What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 225 added, 115 removed, 896 unchanged (28% of the section changed)

2 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2023 2022

Three Months Six Months

Periods Ended June 30, 2023 2022 2023 2022

(millions — except per share amounts)

15 unchanged sentences

Interest expense 65.7 63.0 129.0 117.3

Goodwill impairment 0 224.8 0 224.8

Total expenses 14,917.8 12,155.1 28,666.6 23,606.4

Income before income taxes 554.4 390.2

Provision for income taxes 106.5 76.3

Net income 447.9 313.9

Net Income (Loss)

Income (loss) before income taxes 435.7 ( 635.9 ) 990.1 ( 245.7 )

Provision (benefit) for income taxes 90.3 ( 93.0 ) 196.8 ( 16.7 )

Net income (loss) 345.4 ( 542.9 ) 793.3 ( 229.0 )

Other Comprehensive Income (Loss)

5 unchanged sentences

Computation of Earnings Per Common Share

Net income $ 447.9 $ 313.9

Net income (loss) $ 345.4 $ ( 542.9 ) $ 793.3 $ ( 229.0 )

Preferred share dividends 1

Net income available to common shareholders $ 440.6 $ 307.2

9.5 6.7 16.8 13.4

Net income (loss) available to common shareholders $ 335.9 $ ( 549.6 ) $ 776.5 $ ( 242.4 )

Average common shares outstanding - Basic 584.9 584.3 584.9 584.3

3 unchanged sentences

Earnings per common share $ 0.57 $ ( 0.94 ) $ 1.32 $ ( 0.41 )

1 Changed to a floating dividend rate.

See Note 1 – Basis of Presentation for further discussion.

1 Changed to a floating dividend rate in March 2023.

See Note 1 – Basis of Reporting and Accounting for further discussion.

See notes to consolidated financial statements.

1 unchanged sentence

Consolidated Balance Sheets

March 31, December 31,

June 30, December 31,

(millions — except per share amounts) 2023 2022 2022

59 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

Three Months Ended March 31, 2023 2022

Three Months Six Months

Periods Ended June 30, 2023 2022 2023 2022

(millions — except per share amounts)

16 unchanged sentences

Balance, beginning of period 16,080.1 15,569.6 15,721.2 15,339.7

Net income 447.9 313.9

Net income (loss) 345.4 ( 542.9 ) 793.3 ( 229.0 )

Treasury shares purchased ( 7.1 ) ( 0.7 ) ( 38.8 ) ( 28.3 )

1 unchanged sentence

( 58.4 ) ( 58.4 ) ( 116.9 ) ( 116.8 )

Cash dividends declared on Serial Preferred Shares, Series B ($ 18.92463 , $ 0 , $ 18.92463 , and $ 0 per share)

( 9.5 ) 0 ( 9.5 ) 0

Reinvested dividends on restricted stock units ( 0.3 ) ( 0.3 ) ( 0.6 ) ( 0.3 )

11 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2023 2022

Six Months Ended June 30, 2023 2022

Cash Flows From Operating Activities

Net income $ 447.9 $ 313.9

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

Net income (loss) $ 793.3 $ ( 229.0 )

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

Depreciation 140.6 149.6

4 unchanged sentences

Net (gains) losses on disposition of property and equipment 6.2 2.0

Goodwill impairment 0 224.8

Premiums receivable ( 1,856.4 ) ( 1,162.3 )

25 unchanged sentences

Acquisition of treasury shares for restricted stock tax liabilities ( 33.0 ) ( 29.5 )

Acquisition of treasury shares acquired in open market ( 7.1 ) 0

Net proceeds from debt issuances 496.3 1,486.0

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

Increase in cash, cash equivalents, restricted cash, and restricted cash equivalents 67.7 85.2

Net cash provided by financing activities 316.3 1,326.1

Increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents ( 41.4 ) 38.4

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

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

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

$ 179.5 $ 240.5

5 unchanged sentences

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

The results of operations for the period ended June 30, 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

(millions) 2023 2022 2023 2022

2 unchanged sentences

125.3 95.8 242.2 189.7

( 122.3 ) ( 106.2 ) ( 241.6 ) ( 204.3 )

Allowance for credit losses, end of period $ 343.9 $ 265.8 $ 343.9 $ 265.8

5 unchanged sentences

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.

