Progressive Corp.’s (PGR) earnings for August were impressive as the company benefited from an increase in premiums written and steered clear of investment losses. However, Commercial Auto still remained a drag. The company, which reports earnings on a monthly basis, posted a profit of $55 million, or 8 cents per share, compared to a loss of $135.2 million, or 20 cents, a year ago.

Progressive’s net premiums written rose 4% year over year to $1.1 billion. It recorded a pretax investment gain of $5.6 million, compared to a loss of $317.5 million in the year-ago period. Combined ratio, which reflects the percentage of premiums paid out as claims and expenses, slightly deteriorated to 95.5% from 94.3% in the last year.

On Aug. 31, book value per share was $7.82 compared to $7.62 on July 31 and $7.24 on June 30. In August, the company repurchased 1.5 million shares at an average price of $16.66.

The economic downturn combined with increased competition has badly affected Progressive’s Commercial Auto and Agency Auto businesses. Policies in force in August for Commercial Auto and Agency Auto were down 5% and 1%, respectively. However, Direct Auto and Special Lines were up 12% and 3%, respectively.

Year to date, Progressive has earned $652.5 million, or 97 cents per share, compared to $401.5 million, or 59 cents, in the comparable prior-year period.

The balance sheets of auto insurance providers like Progressive, Allstate Corp. (ALL), Infinity Property and Casualty Corp. (IPCC) and State Auto Financial Corp. (STFC) have been severely hurt by the economic crisis, which has significantly hampered consumer confidence and their ability to purchase automobile insurance policies.

Nevertheless, we expect Progressive to benefit from the recent signs of economic improvement and indications of an increase in auto insurance rates. Hence we have a Neutral recommendation on its shares.

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Read the full analyst report on “ALL”
Read the full analyst report on “IPCC”
Read the full analyst report on “STFC”
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