Fitch Ratings has affirmed
Fitch has also affirmed the holding company's Issuer Default Rating (IDR) at 'A+' and senior debt ratings at 'A'. The Rating Outlook is Stable.
Progressive's ratings reflect its consistently strong operating performance, very strong risk-based capital position, market leading risk-management and underwriting expertise. The ratings also reflects PGR's favorable business profile with a significant personal and commercial auto insurance franchise.
Key Rating Drivers
Favorable Business Profile: Progressive maintains a favorable business profile, as the second-largest
Excellent Underwriting Performance: Progressive is one of the most consistently profitable underwriters among leading property/casualty (P/C) insurers, with a history of favorable underwriting margins and stability. Favorable results in recent periods reflect rate increases and non-rate underwriting actions the company has implemented to address heightened severity trends.
Progressive's GAAP combined ratio significantly improved to 86.8% through
Progressive's Prism capital model results declined to 'Strong' in 2022, due to a drop in available capital from unrealized bond losses. However, excluding these losses, it remained 'Very Strong'. Prism results for 2023 will be available in summer 2024, which Fitch expects to benefit from surplus growth during the period and remain supportive of the ratings.
Financial Leverage: The company's financial leverage declined to 22.6% at
Debt Service: Excellent profitability promotes strong interest coverage. GAAP fixed-charge coverage was approximately 15x in 2023 compared with its five-year 16x average (2019-2023). Fitch believes fixed-charge coverage will be in the low- to mid-double-digits over the near term. Fitch estimates statutory dividend fixed-charge coverage of approximately 13x for 2024 based on the insurance subsidiaries' maximum ordinary dividend capacity of over
Concentration Risk: The ratings also reflect the company's limited historical product diversification and high notional operating leverage. Progressive's higher leverage potentially exposes capital to unexpected pricing errors. Therefore, a sudden change in the operating environment for auto writers would have a potentially greater negative impact on Progressive's capital than it would for less leveraged and more diversified companies.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to a Negative Rating Action/Downgrade
Reporting a GAAP calendar-year combined ratio of 99% or higher;
Sustained deterioration in consolidated statutory capital, measured by Fitch's capital model, NAIC RBC, and traditional leverage measures;
Financial leverage above 30%;
Homeowners insurance growth that substantially increases probable maximum loss levels;
Statutory maximum dividend coverage ratio of below 7x on a sustained basis;
Failure to maintain underwriting outperformance relative to peers.
Factors that Could, Individually or Collectively, Lead to a Positive Rating Action/Upgrade
Fitch believes that a rating upgrade for Progressive would require a broadened product focus with a material reduction of net leverage.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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