Finding new customers is a huge component of success for insurance companies, and Progressive (PGR -2.31%) has worked hard to offer its policyholders attractive features that keep them coming back and encourage them to open multiple policies with the insurer. Nevertheless, the industry also has to deal with the unpredictable nature of loss, and coming into Wednesday's fourth-quarter financial report, Progressive investors were prepared to see lower earnings despite a big anticipated rise in revenue. As it turned out, Progressive managed to gain ground on the bottom line as well, and that resulted in increased optimism among investors about the company's prospects going forward. Let's look more closely at Progressive's latest results and what they say about its future.

Progressive spokesperson with fire extinguisher.

Image source: Progressive.

Progressive brings in more business

Progressive's fourth-quarter results showed impressive growth. Net premiums written jumped 15% to $5.55 billion, which was substantially higher than the consensus forecast among investors. Net premiums earned were up 14% to $5.87 billion. Even better, net income also climbed 16% to $383.2 million, and that resulted in earnings of $0.66 per share. That was fully $0.15 per share better than some forecasts among those following the stock.

Taking a closer look at Progressive's results, the disparity that we've seen for a while between direct-sold and broker-sold policies waned somewhat. Agency-sold auto policy counts were up by 7% to 5.05 million, which was only a bit slower than the 9% growth rate in direct auto policy sales of 5.35 million. Special lines saw the number of policies in force rise by 4% to 4.26 million, and the commercial lines business jumped 9% to nearly 608 million. Elsewhere, the property coverage unit saw the best gains of all, climbing 12% to move about the 1.2 million mark.

The best thing about Progressive's performance, though, was the fact that more of its revenue made its way down to the bottom line in the form of profit. The company's combined ratio actually rose 0.7 points to 92.7%, which is usually associated with a combination of higher losses from claims and rising expenses. Yet the gains in premium revenue largely offset that adverse movement in efficiency. Also, rising net realized gains on investment securities contributed to positive performance for the quarter.

Can Progressive keep driving ahead?

Even with the solid performance in the fourth quarter, Progressive still has progress to make on a longer-term basis. For the full 2016 year, Progressive produced an impressive 12% rise in total revenue, thanks largely to a 14% gain in net premiums written. Yet expenses climbed at an even faster rate of 16%, and as a result, net income dropped by nearly a fifth from 2015 levels. Only by factoring in comprehensive income sources like unrealized securities gains did Progressive show signs of growth in its bottom line for the full year.

Also, Progressive disappointed investors on the dividend front. The company uses a variable model in determining its annual payout, and the result of those calculations was a 2017 dividend of $0.6808 per share. That's down from last year's $0.888 per share amount and represents a yield of less than 2% going forward.

Nevertheless, Progressive investors were pleased with the report, and the stock climbed more than 3% on the day following the announcement. If Progressive can keep attracting new customers and building up premium income, then it should be able to find ways to make them more profitable in the long run.