to provide high-quality service. Our preferred measure of growth is in customers, best measured by policies in force.

Extend policy life expectancy. Our preference is for the flexibility of shorter policy periods, highlighting, however, the importance of retaining customers at policy renewal. As part of our Destination Era strategy, our focus is inclusive of all points throughout a customer’s tenure and is a never-ending focus, tailored for every consumer segment.

Clarity as to our objectives means other elements of the business model must be appropriately designed to strongly support, but not necessarily amplify, the risk of maximizing all things at the same time. Our articulation of our most critical investment objective is a good example:

Invest in a manner that does not constrain our ability to underwrite all the profitable insurance available to us at an efficient premiums-to-surplus leverage. We often refer to underwriting capacity as the protected asset and for us it is a clear determination of where the risk of leverage is best allocated.

The importance of net income, earnings per share, and return on equity is never lost on us, and we view achieving strong, long-term performance of these measures as stemming from our consistent focus on the primary elements of our business model.

Sandeep Mukherjee, Untitled — **Sandeep Mukherjee,** *Untitled (Waft 1)*

Financial Policies

Progressive balances operating risk with risk of investing and financing activities in order to have sufficient capital to support all the insurance we can profitably underwrite and service. Risks arise in all operational and functional areas, and, therefore, must be assessed holistically, accounting for the offsetting and compounding effects of the separate sources of risk within Progressive.

We use risk management tools to quantify the amount of capital needed, in addition to surplus, to absorb consequences of events such as unfavorable loss reserve development, litigation, weather-related catastrophes, and investment-market corrections. Our financial policies define our allocation of risk and we measure our performance against them. We will invest capital in expanding business operations when, in our view, future opportunities meet our financial objectives and policies. Underleveraged capital will be returned to investors. We expect to earn a return on equity greater than its cost. Presented is an overview of Progressive’s Operating, Investing, and Financing policies.

Operating

Maintain pricing and reserving discipline

Manage profitability targets and operational performance at our lowest level of product definition
Sustain premiums-to-surplus ratios at efficient levels, and at or below applicable state regulations, for each insurance subsidiary
Ensure loss reserves are adequate and develop with minimal variance

Investing

Maintain a liquid, diversified, high-quality investment portfolio

Manage on a total return basis
Manage interest rate, credit, prepayment, extension, and concentration risk
Allocate portfolio between two groups:
- Group I: Target 0% to 25% (common equities; nonredeemable preferred stocks; redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends; and all other non-investment-grade fixed-maturity securities)
- Group II: Target 75% to 100% (short-term securities and all other fixed-maturity securities)

Financing

Maintain sufficient capital to support our business

Maintain debt below 30% of total capital at book value
Neutralize dilution from equity-based compensation in the year of issuance through share repurchases
Use underleveraged capital to repurchase shares and pay dividends

Objectives & Policy Scorecard

	Six Months Ended June 30,		Years Ended December 31,
	Target	2020	2019	2018	2017	5 Years¹	10 Years¹
Financial Results
Underwriting margin
–Progressive²	4%	12.7%	9.1%	9.4%	6.6%	7.7%	7.3%
–Industry³	na	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	2.7%	(2.2)%	(2.1)%	(1.6)%
Net premiums written growth
–Progressive	(a)	9%	15%	20%	16%	15%	10%
–Industry³	na	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	8%	8%	7%	4%
Policies in force growth
–Personal auto	(a)	11%	11%	14%	13%	10%	7%
–Special lines	(a)	6%	4%	0%	2%	2%	3%
–Commercial Lines	(a)	6%	8%	8%	6%	8%	4%
–Property	(a)	13%	14%	32%	22%	nm	nm
Companywide premiums-to-surplus ratio	(b)	na	2.7	2.8	2.8	na	na
Investment allocation
–Group I	≤25%	11%	12%	14%	17%	na	na
–Group II	≥75%	89%	88%	86%	83%	na	na
Debt-to-total capital ratio	<30%	24.4%	24.4%	28.9%	26.3%	na	na
Return on average common shareholders’ equity
–Net income attributable to Progressive	(c)	31.2%	31.3%	24.7%	17.8%	22.1%	20.0%
–Comprehensive income attributable to Progressive	(c)	34.9%	35.0%	23.8%	21.7%	23.4%	21.6%

(a) Grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service.

(b) Determined separately for each insurance subsidiary.

(c) Progressive does not have a predetermined target for return on average common shareholders’ equity.

na = not applicable

nm = not meaningful; Property business written by Progressive prior to April 2015 was negligible.

¹Represents results over the respective time period; growth represents average annual compounded rate of increase (decrease).

²Expressed as a percentage of net premiums earned. Underwriting profit is calculated by subtracting losses and loss adjustment expenses, policy acquisition costs, other underwriting expenses, and policyholder credits from the total of net premiums earned and fees and other revenues.

³Industry results represent private passenger auto insurance market data as reported by A.M. Best Company, Inc. The industry underwriting margin excludes the effect of policyholder dividends. Final comparable industry data for 2019 will not be available until our third quarter report. The 5- and 10-year growth rates are presented on a one-year lag basis for the industry.

Achievements

We are convinced that the best way to maximize shareholder value is to achieve these financial objectives and policies consistently. A shareholder who purchased 100 shares of Progressive for $1,800 in our first public stock offering on April 15,1971, would have owned 186,602 shares, including dividend reinvestment, on December 31, 2019, with a market value of $13,508,119, for a 20.1% compounded annual return, compared to the 10.6% return achieved by investors in the S&P 500 during the same period.

