In his second quarter letter to The Progressive Corporation (NYSE: PGR) shareholders, CEO Glenn Renwick admits the quarter was weak, the numbers are not where the company wants them, but there are signs of progress slowly emerging. Might as well get the bad news all out on the table so shareholders know what they are dealing with. One has to admire the CEO's honesty.
Progressive Corp. of Ohio is an insurance company that writes policies for personal and commercial drivers, as well as policies for motorcycles and personal watercraft for recreational use. Consumers might recognize Progressive from its commercials in which it provides a potential customer not only with its own rates but also the rates of competitors and admits that sometimes Progressive is not the cheapest but does provide superior claims service. Turns out, lots of customers really do want the cheapest coverage possible.
Thus, Progressive's net income declined 29% in the second quarter because the company wrote fewer policies and had to discount premium prices on policies it did write. CEO Renwick believes most of the discounting has already been done and he looks for premiums to rise although Progressive remains very sensitive to price comparisons with its competitors.
Progressive has increased its advertizing spending going forward and is in the midst of a concerted effort "to grow as fast as possible," according to Renwick, Simply put, Progresive wants to increase the number of its customers and has delayed premium increases to focus on longer-term customer growth. The strategy seems to be working, with new business growth recorded in 32 states.
Progresive is also shifting more resources to Internet sales, the company's fastest growing segment. Internet direct to consumer personal automobile policies are up 5% by volume from 2Q 2006. New business growth overall is up more than 2% for the first half of 2007. The stock is down 9% since the beginning of the year, closing recently at $22.03, down $0.15, but look for a rise in price as customer growth begins to translate into premium growth.
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