# PROGRESSIVE CORP/OH/ (PGR) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from PROGRESSIVE CORP/OH/'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/80661/000008066125000007/pgr-20241231.htm Accession: 0000080661-25-000007 Filing date: 2025-03-03 Report date: 2024-12-31 Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: pgr-20241231_d2.htm. Confidence: high Company profile: /company/PGR/ All MD&A years: /company/PGR/mda/ Previous year: /company/PGR/mda/fy2023/ (FY 2023) Next year: /company/PGR/mda/fy2025/ (FY 2025) Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our financial condition and results of operations. MD&A should be read in conjunction with the consolidated financial statements and the related notes, and supplemental information. I. OVERVIEW The Progressive insurance organization has been offering insurance to consumers since 1937. The Progressive Corporation is a holding company that does not have any revenue producing operations, physical property, or employees of its own. The Progressive Corporation, together with its insurance and non-insurance subsidiaries and affiliates, comprise what we refer to as Progressive. For the year ended December 31, 2024, we are reporting two operating segments – Personal Lines and Commercial Lines. Our Personal Lines segment, which represents 85% of companywide net premiums written, writes insurance for personal vehicles, which include autos and special lines products (e.g, recreational vehicles, such as motorcycles, RVs, and watercraft), personal residential property insurance for homeowners and renters, umbrella insurance, and flood insurance through the “Write Your Own” program for the National Flood Insurance Program. Our personal auto product comprises 90% of our Personal Lines net premiums written and just over 75% of our companywide premiums and has the biggest impact on our underwriting results. Our special lines and personal property insurance products each represent about 5% of our total Personal Lines premiums. Our Commercial Lines segment writes auto-related liability and physical damage insurance, business-related general liability and commercial property insurance predominantly for small businesses, and workers’ compensation insurance primarily for the transportation industry and represents 15% of our companywide net premiums written. Our core commercial auto products, which excludes our transportation network company (TNC) business, our Progressive Fleet & Specialty Programs (Fleet & Specialty) products, and our business owners’ policy (BOP) product, represented 80% of our total Commercial Lines net premiums written and just over 10% of companywide premiums. We operate both segments throughout the United States through both the independent agency and direct distribution channels. We are the second largest private passenger auto insurer in the U.S., the largest writer of motorcycle insurance, the eleventh largest homeowners insurance carrier, and the number one writer of commercial auto insurance, in each case based on 2023 premiums written. Our underwriting operations, combined with our service and investment operations, make up the consolidated group. A. Operating Results Progressive reported strong year-over-year growth in both premiums written and policies in force, an underwriting profit better than our 4% companywide calendar-year underwriting profit goal in 2024, and a 50% increase in recurring investment income, compared to 2023. We wrote $74.4 billion of net premiums written during 2024, which was $12.9 billion more than we generated during 2023. We ended 2024 with 35 million policies in force, or just over 5 million more policies in force than at the end of 2023. Our underwriting profit margin was 11.2%, which was 6.1 points better than the 5.1% underwriting margin we earned in 2023. During 2024, companywide net premiums written and earned each increased 21%, over the prior year, and policies in force increased 18%. Both segments contributed to premium and policies in force growth year over year. Net premiums written and earned both grew 23% in Personal Lines and 8% in Commercial Lines. In Personal Lines and Commercial Lines, policies in force grew 18% and 4%, respectively. The Personal Lines growth was mainly attributable to increases in new personal auto applications generated from greater advertising spend, the lifting the non-rate actions we put in place in the personal auto business in 2023, and our continued efforts to work closely with our independent agents to leverage our agent compensation program to reward writing profitable business. In addition to new application growth, during 2024, we increased personal auto and core commercial auto rates 3% and 5% in the aggregate, respectively, compared to rate increases of 19% and 17% during 2023. Both our Personal Lines and Commercial Lines operating segments generated strong profitability during the year, reporting underwriting profit margins of 11.4% and 10.6%, respectively, compared to 5.9% and 1.2% for 2023. Several factors contributed to the change in our underwriting profit. First, the average earned premium per policy was higher in our personal and commercial auto businesses than during 2023, primarily due to the rate increases we took during 2023 to meet our companywide profitability target. App.-A-50 Second, in addition to rate increases, on a year-over-year basis for 2024, our incurred personal auto accident frequency decreased 5% and severity trends remained relatively stable, with a 1% increase over 2023. The companywide favorable prior accident years reserve development of 0.6 points during 2024, compared to unfavorable development during 2023 of 1.9 points, also contributed to our increased underwriting profitability. Our incurred catastrophe losses were fairly consistent on a year-over-year basis. Lastly, partially offsetting the impact the improved loss ratio had on profitability, was a 2.4 point increase in our expense ratio over 2023, primarily driven by increased advertising expenses. During 2024, on a year-over-year basis, our companywide advertising spend increased 150%, bringing our 2024 advertising costs to $4.0 billion. We will continue to advertise to maximize growth as long as the advertising spend is efficient and we remain on track to achieve our target profitability. For 2024, the year-over-year increase in underwriting profitability was the primary contributor to the $4.6 billion increase in net income. The remainder of the increase reflected an increase in recurring investment income, during 2024, primarily due to investing new cash from insurance operations and proceeds from maturing bonds in higher coupon rate securities. Comprehensive income increased $3.6 billion over 2023. The increase in net income was in part offset by a relatively modest decrease of $0.2 billion in net unrealized losses on our fixed-maturity securities, compared to a $1.2 billion decrease in unrealized losses during 2023, which were primarily driven by the then-current economic environment. We ended 2024 with total capital (debt plus shareholders’ equity) of $32.5 billion, which was up $5.3 billion from year-end 2023, primarily due to the $8.7 billion of comprehensive income earned during 2024, offset by the $2.9 billion, quarterly and annual-variable common share dividends declared during 2024 and the $0.5 billion redemption of our outstanding Serial Preferred Shares, Series B, in the first quarter 2024, as discussed in further detail below under Financial Condition. B. Insurance Operations Personal Lines is comprised of our personal vehicle and property products. Our Personal Lines vehicles include both personal autos and our special lines products. Our personal vehicle and property products produced underwriting profits of 11.9% and 1.7%, respectively, for 2024. In total, our special lines products had a minimal impact on our total Personal Lines vehicle combined ratio for the year. Our personal property business generated an underwriting profit for the second consecutive year. Our Commercial Lines segment includes our core commercial auto products, our TNC business, our Fleet & Specialty products, and our BOP product. Our total Commercial Lines underwriting profitability for 2024 was 10.6%. During 2024, our personal auto and core commercial auto businesses’ profitability benefited from higher average earned premium per policy, lower incurred loss frequency trends, and, in personal auto, favorable prior accident years reserve development. As a result of the rate actions we took during 2023 to help achieve our target profit margin, we currently believe that, in most states, we are adequately priced in our personal auto product and in our core commercial auto product we expect to have relatively modest rate increases in 2025. Our TNC business generated a calendar-year underwriting profit in 2024, as a result of the rate increases taken on this business in 2024 and prior years to achieve our target profitability. We will continue to monitor the factors that could impact our loss costs for both our personal vehicle and property businesses, which may include new and used car prices, miles driven, driving patterns, loss severity, weather events, building materials, construction costs, inflation, tariffs, and other factors, on a state-by-state basis. Aggregate personal auto rate changes during 2024 were modest, relative to the prior two years, and we expect rates to stay relatively stable in 2025. In our personal property business, we increased rates about 19% countrywide, in the aggregate during 2024, and we expect continued rate increases in 2025. Throughout the first half 2024, we continued to lift the temporary non-rate actions implemented in prior years in our personal auto and core commercial auto businesses, as our focus shifted from achieving our target profit margin to driving growth, delivering competitive rates to consumers, and continuing to provide a high-quality customer experience to our policyholders. For 2024, both segments generated strong net premiums written growth. Personal Lines net premiums written grew 23%, with the agency and direct personal vehicle businesses growing 21% and 27%, respectively, and personal property growing 8%. Commercial Lines net premiums written also grew 8%, with the majority of the growth generated from our contractor and business auto business market targets (BMT). Changes in net premiums written are a function of new business applications (i.e., policies sold), business mix, premium per policy, and retention. During 2024, we experienced a significant increase in total Personal Lines new business applications, with increases in both our personal vehicle and personal property products. The increase in the total segment new business applications was primarily driven by our personal auto business, and reflects increased advertising spend, the lifting of the App.-A-51 personal auto non-rate restrictions, and our efforts to get back into the independent agents’ quote flows. New personal auto applications increased 44% in 2024, compared to the prior year. New applications in our personal property business were up 31%, driven by significant growth in our renters policies. The new application growth in our homeowners/condo products was up 3% on a year-over-year basis for 2024, with growth in less volatile weather-related states being almost fully offset by decreases in new applications in more volatile weather-related states (e.g., coastal and hail-prone states). Throughout 2024, in our personal property business, we continued to focus on improving profitability and reducing exposure in more volatile markets and, where permitted, slowed growth and non-renewed policies. We prioritized insuring lower-risk properties (e.g., new construction, existing homes with newer roofs), accepting new business for homeowners/condo products only when bundled with a Progressive personal auto policy, where permitted, and began exiting the non-owner occupied home market. In addition, we expanded our cost sharing through mandatory wind and hail deductibles and roof depreciation schedules in markets where permitted. We plan to continue these actions to improve our personal property profitability and reduce exposure during 2025 in the more volatile markets. New applications in our core commercial auto business increased 8% during 2024, compared to 2023, primarily due to an increase in quote volume and improved conversion in all of our BMTs, other than for-hire transportation and for-hire specialty, as discussed below. Excluding the impact of the for-hire transportation BMT, which had a year-over-year decrease in new applications, our core commercial auto new application growth would have been 15% during 2024. The for-hire transportation BMT continues to be adversely impacted by challenging freight market conditions that have caused a decline in the active number of motor carriers in this BMT. During 2024, on a year-over-year basis, average written premium per policy grew 8% in personal auto and 5% in core commercial auto products. The growth in our personal and commercial auto products primarily reflected rate increases taken throughout 2023. The rate increases taken in commercial auto were, in part, offset by a shift in the mix of business, primarily driven by decreased demand in our for-hire transportation BMT. For our personal property business, average written premium per policy was down 5% year over year. Our mix of business shifted as we continued to focus on growing in less volatile weather states, which generally have less risk and, therefore, lower average premiums per policy than more volatile weather-related states. We are also seeing a mix shift towards more renters policies, which have lower average written premiums. These mix shifts in our personal property business were partially offset by rate increases taken over the last 12 months and higher premium coverages reflecting increased property values. Given that our commercial auto and personal property policies are predominately written for 12-month terms, rate actions take longer to earn in for these products. We believe a key element in improving the accuracy of our personal auto rating is Snapshot®, our usage-based insurance offering. During 2024, the adoption rates for consumers enrolling in the program decreased 9% in agency auto and increased 6% in direct auto, compared to 2023. During the second half of 2024, the agency auto adoption rate was up significantly, compared to the first half of the year, due to a shift in the mix of agencies through which we wrote new business, as we continued to relax restrictions on new business throughout 2024 and get back into the independent agents’ quote flows. The increase in the direct auto adoption rate primarily reflected enhancements in the direct quoting process, in addition to the continued rollout of our newest Snapshot model. Snapshot is available in all states, other than California, and our latest segmentation model was available in states that represented about 75% of our countrywide personal auto net premiums written (excluding California) at year-end 2024. We continue to invest in our mobile application, with the majority of new enrollments choosing mobile devices for Snapshot monitoring. We realize that to grow policies in force, it is critical that we retain our customers for longer periods. Consequently, increasing retention continues to be one of our most important priorities. Our efforts to increase our share of Progressive auto and home bundled households (i.e., Robinsons) remains a key initiative and we plan to continue to make investments to improve the customer experience in order to support that goal. Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is our primary measure of customer retention in our Personal Lines and Commercial Lines businesses. We evaluate personal auto retention using a trailing 12-month and a trailing 3-month policy life expectancy. Although the latter can reflect more volatility and is more sensitive to seasonality, this measure is more responsive to current experience and may be an indicator for the future trend of our 12-month measure. Our trailing 12-month total personal auto policy life expectancy was down 4% year over year, with agency personal auto up 2% and direct down 7%. On a trailing 3-month basis, our personal auto policy life expectancy was down 4% year over year, which we believe is due to increased shopping and the competitiveness in the marketplace. Our trailing 12-month policy life expectancy was flat for special lines products and decreased 12% and 14% for personal property and core commercial auto, respectively. Our personal property retention decreased primarily as a result of a mix shift to more renters policies, which App.-A-52 generally have a lower policy life expectancy, while rate increases and our plans to non-renew policies also contributed to the decrease. The decrease in the core commercial auto policy life expectancy was across all BMTs, and reflected rate and non-rate actions taken in 2023 to achieve our target profitability, as well as the continued decrease in demand in the for-hire transportation BMT. C. Investments The fair value of our investment portfolio was $80.3 billion at December 31, 2024, compared to $66.0 billion at December 31, 2023. The increase from year-end 2023 primarily reflected cash flows from insurance operations and positive investment returns, partially offset by the payment of our quarterly and annual variable common share dividends and the redemption of all of our outstanding Serial Preferred Shares, Series B. Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities (the securities allocated to Group I and II are defined below under Results of Operations – Investments). At December 31, 2024 and 2023, 6% and 7%, respectively, of our portfolio was allocated to Group I securities with the remainder to Group II securities. Our recurring investment income generated a pretax book yield of 3.9% for 2024, compared to 3.1% for 2023. The increase from prior year primarily reflected investing new cash from insurance operations, and proceeds from maturing bonds, in higher coupon rate securities. Our investment portfolio produced a fully taxable equivalent (FTE) total return of 4.6% for 2024 and of 6.3% for 2023. Our fixed-income and common stock portfolios had FTE total returns of 3.8% and 22.9%, respectively, for 2024, compared to 5.4% and 26.7%, respectively, for 2023. The decrease in the fixed-income portfolio FTE total return primarily reflected movement in U.S. Treasury yields year over year. The increase in the common stock portfolio FTE total return reflected general market conditions. At both December 31, 2024 and 2023, the fixed-income portfolio had a weighted average credit quality of AA- . At December 31, 2024, the fixed-income portfolio duration was 3.3 years, compared to 3.0 years at December 31, 2023. During 2024, we increased our duration to take advantage of higher yields in the market. At December 31, 2024, we continued to maintain a relatively conservative investment portfolio with a greater allocation to cash and treasuries. We believe that this portfolio allocation, coupled with a lack of maturities of our outstanding debt until 2027, positions us well to benefit from the current dynamic interest rate environment. We believe that we are in a very strong position as we move into 2025. II.  FINANCIAL CONDITION A. Liquidity and Capital Resources The Progressive Corporation receives cash through subsidiary dividends, capital raising, and other transactions, and uses these funds to contribute to its subsidiaries (e.g., to support growth), to make payments to shareholders and debt holders (e.g., dividends and interest, respectively), to repurchase its common shares, and to redeem or pay off debt, as well as for acquisitions and other business purposes that may arise. During 2024, The Progressive Corporation received $3.7 billion, in the form of dividends, from its insurance and non-insurance subsidiaries. The Progressive Corporation deployed capital through the following actions in 2024: •Common Share Dividends - declared aggregate dividends of $4.90 per common share, or $2.9 billion. •Common Share Repurchases - acquired 0.7 million of our common shares at a total cost of $134 million either in the open market or to satisfy tax withholding obligations in connection with the vesting of equity awards under our employee equity compensation plan.      ◦Pursuant to our financial policies, we repurchase common shares to neutralize dilution from equity-based compensation granted during the year and opportunistically when we believe our shares are trading below our determination of long-term fair value. •Preferred Share Redemption and Dividends - redeemed all of the outstanding Serial Preferred Shares, Series B, for $500 million in aggregate and declared and paid aggregate dividends of $8 million. •Capital Contributions - contributed a net $182 million to its insurance and non-insurance subsidiaries. Over the last three years, The Progressive Corporation received dividends from its subsidiaries, net of capital contributions, of $3.0 billion, and issued $2.0 billion, in the aggregate, of senior notes. Aggregate payments made for the last three years, were as follows: •$1.1 billion for common share dividends and $0.4 billion to repurchase our common shares; •$0.8 billion for interest on our outstanding debt; and •$0.6 billion for preferred share redemptions and dividends. The covenants on The Progressive Corporation’s existing debt securities do not include any rating or credit triggers that would require an adjustment of the interest rate or an acceleration of principal payments in the event that our debt securities are downgraded by a rating agency. While App.-A-53 we had an unsecured discretionary line of credit available to us during each of the last three years in the amount of $300 million for 2024 and 2023, and $250 million for 2022, we did not borrow under this arrangement, or engage in other short-term borrowings, to fund our operations or for liquidity purposes. Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims, as well as our insurance subsidiaries producing aggregate calendar-year underwriting profits and positive cash flows. As primarily an auto insurer, our claims liabilities generally have a short-term duration. At December 31, 2024, our loss and loss adjustment expense (LAE) reserves were $39.1 billion. Typically, at any point in time, approximately 50% of our outstanding loss and LAE reserves are paid within the following twelve months and less than 20% are still outstanding after three years. See Note 6 – Loss and Loss Adjustment Expense Reserves for further information on the timing of claims payments. For the three years ended December 31, 2024, operations generated positive cash flows of $32.6 billion. In 2024, operating cash flows increased $4.5 billion, compared to 2023. The increase in operating cash flow, compared to the prior year, was primarily driven by the growth in underwriting profitability. We believe cash flows will remain positive in the reasonably foreseeable future and do not expect we will need to raise capital to support our operations in that timeframe, although changes in market or regulatory conditions affecting the insurance industry, or other unforeseen events, may necessitate otherwise. As of December 31, 2024, we held $46.6 billion in short-term investments and U.S. Treasury securities, which represented nearly 60% of our total portfolio at year end. Based on our portfolio allocation and investment strategies, we believe that we have sufficient readily available marketable securities to cover our claims payments and short-term obligations in the event our cash flows from operations were to be negative. See Item 1A, Risk Factors in our 2024 Form 10-K filed with the U.S. Securities and Exchange Commission for a discussion of certain matters that may affect our portfolio and capital position. Insurance companies are required to satisfy regulatory surplus and premiums-to-surplus ratio requirements. As of December 31, 2024, our consolidated statutory surplus was $27.2 billion, compared to $22.2 billion at December 31, 2023. Our net premiums written-to-surplus ratio was 2.7 to 1 at year-end 2024, 2.8 to 1 at year-end 2023, and 2.9 to 1 at year-end 2022. At December 31, 2024, we also had access to $6.2 billion of securities held in a consolidated, non-insurance subsidiary of the holding company that can be used to fund corporate obligations and provide additional capital to the insurance subsidiaries to fund potential future growth and other opportunities. In January 2025, a portion of these securities were used to pay the $2.7 billion common share dividends declared in December 2024. Insurance companies are also required to satisfy risk-based capital ratios. These ratios are determined by a series of dynamic surplus-related calculations required by the laws of various states that contain a variety of factors that are applied to financial balances based on the degree of certain risks (e.g., asset, credit, and underwriting). Our insurance subsidiaries’ risk-based capital ratios were in excess of applicable minimum regulatory requirements at year-end 2024. Nonetheless, the payment of dividends by our insurance subsidiaries are subject to certain limitations. See Note 8 – Statutory Financial Information for additional information on insurance subsidiary dividends. We seek to deploy our capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic and other insured losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs. Management views our capital position as consisting of three layers, each with a specific size and purpose: •The first layer of capital is the amount of capital we need to satisfy state insurance regulatory requirements and support our objective of writing all the business we can write and service, consistent with our underwriting discipline of achieving a combined ratio of 96 or better. This first layer of capital, which we refer to as “regulatory capital,” is held by our various insurance entities. •While our regulatory capital layer is, by definition, a cushion for absorbing financial consequences of adverse events, such as loss reserve development, litigation, weather catastrophes, and investment market changes, we view that as a base and hold a second layer of capital for even more extreme conditions. The modeling used to quantify capital needs for these conditions is extensive, including tens of thousands of simulations, representing our best estimates of such contingencies based on historical experience. This capital is held either at a consolidated non-insurance subsidiary of the holding company or in our insurance entities, where it is potentially eligible for a dividend to the holding company. •The third layer is capital in excess of the sum of the first two layers and provides maximum flexibility to fund other business opportunities, repurchase stock or other securities, and pay dividends to shareholders, among other purposes. This capital is largely held at a consolidated non-insurance subsidiary of the holding company. We monitor our total capital position regularly throughout the year to ensure we have adequate capital to support our insurance operations. At December 31, 2024, we held total capital (debt plus shareholders’ equity) of $32.5 billion, compared to $27.2 billion at December 31, 2023. Our debt- App.-A-54 to-total capital ratios at December 31, 2024, 2023, and 2022, were 21.2%, 25.4%, and 28.7%, respectively. Our debt-to-total capital ratios were consistent with our financial policy of maintaining a ratio of less than 30%. At December 31, 2024, we had various noncancelable contractual obligations that were outstanding. We had outstanding $7.0 billion principal amount of Senior Notes with maturity dates ranging from 2027 through 2052, with $3.9 billion of future interest payment obligations related to our outstanding debt. The next debt repayments of $1.0 billion, in the aggregate, are due in 2027 upon the maturity of our 2.45% Senior Notes and our 2.50% Senior Notes. See Note 4 – Debt for additional information on our long-term debt. At year-end 2024, we also had $1.6 billion of purchase obligations that are noncancelable commitments for goods and services (e.g., software licenses, maintenance on information technology equipment, and media placements). About 60% of our purchase obligations are payable within one year and just over 10% will be outstanding for longer than three years. In addition, we have $341 million of minimum commitments for reinsurance contracts, primarily related to several multiple-layer property catastrophe reinsurance contracts with various reinsurers for terms ranging from one to three years. See Note 1 – Reporting and Accounting Policies, Commitments and Contingencies for a discussion of these obligations. We do not have, and do not expect to enter into, any material commitments for capital expenditures in the reasonably foreseeable future. Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares, our contractual obligations, and other expected capital requirements for the foreseeable future. Nevertheless, we may decide to raise additional capital to take advantage of attractive terms in the market and provide additional financial flexibility. We currently have an effective shelf registration with the U.S. Securities and Exchange Commission so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants, and units. The shelf registration enables us to raise funds, subject to market conditions, from the offering of any securities covered by the shelf registration as well as any combination thereof. III.  RESULTS OF OPERATIONS – UNDERWRITING A. Segment Overview We report our underwriting operations in two segments: Personal Lines and Commercial Lines. As a component of our Personal Lines segment, we include personal vehicles (auto and special lines products) and, beginning in the fourth quarter 2024, personal property products. Since our personal auto products represent 90% of our Personal Lines segment, our discussion will focus primarily on personal auto products, in addition to discussing our personal property products. To provide a further understanding of our personal auto products by distribution channel, we report our agency and direct personal auto business results separately in this MD&A. Our Commercial Lines segment includes our core commercial auto products, TNC business, Fleet & Specialty products, and BOP business. Of our total Commercial Lines segment, our core commercial auto products represent about 80% of net premiums written and our TNC business represents about 15%. Therefore, much of the following discussion will focus only on our core commercial auto products. The following table shows the composition of our companywide net premiums written, by segment, for the years ended December 31: [[GREPCENT_TABLE]] [["","2024","","2023","","2022"],["Personal Lines"],["Vehicles"],["Agency","36","%","","36","%","","36","%"],["Direct","45","","","43","","","41"],["Property","4","","","5","","","5"],["Total Personal Lines","85","","","84","","","82"],["Commercial Lines","15","","","16","","","18"],["Total underwriting operations","100","%","","100","%","","100","%"]] [[/GREPCENT_TABLE]] Within our Personal Lines segment, we often categorize our personal auto product policyholders into four consumer segments: •Sam - inconsistently insured; •Diane - consistently insured and maybe a renter; •Wrights - homeowners who do not bundle auto and home; and •Robinsons - homeowners who bundle auto and home. App.-A-55 While our personal auto policies primarily have 6-month terms, to promote bundled personal auto and property growth, we write 12-month term personal auto policies in our Platinum agencies. At year-end 2024 and 2023, 12% and 14%, respectively, of our agency personal auto policies in force were 12-month policies. To the extent our agency application mix of annual personal auto policies changes, the shift in policy term could impact our written premium mix in the agency channel, as 12-month policies have about twice the amount of net premiums written, compared to 6-month policies. Our special lines and personal property products are written for 12-month terms. About 55% and 75%, respectively, of our special lines products and personal property business net premiums written was generated through the independent agency channel, with the balance through the direct channel. Within our Commercial Lines business, our core commercial auto business operates in the following five traditional business market targets (BMT): • for-hire specialty; • for-hire transportation; • tow; • contractor; and • business auto. At year-end 2024, about 90% of our Commercial Lines policies in force had 12-month terms. The majority of our Commercial Lines business is written through the independent agency channel, although we continue to focus on growing our direct business, with about 10% of our core commercial auto premiums written through the direct channel for each of the last three years. To serve our direct channel customers, we continue to expand our product offerings, including adding states where we can offer our BOP product, as well as adding these product offerings to our digital platform that allows direct small business consumers to obtain quotes for our products and products offered from a select group of unaffiliated carriers (BusinessQuote Explorer®). B. Profitability Profitability for our underwriting operations is defined by pretax underwriting profit or loss, which is calculated as net premiums earned plus fees and other revenues less losses and loss adjustment expenses, policy acquisition costs, and other underwriting expenses. We also use underwriting margin, which is underwriting profit or loss expressed as a percentage of net premiums earned, to analyze our results. For the three years ended December 31, our underwriting profitability results were as follows: [[GREPCENT_TABLE]] [["","2024","","2023","","2022"],["Underwriting Profit (Loss)","","Underwriting Profit (Loss)","","Underwriting Profit (Loss)"],["($ in millions)","$","Margin","","$","Margin","","$","Margin"],["Personal Lines"],["Vehicles"],["Agency","$","3,559","","13.9","%","","$","1,029","","4.9","%","","$","734","","4.1","%"],["Direct","3,231","","10.3","","","1,828","","7.3","","","769","","3.8"],["Property","50","","1.7","","","28","","1.1","","","(238)","","(10.5)"],["Total Personal Lines","6,840","","11.4","","","2,885","","5.9","","","1,265","","3.2"],["Commercial Lines","1,136","","10.6","","","123","","1.2","","","810","","8.9"],["Other indemnity1","(18)","","NM","","(16)","","NM","","(11)","","NM"],["Total underwriting operations","$","7,958","","11.2","%","","$","2,992","","5.1","%","","$","2,064","","4.2","%"]] [[/GREPCENT_TABLE]] 1 Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such businesses. Several factors contributed to the change in companywide underwriting profit for the year ended December 31, 2024, compared to the same period in 2023. First, as a result of the rate actions we took in our Personal Lines and Commercial Lines segments, our personal auto and core commercial auto products average written premium per policy were up 8% and 5%, respectively, for 2024, compared to the prior year. Second, as a result of the favorable loss trends during 2024, we experienced companywide favorable prior accident years reserve development, compared to unfavorable prior year development for 2023. During 2024, our personal auto and core commercial auto products experienced an incurred loss frequency decrease of 5% and 7%, respectively, compared to 2023. In total, our catastrophe losses were 0.5 points higher in 2024, compared to the prior year. See the Losses and Loss Adjustment Expenses (LAE) section below for further discussion of our catastrophe losses, frequency and severity trends, and reserve development recognized during the periods. App.-A-56 Lastly, year-over-year change in underwriting profitability included a 2.4 point increase in our companywide expense ratio, primarily due to a 150% increase in advertising spend over 2023. Our total advertising spend for 2024, was $4.0 billion, compared to $1.6 billion in 2023. Throughout the year we increased our media spend to maximize growth and will continue to spend at or above this level as long as we remain on track to achieve our target profitability and can acquire customers at or below our target acquisition cost. Further underwriting results for our Personal Lines business, Commercial Lines business, and our underwriting operations in total, were as follows:  [[GREPCENT_TABLE]] [["Underwriting Performance1","2024","2023","2022"],["Personal Lines"],["Vehicles"],["Agency"],["Loss & loss adjustment expense ratio","67.7","","77.0","","78.1"],["Underwriting expense ratio","18.4","","18.1","","17.8"],["Combined ratio","86.1","","95.1","","95.9"],["Direct"],["Loss & loss adjustment expense ratio","69.8","","78.4","","78.6"],["Underwriting expense ratio","19.9","","14.3","","17.6"],["Combined ratio","89.7","","92.7","","96.2"],["Property"],["Loss & loss adjustment expense ratio","69.3","","69.6","","83.3"],["Underwriting expense ratio","29.0","","29.3","","27.2"],["Combined ratio","98.3","","98.9","","110.5"],["Total Personal Lines"],["Loss & loss adjustment expense ratio","68.9","","77.4","","78.6"],["Underwriting expense ratio","19.7","","16.7","","18.2"],["Combined ratio","88.6","","94.1","","96.8"],["Commercial Lines"],["Loss & loss adjustment expense ratio","70.1","","79.0","","71.5"],["Underwriting expense ratio","19.3","","19.8","","19.6"],["Combined ratio","89.4","","98.8","","91.1"],["Total Underwriting Operations"],["Loss & loss adjustment expense ratio","69.1","","77.6","","77.3"],["Underwriting expense ratio","19.7","","17.3","","18.5"],["Combined ratio","88.8","","94.9","","95.8"],["Accident year \u2013 Loss & loss adjustment expense ratio2","69.7","","75.7","","77.5"]] [[/GREPCENT_TABLE]] 1 Ratios are expressed as a percentage of net premiums earned. Fees and other revenues are netted against either loss adjustment expenses or underwriting expenses in the ratio calculations, based on the underlying activity that generated the revenue. 2 The accident year ratios include only the losses that occurred during each respective year. As a result, accident period results will change over time, either favorably or unfavorably, as we revise our estimates of loss costs when payments are made or reserves for that accident year are reviewed. App.-A-57 Losses and Loss Adjustment Expenses (LAE) [[GREPCENT_TABLE]] [["(millions)","2024","2023","2022"],["Change in net loss and LAE reserves","$","4,970","","$","4,800","","$","3,370"],["Paid losses and LAE","44,090","","40,855","","34,753"],["Total incurred losses and LAE","$","49,060","","$","45,655","","$","38,123"]] [[/GREPCENT_TABLE]] Claims costs, our most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of our policyholders, including expenses needed to adjust or settle claims. Claims costs are a function of loss severity and frequency and, for our personal auto and core commercial auto businesses, are influenced by inflation and driving patterns, among other factors, some of which are discussed below. In our personal property business, severity is primarily a function of construction costs and the age and complexity of the structure, among other factors. Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves. Loss reserves are estimates of future costs and our reserves are adjusted as underlying assumptions change and information develops. See Critical Accounting Policies – A. Loss and LAE Reserves for a discussion of the effect of changing estimates. Our total loss and LAE ratio decreased 8.5 points in 2024 and increased 0.3 points in 2023, each compared to the prior year. During 2024, the decrease in the loss ratio was driven by lower personal auto and core commercial auto loss frequency, relatively stable personal auto severity, higher personal auto and core commercial auto premium per policy, and companywide favorable prior accident years reserve development, compared to unfavorable development for 2023. Our accident year loss and LAE ratio, which excludes the impact of prior accident year reserve development during each calendar year, decreased 6.0 points and 1.8 points in 2024 and 2023, respectively, compared to the prior years. We experienced severe weather conditions in several areas of the country during each of the last three years. Hurricanes, hail storms, tornadoes, and wind activity contributed to catastrophe losses each year. The following table shows our consolidated catastrophe losses and related combined ratio point impact, excluding loss adjustment expenses, for the years ended December 31: [[GREPCENT_TABLE]] [["","2024","","2023","","2022"],["($ in millions)","$","Point1","","$","Point1","","$","Point1"],["Personal Lines"],["Vehicles","$","1,693","","3.0","pts.","","$","1,094","","2.4 pts.","","$","1,046","","2.8 pts."],["Property","741","","24.8","","","659","","25.8","","","580","","25.6"],["Total Personal Lines","2,434","","4.1","","","1,753","","3.6","","","1,626","","4.0"],["Commercial Lines","80","","0.7","","","41","","0.4","","","34","","0.4"],["Total catastrophe losses incurred","$","2,514","","3.6","pts.","","$","1,794","","3.1","pts.","","$","1,660","","3.4","pts."]] [[/GREPCENT_TABLE]] 1 Represents catastrophe losses incurred during the year, including the impact of reinsurance, as a percentage of net premiums earned for each segment. During 2024, our catastrophe losses reflected severe weather events throughout the United States, with Hurricanes Helene and Milton accounting for nearly one third of the total losses for the year. We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide high-quality claims service to our customers. Changes in our estimate of our ultimate losses on catastrophes currently reserved, along with potential future catastrophes, could have a material impact on our financial condition, cash flows, or results of operations. We reinsure various risks, including, but not limited to, catastrophic losses. We do not have catastrophe-specific reinsurance for our personal auto, special lines, or core commercial auto businesses, but we reinsure portions of our personal property business. The personal property business reinsurance programs include catastrophe per occurrence excess of loss contracts and aggregate excess of loss contracts. We also purchase excess of loss reinsurance on our workers’ compensation insurance and our higher-limit commercial auto liability product offered by our Fleet & Specialty business, and on certain BOP product coverages. We evaluate our reinsurance programs during the renewal process, if not more frequently, to ensure our programs continue to effectively address the company’s risk tolerance. As a result, during 2024, we entered into new reinsurance contracts under our per occurrence excess of loss program for our personal property business that covers losses from June 1, 2024 through May 31, 2025. This program is comprised of privately placed reinsurance, reinsurance placed through catastrophe bond transactions, and coverage obtained through the Florida Hurricane Catastrophe Fund (FHCF). The reinsurance program has a retention threshold for losses and allocated loss adjustment expenses (ALAE) from a single catastrophic event of $200 million, which is unchanged from the retention threshold on prior contracts. In general, as of December 31, 2024, this program, including the shared limit coverage discussed below, includes coverage for $1.8 billion in losses and ALAE with additional substantial coverage for a second or App.