Moody’s Raises Progressive’s Senior Unsecured Rating

Moody’s Investors Service has upgraded Mayfield Village, Ohio-based Progressive Corp.’s senior unsecured debt rating to “A1” from “A2.” In the same action, the rating agency upgraded the insurance financial strength ratings for the company’s operating insurers to “Aa2” from “Aa3.” The rating outlook for the ratings is stable.

In a statement, Moody’s noted that the upgrade is a result of Progressive’s strong operating results and its intense commitment to data analysis and efficiency in its core business. The rating agency believes that the company is well positioned to continue reporting strong levels of earnings, fixed charge coverage and organic capital generation. Moody’s added that the holding company’s access to $1.3 billion of unregulated assets at Progressive Investment Co. Inc. provides financial flexibility and enhances its strong liquidity profile.

Moody’s noted that Progressive remains at the forefront of industry trends on risk segmentation, pricing, product distribution and claims innovations. Moody’s believes that these operational strengths, combined with the company’s technical focus on quantifying its exposures, monitoring trends and improving efficiencies provides Progressive with strong fundamental skills that support the higher rating.

Moody’s also discussed offsetting factors that include the company’s business concentration in personal automobile insurance products and the challenges of sustaining strong profits considering Progressive’s current pace of revenue growth. Moody’s believes that substantial levels of growth pressure the company’s capabilities in terms of assessing new business exposures and maintaining adequate levels of quality staff.

The rating agency believes this could potentially increase earnings volatility, however, the shorter-tailed nature of their liabilities, coupled with Progressive’s proactive and detailed approach to pricing somewhat mitigates these concerns.

The rating agency does not believe Progressive’s combined ratios will remain below 90 percent, however strong profitability continues to be expected. Moody’s does not believe Progressive will entirely be able to avoid future cyclical downturns, however, the company’s proactive monitoring functions should help mitigate potential impacts with earlier detection of cycle inflection points.

Progressive reported a combined ratio below 87 percent in the first quarter, an improvement from just over 90 percent a year earlier. Net premiums written were up 32 percent for the quarter to almost $2.9 billion and shareholders’ equity was reported at just under $4 billion as of March 31, up from $3.4 billion a year earlier.