At June 30, 2023 and 2022, and December 31, 2022, we had held for sale property of $ 59.5 million, $ 24.9 million, and $ 48.7 million, respectively.

Earnings Per Share

8 unchanged sentences

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

We intend to adopt the new standard under the modified retrospective basis, however, we do not expect this standard to have a material impact on our financial condition or results of operations.

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

6 unchanged sentences

(Losses) Fair

March 31, 2023

June 30, 2023

Available-for-sale securities:

19 unchanged sentences

(Losses) Fair

March 31, 2022

June 30, 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 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.

1 At June 30, 2023, we had $ 248.0 million of net unsettled security purchase transactions included in other liabilities, compared to $ 34.4 million included in other assets at December 31, 2022.

At June 30, 2022, our net unsettled security transactions were $ 0 .

The total fair value of the portfolio at June 30, 2023 and 2022, and December 31, 2022, included $ 4.3 billion, $ 4.9 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 June 30, 2023, bonds and certificates of deposit in the principal amount of $ 616.8 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 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.

government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at June 30, 2023 or 2022, or December 31, 2022.

At June 30, 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 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.

We did no t have any open repurchase or reverse repurchase transactions positions at June 30, 2023 and 2022, or December 31, 2022, and did not enter into any such transactions during the first six months of 2023.

During 2022, however, we did invest in repurchase transactions that had an immaterial impact on our results of operations and cash flows.

counterparty and subject to an enforceable master netting arrangement.

Hybrid Securities Certain securities in our fixed-maturity portfolio are accounted for as hybrid securities because they contain embedded derivatives that are not deemed to be clearly and closely related to the host investments.

7 unchanged sentences

Total hybrid securities $ 1,120.3 $ 1,316.7 $ 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 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:

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 June 30, 2023, was:

(millions) Cost Fair Value

12 unchanged sentences

Value Unrealized

March 31, 2023

June 30, 2023

government obligations 171 $ 31,496.1 $ ( 1,676.7 ) 51 $ 17,704.6 $ ( 427.9 ) 120 $ 13,791.5 $ ( 1,248.8 )

11 unchanged sentences

Value Unrealized

March 31, 2022

June 30, 2022

government obligations 140 $ 17,907.2 $ ( 1,116.8 ) 114 $ 15,254.3 $ ( 874.0 ) 26 $ 2,652.9 $ ( 242.8 )

21 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 )

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.

As of June 30, 2023, we had six securities that had their credit ratings downgraded during the quarter, with a combined fair value of $ 66.5 million and an unrealized loss of $ 7.1 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 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 did no t record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible during the first six months of 2023 or 2022, and did no t have a material credit loss allowance balance as of June 30, 2023 and 2022, or December 31, 2022.

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

11 unchanged sentences

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 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.

As of June 30, 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 March 31, 2023 and 2022, and December 31, 2022, 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 March 31, 2023 and 2022, or December 31, 2022.

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

In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at June 30, 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 and six months ended June 30, were:

Three Months Six Months

(millions) 2023 2022 2023 2022

40 unchanged sentences

Subtotal net realized gains (losses) on security sales 135.1 546.6 91.6 492.1

Gain 0 0 13.2 0

Impairment ( 2.2 ) ( 2.1 ) ( 4.5 ) ( 4.3 )

6 unchanged sentences

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

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.

For the first six 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.

In addition, during 2023, we selectively sold securities, which were primarily corporate debt securities and commercial mortgage-backed securities.

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

bank preferred stocks.

2 unchanged sentences

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

Three Months Six Months

(millions) 2023 2022 2023 2022

2 unchanged sentences

Net holding period gains (losses) recognized during the period on equity securities held at period end $ ( 10.8 ) $ ( 1,673.8 ) $ 79.7 $ ( 2,023.4 )

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

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

Three Months Six Months

(millions) 2023 2022 2023 2022

19 unchanged sentences

Net investment income $ 448.4 $ 286.5 $ 862.5 $ 523.0

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.

