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

	Nine Months Ended September 30,		Years Ended December 31,
	2020	2019	2019	2018	2017	2016
(billions – except per share amounts)
Net premiums written	$31.0	$28.0	$37.6	$32.6	$27.1	$23.4
Growth over prior period	11%	13%	15%	20%	16%	14%
Net premiums earned	$29.1	$26.3	$36.2	$30.9	$25.7	$22.5
Growth over prior period	10%	16%	17%	20%	14%	13%
Total revenues	$31.2	$28.3	$39.0	$32.0	$26.8	$23.4
Net income attributable to Progressive	$4.02	$2.90	$3.97	$2.62	$1.59	$1.03
Per common share	$6.81	$4.90	$6.72	$4.42	$2.72	$1.76
Underwriting margin	12.5%	9.6%	9.1%	9.4%	6.6%	4.9%

	Nine Months Ended September 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)	585.6	584.6	584.6	583.2	581.7	579.9
Book value per common share	$30.04	$23.31	$22.54	$17.71	$15.96	$13.72
Consolidated shareholders’ equity	$18.1	$14.1	$13.7	$10.8	$9.3	$8.0
Common share close price	$94.67	$77.25	$72.39	$60.33	$56.32	$35.50
Market capitalization	$55.4	$45.2	$42.3	$35.2	$32.8	$20.6
Return on average common shareholders’ equity
Net income attributable to Progressive	33.8%	26.3%	31.3%	24.7%	17.8%	13.2%
Comprehensive income attributable to Progressive	36.7%	32.7%	35.0%	23.8%	21.7%	14.9%

Policies in force (thousands)
Personal Lines
Agency – auto	7,527.1	6,903.8	6,994.3	6,358.3	5,670.7	5,045.4
Direct – auto	8,774.3	7,716.0	7,866.5	7,018.5	6,039.1	5,348.3
Special lines	4,905.8	4,567.6	4,547.8	4,382.2	4,365.7	4,263.1
Total Personal Lines	21,207.2	19,187.4	19,408.6	17,759.0	16,075.5	14,656.8
Growth over prior year	11%	9%	9%	10%	10%	6%
Commercial Lines	803.9	748.7	751.4	696.9	646.8	607.9
Growth over prior year	7%	8%	8%	8%	6%	9%
Property	2,421.0	2,144.3	2,202.1	1,936.5	1,461.7	1,201.9
Growth over prior year	13%	15%	14%	32%	22%	12%
Companywide total	24,432.1	22,080.4	22,362.1	20,392.4	18,184.0	16,466.6
Growth over prior year	11%	10%	10%	12%	10%	7%

Private passenger auto insurance market¹	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	$247.4	$240.9	$222.3	$206.6
Market share²	\|\|\|\|\|\|\|	\|\|\|\|\|\|\|	12.4%	11.1%	10.1%	9.4%

	Nine Months Ended September 30,		Years Ended December 31,
	2020	2019	2019	2018	2017	2016
Stock Price Appreciation (Depreciation)³
Progressive	35.3%	33.3%	25.1%	9.3%	61.6%	14.7%
S&P 500	5.6%	20.6%	31.5%	(4.4)%	21.9%	11.9%

NA = Not available.

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.

Highlights

We continue to be extremely pleased with our results. For the quarter, net premiums written (NPW) were up 14% at an 87.8 combined ratio reflecting the continued decrease in frequency. Through our product management organization, we continue to monitor rate level and respond to changes in loss costs by adjusting rate levels accordingly. During the 3rd quarter, we lowered personal auto rates approximately 1% on average countrywide, bringing our April through September cumulative decreases to about 3%.

Companywide policies in force (PIF) growth remains strong at 11% with Direct auto in the lead at 14%. We continue to increase our marketing spend and enhance the creative ways with which we reach consumers and we are confident that it is working as intended. We reached a few new milestones with auto PIFs crossing the 16 million mark, our auto/property bundled customers, the Robinsons, reaching 1.5 million, and Commercial Lines surpassing the $5 billion NPW mark on a trailing 12-month basis.

