Vision
We seek to be an excellent, innovative, growing and enduring business by cost-effectively and profitably reducing the human trauma and economic costs of auto accidents and other mishaps, and by building a recognized, trusted, admired, business-generating brand. We seek to maximize shareholder value and to provide a positive environment which attracts quality people who develop and achieve ambitious growth plans.
Customer Value Proposition
Our Customer Value Proposition provides a litmus test for customer interactions, relationships and innovation.
Fast, Fair, Better That's what you can expect from Progressive. Everything we do recognizes the needs of busy consumers who are cost-conscious, increasingly savvy about insurance and ready for easy, new ways to quote, buy and manage their policies, including claims service that respects their time and reduces the trauma and inconvenience of loss.
Core Values
Progressive's Core Values serve as the foundation for our corporate culture. They govern our decisions and define the manner in which we conduct our business and how we interact with all interested parties. We want them understood and embraced by all Progressive people. Growth and change provide new perspective, requiring regular refinement of Core Values.
Integrity We revere honesty. We adhere to the highest ethical standards, provide timely, accurate and complete financial reporting, encourage disclosing bad news and welcome disagreement.
Golden Rule We respect all people, value the differences among them and deal with them in the way we want to be dealt with. This requires us to know ourselves and to try to understand others.
Objectives We strive to communicate clearly Progressive's ambitious objectives and our people's personal and team objectives. We evaluate performance against all these objectives.
Excellence We strive constantly to improve in order to meet and exceed the highest expectations of our customers, agents, shareholders and people. We teach and encourage our people to improve performance and to reduce the costs of what they do for customers. We base their rewards on results and promotion on ability.
Profit The opportunity to earn a profit is how the competitive free-enterprise system motivates investment to enhance human health and happiness. Expanding profits reflect our customers' and claimants' increasingly positive view of Progressive.
Financial Objectives and Policies
Consistent achievement of superior results requires that our people understand Progressive's objectives and their specific roles, and that their personal objectives dovetail with Progressive's. Our objectives are ambitious, yet realistic. We are committed to achieving financial objectives over rolling five-year periods. Progressive monitors its financial policies continuously and strives to meet these targets annually. Experience always clarifies objectives and illuminates better policies. We constantly evolve as we monitor the execution of our policies and progress toward achieving our objectives.
Profitability Progressive's most important goal is for its insurance subsidiaries to produce an aggregate calendar year 4% underwriting profit. Our business is a composite of many product offerings defined in part by product type, distribution channel, geography, tenure of the customer and underwriting grouping. Each of these products has targeted operating parameters based on level of maturity, underlying cost structures, customer mix and policy life expectancy. Our aggregate goal is the balanced blend of these individual performance targets in any calendar year.
Growth Our goal is to grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service. Progressive is a growth-oriented company and management incentives are tied to profitable growth. We report Personal Lines and Commercial Auto results separately. We further break down our Personal Lines' results by channel (Agency and Direct) to give shareholders a clearer picture of the business dynamics of each distribution method and their respective rates of growth. Aggregate expense ratios and aggregate growth rates disguise the true nature and performance of each business.
Financial Policies
Progressive balances operating risk with risk of investing and financing activities in order to have sufficient
capital to support all the insurance we can profitably underwrite and service. Risks arise in all operational and functional areas, and therefore must be assessed holistically, accounting for the offsetting and compounding effects of the separate sources of risk within the Company.
We use risk management tools to quantify the amount of capital needed, in addition to surplus, to absorb
consequences of foreseeable events such as unfavorable loss reserve development, litigation, weather-related catastrophes and investment market corrections. Our financial policies define our allocation of risk and we measure our performance against them. If, in our view, future opportunities meet our financial objectives
and policies, we will invest capital in expanding business operations. Any underleveraged capital will be returned to investors. We expect to earn a return on equity greater than its cost. Presented is an overview of Progressive's Operating, Investing and Financing policies.
Objectives and Policies Scorecard
(a) Grow as fast as possible, constrained only by our profitability objective and our ability to provide high-quality customer service.
(b) Determined separately for each insurance subsidiary.
(c) The Company does not have a predetermined target for ROE.
(d) Data is not available.
na = not applicable
1) Represents results over the respective time period through December 31, 2004; growth represents average annual compounded rate of increase.
2) Represents the U.S. personal auto insurance industry.
3) Based on net income.
4) Based on comprehensive income. Comprehensive ROE is consistent with the Company's policy to manage on a total return basis and better reflects growth in shareholder value. For a reconciliation of net income to comprehensive income and for the components of comprehensive income, see the Company's Consolidated Statements of Changes in Shareholders' Equity and Note 10—Other Comprehensive Income, respectively, which can be found in the complete Consolidated Financial Statements and Notes included in the Company's 2004 Annual Report to Shareholders, which is attached as an Appendix to the Company's 2005 Proxy Statement.
Achievements
We are convinced that the best way to maximize shareholder value is to achieve these financial objectives and policies consistently. A shareholder who purchased 100 shares of Progressive for $1,800 in our first public stock offering on April 15, 1971, owned 23,066 shares on December 31, 2004, with a market value of $1,956,920,
for a 23.1% compounded annual return, compared to the 7.7% return achieved by investors in the Standard & Poor's 500 during the same period. In addition, the shareholder received dividends of $2,537 in 2004, bringing total dividends received to $31,567 since the shares were purchased.
In the ten years since December 31, 1994, Progressive shareholders have realized compounded annual
returns, including dividend reinvestment of 22.2%, compared to 12.0% for the S&P 500. In the five years since December 31, 1999, Progressive shareholders' returns were 28.6%, compared to a negative 2.3% for the
S&P 500. In 2004, the returns were 1.6% on Progressive shares and 10.8% for the S&P 500.
Over the years, when we have had adequate capital and believed it to be appropriate, we have repurchased our shares. In addition, as our financial policies state, we will repurchase shares to neutralize the dilution from equity-based compensation programs and return any underleveraged capital to investors. During 2004, we
determined that Progressive had excess capital and decided that a "Dutch auction" tender offer would be an efficient way to return capital to interested investors. As a result of the tender offer, Progressive repurchased 16,919,674 Common Shares at a purchase price of $88 per share for a total cost of $1.5 billion. Outside of the tender offer, the Company repurchased 1,695,222 Common Shares during the year at a total cost of $139.5 million with an average cost of $82.31 per share. Since 1971, we spent $2.9 billion repurchasing our shares, at an average cost of $12.49 per share.
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