On a year-over-year basis, investment income (interest and dividends) increased 64 % and 55 % for the first three and six months of 2023, respectively, and the recurring investment book yield increased 36 % and 42 % for the first three and six months of 2023, respectively, compared to the same periods last year.

The increases are primarily due

to an increase in interest rates on floating-rate securities in our portfolio, an increase in average assets resulting from premium growth, 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:

13 unchanged sentences

(millions) Level 1 Level 2 Level 3 Total Cost

March 31, 2023

June 30, 2023

Fixed maturities:

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(millions) Level 1 Level 2 Level 3 Total Cost

March 31, 2022

June 30, 2022

Fixed maturities:

70 unchanged sentences

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 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.

At June 30, 2023, vendor-quoted prices represented 92 % of our Level 1 classifications (excluding short-term investments), compared to 87 % and 90 % at June 30, 2022 and December 31, 2022, respectively.

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

2 unchanged sentences

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.

At June 30, 2023 and 2022, 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 %.

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.

12 unchanged sentences

We then evaluate inputs relevant for each class of securities disclosed in the preceding hierarchy tables.

For structured debt securities, including commercial, residential, and other asset-backed securities, we evaluate available market-related data for these and similar securities related to collateral, delinquencies, and defaults for historical trends and reasonably estimable projections, as well as historical prepayment rates and current prepayment assumptions and cash flow estimates.

For structured debt securities, including commercial, residential, and other asset-backed securities, we evaluate

available market-related data for these and similar securities related to collateral, delinquencies, and defaults for historical trends and reasonably estimable projections, as well as historical prepayment rates and current prepayment assumptions and cash flow estimates.

We further stratify each class of our structured debt securities into more finite sectors (e.g., planned amortization class, first pay, second pay, senior, subordinated, etc.) and use duration, credit quality, and coupon to determine if the fair value is appropriate.

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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.

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

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.

This review provides us further validation that our pricing sources are providing market level prices, since we are able to explain significant price changes (i.e., greater than 2%) as known events occur in the marketplace and affect a particular security’s price at sale.

11 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 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.

The Level 2 common stock held at June 30, 2022, was transferred to Level 3 at December 31, 2022.

At June 30, 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 six months of 2023 and 2022, there were no material assets or liabilities measured at fair value on a nonrecurring basis, other than goodwill.

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

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 months ended March 31, 2023 and 2022:

The following tables provide a summary of changes in fair value associated with Level 3 assets for the three and six months ended June 30, 2023 and 2022:

Level 3 Fair Value

(millions) Fair Value at March 31, 2023 Calls/

Paydowns/Other Purchases Sales Net Realized

on Sales Change in

Valuation Net

In (Out) Fair Value at June 30, 2023

Equity securities:

Nonredeemable preferred stocks:

$ 67.4 $ 0 $ 0 $ 0 $ 0 $ ( 11.4 ) $ 0 $ 56.0

16.4 0 0 0 0 ( 0.6 ) 0 15.8

Common equities:

Common stocks 18.3 0 0 0 0 0 0 18.3

Other risk investments 20.3 1.6 0 0 0 0 0 21.9

Total Level 3 securities

$ 122.4 $ 1.6 $ 0 $ 0 $ 0 $ ( 12.0 ) $ 0 $ 112.0

Level 3 Fair Value

(millions) Fair Value at March 31, 2022 Calls/

Paydowns/Other Purchases Sales Net Realized

on Sales Change in

Valuation Net

In (Out) Fair Value at June 30, 2022

Equity securities:

Nonredeemable preferred stocks:

$ 61.4 $ 0 $ 0 $ 0 $ 0 $ 3.5 $ 0 $ 64.9

33.9 0 0 0 0 ( 16.9 ) 0 17.0

Common equities:

Common stocks 0 0 0 0 0 0 0 0

Other risk investments 20.1 ( 1.6 ) 0 0 0 0 0 18.5

Total Level 3 securities

$ 115.4 $ ( 1.6 ) $ 0 $ 0 $ 0 $ ( 13.4 ) $ 0 $ 100.4

Level 3 Fair Value

(millions) Fair Value at Dec.

