Bloomberg News

Progressive Misses Estimates as Online Sales Growth Slows

July 14, 2011

(Updates share decline in second paragraph.)

July 14 (Bloomberg) -- Progressive Corp., the fourth- largest U.S. auto insurer, posted profit that missed analysts’ estimates as Internet sales growth slowed.

Second-quarter operating profit, which excludes some investment results, was about 35 cents a share, missing by 5 cents the average estimate of 19 analysts surveyed by Bloomberg. The Mayfield Village, Ohio-based insurer slipped 79 cents, or 3.8 percent, to $20.13 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest decline since December.

Chief Executive Officer Glenn Renwick has been pushing packages of home and auto coverage over the Internet to boost retention and attract drivers who want to get both policies from the same carrier. Rivals including Allstate Corp. have been investing in online sales to win customers.

Progressive targets “a segment of the market where shoppers are very price sensitive,” said Mark Dwelle, an analyst at RBC Capital Markets, who has an “outperform” rating on the company. “The customer you win on price, you run the risk of losing on price. That is a continued challenge.”

Progressive and Berkshire Hathaway Inc.’s Geico Corp. built sales through the Internet as younger drivers shunned agents while shopping for coverage. State Farm Mutual Automobile Insurance Co. and Allstate, the two largest U.S. home and car insurers, rely more on agents to sell policies and maintain client relationships.

Premium Revenue

The number of individual car customers who used direct channels such as the Internet and telephone to buy coverage from Progressive expanded 7.8 percent to 3.77 million, compared with a 15 percent gain a year earlier. Overall, premium revenue increased 3.6 percent to $3.72 billion, the company said in a statement today. Progressive reports results on a monthly basis and had already disclosed data from April and May.

Renwick has said policy growth has been hurt by a “leaking bucket.” If customers stayed, “we would be considerably bigger than we are,” Renwick said at the company’s investor day presentation last month.

This is the first year in which a majority of new auto insurance buyers initiated their search online, according to a study last month from J.D. Power & Associates. About 54 percent of the buyers started on the Internet, compared with 44 percent in 2007, the report showed.

Net income advanced to $245.2 million, or 38 cents a share, from $211.9 million, or 32 cents, a year earlier, as investment results improved, the insurer said. The company had a net realized investment gain of $26 million in the period, compared with a $39.5 million loss a year earlier.

Book Value

Book value, a measure of assets minus liabilities, rose to $9.88 a share, compared with $9.64 on March 31. The insurer rose 1.3 percent this year on the New York Stock Exchange, compared with the 5.8 percent drop in the 24-company KBW Insurance Index.

Progressive had an underwriting profit margin of 6.6 cents on every dollar it collected in premiums for the quarter, down from 7.3 cents a year earlier, as an above average number of tornadoes in the U.S. drove up claims costs for insurers. The firm said natural disasters cost the company $125 million, compared with about $47 million a year earlier.

--Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Brooke Sutherland in New York at Bsutherland5@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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