Progressive Misses Estimates After Policyholder Growth Slows

Jan 22, 2014 4:25 pm ET

(Updates share price in second paragraph.)

Jan. 22 (Bloomberg) -- Progressive Corp., the fourth- largest U.S. auto insurer, declined the most in the 81-company Standard & Poor’s 500 Financials Index after profit missed estimates as sales growth slowed.

The insurer slipped 2 percent to $25.41 at 4:16 p.m. in New York. The growth in the number of individual auto customers dropped to 3.1 percent in 2013 from 3.5 percent in 2012, the Mayfield Village, Ohio-based company said today in a statement.

Chief Executive Officer Glenn Renwick faces competition from Allstate Corp. and State Farm Mutual Automobile Insurance Co., which are pursuing customers attracted to Progressive’s model of selling over the Internet. Maintaining profit margins could make it harder for Progressive to add drivers shopping for low rates, said Mark Dwelle, an analyst at RBC Capital Markets.

“For investors that are satisfied with that, that’s fine,” Dwelle said in a telephone interview before the earnings report. “For investors who really wanted to see more growth, it’s been a little more disappointing.” He has the equivalent of a neutral rating on Renwick’s company.

Progressive’s 11 percent gain in the past year trails Allstate’s 19 percent rally. Allstate, the No. 2 U.S. auto insurer, bought Esurance in 2011 to boost online sales. Larger rival State Farm, owned by policyholders, has been selling offices to free capital as it focuses on car insurance. Both had relied on agents for sales and lost customers in recent years to Progressive and Berkshire Hathaway Inc.’s Geico unit.

Underwriting Profit

Fourth-quarter operating profit, which excludes some investment results, was about 41 cents a share, missing by 1 cent the average estimate of 17 analysts surveyed by Bloomberg. Fourth-quarter net income rose 20 percent to $299.8 million as margins improved a year after Superstorm Sandy.

Progressive had an underwriting profit of 6.2 cents on every dollar in premiums for the quarter, compared with 5.4 cents in the last three months of 2012. Sandy cost Progressive $103 million in the final period of 2012.

Fourth-quarter premium revenue advanced 5.8 percent to $4.34 billion. That compares with an increase of 8.7 percent a year earlier. Chief Financial Officer Brian Domeck said in November that advertising spending in the second half of 2013 had been “significantly higher” from a year earlier.

Progressive said its annual dividend will be 49 cents a share, based on a formula tied to 2013 results. The dividend is payable Feb. 7 to shareholders of record as of Jan. 29. Full- year net income climbed 29 percent to $1.16 billion.

--Editors: Dan Kraut, Steve Dickson