For most people, insurance isn't something to spend a lot of time thinking about. Yet the insurance business is immensely profitable, and Progressive (NYSE:PGR) has become a major player in the highly competitive auto-insurance industry. Coming into Wednesday morning's report on March and first-quarter results, Progressive investors hoped that the insurance company would be able to keep up its momentum from its highly successful marketing campaigns and its innovative driver-tracking systems. For its part, Progressive reported solid results that show the impact that an emphasis on efficiency has had on the company's rising stock price. Let's take a closer look at Progressive and how it's started 2015 on the right foot.
Progressively better results
Progressive has continued to show steady but strong growth in several key aspects of its business. Net premiums written during the quarter soared 8% to $5.07 billion, showing the popularity of the insurance carrier's products even in a market with several strong players all jockeying for position. Net income fell 8% due largely to a drop in net realized gains on Progressive's securities portfolio, but even so, earnings of $0.50 per share were well above the consensus projection of $0.43. Moreover, when you take into account unrealized gains, comprehensive income came in at $0.54 per share, unchanged from the year-ago quarter.
Looking more closely at the results, Progressive continues to look healthy. The company's combined ratio, which reflects how much Progressive pays in claims as well as expenses related to its insurance, fell by seven-tenths of a point to 92.7. Total personal auto policies climbed 2% to $9.45 million, with a shift in its product mix stemming from a reduction of agency-written policies in favor of direct business. Currently, direct auto policies make up almost half of Progressives total auto-policy count. Growth in special personal lines as well as commercial policies amounted to 2% to 3%, and while commercial has traditionally made up a small part of Progressive's overall business, it nevertheless is a growth opportunity for the company to pursue going forward.
What's ahead for Progressive?
From a strategic standpoint, though, Progressive's biggest opportunity still lies ahead. At the beginning of the month, Progressive completed its acquisition of a controlling interest in ARX Holding, the parent company of American Strategic Insurance. With two-thirds ownership of ARX, Progressive clearly believes that it can grow in directions beyond the auto-insurance market, as it brings ARX's homeowners insurance specialization under its roof.
Progressive believes that having a well-rounded product offering that's nevertheless focused on auto insurance will best balance its needs for sustaining its competitive advantage while also holding onto business. As CEO Glenn Renwick commented during the initial conference call last year announcing the deal, customers "often felt the subsequent need to shop for additional products [beyond auto] as their lives and needs change, terminating their tenure with Progressive for reasons far from product quality or satisfaction concerns." By building a strong relationship with a homeowners-insurance provider, Progressive hopes to meet its customers' needs more effectively.
At the same time, though, Progressive still wants to keep strong relationships with other insurance partners, including those that provide rival homeowners insurance policies. The fact that Progressive is perceived as primarily an auto-insurance carrier leaves open the possibility for outside brokers to recommend Progressive insurance on the auto side without feeling as though they're endangering their books of business on other policy lines.
Meanwhile, ARX matches up well with Progressive's commitment to efficiency. Combined ratios at American Strategic Insurance have been quite strong in recent years, with a favorable environment helping to boost profits. Combined with the synergy opportunities, Progressive stands to see substantial gains from the combination in the quarters to come.
Overall, Progressive shares responded favorably to the news, jumping almost 2% in the half-hour following the company's announcement. With solid success behind it and plenty of potential looking forward, Progressive has a lot of room to grow and to make a bigger impression not just in the auto-insurance market but also in other areas of the industry as well.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Progressive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.