Will Progressive Earnings Weather the Insurance-Industry Storm?

Progressive (NYSE: PGR  ) will release its June earnings report on Thursday, but shareholders haven't waited to start the celebration. With the stock near multi-year highs, investors clearly believe the worst is over for the insurance industry generally, and for Progressive in particular.

Progressive is unusual in that it provides a monthly look at earnings. Lately, the stock has taken a roller-coaster ride, with dramatic moves in both directions resulting from high-profile disasters and improvements in the company's fundamentals. Let's take an early look at what's been happening with Progressive over the past quarter and what we're likely to see in its quarterly report.

Stats on Progressive

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$4.41 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Prepare for a big push forward for Progressive earnings
Analysts have gotten more excited about Progressive's earnings prospects in recent months, boosting their consensus figures for the June quarter and for the full 2013 year by $0.06 per share. The stock has generally reacted favorably, with modest gains of about 3% since early April.

The beauty of Progressive's monthly release schedule is that we already know the basics of how the first two months of the quarter went. April was extremely strong, with earnings of $0.23 per share more than doubling from the dime per share that the company earned in the year-ago month. Combined ratios also fell, indicating smarter underwriting and more favorable loss experience. May saw similarly favorable results with net income of $0.19 per share coming close to tripling the year-ago figure.

Yet the industry is going through a time of transition right now. The devastating tornado that hit an Oklahoma City suburb in May sent shares of Progressive, Allstate (NYSE: ALL  ) , and Travelers (NYSE: TRV  ) tumbling in anticipation of greater property and casualty losses. On the other hand, greater losses have helped support rising premiums, helping to bolster long-term profits. Moreover, rising yields in the bond market are helping insurance companies earn more income from their investments, helping bring loss ratios down and improve profits.

For Progressive, auto policies make up more than two thirds of its total outstanding policies, and although the company does offer home insurance, it's part of what the company sees as "special lines" in its monthly reports. In the auto industry, Progressive's groundbreaking Snapshot system that sets rates based on actual driving records could revolutionize the industry. Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) Vice-Chairman Charlie Munger largely dismissed adopting a similar strategy at its GEICO subsidiary, saying at Berkshire's most recent annual meeting that, "we're not going to immediately copy what every single competitor does, particularly when we have a model that's working so well." Berkshire's decision is likely good news for Progressive, which can continue to enjoy the benefits of being able to discern which customers are most profitable and focus on meeting their needs.

In the coming monthly report, watch how Progressive earnings compare with previous months. At this point, Progressive appears to be in a good position to maximize its benefits from the changing insurance-industry environment.

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