What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 194 added, 305 removed, 817 unchanged (38% of the section changed)

2 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Nine Months

Periods Ended September 30, 2022 2021 2022 2021

Three Months Ended March 31, 2023 2022

(millions — except per share amounts)

15 unchanged sentences

Interest expense 63.3 54.3

Goodwill impairment 1

Total expenses 13,748.8 11,451.3

Net Income (Loss)

Income (loss) before income taxes 142.5 139.0 ( 103.2 ) 3,006.1

Income before income taxes 554.4 390.2

Provision for income taxes 106.5 76.3

Net income (loss) 124.1 118.5 ( 104.9 ) 2,388.6

Net income 447.9 313.9

Other Comprehensive Income (Loss)

5 unchanged sentences

Computation of Earnings Per Common Share

Net income (loss) $ 124.1 $ 118.5 $ ( 104.9 ) $ 2,388.6

Net income $ 447.9 $ 313.9

Preferred share dividends 1

Net income (loss) available to common shareholders $ 117.4 $ 111.8 $ ( 125.0 ) $ 2,368.5

Net income available to common shareholders $ 440.6 $ 307.2

Average common shares outstanding - Basic 584.9 584.3

3 unchanged sentences

Earnings per common share $ 0.75 $ 0.52

1 See Note 12 – Goodwill and Intangible Assets for further discussion.

1 Changed to a floating dividend rate.

See Note 1 – Basis of Presentation for further discussion.

See notes to consolidated financial statements.

1 unchanged sentence

Consolidated Balance Sheets

September 30, December 31,

March 31, December 31,

(millions — except per share amounts) 2023 2022 2022

36 unchanged sentences

Loss and loss adjustment expense reserves 31,026.4 26,754.2 30,359.3

Net federal deferred income taxes 0 110.7 152.9

Accounts payable, accrued expenses, and other liabilities 6,278.7 6,747.2 5,532.8

21 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

Three Months Nine Months

Periods Ended September 30, 2022 2021 2022 2021

Three Months Ended March 31, 2023 2022

(millions — except per share amounts)

16 unchanged sentences

Balance, beginning of period 15,721.2 15,339.7

Net income (loss) 124.1 118.5 ( 104.9 ) 2,388.6

Net income 447.9 313.9

Treasury shares purchased ( 31.7 ) ( 27.6 )

1 unchanged sentence

( 58.5 ) ( 58.4 )

Cash dividends declared on Serial Preferred Shares, Series B ($ 26.875 , $ 26.875 , $ 26.875 , and $ 26.875 per share)

( 13.4 ) ( 13.4 ) ( 13.4 ) ( 13.4 )

Reinvested dividends on restricted stock units ( 0.3 ) 0

11 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 2021

Three Months Ended March 31, 2023 2022

Cash Flows From Operating Activities

Net income (loss) $ ( 104.9 ) $ 2,388.6

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 447.9 $ 313.9

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 68.0 71.1

Amortization of intangible assets 5.4 14.6

Net amortization of fixed-income securities 1.6 97.2

Net amortization (accretion) of fixed-income securities ( 5.0 ) 27.0

Amortization of equity-based compensation 15.9 17.3

1 unchanged sentence

Net (gains) losses on disposition of property and equipment 16.5 3.3

Goodwill impairment 224.8 0

Premiums receivable ( 1,994.5 ) ( 1,119.5 )

17 unchanged sentences

Net (purchases) sales of short-term investments 360.8 413.1

Net unsettled security transactions ( 68.7 ) 304.2

Acquisition of Protective Insurance Corporation, net of cash, cash equivalents, and restricted cash equivalents acquired 0 ( 313.2 )

Net change in unsettled security transactions 57.2 212.6

Purchases of property and equipment ( 43.2 ) ( 73.0 )

5 unchanged sentences

Acquisition of treasury shares for restricted stock tax liabilities ( 32.7 ) ( 28.7 )

Acquisition of treasury shares acquired in open market ( 2.4 ) ( 100.3 )

Net proceeds from debt issuances 0 1,486.0

Payment of acquired company debt 0 ( 20.0 )

Payments of debt 0 ( 500.0 )

Net cash provided by (used in) financing activities ( 104.6 ) 1,385.4

1 unchanged sentence

Cash, cash equivalents, restricted cash, and restricted cash equivalents – January 1 220.9 202.1

Cash, cash equivalents, restricted cash, and restricted cash equivalents – September 30

Cash, cash equivalents, restricted cash, and restricted cash equivalents – March 31

$ 288.6 $ 287.3

2 unchanged sentences

Notes to Consolidated Financial Statements

Note 1 Basis of Presentation — The accompanying consolidated financial statements include the accounts of The Progressive Corporation, our wholly owned insurance and non-insurance subsidiaries, and affiliates in which we have a controlling financial interest (Progressive).

BASIS OF REPORTING AND ACCOUNTING

The accompanying consolidated financial statements include the accounts of The Progressive Corporation, our wholly owned insurance and non-insurance subsidiaries and affiliates in which we have a controlling financial interest (Progressive).

The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented.

The results of operations for the period ended September 30, 2022, are not necessarily indicative of the results expected for the full year.

The results of operations for the period ended March 31, 2023, are not necessarily indicative of the results expected for the full year.

These consolidated financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report to Shareholders).

3 unchanged sentences

The following table summarizes changes in our allowance for credit loss exposure on our premiums receivable:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(millions) 2023 2022

Allowance for credit losses, beginning of period $ 343.3 $ 280.4

Allowance acquired during period 1

Increase in allowance 1

( 119.3 ) ( 98.1 )

( 101.7 ) ( 95.1 ) ( 306.0 ) ( 357.9 )

Allowance for credit losses, end of period $ 340.9 $ 276.2

1 Represents the amount of the allowance acquired in the Protective Insurance Corporation and subsidiaries (Protective Insurance) acquisition.

1 Represents the incremental increase in other underwriting expenses.

3 Represents portion of allowance that is reversed when premiums receivable are written off.

2 Represents the portion of allowance that is reversed when premiums receivable are written off.

Premiums receivable balances are written off once we have exhausted our collection efforts.

Property and Equipment

Other assets on the consolidated balance sheets include certain long-lived assets that are considered “ held for sale.

” The carrying value of these held-for-sale assets was $ 47.4 million at September 30, 2022, $ 12.6 million at September 30, 2021, and $ 10.8 million at December 31, 2021.

Goodwill and Intangible Assets

We evaluate goodwill for impairment using a qualitative or quantitative approach annually and when changes in circumstances indicate the carrying value of certain portions of goodwill may not be recoverable.

See Note 12 – Goodwill and Intangible Assets for further discussion.

Earnings per Common Share

When a net loss is reported, earnings per common share are calculated using basic average equivalent shares since diluted earnings per share would be antidilutive given the net loss reported for the period.

Amounts are reported on a diluted basis for all other periods presented.

Note 2 Investments — The following tables present the composition of our investment portfolio by major security type.

Included in other assets in the consolidated balance sheets are “held for sale” property.

When property is transferred to held for sale, the property is written down to its fair value less estimated costs to sell the property.

At March 31, 2023 and 2022, and December 31, 2022, we had held for sale property of $ 67.8 million, $ 20.2 million, and $ 48.7 million, respectively.

Earnings Per Share

Net income is reduced by preferred share dividends to determine net income available to common shareholders, and is used in our calculation of the per common share amounts.

Beginning March 15, 2023, the annual dividend rate for our Series B Preferred Shares switched to a floating rate.

The floating nature of the dividend rate will impact the amount of the adjustment required to calculate net income available to common shareholders.

See Note 9 – Dividends for further discussion.

New Accounting Standards

During the first quarter 2023, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU), which permits an election to amortize the cost of tax equity investments to the provision for income taxes if certain conditions are met.

Currently, these investments are accounted for under the equity method of accounting.

