(PGR) Progressive Beats Expectations in May

Progressive Corp.’s (PGR) earnings per share for May 2011 were 11 cents, up from 7 cents earned in the year ago period. Net income increased 68% from the year-ago period to total $74.1 million.

The company recorded net premiums of $1.13 billion during May 2011, up 2% from $1.11 billion in May 2010 but down 26% from $1.54 billion during April 2011. Net premiums earned were $1.14 billion, up 3% from $1.11 billion in the year-ago period and down 20% from $1.43 billion in the prior month.

Net realized losses on securities were $0.4 million during May 2011, a considerable improvement from a loss of $15.1 million in May 2010, but lower than the gain of $24.6 million in April 2011. The combined ratio ? the percentage of premiums paid out as claims and expenses ? improved 250 basis points over the prior-year period to 93.1% in the month under review.

Progressive reports its results every month. During May, policies in force remained healthy, with the Personal Auto segment increasing 6% year over year and 0.1% sequentially. Special Lines increased 5% year over year and 1.3% over the preceding month.

In Personal Auto, Direct Auto reported a growth of 8% year over year and 0.2% from the preceding month. Agency Auto was up 3% year over year but declined 0.1% from the last month. However, Progressive’s Commercial Auto segment continued to drag results, reporting declines of 1.7% year over year.

Total expenses for the reported month increased 0.4% to $1.08 billion from $1.07 billion in May 2010. The major components contributing to the increase in total expenses were a 3% increase in policy acquisition costs and a 4% increase in underwriting expenses.

Progressive reported a book value per share of $9.97, up from $9.37 as of May 30, 2010 and from $9.91 as of April 30, 2011.

Return on equity on a trailing 12-month basis was 18.5%, down from 19.5% in May 2010 but up from 18.1% in April 2011. The debt-to-total-capital ratio was 23.2 % as of May 2011, down from 25.8% as of May 2010 and flat with the last month.

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 shares 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, 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).

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