-A-58 third hurricane. When including the FHCF, which is specific to Florida, this coverage reaches an estimated $2.1 billion. From June 1, 2024 through December 31, 2024, which is considered the hurricane season, we had shared limit coverage in our reinsurance program that provided $175 million of coverage for named storms. We renewed this coverage from June 1, 2025 through December 31, 2025, with the same terms. This reinsurance arrangement can, depending on the circumstances, provide additional coverage for a significant covered event, or provide coverage for aggregate losses under our occurrence excess of loss retention. During 2024, we ceded no losses under this coverage. During 2024, our personal property business also had an aggregate excess of loss program structure with multiple layers providing for catastrophe losses and ALAE. No losses were ceded under this aggregate excess of loss agreement during 2024. In January 2025, a new aggregate excess of loss program was entered for claims occurring in 2025. Under the 2025 program, which is substantially the same as the 2024 program, the first retention layer threshold ranges from $450 million to $475 million, excluding named tropical storms and hurricanes, and the second retention layer threshold is $525 million, including named tropical storms and hurricanes. The first and second layers provide coverage up to $75 million and $100 million, respectively. As part of the 2025 aggregate excess of loss program, we also entered into a severe convective storm modeled loss aggregate coverage, which covers a type of thunderstorm characterized by strong winds, heavy rain, large hail, thunder, lightning, and sometimes tornadoes. This modeled loss coverage provides $15 million of coverage, net of a retention of $665 million. For further details and additional discussion on our reinsurance programs, see Item 1, Business – Reinsurance in our 2024 Form 10-K, filed with the U.S. Securities and Exchange Commission, for the year ended December 31, 2024 and Note 7 – Reinsurance for a discussion of our various reinsurance programs. While the total coverage limit and per-event retention will evolve to fit the growth of our business, we expect to remain a consistent purchaser of reinsurance coverage. While the availability of reinsurance is subject to many forces outside of our control, the types of reinsurance that we elected to purchase during 2024 and in early 2025, were readily available and competitively priced. On a year-over-year basis, we did not incur a material change in the aggregate costs of our reinsurance programs. See Item 1A, Risk Factors in our Form 10-K, for a discussion of certain risks related to catastrophe events. The following discussion of our severity and frequency trends in our personal auto business excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. For our core commercial auto business, the reported frequency and severity trends include comprehensive coverage. Comprehensive coverage insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft, falling objects, and glass breakage. On a calendar-year basis, the change in total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case reserves) over the prior-year periods was as follows: [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["Coverage Type","2024","2023","2022"],["Bodily injury","6","%","10","%","8","%"],["Collision","(2)","","5","","16"],["Personal injury protection","(2)","","2","","(9)"],["Property damage","(1)","","9","","20"],["Total","1","","8","","13"]] [[/GREPCENT_TABLE]] On a calendar-year basis, the incurred severity in our core commercial auto products increased 9% in 2024, compared to 6% in both 2023 and 2022. Since the loss patterns in the core commercial auto products are not indicative of our other commercial auto products (i.e., TNC and Fleet & Specialty businesses), disclosing severity and frequency trends excluding those businesses is more representative of our overall experience for the majority of our commercial auto products. It is a challenge to estimate future severity, but we continue to monitor changes in the underlying costs, such as general inflation, used car prices, vehicle repair costs, medical costs, health care reform, tariffs, court decisions, and jury verdicts, along with regulatory changes and other factors that may affect severity. The change in calendar-year incurred frequency, over the prior-year periods, in our total personal auto products was as follows: [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["Coverage Type","2024","2023","2022"],["Bodily injury","(3)","%","2","%","(4)","%"],["Collision","(8)","","(7)","","(8)"],["Personal injury protection","(4)","","2","","(5)"],["Property damage","(4)","","0","","(5)"],["Total","(5)","","(2)","","(6)"]] [[/GREPCENT_TABLE]] The year-over-year decrease in frequency, in part, reflects a shift in the mix of business to a more preferred tier of customers (i.e., Wrights and Robinsons). On a calendar-year basis, our core commercial auto products’ incurred frequency decreased 7% in 2024, compared to an increase of 2% in 2023 and 3% in 2022. We closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not App.-A-59 something that we are able to predict with any certainty. We will continue to analyze trends to distinguish changes in our experience from other external factors, such as changes in the number of vehicles per household, miles driven, vehicle usage, gasoline prices, advances in vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business or changes in driving patterns, and the ridesharing economy to allow us to react quickly to price for these trends and to reserve more accurately for our loss exposures. The table below presents the actuarial adjustments implemented and the loss reserve development experienced on a companywide basis in the years ended December 31:  [[GREPCENT_TABLE]] [["($ in millions)","2024","2023","2022"],["Actuarial Adjustments"],["Reserve decrease (increase)"],["Prior accident years","$","(123)","","$","(454)","","$","(106)"],["Current accident year","530","","(587)","","(83)"],["Calendar year actuarial adjustments","$","407","","$","(1,041)","","$","(189)"],["Prior Accident Years Development"],["Favorable (unfavorable)"],["Actuarial adjustments","$","(123)","","$","(454)","","$","(106)"],["All other development","539","","(640)","","192"],["Total development","$","416","","$","(1,094)","","$","86"],["(Increase) decrease to calendar year combined ratio","0.6","pts.","(1.9)","pts.","0.2","pts."]] [[/GREPCENT_TABLE]] Total development consists of both actuarial adjustments and “all other development” on prior accident years. We use “accident year” generically to represent the year in which a loss occurred. The actuarial adjustments represent the net changes made by our actuarial staff to both current and prior accident year reserves based on regularly scheduled reviews. Through these reviews, our actuaries identify and measure variances in the projected frequency and severity trends, which allow them to adjust the reserves to reflect current cost trends. For the Personal Lines auto and special lines products and Commercial Lines business, development for catastrophe losses would be reflected in “all other development,” discussed below, to the extent they relate to prior year reserves. For our Personal Lines property business, 100% of catastrophe losses are reviewed monthly and any development on catastrophe reserves are included as part of the actuarial adjustments. We report these actuarial adjustments separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years development. “All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than anticipated in our incurred but not recorded (IBNR) reserves, and changes in reserve estimates on specific claims. Although we believe the development from both the actuarial adjustments and “all other development” generally results from the same factors, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors. Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal variation from the date the reserves are initially established until losses are fully developed. Our ability to meet this objective is impacted by many factors, such as changes in case law. As reflected in the table above, we experienced slightly favorable prior accident years development during 2024 and 2022, compared to unfavorable development in 2023. The favorable development during 2024 was, in part, due to lower than anticipated personal auto frequency and severity in Florida and lower than anticipated personal auto property damage severity across the majority of states. This was partially offset by unfavorable development resulting from higher than anticipated LAE costs in our personal property products and higher than anticipated severity in core commercial auto products for California, New York, and Texas. For 2023, about two-thirds of the unfavorable development was in our personal auto products with the remaining one-third in our Commercial Lines business. The personal auto products unfavorable development was equally attributable to higher than anticipated severity in personal auto property and physical damage coverages and increased loss costs in Florida injury and medical coverages and, to a lesser extent, higher than anticipated late reported injury claims, which was partially offset by lower than anticipated LAE. For our Commercial Lines segment, the unfavorable development was mainly due to both late reported and large loss emergence on injury claims, with about half of this development attributable to our TNC business. App.-A-60 See Note 6 – Loss and Loss Adjustment Expense Reserves, for a more detailed discussion of our prior accident years development. Underwriting Expenses Underwriting expenses include policy acquisition costs and other underwriting expenses. The underwriting expense ratio is our underwriting expenses, net of certain fees and other revenues, expressed as a percentage of net premiums earned. For 2024, our underwriting expense ratio increased 2.4 points, compared to the prior year, primarily driven by increases in our advertising spend, partially offset by growth in net premiums earned. In total, our companywide advertising spend increased 150%, or 2.9 points for 2024, compared to 2023. For 2024, our total companywide advertising costs were $4.0 billion, compared to $1.6 billion in 2023, and exceeded the amount of advertising spend for any previous annual period. As previously discussed, we increased our media spend to maximize growth and will continue to spend at or above this level as long as the advertising spend is efficient and we remain on track to achieve our target profitability. To analyze underwriting expenses, we also review our non-acquisition expense ratio (NAER), which excludes costs related to policy acquisition (e.g., advertising and agency commissions) from our underwriting expense ratio. By excluding acquisition costs from our underwriting expense ratio, we are able to understand costs other than those necessary to acquire new policies and grow the business. In 2024, our NAER decreased 0.4 points and 0.6 points in our personal vehicle and core commercial auto businesses, respectively, compared to 2023, and increased 0.3 points in our personal property business. The increase in the property NAER was, in part, due to our investment in headcount and related compensation. We remain committed to efficiently managing operational non-acquisition expenses. App.-A-61 C. Growth For our underwriting operations, we analyze growth in terms of both premiums and policies. Net premiums written represent the premiums from policies written during the period, less any premiums ceded to reinsurers. Net premiums earned, which are a function of the premiums written in the current and prior periods, are earned as revenue over the life of the policy using a daily earnings convention. Policies in force, our preferred measure of growth since it removes the variability due to rate changes or mix shifts, represents all policies for which coverage was in effect as of the end of the period specified. [[GREPCENT_TABLE]] [["For the years ended December 31,","2024","","2023","","2022"],["($ in millions)","$","% Growth","","$","% Growth","","$","% Growth"],["Net Premiums Written"],["Personal Lines"],["Vehicles"],["Agency","$","26,967","","21","%","","$","22,278","","22","%","","$","18,334","","6","%"],["Direct","33,432","","27","","","26,303","","26","","","20,944","","11"],["Property","3,071","","8","","","2,831","","18","","","2,402","","8"],["Total Personal Lines","63,470","","23","","","51,412","","23","","","41,680","","9"],["Commercial Lines","10,953","","8","","","10,138","","8","","","9,399","","17"],["Other indemnity1","1","","NM","","0","","NM","","2","","NM"],["Total underwriting operations","$","74,424","","21","%","","$","61,550","","20","%","","$","51,081","","10","%"],["Net Premiums Earned"],["Personal Lines"],["Vehicles"],["Agency","$","25,640","","21","%","","$","21,198","","19","%","","$","17,745","","5","%"],["Direct","31,458","","26","","","25,015","","24","","","20,135","","9"],["Property","2,993","","17","","","2,552","","12","","","2,270","","11"],["Total Personal Lines","60,091","","23","","","48,765","","21","","","40,150","","7"],["Commercial Lines","10,707","","8","","","9,899","","9","","","9,088","","31"],["Other indemnity1","1","","NM","","1","","NM","","3","","NM"],["Total underwriting operations","$","70,799","","21","%","","$","58,665","","19","%","","$","49,241","","11","%"],["NM = Not meaningful"],["1 Includes other underwriting business and run-off operations."],["December 31,","2024","","2023","","2022"],["(# in thousands)","#","% Growth","","#","% Growth","","#","% Growth"],["Policies in Force"],["Personal Lines"],["Agency \u2013 auto","9,778","","17","%","","8,336","","7","%","","7,767","","(1)","%"],["Direct \u2013 auto","13,996","","25","","","11,190","","10","","","10,131","","6"],["Special lines1","6,520","","9","","","5,969","","7","","","5,558","","5"],["Property","3,517","14","","","3,096","9","","","2,851","3"],["Total Personal Lines","33,811","","18","","","28,591","","9","","","26,307","","3"],["Commercial Lines","1,141","","4","","","1,099","","5","","","1,046","","8"],["Companywide total","34,952","18","%","","29,690","9","%","","27,353","3","%"]] [[/GREPCENT_TABLE]] 1 Includes insurance for motorcycles, RVs, watercraft, snowmobiles, and similar items. To analyze growth, we review new policies, rate levels, and the retention characteristics of our segments. Although new policies are necessary to maintain a growing book of business, we recognize the importance of retaining our current customers as a critical component of our continued growth. App.