In the ten years since December 31, 2009, Progressive shareholders have realized compounded annual returns, including dividend reinvestment, of 19.1%, compared to 13.5% for the S&P 500. In the five years since December 31, 2014, Progressive shareholders’ returns were 25.1%, compared to 11.7% for the S&P 500. In 2019, the returns were 25.1% on Progressive shares and 31.5% for the S&P 500.

We have consistently paid dividends since we went public in 1971. Assuming dividends were not reinvested, a shareholder who bought 100 shares at the initial public offering would now hold 92,264 shares and would have received cumulative dividends of $1,244,454 including $259,631 in 2019. In addition to paying dividends, over the years when we have had adequate capital and believed it to be appropriate, we have repurchased our shares. As our Financial Policies state, we will repurchase shares to neutralize the dilution from equity-based compensation programs and return any underleveraged capital to investors. During 2019, we repurchased 1,242,348 common shares. The total cost to repurchase these shares was $91 million, with an average cost of $73.51 per share. Since 1971, we have spent $9.1 billion repurchasing our shares, at an average cost of $7.55 per share.

Friedrich Kunath, Cloudy with a Chance of Tears — **Friedrich Kunath,** *Cloudy with a Chance of Tears*

In this section

Directors & Officers

lead

Directors

Philip Bleser
Retired Chairman of Global Corporate Banking, J.P. Morgan Chase & Co. (financial services)
Compensation Committee Member, Nominating and Governance Committee Member, Independent Director

Stuart B. Burgdoerfer
Executive Vice President and Chief Financial Officer, L Brands, Inc. (retailing)
Audit Committee Member, Independent Director

Pamela J. Craig
Retired Chief Financial Officer, Accenture PLC (global management consulting)
Compensation Committee Member, Technology Committee Member, Independent Director

Charles A. Davis
Chief Executive Officer, Stone Point Capital LLC (private equity investing)
Investment and Capital Committee Member, Independent Director

Roger N. Farah
Former Executive Director, Tory Burch LLC (retailing)
Executive Committee Member, Compensation Committee Member, Nominating and Governance Committee Member, Independent Director

Lawton W. Fitt
Chairperson of the Board, Retired Partner, Goldman Sachs Group (financial services)
Executive Committee Member, Investment and Capital Committee Member, Nominating and Governance Committee Member, Independent Director

Susan Patricia Griffith
President and Chief Executive Officer, The Progressive Corporation
Executive Committee Member

Jeffrey D. Kelly
Retired Chief Operating Officer and Chief Financial Officer, RenaissanceRe Holdings Ltd. (reinsurance services)
Audit Committee Member, Independent Director

Patrick H. Nettles, Ph.D.
Executive Chairman, Ciena Corporation (telecommunications)
Audit Committee Member, Technology Committee Member, Independent Director

Barbara R. Snyder
President, Case Western Reserve University (higher education)
Compensation Committee Member, Independent Director

Jan E. Tighe
United States Navy, Vice Admiral, Retired (military)
Technology Committee Member, Independent Director

Kahina Van Dyke
Global Head, Digital Channels and Client Data Analytics, Standard Chartered PLC (international banking)
Investment and Capital Committee Member, Independent Director

Didier Massard, Imaginary Journey, Carousel — **Didier Massard,** *Imaginary Journeys: Carousel* (left), *Imaginary Journeys: Cathedral* (center), *Imaginary Journeys: Pagoda* (right)

Didier Massard, Imaginary Journey, Cathedral — **Didier Massard,** *Imaginary Journeys: Carousel* (left), *Imaginary Journeys: Cathedral* (center), *Imaginary Journeys: Pagoda* (right)

24-Hour Insurance Quotes, Claims Reporting, and Customer Service

	Personal Autos, Motorcycles, Recreational Vehicles, Homeowners, Other Property, and Renters	Commercial Autos/Trucks, Business Property, and General Liability
To Receive a Quote	1-800-PROGRESSIVE (1-800-776-4737) progressive.com	1-888-806-9598 progressivecommercial.com
To Report a Claim	1-800-PROGRESSIVE (1-800-776-4737) progressive.com	1-800-PROGRESSIVE (1-800-776-4737)
For Customer Service If you bought your policy through an independent agent or broker	1-800-925-2886 (1-800-300-3693 in California) progressiveagent.com	1-800-444-4487 progressivecommercial.com
If you bought your policy directly through Progressive online or by phone	1-800-PROGRESSIVE (1-800-776-4737) progressive.com	1-800-895-2886 progressivecommercial.com
In addition, iPhone® and Android® users can download the Progressive App to start a quote, report a claim, or service a policy.

Corporate Information

Fiona Rae, Cute Motion!! — **Fiona Rae,** *Cute Motion!!*

PDF Downloads

For this year’s annual report, we chose “think broadly” as the theme and selected the work of 30 multicultural artists from Progressive’s expanding collection of contemporary art. This diverse set of artists reflects our versatility as an organization as well as our willingness to step back and assess the many potential ways with which to grow. The painting A CHANGE IS GONNA COME was created by artist Jeffrey Gibson, who combines indigenous history and textiles with words he believes resonate not only for Native American people but people of all backgrounds. Gibson states, “Ultimately, everyone is at an intersection of multiple cultures, times, histories. The world is shifting and changing and if you’re engaged in the world, you are also shifting and changing.” At Progressive, we relish change and know that it’s not only inevitable, but exciting and it fuels us to come to work every day with a mindset to win, and win in the right way. The multiple vantage points shown throughout this report offer a glimpse into our unique company culture and enduring business.