Press Release - DECEMBER 18, 2014
A.M. Best Affirms Ratings of The Progressive Corp. and Its Subsidiaries; Comments on Announced Acquisition of ARX Holding
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 18, 2014
The ratings reflect Progressive's strong operating performance, adequate capitalization and sustainable competitive advantages. Progressive's capitalization has benefited from consistently favorable underwriting results, consistent investment income and significant realized and unrealized capital gains in its investment portfolio given the favorable performance of equity markets in recent years. Progressive continues to benefit from a stable management team, brand name recognition, a multiple channel distribution platform and innovative underwriting and claims handling technology. In addition, Progressive's direct operations have continued to witness favorable growth, reflective of improved brand recognition.
These positive rating factors are partially offset by Progressive's high underwriting leverage relative to industry averages. However, Progressive has historically operated with elevated underwriting leverage while consistently generating favorable underwriting results.
Progressive's debt-to-adjusted capitalization remains within expectations consistent with the holding company's current rating level. As of Sept. 30, 2014, the most recently available quarterly data, The Progressive Corporation along with its subsidiaries had nearly $26.0 billion in total assets and approximately $6.9 billion in total shareholder equity. Additionally, Progressive recently announced that it has agreed to acquire a controlling position in ARX Holding Corp., the parent company of American Strategic Insurance Corp (ASI) and its affiliates, in an all-cash transaction valued at approximately $875 million. The transaction, which is anticipated to close by April 1, 2015, is not expected to impact Progressive's existing ratings and outlook. While ASI's book of business in terms of net premiums written is relatively small compared to that of Progressive (approximately $670 million compared to $17 billion for the 2013 full year results), ASI's primarily property book of business does provide Progressive's predominantly automobile business with greater product diversification and greater long term strategic advantages in improving its ability to offer product bundling and significant geographic expansion.
While Progressive is well-positioned at its current rating level, negative rating actions could occur if its operating performance and consequently risk-adjusted capitalization fall below expectations for its current ratings. In addition, negative rating actions could occur if capital erosion occurs due to investment volatility or increased risk appetite. Alternatively, positive rating actions could occur if Progressive's operating performance consistently exceeds its peer group by a significant margin over the next several years, and its risk-adjusted capitalization improves significantly.
The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Agency Pool:
The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Direct Pool:
The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Commercial Auto Group:
The ICR of "a" and the following debt ratings of The Progressive Corporation have been affirmed:
The Progressive Corporation—
— "a" on $300 million 6.625% senior unsecured notes, due 2029
— "a" on $400 million 6.250% senior unsecured notes, due 2032
— "a" on $500 million 3.75% senior unsecured notes, due 2021
— "a" on $350 million 4.35% senior unsecured debentures, due 2044
— "bbb+" on $1 billion 6.7% junior subordinated debentures, due 2067 (of which $630 million remains outstanding)
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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