-A-62 D. Personal Lines Our Personal Lines business offers vehicle (personal auto and special lines) and residential property insurance products to personal consumers, with the operating goal of optimizing the number of insured products within our policyholders’ households. In our discussion below, we report our personal auto and personal property business results separately as components of our Personal Lines segment to provide a further understanding of our products. Our personal auto business discussions are further separated between the agency and direct distribution channel. At year-end 2024, 44% of our personal auto business is written through the agency channel and 56% is written through the direct channel. Personal Auto - Agency [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["","2024","2023","2022"],["Applications"],["New","32","%","15","%","(3)","%"],["Renewal","8","","6","","(3)"],["Total","13","","8","","(3)"],["Written premium per policy"],["New","5","","7","","9"],["Renewal","9","","13","","11"],["Total","8","","12","","11"],["Policy life expectancy"],["Trailing 3 months","(3)","","23","","(11)"],["Trailing 12 months","2","","29","","(24)"]] [[/GREPCENT_TABLE]] The personal auto agency business includes business written by more than 40,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. During 2024, 46 states generated new agency personal auto application growth, including 8 of our top 10 largest agency states. Compared to the prior year, new application and policies in force growth varied by consumer segment: •Sams experienced a single digit increase in policies in force, with a low double digit increase in new application growth during 2024; and •Dianes, Wrights, and Robinsons all experienced very strong policies in force and new application growth during 2024, with the Wrights having the largest year-over-year increases. During 2024, on a year-over-year basis, we experienced an increase in agency personal auto quote volume of 17%, with a rate of conversion (i.e., converting a quote to a sale) increase of 13%. All four consumer segments experienced an increase in both quote volume and conversion compared to 2023. The increase in written premium per policy for new and renewal personal auto agency business during 2024, compared to 2023, was primarily attributable to the rate increases previously discussed. The trailing 12-month policy life expectancy in the personal auto agency business lengthened during 2024. We believe this increase was primarily driven by a shift in the mix of business. During 2023, as part of our efforts to slow growth to achieve our target profitability, we focused our efforts to attract a more preferred tier of customers, including more Robinsons, who tend to stay with us longer. We believe the trailing 3-month measure was down slightly primarily due to increased shopping and competitiveness in the marketplace. Personal Auto - Direct [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["","2024","2023","2022"],["Applications"],["New","51","%","15","%","6","%"],["Renewal","11","","13","","3"],["Total","19","","13","","3"],["Written premium per policy"],["New","9","","5","","6"],["Renewal","8","","11","","8"],["Total","7","","10","","8"],["Policy life expectancy"],["Trailing 3 months","(3)","","6","","(6)"],["Trailing 12 months","(7)","","19","","(19)"]] [[/GREPCENT_TABLE]] The personal auto direct business includes business written directly by Progressive online or by phone. As we increased advertising spend and lifted certain non-rate restrictions during 2024, we saw significant direct personal auto new application growth in all states and across all consumer segments, compared to 2023. At the end of 2024, policies in force grew between 17% and 28% in each consumer segment, compared to the end of 2023. During 2024, we experienced an increase in direct personal auto quote volume of 65%, compared to 2023, primarily driven by the increased advertising spend and increased shopping in the marketplace. The rate of conversion decreased 9%, compared to 2023, which we believe was primarily due to a greater number of casual shoppers obtaining quotes, who were less committed to purchasing a new insurance policy. All consumer segments saw an increase in quotes and a decrease in the rate of conversion during 2024. The written premium per policy increase for new and renewal personal auto direct business during 2024, compared to 2023, was primarily driven by the rate increases previously discussed. App.-A-63 Our trailing 3- and 12-month policy life expectancy in the direct auto business experienced a decrease in retention during 2024, compared to 2023. We believe the drivers of the change were due to increased shopping and competitiveness in the marketplace. Personal Property The following table shows our year-over-year changes for our personal property business: [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["","2024","2023","2022"],["Applications"],["New","31","%","15","%","(8)","%"],["Renewal","6","","5","","8"],["Total","14","","8","","3"],["Written premium per policy"],["New","(15)","","5","","(2)"],["Renewal","2","","13","","6"],["Total","(5)","","10","","6"],["Policy life expectancy Trailing 12 months","(12)","","15","","(7)"]] [[/GREPCENT_TABLE]] Our personal property business writes residential property insurance for homeowners and renters, umbrella, and flood insurance through the “Write Your Own” program for the National Flood Insurance Program. Our personal property business insurance is written in the agency and direct channels. In addition to reducing our geographic footprint in more volatile weather-related states (e.g., coastal and hail-prone states), we continued to focus on accelerating growth in markets that are less susceptible to catastrophes for our homeowners products, which we define as our total personal property business excluding renters and umbrella products. Homeowners policies in force in the growth-oriented states increased 15% on a year-over-year basis for 2024. Policies in force decreased 13% in the volatile weather states at the end of 2024, compared to 2023. Improving profitability and reducing our concentration and exposure in more volatile weather-related markets continued to be the top priority for our personal property business and, during 2024, we continued to move forward on several initiatives, including: (i) prioritizing insuring lower-risk properties (e.g., new construction, existing homes with newer roofs); (ii) putting underwriting restrictions in place in about half of the country, by the end of 2024, to only accept new personal property business (e.g., home or condo) when the property policy is bundled with a Progressive personal auto policy, where permitted; (iii) began restricting new business and non-renewing policies that provide coverage for non-owner occupied properties (e.g., short-term vacation rental, secondary residence, etc.) in the majority of states; and, (iv) expanding our cost sharing with policyholders through mandatory wind and hail deductibles and roof depreciation schedules in markets where permitted. In addition, beginning in the second quarter 2024, following the required filings and notices, we began our efforts to non-renew up to 115,000 Property policies in Florida. This effort slowed while the moratoriums were in place in response to Hurricanes Helene and Milton, which temporarily limited an insurer’s ability to non-renew policies, but resumed once the moratoriums expired in December 2024. To try to ease the disruption of the non-renewals to our customers and agents, we reached an agreement with an unaffiliated Florida insurer to offer replacement policies to many of these policyholders, subject to the insurer’s underwriting and financial guidelines and agent appointments where applicable. Our written premium per policy decreased on a year-over-year basis, primarily attributable to a decline in homeowners policies in force in volatile states and in non-owner occupied properties, which both have higher average premiums, and a shift in the mix to more renters policies, which have lower average premiums. The effect of these declines were partially offset by rate increases taken during 2024 and higher premium coverages reflecting increased property values. During 2024, we increased rates, in aggregate, about 19% in our personal property business. We intend to continue to make targeted rate increases in states where we believe it is necessary to achieve our profitability targets. The policy life expectancy in our personal property business shortened during 2024, compared to 2023, which we believe is primarily driven by a shift in the mix of business to more renters policies, our previously discussed rate increases, and the non-renewals for certain policies in volatile weather states. App.-A-64 E. Commercial Lines The following table and discussion focuses on our core commercial auto products, which account for about 80% of our Commercial Lines segment 2024 net premiums written. Year-over-year changes in our core commercial auto products were as follows: [[GREPCENT_TABLE]] [["","Change Over Prior Year"],["","2024","2023","2022"],["Applications"],["New","8","%","4","%","(1)","%"],["Renewal","1","","4","","12"],["Total","4","","4","","7"],["Written premium per policy"],["New","(1)","","(3)","","6"],["Renewal","8","","6","","16"],["Total","5","","3","","11"],["Policy life expectancy Trailing 12 months","(14)","","(12)","","(12)"]] [[/GREPCENT_TABLE]] The increases in net premiums written reflected growth in all of our BMTs, except our for-hire transportation BMT, which continued to be adversely impacted by challenging freight market conditions that have continued to cause a decline in the active number of motor carriers in the for-hire transportation market. The most significant premium growth came from our contractor and business auto BMTs, primarily driven by the aggregate core commercial auto rate increases of 17% taken during 2023. During 2024, core commercial auto new application growth was positive in each of our BMTs, except for the for-hire transportation and for-hire specialty BMTs. We experienced a 6% increase in quote volume and a 2% increase in the rate of conversion in our commercial auto products during 2024, compared to 2023. The effect the previously discussed rate increases had on written premium per policy for our new core commercial auto business was offset by the change in the mix of business written, compared to 2023, while the increase for renewal business primarily reflected the previously discussed rate increases. During 2024, we increased rates, in aggregate, about 5% in our core commercial auto products. We will continue to evaluate our rate need and adjust rates as we deem necessary. Our policy life expectancy decreased in all BMTs, which we believe is due to rate and non-rate actions. App.-A-65 IV.  RESULTS OF OPERATIONS – INVESTMENTS A. Portfolio Summary At year-end 2024, the fair value of our investment portfolio was $80.3 billion, compared to $66.0 billion at year-end 2023. The increase in value from year-end 2023, primarily reflected cash flows from insurance operations and positive investment returns, partially offset by the redemption of all of our outstanding Serial Preferred Shares, Series B, and the payment of our annual-variable and quarterly common share dividends. Our investment income (interest and dividends) increased 50% in both 2024 and 2023, compared to prior year. Growth in invested assets and an increase in pretax recurring investment book yield contributed to the increase in investment income. B. Investment Results Our management philosophy governing the portfolio is to evaluate investment results on a total return basis. The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully taxable amount for certain securities that receive preferential tax treatment (e.g., municipal securities), and total net realized, and changes in total unrealized, gains (losses) on securities. The following summarizes investment results for the years ended December 31: [[GREPCENT_TABLE]] [["","2024","2023","2022"],["Pretax recurring investment book yield","3.9","%","3.1","%","2.4","%"],["FTE total return:"],["Fixed-income securities","3.8","","5.4","","(6.6)"],["Common stocks","22.9","","26.7","","(19.4)"],["Total portfolio","4.6","","6.3","","(7.8)"]] [[/GREPCENT_TABLE]] The increase in the book yield during 2024 and 2023, primarily reflected investing new cash from insurance operations, and proceeds from maturing bonds, in higher coupon rate securities. For each year, the change in the fixed-income portfolio FTE total return, compared to prior year, primarily reflected movement in U.S. Treasury yields year-over-year. The common stock FTE total return reflected general market conditions. A further break-down of our FTE total returns for our fixed-income portfolio for the years ended December 31, follows: [[GREPCENT_TABLE]] [["","2024","2023","2022"],["Fixed-income securities:"],["U.S. government obligations","2.2","%","4.6","%","(7.8)","%"],["State and local government obligations","3.9","","5.9","","(8.3)"],["Foreign government obligations","(3.7)","","6.4","","(12.3)"],["Corporate and other debt securities","4.9","","7.1","","(6.0)"],["Residential mortgage-backed securities","7.8","","9.2","","0.6"],["Commercial mortgage-backed securities","10.4","","6.9","","(9.5)"],["Other asset-backed securities","6.2","","7.2","","(1.6)"],["Nonredeemable preferred stocks","8.8","","1.4","","(8.3)"],["Short-term investments","5.8","","5.0","","1.5"]] [[/GREPCENT_TABLE]] App.