This ASU will be effective for fiscal years (including interim periods within those fiscal years) beginning after December 15, 2023 (2024 for calendar-year companies).

If elected, this standard must be applied on either a modified retrospective or a retrospective basis.

We are still evaluating whether we will elect this new standard, however, we do not expect this standard to have a material impact on our financial position or results of operations

The following tables present the composition of our investment portfolio by major security type.

Our securities are reported in our consolidated balance sheets at fair value.

The changes in fair value for our fixed-maturity securities (other than hybrid securities) are reported as a component of accumulated other comprehensive income (loss), net of deferred income taxes, in our consolidated balance sheets.

The net holding period gains (losses) reported below represent the inception-to-date changes in fair value of the securities.

The changes in the net holding period gains (losses) between periods for the hybrid securities and equity securities are recorded as a component of net realized gains (losses) on securities in our consolidated statements of comprehensive income.

balance sheets.

The net holding period gains (losses) reported below represent the inception-to-date changes in fair value for the hybrid and equity securities.

The changes in the net holding period gains (losses) between periods are recorded as a component of net realized gains (losses) on securities in our consolidated statements of comprehensive income.

($ in millions) Cost Gross

(Losses) Fair

September 30, 2022

March 31, 2023

Available-for-sale securities:

19 unchanged sentences

(Losses) Fair

September 30, 2021

March 31, 2022

Available-for-sale securities:

39 unchanged sentences

$ 55,316.0 $ 13.9 $ ( 3,551.5 ) $ 1,769.9 $ 53,548.3 100.0 %

1 Includes $ 74.7 million, $ 399.7 million, and $ 143.4 million of net unsettled security purchase transactions at September 30, 2022 and 2021, and December 31, 2021, respectively, with the offsetting payable included in other liabilities.

The total fair value of the portfolio at September 30, 2022 and 2021, and December 31, 2021, included $ 4.2 billion, $ 2.9 billion, and $ 4.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.

At September 30, 2022, bonds and certificates of deposit in the principal amount of $ 468.7 million were on deposit to meet state insurance regulatory requirements.

1 At March 31, 2023 and 2022, we had $ 22.8 million and $ 356.0 million, respectively, of net unsettled security purchase transactions included in other liabilities, compared to $ 34.4 million included in other assets at December 31, 2022.

The total fair value of the portfolio at March 31, 2023 and 2022, and December 31, 2022, included $ 4.1 billion, $ 5.1 billion, and $ 4.4 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.

At March 31, 2023, bonds and certificates of deposit in the principal amount of $ 604.4 million were on deposit to meet state insurance regulatory requirements.

We did no t hold any securities of any one issuer, excluding U.S.

government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at September 30, 2022 or 2021, or December 31, 2021.

At September 30, 2022, we did no t hold any debt securities that were non-income producing during the preceding 12 months.

government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at March 31, 2023 or 2022, or December 31, 2022.

At March 31, 2023, we did no t hold any debt securities that were non-income producing during the preceding 12 months.

Short-Term Investments Our short-term investments may include commercial paper and other investments that are expected to mature or are redeemable within one year.

We invested in repurchase and reverse repurchase transactions during 2022 and 2021, but did no t have any open positions at September 30, 2022 and 2021, or December 31, 2021.

We did not enter into any repurchase or reverse repurchase transactions during the first quarter 2023, but did invest in repurchase transactions during 2022;

however, we did no t have any open positions at March 31, 2023 and 2022, or December 31, 2022.

To the extent we enter into repurchase or reverse repurchase transactions, consistent with past practice, we would elect not to offset these transactions and would report them on a gross basis in our consolidated balance sheets, despite the option to elect to offset these transactions as long as they were with the same counterparty and subject to an enforceable master netting arrangement.

1 unchanged sentence

These securities are reported at fair value:

September 30,

(millions) 2022 2021 December 31, 2021

(millions) 2023 2022 Dec.

Fixed Maturities:

4 unchanged sentences

Total hybrid securities $ 1,197.3 $ 1,484.6 $ 1,221.7

Since the embedded derivatives (e.g., change-in-control put option, debt-to-equity conversion, or any other feature unrelated to the credit quality or risk of default of the issuer that could impact the amount or timing of our expected future cash flows) do not have observable intrinsic values, we have elected to record the changes in fair value of these securities through income as a component of net realized gains or losses.

Fixed Maturities The composition of fixed maturities by maturity at September 30, 2022, was:

Since the embedded derivatives (e.g., change-in-control put option, debt-to-equity conversion, or any other feature unrelated to the credit quality or risk of default of the issuer that could impact the amount or timing of our expected future cash flows) do not have observable intrinsic values, we use the fair value option to record the changes in fair value of these securities through income as a component of net realized gains or losses.

Fixed Maturities The composition of fixed maturities by maturity at March 31, 2023, was:

(millions) Cost Fair Value

12 unchanged sentences

Value Unrealized

September 30, 2022

March 31, 2023

government obligations 148 $ 19,446.8 $ ( 1,209.6 ) 40 $ 5,938.5 $ ( 127.5 ) 108 $ 13,508.3 $ ( 1,082.1 )

11 unchanged sentences

Value Unrealized

September 30, 2021

March 31, 2022

government obligations 116 $ 18,478.0 $ ( 876.7 ) 97 $ 15,467.4 $ ( 649.4 ) 19 $ 3,010.6 $ ( 227.3 )

State and local government obligations 290 1,767.7 ( 97.1 ) 279 1,627.3 ( 82.1 ) 11 140.4 ( 15.0 )

Foreign government obligations 1 17.4 ( 0.9 ) 1 17.4 ( 0.9 ) 0 0 0

Corporate debt securities 416 7,830.6 ( 315.5 ) 407 7,623.8 ( 294.2 ) 9 206.8 ( 21.3 )

11 unchanged sentences

State and local government obligations 348 1,948.8 ( 202.9 ) 239 1,124.2 ( 76.8 ) 109 824.6 ( 126.1 )

Foreign government obligations 1 15.5 ( 1.3 ) 0 0 0 1 15.5 ( 1.3 )

Corporate debt securities 422 8,449.6 ( 676.1 ) 285 5,717.6 ( 426.1 ) 137 2,732.0 ( 250.0 )

4 unchanged sentences

Total fixed maturities 1,468 $ 44,315.9 $ ( 3,551.5 ) 873 $ 28,119.4 $ ( 1,505.0 ) 595 $ 16,196.5 $ ( 2,046.5 )

The increase in the number of securities in an unrealized loss position since both September 30, 2021 and December 31, 2021, was primarily the result of an increase in interest rates.

As of September 30, 2022, we had five corporate debt securities that had their credit ratings downgraded during the quarter, with a combined fair value of $ 99.3 million and an unrealized loss of $ 23.7 million.

As of March 31, 2023, we had four securities that had their credit ratings downgraded during the quarter, with a combined fair value of $ 28.8 million and an unrealized loss of $ 1.7 million.

A review of the securities in an unrealized loss position indicated that the issuers were current with respect to their interest obligations and that there was no evidence of deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity.

Allowance For Credit and Uncollectible Losses We are required to measure the amount of potential credit losses for all fixed-maturity securities in an unrealized loss position.

We did no t record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible during the first nine months of 2022 or 2021, and did no t have a material credit loss allowance balance as of September 30, 2022 and 2021, or December 31, 2021.

We did no t record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible during the first three months of 2023 or 2022, and did no t have a material credit loss allowance balance as of March 31, 2023 and 2022, or December 31, 2022.

We considered several factors and inputs related to the individual securities as part of our analysis.

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If we were likely to, or intended to, sell prior to a potential recovery, we would write off the unrealized loss.

For those securities that we determined we were not likely to, or did not intend to, sell prior to a potential recovery, we calculated the net present value (NPV) of the cash flows expected (i.e., expected recovery value) using the current book yield for each security.

