Progressive’s Underwriting Results Turn a Corner in Fourth Quarter

Progressive has handled recent negative claims trends in the personal auto insurance industry much better than its peers, and the company's fourth-quarter results suggest it is moving toward normalization in its underwriting results while its peers continue to struggle. Still, the company is not without its issues in the near term, and a 4% ROE for the full year is well below the level we expect from this narrow-moat company, although it should be noted that investment losses were the main culprit behind the weakness. Overall, while we appreciate Progressive’s relative outperformance over the last year, we think the shares are meaningfully overvalued from a long-term perspective and will maintain our $99 per share fair value estimate.