-A-66 C. Portfolio Allocation The composition of the investment portfolio at December 31, was: [[GREPCENT_TABLE]] [["($ in millions)","Fair Value","% of Total Portfolio","Duration (years)","Average Rating1"],["2024"],["U.S. government obligations","$","45,988","","57.3","%","4.1","AA+"],["State and local government obligations","2,778","","3.5","","2.5","AA+"],["Foreign government obligations","16","","0","","1.6","AAA"],["Corporate and other debt securities","13,954","","17.4","","2.6","BBB+"],["Residential mortgage-backed securities","1,601","","2.0","","2.6","AA"],["Commercial mortgage-backed securities","4,352","","5.4","","1.9","A+"],["Other asset-backed securities","6,643","","8.3","","1.2","AA+"],["Nonredeemable preferred stocks","728","","0.9","","1.4","BBB-"],["Short-term investments","615","","0.7","","0.1","AA-"],["Total fixed-income securities","76,675","","95.5","","3.3","AA-"],["Common equities","3,575","","4.5","","na","na"],["Total portfolio2","$","80,250","","100.0","%","3.3","AA-"],["2023"],["U.S. government obligations","$","36,869","","55.9","%","3.6","AA+"],["State and local government obligations","2,203","","3.3","","3.0","AA+"],["Foreign government obligations","16","","0.1","","2.6","AAA"],["Corporate and other debt securities","11,358","","17.2","","2.7","BBB"],["Residential mortgage-backed securities","417","","0.6","","0.5","A+"],["Commercial mortgage-backed securities","3,940","","6.0","","2.3","A"],["Other asset-backed securities","5,575","","8.4","","1.2","AA+"],["Nonredeemable preferred stocks","902","","1.4","","2.1","BBB-"],["Short-term investments","1,790","","2.7","","0.1","AA-"],["Total fixed-income securities","63,070","","95.6","","3.0","AA-"],["Common equities","2,929","","4.4","","na","na"],["Total portfolio2","$","65,999","","100.0","%","3.0","AA-"],["na = not applicable"]] [[/GREPCENT_TABLE]] 1 Represents ratings at period end. Credit quality ratings are assigned by nationally recognized statistical rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score of 0-5, with non-investment-grade and non-rated securities assigned a score of 0-1. To the extent the weighted average of the ratings falls between AAA and AA+, we assign an internal rating of AAA-. 2 At December 31, 2024, we had $125 million of net unsettled security transactions included in other liabilities, compared to $46 million of net unsettled security transactions included in other assets at December 31, 2023. The total fair value of the portfolio at December 31, 2024 and 2023, included $6.2 billion and $4.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions. A portion of these investments were sold and proceeds used to pay our common share dividends in January 2025; see Note 14 – Dividends for additional information. Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities. We define Group I securities to include:  •common equities, •nonredeemable preferred stocks, •redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends, which are included in Group II, and •all other non-investment-grade fixed-maturity securities. Group II securities include:  •short-term securities, and •all other fixed-maturity securities, including 50% of investment-grade redeemable preferred stocks with cumulative dividends. We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators. App.-A-67 The following table shows the composition of our Group I and Group II securities at December 31: [[GREPCENT_TABLE]] [["","2024","","2023"],["($ in millions)","Fair Value","% of Total Portfolio","","Fair Value","% of Total Portfolio"],["Group I securities:"],["Non-investment-grade fixed maturities","$","385","","0.5","%","","$","532","","0.8","%"],["Nonredeemable preferred stocks","728","","0.9","","","902","","1.4"],["Common equities","3,575","","4.5","","","2,929","","4.4"],["Total Group I securities","4,688","","5.9","","","4,363","","6.6"],["Group II securities:"],["Other fixed maturities","74,947","","93.4","","","59,846","","90.7"],["Short-term investments","615","","0.7","","","1,790","","2.7"],["Total Group II securities","75,562","","94.1","","","61,636","","93.4"],["Total portfolio","$","80,250","","100.0","%","","$","65,999","","100.0","%"]] [[/GREPCENT_TABLE]] To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) to classify our residential and commercial mortgage-backed securities, excluding interest-only (IO) securities, and the credit ratings from nationally recognized statistical rating organizations (NRSROs) to classify all other debt securities. NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and II securities. Unrealized Gains and Losses As of December 31, 2024, our fixed-maturity portfolio had total after-tax net unrealized losses, which are recorded as part of accumulated other comprehensive income (loss) on our consolidated balance sheets, of $1.4 billion, compared to $1.6 billion at December 31, 2023. The decrease in total unrealized losses year over year, was due to valuation increases across fixed-maturity sectors, excluding the U.S. Treasury portfolio. The valuation increase was most prominently in our corporate and other debt and commercial mortgage-backed portfolios as lower interest rates and tighter credit spreads drove strong portfolio performance. The U.S. Treasury valuation decrease was due to rising U.S. Treasury yields. See Note 2 – Investments for a further break-out of our gross unrealized gains (losses). App.-A-68 Holding Period Gains (Losses) The following table provides the balance and activity for both the gross and net holding period gains (losses) for 2024: [[GREPCENT_TABLE]] [["(millions)","Gross Holding Period Gains","Gross Holding Period Losses","Net Holding Period Gains (Losses)"],["Balance at December 31, 2023"],["Hybrid fixed-maturity securities","$","5","","$","(34)","","$","(29)"],["Equity securities1","2,234","","(86)","","2,148"],["Total holding period securities","2,239","","(120)","","2,119"],["Current year change in holding period securities"],["Hybrid fixed-maturity securities","3","","22","","25"],["Equity securities1","604","","50","","654"],["Total changes in holding period securities","607","","72","","679"],["Balance at December 31, 2024"],["Hybrid fixed-maturity securities","8","","(12)","","(4)"],["Equity securities1","2,838","","(36)","","2,802"],["Total holding period securities","$","2,846","","$","(48)","","$","2,798"]] [[/GREPCENT_TABLE]] 1Equity securities include common equities and nonredeemable preferred stocks. Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market conditions as well as sales of securities based on various portfolio management decisions. Fixed-Income Securities The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks. Following are the primary exposures for the fixed-income portfolio. Interest Rate Risk This risk includes the change in value resulting from movements in the underlying market rates of debt securities held. We manage this risk by maintaining the portfolio’s duration (a measure of the portfolio’s exposure to changes in interest rates) between 1.5 and 5.0 years. The duration of the fixed-income portfolio was 3.3 years at December 31, 2024, compared to 3.0 years at December 31, 2023. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security is expected to change based on a rise or fall in interest rates) is monitored on a regular basis. The duration distribution of our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, at December 31, was: [[GREPCENT_TABLE]] [["Duration Distribution","2024","2023"],["1 year","9.6","%","18.1","%"],["2 years","8.2","","12.0"],["3 years","29.5","","25.7"],["5 years","43.6","","27.4"],["7 years","8.2","","14.6"],["10 years","0.9","","2.2"],["Total fixed-income portfolio","100.0","%","100.0","%"]] [[/GREPCENT_TABLE]] Credit Risk This exposure is managed by maintaining an A+ minimum weighted average portfolio credit quality rating, as defined by NRSROs. At both December 31, 2024 and 2023, our weighted average credit quality rating was AA-. The credit quality distribution of our fixed-income portfolio at December 31, was: [[GREPCENT_TABLE]] [["Average Rating","2024","2023"],["AAA","12.6","%","10.7","%"],["AA","64.2","","65.1"],["A","6.4","","7.0"],["BBB","15.7","","15.7"],["Non-investment-grade/non-rated:1"],["BB","0.8","","1.2"],["B","0.2","","0.2"],["CCC and lower","0","","0"],["Non-rated","0.1","","0.1"],["Total fixed-income portfolio","100.0","%","100.0","%"]] [[/GREPCENT_TABLE]] 1 The ratings in the table above are assigned by NRSROs. Effective January 1, 2025, in light of the downgrade of the U.S. government obligations, to manage our credit risk exposure, we moved our internal ratings guideline for our portfolio down from an A+ to an A minimum weighted average portfolio credit rating. Concentration Risk Our investment constraints limit investment in a single issuer, other than U.S. Treasury Notes or a state’s general obligation bonds, to 2.5% of shareholders’ equity, while the single issuer guideline on preferred stocks and/or non-investment-grade debt is 1.25% of shareholders’ equity. Additionally, the guideline App.-A-69 applicable to any state’s general obligation bonds is 6% of shareholders’ equity. We consider concentration risk both overall and in the context of individual asset classes and sectors, including, but not limited to, common equities, residential and commercial mortgage-backed securities, municipal bonds, and high-yield bonds. At December 31, 2024 and 2023, we were within all of the constraints described above. Prepayment and Extension Risk We are exposed to this risk especially in our asset-backed (i.e., structured product) and preferred stock portfolios. Prepayment risk includes the risk of early redemption of security principal that may need to be reinvested at less attractive rates. Extension risk includes the risk that a security will not be redeemed when anticipated, and that the security that is extended will have a lower yield than a security we might be able to obtain by reinvesting the expected redemption principal. Our holdings of different types of structured debt and preferred securities help manage this risk. During 2024 and 2023, we did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio. Liquidity Risk Our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements. The short-to-intermediate duration of our portfolio provides a source of liquidity. During 2025, we expect approximately $7.6 billion, or 25%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments. Cash from interest and dividend payments provides an additional source of recurring liquidity. The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at December 31, 2024: [[GREPCENT_TABLE]] [["($ in millions)","Fair Value","","Duration (years)"],["U.S. Treasury Notes"],["Less than one year","$","104","","","0.4"],["One to two years","807","","","1.6"],["Two to three years","3,002","","","2.6"],["Three to five years","36,320","","","4.0"],["Five to seven years","5,722","","","5.7"],["Seven to ten years","33","","","7.1"],["Total U.S. Treasury Notes","$","45,988","","","4.1"]] [[/GREPCENT_TABLE]] ASSET-BACKED SECURITIES Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at December 31: [[GREPCENT_TABLE]] [["($ in millions)","Fair Value","Net Unrealized Gains (Losses)","% of Asset- Backed Securities","Duration (years)","Average Rating(at period end)1"],["2024"],["Residential mortgage-backed securities","$","1,601","","$","(2)","","12.7","%","2.6","","AA"],["Commercial mortgage-backed securities","4,352","","(369)","","34.6","","1.9","","A+"],["Other asset-backed securities","6,643","","(39)","","52.7","","1.2","","AA+"],["Total asset-backed securities","$","12,596","","$","(410)","","100.0","%","1.6","","AA"],["2023"],["Residential mortgage-backed securities","$","417","","$","(10)","","4.2","%","0.5","","A+"],["Commercial mortgage-backed securities","3,940","","(596)","","39.7","","2.3","","A"],["Other asset-backed securities","5,575","","(91)","","56.1","","1.2","","AA+"],["Total asset-backed securities","$","9,932","","$","(697)","","100.0","%","1.6","","AA-"]] [[/GREPCENT_TABLE]] 1 The credit quality ratings are assigned by NRSROs. App.-A-70 Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at December 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs): [[GREPCENT_TABLE]] [["Residential Mortgage-Backed Securities (at December 31, 2024)"],["($ in millions)Average Rating1","","","Non-Agency","","Government/GSE2","Total","% of Total"],["AAA","","","$","1,100","","","$","0","","$","1,100","","68.7","%"],["AA","","","23","","","1","","24","","1.5"],["A","","","202","","","0","","202","","12.6"],["BBB","","","273","","","0","","273","","17.0"],["Non-investment-grade/non-rated:"],["CCC and lower","","","1","","","0","","1","","0.1"],["Non-rated","","","1","","","0","","1","","0.1"],["Total fair value","","","$","1,600","","","$","1","","$","1,601","","100.0","%"],["Decrease in value","","","0","%","","(2.7)","%","0","%"]] [[/GREPCENT_TABLE]] 1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our RMBS, 88% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I. 2 The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA). Our RMBS portfolio consists of deals that are backed by high-credit quality borrowers and/or those that have strong structural protections through underlying loan collateralization. During 2024, we continued to increase our exposure in this portfolio. Our additions during the year were primarily concentrated in investment-grade securities with most purchases in qualified mortgage securitizations. We also continued to grow our existing exposure to Fannie Mae and Freddie Mac credit risk transfer securities. Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at December 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs): [[GREPCENT_TABLE]] [["Commercial Mortgage-Backed Securities (at December 31, 2024)"],["($ in millions)Average Rating1","Multi-Borrower","Single-Borrower","Total","% of Total"],["AAA","$","142","","$","1,735","","$","1,877","","43.1","%"],["AA","0","","848","","848","","19.5"],["A","0","","431","","431","","9.9"],["BBB","0","","836","","836","","19.2"],["Non-investment-grade/non-rated:"],["BB","0","","348","","348","","8.0"],["B","0","","12","","12","","0.3"],["Total fair value","$","142","","$","4,210","","$","4,352","","100.0","%"],["Decrease in value","(5.1)","%","(7.9)","%","(7.8)","%"]] [[/GREPCENT_TABLE]] 1The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our CMBS, 92% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I. Growth in our portfolio during 2024 was primarily due to new additions in AAA securities in multi-family and industrial sectors, and an increase in the value of the portfolio as spreads tightened, which were in part offset by redemptions of certain single borrower deals. The CMBS market ended the year on a high note as new issuances continued throughout the year at a robust pace and spreads tightened. As of December 31, 2024, we had no delinquencies in our CMBS portfolio. App.-A-71 The following table shows the composition of our CMBS portfolio by maturity year and sector:  [[GREPCENT_TABLE]] [["Commercial Mortgage-Backed Securities Sector Details (at December 31, 2024)"],["($ in millions)Maturity1","Office","Lab Office","Multi-family","Multi-family IO","Industrial","Self-storage","Casino","Total","Average Original LTV","Average Current DSCR"],["2025","$","0","","$","47","","$","0","","$","38","","$","0","","$","0","","$","0","","$","85","","69.9","%","1.6"],["2026","394","","67","","270","","34","","91","","64","","114","","1,034","","61.3","","1.7"],["2027","376","","0","","50","","31","","0","","257","","0","","714","","61.5","","1.9"],["2028","273","","0","","0","","24","","0","","0","","0","","297","","60.5","","2.4"],["2029","479","","129","","418","","11","","388","","160","","70","","1,655","","62.5","","2.3"],["2030","80","","59","","0","","4","","0","","0","","96","","239","","55.5","","3.4"],["2031","237","","91","","0","","0","","0","","0","","0","","328","","66.5","","2.0"],["Total fair value","$","1,839","","$","393","","$","738","","$","142","","$","479","","$","481","","$","280","","$","4,352"],["LTV= loan to value"],["DSCR= debt service coverage ratio"]] [[/GREPCENT_TABLE]] 1The floating-rate securities were extended to their full maturity and fixed-rate securities are shown to their anticipated repayment date (if applicable) or otherwise, their maturity date. We show the average loan to value (LTV) of each maturity year when the loans were originated. The LTV ratio that management uses, which is commonly expressed as a percentage, compares the size of the entire mortgage loan to the appraised value of the underlying property collateralizing the loan at issuance. A LTV ratio less than 100% indicates excess collateral value over the loan amount. LTV ratios greater than 100% indicate that the loan amount exceeds the collateral value. We believe this ratio provides a conservative view of our actual risk of loss, as this number displays the entire mortgage LTV, while our ownership is only a portion of the structure of the mortgage loan-backed security. For many of the mortgage loans in our portfolio, our exposure is in a more senior part of the structure, which means that the LTV on our actual exposure is even lower than the ratios presented. In addition to the LTV ratio, we also examine the credit of our CMBS portfolio by reviewing the debt service coverage ratio (DSCR) of the securities. The DSCR compares the underlying property’s annual net operating income to its annual debt service payments. A DSCR less than 1.0 times indicates that property operations do not generate enough income over the debt service payments, while a DSCR greater than 1.0 times indicates that there is an excess of operating income over the debt service payments. A number above 1.0 generally indicates that there would not be an incentive for the borrower to default in light of the borrower’s excess income. The DSCR reported in the table is calculated based on the most currently available net operating income and mortgage payments for the borrower, which, for many securities, is data as of December 31, 2023. App.-A-72 Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at December 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs): [[GREPCENT_TABLE]] [["Other Asset-Backed Securities (at December 31, 2024)"],["($ in millions) Average Rating","Automobile","Collateralized Loan Obligations","Student Loan","Whole Business Securitizations","Equipment","Other","Total","% of Total"],["AAA","$","3,029","","$","526","","$","49","","$","0","","$","1,039","","$","258","","$","4,901","","73.8","%"],["AA","1","","117","","2","","0","","40","","0","","160","","2.4"],["A","3","","0","","0","","0","","139","","294","","436","","6.6"],["BBB","0","","0","","0","","1,072","","0","","39","","1,111","","16.7"],["Non-investment-grade/non-rated:"],["BB","0","","0","","0","","0","","0","","35","","35","","0.5"],["Total fair value","$","3,033","","$","643","","$","51","","$","1,072","","$","1,218","","$","626","","$","6,643","","100.0","%"],["Increase (decrease) in value","0.5","%","(0.1)","%","(6.3)","%","(3.6)","%","0.4","%","(2.1)","%","(0.6)","%"]] [[/GREPCENT_TABLE]] During 2024, we selectively added securities to the OABS portfolio that we viewed as having attractive spreads and potential returns. The securities we acquired were predominantly in the automobile and equipment categories in highly-rated, senior, and short-tenor debt tranches in the new issue markets. Additionally, we increased our holdings in whole business securitization assets, in both new issue and secondary markets, and decreased our collateralized loan obligation assets, due to elevated call redemptions. STATE AND LOCAL GOVERNMENT OBLIGATIONS The following table details the credit quality rating of our state and local government obligations (municipal securities) at December 31, 2024, without the benefit of credit or bond insurance: [[GREPCENT_TABLE]] [["Municipal Securities (at December 31, 2024)"],["(millions) Average Rating","General Obligations","Revenue Bonds","Total"],["AAA","$","761","","$","497","","$","1,258"],["AA","567","","862","","1,429"],["A","0","","61","","61"],["BBB","0","","30","","30"],["Non-rated","0","","0","","0"],["Total","$","1,328","","$","1,450","","$","2,778"]] [[/GREPCENT_TABLE]] Included in revenue bonds were $593 million of single-family housing revenue bonds issued by state housing finance agencies, of which $305 million were supported by individual mortgages held by the state housing finance agencies and $288 million were supported by mortgage-backed securities. Of the revenue bonds supported by individual mortgages held by state housing finance agencies, the overall credit quality rating was AA+. Most of these mortgages were supported by the FHA, VA, or private mortgage insurance providers. Of the revenue bonds supported by mortgage-backed securities, 80% were collateralized by Ginnie Mae mortgages, which are fully guaranteed by the U.S. government, and the remaining 20% were collateralized by Fannie Mae and Freddie Mac mortgages. Although credit spreads of tax-exempt municipal bonds widened during 2024, we still viewed most of the market as relatively unattractive. Credit spreads for taxable municipal bonds tightened during 2024. We selectively added to the municipal portfolio during 2024, with a focus on high-quality securities with shorter maturities, which we viewed as having more favorable risk/reward profiles. App.-A-73 CORPORATE AND OTHER DEBT SECURITIES The following table details the credit quality rating of our corporate and other debt securities at December 31, 2024: [[GREPCENT_TABLE]] [["Corporate and Other Debt Securities (at December 31, 2024)"],["(millions) Average Rating","Consumer","Industrial","Communication","Financial Services","","Technology","Basic Materials","Energy","Total"],["AAA","$","0","","$","0","","$","0","","$","122","","","$","0","","$","0","","$","40","","$","162"],["AA","92","","0","","0","","568","","","0","","0","","43","","703"],["A","643","","345","","62","","2,134","","","59","","106","","442","","3,791"],["BBB","3,344","","1,523","","384","","1,508","","","949","","69","","1,200","","8,977"],["Non-investment-grade/non-rated:"],["BB","88","","47","","56","","0","","","8","","0","","6","","205"],["B","103","","0","","0","","0","","","0","","8","","0","","111"],["Non-rated","0","","0","","0","","2","","","3","","0","","0","","5"],["Total fair value","$","4,270","","$","1,915","","$","502","","$","4,334","","","$","1,019","","$","183","","$","1,731","","$","13,954"]] [[/GREPCENT_TABLE]] The size of our corporate and other debt portfolio increased over the year to $14.0 billion at December 31, 2024, from $11.4 billion at December 31, 2023. At both December 31, 2024 and December 31, 2023, corporate and other debt securities made up approximately 18% of our fixed-income portfolio. The duration of the corporate and other debt portfolio decreased slightly to 2.6 years at December 31, 2024, from 2.7 years at December 31, 2023, as we continued to focus on shorter-maturity investment-grade securities, which we viewed as having more favorable risk/reward profiles. NONREDEEMABLE PREFERRED STOCKS The table below shows the exposure break-down for our nonredeemable preferred stocks by sector and rating at year end: [[GREPCENT_TABLE]] [["Nonredeemable preferred stocks (at December 31, 2024)"],["","Financial Services"],["(millions) Average Rating","U.S. Banks","Foreign Banks","Insurance","Other Financial","Industrials","Utilities","Total"],["BBB","$","462","","$","14","","$","63","","$","30","","$","0","","$","38","","$","607"],["Non-investment-grade/non-rated:"],["BB","64","","4","","0","","0","","0","","0","","68"],["Non-rated","0","","0","","23","","14","","16","","0","","53"],["Total fair value","$","526","","$","18","","$","86","","$","44","","$","16","","$","38","","$","728"]] [[/GREPCENT_TABLE]] The majority of our nonredeemable preferred securities have fixed-rate dividends until a call date and then, if not called, generally convert to floating-rate dividends. The interest rate duration is calculated to reflect the call, floor, and floating-rate features. Although a nonredeemable preferred stock will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. At year-end 2024, our non-investment-grade nonredeemable preferred stocks were with issuers that maintain investment-grade senior debt ratings. We also face the risk that dividend payments could be deferred for one or more periods or skipped entirely. As of December 31, 2024, we expect all of these securities to pay their dividends in full and on time. Approximately 97% of our nonredeemable preferred stocks pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable. At December 31, 2024, our nonredeemable preferred stock portfolio fair value was $0.7 billion, which is a decrease from $0.9 billion at December 31, 2023. This decline was primarily due to nonredeemable preferred stocks that were called or sold because they had less attractive risk/reward profiles. App.-A-74 Common Equities Common equities, as reported on our consolidated balance sheets at December 31, were comprised of the following: [[GREPCENT_TABLE]] [["($ in millions)","2024","","2023"],["Common stocks","$","3,550","","99.3","%","","$","2,908","","99.3","%"],["Other risk investments1","25","","0.7","","","21","","0.7"],["Total common equities","$","3,575","","100.0","%","","$","2,929","","100.0","%"]] [[/GREPCENT_TABLE]] 1The other risk investments consist of limited partnership interests. The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index. We held 772 out of 1,007, or 77%, of the common stocks comprising the index at December 31, 2024, which made up 95% of the total market capitalization of the index. At December 31, 2024, the full year GAAP income total return did not meet our targeted tracking error of +/- 50 basis points. We expect to be within our targeted tracking error over the longer term. At December 31, 2023, the full year GAAP income total return was within our targeted tracking error. The following is a summary of our indexed common stock portfolio holdings by sector compared to the Russell 1000 Index composition: [[GREPCENT_TABLE]] [["Sector","Equity Portfolio Allocation at December 31, 2024","Russell 1000 Allocation at December 31, 2024","Russell 1000 Sector Return in 2024"],["Consumer discretionary","15.0","%","16.4","%","30.3","%"],["Consumer staples","3.8","","4.0","","5.7"],["Financial services","11.3","","10.7","","31.8"],["Health care","9.9","","9.5","","3.5"],["Materials and processing","1.6","","1.5","","(3.7)"],["Other energy","3.7","","3.3","","6.6"],["Producer durable","12.1","","12.2","","18.3"],["Real estate","2.3","","2.3","","5.1"],["Technology","35.9","","35.4","","38.2"],["Telecommunications","1.9","","2.3","","22.2"],["Utilities","2.5","","2.4","","23.7"],["Total common stocks","100.0","%","100.0","%","24.5","%"]] [[/GREPCENT_TABLE]] For 2024, our common stock portfolio FTE total return was 22.9%, compared to 24.5% for the Russell 1000 Index, due to common stocks we hold outside of the index. V. CRITICAL ACCOUNTING POLICIES Progressive is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates in a variety of areas. The two areas we view as most critical with respect to the application of estimates and assumptions is the establishment of our loss reserves and the methods for measuring expected credit losses on financial instruments. A. Loss and LAE Reserves Loss and LAE reserves represent our best estimate of our ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2024, we had $34.6 billion of net loss and LAE reserves (net of reinsurance recoverables on unpaid losses), which included $26.4 billion of case reserves and $8.2 billion of IBNR reserves. The following discussion focuses on our personal auto liability and commercial auto liability, including TNC, reserves since these businesses represent approximately 91% of our total carried net reserves. We do not review our loss reserves on a macro level and, therefore, do not derive a companywide range of reserves to compare to a standard deviation. Instead, we review a large majority of our reserves by product/state subset combinations on a quarterly time frame, with the remaining reserves generally reviewed on a semiannual basis. A change in our scheduled reviews of a particular subset of the business depends on the size of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, we have the ability to identify and measure variances in the trends by state, product, and line coverage that otherwise would not be App.