For those securities that we determined we were not likely to, or did not intend to, sell prior to a potential recovery, we

performed additional analysis to determine if the loss was credit related.

For securities subject to credit related loss, we calculated the net present value (NPV) of the cash flows expected (i.e., expected recovery value) using the current book yield for each security.

The NPV was then compared to the security’s current amortized value to determine if a credit loss existed.

In the event that the NPV was below the amortized value, and the amount was determined to be material individually, or in aggregate, a credit loss would be deemed to exist, and either an allowance for credit losses would be created, or if an allowance currently existed, either a recovery of the previous allowance, or an incremental loss, would be recorded to net realized gains (losses) on securities.

As of September 30, 2022 and 2021, and December 31, 2021, we believe none of the unrealized losses relate to material credit losses on any specific securities, or in the aggregate.

As of March 31, 2023 and 2022, and December 31, 2022, we believe none of the unrealized losses were related to material credit losses on any specific securities, or in the aggregate.

We continue to expect all the securities in our portfolio to pay their principal and interest obligations.

In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at September 30, 2022 and 2021, and December 31, 2021, to determine if the accrued interest amounts were determined to be uncollectible.

Based on our analysis, we believe the issuers have sufficient liquidity and capital reserves to meet their current interest, and future principal, obligations and, therefore, did no t write off any accrued income as uncollectible at September 30, 2022 and 2021, or December 31, 2021.

Realized Gains (Losses) The components of net realized gains (losses) for the three and nine months ended September 30, were:

Three Months Nine Months

In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at March 31, 2023 and 2022, and December 31, 2022, to determine if the accrued interest amounts were determined to be uncollectible.

Realized Gains (Losses) The components of net realized gains (losses) for the three months ended March 31, were:

(millions) 2023 2022

2 unchanged sentences

government obligations $ 3.8 $ 3.3

State and local government obligations 0 6.0 0 50.3

Corporate and other debt securities 0.3 23.6 6.8 84.4

Corporate debt securities 0.1 4.5

Residential mortgage-backed securities 0 0.1

Commercial mortgage-backed securities 0 1.4 0 40.7

Other asset-backed securities 0 0.1

Redeemable preferred stocks 0 0 0 1.5

Total available-for-sale securities 3.9 8.0

8 unchanged sentences

State and local government obligations 0 ( 1.0 )

Corporate and other debt securities ( 14.0 ) ( 0.7 ) ( 51.8 ) ( 6.1 )

Residential mortgage-backed securities 0 ( 0.3 ) 0 ( 0.3 )

Corporate debt securities ( 20.4 ) ( 7.7 )

Commercial mortgage-backed securities ( 34.5 ) 0

11 unchanged sentences

State and local government obligations 0 ( 1.0 )

Corporate and other debt securities ( 13.7 ) 22.9 ( 45.0 ) 78.3

Corporate debt securities ( 20.3 ) ( 3.2 )

Residential mortgage-backed securities 0 0.1

1 unchanged sentence

Other asset-backed securities ( 0.2 ) 0

Redeemable preferred stocks 0 0 0 1.5

Short-term investments ( 0.1 ) 0

5 unchanged sentences

Subtotal net realized gains (losses) on security sales ( 43.5 ) ( 54.5 )

Impairment ( 2.3 ) ( 2.2 )

Subtotal net realized gains (losses) on other assets 10.9 ( 2.2 )

Net holding period gains (losses)

2 unchanged sentences

Subtotal net holding period gains (losses) 104.4 ( 388.6 )

Other asset impairment ( 2.2 ) ( 1.2 ) ( 6.5 ) ( 3.7 )

Total net realized gains (losses) on securities $ 71.8 $ ( 445.3 )

Realized gains (losses) on securities sold are computed using the first-in-first-out method.

The loss from the fixed-maturity sales reflected the continued rise in interest rates throughout 2022, which resulted in valuation declines for most of our available-for-sale securities.

The majority of the sales in the fixed-maturity portfolio during the first nine months of 2022 were from U.S.

Treasuries, which were sold to shorten duration.

During the third quarter 2022, we selectively sold securities, which were primarily commercial mortgage-backed securities.

During the first nine months of 2022, we sold common equity securities, which were in a realized gain position, as part of our plan to incrementally reduce risk in the portfolio in response to the likelihood of a more difficult economic environment over the near term.

The other asset impairment loss was recorded as a result of our investment in a federal new markets tax credit fund, which was entered into during the second quarter 2021, and reported in other assets in the consolidated balance sheets.

For the first three months of 2023, the gross gains in common equities reflected sales of securities, as part of our plan to incrementally reduce risk in the portfolio in response to the potential of a more difficult economic environment over the near term.

The gross loss from the fixed-maturity sales reflected the continued rise in interest rates throughout 2022, which resulted in valuation declines for most of our available-for-sale securities.

In addition, during the first quarter 2023, we selectively sold securities, which were primarily corporate debt securities and commercial

mortgage-backed securities.

The gross loss incurred in our nonredeemable preferred stocks is primarily related to the sale of certain of our holdings in U.

bank preferred stocks.

The other asset gain for 2023, related to proceeds received as the result of litigation in conjunction with three renewable energy investments we made from 2016 through 2018 (the original investments were previously written down in full).

The other asset impairment loss was recorded as a result of our investment in a federal new markets tax credit fund, which was entered into during the second quarter 2021, and is reported in other assets in the consolidated balance sheets.

The following table reflects our holding period realized gains (losses) recognized on equity securities held at the respective quarter ends:

Three Months Nine Months

(millions) 2023 2022

2 unchanged sentences

Net holding period gains (losses) recognized during the period on equity securities held at period end $ 90.5 $ ( 349.6 )

Net Investment Income The components of net investment income for the three and nine months ended September 30, were:

Three Months Nine Months

Net Investment Income The components of net investment income for the three months ended March 31, were:

(millions) 2023 2022

19 unchanged sentences

Net investment income $ 414.1 $ 236.5

On a year-over-year basis for the three and nine months ended September 30, 2022, investment income (interest and dividends) increased 60 % and 36 %, respectively, compared to the same periods last year, primarily due to an increase in interest rates on floating-rate securities in our portfolio and purchases of new investments with higher coupon rates.

The recurring investment book yield increased 39 % for the third quarter 2022 and 16 % for the first nine months of 2022, compared to the same periods in 2021, reflecting investing new cash and cash from maturities in higher interest rate securities given the rising interest rate environment.

Note 3 Fair Value — We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, into a fair value hierarchy of three levels, as follows:

On a year-over-year basis, investment income (interest and dividends) increased 73 % and the recurring investment book yield increased 50 %, compared to the same periods last year, primarily due to an increase in interest rates on

floating-rate securities in our portfolio and investing new cash and cash from maturities in higher interest rate securities given the rising interest rate environment.

We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, into a fair value hierarchy of three levels, as follows:

Inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S.

2 unchanged sentences

This includes:

(i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

(i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are

observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Inputs that are unobservable.

1 unchanged sentence

Determining the fair value of the investment portfolio is the responsibility of management.

As part of the responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio.

As part of that responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio.

We review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances exist to create an active market.

2 unchanged sentences

(millions) Level 1 Level 2 Level 3 Total Cost

September 30, 2022

March 31, 2023

Fixed maturities:

31 unchanged sentences

(millions) Level 1 Level 2 Level 3 Total Cost

September 30, 2021

March 31, 2022

Fixed maturities:

67 unchanged sentences

These securities are held at their original cost, adjusted for any accretion of discount, since that value very closely approximates what an active market participant would be willing to pay for such securities.

The remainder of our short-term investments are classified as Level 2 and are not priced externally since these securities continually trade at par value.

The remainder of our short-term investments are classified as Level 2 and are not priced

externally since these securities continually trade at par value.

These securities are classified as Level 2 since they are primarily longer-dated securities issued by municipalities that contain either liquidity facilities or mandatory put features within one year.