This year has proven to be an active year for weather and the third quarter was no different. Year to date (YTD) through September in Personal Lines, we have seen more tropical activity than in the past 15 years and weather-related catastrophe claims overall are up 18%. Third quarter perils saw a mix of hail, hurricane, wind, and flooding with about 21% more claims than the same period last year.

On the Property side, the 2020 catastrophe season has been a record year for the industry. The third quarter was especially busy with twice as many catastrophe claims reported than the same time last year. Through the end of September, catastrophe claims have been about 45% of all Property claims reported. The most active hurricane season on record was 2005 with 28 named storms. As Hurricane Delta made landfall in early October, that storm marked the 26^th named storm this year. Hurricane season officially ends on November 30^th and that can’t happen soon enough for us.

We have always been proud of our response, when our customers need us most, and that continued through the third quarter. Our catastrophe team mobilized 900 claims representatives across the country to respond to weather events.

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

Personal Lines

In the third quarter 2020, growth remains the headline in our vision of becoming consumers’ and agents’ #1 choice and destination for auto, home, and other insurance.

While PIF growth is our reported financial metric, it also represents the ultimate measure of how well we’re meeting our customers’ needs with high quality, broadly available, competitively priced insurance products. During the quarter, our personal auto new business continued the strong year-over-year growth trajectory we experienced as states were opening their economies back up at the end of the second quarter. Early in the quarter, vehicle miles traveled began to increase which impacted loss frequency, and our loss ratio reflected it; however, these metrics flattened in the second half of the quarter.

Special lines products continue to operate within combined ratio targets and grew considerably on the new business acquisition front, reflecting consumers looking for alternatives for their discretionary time and responding to Progressive’s strong brand and competitive products. The future continues to hold uncertainty around economic recovery, driving behavior, and general prospects of relaxing/tightening of health guidelines, but at the same time we’re confident that we have the appropriate monitoring and ability to execute plans that rapidly adapt our business model to changes in our industry and market conditions.

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

The headline for our Commercial Lines organization is that both NPW and PIFs are at all-time highs, as businesses come back online and have been adding more coverage and vehicles. One way we have supported businesses is through a program we recently introduced called “welcome back.” This program includes both credits and favorable treatments for business owners that had to cancel during the peak of lock downs.

New business applications have rebounded in our for-hire transportation and contractor segments to higher than their pre-covid trajectory, driven by high spot rates and strong housing starts.

Our two usage-based programs in Commercial Lines continue to grow. Our Smart Haul® program surpassed $300 million in direct premiums written on a trailing 12-month basis and our Snapshot ProView^SM, which services the business auto and contractor business market targets, is now live in 40 states.

Effective October 1, we expanded, and further solidified, our relationship with Lyft by adding four states and the District of Columbia, making the total eight markets where we provide insurance coverage for Lyft’s rideshare service.

On October 1, I announced to the organization that Karen Bailo had accepted my offer to become our Commercial Lines President, replacing John Barbagallo who is retiring in January. John has brilliantly led our Commercial Lines business for 13 years and has been an essential member of Progressive for nearly 38 years, since his humble beginnings as a claims rep. At year end, we will celebrate (virtually of course) John’s legacy of remarkable success in leading the Commercial Lines organization and his many contributions to Progressive. His intellect, openness, inclusivity, and humor will be greatly missed.

Karen has been a part of the Progressive family for over 30 years with her most recent role as General Manager of Acquisition and Small Business Insurance, a part of our Commercial Lines organization. Karen has held several other significant leadership positions during her tenure, including Personal Lines General Manager, Commercial Lines Controller, and, most notably, she spent nine years building our Agency Distribution organization and positioning Progressive as a preferred supplier in the channel. Karen started her career in customer service as a management trainee and, like others on our executive team, she was a claims representative early in her Progressive career.