-A-75 seen on a consolidated basis. We believe our comprehensive process of reviewing at a subset level provides us more meaningful estimates of our aggregate loss reserves. In analyzing the ultimate accident year loss and LAE experience, our actuarial staff reviews in detail, at the subset level, frequency (number of losses per exposure), severity (dollars of loss per each claim), and average premium (dollars of premium per earned car year), as well as the frequency and severity of our LAE costs. The loss ratio, a primary measure of loss experience, is equal to the product of frequency times severity divided by the average premium. The average premium for personal and commercial auto businesses is not estimated. The actual frequency experienced will vary depending on the change in the mix in class of drivers we insure, but the IBNR frequency projections for these lines of business are generally stable in the short term, because a large majority of the parties involved in an accident report their claims within a short time period after the occurrence. The severity experienced by Progressive is much more difficult to estimate, especially for injury claims, since severity is affected by changes in underlying costs, such as medical costs, jury verdicts, judicial interpretations, and regulatory changes. In addition, severity will vary relative to the change in our mix of business by limit. Assumptions regarding needed reserve levels made by the actuarial staff take into consideration influences on available historical data that reduce the predictive nature of our projected future loss costs. Internal considerations that are process-related, which generally result from changes in our claims organization’s activities, include claim closure rates, the number of claims that are closed without payment, and the level of the claims representatives’ estimates of the needed case reserve for each claim. These changes and their effect on the historical data are studied at the state level versus on a larger, less indicative, countrywide basis. External items considered include the litigation atmosphere, changes in medical costs, and the availability of services to resolve claims. These also are better understood at the state level versus at a more macro, countrywide level. These items, as well as additional considerations such as the type of accident and change in reporting patterns, are closely monitored. At December 31, 2024, we had $39.1 billion of carried gross reserves and $34.6 billion of net reserves. Our net reserve balance assumes that the loss and LAE severity for accident year 2024 over accident year 2023 would be 8.8% higher for personal auto liability and 1.7% higher for commercial auto liability. As discussed above, the severity estimates are influenced by many variables that are difficult to precisely quantify and which influence the final amount of claims settlements. That, coupled with changes in internal claims practices, the legal environment, and state regulatory requirements, requires significant judgment in the estimate of the needed reserves to be carried. The following table highlights what the effect would be to our carried loss and LAE reserves, on a net basis, as of December 31, 2024, if during 2025 we were to experience the indicated change in our estimate of severity for the 2024 accident year (i.e., claims that occurred in 2024): [[GREPCENT_TABLE]] [["","Estimated Changes in Severity for Accident Year 2024"],["(millions)","-4%","-2%","As Reported","+2%","+4%"],["Personal auto liability","$","20,105","","$","20,573","","$","21,041","","$","21,509","","$","21,977"],["Commercial auto liability","10,306","","10,424","","10,542","","10,660","","10,778"],["Other1","2,987","","2,987","","2,987","","2,987","","2,987"],["Total","$","33,398","","$","33,984","","$","34,570","","$","35,156","","$","35,742"]] [[/GREPCENT_TABLE]] 1 Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves. Note: Every percentage point change in our estimate of severity for the 2024 accident year would affect our personal auto liability reserves by $234 million and our commercial auto liability reserves by $59 million. App.-A-76 Our 2024 year-end loss and LAE reserve balance also includes claims from prior years. Claims that occurred in 2024, 2023, and 2022, in the aggregate, accounted for approximately 93% of our reserve balance. If during 2025 we were to experience the indicated change in our estimate of severity for the total of the prior three accident years (i.e., 2024, 2023, and 2022), the effect to our year-end 2024 reserve balances would be as follows: [[GREPCENT_TABLE]] [["","Estimated Changes in Severity for Accident Years 2024, 2023, and 2022"],["(millions)","-4%","-2%","As Reported","+2%","+4%"],["Personal auto liability","$","18,649","","$","19,845","","$","21,041","","$","22,237","","$","23,433"],["Commercial auto liability","9,874","","10,208","","10,542","","10,876","","11,210"],["Other1","2,987","","2,987","","2,987","","2,987","","2,987"],["Total","$","31,510","","$","33,040","","$","34,570","","$","36,100","","$","37,630"]] [[/GREPCENT_TABLE]] 1 Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves. Note: Every percentage point change in our estimate of severity for the 2024, 2023, and 2022 accident years would affect our personal auto liability reserves by $598 million and our commercial auto liability reserves by $167 million. Our best estimate of the appropriate amount for our reserves as of year-end 2024 is included in our financial statements for the year. Our goal is to ensure that total reserves are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. At the point in time when reserves are set, we have no way of knowing whether our reserve estimates will prove to be high or low, or whether one of the alternative scenarios discussed above is reasonably likely to occur. The above tables show the potential favorable or unfavorable development we will realize if our estimates miss by 2% or 4%. B. Credit Losses on Financial Instruments An allowance for credit losses is established when the ultimate realization of a financial instrument is determined to be impaired due to a credit event. Measurement of expected credit losses is based on judgment when considering relevant information about past events, including historical loss experience, current conditions, and forecasts of the collectability of the reported financial instrument. The allowance for expected credit losses is measured and recorded at the point ultimate recoverability of the financial instrument is expected to be impaired, including upon the initial recognition of the financial instrument, where warranted. We evaluate financial instrument credit losses related to our available-for-sale securities, reinsurance recoverables, and premiums receivables. Due to the complex nature in evaluating credit loss for our available-for-sale financial instruments, we view the estimates and assumptions used in our analysis as critical. We routinely monitor our fixed-maturity portfolio for pricing changes that might indicate potential losses exist and perform detailed reviews of securities with unrealized losses to determine if an allowance for credit losses, a change to an existing allowance (recovery or additional loss), or a write-off for an amount deemed uncollectible needs to be recorded. In such cases, changes in fair value are evaluated to determine the extent to which such changes are attributable to: (i) credit-related losses, which are specific to the issuer (e.g., financial conditions, business prospects) where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security, or (ii) market related factors, such as interest rates or credit spreads. If we do not expect to hold the security to allow for a potential recovery of those expected losses, we will write down the security to fair value and recognize a realized loss in the comprehensive income statement. For securities whose losses are credit-related losses, and for which we do not intend to sell in the near term, we will review the non-market components to determine if a potential future credit loss exists, based on available financial data related to the fixed-maturity securities. If we project that a credit loss exists, we will record an allowance for the credit loss and recognize a realized loss in the comprehensive income statement. For all securities for which an allowance for credit losses has been established, we will re-evaluate the securities, at least quarterly, to determine if further deterioration has occurred or if we project a subsequent recovery in the expected losses, which would require an adjustment to the allowance for credit losses. To the extent we determine that we will likely sell a security prior to recovery of the credit loss, or if the loss is deemed uncollectible, we will write down the security to its fair value and reverse any credit loss allowance that may have been previously recorded. For an unrealized loss that is determined to be related to current market conditions, we will not record an allowance for credit losses or a write down to fair value. We will continue to monitor these securities to determine if underlying factors other than the current market conditions are contributing to the loss in value. Based on an analysis of our fixed-maturity portfolio, we have determined our allowance for credit losses related to available-for-sale securities was not material to our financial condition or results of operations for the periods ending December 31, 2024 and 2023. App.-A-77 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as “estimate,” “expect,” “intend,” “plan,” “believe,” “goal,” “target,” “anticipate,” “will,” “could,” “likely,” “may,” “should,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are not guarantees of future performance, are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to: •our ability to underwrite and price risks accurately and to charge adequate rates to policyholders; •our ability to establish accurate loss reserves; •the impact of severe weather, other catastrophe events, and climate change; •the effectiveness of our reinsurance programs and the continued availability of reinsurance and performance by reinsurers; •the secure and uninterrupted operation of the systems, facilities, and business functions and the operation of various third-party systems that are critical to our business; •the impacts of a security breach or other attack involving our technology systems or the systems of one or more of our vendors; •our ability to maintain a recognized and trusted brand and reputation; •whether we innovate effectively and respond to our competitors’ initiatives; •whether we effectively manage complexity as we develop and deliver products and customer experiences; •the highly competitive nature of property-casualty insurance markets; •whether we adjust claims accurately; •compliance with complex and changing laws and regulations; •the impact of misconduct or fraudulent acts by employees, agents, and third parties to our business and/or exposure to regulatory assessments; •our ability to attract, develop, and retain talent and maintain appropriate staffing levels; •litigation challenging our business practices, and those of our competitors and other companies; •the success of our business strategy and efforts to acquire or develop new products or enter into new areas of business and our ability to navigate the related risks; •how intellectual property rights affect our competitiveness and our business operations; •the success of our development and use of new technology and our ability to navigate the related risks; •the performance of our fixed-income and equity investment portfolios; •the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, governance and other public policy matters; •our continued ability to access our cash accounts and/or convert investments into cash on favorable terms; •the impact if one or more parties with which we enter into significant contracts or transact business fail to perform; •legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation; •our ability to obtain capital when necessary to support our business, our financial condition, and potential growth; •evaluations and ratings by credit rating and other rating agencies; •the variable nature of our common share dividend policy; •whether our investments in certain tax-advantaged projects generate the anticipated returns; •the impact from not managing to short-term earnings expectations in light of our goal to maximize the long-term value of the enterprise; •the impacts of epidemics, pandemics, or other widespread health risks; and •other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission, including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2024. Any forward-looking statements are made only as of the date presented. Except as required by applicable law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or developments or otherwise. In addition, investors should be aware that accounting principles generally accepted in the United States prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when we establish reserves for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods. App.-A-78