At September 30, 2022, vendor-quoted prices represented 90 % of our Level 1 classifications (excluding short-term investments), compared to 82 % and 79 % at September 30, 2021 and December 31, 2021, respectively.

At March 31, 2023, vendor-quoted prices represented 91 % of our Level 1 classifications (excluding short-term investments), compared to 81 % and 90 % at March 31, 2022 and December 31, 2022, respectively.

The securities quoted by vendors in Level 1 primarily represent our holdings in U.S.

Treasury Notes, which are frequently traded, and the quotes are considered similar to exchange-traded quotes.

The balance of our Level 1 pricing comes from quotes obtained directly from trades made on active exchanges.

At both September 30, 2022 and December 31, 2021, vendor-quoted prices comprised 98 % of our Level 2 classifications (excluding short-term investments and common stock), while dealer-quoted prices represented the remaining 2 %, compared to 97 % and 3 % at September 30, 2021.

The balance of our Level 1 pricing comes

from quotes obtained directly from trades made on active exchanges.

At both March 31, 2023 and December 31, 2022, vendor-quoted prices comprised 98 % of our Level 2 classifications (excluding short-term investments and common stock), while dealer-quoted prices represented the remaining 2 %, compared to 97 % and 3 % at March 31, 2022.

In our process for selecting a source (e.g., dealer or pricing service) to provide pricing for securities in our portfolio, we reviewed documentation from the sources that detailed the pricing techniques and methodologies used by these sources and determined if their policies adequately considered market activity, either based on specific transactions for the particular security type or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted.

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We compare our internally generated portfolio results with those generated based on quotes we receive externally and research material valuation differences.

We compare our results to index returns for each major sector adjusting for duration and credit quality differences to better understand our portfolio’s results.

We compare our results to index returns for each major sector adjusting for duration and credit quality differences to better understand

our portfolio’s results.

Additionally, we review on a monthly basis our external sales transactions and compare the actual final market sales prices to previous market valuation prices.

12 unchanged sentences

Since these securities represent less than 0.1% of our total portfolio, we will continue to include them in our Level 3 disclosures and report the activity from these investments as “other” changes in the summary of changes in fair value table and categorize these securities as “pricing exemption securities” in the quantitative information table.

The Level 3 common stock held at September 30, 2021 was transferred to Level 2 at December 31, 2021.

At September 30, 2022 and 2021, and December 31, 2021, we did no t have any securities in our fixed-maturity portfolio listed as Level 3.

Other than goodwill, during the third quarter and first nine months of 2022 and 2021, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

During the second quarter 2022, we determined that the fair value of the goodwill related to our ARX Holding Corp.

( ARX) reporting unit was less than the carrying value and we wrote down $ 224.8 million of our total goodwill asset.

See Note 12 – Goodwill and Intangible Assets for further discussion.

The Level 2 common stock held at March 31, 2022 was transferred to Level 3 at December 31, 2022.

At March 31, 2023 and 2022, and December 31, 2022, we did no t have any securities in our fixed-maturity portfolio listed as Level 3.

During the first three months of 2023 and 2022, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

Due to the relative size of the Level 3 securities’ fair values compared to the total portfolio’s fair value, any changes in pricing methodology would not have a significant change in valuation that would materially impact net or comprehensive income.

The following tables provide a summary of changes in fair value associated with Level 3 assets for the three and nine months ended September 30, 2022 and 2021:

Level 3 Fair Value

(millions) Fair Value at June 30, 2022 Calls/

Paydowns/Other Purchases Sales Net Realized

on Sales Change in

Valuation Net

In (Out) Fair Value at September 30, 2022

Equity securities:

Nonredeemable preferred stocks:

$ 64.9 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 64.9

17.0 0 0 0 0 0 0 17.0

Common equities:

Other risk investments 18.5 0.2 0 0 0 0 0 18.7

Total Level 3 securities

$ 100.4 $ 0.2 $ 0 $ 0 $ 0 $ 0 $ 0 $ 100.6

Level 3 Fair Value

(millions) Fair Value at June 30, 2021 Calls/

Paydowns/Other Purchases Sales Net Realized

on Sales Change in

Valuation Net

In (Out) Fair Value at September 30, 2021

Equity securities:

Nonredeemable preferred stocks:

$ 76.4 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 76.4

34.4 0 0 0 0 0 0 34.4

Common equities:

Common stocks 52.5 0 2.0 0 0 0 0 54.5

Other risk investments 11.6 1.0 0 0 0 0 0 12.6

Total Level 3 securities

$ 174.9 $ 1.0 $ 2.0 $ 0 $ 0 $ 0 $ 0 $ 177.9

The following tables provide a summary of changes in fair value associated with Level 3 assets for the three months ended March 31, 2023 and 2022:

Level 3 Fair Value

4 unchanged sentences

Valuation Net

In (Out) Fair Value at September 30, 2022

In (Out) Fair Value at March 31, 2023

Equity securities:

3 unchanged sentences

Common equities:

Common stocks 18.3 0 0 0 0 0 0 18.3

Other risk investments 19.8 0.5 0 0 0 0 0 20.3

6 unchanged sentences

Valuation Net

In (Out) Fair Value at September 30, 2021

In (Out) Fair Value at March 31, 2022

Equity securities:

3 unchanged sentences

Common equities:

Common stocks 25.0 0 2.0 0 0 27.5 0 54.5

Other risk investments 16.9 3.2 0 0 0 0 0 20.1

1 unchanged sentence

$ 127.7 $ 2.7 $ 0 $ ( 15.0 ) $ ( 17.2 ) $ 17.2 $ 0 $ 115.4

The following tables provide a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at September 30, 2022 and 2021, and December 31, 2021:

The following tables provide a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at March 31, 2023 and 2022, and December 31, 2022:

Quantitative Information about Level 3 Fair Value Measurements

($ in millions) Fair Value at September 30, 2022 Valuation Technique Unobservable Input Range of Input Values Increase (Decrease) Weighted Average Increase (Decrease)

($ in millions) Fair Value at March 31, 2023 Valuation Technique Unobservable Input Range of Input Values Increase (Decrease) Weighted Average Increase (Decrease)

Equity securities:

Nonredeemable preferred stocks $ 83.8 Market comparables Weighted average market capitalization price change % 2.7 % to 23.3 %

Common stocks 18.3 Market comparables Weighted average market capitalization price change % ( 51.3 )% to 48.3 %

Subtotal Level 3 securities 102.1

2 unchanged sentences

Quantitative Information about Level 3 Fair Value Measurements

($ in millions) Fair Value at September 30, 2021 Valuation Technique Unobservable Input Range of Input Values Increase (Decrease) Weighted Average Increase (Decrease)

($ in millions) Fair Value at March 31, 2022 Valuation Technique Unobservable Input Range of Input Values Increase (Decrease) Weighted Average Increase (Decrease)

Equity securities:

Nonredeemable preferred stocks $ 95.3 Market comparables Weighted average market capitalization price change % ( 27.9 )% to ( 12.7 )%

Common stocks 54.5 Market comparables Weighted average market capitalization price change % ( 1.6 )% to 55.8 %

Subtotal Level 3 securities 95.3

6 unchanged sentences

Nonredeemable preferred stocks $ 83.8 Market comparables Weighted average market capitalization price change % ( 0.6 )% to 19.9 %

Common stocks 18.3 Market comparables Weighted average market capitalization price change % ( 42.5 )% to 59.1 %

Subtotal Level 3 securities 102.1

1 unchanged sentence

Total Level 3 securities $ 121.9

Note 4 Debt — Debt at each of the balance sheet periods consisted of:

September 30, 2022 September 30, 2021 December 31, 2021

Debt at each of the balance sheet periods consisted of:

March 31, 2023 March 31, 2022 December 31, 2022

(millions) Carrying

41 unchanged sentences

Total $ 6,389.3 $ 5,881.0 $ 6,385.6 $ 6,692.6 $ 6,388.3 $ 5,717.9

The Progressive Corporation issued $ 500 million of 2.50 % Senior Notes due 2027, $ 500 million of 3.00 % Senior Notes due 2032, and $ 500 million of 3.70 % Senior Notes due 2052 in March 2022, in an underwritten public offering.

