Progressive Corp.'s March earnings report provides an initial glimpse of the breadth and depth of the effects of the COVID-19 pandemic on the auto insurance business.
In addition to the expected pressures on investment results and benefits from a decline in the frequency of claims, Progressive reported a sharp downturn in the volume of new personal auto insurance applications, a $103 million increase in reserves to reflect higher ultimate costs of claims incurred, and growth in its allowance for doubtful accounts. The pandemic also appeared to contribute to notable changes in the trajectories of growth in policies in force and premiums written at Progressive, the No. 3 U.S. private auto insurer and No. 1 commercial auto writer.
Progressive reported nearly 15.3 million personal auto policies in force in March, including nearly 7.2 million through its independent agency channel and 8.1 million in the direct channel. For the personal auto business overall and the agency channel, it was the first time since August 2017 that policies in force did not grow by double-digit percentages on a year-over-year basis.
Across both the agency and direct channels, policies-in-force growth remained positive on a month-over-month basis. Progressive attributed that to increases in renewal applications partially offsetting a decline in new applications. Progressive said that new auto applications tumbled by about 23% for the last three weeks of its fiscal month of March, as compared with expansion of 2% for the first week.
The company does not typically disclose application trends on a monthly basis. For full-year 2019, the company reported growth in new personal auto applications of 8%, down from a 20% jump in 2018.
A better context for the March data might be found during the most recent period in which Progressive's in-force personal auto policy counts were contracting on a month-over-month basis. An internal effort in the second half of 2012 to raise rates to maintain targeted underwriting margins during a period of rising claims costs led to year-over-year declines in new personal auto applications of 12% in the first quarter of 2013.
Progressive attributes its changes in net premiums written to the combination of new business applications, premium per policy and retention. Not only did new business applications take a hit in March, the company also said average premiums per policy fell.
The company still managed to eke out year-over-year growth of 1.1% in its monthly level of personal vehicle net premiums written, but that rate of expansion was its slowest since December 2015 — a period in which Progressive's results were significantly impacted by nuances associated with its fiscal calendar. The trailing-12-months rate of personal vehicle net premiums written growth slipped to a three-year low of 12.7% in March from 13.9% in February. On a quarterly basis, the growth rate of 7.8% was Progressive's lowest in four years.
Comparisons in the commercial lines segment suffered to a much more significant extent, plunging by a reported 40% in March to $212.6 million, as Progressive saw a $110.5 million reduction in premiums associated with its transportation network company businesses. The reduction reflected decreases in actual miles driven in March and estimates of the miles to be driven through the balance of policy terms.
The lower miles driven in March by all types of vehicles, and in turn lower claims frequency, were particularly apparent in loss ratios and combined ratios. Combined ratios in the agency and direct auto businesses of 74.2% and 75.2% marked declines of 11.5 and 13.3 percentage points, respectively, from what had been abnormally favorable levels in March 2019. Since the start of 2006, Progressive had not posted combined ratios of less than 83.4% in the agency channel and 83.2% in the direct channel.
Those figures understate the level of improvement, however. The loss and loss adjustment expense ratios in the agency and direct channels plunged by 14.5 and 16.1 percentage points, respectively, on a year-over-year basis. Increases to the allowance for doubtful accounts stemming from an analysis of the company's premiums receivable contributed to increases in the expense ratio of 3.0 and 2.8 percentage points in the agency and direct channels.
Progressive, like many insurance companies, initiated a program to not cancel or nonrenew policies due to nonpayment, and it paused collections efforts. The company estimated that about 200,000 personal auto policies remained in force at the end of March owing to what it characterized as "billing leniencies." That amounted to approximately 1.3% of its personal auto policies in force.
Like the vast majority of its private auto peers, Progressive has implemented a COVID-19 premium relief program. Its Apron Relief Program Endorsement offers retrospective policyholder credits of 20% of April and May premiums to reflect lower claims frequency, and is designed to remain in place for 180 days to provide flexibility for future credits.
"In these extraordinary times," Progressive County Mutual Insurance Co. said in one of the numerous Progressive form filings obtained by S&P Global Market Intelligence on April 14, "we do not believe that the 'earned car year' is an appropriate exposure base to reflect the insured experience of our customers nor to reflect the risks that Progressive assumes in issuance of these policies."