Companies that provide necessary services often make good investments, and if you own a car, having at least the minimum amount of auto insurance required by law is a necessity. For years, Progressive (NYSE:PGR) has staked its claim of this lucrative portion of the insurance industry, and coming into Friday morning's financial report on the month of June and the second quarter, Progressive shareholders had looked for the company to continue providing strong results. In its report, Progressive largely confirmed the positive trends it has enjoyed recently, seeing both increased customer demand and more favorable efficiency numbers within its internal operations. Let's look more closely at how Progressive did as the year reached its halfway point.
Progressive keeps driving higher
The growth that we saw from Progressive earlier in 2015 has accelerated as the year has progressed. For the second quarter, Progressive's net premiums written jumped 13% to $5.25 billion, with earned premiums showing similar growth of 11% to come in just shy of $5 billion. In contrast to last quarter's somewhat sluggish earnings performance, Progressive's net income soared 24% to $363.3 million, and that worked out to $0.62 per share, well above the $0.55 per share that most of those who follow the stock had expected to see.
A closer look at the results shows that Progressive continues to up its game quarter after quarter. Direct sales of its auto insurance policies climbed 7% to 4.74 million, almost catching up to the number of policies Progressive has through agency relationships. Special lines for personal insurance needs rose at a more modest 2%, and Progressive also managed to see commercial-line business climb at a 4% clip to around 538,000 policies.
Perhaps the most interesting thing about Progressive's results showed up outside its core auto insurance business. The company reported about 1.05 million property business insurance policies, nearly all of which came from Progressive's acquisition of a controlling interest in ARX Holding and its American Strategic Insurance subsidiary in April. The stake in ARX cost Progressive $875 million in cash, but it marked a huge transition for the company as it aims to broaden its appeal beyond the car insurance arena to compete against more diversified insurance carriers. Given the efforts that Progressive has already made to bundle different types of coverage, the acquisition already appears to be paying dividends by attracting more customers and getting more existing customers to have multiple lines of business with the insurer.
Can Progressive keep progressing?
In the auto insurance business, many customers see little difference between one insurer and another. That's one perception that Progressive is trying to change, and one of the key ways it's doing so is through its Snapshot monitoring device. Progressive has already identified certain classes of drivers who are less likely to be in accidents, such as business travelers who park their cars at airports several days a week, families that have an additional car that they drive infrequently, and drivers who come to stops gently rather than slamming on the brakes. Through Snapshot, Progressive aims to give all of its customers a more personalized insurance rate that's based on their actual risk level, and for many who are on the safer end of the spectrum, those discounts can be meaningful and lure them away from competing insurance carriers.
Still, the ARX acquisition holds a lot of promise for Progressive. If the company can do an even better job of persuading its loyal customers in one area of its business to consider getting other types of insurance at the same time, then Progressive could find easy sources of growth. Expanding existing customer relationships is often easier than bringing new customers into the fold from outside, and Progressive's success in cross-selling its current customers will be key in determining how well it performs going forward.
Progressive investors seemed pleased with the company's results, having sent the stock up almost 4% on Friday following the announcement. So long as Progressive can continue to grow its earnings, shareholders should continue to share in the rewards.