The net proceeds from the issuances, after deducting underwriters’ discounts, commissions, and other issuance costs, were approximately $ 1,486.0 million in aggregate.

Consistent with the other senior notes issued by Progressive, interest on these notes is payable semiannually, principal is due at maturity, and the notes are redeemable, in whole or in part, at any time, subject to a treasury “make whole” provision.

There was no short-term debt outstanding at September 30, 2022 and 2021, and December 31, 2021.

The Progressive Corporation has a line of credit with PNC Bank, National Association (PNC), in the maximum principal amount of $ 250 million, which has the same terms as the line of credit with PNC that expired in April 2022.

There was no short-term debt outstanding at March 31, 2023 and 2022, and December 31, 2022.

The Progressive Corporation has a line of credit with PNC Bank, National Association (PNC), in the maximum principal amount of $ 250 million.

See the 2022 Annual Report to Shareholders for a discussion of the terms of this line of credit.

We had no borrowings under the line of credit during the periods presented.

Note 5 Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates.

Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates.

We review our deferred tax assets regularly for recoverability.

At September 30, 2022 and 2021, and December 31, 2021, we determined that we did no t need a valuation allowance on our gross deferred tax assets.

At March 31, 2023 and 2022, and December 31, 2022, we determined that we did no t need a valuation allowance on our gross deferred tax assets.

Although realization of the deferred tax assets is not assured, management believes that it is more likely than not the deferred tax assets will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.

For the nine months ended September 30, 2022, there have been no material changes in our reserve for uncertain tax positions.

The effective tax rate for the three and nine months ended September 30, 2022, was 12.9 % and ( 1.6 )%, respectively, compared to 14.7 % and 20.5 % for the same periods last year.

The difference between our effective tax rate and the statutory rate, for the three months ended September 30, 2022 and 2021, and the nine months ended September 30, 2022, is primarily driven by the low amount of income (loss) before taxes during those periods.

The provision for income taxes differed from the statutory rate as follows:

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

Income (loss) before income taxes $ 142.5 $ 139.0 $ ( 103.2 ) $ 3,006.1

Tax at statutory federal rate $ 29.9 21.0 % $ 29.2 21.0 % $ ( 21.7 ) 21.0 % $ 631.3 21.0 %

Tax effect of:

Goodwill impairment 0 0 0 0 47.2 ( 45.7 ) 0 0

Stock-based compensation ( 9.6 ) ( 6.7 ) ( 7.9 ) ( 5.7 ) ( 17.7 ) 17.2 ( 19.2 ) ( 0.6 )

State income taxes, net of federal taxes 4.5 3.2 5.5 4.0 9.7 ( 9.4 ) 17.7 0.6

Tax-preferenced investment income ( 2.8 ) ( 2.0 ) ( 3.3 ) ( 2.4 ) ( 9.5 ) 9.2 ( 10.0 ) ( 0.3 )

Tax credits ( 5.2 ) ( 3.6 ) ( 3.7 ) ( 2.7 ) ( 9.4 ) 9.1 ( 6.1 ) ( 0.2 )

Nondeductible compensation expense 1.8 1.3 1.9 1.4 5.4 ( 5.2 ) 5.6 0.2

Tax deductible dividends ( 0.4 ) ( 0.3 ) ( 0.5 ) ( 0.4 ) ( 1.4 ) 1.4 ( 1.6 ) ( 0.1 )

Other items, net 0.2 0 ( 0.7 ) ( 0.5 ) ( 0.9 ) 0.8 ( 0.2 ) ( 0.1 )

Total income tax provision $ 18.4 12.9 % $ 20.5 14.7 % $ 1.7 ( 1.6 ) % $ 617.5 20.5 %

Note 6 Loss and Loss Adjustment Expense Reserves — Activity in the loss and loss adjustment expense reserves is summarized as follows:

September 30,

At March 31, 2023 and 2022, and December 31, 2022, the net deferred tax asset includes a gross deferred tax asset of $ 582.6 million, $ 364.3 million,

and $ 742.9 million, respectively, related to unrealized losses on fixed-maturity securities.

We believe this deferred tax asset will be realized based on the existence of prior year capital gains, current temporary differences related to unrealized gains in our equity portfolio, and other tax planning strategies.

At March 31, 2023 and 2022, and December 31, 2022, we had no reserves for uncertain tax positions.

The effective tax rate for the three months ended March 31, 2023, was 19.2 %, compared to 19.6 % for the same period last year.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Activity in the loss and loss adjustment expense reserves is summarized as follows:

(millions) 2023 2022

2 unchanged sentences

Net balance at January 1 24,800.1 21,430.5

Net loss and loss adjustment expense reserves acquired 1

Total beginning reserves 21,430.5 17,200.1

Incurred related to:

6 unchanged sentences

Total paid 9,698.8 8,293.1

Net balance at September 30

Net balance at March 31

25,725.3 21,995.8

Plus reinsurance recoverables on unpaid losses 5,301.1 4,758.4

Balance at September 30

Balance at March 31

$ 31,026.4 $ 26,754.2

1 Net reserves acquired in the Protective Insurance acquisition.

We experienced unfavorable reserve development of $ 52.8 million and $ 156.8 million during the first nine months of 2022 and 2021, respectively, which is reflected as “incurred related to prior years ” in the table above.

Year-to-date September 30, 2022

• The unfavorable prior year reserve development included approximately $ 45 million attributable to accident year 2021 and $ 29 million to 2019 and prior accident years, partially offset by $ 21 million favorable development attributable to accident year 2020.

• Our personal auto products incurred about $ 28 million of favorable loss and loss adjustment expense (LAE) reserve development, with about $ 25 million attributable to the Direct business.

The favorable development was primarily attributable to more subrogation and salvage recoveries and lower loss adjustment expenses than originally anticipated, partially offset by higher than anticipated severity and frequency of auto property damage payments on previously closed claims and late reported injury claims.

• Our Commercial Lines business experienced about $ 77 million of unfavorable development, primarily due to higher than anticipated severity of injury case reserves and higher than anticipated severity and frequency of late reported claims in our transportation network company business.

• Our Property business experienced minimal unfavorable prior accident year development, which was almost completely offset by minimal favorable development in our special lines products.

Year-to-date September 30, 2021

• The unfavorable prior year reserve development included $ 109 million attributable to accident year 2019 and $ 113 million to 2018 and prior accident years, partially offset by favorable development attributable to accident year 2020.

• Our personal auto products incurred $ 48 million of unfavorable loss and LAE reserve development, with about $ 44 million attributable to the Agency business.

The unfavorable development was primarily attributable to a higher than anticipated frequency of reopened personal injury protection claims, primarily in Florida, and higher than anticipated bodily injury severity, partially offset by less late reported claims than anticipated for accident year 2020 and lower adjusting expenses than anticipated.

• Our Commercial Lines business experienced $ 91 million of unfavorable development, primarily due to increased injury severity and the emergence of large injury claims, at rates higher than originally anticipated, primarily in Texas and Florida.

• Our Property business experienced $ 31 million of unfavorable development, primarily due to higher than anticipated severity and reopened claims activity in Florida.

• Our special lines products experienced about $ 12 million of favorable development.

Note 7 Supplemental Cash Flow Information — Cash and cash equivalents include bank demand deposits and daily overnight reverse repurchase commitments of funds held in bank demand deposit accounts by certain subsidiaries.

The amount of reverse repurchase commitments, which are not considered part of the investment portfolio, held by these subsidiaries at September 30, 2022 and 2021, and December 31, 2021, were $ 123.0 million, $ 134.6 million, and $ 137.1 million, respectively.

