Business & Finance
Business and Finance
Business and Finance
Thu, February 26, 2009
Wed, February 25, 2009 Fitch Affirms Progressive's IDR at 'AA-'; Outlook Stable
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed The Progressive Corporation's (NYSE:PGR) ratings as follows:
--Issuer Default Rating (IDR) at 'AA-';
--Senior debt ratings at 'A+'.
Fitch has also affirmed PGR's operating subsidiaries' Insurer Financial Strength (IFS) rating at 'AA+'. A complete list of affected ratings follows the end of the release. The Rating Outlook is Stable for all ratings.
Fitch's ratings are based on PGR's solid operating performance, modest catastrophe risk as an auto writer, and high levels of pricing and underwriting expertise. PGR's GAAP combined ratio for full year 2008 was a 94.6% compared to a 92.6% for full year 2007. PGR reports monthly accounting figures, and as of Jan. 31, 2009, PGR reported an 89% combined ratio.
The affirmation also incorporates the $1.9 billion in Other Than Temporary Impairments (OTTI) PGR took in 2008, which contributed towards a $70 million net loss for the full year, the company's first net loss since 1982. Approximately 90% of impairments were related to redeemable and non-redeemable preferred stock holdings mainly in financial institutions. While investment losses were higher than expected, PGR has taken several steps to reduce its risk exposure in its investment portfolio, including significantly reducing common equity exposure and increasing its exposure to cash and U.S. Treasuries.
Additionally, Fitch recognizes that PGR has a fairly conservative impairment process. At year end 2008, the PGR reported an unrealized loss of $118 million, a figure below peers. PGR's variable dividend rate program also helped to preserve capital, as no stockholder's dividend was paid out last year since after tax comprehensive income was below after tax underwriting income.
On a risk-adjusted basis, PGR's capital ratios are very strong, due mainly to the low variability inherent in PGR's book of business. However, Fitch notes notional leverage ratios, including net premium written to surplus ratios, remain high relative to most property-casualty insurers, which means capital is exposed to unexpected pricing errors. High notional leverage somewhat tempers Fitch's overall view of PGR's capital strength compared to guidelines for the current ratings levels.
Fitch believes PGR's primary goal is the achievement of a 96% GAAP combined ratio. Thus, Fitch expects that Progressive's premium growth rate will depend on its ability to achieve its profitability goal and that growth will moderate if competition in the auto insurance industry increases. Fitch also considers Progressive's loss reserves to be adequate and expects that loss reserve development, if any, will generally be modest.
PGR is an insurance holding company based in Mayfield Village, OH. The company sells personal and commercial automobile insurance through independent agent and direct distribution channels.
Fitch has affirmed the ratings for the following companies with a Stable Outlook:
The following are members of Progressive Direct Holdings:
Mountain Laurel Assurance Co.
Progressive Advanced Insurance Company
Progressive Choice Ins Co.
Progressive Direct Insurance Co.
Progressive Freedom Ins Co.
Progressive Garden State Ins Co.
Progressive Marathon Ins Co.
Progressive MAX Ins Co.
Progressive Paloverde Ins. Co.
Progressive Premier Ins. Co. of IL
Progressive Select Insurance Co.
Progressive Universal Ins. Co.
--IFS at 'AA+'.
The following are members of Drive Insurance Holdings:
Drive New Jersey Ins Co.
Progressive American Ins. Co.
Progressive Bayside Ins. Co.
Progressive Casualty Ins. Co.
Progressive Classic Insurance Co.
Progressive Gulf Ins. Co.
Progressive Hawaii Ins. Co.
Progressive Michigan Ins. Co.
Progressive Mountain Insurance Co.
Progressive Northeastern Ins. Co.
Progressive Northern Ins. Co.
Progressive Northwestern Ins.
Progressive Preferred Ins. Co.
Progressive Security Ins. Co.
Progressive Southeastern Ins. Co.
Progressive Specialty Ins. Co.
Progressive West Ins. Co.
--IFS at 'AA+'.
The following are members of Progressive Commercial Holdings:
Artisan & Truckers Casualty Co.
Progressive Express Ins. Co.
United Financial Casualty Co.
--IFS at 'AA+'.
Fitch has affirmed the following ratings with a Stable Outlook:
The Progressive Corporation
--IDR at 'AA-';
--Senior debt at 'A+';
--$350 million 6.375% due Jan. 15, 2012 at 'A+';
--$150 million 7% due Oct. 1, 2013 at 'A+';
--$300 million 6.625% due March 31, 2029 at 'A+';
--$400 million 6.25% due Dec. 1, 2032 at 'A+';
--Junior subordinate debentures at 'A';
--$1 billion 6.70% due June 18, 2067 at 'A'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
