The Progressive Corp.'s stock took a dramatic dip April 13 following the release of first-quarter 2023 EPS results that fell short of analyst projections.
The property and casualty insurer's stock fell 6.99% from Wednesday, April 12, to Thursday, ending at $138.21 a share by the end of trading.
The decline came on the heels of the insurer's first-quarter earnings release, which showed an increase in net premiums written and earned as well as a 43% increase in earnings year over year, growing from $313.9 million in 2022 to $447.9 million in 2023.
However, $151.8 million in loss for March 2023 and a lower-than-predicted EPS for the quarter complicated things for Progressive, according to Piper Sandler analyst Paul Newsome.
"It's a little bit of a tale of two issues, because growing by almost 20% in written premium is great, but the underwriting results were very poor," Newsome said. "If you're a growth guy, you're happy, but if you're an earnings guy then you're not happy at all."
Progressive's first-quarter operating EPS was 67 cents versus Piper Sandler's estimate of $1.34 and the consensus estimate of $1.37.
In its earnings release, Progressive cited unfavorable prior-accident-year reserve development and said 55% of its March unfavorable development total came from personal auto products. The majority of the unfavorable development in personal auto reflects activity resulting from recently passed legislation in Florida, Progressive said.
Florida deluge
On March 24, Florida Gov. Ron DeSantis signed into law HB 837, a broad tort reform bill that will overhaul Florida's litigation landscape.
Newsome said the legislation is likely a piece of Progressive's stock woes but not the main piece.
"[Progressive's] underwriting results were hampered by a lot of things; it wasn't just the reserve development, it was also due to poor underlying results and then catastrophe losses," Newsome said.
Before the tort reform took effect in Florida, there was a deluge of lawsuits in the state, including over 70,000 in one week, Wells Fargo analyst Elyse Greenspan wrote in an April 13 research note. In response, Progressive set up reserves as they would do with a hurricane and this drove the majority of the prior-year adverse development, Greenspan wrote.
"This should be a one-time charge and reforms could be a positive over the intermediate to long term," Greenspan said.
Progressive did not respond to a request for comment regarding its stock value decline. The insurer is scheduled to hold a first-quarter earnings call at 9:30 a.m. ET on May 3.
Fellow property and casualty insurers The Travelers Cos. Inc. and The Allstate Corp. fared slightly better, their stocks falling by 2.44% and 2.85%, respectively, from Wednesday to Thursday. By close of trading on April 13, the S&P 500 rose 1.00% from the week prior to 4,146.22, while the S&P 500 U.S. Insurance index gained 0.29%, rising to 571.82.
Hippo stock resurfaces
After months of decline, Hippo Holdings Inc.'s stock value climbed significantly in the month since the company announced a stock repurchase program.
The insurer announced the repurchase program March 13, with plans to repurchase up to $50 million of its common stock.
Since March 10, the Friday prior to the program announcement, Hippo's stock value has grown by 23.59% and was trading at $17.88 a share by close of trading April 13.
In a research note dated March 13, Keefe, Bruyette & Woods analysts Thomas McJoynt-Griffith and Meyer Shields wrote that Hippo's repurchase announcement came after a week of outsized weakness in the stock.
"While we are comfortable with Hippo's existing cash/capital being sufficient to get the company to breakeven cash flow by [year-end 2024], we would be somewhat surprised to see any significant distribution of capital at this juncture, but it is clearly a positive signal," the analysts wrote.
Hippo did not respond to a request for comment regarding its repurchase program and its impact on its stock value.