Our dividend is paid annually in a lump sum, in an amount that is calculated on the basis of our insurance operating performance for the year. Our annual variable dividend policy is intended, along with other tools that we use, to regulate our accumulation of capital beyond what we need to support our business objective of profitable growth and to return capital to shareholders when it is most appropriate to do so. In addition, because we use a factor to determine the annual variable dividend amount that we also use to determine cash bonuses for our employees, the policy further aligns the interests of our employees with those of our shareholders.
Subject to the limitations discussed below, the annual variable dividend will be based on the following formula:
After-Tax Underwriting Income
The amount of after-tax underwriting income will be derived from our consolidated insurance underwriting results, using the following calculation:
The target percentage will be determined by the Board of Directors on an annual basis and announced to shareholders and the public. For 2013 and 2014, the Board determined the target percentage to be 33-1/3 percent.
The Gainshare factor can range from zero to two and will be determined by comparing our operating performance for the year to certain predetermined profitability and growth objectives. The Gainshare factor is the same factor used to determine payments under the variable cash bonus program currently in place for our employees, referred to as our Gainsharing Program.
The Gainshare factor and the components of underwriting income are disclosed throughout the year in Progressive's monthly earnings releases; the final amounts will be included in the full-year results published each January.
Subject to discretion of the Board of Directors, the annual variable dividend is expected to be declared in December of each year, with the record date in January of the succeeding year and payment shortly after the record date.
Because the dividend calculation is performance-based, the amount (if any) to be paid in any particular year may not be subject to accurate prediction and will likely vary, perhaps significantly, from the amounts paid in the preceding year(s). In certain years, the variable dividend calculation could equal zero, in which case no dividend would be paid. This could occur if either:
In addition, if our after-tax comprehensive income (as reported in our Consolidated Statement of Comprehensive Income) is less than after-tax underwriting income, no dividend will be paid.
Finally, although it is our intent to calculate an annual variable dividend based on the formula outlined, the Board could decide to alter our policy or not to pay the annual variable dividend for the current year or future years, at any time prior to the declaration of the dividend for the year. Such an action by the Board could result from, among other reasons, changes in the insurance marketplace, changes in our performance or capital needs, changes in federal income tax laws, disruptions of national or international capital markets, or other events affecting our business, liquidity, or financial position.