Company Reports

Progressive and the other personal auto insurers have struggled the past couple of years. But Progressive has handled this period much better than its peers, and we've seen signs that results were improving. In the first quarter, the company more than fully moved past these issues, with strong underwriting results and ongoing benefits from higher interest rates. We estimate the annualized return on equity for the quarter at 40%, which gives a sense of how favorable the environment has become for the narrow-moat company. We maintain our $137 fair value estimate and continue to see the shares as materially overvalued. The market seems focused on the near-term strength Progressive is seeing, but we think that the current situation is transitory and that over time, returns will move more in line with prepandemic averages.

Progressive is one of the strongest franchises in the insurance industry, but the company has seen fairly dramatic volatility recently as the auto insurance industry has been on a roller-coaster ride the past several years.

We are increasing our fair value estimate to $137 per share from $114 as we reassess our projections in light of the company's strong relative performance recently and current market conditions. Our fair value estimate is equivalent to 4.1 times Progressive's 2023 year-end book value, or 3.8 times its book value when excluding goodwill and accumulated other comprehensive income.

Narrow-moat Progressive's fourth-quarter results show the company continuing to make good progress in improving its underwriting results. With its peers still struggling, Progressive is in a strong position currently, and we think the company's recent performance supports our favorable view of management. We maintain our $114 per share fair value estimate and see Progressive's shares as being materially overvalued. In our view, the current market price suggests the company's long-term returns will be substantially higher than its historical results, and we don't see a solid basis for that view. We appreciate that the insurer is currently operating from a position of relative strength but see that as a temporary situation.

P&C insurers have had substantial pricing increases across lines recently, but otherwise, commercial and personal insurers are in very different places. For commercial insurers, an extended period of strong price increases has them in a hard market and realizing attractive underwriting margins. Underlying combined ratios have flattened out recently, and we don't expect any significant improvement. Still, this should leave commercial insurers in a strong position over the next couple of years. Personal auto insurers have endured a difficult period in the wake of the pandemic, due to a variety of negative claims trends, and have been pushing pricing to catch up. While they are not out of trouble yet, we think the third quarter could mark the start of a turn toward more normalized underwriting results.

Progressive’s third-quarter results show that the company continues to handle current industry headwinds better than peers and suggest that pricing actions are helping to restore profitability. If all of this holds, the bounceback in profitability will be a bit quicker and sharper than we expected. However, we remain comfortable with our $114 fair value estimate in the meantime and will maintain our narrow moat rating. While we see Progressive as one of the most attractive insurance franchises in the United States, the stock currently looks materially overvalued to us. We think the current share price implies that Progressive's long-term future will be much stronger than its past, and we don't see a justification for that view.

Progressive is one of the strongest franchises in the insurance industry, but the company has seen fairly dramatic volatility recently as the auto insurance industry has been on a roller-coaster ride the past several years.

Narrow-moat Progressive has navigated the current industry environment better than peers, but second-quarter results show that the company is not immune to the headwinds auto insurers are facing. Management appears to be trying to find the right balance between growth and profitability. While Progressive did see strong growth in the quarter, profitability was much less impressive. We will maintain our $107 fair value estimate and see the shares as a bit overvalued at the moment.

Over the past year, personal auto insurers have struggled with a number of negative claims trends. This has pushed most of Progressive’s peers into recognizing significant underwriting losses. While not completely immune to these trends, narrow-moat Progressive has materially outperformed peers during this period. The first quarter, however, marked a bit of a stumble on this front, as adverse reserve development dinged the company’s underwriting profitability. Still, we remain comfortable with our $107 fair value estimate, which we will maintain.

Progressive is one of the strongest franchises in the insurance industry, but the company has seen fairly dramatic volatility recently as the auto insurance industry has been on a roller-coaster ride the past several years.

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.

Progressive is one of the strongest franchises in the insurance industry and had been firing on all cylinders until recently.

Given the differing states of the pricing cycle across lines and recent capital market movements, property and casualty insurers have a variety of tailwinds and headwinds at the moment. Commercial line insurers have seen strong pricing increases over the past few years, and we think the outlook for that area is relatively bright, as attractive underlying combined ratios create a solid base for strong profitability. Conversely, following a burst of abnormally high profitability in the early stage of the pandemic, personal auto insurers have struggled with a number of headwinds more recently, which has pushed most players into significant underwriting losses. Higher interest rates have reduced carrying value for fixed-income investments but offer the possibility of better investment income going forward. Finally, the bear market creates issues for insurers with an equity-heavy investment approach.

Progressive's third-quarter results were hit hard by Hurricane Ian. Outside of that, though, the quarter largely showed a continuation of recent trends. We will maintain our $93 fair value estimate and narrow moat rating.

Progressive is one of the strongest franchises in the insurance industry and had been firing on all cylinders until recently. The auto industry had seen an uptick in costs in previous years, as a multitude of factors ranging from low gas prices to distracted driving pushed up claims. This compressed industry underwriting margins, but Progressive and the industry executed a more than sufficient pricing response. Progressive fully moved past the issue, and, prior to the pandemic, underwriting margins were at the high end of its historical range.

Progressive continues to hold up relatively well in terms of underwriting profitability as the personal auto industry works through a difficult period, but results also continue to show that the narrow-moat company is not completely immune to cyclical impacts. The trailing 12-month ROE of 5% is well below the company’s historical level, due to lower-than-normal underwriting profits and investment losses. We will maintain our $86 fair value estimate.

Progressive’s first-quarter results show the company battling against material headwinds. The trailing 12-month ROE of 12% was solid in an absolute sense but well below historical averages for the narrow-moat franchise. Still, we think Progressive is holding up reasonably well as the personal auto insurance industry works through a difficult period. We will maintain our $86 fair value estimate.

Progressive is one of the strongest franchises in the insurance industry and had been firing on all cylinders until recently. The auto industry had seen an uptick in costs in previous years, as a multitude of factors ranging from low gas prices to distracted driving pushed up claims. This compressed industry underwriting margins, but Progressive and the industry executed a more than sufficient pricing response. Progressive fully moved past the issue, and, prior to the pandemic, underwriting margins were at the high end of its historical range.

Progressive continued to battle headwinds in the fourth quarter, as the personal auto space appears to be exiting the pandemic in much worse condition than it entered. Still, the narrow-moat company produced a 19% ROE for the year, with this year’s ROE coming in back in line with Progressive’s historical average, after a few years of outsized returns. But this was largely driven by $1.5 billion in realized investment gains, as underwriting profitability saw a significant decline through the year. We will maintain our $79 fair value estimate.

Progressive is one of the strongest franchises in the insurance industry, and has been firing on all cylinders. The auto industry had seen an uptick in costs in previous years, as a multitude of factors ranging from low gas prices to distracted driving pushed up claims. This compressed industry underwriting margins, but Progressive and the industry executed a more than sufficient pricing response. Progressive fully moved past the issue, and, prior to the pandemic, underwriting margins were at the high end of its historical range.