Property

While our Property business experienced continued PIF growth, the combined ratio continues to feel the effect of adverse weather. Despite the weather activity, the combined ratio improved compared to the second quarter, due to the benefit of our reinsurance agreements. The third quarter combined ratio was 111.8, bringing the YTD combined ratio to 114.8. Non-catastrophe losses and expenses are close to targets, but catastrophe losses are much higher than our modeled, and expected, annual averages. During the third quarter, we experienced losses from 6 named storms, 13 wildfires, and the Iowa derecho. For our Property business, the loss and loss adjustment expense from the catastrophe events that were declared during this quarter came to $115 million, net of reinsurance. That brings our total Property net loss and LAE for 2020 catastrophe events up to $392 million, more than double what we experienced during the first three quarters of 2019.

We continue to increase rates and share weather exposure with our customers by requiring higher deductibles for new customers in states with significant hail exposure. We now have minimum deductible requirements in 12 states. We first implemented deductible mandates in Texas and Colorado in 2018, and we're seeing improved results in both states as a result of these changes.

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

respect

Investments

The third quarter total return on our investment portfolio was 1.7%, as the continued recovery in the U.S. economy and extraordinary monetary policy support drove risk assets higher. Once again, equities led our portfolio higher with a 9.6% quarterly return, as very strong returns in July and August more than offset the declines seen in September. Valuations across both equity and fixed income markets are no longer as attractive as they were during the March through June timeframe. We believe our portfolio asset allocation is appropriate for the current volatile environment. While both fiscal and monetary stimulus continue to provide support to the economy, the effects of the coronavirus remain a major source of uncertainty.

Michelle Marie Murphy, Trans Manicure — **Michelle Marie Murphy,** *Trans Manicure* (left), *Suspension* (center), *Amorphous* (right)

Michelle Marie Murphy, Suspension — **Michelle Marie Murphy,** *Trans Manicure* (left), *Suspension* (center), *Amorphous* (right)

Diversity and Inclusion

We feel very strongly that in order to be consumers’ and agents’ number one choice and destination for auto, home, and other insurance, we need to anticipate and understand the needs of our customers. In order to really understand our customers, we need to reflect them. For us, diversity and inclusion are business imperatives required to sustain our incredible growth. And it’s our growth that generates additional career opportunities for all of us.

We’ve been at our Diversity and Inclusion efforts for nearly 15 years. And like every other part of our business, we have objectives, which have largely remained unchanged for over a decade. Each year though, we measure our performance and reassess our initiatives. We have four Diversity and Inclusion Objectives and they are as follows:

Our inclusion-related objective which is to maintain a fair and inclusive work environment. This is one area where we’ve had many successes and hopefully our employees agree that Progressive is a company where they feel welcomed, valued, and respected.
Our next objective is to contribute to our communities. Our goal is to use Progressive’s scale and resources to support meaningful change in the pursuit of equality.
Our third objective is to reflect the customers we serve.
Our last objective, and where we have the most opportunity, is in our desire for our leadership to reflect the people they lead.

In some places, we’ve made significant progress. Our growth and hiring over the past five years have enabled us to attract and hire very talented, very diverse candidates. As a result, we better reflect our customers than we did just five years ago. That said, we haven’t made the same progress in senior leadership and one reason for that is that we haven’t had nearly as many opportunities. In fact, since we started in earnest with our Diversity and Inclusion efforts, our employee population has grown by more than 40%, yet our senior leader population has shrunk by about 10%, so we just haven’t had the same number of at bats.

I stated in my last quarterly letter, after a James Baldwin quote on change, that “We can and will be part of that change, not just today, not just next week, but in the months and years to come.” The four objectives outlined above will be an integral part of making meaningful changes rooted in our Core Values.

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

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

Our Culture

create

I continue to be impressed with every single Progressive person who has been nimble and truly made caring for our customers and each other a priority.

We recently concluded our 2020 Gallup culture and engagement survey with 86% of Progressive people responding offering 58,000 comments across 3 open-ended questions.

Our culture index score showed improvement in all five questions. The largest increases were in the following two questions: “I can make a career at Progressive” and “Leaders at Progressive are accessible.” Consistent with prior years, our Golden Rule question, “I’m expected to treat others, including customers, as they want to be treated” continues to stand out with 87% of Progressive people strongly agreeing with this statement. To me, that is very telling and why I’m so proud of our special culture.

Following is one of the many comments we received from our employees, which I believe is even more telling about how strong our culture is and how we live our Core Values every day.