3 unchanged sentences

Valuation Net

In (Out) Fair Value at March 31, 2023

In (Out) Fair Value at June 30, 2023

Equity securities:

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Valuation Net

In (Out) Fair Value at March 31, 2022

In (Out) Fair Value at June 30, 2022

Equity securities:

6 unchanged sentences

$ 127.7 $ 1.1 $ 0 $ ( 15.0 ) $ ( 17.2 ) $ 3.8 $ 0 $ 100.4

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:

The following tables provide a summary of the quantitative information about Level 3 fair value measurements for our applicable securities at June 30, 2023 and 2022, and December 31, 2022:

Quantitative Information about Level 3 Fair Value Measurements

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

($ in millions) Fair Value at June 30, 2023 Valuation Technique Unobservable Input Range of Input Values Increase (Decrease) Weighted Average Increase (Decrease)

Equity securities:

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Quantitative Information about Level 3 Fair Value Measurements

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

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

Equity securities:

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Debt at each of the balance sheet periods consisted of:

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

June 30, 2023 June 30, 2022 December 31, 2022

(millions) Carrying

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4.95 % Senior Notes due 2033 (issued:

$ 500.0 , May 2023)

496.3 489.9 0 0 0 0

4.35 % Senior Notes due 2044 (issued:

$ 350.0 , April 2014)

16 unchanged sentences

Total $ 6,886.5 $ 6,224.0 $ 6,386.5 $ 6,028.9 $ 6,388.3 $ 5,717.9

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.

The Progressive Corporation issued $ 500.0 million of 4.95 % Senior Notes due 2033 in May 2023 in an underwritten public offering.

The net proceeds from the issuance, after deducting underwriters’ discounts, commissions, and other issuance costs, was approximately $ 496.3 million.

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

There was no short-term debt outstanding at June 30, 2023 and 2022, and December 31, 2022.

During the second quarter 2023, The Progressive Corporation amended its line of credit with PNC Bank, National Association (PNC), to increase the maximum principal amount to $ 300 million from the previous amount of $ 250 million and extend the expiration date to April 30, 2024.

Subject to the terms and conditions of the line of credit documents, advances under the line of credit (if any) will bear interest at a variable rate equal to 1-month term Secured Overnight Financing Rate (SOFR) plus 1.10 %.

Each advance must be repaid on the 30 th day after the date of the advance or, if earlier, April 30, 2024, the expiration date of

the line of credit.

Prepayments are permitted without penalty.

The line of credit is uncommitted and, as such, all advances are subject to PNC’s discretion.

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

1 unchanged sentence

We review our deferred tax assets regularly for recoverability.

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.

At June 30, 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.

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.

At June 30, 2023 and 2022, and December 31, 2022, the net deferred tax asset includes a gross deferred tax asset of $ 703.7 million, $ 583.0 million, and $ 742.9 million, respectively, related to unrealized losses on fixed-maturity

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.

At June 30, 2023 and 2022, and December 31, 2022, we had no reserves for uncertain tax positions.

The effective tax rate for the three and six months ended June 30, 2023, was 20.7 % and 19.9 %, respectively, compared to 14.6 % and 6.8 % for the same periods last year.

The lower effective tax rates for the three and six months ended June 30, 2022, were in part due to the goodwill impairment charge, partially offset by our permanent tax differences having a greater impact on the effective rate given our pretax loss for the periods.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

12 unchanged sentences

Total paid 19,905.3 16,582.6

Net balance at March 31

Net balance at June 30

27,688.9 23,127.4

Plus reinsurance recoverables on unpaid losses 5,064.4 4,684.6

Balance at March 31

Balance at June 30

$ 32,753.3 $ 27,812.0

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

We experienced unfavorable reserve development of $ 1,110.5 million and $ 144.9 million during the first six months of 2023 and 2022, respectively, which is reflected as “incurred related to prior years ” in the table above.

Year-to-date June 30, 2023

• The unfavorable prior year reserve development included approximately $ 910 million attributable to accident year 2022, $ 81 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 perso nal auto products incurred about $ 870 million of unfavorable loss and loss adjustment expense (LAE) reserve development, with the Agency and Direct auto businesses each contributing about half.

