AM Best

DECEMBER 18, 2014 08:42 AM (EST)

A.M. Best Affirms Ratings of The Progressive Corp. and Its Subsidiaries; Comments on Announced Acquisition of ARX Holding

Neil Das Gupta
Senior Financial Analyst
(908) 439-2200, ext. 5206

Joseph Burtone
Assistant Vice President
(908) 439-2200, ext. 5125

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - DECEMBER 18, 2014 08:42 AM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa" of the members of Progressive Agency Pool, Progressive Direct Pool and Progressive Commercial Auto Group (collectively known as Progressive). A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a+" of National Continental Insurance Company. Additionally, A.M. Best has affirmed the ICR of "a" and all debt ratings of the parent holding company, The Progressive Corporation [NYSE: PGR]. The outlook for all ratings is stable. All companies are headquartered in Mayfield Village, OH. (See below for a detailed listing of the companies and ratings.)

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:

  • Progressive Casualty Insurance Company

  • Progressive Northern Insurance Company

  • Progressive Northwestern Insurance Company

  • Progressive Specialty Insurance Company

  • Progressive Preferred Insurance Company

  • Progressive Classic Insurance Company

  • Progressive American Insurance Company

  • Progressive Gulf Insurance Company

  • Progressive Bayside Insurance Company

  • Progressive Mountain Insurance Company

  • Progressive Southeastern Insurance Company

  • Progressive Hawaii Insurance Corp.

  • Progressive Michigan Insurance Company

  • Progressive Security Insurance Company

  • Progressive West Insurance Company

  • Drive New Jersey Insurance Company

  • Progressive County Mutual Insurance Company

The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Direct Pool:

  • Progressive Direct Insurance Company

  • Progressive Marathon Insurance Company

  • Progressive Max Insurance Company

  • Progressive Advanced Insurance Company

  • Progressive Universal Insurance Company

  • Progressive Premier Insurance Company of Illinois

  • Progressive Paloverde Insurance Company

  • Mountain Laurel Assurance Company

  • Progressive Select Insurance Company

  • Progressive Freedom Insurance Company

  • Progressive Garden State Insurance Company

The FSR of A+ (Superior) and ICRs of "aa" have been affirmed for the following members of Progressive Commercial Auto Group:

  • Artisan & Truckers Casualty Company

  • Progressive Express Insurance Company

  • United Financial Casualty Company

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

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best's Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Analyzing Insurance Holding Company Liquidity

  • Equity Credit for Hybrid Securities

  • Insurance Holding Company and Debt Ratings

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.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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