“The one thing that this pandemic has highlighted is how strong our culture really is. People rise up to look out for each other and to find ways to connect. Not a day goes by when I don’t see at least one example of someone helping a fellow co-worker – either work related or dealing with the struggles of quarantine/social injustice. I include everyone from the top down in this – if anyone doubted we worked for a company that truly cares before, that doubt must be gone. Loyal for life.”

That said, we will continue an active stance to address the needs of Progressive people.

I think it’s amazing that 73% of our employees are engaged with only 3% actively disengaged. That’s even more impactful when Gallup tells me that only 35% of employees at U.S. companies are engaged, with 13% actively disengaged. Our engagement score increased once again this year putting us in the 98^th percentile of U.S. companies that use Gallup’s question on engagement.

As we head into the final quarter of what has been a trying year on so many fronts, we remain steadfast in doing the right thing for all of the constituents we serve. I’m more bullish on our future than I’ve ever been, but I will be the first to admit that I do look forward to seeing 2020 in the rear-view mirror.

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

	Nine Months Ended September 30,
	2020	2019	Change
Personal Lines
Net premiums written (in billions)	$25.64	$23.16	11%
Net premiums earned (in billions)	$24.22	$21.97	10%
Loss and loss adjustment expense ratio	61.2	69.8	(8.6) pts.
Underwriting expense ratio¹	24.8	20.1	4.7 pts.
Combined ratio¹	86.0	89.9	(3.9) pts.
Policies in force (in thousands)	21,207.2	19,187.4	11%

¹Underwriting expense and combined ratios for 2020 include 4.4 points of policyholder credits issued to personal auto customers.

	Nine Months Ended September 30,
	2020	2019	Change
Commercial Lines
Net premiums written (in billions)	$3.95	$3.55	11%
Net premiums earned (in billions)	$3.53	$3.19	11%
Loss and loss adjustment expense ratio	64.1	67.5	(3.4) pts.
Underwriting expense ratio¹	23.2	21.2	2.0 pts.
Combined ratio¹	87.3	88.7	(1.4) pts.
Policies in force (in thousands)	803.9	748.7	7%

¹Underwriting expense and combined ratios for 2020 include 0.9 points of policyholder credits issued to Commercial Lines customers.

	Nine Months Ended September 30,
	2020	2019	Change
Property
Net premiums written (in billions)	$1.44	$1.27	13%
Net premiums earned (in billions)	$1.30	$1.14	14%
Loss and loss adjustment expense ratio	84.7	72.4	12.3 pts.
Underwriting expense ratio¹	30.1	30.7	(0.6) pts.
Combined ratio¹	114.8	103.1	11.7 pts.
Policies in force (in thousands)	2,421.0	2,144.3	13%

¹Underwriting expense and combined ratios for 2020 and 2019 include 3.3 points and 4.5 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

	Nine Months Ended September 30,		Years Ended December 31,
	Target	2020	2019	2018	2017	5 Years¹	10 Years¹
Financial Results
Underwriting margin
–Progressive²	4%	12.5%	9.1%	9.4%	6.6%	7.7%	7.3%
–Industry³	na	\|\|\|\|\|\|\|	1.8%	2.7%	(2.2)%	(1.2)%	(1.3)%
Net premiums written growth
–Progressive	(a)	11%	15%	20%	16%	15%	10%
–Industry³	na	\|\|\|\|\|\|\|	3%	8%	8%	6%	5%
Policies in force growth
–Personal auto	(a)	12%	11%	14%	13%	10%	7%
–Special lines	(a)	7%	4%	0%	2%	2%	3%
–Commercial Lines	(a)	7%	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%	12%	12%	14%	17%	na	na
–Group II	≥75%	88%	88%	86%	83%	na	na
Debt-to-total capital ratio	<30%	23.0%	24.4%	28.9%	26.3%	na	na
Return on average common shareholders’ equity
–Net income attributable to Progressive	(c)	33.8%	31.3%	24.7%	17.8%	22.1%	20.0%
–Comprehensive income attributable to Progressive	(c)	36.7%	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.

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, Association of American Universities (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) progressive.com/agent	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.