About half of the unfavorable development was attributable to higher than anticipated severity in auto property and physical damage coverages, while the remaining unfavorable development was primarily due to increased loss costs in Florida injury and medical coverages and, to a lesser extent, higher than anticipated late reported injury claims.

• Our Commercial Lines business experienced about $ 224 million of unfavorable development, primarily due to higher than anticipated severity and frequency of late reported injury claims.

Year-to-date June 30, 2022

• Approximately $ 97 million of the unfavorable prior year reserve development was attributable to accident year 2021, $ 16 million to accident year 2020, and the remainder to accident years 2019 and prior.

• Our personal auto products incurred about $ 45 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.

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

• Our Commercial Lines business experienced about $ 98 million of unfavorable development, primarily due to higher than anticipated severity and frequency of late reported claims.

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.

The amount of reverse repurchase commitments, which are not considered part of the investment portfolio, held by these subsidiaries at June 30, 2023 and 2022, and December 31, 2022, were $ 68.0 million, $ 140.6 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:

Three Months Ended March 31,

Six Months Ended June 30,

(millions) 2023 2022

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In the respective periods, we paid the following:

Three Months Ended March 31,

Six Months Ended June 30,

(millions) 2023 2022

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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.

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Following are the operating results for the respective periods:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(millions) Revenues Pretax

Profit (Loss) Revenues Pretax

Profit (Loss)

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Fees and other revenues 4

206.2 NA 174.0 NA

226.7 NA 176.5 NA 432.9 NA 350.5 NA

Service businesses 81.0 ( 9.6 ) 80.1 4.6 153.5 ( 19.4 ) 147.8 9.1

1 unchanged sentence

581.4 575.3 ( 885.3 ) ( 891.2 ) 1,072.8 1,061.2 ( 1,088.4 ) ( 1,100.0 )

Interest expense NA ( 63.3 ) NA ( 54.3 )

Interest expense NA ( 65.7 ) NA ( 63.0 ) NA ( 129.0 ) NA ( 117.3 )

Property - Goodwill impairment 2

NA 0 NA ( 224.8 ) NA 0 NA ( 224.8 )

Consolidated total $ 15,353.5 $ 435.7 $ 11,519.2 $ ( 635.9 ) $ 29,656.7 $ 990.1 $ 23,360.7 $ ( 245.7 )

NA = Not applicable

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;

1 Personal auto insurance accounted for 94 % of the total Personal Lines segment net premiums earned during the three and six months ended June 30, 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.

2 For the three and six months ended June 30, 2023, pretax profit (loss) included $ 2.8 million and $ 7.8 million, respectively, of amortization expense associated with intangible assets attributable to our Property segment, and $ 5.0 million and $ 19.1 million for the same periods in 2022.

For the three and six months ended June 30, 2022, the total pretax loss, including goodwill impairment, for the Property segment was $ 381.7 million and $ 373.4 million.

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

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Under-writing

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Margin Combined

Ratio Under-writing

Margin Combined

Ratio Under-writing

Margin Combined

Personal Lines

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Total underwriting operations ( 0.4 ) 100.4 4.4 95.6 0.3 99.7 5.0 95.0

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:

1 Included in the three and six months ended June 30, 2023, is 0.4 points and 0.6 points, respectively, of amortization expense associated with intangible assets and 0.9 points and 1.7 points, respectively, for the three and six months ended June 30, 2022.

Following is a summary of our common and preferred share dividends that were declared and/or paid during the six months ended June 30, 2023 and 2022:

(millions, except per share amounts) Amount

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Common – Quarterly Dividends:

May 2023 July 2023 $ 0.10 $ 58.5

March 2023 April 2023 0.10 58.5

December 2022 January 2023 0.10 58.5

May 2022 July 2022 0.10 58.5

March 2022 April 2022 0.10 58.5

1 unchanged sentence

Preferred Dividends:

May 2023 June 2023 18.92463 9.5

December 2022 March 2023 26.875 13.4

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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.