Restricted cash and cash equivalents include collateral held against unpaid deductibles and cash that is restricted to pay flood claims under the National Flood Insurance Program’s “Write Your Own” program, for which certain subsidiaries are administrators.

We experienced unfavorable reserve development of $ 621.2 million and $ 190.8 million during the first three months of 2023 and 2022, respectively, which is reflected as “incurred related to prior years ” in the table above.

First Quarter 2023

• The unfavorable prior year reserve development included approximately $ 498 million attributable to accident year 2022, $ 30 million to accident year 2021, and the remainder to accident years 2020 and prior.

• Our personal auto products incurred about $ 428 million of unfavorable loss and loss adjustment expense (LAE) reserve development, with the Agency and Direct auto businesses each contributing about half.

The unfavorable development was primarily attributable to higher than anticipated severity in auto property and physical damage coverages, higher than anticipated late reported injury claims, and, to a lessor extent, increased loss costs in Florida injury and medical coverages in small part due to the impact of the legislation enacted in March 2023 in Florida.

• Our Commercial Lines business experienced about $ 144 million of unfavorable development, primarily due to higher than anticipated severity of injury case reserves and higher than anticipated severity and frequency of late reported injury claims.

• Our Property business experience d $ 42 million of unfavorable development, primarily from higher than anticipated claims expenses and higher than anticipated severity in our homeowner liability peril and umbrella products.

First Quarter 2022

• The unfavorable prior year reserve development included $ 146 million attributable to accident year 2021, $ 23 million to accident year 2020, and the remainder to accident years 2019 and prior.

• Our personal auto products incurred about $ 106 million of unfavorable loss and LAE reserve development, with the Agency and Direct auto businesses each contributing about half.

The unfavorable development was primarily attributable to higher than anticipated severity of auto property damage payments on previously closed claims.

• Our Commercial Lines business experienced about $ 99 million of unfavorable development, primarily due to injury claims settling at costs higher than originally anticipated.

• Our Property business experienced about $ 16 million of favorable development, primarily attributable to lower losses than anticipated on 2021 catastrophe events.

• Our special lines products experienced about $ 2 million of unfavorable development.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash and cash equivalents include bank demand deposits and daily overnight reverse repurchase commitments of funds held in bank demand deposit accounts by certain subsidiaries.

The amount of reverse repurchase commitments, which are not considered part of the investment portfolio, held by these subsidiaries at

March 31, 2023 and 2022, and December 31, 2022, were $ 177.5 million, $ 152.2 million, and $ 125.9 million, respectively.

Restricted cash and cash equivalents include collateral held against unpaid deductibles and cash that is restricted to pay flood claims under the National Flood

Insurance Program’s “Write Your Own” program, for which certain subsidiaries are participants.

Non-cash activity included the following in the respective periods:

Nine Months Ended September 30,

Three Months Ended March 31,

(millions) 2023 2022

5 unchanged sentences

2 From obtaining right-of-use assets.

We paid the following in the respective periods:

Nine Months Ended September 30,

In the respective periods, we paid the following:

Three Months Ended March 31,

(millions) 2023 2022

2 unchanged sentences

Operating lease liabilities 21.5 22.0

Note 8 Segment Information — Our Personal Lines segment writes insurance for personal autos and recreational vehicles (our special lines products).

Our Commercial Lines segment writes auto-related liability and physical damage insurance, workers’ compensation insurance primarily for the transportation industry, and business-related general liability and property insurance, predominately for small businesses.

SEGMENT INFORMATION

Our Personal Lines segment writes insurance for personal autos and recreational vehicles (our special lines products).

Our Commercial Lines segment writes auto-related liability and physical damage insurance, business-related general liability and property insurance predominately for small businesses, and workers’ compensation insurance primarily for the transportation industry.

Our Property segment writes residential property insurance for homeowners, other property owners, and renters.

Our service businesses provide insurance-related services, including processing Commercial Automobile Insurance Procedures/Plans (CAIP) business and serving as an agent for homeowners, general liability, and workers’ compensation insurance, among other products, through programs in our direct Personal Lines and Commercial Lines businesses.

As previously discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, during the third quarter 2022, our CAIP service contract expired and we did not renew the contract.

This non-renewal will not materially affect our financial condition, results of operations, or cash flows.

Our service businesses provide insurance-related services, including serving as an agent for homeowners, general liability, and workers’ compensation insurance, among

other products, through programs in our direct Personal Lines and Commercial Lines businesses.

As previously disclosed in our 2022 Annual Report to Shareholders, during 2022, our contract to act as a servicing agent for processing Commercial Automobile Insurance Procedures/Plans (CAIP) business expired in 2022 and we did not renew the contract.

This non-renewal did not materially affect our financial condition, results of operations, or cash flows.

All segment revenues are generated from external customers;

1 unchanged sentence

Following are the operating results for the respective periods:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(millions) Revenues Pretax

Profit (Loss) Revenues Pretax

Profit (Loss)

10 unchanged sentences

Fees and other revenues 4

181.4 NA 174.9 NA 531.9 NA 516.8 NA

206.2 NA 174.0 NA

Service businesses 72.5 ( 9.8 ) 67.7 4.5

1 unchanged sentence

491.4 485.9 ( 203.1 ) ( 208.8 )

Interest expense NA ( 63.1 ) NA ( 54.2 ) NA ( 180.4 ) NA ( 167.0 )

Property - Goodwill impairment 2

NA 0 NA 0 NA ( 224.8 ) NA 0

Interest expense NA ( 63.3 ) NA ( 54.3 )

Consolidated total $ 14,303.2 $ 554.4 $ 11,841.5 $ 390.2

NA = Not applicable

1 Personal auto products accounted for 94 % of the total Personal Lines segment net premiums earned during the three and nine months ended September 30, 2022 and 2021;

our special lines products (e.g., motorcycles, ATVs, RVs, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

2 The total pretax loss, including goodwill impairment, for the Property segment was $ 514.4 million for the nine months ended September 30, 2022.

For the three and nine months ended September 30, 2022, pretax profit (loss) also included $ 5.0 million and $ 24.1 million, respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment, and $ 14.2 million and $ 42.5 million for the same periods in 2021.

1 Personal auto insurance accounted for 94 % of the total Personal Lines segment net premiums earned during the three months ended March 31, 2023 and 2022;

insurance for our special lines products (e.g., motorcycles, RVs, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.

2 For the three months ended March 31, 2023 and 2022, pretax profit (loss) included $ 5.0 million and $ 14.1 million, respectively, of amortization expense associated with intangible assets attributable to our Property segment.

See Note 12 – Goodwill and Intangible Assets for further discussion.

3 Primarily includes run-off business operations.

4 Pretax profit (loss) for fees and other revenues is allocated to operating segments.

3 Includes other underwriting business and run-off operations.

4 Pretax profit (loss) for fees and other revenues is allocated to operating segments based on revenue.

5 Revenues represent recurring investment income and total net realized gains (losses) on securities;

pretax profit (loss) is net of investment expense.

pretax profit (loss) is net of investment expenses.

Our management uses underwriting margin and combined ratio as primary measures of underwriting profitability.

6 unchanged sentences

Following are the underwriting margins and combined ratios for our underwriting operations for the respective periods:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Under-writing

2 unchanged sentences

Margin Combined

Ratio Under-writing

Margin Combined

Ratio Under-writing

Margin Combined

Personal Lines

5 unchanged sentences

Total underwriting operations 1.0 99.0 5.5 94.5

1 Included in the three and nine months ended September 30, 2022, is 0.9 points and 1.4 points, respectively, of amortization expense associated with intangible assets and 2.7 points and 2.8 points, respectively, for the same periods in 2021.

Note 9 Dividends — Following is a summary of our common and preferred share dividends that were declared and/or paid during the nine months ended September 30, 2022 and 2021:

1 Included in the three months ended March 31, 2023 and 2022, is 0.8 points and 2.5 points, respectively, of amortization expense associated with intangible assets.

