Storm losses in Oklahoma, Nebraska, Wyoming and Texas have hurt the net income of Progressive Corporation (PGR) for May 2010. Net income for the month slumped 19% to $44.2 million from $54.6 million in the year-ago period. Income for the reported month was also substantially down by 60% from $111.1 million reported in the previous month.
  
Progressive’s earnings per share for May 2010 declined by 13% to 7 cents from 8 cents recorded in May 2009. This also compares unfavorably with earnings of 17 cents per share reported in April 2010.
  
The company incurred catastrophe losses of nearly $27 million due to the storms in the month versus losses of $4.4 million in May 2009.
 
Progressive reports on a monthly basis. The company recorded net premiums of $1,108.6 million, up 5% from $1,054.9 million in May 2009 but down 25% from $1,473.7 million in April 2010. Net premiums earned were $1,105.9 million, up 5% from $1,058.2 million in the year-ago period but a decrease of 20% from $1,374.5 million in the prior month.
  
Net realized losses on securities were $15.1 million, a significant decline from a loss of $0.4 million in the prior-year period and from a gain of $8 million in April 2010. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated slightly to 95.6% from 95.3% recorded in the year-ago period and 90.7% in the preceding month.
 
During May, policies in force remained healthy, with the Personal Auto segment increasing 8% year over year and 1% from the prior month. Special Lines increased 4% year over year and 1% over the preceding month. In Personal Auto, Direct Auto continued to report a double-digit growth of 15% year over year but showed only a slight improvement of 1% in policies in force from the last month. Agency Auto was up 2% year over year and 0.2% from last month. However, Progressive’s Commercial Auto segment continued to be a drag on results, reporting a 2% year over year fall as a result of the economic downturn.
  
Total expense for the reported month increased to $1.1 billion, up 5.7% from $1.0 billion in May 2009. The major components contributing to the increase in total expense were losses and loss adjustment expenses (a hike of 5% year over year to $814.1 million), policy acquisition costs (up 1% year over year to $104.2 million) and other underwriting expenses (spiking 8% year over year to $138.7 million).
  
Progressive continues to actively manage its capital position and return wealth to shareholders through share repurchases. Reported book value per share was $9.37, slightly down from $9.52 as of April 30, 2010, and up from $7.06 as of May 31, 2009.
  
Return on equity on a trailing 12-month basis was 19.5%, down from 20.1% in April 2010 but substantially up from a negative 2.1% in May 2009. The debt-to-total-capital ratio was 25.8% as of May 2010, down from 25.4% as of April 2010 and 31.2% as of May 2009.
 
Though Progressive’s industry-leading position, strong risk-based capital ratios, steady operating performances and focus on customer retention position it favorably to benefit from the economic recovery, increased competition and pressure on underwriting margin will remain headwinds in the upcoming quarters.
 
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