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comprehensive

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

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

Other comprehensive income (loss) before reclassifications:

Investment securities ( 651.5 ) 136.8 ( 514.7 ) ( 514.7 ) 0 0

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

Total other comprehensive income (loss) before reclassifications ( 651.2 ) 136.7 ( 514.5 ) ( 514.7 ) 0 0.2

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

Net realized gains (losses) on securities ( 74.8 ) 15.7 ( 59.1 ) ( 59.1 ) 0 0

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

Total reclassification adjustment for amounts realized in net income ( 74.9 ) 15.7 ( 59.2 ) ( 59.1 ) ( 0.1 ) 0

Total other comprehensive income (loss) ( 576.3 ) 121.0 ( 455.3 ) ( 455.6 ) 0.1 0.2

Balance at June 30, 2023 $ ( 3,369.6 ) $ 715.6 $ ( 2,654.0 ) $ ( 2,638.7 ) $ ( 14.3 ) $ ( 1.0 )

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

Other comprehensive income (loss) before reclassifications:

Investment securities ( 1,246.7 ) 261.8 ( 984.9 ) ( 984.9 ) 0 0

Foreign currency translation adjustment ( 0.5 ) 0.1 ( 0.4 ) 0 0 ( 0.4 )

Total other comprehensive income (loss) before reclassifications ( 1,247.2 ) 261.9 ( 985.3 ) ( 984.9 ) 0 ( 0.4 )

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

Net realized gains (losses) on securities ( 205.1 ) 43.0 ( 162.1 ) ( 162.1 ) 0 0

Interest expense 0 0 0 0 0 0

Total reclassification adjustment for amounts realized in net income ( 205.1 ) 43.0 ( 162.1 ) ( 162.1 ) 0 0

Total other comprehensive income (loss) ( 1,042.1 ) 218.9 ( 823.2 ) ( 822.8 ) 0 ( 0.4 )

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

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

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Investment securities 54.1 ( 11.4 ) 42.7 42.7 0 0

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

Total other comprehensive income (loss) before reclassifications 54.4 ( 11.5 ) 42.9 42.7 0 0.2

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Total other comprehensive income (loss) 187.3 ( 39.3 ) 148.0 147.6 0.2 0.2

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

Balance at June 30, 2023 $ ( 3,369.6 ) $ 715.6 $ ( 2,654.0 ) $ ( 2,638.7 ) $ ( 14.3 ) $ ( 1.0 )

Components of Changes in

17 unchanged sentences

Total other comprehensive income (loss) ( 2,847.8 ) 598.1 ( 2,249.7 ) ( 2,249.7 ) 0.2 ( 0.2 )

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

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

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

12 unchanged sentences

rating practices;

certain marketing, sales, services, implementation and renewal practices and procedures, including with respect to accessibility;

certain marketing, sales, services, implementation and renewal practices and procedures, including with respect to accessibility and privacy;

our usage-based insurance program;

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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:

As of June 30, 2023, lawsuits have been certified or conditionally certified as class/collective actions in cases alleging:

we improperly reduce or deny UIM benefits in New Mexico;

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 fail to pay fees and taxes associated with total losses in Florida,

Michigan, and New York;

we improperly adjust medical bills in Washington;

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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 March 31, 2023 and 2022, or December 31, 2022, and there were no material settlements during 2022 or the first three months of 2023.

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 June 30, 2023 and 2022, or December 31, 2022, and there were no material settlements during 2022 or the first six 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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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.

The majority of the goodwill recorded as of June 30, 2023 and 2022, and December 31, 2022, related to the April 1, 2015, acquisition of a controlling interest in ARX Holding Corp.

During the six months ended June 30, 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

5 unchanged sentences

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

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

(millions) June 30, 2023 June 30, 2022 December 31, 2022

Intangible assets subject to amortization $ 65.4 $ 84.8 $ 73.9

5 unchanged sentences

Intangible assets subject to amortization consisted of the following:

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

(millions) June 30, 2023 June 30, 2022 December 31, 2022

Category Gross

9 unchanged sentences

Total $ 231.9 $ 166.5 $ 65.4 $ 231.9 $ 147.1 $ 84.8 $ 231.9 $ 158.0 $ 73.9

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.

Amortization expense was $ 3.1 million and $ 8.5 million for the three and six months ended June 30, 2023, respectively, compared to $ 5.5 million and $ 20.1 million during the same periods 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