Following is a summary of our common and preferred share dividends that were declared and/or paid during the three months ended March 31, 2023 and 2022:

(millions, except per share amounts) Amount

1 unchanged sentence

Common – Quarterly Dividends:

August 2022 October 2022 $ 0.10 $ 58.5

May 2022 July 2022 0.10 58.5

March 2023 April 2023 $ 0.10 $ 58.5

December 2022 January 2023 0.10 58.5

August 2021 October 2021 0.10 58.5

May 2021 July 2021 0.10 58.5

March 2022 April 2022 0.10 58.5

December 2021 January 2022 0.10 58.5

Common - Annual Variable Dividends:

December 2020 January 2021 4.50 2,635.9

Preferred Dividends:

August 2022 September 2022 26.875 13.4

December 2022 March 2023 26.875 13.4

August 2021 September 2021 26.875 13.4

December 2021 March 2022 26.875 13.4

1 The common share dividend accrual is based on an estimate of common shares outstanding as of the record date and all accruals are recorded as a part of accounts payable, accrued expenses, and other liabilities on the consolidated balance sheets until paid.

See Note 14 – Dividends in our 2021 Annual Report to Shareholders for a discussion of our quarterly and annual common share dividends and our preferred share dividend policies, including a discussion of the $ 1.50 per common share, or $ 876.5 million in the aggregate, 2021 annual variable common share dividend that was declared and paid in the fourth quarter 2021.

Note 10 Other Comprehensive Income (Loss) — The components of other comprehensive income (loss), including reclassification adjustments by income statement line item, were as follows:

Components of Changes in

Accumulated Other

Comprehensive Income (after tax)

(millions) Pretax total

comprehensive

income (loss) Total tax

benefit After tax total

comprehensive

income (loss) Total net unrealized gains (losses) on securities Net unrealized losses on forecasted transactions Foreign

Balance at June 30, 2022 $ ( 2,795.5 ) $ 586.5 $ ( 2,209.0 ) $ ( 2,193.5 ) $ ( 14.7 ) $ ( 0.8 )

Other comprehensive income (loss) before reclassifications:

Investment securities ( 1,223.3 ) 256.9 ( 966.4 ) ( 966.4 ) 0 0

Foreign currency translation adjustment ( 0.9 ) 0.2 ( 0.7 ) 0 0 ( 0.7 )

Total other comprehensive income (loss) before reclassifications ( 1,224.2 ) 257.1 ( 967.1 ) ( 966.4 ) 0 ( 0.7 )

Reclassification adjustment for amounts realized in net income by income statement line item:

Net realized gains (losses) on securities ( 58.4 ) 12.3 ( 46.1 ) ( 46.1 ) 0 0

Interest expense ( 0.2 ) 0.1 ( 0.1 ) 0 ( 0.1 ) 0

Total reclassification adjustment for amounts realized in net income ( 58.6 ) 12.4 ( 46.2 ) ( 46.1 ) ( 0.1 ) 0

Total other comprehensive income (loss) ( 1,165.6 ) 244.7 ( 920.9 ) ( 920.3 ) 0.1 ( 0.7 )

Balance at September 30, 2022 $ ( 3,961.1 ) $ 831.2 $ ( 3,129.9 ) $ ( 3,113.8 ) $ ( 14.6 ) $ ( 1.5 )

Components of Changes in

Accumulated Other

Comprehensive Income (after tax)

(millions) Pretax total

comprehensive

income (loss) Total tax

benefit After tax total

comprehensive

income (loss) Total net unrealized gains (losses) on securities Net unrealized losses on forecasted transactions Foreign

Balance at June 30, 2021 $ 619.6 $ ( 136.4 ) $ 483.2 $ 498.8 $ ( 15.1 ) $ ( 0.5 )

Other comprehensive income (loss) before reclassifications:

Investment securities ( 117.9 ) 24.8 ( 93.1 ) ( 93.1 ) 0 0

Foreign currency translation adjustment ( 0.3 ) 0.1 ( 0.2 ) 0 0 ( 0.2 )

Total other comprehensive income (loss) before reclassifications ( 118.2 ) 24.9 ( 93.3 ) ( 93.1 ) 0 ( 0.2 )

Reclassification adjustment for amounts realized in net income by income statement line item:

Net realized gains (losses) on securities 46.4 ( 9.7 ) 36.7 36.7 0 0

Interest expense ( 0.2 ) 0.1 ( 0.1 ) 0 ( 0.1 ) 0

Total reclassification adjustment for amounts realized in net income 46.2 ( 9.6 ) 36.6 36.7 ( 0.1 ) 0

Total other comprehensive income (loss) ( 164.4 ) 34.5 ( 129.9 ) ( 129.8 ) 0.1 ( 0.2 )

Balance at September 30, 2021 $ 455.2 $ ( 101.9 ) $ 353.3 $ 369.0 $ ( 15.0 ) $ ( 0.7 )

1 The accrual is based on an estimate of shares outstanding as of the record date and recorded as a component of accounts payable, accrued expenses, and other liabilities on the consolidated balance sheets until paid;

the prior year common share dividend accrual was reclassified into this line item from dividends payable on common shares to conform to the current year presentation.

Beginning March 15, 2023, the annual dividend rate for our Series B Preferred Shares switched to a floating rate equal to the three-month London Interbank Offered Rate (LIBOR), or a comparable successor base rate, plus a spread of 2.539 % applied to the stated amount per share.

During the floating rate period, dividends on the Series B Preferred Shares will be payable quarterly, if and when declared by the Board of Directors.

See Note 14 – Dividends in our 2022 Annual Report to Shareholders for a discussion of our quarterly and annual common share dividends and our preferred share dividend policies.

OTHER COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income (loss), including reclassification adjustments by income statement line item, were as follows:

Components of Changes in

11 unchanged sentences

Investment securities 705.6 ( 148.2 ) 557.4 557.4 0 0

Foreign currency translation adjustment ( 1.1 ) 0.2 ( 0.9 ) 0 0 ( 0.9 )

Total other comprehensive income (loss) before reclassifications 705.6 ( 148.2 ) 557.4 557.4 0 0

4 unchanged sentences

Total other comprehensive income (loss) 763.6 ( 160.3 ) 603.3 603.2 0.1 0

Balance at September 30, 2022 $ ( 3,961.1 ) $ 831.2 $ ( 3,129.9 ) $ ( 3,113.8 ) $ ( 14.6 ) $ ( 1.5 )

Balance at March 31, 2023 $ ( 2,793.3 ) $ 594.6 $ ( 2,198.7 ) $ ( 2,183.1 ) $ ( 14.4 ) $ ( 1.2 )

Components of Changes in

10 unchanged sentences

Investment securities ( 1,851.7 ) 388.9 ( 1,462.8 ) ( 1,462.8 ) 0 0

( 494.6 ) 103.9 ( 390.7 ) ( 390.7 ) 0 0

Foreign currency translation adjustment 0.3 ( 0.1 ) 0.2 0 0 0.2

( 0.9 ) 0.2 ( 0.7 ) 0 0 ( 0.7 )

Total other comprehensive income (loss) before reclassifications ( 1,851.4 ) 388.8 ( 1,462.6 ) ( 1,462.8 ) 0 0.2

( 495.5 ) 104.1 ( 391.4 ) ( 390.7 ) 0 ( 0.7 )

Reclassification adjustment for amounts realized in net income by income statement line item:

2 unchanged sentences

Total reclassification adjustment for amounts realized in net income ( 45.7 ) 9.6 ( 36.1 ) ( 35.9 ) ( 0.2 ) 0

236.7 ( 49.7 ) 187.0 187.6 ( 0.6 ) 0

Total other comprehensive income (loss) ( 1,805.7 ) 379.2 ( 1,426.5 ) ( 1,426.9 ) 0.2 0.2

Balance at September 30, 2021 $ 455.2 $ ( 101.9 ) $ 353.3 $ 369.0 $ ( 15.0 ) $ ( 0.7 )

Balance at March 31, 2022 $ ( 1,753.4 ) $ 367.6 $ ( 1,385.8 ) $ ( 1,370.7 ) $ ( 14.7 ) $ ( 0.4 )

In an effort to manage interest rate risk, we entered into forecasted transactions on certain of Progressive’s debt issuances.

