If you're looking to build generational wealth, one great way to do so is investing in the stock market: Buying shares of high-quality companies and holding on to them for the long haul. Allowing your investments to grow year after year will enable you to harness the power of compound returns, which can turn a small investment into a significant one.

One blue-chip stock has achieved an incredible feat: turning $1,000 into a cool $1.5 million after sitting and growing over four decades. This company operates in a stable industry with stellar cash flows -- and it's not a stock you would typically associate with outsized returns.

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This overlooked industry can be an excellent source of investment returns

Finding an investment that can grow your wealth over the course of decades means looking for a high-quality business with competitive advantages and the ability to print money year after year. One industry where you can find intriguing opportunities like this is insurance.

Insurance companies can be cash flow machines because their products are always in demand. In some cases, they're legally required, like auto insurance; in others, it's simply because people aim to limit losses from catastrophic events. Insurers can make solid investments during economic growth, when economies are healthier and incomes grow. But they can also be solid investments during inflationary times. That's because as costs go up, insurers can raise their premiums.

Although steady demand for insurance keeps the industry growing, you don't want to invest in just any insurer. You want to focus on companies with strong underwriting discipline that can generate positive cash flows year in and year out. One company that checks that box is Progressive (PGR -0.86%).

Joseph Lewis and Jack Green formed Progressive in 1937 as the Progressive Mutual Insurance Company to provide auto insurance. In 1965, Lewis's son, Peter, completed a leveraged buyout to form the Progressive Corporation. The company rejected the notion that insurers could only rely on their investments for profit. Instead, Progressive aimed to earn an underwriting profit from its policies, even if it meant forgoing drivers who chose lower-cost options.

When it went public in 1971, the company stated its objective was to achieve a combined ratio of 96%, meaning that it would make $0.04 of profit for every dollar of premiums taken in. This philosophy has been core to Progressive's disciplined underwriting and is a big reason for the insurer's massive success.

The insurer continues to perform well despite inflation and multi-decade-high claims losses in the first quarter of this year. It has adapted to the environment and raised premiums as needed to get back on track as it aims to bring its combined ratio below 96% for the 23rd consecutive year -- an impressive feat considering the industry average combined ratio is around 100% in the long run.

You can see how well this underwriting discipline has translated to cash flow in the following chart: Over the past 10 years, Progressive's free cash flow (the amount of cash taken in after operating costs and capital expenditures have been paid) has grown more than 400%.

PGR Free Cash Flow Chart

PGR Free Cash Flow data by YCharts

How the power of compound returns turns $1,000 into $1.5 million

Progressive has done an excellent job staying ahead of the competition every step of the way and has rewarded patient investors handsomely in the process.

If you had invested $1,000 in Progressive stock 40 years ago, in 1983, that investment would've grown to more than $100,000 by the mid-2000s. However, if you had let that investment grow and compound further over the past decade -- reinvesting dividends all the while -- it would be worth $1.5 million today!

PGR Total Return Level Chart

PGR Total Return Level data by YCharts

Even Berkshire Hathaway's leaders are impressed with Progressive

Progressive's long history of writing profitable policies has earned it praise from Berkshire Hathaway CEO Warren Buffett and his right-hand man, Charlie Munger. Buffett, who has made insurance a cornerstone of his conglomerate, said it's a two-horse race for the best auto insurer between GEICO, which Berkshire owns, and Progressive.

Buffett said, "I have always thought for a very long time [that] Progressive has been very well run." And Munger admitted, "In the nature of things, every once in a while, somebody is a little better at something than we are."

Progressive's success is a valuable lesson in the importance of buying quality companies and holding on to them long-term. Although stocks can be volatile in the short term, holding top performers for many years can be an excellent way to achieve growth and build the wealth you dream of.