We expect to reclassify $ 0.6 million (pretax) into interest expense during the next 12 months, related to net unrealized losses on these forecasted transactions (see Note 4 – Debt in our 2022 Annual Report to Shareholders for further discussion).

Note 11 Litigation — The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies written by our insurance subsidiaries in the ordinary course of business.

The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies written by our insurance subsidiaries in the ordinary course of business.

We consider all legal actions relating to such claims in establishing our loss and loss adjustment expense reserves.

1 unchanged sentence

These cases include and/or typically have included those alleging damages as a result of, among other things:

our subsidiaries’ methods used for evaluating and paying medical or injury claims or benefits, including, but not limited to, certain bodily injury, personal injury protection, uninsured motorist/underinsured motorist (UM/UIM), and medical payment claims and for reimbursing medical costs incurred by Medicare/Medicaid beneficiaries;

other claims handling procedures, including, but not limited to, challenges relating to our network of repair facilities, our methods used for estimating physical damage to vehicles for repair purposes and for evaluating the actual cash value of total loss vehicles, our payment of fees and taxes, our subrogation practices, our salvage practices, and our handling of diminution of value claims;

our subsidiaries’ methods used for evaluating and paying medical or injury claims or benefits, including, but not limited to, certain bodily injury, personal injury protection (PIP), uninsured motorist/underinsured motorist (UM/UIM), and medical payment claims and for reimbursing medical costs incurred by Medicare/Medicaid beneficiaries;

other claims handling procedures, including, but not limited to, challenges relating to our network of repair facilities, our methods used for estimating physical damage to vehicles for repair purposes and for evaluating the actual cash value of total loss vehicles, the application of a negotiation adjustment in calculating total loss valuations, our payment of fees and taxes, our subrogation practices, our salvage practices, and our handling of diminution of value claims;

homeowner claims handling practices and procedures;

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and certain employment practices, including claims relating to pay practices and fair employment practices, among other matters.

As of March 31, 2023, lawsuits have been certified or conditionally certified as class/collective actions in cases alleging:

we improperly value total loss claims in Florida, New York and Washington;

we improperly fail to pay fees and taxes associated with total losses in Florida, Michigan and New York;

we improperly adjust medical bills in Washington;

we improperly calculate basic economic loss as it relates to wage loss coverage in New York;

we improperly fail to timely process and pay PIP claims in Texas;

and that certain of our compensation practices and overtime payment practices are improper, including our classification of certain employees as exempt from overtime pay requirements.

Other insurance companies face many of these same issues.

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Nevertheless, we continue to evaluate pending litigation to determine if any losses not deemed probable and estimable become so, at which point we would establish an accrual at our best estimate of the loss or range of loss.

With respect to our pending lawsuits that are not related to claims under insurance policies, the accruals that we have established, if any, were not material at September 30, 2022 and 2021, or December 31, 2021, and there were no material settlements during 2021 or the first nine months of 2022.

With respect to our pending lawsuits that are not related to claims under insurance policies, the accruals that we have established, if any, were not material at March 31, 2023 and 2022, or December 31, 2022, and there were no material settlements during 2022 or the first three months of 2023.

For most of these lawsuits, we do not consider any losses to be both probable and estimable, and we are unable to estimate a meaningful range of loss, if any, at this time, due to the factors discussed in Note 12 – Litigation in our 2022 Annual Report to Shareholders.

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For a further discussion on our pending litigation and related reserving policies, see Note 12 – Litigation in our 2022 Annual Report to Shareholders.

Note 12 Goodwill and Intangible Assets

The majority of the goodwill recorded as of September 30, 2022 and 2021, and December 31, 2021, related to the April 1, 2015, acquisition of a controlling interest in ARX.

In the second quarter 2022, we performed an interim impairment test of our goodwill allocated to the ARX reporting unit and recorded an impairment loss of $ 224.8 million, which is disclosed as a separate line item in our consolidated statements of comprehensive income.

The impairment loss was fully allocated to our Property segment.

GOODWILL AND INTANGIBLE ASSETS

The majority of the goodwill recorded as of March 31, 2023 and 2022, and December 31, 2022, related to the April 1, 2015, acquisition of a controlling interest in ARX Holding Corp.

During the three months ended March 31, 2023, there were no changes to the carrying amount of goodwill.

In the second quarter 2022, we performed an interim impairment test of our goodwill allocated to the ARX

reporting unit and recorded an impairment loss of $ 224.8 million .

The impairment loss was fully allocated to our Property operating segment.

There were no previously recorded goodwill impairment losses on any of the outstanding goodwill.

The indicators of impairment primarily related to the magnitude of recent weather events relative to forecasted expectations, as well as other factors impacting our plans to restore our Property business to target profitability in a timely fashion and the subsequent reduced forecasted profitability of ARX.

The quantitative goodwill impairment assessment consisted of comparing the fair value of the reporting unit to its carrying value.

To determine the fair value of a reporting unit, we use a discounted cash flow model.

The model uses assumptions including, but not limited to, discount rate, forecasted growth, profitability, investment return, and capital requirements.

The assumptions and estimates were consistent with those we believe other non-related marketplace participants would use and were based on management’s best estimates at the time of the analysis.

The calculated fair value of the ARX reporting unit was below its carrying value at June 30, 2022, which resulted in recording the goodwill impairment.

There was no indication of impairment on the remaining $ 227.9 million goodwill, of which 98 % was attributable to our Personal Lines Agency business and related to the ARX acquisition.

See Note 15 – Goodwill and Intangible Assets in our 2022 Annual Report to Shareholders for a discussion of our goodwill impairment evaluation.

Intangible Assets

The following table is a summary of the net carrying amount of other intangible assets:

(millions) September 30, 2022 September 30, 2021 December 31, 2021

(millions) March 31, 2023 March 31, 2022 December 31, 2022

Intangible assets subject to amortization $ 68.5 $ 90.3 $ 73.9

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Intangible assets subject to amortization consisted of the following:

(millions) September 30, 2022 September 30, 2021 December 31, 2021

(millions) March 31, 2023 March 31, 2022 December 31, 2022

Category Gross

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Amortization Net

Policies in force $ 0 $ 0 $ 0 $ 256.2 $ 237.9 $ 18.3 $ 256.2 $ 247.1 $ 9.1

Agency relationships $ 159.2 $ 91.0 $ 68.2 $ 159.2 $ 79.6 $ 79.6 $ 159.2 $ 88.1 $ 71.1

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Total $ 231.9 $ 163.4 $ 68.5 $ 231.9 $ 141.6 $ 90.3 $ 231.9 $ 158.0 $ 73.9

Amortization expense was $ 5.4 million and $ 25.5 million for the three and nine months ended September 30, 2022, respectively, compared to $ 14.6 million and $ 43.1 million during the same periods last year.

During the first quarter 2022, the policies in force intangible asset, with a gross carrying value of $ 256.2 million, was fully amortized.

Note 13 New Accounting Standards — We did not adopt any new accounting standards during the nine months ended September 30, 2022.

We assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on our consolidated financial statements as well as material updates to previous assessments, if any, from our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

There were no new material accounting standards issued in the nine months ended September 30, 2022, that are expected to impact The Progressive Corporation or its subsidiaries.

Amortization expense for the three months ended March 31, 2023 was $ 5.4 million, compared to $ 14.6 million for the same period last year.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements